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ave me wondering mostly why are some of the zeroes smaller and bold so much for the algebra here is kelton s summary of her analysis the bottom line is this as long as unemployment remains high the deficit will remain high so instead of continuing to put the deficit first it s time get to work on a plan to increase employment but that s not what her analysis showed the analysis does not consider whether it is possible to reduce the deficit while unemployment remains high the analysis considers whether it is possible to reduce private sector incomes without hampering sales or job creation look i do not disagree with kelton s analysis and i agree with her goal which evidently is to reduce unemployment but after doing the careful analysis she changes horses just in time for her conclusion to me either the conclusion is irrelevant or the analysis is they re not both part of the same argument i think i ve seen kelton do this before actually posted by the arthurian at 4 00 am 3 comments thursday june 23 2011 focusing on krugman in woodford on monetary and fiscal policy paul krugman reviews the thoughts of mike woodford on policy options when you re up against the zero lower bound then pk describes what he himself was thinking in say january 2009 with the severe financial crisis still relatively recent and many people still expecting a v shaped recovery it didn t seem possible to persuade the fed to commit to a permanent rise in the monetary base or a rise in the medium run inflation target nor did it seem possible to convince markets that there had been a long run change in policy the chances for persuading congress to agree to a large temporary fiscal stimulus seemed much better but as it turned out that didn t happen either i do think it s funny that pk spends so much time worrying about the chances for persuading congress and the possibility of persuading the fed what they should do perhaps krugman would be more persuasive if rather than worrying what others think he would focus on writing persuasive arguments about what must be done just to be clear the options paul krugman sees are 1 increase the monetary base and or increase inflation and 2 increase government spending with a large temporary fiscal stimulus now if i tell ya i m gonna disagree with krugman you re prob ly gonna think i m austerian i m not but i have to evaluate krugman s options in relation to the problem as krugman defines it as krugman defines it in default is in our stars 25 september 2010 krugman wrote i think it s fair to say that a majority of economists believe that excessive private debt played a key role in getting us into this economic mess and is playing a key role in preventing us from getting out eh slightly out of focus there he doesn t say what he thinks he says what he thinks a majority of economists think is he trying to strengthen his position by embedding himself in the majority can t say does he include himself among them doesn t say well then here s another krugman of 18 november introduces his new 32 page pdf debt deleveraging and the liquidity trap and offers an informal summary of the paper as well in the summary krugman writes sharply rising debt it s widely argued set the stage for the crisis and the overhang of debt continues to act as a drag on recovery heh same thing again doesn t say what he thinks says what is widely argued let me try one more time in the recent mr keynes and the moderns krugman writes i constantly encounter the argument that our crisis was brought on by too much debt which is largely my view as well largely well i guess that s as good a commitment as we re gonna get from paul krugman so i guess i ll go ahead and say what i think krugman thinks as he seems unwilling or unable to do so i ll take a chance and say krugman includes himself among those arguing widely that debt is the problem krugman includes himself in that majority of economists who see excessive debt as the problem krugman includes himself among those who think the crisis was brought on by too much debt too much debt so assuming that krugman sees excessive debt as the problem let us evaluate his solutions his first option is to have the federal reserve increase the quantity of base money does this solve the problem it could it could reduce the debt per dollar ratio which is exactly what needs to be done but the method is indirect at best directly it affects only prices not debt moreover in practice a large fall in debt relative to base money has induced only a small decline in debt relative to m1 money which is the crucial ratio his second option calls for a massive increase in government spending and presumably though this also is out of focus a massive increase in the federal debt but the problem according to krugman sez i is that there is too much debt already indeed yes krugman s words are excessive private debt the federal debt is not private but option two increases debt it does not reduce debt and if the problem is excessive debt the solution is to reduce debt neither of krugman s options reduces debt specifically neither of krugman s options reduce private sector debt furthermore if either of krugman s options does work the outcome will be renewed economic growth doubtless accompanied by more private sector debt growth yet excessive private sector debt was the problem to begin with but as long as excessive private sector debt remains an unresolved problem there is no chance that krugman s options can succeed perhaps if paul krugman could focus on the problem if he could actually bring himself to say that he thinks excessive private debt played a key role in getting us into this economic mess and a key role in preventing us from getting out perhaps then he would have a better handle on a solution a better handle on a solution i would print money and use it to pay off debt destroy that money by destroying debt posted by the arthurian at 8 00 am 2 comments evolution in november of last year i came upon a comment at truthout that led back to this post by chip shirley 11 17 10 conservatives have no answer to this question they can t explain in their economic policy how america did most of the great things we have ever done and paid for them between 1940 1980 and the whole time our federal income tax on the most wealthy citizens was double to triple what it is today while our deficit and debt were nill compared to today conservatives have no answer to that question in comments on mine of 21 november i evaluated chip s theme in those postwar years when the economy was doing really well taxes on the wealthy were very high by our standards this shows that such taxes do not ruin a healthy economy on the other hand i don t think it shows that high taxes on the wealthy will restore health to our economy as an afterthought i would add in order to think that high taxes on the wealthy will restore health to our economy you have to think that the federal debt and deficit are the cause of our economic troubles i do not agree that the federal debt and deficit are the cause of our economic troubles and everything i do on this blog is dedicated to that proposition high taxes do not ruin a healthy economy but this does not mean that re instituting high taxes on the wealthy will restore economic health at twenty cent paradigms bill c writes fairness is in the eye of the beholder but the us economy actually grew faster when top marginal tax rates were higher here is the annual average growth in real gdp and the average annual top marginal tax rates for the us by decade 1951 60 3 42 91 2 1961 70 4 11 78 4 1971 80 3 14 70 0 1981 90 3 21 44 5 1991 2000 3 22 37 9 2001 2006 2 51 36 2 accompanying the article is a nifty interactive graphic with the top 30 all time richest americans bill gates is the one in the pink polo shirt it is a nifty graphic and it shouldn t be missed but i liked bill c s table showing real gdp growth by decade and i thought the third column the tax rate column was an interesting addition to the table but then i m slow to draw conclusions from such things as i suggested in a comment on bill s post i think it unwise to present the information that way it looks like some sort of causal relation as if high taxes cause improved economic growth and i think that is completely ridiculous people will think there is a cause and effect relation between high taxes and a healthy economy it is one thing to say the economy grew faster when tax rates were higher it is another thing entirely to say the economy grew faster because tax rates were higher at econospeak in a comment on the post john taylor on pawlenty s 5 growth for a decade claim exl blogger writes the problem is that you can t get high rates of growth without high marginal tax rates look at history that s a simple fact sure 5 growth would be nice but it would take a much higher tax rate than would be politically acceptible you can t get high rates of growth without high marginal tax rates so now the concept has evolved into raising tax rates to make the economy grow the cause and effect relation is in full bloom but it is wrong just so wrong and again it is based on the flawed premise that balancing the federal budget will fix the economy having said that i will completely contradict myself and tell you how high taxes could be good for economic growth but first you have to give me control of your taxes i will control the horizontal i will control the vertical i can roll the image make it flutter i can change the focus suppose i gave you the choice that you can keep the tax system you have now or instead i will tax you only on the money you save and not on any money that you spend so that if you don t save any money at all your taxes are zero and if you only save a dollar your tax cannot be more than a dollar i don t know which tax you would choose but i think a lot of people would go for option b only tax me on what i save well that s what the corporate tax is like why to stimulate growth to get them to spend and spend more now if i make the tax rate really really low you and corporations too might choose to save a few dollars even though you have to pay a few cents tax on that saving but if i make the tax rate really really high pretty sure you will spend every last dollar just to avoid the taxes so if wealthy people have their money tied up in corporations and if you want them to spend it then you should raise the tax rate really really high evidence you say you want evidence not saying i buy the causal relation myself but i ll give you evidence bruce bartlett is a hair on the tail that wagged the dog and gave us supply side economics bartlett writes unfortunately there s no evidence that the 2003 tax cut did anything to stimulate corporate investment indeed according to the federal reserve nonfinancial corporations have increased their holdings of liquid assets to 1 8 trillion from 1 2 trillion since 2003 thus it s implausible that a further reduction in the corporate rate as pawlenty and other republicans favor would do much to raise investment since 2003 when taxes were cut on the money they don t spend nonfinancial corporate savings increased by 50 percent how much did your savings increase for what it s worth posted by the arthurian at 4 00 am 1 comments wednesday june 22 2011 long and thoughtful recommended reading america s debt the role of the state and the fight for survival by sackerson at broad oak blog posted by the arthurian at 8 00 am 0 comments from michael hudson at gang8 the full post is here i want to quote the first paragraph and highlight just the parts that i worked out for myself independently and agree with absolutely financial crashes were well understood for a hundred years after they became a normal financial phenomenon in the mid 19th century much like the buildup of plaque deposits in human veins and arteries an accumulation of debt gained momentum exponentially until the economy crashed wiping out bad debts along with savings on the other side of the balance sheet physical property remained intact although much was transferred from debtors to creditors but clearing away the debt overhead from the economy s circulatory system freed it to resume its upswing that was the positive role of crashes they minimized the cost of debt service bringing prices and income back in line with actual real costs of production debt claims were replaced by equity ownership housing prices were lower and more affordable being brought back in line with their actual rental value goods and services no longer had to incorporate the debt charges that the financial upswing had built into the system not too shabby all of the meat is highlighted none of the human veins and histories other important bits of the hudson post the united states emerged from world war ii relatively debt free downturns occurred crashes wiped out debts and savings but each recovery since 1945 has taken place with a higher debt overhead debt accumulation is the problem higher debt overhead is hudson s phrase debt accumulation is my phrase for the same thing you can see it in my d p d graphs regarding the post 2008 crash hudson writes most unique is the crash s aftermath this time around the bad debts have not been wiped off the books there have indeed been the usual bankruptcies but the bad lenders and speculators are being saved from loss by the government intervening to issue treasury bonds to pay them off out of future tax revenues or new money creation the obama administration s wall street managers have kept the debt overhead in place i think it had to be done we have just so much debt you couldn t let the bankruptcies happen they would have been like a chain reaction where each one sets off three more blink twice and the whole financial edifice is in ruins to be sure i don t care about the financial edifice but its collapse would have brought down everything else with it and that had to be prevented so to save the stuff i wanted them to save they had to save the stuff they did save this is the stuff dark ages are made of they have kept the debt overhead in place that is the reason the economy cannot recover it is the reason i keep offering these oddball notions like print money and use it to pay off debt i don t know which methods are practical and which are not but there can be no doubt that debt reduction is the one thing that must be done nah don t read hudson s post soon after the last excerpts above hudson gets all agenda driven and boring related post whaddya mean it s not economics a policy of prevention of small forest fires led to less frequent more severe large fires posted by the arthurian at 4 00 am 4 comments tuesday june 21 2011 point of information double checking fred s reserves list for this morning s post i noticed that there are two items listed as board of governors total reserves one of then adjusted for changes in reserve requirements the other not adjusted what s the difference post...
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