6 ms·

this point is valid, conditional on the assumption that current GDP level is fixed. Then, govt spending is just money that is taken away from private sector.

this point is valid, conditional on the assumption that current GDP level is fixed. Then, govt spending is just money that is taken away from private sector. The point though is that, under certain conditions, govt spending can raise the level of GDP. Those conditions, specifically, refers to times when private sector for reasons of essentially, risk aversion, is under investing. I am not saying that Krugman is 100% correct, but he is describing a valid state of the world, and it is you who doesn't get it :) Now, there are other cases when even under normal conditions increase govt spending, for example, to finance basic research, can raise GDP

jhulla 12y ago
I actually agree that government spending can boost GDP. Where Krugman doesn't get it is that we've already distorted markets so much since 2008-2009 that a burst of government generated demand will not move the needle in a sustainable fashion. A $1 trillion government program will just get drained into rising asset prices - leaving incomes and the majority of individuals in largely the same spot as they started financially. Krugman is fighting an old war. Our current economy is not encumbered by too little demand - but by too much supply from past capital misallocation. Our addiction to QE has made problem far worse. Asset markets are exploding in price higher due to central bank intervention while incomes are not.
- linkregister 12y ago
  Our last (and according to Yellen, et. al., our final)[1] QE was in October 2014. Is there a reason why you continue to talk about QE in the United States in the present tense? [1] http://www.cnbc.com/id/102009066 http://www.cnbc.com/id/102009066
  - jhulla 12y ago
    QE is happening globally. As you noted, QE3 ended in the US Oct-14. On the final day of US QE3 ending, the Bank of Japan announced another round of QE in their economy. http://www.reuters.com/article/2014/10/31/us-japan-economy-boj-idUSKBN0IK0B120141031 http://www.reuters.com/article/2014/10/31/us-japan-economy-b... The European Central Bank announced QE in Jan-15. One way to think of QE is global competitive devaluation to capture global demand. QE + ZIRP or even negative interests are the primary tool of central banks now. Capital misallocation continues on a global scale.
    - walterbell 12y ago
      How would negative interest rates compete with cash which has a zero interest rate, or premium real estate which offers a long-term return?
      - jhulla 12y ago
        This is a good summary of why people might buy negative interest rate bonds: http://www.vox.com/2015/2/5/7981461/negative-interest-rates-europe http://www.vox.com/2015/2/5/7981461/negative-interest-rates-... e.g. Cash is not secure in your bank account. A government backed bond, even at negative interest, may be more secure than a cash balance. ZIRP and negative interest rates are pushing people out on the risk curve and raising asset prices. As I said in an earlier comment, IMHO, all investment decisions are bets on central banks.

jhulla 12y ago

I actually agree that government spending can boost GDP. Where Krugman doesn't get it is that we've already distorted markets so much since 2008-2009 that a burst of government generated demand will not move the needle in a sustainable fashion. A $1 trillion government program will just get drained into rising asset prices - leaving incomes and the majority of individuals in largely the same spot as they started financially. Krugman is fighting an old war. Our current economy is not encumbered by too little demand - but by too much supply from past capital misallocation. Our addiction to QE has made problem far worse. Asset markets are exploding in price higher due to central bank intervention while incomes are not.

linkregister 12y ago
Our last (and according to Yellen, et. al., our final)[1] QE was in October 2014. Is there a reason why you continue to talk about QE in the United States in the present tense? [1] http://www.cnbc.com/id/102009066 http://www.cnbc.com/id/102009066
- jhulla 12y ago
  QE is happening globally. As you noted, QE3 ended in the US Oct-14. On the final day of US QE3 ending, the Bank of Japan announced another round of QE in their economy. http://www.reuters.com/article/2014/10/31/us-japan-economy-boj-idUSKBN0IK0B120141031 http://www.reuters.com/article/2014/10/31/us-japan-economy-b... The European Central Bank announced QE in Jan-15. One way to think of QE is global competitive devaluation to capture global demand. QE + ZIRP or even negative interests are the primary tool of central banks now. Capital misallocation continues on a global scale.
  - walterbell 12y ago
    How would negative interest rates compete with cash which has a zero interest rate, or premium real estate which offers a long-term return?
    - jhulla 12y ago
      This is a good summary of why people might buy negative interest rate bonds: http://www.vox.com/2015/2/5/7981461/negative-interest-rates-europe http://www.vox.com/2015/2/5/7981461/negative-interest-rates-... e.g. Cash is not secure in your bank account. A government backed bond, even at negative interest, may be more secure than a cash balance. ZIRP and negative interest rates are pushing people out on the risk curve and raising asset prices. As I said in an earlier comment, IMHO, all investment decisions are bets on central banks.