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Wednesday, August 29, 2012

A manifesto for economic nonsense

Read this economic manifesto, realize that it is not only written by professional economists, but signed by dozens of academics from Oxford, Stanford, Princeton, Cambridge, Harvard, and the London School of Economics, and despair for the global economy:
A Manifesto for Economic Sense

More than four years after the financial crisis began, the world's major advanced economies remain deeply depressed, in a scene all too reminiscent of the 1930s. And the reason is simple: we are relying on the same ideas that governed policy in the 1930s. These ideas, long since disproved, involve profound errors both about the causes of the crisis, its nature, and the appropriate response.

These errors have taken deep root in public consciousness and provide the public support for the excessive austerity of current fiscal policies in many countries. So the time is ripe for a Manifesto in which mainstream economists offer the public a more evidence-based analysis of our problems.

The causes. Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions - other than Greece - this is false. Instead, the conditions for crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks. The collapse of this bubble led to massive falls in output and thus in tax revenue. So the large government deficits we see today are a consequence of the crisis, not its cause.

The nature of the crisis. When real estate bubbles on both sides of the Atlantic burst, many parts of the private sector slashed spending in an attempt to pay down past debts. This was a rational response on the part of individuals, but - just like the similar response of debtors in the 1930s - it has proved collectively self-defeating, because one person's spending is another person's income. The result of the spending collapse has been an economic depression that has worsened the public debt.

The appropriate response. At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilizing force, attempting to sustain spending. At the very least we should not be making things worse by big cuts in government spending or big increases in tax rates on ordinary people. Unfortunately, that's exactly what many governments are now doing.
The big mistake. After responding well in the first, acute phase of the economic crisis, conventional policy wisdom took a wrong turn - focusing on government deficits, which are mainly the result of a crisis-induced plunge in revenue, and arguing that the public sector should attempt to reduce its debts in tandem with the private sector. As a result, instead of playing a stabilizing role, fiscal policy has ended up reinforcing and exacerbating the dampening effects of private-sector spending cuts.

In the face of a less severe shock, monetary policy could take up the slack. But with interest rates close to zero, monetary policy - while it should do all it can - cannot do the whole job. There must of course be a medium-term plan for reducing the government deficit. But if this is too front-loaded it can easily be self-defeating by aborting the recovery. A key priority now is to reduce unemployment, before it becomes endemic, making recovery and future deficit reduction even more difficult.

How do those who support present policies answer the argument we have just made? They use two quite different arguments in support of their case.

The confidence argument. Their first argument is that government deficits will raise interest rates and thus prevent recovery. By contrast, they argue, austerity will increase confidence and thus encourage recovery.

But there is no evidence at all in favour of this argument. First, despite exceptionally high deficits, interest rates today are unprecedentedly low in all major countries where there is a normally functioning central bank. This is true even in Japan where the government debt now exceeds 200% of annual GDP; and past downgrades by the rating agencies here have had no effect on Japanese interest rates. Interest rates are only high in some Euro countries, because the ECB is not allowed to act as lender of last resort to the government. Elsewhere the central bank can always, if needed, fund the deficit, leaving the bond market unaffected.

Moreover past experience includes no relevant case where budget cuts have actually generated increased economic activity. The IMF has studied 173 cases of budget cuts in individual countries and found that the consistent result is economic contraction. In the handful of cases in which fiscal consolidation was followed by growth, the main channels were a currency depreciation against a strong world market, not a current possibility. The lesson of the IMF's study is clear - budget cuts retard recovery. And that is what is happening now - the countries with the biggest budget cuts have experienced the biggest falls in output.

For the truth is, as we can now see, that budget cuts do not inspire business confidence. Companies will only invest when they can foresee enough customers with enough income to spend. Austerity discourages investment.

So there is massive evidence against the confidence argument; all the alleged evidence in favor of the doctrine has evaporated on closer examination.

The structural argument. A second argument against expanding demand is that output is in fact constrained on the supply side - by structural imbalances. If this theory were right, however, at least some parts of our economies ought to be at full stretch, and so should some occupations. But in most countries that is just not the case. Every major sector of our economies is struggling, and every occupation has higher unemployment than usual. So the problem must be a general lack of spending and demand.

In the 1930s the same structural argument was used against proactive spending policies in the U.S. But as spending rose between 1940 and 1942, output rose by 20%. So the problem in the 1930s, as now, was a shortage of demand not of supply.

As a result of their mistaken ideas, many Western policy-makers are inflicting massive suffering on their peoples. But the ideas they espouse about how to handle recessions were rejected by nearly all economists after the disasters of the 1930s, and for the following forty years or so the West enjoyed an unparalleled period of economic stability and low unemployment. It is tragic that in recent years the old ideas have again taken root. But we can no longer accept a situation where mistaken fears of higher interest rates weigh more highly with policy-makers than the horrors of mass unemployment.

Better policies will differ between countries and need detailed debate. But they must be based on a correct analysis of the problem. We therefore urge all economists and others who agree with the broad thrust of this Manifesto to register their agreement at www.manifestoforeconomicsense.org, and to publically argue the case for a sounder approach. The whole world suffers when men and women are silent about what they know is wrong.
Now, let's count the errors....

1. "we are relying on the same ideas that governed policy in the 1930s" Totally untrue... although like the interventionists of yore, these economists are attempting to blame nonexistent "liquidationists" for the problems their own policies have created. Do they seriously want to pretend that Milton Friedman and monetarism - the very Neo-Classical school whose conceptual models the Fed Chairman openly utilizes - simply never existed?

2. "the large government deficits we see today are a consequence of the crisis, not its cause." This is partially true, but misleading. The large government deficits were a contributor to the crisis, not its cause. Both public and private borrowing are to blame, but it is true that as of 2008, in the USA, government accounted for only 14.8% of total debt outstanding. Furthermore, note that they disingenuously fail to note that federal borrowing has DOUBLED since 2008 as private debt has deleveraged.

And then there is the obvious logical blunder. If the large government deficits we see today are a consequence of the crisis, how can they possibly claim that those same governments have been cutting spending in an austerity push? From whence did those deficits come?

3. "it has proved collectively self-defeating, because one person's spending is another person's income" This is where we see the problem of the Neo-Classical model's failure to account for debt. It isn't the reduction in spending that is the problem, the problem is that the spending, and the income, was based on the false foundation of credit money manufactured out of thin air.

4. "At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilizing force, attempting to sustain spending." No, attempting to paper over private "demand gaps" with public spending only exacerbates the situation. This is completely wrong and it is precisely what Bush and Obama were doing with their stimulus plans, which is why they failed.

5. "At the very least we should not be making things worse by big cuts in government spending or big increases in tax rates on ordinary people. Unfortunately, that's exactly what many governments are now doing." Observably incorrect. Most governments have dramatically INCREASED both their borrowing and spending. Austerity is a myth. The US government is not only running record deficits, it has DOUBLED its outstanding debt in only four years.

6. "After responding well in the first, acute phase of the economic crisis, conventional policy wisdom took a wrong turn - focusing on government deficits, which are mainly the result of a crisis-induced plunge in revenue, and arguing that the public sector should attempt to reduce its debts in tandem with the private sector." Again, factually false. In Q1-2008, the U.S. federal government owed $5.3 trillion in debt. In Q1-2012, it owes $10.9 trillion. The US government has already been doing exactly what the manifesto demands and it clearly is not working.

7. "Every major sector of our economies is struggling, and every occupation has higher unemployment than usual. So the problem must be a general lack of spending and demand." No, the fact that you only have a hammer does not mean that every problem you encounter must be a nail. The problem is not a general lack of spending and demand, it is a problem of excessive debt, both public and private. The Neo-Classical models have no means of either explaining the crisis or fixing it, which is why economists who utilize them keep turning to the same Keynesian and Friedmanite solutions, both of which have already failed repeatedly.

8. "In the 1930s the same structural argument was used against proactive spending policies in the U.S. But as spending rose between 1940 and 1942, output rose by 20%. So the problem in the 1930s, as now, was a shortage of demand not of supply." Now, what happened in between 1940 and 1942? Anyone recall a certain historical event? WWII generated a massive demand for ships, planes, and tanks, which the government went into massive debt to purchase. It was paid for by the profits realized from the destruction of the industrial infrastructure of Europe and Asia.

The fools don't realize it, but they are making an economic appeal for global war against China, Japan, and the EU.

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77 Comments:

Anonymous Rantor August 29, 2012 9:32 AM  

As deluded as the Mormon Romneyites...

Anonymous Josh August 29, 2012 9:37 AM  

7. "Every major sector of our economies is struggling, and every occupation has higher unemployment than usual. So the problem must be a general lack of spending and demand."

Now why would that be the case, that businesses across the entire economy all happened to make demand calculation errors all at the same time? It couldn't be that pesky Austrian business cycle theory that those goldbug cranks keep talking about, could it?

And of course, increasing the amount of money to be spent on repaying debt couldn't possibly have an impact on the amount available to be spent on goods and services, could it?

Anonymous Poopraker August 29, 2012 9:38 AM  

They are not "fools". They are not "blundering". Their policies aren't "failing".

They know exactly what they are doing. They are extremely smart. They know exactly the consequence of their policies. They are creating utopia.

You seem to be under the mistaken impression that THEIR utopia is YOUR utopia.

Anonymous Poopraker August 29, 2012 9:41 AM  

And if the US 2012 election is any indicator, they have already guaranteed themselves victory.

Anonymous Mike43 August 29, 2012 9:47 AM  

"The US government has already been doing exactly what the manifesto demands and it clearly is not working."

Exactly my point with the current group of knuckleheads, including my son. But like Krugman, they insist that the stimulus package wasn't big enough.

I keep pointing out that in any math formula, one can begin tracking changes as soon as the effect hits. So where are there any changes that would suggest that this stimulus was, in fact, a stimulus?

All I hear is the proverbial crickets chirping.

Blogger Vox August 29, 2012 9:50 AM  

They are not "fools". They are not "blundering". Their policies aren't "failing".

Really? You think these economists are knowingly making use of false economic models? I think you are confusing the financial elite for the professoriat. Some of the former may know what they're doing, the latter almost certainly don't.

Anonymous The other skeptic August 29, 2012 9:54 AM  

The fools don't realize it, but they are making an economic appeal for global war against China, Japan, and the EU.

Perhaps they are simply getting the justifications in place ahead of time.

Blogger Bob Wallace August 29, 2012 9:55 AM  

Considering that a buffoon and a poltroon like Paul Krugman thinks he's Hari Seldon, who predicted the fate of the Galactic Empire 10,000 years into the future using a hand-held pocket calculator, it doesn't surprise me that lesser-known economists don't understand basic economics, either.

Anonymous Stilicho August 29, 2012 9:58 AM  

Both public and private borrowing are to blame

Exactly. Why on earth cannot anyone but you and Mish seem to recognize this fact? Everyone else, from Krugman to Keen, wants to exclusively focus on one side or the other. One suspects that politics and not economics is the motivating force.

Blogger Positive Dennis August 29, 2012 9:58 AM  

Do they know what they are doing? Never underestimate the power of stupidity.

It seems to me that Romney's approach is not that different from the approach Vox is critiquing. In my blog I called it the methadone approach.

http://www.prophecypodcast.com/journal/2012/8/22/american-junkies.html

Anonymous Remir August 29, 2012 9:59 AM  

They are not "fools". They are not "blundering". Their policies aren't "failing".

They know exactly what they are doing. They are extremely smart. They know exactly the consequence of their policies. They are creating utopia.


Oh come the f*** on. Most of these clowns don't even know the Austrian school exists, much less have a working knowledge of it.

Anonymous VD August 29, 2012 10:00 AM  

Why on earth cannot anyone but you and Mish seem to recognize this fact?

Because we're the only ones who are simply looking at the problem and attempting to analyze it without trying to shoe-horn it into our preconceived solution.

Anonymous DonReynolds August 29, 2012 10:03 AM  

1. "we are relying on the same ideas that governed policy in the 1930s" Totally untrue...

Vox is correct. Economic policy in the 1930s bears no resemblence to the ideas today.

2. "the large government deficits we see today are a consequence of the crisis, not its cause." This is misleading.

Vox is much too kind. Government spending is the cause of deficits, not the fall in tax revenues. If anything is obvious, it is the ability of government to fund every crackpot project, regardless of feasibility, when no pressing public purpose exists. There is a need for government (sorry, Libertarians) but it spends money on everything and often (due to political considerations) on the wrong thing.

3. "it has proved collectively self-defeating, because one person's spending is another person's income"

Vox is generous. Even the most elaborate circular flow of money ignores the role of debt and credit.

4. "At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilizing force, attempting to sustain spending." This is completely wrong.

Vox is correct yet again. When you find yourself in a hole you cannot climb out of....stop digging. Government intervention to artificially (temporarily?) sustain price levels, output, income, and interest rates ultimately fail and in the meantime become like a narcotic, with both households and businesses begging for yet another fix.

5. "At the very least we should not be making things worse by big cuts in government spending or big increases in tax rates on ordinary people. Unfortunately, that's exactly what many governments are now doing." Factually incorrect. Austerity is a myth.

Vox is correct. There is no austerity. Even the draconian Ryan budget proposal does not balance the Federal budget for another 28 years!

6. "After responding well in the first, acute phase of the economic crisis, conventional policy wisdom took a wrong turn - focusing on government deficits, which are mainly the result of a crisis-induced plunge in revenue, and arguing that the public sector should attempt to reduce its debts in tandem with the private sector." Again, factually false.

Vox is correct again. The plunge in revenue is a tiny fraction of the increase in spending, leaving the nation with greater debt and no recovery...much less expansion. Now we have the unavoidable problem of having even more revenues devoted to service on the debt....which is a constantly increasing plunge in discretionary revenue...so the same argument would be applied until the entire system fails. Yes, it can happen and it will if something very serious is not done about government spending.

7. "Every major sector of our economies is struggling, and every occupation has higher unemployment than usual. So the problem must be a general lack of spending and demand." The problem is not a general lack of spending and demand, it is a problem of excessive debt, both public and private.

Vox is correct. In Classical terms, the foolishness of government intervention to prevent equilibrium and adjustments in the price system is creating the problem. Higher unemployment can be cured through adjustments in the wage level but with unrestricted illegal immigration, that means a fall in living standards in the USA.....which can be partially offset by a wildly expanding welfare state, which we now have. As Milton Friedman said, we cannot have open borders and a welfare state....for reasons that must be obvious by now.

Robert Reich must have written this nonsense with the help of Paul Krugman, or some of their former students. The infection is simply too deep and widespread.

Don Reynolds
Economist

Anonymous Mr. Nightstick August 29, 2012 10:03 AM  

How does one profit from massive deleveraging?

Anonymous Mr. Nightstick August 29, 2012 10:06 AM  

How does one profit from massive deleveraging?

Anonymous Mr. Nightstick August 29, 2012 10:08 AM  

How does one profit from massive deleveraging?

Anonymous Mr. Nightstick August 29, 2012 10:08 AM  

How does one profit from massive deleveraging?

Anonymous Mr. Nightstick August 29, 2012 10:09 AM  

Why do I keep getting deleted?

Anonymous Mr. Nightstick August 29, 2012 10:09 AM  

How does one profit from massive deleveraging?

Anonymous Mr. Nightstick August 29, 2012 10:11 AM  

How does one profit from massive deleveraging?

Blogger Joe A. August 29, 2012 10:12 AM  

The cowards won't discuss these issues or debate them openly with anyone with fundamentally different views. Pathetic.

Anonymous Mr. Nightstick August 29, 2012 10:16 AM  

Any reason I keep getting deleted?

Anonymous Crispy August 29, 2012 10:17 AM  

How nice of the web site to list the signers. What a rogues' gallery!

Anonymous Mr. Nightstick August 29, 2012 10:17 AM  

Are you f-ing with me?

Anonymous Mr. Nightstick August 29, 2012 10:18 AM  

Did I get banned?

Blogger Dan Hewitt August 29, 2012 10:20 AM  

Instead, the conditions for crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks.

And negative real interest rates had nothing to do with this? The amount of borrowing/lending is just some exogeneous variable? At least one of the names on the manifesto was, at the time, recommending even lower policy rates than what Greenspan was targeting.

Anonymous Mr. Nightstick August 29, 2012 10:22 AM  

I think your blog is autodeleting.

Blogger Mr. Nightstick August 29, 2012 10:23 AM  

I think you blog is auto deleting Name/URL comments.

Blogger Mr. Nightstick August 29, 2012 10:24 AM  

How does one profit from massive deleveraging?

Anonymous Beau August 29, 2012 10:27 AM  

OT

"Thank you for all the hot dogs we ever received," prayed a friend in fervent prayer. Immediately popped into my head, "That's a LOT of hot dogs!" Trying to picture/estimate the number of hot dogs received for distribution on Friday evenings was impossible. It was beyond count. I burst into laughter. My friend continued as yet unaware, "And thank you for all the hot dogs we'll ever receive!" That was it, the prayer meeting dissolved into laughter.

Anonymous VryeDenker August 29, 2012 10:30 AM  

If war happens, how do the instigators plan on surviving? Secret underground lairs? Hollowed-out volcanoes?

Anonymous 691 August 29, 2012 10:32 AM  

Furthermore, note that they disingenuously fail to note that federal borrowing has DOUBLED since 2008 as private debt has deleveraged.

And then there is the obvious logical blunder. If the large government deficits we see today are a consequence of the crisis, how can they possibly claim that those same governments have been cutting spending in an austerity push? From whence did those deficits come?

Most governments have dramatically INCREASED both their borrowing and spending. Austerity is a myth. The US government is not only running record deficits, it has DOUBLED its outstanding debt in only four years.

In Q1-2008, the U.S. federal government owed $5.3 trillion in debt. In Q1-2012, it owes $10.9 trillion.


What you cite as a logical blunder is not a logical error at all. Maybe an empirical error. It's entirely logically possible for a $1 decrease in spending to lead to a $3 decrease in revenue, resulting in a $2 increase in the deficit.

The deficit, the change in debt levels, is the difference between two numbers: spending and revenue. Does the extra debt come from (relatively) higher spending or (relatively) reduced revenues? You claim that spending and borrowing have increased, which would imply that each $1 in extra spending is leading to less than $1 of extra revenue.

But citing debt levels alone is not sufficient to prove your case.

Anonymous Stilicho August 29, 2012 10:34 AM  

I looked at the list of signatories. Brad Delong's name did not surprise me. This entry did surprise me a bit given his criticisms of neoclassical and monetarist economic thought: Steve Keen - University of Western Sydney

Anonymous DonReynolds August 29, 2012 10:34 AM  

Lower interest rates may encourage people to borrow but they do not cause anyone to save or to lend money. In the post-war period, lower interest rates were the deliberate policy of the Fed by law in order to manage the public debt from WWII. Why didn't everybody go out and borrow money? Simple. Part of the Fed management of the debt included consumer credit controls. Consumer borrowing was restricted in order to ration credit, necessary for keeping down interest rates. What was the solution? BankAmericard (now Visa) and Mastercard, which were not restricted on the interest rate they could charge. But they were not easy to obtain and the credit limits on each card were very low, compared to today.

Anonymous CS August 29, 2012 10:36 AM  

The fools don't realize it, but they are making an economic appeal for global war against China, Japan, and the EU.

Funny thing is, if we did wage that war, and the war was fought overseas like it was in the last go-round, would the US have the manufacturing capacity to supply the goods needed to re-build?

Blogger Mr. Nightstick August 29, 2012 10:37 AM  

How does one profit from massive deleveraging?

Anonymous DonReynolds August 29, 2012 10:45 AM  

It was the usual, boring coffee and danish for bankers and the guest speaker was a cute young thang lecturing them on how to reduce their loan losses through selective loaning and customer qualification. Not really entertaining until one of the bankers stood up and said...."But if you only loan to good customers, you will not make any money". It was priceless. Everyone in the room laughed cause they knew they made the most money from iffy loans to maybe customers. Risk is the name of the game in banking. Some are lucky and some are not.

Anonymous dh August 29, 2012 10:50 AM  

> This is completely wrong and it is precisely what Bush and Obama were doing with their stimulus
> plans, which is why they failed.

Claiming they have failed is non-sense. They failed at the *stated goals* - what the politico's claim was the goal was economic recovery. What the real best case scenario was to prop up demand and avoid major economic contraction.

Both of Bushes plans as well as Obama's have had the effect of staving off a collapse in demand by replacing private sector spending with public sector spending.

That was the goal mission accomplished.

Anonymous Salt August 29, 2012 10:53 AM  

If war happens, how do the instigators plan on surviving? Secret underground lairs? Hollowed-out volcanoes?

It could be totally planned and managed. Three things would be achieved, and two of them fit in with UN Agenda 21.

1. Population reduction.
2. Political realignment.

The third would be sufficient destruction as to create need as seen in post WWII, but spread across the board and not as one sided as Europe experienced. All combatants would retain enough industry to prime the economic pump of supply for the rebuild. Add in the decimation of the third world and other undesirables and the materials needed become abundant.

Anonymous Roundtine August 29, 2012 11:03 AM  

I looked at the ratio of credit to fiat, total credit to M2. The ratio was 3 in the early 1980s, about 5.5 now, down from almost 7 at the peak. In order to bring the ratio down, the Fed needs to monetize $8 trillion or $25 trillion needs to be deleveraged.

Anonymous blurgle August 29, 2012 11:04 AM  

test

Anonymous scoobius dubious August 29, 2012 11:05 AM  

Here's a view from a stubborn non-economist. I prefer to analyze these matters as the social and historical equivalent of a kind of chess position: we examine which moves and counter-moves led us to this place, and then think about what are the viable lines of play that are available, which at the least probably won't lead us to a rout. Also, I'm not interested in the "global economy" or the "world economy" or "economics" as a vast systemic abstraction: I'm interested in the economic, political, social and demographic well-being of the United States, and of Americans (by which I mean actual historical Americans, not simply the census total of everybody who happens to be standing on ground in American territory at this moment).

That being said, feel free to shred the following. If it turns out that it's shreddable, then maybe I'll learn a thing or two.

Economics doesn't exist on its own, it's simply the record, or the physical portrait, of the aggregate human decisions made by humans who are or were in a position to decide things. What I mean by that is this: yes, the debt is an enormous driver of our current woes, and would be for structural reasons even if it weren't this elephantine; the fact that it's as mountainous as it is, lends its malign influence even more weight.

However, debt is at bottom a form of expression of human choices. As David Byrne once so plaintively put it: "And you may ask yourself, Well... HOW DID I GET HERE?!?"

The key to solving the question "What do we do about the debt?" is to ask, "Why and how are we in so much f#cking debt to begin with?"

There are four basic reasons that come to my mind (there may be more, but these at least appear to me to painfully obvious):

[to be continued, post split due to length]

Anonymous scoobius dubious August 29, 2012 11:06 AM  

1. The United States has an unrealistic view of its long-term place and function in the world at large. It is probably good that the USN is the guarantor of the world's sea lanes, but aside from that, the US is massively overextended militarily, diplomatically, politicall, you name it. I will let trained economists talk over my head about the role of the dollar as the reserve currency, but it seems to me from where I sit that we have overplayed that advantage, exploiting it lazily and cynically without capitalizing on it intelligently, and let it lull us to sleep in a world where others are keenly studying our weaknesses, and doing that because that is what predators always do.

2. The United States has a mistaken view of its place in worldwide economic history, and its misunderstanding of this has led its people to have unreal expectations, and to behave in ways that are not congruent with reality. Our people have become accustomed to a certain standard of living which for a long time was made possible by conditions which do not obtain at present. Rather than facing this squarely, we have made up the difference through debt. We would not be in this much debt if we clearly understood what actually drives our economy right now, how it is different than what drove our economy back when we could really afford to live in a rather grand manner, and what we should do about that. You cannot base an economy of our sophistication and high expectations on infrastructure investments, housing/real estate value, and construction. It only makes sense to build roads and bridges if I get up in the morning and use the roads and bridges to get to my job at the factory on the other end. If there is no factory on the other end, the purpose of the roads and bridges is lost. Housing is not a productive asset; in order to mask the contradictions in our economy which began way back in the 80s and 90s, we fooled ourselves into thinking we could prosper by selling our homes at a later date and an inflated value to "a greater fool," to use Sailer's term. Insane immigration policies were used to provide extra "greater fools," but immigration has external costs, and now we are stuck with those bills, too. In short, we've been trying to find any other way possible to live high, without actually producing things; we've been leveraging the social capital of our forebears, basically selling off our superior physical and political infrastructure to foreign interlopers at pennies on the dollar; and those sharp-elbowed folks know value when they see it.
3. The United States has a mistaken, unreal, ideology-driven view of the demographic makeup issues, and racial/demographic issues, within its society. As Sailer used to put on his old blog's masthead: "Live not by lies." -- Solzhenhitsyn. Racially and demographically speaking, the United States lives by lies. We are vastly unrealistic about the costs imposed on us by various racial and ethnic groups who live and operate outside the white, English-speaking, Christian, liberty-based American mainstream, and what those costs do to us as a nation (or as an alleged "nation") long-term.

4. And this might be the most important: you cannot have mutually beneficial free trade between two societies which value things differently. A free-trade society cannot trade freely with a mercantilist society and expect to come out ahead. A society that values human rights, human dignity, ecological quality, and workers' well-being cannot compete, at least keeping score using money and trade balances, with a society that doesn't value these things, but which values Victory Over the Foreigners instead.

More on all this later, but first I'll be interested to see how many good holes can get shot through what I've already said; I'm certainly not expecting there to be none.

Blogger Mr. Nightstick August 29, 2012 11:14 AM  

How does one profit from massive deleveraging?

Anonymous Mr. Nightstick August 29, 2012 11:22 AM  

How does one profit from the coming deleveraging?

Anonymous VD August 29, 2012 11:26 AM  

Claiming they have failed is non-sense. They failed at the *stated goals* - what the politico's claim was the goal was economic recovery. What the real best case scenario was to prop up demand and avoid major economic contraction. Both of Bushes plans as well as Obama's have had the effect of staving off a collapse in demand by replacing private sector spending with public sector spending.

That's provably stupid. If you fail at your stated goals, then you have failed. Double-secret probation doesn't count. Moreover, I have written a book on their actual purpose - using public debt to paper over the demand gap until private debt starts growing again - and pointed out that it won't work either.

Anonymous RedJack August 29, 2012 11:26 AM  

I think they do know that it will take a war. Except they focus on the the outlier (the USA economy). The US got into the war late, and had the only safe base of manufactering in the West that wasn't bombed out. The roaring 50's was the result of everyone else's economy being blasted.

England lost her Empire, as did France, because they ran out of money fighting the war. And France didn't "fight" that long.

A new world war would only benefit China and South America.

Blogger Mr. Nightstick August 29, 2012 11:42 AM  

test

Anonymous alexamenos August 29, 2012 11:48 AM  

....public policy should act as a stabilizing force, attempting to sustain spending. At the very least we should not be making things worse by big cuts in government spending or big increases in tax rates on ordinary people. Unfortunately, that's exactly what many governments are now doing.

Well...it's not so much that governments are actually cutting spending and closing deficits, but rather that some people are talking about doing these things.

The incessant talk of austerity is obviously upsetting the animal spirits and this is the reason we can't pull out of our present economic doldrums.

Alexamenos
Keynesian Extraordinaire

Anonymous III August 29, 2012 11:49 AM  

The fools don't realize it, but they are making an economic appeal for global war against China, Japan, and the EU.

The slow slog to utopia will eventually have to be accelerated. It needs a catalyst, just like dial emergency 9-1-1 was a catalyst to where we are now. There will come a time that the peoples will beg for peace... at any cost. Embrace the horror.

Anonymous Noah B. August 29, 2012 11:49 AM  

"The structural argument. A second argument against expanding demand is that output is in fact constrained on the supply side - by structural imbalances. If this theory were right, however, at least some parts of our economies ought to be at full stretch, and so should some occupations. But in most countries that is just not the case. Every major sector of our economies is struggling, and every occupation has higher unemployment than usual."

A blatant lie. Oil producers are doing quite well, and the rate of petroleum production puts very real constraints on the economy. To the extent that well owners are not extracting at full capacity, it's largely because they believe future production will be even more valuable than current production.

Gun and ammunition manufacturers and dealers seem to be doing great, too.

Anonymous JartStar August 29, 2012 11:50 AM  

How does one profit from the coming deleveraging?

You probably don’t. Even if you got lucky timing investments if things get bad enough you lose by seeing friends and family not being so lucky showing up looking for handouts. If things are really bad you have the fun of fighting off home intruders and if you survive the kids get to help clean the brains off the wall of the thief you just killed. Then there’s digging the grave out back as there are no public services to take away the body.

I actually hope the crackpot economic ideas presented in this work because the alternative is a massive crash, civil unrest, and likely a major war. The odds of you being a “winner” in all of that are remote.

Anonymous Mr. Nightstick August 29, 2012 11:59 AM  

Let's say that I was counting on being there for my friends and family. How can I be a Joseph and prepare for.the coming famine?

Anonymous Stilicho August 29, 2012 12:01 PM  

Vox, having written a recent column praising Keen, do you have any thoughts as to his signing on to this nonsense?

Anonymous Noah B. August 29, 2012 12:05 PM  

"It's entirely logically possible for a $1 decrease in spending to lead to a $3 decrease in revenue, resulting in a $2 increase in the deficit."

While such a scenario may be logically possible, there's little evidence to indicate that this is a likely scenario at levels of government spending close to what we now have. To believe that a $1 government spending decrease will lead to a $3 revenue decrease, one must conversely believe that a $1 spending increase will lead to a $3 revenue increase. This effect would have to result from the government doing something better than the private sector does. Put another way, the government would be achieving an annual 300% ROI on these expenditures. Right now, the private sector is thrilled with 10%.

Conversely, the weight of the evidence shows that wasteful government spending crowds out private spending. As just one example, an entrepreneur who wants to build a new building sees his costs driven up by the government's wasteful construction of massive new government buildings. That entrepreneur has to compete with the government to get every scrap of building material he needs.

Anonymous Roundtine August 29, 2012 12:10 PM  

Not if the war is in the South China Sea.

Anonymous Noah B. August 29, 2012 12:13 PM  

"How can I be a Joseph and prepare for.the coming famine?"

My suggestion: learn to grow your own food using primitive techniques. If you live somewhere where that isn't possible, move.

Anonymous Roundtine August 29, 2012 12:23 PM  

Keen wants a debt jubilee and I think he wants to have it occur via government debt (the central government would cut checks to everyone, the central bank would monetize it). He's also a leftist who believes in a larger role for government. But the main thing about it is that he is anti-austerity and private debt is the larger issue.

Blogger Vox August 29, 2012 12:32 PM  

Vox, having written a recent column praising Keen, do you have any thoughts as to his signing on to this nonsense?

His political ideology trumped his economic sensibilities. He's a Keynesian variant after all. I'm interested in his critiques, which are compelling, not his solutions.

Blogger James Dixon August 29, 2012 12:39 PM  

> How can I be a Joseph and prepare for.the coming famine?

Short term? Stockpile enough food to last through a complete growing season.

Long term:

Make sure you can grow you own food and have sustainable seed available to do so.

Have enough guns and ammo available to defend what you hold.

Have something to trade with to buy the things you can't provide yourself.

Blogger Dan Hewitt August 29, 2012 12:42 PM  

I was surprised that I missed Steve Keen's name. So I went back and checked, and he did not sign the manifesto.

Anonymous Rally August 29, 2012 12:46 PM  

Getting a world war started... If these idiots realized that was what ended the great depression and tried to replicate it, they would take on Asia and Europe on 2 fronts and get slaughtered.

To do it right you'd need to get China, Russia, Europe, and Japan all fighting amongst each other, wait a few years, then pick a side and finish off the losers.

Anonymous Redlegben August 29, 2012 1:05 PM  

Noah, #7 confuses me as well. I see very strong parts of the economy. Am I not categorizing correctly as to what qualifies as a sector to the educated economists?

Anonymous scoobius dubious August 29, 2012 1:11 PM  

A while ago, I was walking down the street in a well-heeled chic part of town in a large northeastern city. I saw a little white girl in her stroller, about 2-1/2 years old, being pushed along by her black Jamaican nanny.

The little girl was in utter hysterics, screaming and crying. This is what she was crying:
"I want my Mommy! _YOU'RE_ NOT MY MOMMY! I want my _MOMMY_!!"

As far as I can tell, that little girl understood more about human dynamics than all the economists who signed this manifesto. There are certain laws of human existence which simply will not be mocked. Or rather, you can mock them at your pleasure, just be prepared for the consequences.

As Bert Brecht put it, in his preface to "Baal":

"The moral of the story is that you CAN have your cake, and eat it, too -- if you are willing to pay for that privilege. And even if you aren't willing... so long as you pay, just the same."



Anonymous Stilicho August 29, 2012 1:12 PM  

I was surprised that I missed Steve Keen's name. So I went back and checked, and he did not sign the manifesto.

Here it is: Steve Keen - University of Western Sydney

it's alphabetical by first name...just scroll down to "S" It appears you didn't miss his name so much as you did not click on "view all" when looking at the signatories. There are over 9,000 of them.

Anonymous Poopraker August 29, 2012 1:21 PM  

Really? You think these economists are knowingly making use of false economic models?

Poor naive Vox.

They are not "knowingly making use of false economic models".

They are misrepresenting TRUE economic models in order to sell their Utopia to an unsuspecting public. Nothing more than ruthless corrupt salesman. That's all.

And they obviously have you fooled into thinking they are a bunch of bumbling idiots. The more of you who believe such tripe the easier it is for them to keep milking you for every dime.

Anonymous Noah B. August 29, 2012 2:25 PM  

"Am I not categorizing correctly as to what qualifies as a sector to the educated economists?"

No, they're using deceit to pursue a socialist agenda, which they wrongly believe will benefit them personally. That's all.

Anonymous CaptDMO August 29, 2012 2:51 PM  

problem 1.Economists are being asked to justify political science, serving neither master well.
2. Did I miss the part about removing gub'mint penalties on actual productivity, and otherwise rampant subsequent spending/investment, or is it all still "Pay more (interest/welfare) for the crap you WANT than it's actually worth-while gub'mint sequesters the coins for "later redistribution"

Giving folks other peoples "free" money to NOT riot, after "holding it awhile" is hardly "economics", NOR productive political "science".

I could be wrong...

Anonymous Poopraker August 29, 2012 3:11 PM  

Noah B. gets it.

When some guy comes on and says "HEAD-ON: APPLY DIRECTLY TO THE FOREHEAD""HEAD-ON: APPLY DIRECTLY TO THE FOREHEAD""HEAD-ON: APPLY DIRECTLY TO THE FOREHEAD", there are three possible reactions:

1) Wow, that sounds great - where do I send my money? [most people]
2) Wow, what a bunch of corrupt lying bastards. [smart people]
3) Wow, that scientist spokesman is so foolish and misinformed. Doesn't he understand that headaches can have various causes and that topical solutions are often ineffective at reducing muscle tension which is the primary cause of (etc., etc., etc.,..........)[Vox Day]

Anonymous 11B August 29, 2012 3:27 PM  

I really like how you keep hammering home the point that WW2 helped our economy by smashing the industrial infrastructure of Europe and Asia. All my life people have overlooked this and have gone on and on with the meme that "war is good for the economy" or "spending on the war got us out of the depression" as if all we had to do was start another war in some third world hellhole, and poof, we'd be rich.

I list this debunking right up there with these two that have been cleared up in the last decade or so. First, the notion that most wars and human misery are caused by religion. Second, that blacks serve disproportionately in the combat arms.

Anonymous Stilicho August 29, 2012 4:59 PM  

Second, that blacks serve disproportionately in the combat arms.

Ha! Good one!

Anonymous George August 29, 2012 8:49 PM  

VD Wrote: "The fools don't realize it, but they are making an economic appeal for global war against China, Japan, and the EU."

I say to go with Japan again. I like Europe and China can't be beat on the ground.

Japan it is?

Anonymous zen0 August 29, 2012 9:00 PM  

Losses are unquantifiable until realized.

Anonymous Bruno August 29, 2012 11:41 PM  

Cretins.

Look:
The causes. Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions - other than Greece - this is false. Instead, the conditions for crisis were created by excessive private sector borrowing and lending(...)

Some people insist heat causes water to boil. Instead, it is atmospheric pressure.

The fallacy has a name, I just dont recall it. They can take their smelly credentials and shove it. Cretins.

Anonymous Boris August 30, 2012 9:55 AM  

"Again, factually false. In Q1-2008, the U.S. federal government owed $5.3 trillion in debt. In Q1-2012, it owes $10.9 trillion. The US government has already been doing exactly what the manifesto demands and it clearly is not working."

How can you not understand the difference between debt and spending?

Also, you need to consider all government spending--not just federal--since states and municipalities have been cutting back. Total government spending in the US is basically flat since 2008.

Anonymous John Regan August 31, 2012 9:16 AM  

If the problem is debt - and it is - this is a matter not for economists but for the law:

http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-ii/

The constitution is not a talisman, but it does have the status of law and it is capable of amendment through a super-majority, bypassing the feckless political class.

We govern ourselves or we don't. Mostly the latter. We can change that, of course, but we have to get serious about it.

Presidential elections, it should go without saying, have become profoundly unserious, as have mainstream economists - with just a few exceptions like Steve Keen.

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