Friday, March 20, 2009


John and Milton, sitting in a tree?

Could it be?

Just wonderin'. 'Cause we got monetary s--t goin' down AND fiscal s--t goin' down. I mean, you gotta look past each of the dudes' overarching philosophies and look at the nuts and bolts of gubment, the money supply and the economy.

I'm thinkin' they're either up there (or down there) kickin' up their heels and dancin' a jig, or kickin' each other's arses.

What say y'all?


While I think Friedman would approve the Fed's decision to buy back a bunch of government paper, dumping a whole bunch of money in to the system to avert deflation, the rest of the government's response would probably leave him shaking.

Keynes, in my estimation, would say of that decision, "Yeah, OK, but it doesn't deal with the systemic problems of shrinking credit markets and demand." For the size of our economy, both in dollar and sheer physical size terms, the "stimulus package" was, to borrow from Dickens, a drop in the comprehensive ocean of our business. A good start, to be sure, but only a start.

The real nuts and bolts, as evinced by the AIG brouhaha, involve that old sausage factory, legislation; Matt Yglesias has several good posts today on the these very issues that might start the process of simply ridding ourselves of all these worthless pieces of paper that all the Wall Street firms insist could be worth more if only people would pay the prices they want them to. Alas, the market has determined they are, in the words of Atrios, a huge pile of shit, and no one wants to buy that.

A good first step would be for all those who are responsible - the brokers and traders, the money managers who insisted on getting paid up front rather than for real results - to simply leave. They aren't talent, they aren't even mediocre at their chosen profession, but are demonstrated incompetence before the world and history. Trying to keep them on is both insane and stupid.
Galactica Is Dead.
Uh ... huh?
Glactic indeed is dead, and not with a bang but a wimper.
Economics, forcasting, understanding, knowing, might as well cast voodoo knuckle bones. Full Faith and Credit, no faith no credit. Once faith is broken how long does it take to get it back?
Democratic Socialism, arrived with the Recession. You're going to need a whole new set of gurus for that.

As for these economist and all others, stick some pins in them.
Krugman made a point in his blog yesterday, little noticed, but to the point. To the argument that the feds aren't competent to run banks, his response was, "It isn't like the bankers have done such a hot job."

Unlike the Depression, this downturn began with the financial sector; it was the collapse of the economy that led to the banking crunch (well, that and a default on reparations payments from WWI, causing an huge Austrian bank then deemed "too big to fail" to foil, dragging down international finance with it).
Marx would have more to say about the irrational motivations at the foundation of the crisis (bundled sub-prime mortgages, credit default swaps, hyper-leveraged hedge funds, etc.). The structures of logic supporting the drive of capitalism will crumble because the contradictions within them will meet historical events to which they cannot bend.

As for the way out, the short term is Keynes (government spending/lending/regulating), the long term, as DrLBJ says, should be something trending toward the structurally new, which itself will only last a time.

The subjective realization of the poor and the working poor is coming.
Keynes is busy saying "I told you so" while Friedman weeps into his beer, having witnessed his pet theory being run through a shredder.

As for Galactica, it died a couple seasons ago, although I did think it was kind of cool to have that discussion at the UN recently as part of the official throwing dirt on the grave.
I think what either would note is that whether you emphasize monetary (Friedman) or fiscal (Keynes) policy, trying to affect aggregate demand in the new globalized economy by uncoordinated and uneven national measures is like trying to fill a colander with water.

I think the problem with the "good start" is that if it fails, politically it is difficult to convince people that what you need is much more of the same.

I think even if this crisis leads in a leftward direction, it will not benefit the extreme poor beyond national boundaries and they're in a piss-poor position to do anything about it. Even if there is global coordination, they're likely to remain a low priority for resources, much to Jeffrey Sachs's disappointment. For that matter, I expect the bulk of the American middle class to concentrate on its own perceived interests vis-a-vis the wealthy, not on needs of the lowest 20% of it own society, but at least there will be more common cause and economic spill-over, particularly if social safety nets are strengthened because of middle class concerns.

If you have 20 minutes to spare, this the best account (i.e. the one that reinforces my own notions) of where we are and where we're going.

If the link doesn't work, it's Rogoff on PBS.
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