Did gut write this article?

• sleeper

  

  http://www.professorhollybell.com/2012/11/04/why-krugman-and-stiglitz-are-wrong-about-government-spending/
  

  On October 23, 2012, the Institute for New Economic Thinking (INET) hosted an economics discussion with Paul Krugman and Joseph Stiglitz. The moderator of the discussion asked the Nobel Memorial Prize in Economic Sciences winning economists what the solution to our current recession is. Paul Krugman quickly spoke up and said that much more government spending was needed to pull us out of the recession. Both Krugman and Stiglitz began to justify this position using the example of how government spending that supported World War II pulled us out of the Great Depression. Specifically they laid out the history as follows:
  1) Two factors that lead to the Great Depression included a significant household debt bubble and a structural economic shift from a rural agricultural economy to an urban industrial economy.
  2) The economy actually began to recover 2-years before U. S. involvement in WWII as the government started to spend money as part of the ramp-up to the war. The U.S. was building equipment and supplies.
  3) The U. S. joined WWII and we now had two-income households that allowed debt to be paid down and savings to increase.
  4) The war ended and the G.I. Bill allowed returning soldiers to enter trade schools, colleges, and universities to gain the skills they needed to complete the economy’s transition from agriculture to industry.
  Stiglitz admits this recovery was not intentional, but happened ‘quite by accident’. However, both Krugman and Stiglitz believe we can intentionally repeat this type of recovery with the right macroeconomic policies. Their take-away from the Great Depression/WWII recovery example is that government spending was the triggering event and the reason for recovery. Hence, significant government spending is the answer to our current recession. I must admit I am more than disappointed by the inability of such ‘elite’ economists to see the differences between the spending that occurred prior to and during WWII and today’s government spending. Here’s why they are wrong:
  
  Government Spending vs. Investment
  The government spending leading up to WWII was being used to produce actual goods. These goods were not only being used by the U.S., but were being sold, for a profit, to our allies. This was an investment in real and potential income. The government was, in many ways, acting like a business. They also employed a tremendous amount of labor.
  Today’s increased government spending is not being used to produce goods and services that can be sold for a profit. It is being used to support unemployment compensation, temporarily bail out companies like GM that eventually file for bankruptcy anyway, provide subsidies for renewable energy companies like Solyndra that have never produced anything generating a return, and to provide cash for banks who won’t lend it out for fear they won’t pass their ‘stress tests’ and/or because they are still trying to make up for revenues lost as a result of mortgage defaults.
  Government spending is not generating the returns it did as we came out of the Great Depression. In fact, return on government spending has been negative since 2009. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009 each dollar of new debt SUBTRACTED 45 cents from GDP!
  Plus, a significant portion of the money is ending up in the hands of CEOs and banks, the very elite and ‘wealthy’ people the current administration blames for our woes. The share of government spending reaching labor is very small so we will not see the labor driven recovery that occurred during the Great Depression and WWII from government spending. There is a difference between government spending for the sake of spending and government investment.
  
  Pent-Up Demand
  While the government’s investment in WWII created two-income households, allowed for the paying down of debt, wage rate inflation, and increased savings, it also created pent-up demand, as there was a shortage of consumer goods. When consumer production returned, households used their savings to create a boom in purchasing. The government did not need to spend because individuals were able to. This pent-up demand and high savings rate does not exist today, and is not being solved by government spending. The U.S. also came out of WWII as the only major industrialized country whose industrial infrastructure remained intact. As a result we became a major exporter as Europe and Japan rebuilt.
  Today’s environment is very different. The developed world is no longer the primary source of goods production. We have transferred our production power to the developing world and have taken on the role of innovator and consumer. However, when manufacturing moves overseas, research and development often goes with it eroding our current competitive advantage in innovation. We are also transferring production knowledge to countries that have no regard for patents, trademarks, or other intellectual property rights and are willing to counterfeit goods. The current structure of our economy doesn’t look much like the post-Depression, post-WWII era.
  
  Structural Differences
  After WWII, the education returning veterans received helped the U.S. economy make the shift from rural agriculture to urban industry. We are now seeing a shift from industry to technology and service. This has resulted in two primary types of jobs in the U.S.: low paying service jobs (retail, food service, etc.) and high paid technology jobs that include technology service. This shift is considerably more difficult than the agriculture to industrial production shift for two reasons. First, there is a considerably higher level of education required to work in technology. While industrial workers could be successful with a certificate program and an apprenticeship, technology workers generally require a Bachelor’s degree or higher. The education process takes a lot more time than the previous WWII shift. The second problem is that a smaller percentage of the population has the aptitude for the required education than for industrial education. The academic rigor is much more intense and while it may be politically incorrect to say so, we cannot expect that everyone will be capable of making this educational shift.
  
  No ‘Look-Alike’ Model
  While there might be some legitimate reasons for the government to invest in the U.S. economy either directly through spending or indirectly through tax incentives, using the case of the Great Depression is not a valid argument. The situational and economic structure similarities just don’t exist. We are in an economic situation we have never seen before; there are no “look-alike’ models that justify our current model of ever increasing government spending.
  Holly A. Bell is a business professor, author, analyst, manager, and blogger who lives in the Mat-Su Valley of Alaska. You can visit her website at www.professorhollybell.com or follow her on Twitter at @HollyBell8
  
  Holly Bell's Blog (http://s.tt/1rXq2)

  
  I think it's pretty spot on in regards to the failed Keynesian guided policies. More government spending isn't doing shit and certainly making the stimulus even bigger isn't going to do shit either.
• Manhattan Buckeye

  Krugman is a clown, that he has a Nobel prize sullies the whole award. He is stating now the exact opposite he stated during the W years. He's nothing more than a DEM stooge, and a poor DEM stooge at that.
• sleeper

  

  Manhattan Buckeye;1313113 wrote:Krugman is a clown, that he has a Nobel prize sullies the whole award. He is stating now the exact opposite he stated during the W years. He's nothing more than a DEM stooge, and a poor DEM stooge at that.

  I think Obama having a Nobel prize ruins the award more than Krugman.
• like_that

  

  sleeper;1313116 wrote:I think Obama having a Nobel prize ruins the award more than Krugman.

  Beat me to it.
• Manhattan Buckeye

  I stand corrected.
• QuakerOats

  Another self-ordained intellectual elite living in a tiny little theoretical progressive world............... where's the next pinot grigio tasting.
• Belly35

  

  I think Holly can kick both Krugman and Stiglitz ass at the same time...
• justincredible

  

  sleeper;1313116 wrote:I think Obama having a Nobel prize ruins the award more than Krugman.

  
• gut

  There's a similar article in the WSJ today from a Chicago economist basically saying how Obama's policies have muted the recovery.
  
  This is not surprising. What we are seeing in govt spending, GDP growth and unemployment have been the norm throughout Europe for decades. It's the new normal. If this is what you want, vote for Obama.
• I Wear Pants

  gut;1313187 wrote:There's a similar article in the WSJ today from a Chicago economist basically saying how Obama's policies have muted the recovery.
  
  This is not surprising. What we are seeing in govt spending, GDP growth and unemployment have been the norm throughout Europe for decades. It's the new normal. If this is what you want, vote for Obama.

  Whoa there stop the presses, a Chicago school of economics guy is anti-Keynesian?
• BoatShoes

  Manhattan Buckeye;1313113 wrote:Krugman is a clown, that he has a Nobel prize sullies the whole award. He is stating now the exact opposite he stated during the W years. He's nothing more than a DEM stooge, and a poor DEM stooge at that.

  I'm consistently impressed how you consistently reveal you have no idea what you're talking about when you're one of the most condescending posters here. Krugman is a keynesian and therefore a devotee of the IS-LM model. Whether you agree with it is one thing but you ought to understand the implications of it if you're going to comment. This model indicates that running deficits while unemployment is low and interest rates aren't at the zero lower bound is bad because it keeps interest rates higher than they otherwise should be and crowds out private investment. However, deficits should be run when the real interest rate is negative and unemployment is high.
  
  When the facts of the world change the prescription for proper economic and fiscal policy changes. There is no inconsistency. And, if anything, the large deficits run gratuitously when they shouldn't have been during good times in the Bush years only gives more credence to the idea that investors treat countries that borrow in their own currency differently and that we really need not fear the bond vigilantes when we have such disastrously high unemployment.
  
  Your argument that you think he should be complaining about deficits now reveals your lack of understanding of the keynesian perspective.
• gut

  BoatShoes;1313421 wrote:I'm consistently impressed how you consistently reveal you have no idea what you're talking about when you're one of the most condescending posters here. Krugman is a keynesian and therefore a devotee of the IS-LM model. Whether you agree with it is one thing but you ought to understand the implications of it if you're going to comment. This model indicates that running deficits while unemployment is low and interest rates aren't at the zero lower bound is bad because it keeps interest rates higher than they otherwise should be and crowds out private investment. However, deficits should be run when the real interest rate is negative and unemployment is high.

  But here is what you don't get. Implicit in that theory is that you run surpluses in good times in order to fund the deficit spending. You can't expect deficit spending to continue to have stimulative effects into perpetuity when you don't complete the other side of the equation. That's not something the theory supports.
• Manhattan Buckeye

  "I'm consistently impressed how you consistently reveal you have no idea what you're talking about when you're one of the most condescending posters here."
  
  Again thanks for the compliment. Krugman is a Democrat stooge, no more and no less. To the extent he's a Keynesian it is only when it is in support of DEM spending. Krugman has preached the exact opposite of what he purported to believe during the previous administration. I don't why the truth is so "condescending." Krugman is internally inconsistent and hypercritical and would support anything the Obama administration would do or has done, in short again he is a stooge. His credibility is completely shot.
• believer

  

  QuakerOats;1313130 wrote:Another self-ordained intellectual elite living in a tiny little theoretical progressive world............... where's the next pinot grigio tasting.

  I laughed.
• isadore

  QuakerOats;1313130 wrote:Another self-ordained intellectual elite living in a tiny little theoretical progressive world............... where's the next pinot grigio tasting.

  did krugman and stiglitz proclaim themselves nobel prize winners. if they did, you should try it or at least give yourself a pulitzer or tony or maybe a cma.
• gut

  nobel peace prize ==> drone assassinations