A Krugman Ressurrection.
June 19, 2009
– Comments (17) |
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I think Krugman's been misintrpreted again. The assertion that he welcomed a housing bubble is way off base. If you read Davids links you will learn that Krugman believed that a housing bubble was the only way to hide the failuire of Bush's tax cut policys.
Welcome back Dave.
From your post.
"During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?".. Krugman
Seems to me you have written a long post based upon the misleading proposal that using low interest rates to smooth a trough is the same as using low interest rates to build a bubble.
It is just as wrong as saying shooting in self defense is the same as sneaking up behind someone and shooting them to rob them.
too slow to cut interest rates in the face of a burst bubble...Krugman Not “to slow to cut rates to build a bubble”.
May 2nd 2001 It's still not clear that Mr. Greenspan has caught up with the curve -- let's have at least one more rate cut, please -- but the interest-rate cuts do, cross your fingers, seem to be having an effect... Krugman
On May 2nd 2001 the Federal funds rate was 4%. A ½ point cut would bring it down to 3.5%.
Aug 14th, 2001 and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1.... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place...Krugman
So, Krugman at this point suggests waiting and letting the rates at the 3.75% level work. But that is not what happened. Rates were lowered even further.
And who (Greenspan) was the guy (Greenspan) that lowered interest rates below 3.5%? And promised the wonders of Mises free market economics, just as you do? Alan “free markets” Greenspan.
So what happened next?
May 2003 http://www.pkarchive.org/economy/042203Follow5.html
Sure enough, here we are, Fed funds at 1.25, with an economy still losing jobs. We hope that things will pick up, that a year from now this will all seem like a bad dream. But at the very least we're having a serious scare. And do I need to point out that the case for fiscal policy to create jobs rests mainly on the fact that the economy is near a liquidity trap? If the interest rate were currently 5 percent, we'd all say that the Fed needs to cut more, for the bubble while the Treasury and the Congress should focus on long-term fiscal responsibility. It's the Fed's possible ineffectuality that makes us reach for another tool... Krugman
So the guy the “small government” boys recommended and put in the Presidency and both houses of Congress went to work, with the wrong tools, of course. Because their goal was fleecing, not job creation.
In 2004 we get the American Dream Down Payment Act, handing out billions in down payment assistance to buy houses to people who cannot save for a rainy day. They really needed better paying jobs, which they had lost to tax cuts invested overseas, self destructive trade policies, and the death of collective bargaining power.
And we get Hank Paulson and the SEC allowing 100/1 leverage to the investment banks, effectively handing over monetary policy from the FED to a few individuals by giving them trillions to lend. Exactly what Mises would do, but without giving them trillions.
And the housing bubble grew despite rising Fed funds rates from 2004-2006
And all along tax cuts that benefited first and mostly the richest Americans then down, nearing retirement age, who put their money safely and responsibly to work in pensions buying AAA rated securities and then lost an awful lot to Hank Paulson.
All this neither proves nor disproves Krugman or Mises, because neither ones ideas were the real reasons for the bubble or followed as policy. Regardless of posters who would sell us otherwise.
The lesson here is if you let thieves run Government, they are going to take your money. And those 2004 thieves got elected selling “small government” and “tax cuts”, just like you and the Libertarians do.
Now you told me Qatar is a nice place to live, and I bet it is if you are not an indentured servant. To get that way Qatar nationalized Shell’s property and is using that money to build a nice place to live with a flood of oil money to make business easy. If you want that opportunity for America and Americans the best thing you can do is call your Representatives and Senators and the President, and tell them you want H.R.676, because the health insurance industry is nothing more than an investment firm, supposedly trying to invest your money in order to raise enough to pay for your healthcare. And they will lose the money while collecting huge salaries for themselves, then blame fatties and Doctors increasing costs. And they will not be in violation of any law because ratings agencies will approve their investments (why there is no penalty to ratings agencies). And then UNH will be too big to fail, but not too big to lose your equity investment (time frame, 7-12 years). The USA taxpayer will step in and guarantee all their healthcare policies. So you can pay the taxes now, or the debt and taxes later. And GS will have seen this coming and timed it right and made a huge fortune shorting UNH on the way down.
You only hope is to be louder than the lobbyists. Or don’t buy healthcare insurance. Of course, as long as the lobbyists have the loudest voice, you won’t get that choice either.
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