Dec 16th, 2008 at 4:04 pm
Count Zero
The Federal Reserve is bringing interest rates all the way down in what’s either a sign that we’re heading into Total Economic Doom or else that timely Fed reaction will save us from Total Economic Doom. See Paul Krugman for insightful commentary and the observation that Zero Interest Rate Policy has a funny acronym.
Meanwhile, it looks like Angela Merkel is to some extent backing off her determination to play Herbert Hoover.
49 Responses to “Count Zero”
Register
RSSLogin
Advertisement
Visit Our Affiliated Sites
Books By Matthew Yglesias
Topic CloudView topics sorted by popularity
Abortion
Afghanistan
Basketball
Budget
China
climate
Congress
Crime
DC
Defense Budget
Demographics
Denmark
Economics
Economy
Energy
EU
Finance
Gender
Health Care
History
Immigration
Inequality
International Law
International Relations
Iran
Israel
Labor Markets
Media
Monetary Policy
National Security
NBA
Palestine
Political Reform
Public Health
Public Opinion
Race
Regulation
Russia
Sarah Palin
Sports
Stimulus
taxes
Technology
Trade
transportation
Featured
Subscribe to the Progress Report
Contact Matthew Yglesias
Use this form to contact blog author Matthew Yglesias.
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
December 16th, 2008 at 4:13 pm
Your third-rate snark that befits a trustfund kid who isn’t as smart or as witty as he thinks is getting ridiculous.
A principled opposition to Keyensian orthodoxy has nothing to do with Herbert Hoover – indeed, why you would use an american example to a german policy position is ridiculous.
There is a case to be made that government flooding money into sectors that are fixing to die prolongs and worsens the economic downturn. There is also a case to be made that the structural deficits that result from these “stimulus” programs will strangle any economic recovery in the crib by redirecting capital that is needed in good times from up and coming firms to service government debt.
Your snarky, idiotic, and frankly quite lazy use of “herberth hoover! OMGSNARKIAMSOFUCKINGAWESOME!” is just stupid and frankly you should learn how to talk about economics and government policy intelligently or shut the fuck up.
December 16th, 2008 at 4:26 pm
One wonders why Acer spends his time reading (and commenting!) on a blog whose author he clearly despises.
December 16th, 2008 at 4:28 pm
well then Acer seems to be having a bad day . . .
I’m not a huge fan of the bail out plans either, but we’re dangerously close to a liquidity trap situation. This country needs a massive fiscal stimulus so monetary policy can actually work again. But hey maybe quantitative easing will work.
December 16th, 2008 at 4:29 pm
We need a bold stimulus package for Acer’s personality.
December 16th, 2008 at 4:37 pm
It’s not Herbert Hoover whom Angela Merkel was imitating, but Heinrich Brüning, the German Chancellor from 1930 to 1932, whose deflationary, budget-balancing, tax increase and spending cuts policies led to an economic catastrophe and paved the way for the Nazi seizure of power. I don’t think that there’s any danger of fascists seizing power in Germany today, but imitating past failed economic policies has little to recommend it.
December 16th, 2008 at 4:45 pm
Acer
The problem with the free market argument is that this isn’t a video game. I’m an MBA so all of this intervention sickens me too. But since we can’t reset to August 2008 and try again if the hands off approach spirals us into the GREATEST DEPRESSION I’m not willing to risk it.
And yes, sometimes I wish Igloo, McCardle and their ilk would be less glib in their analysis but I can always just stop reading their blogs.
k1
ryanculver.blogspot.com
December 16th, 2008 at 4:59 pm
“There is a case to be made that government flooding money into sectors that are fixing to die prolongs and worsens the economic downturn.”
Of course, that’s not why conservatives here oppose the bailout of the auto industry. They oppose it because the bailout as planned doesn’t deal the death blow to organized labor which has been their goal from at least the Gilded Age.
And when conservatives start proposing these bailouts as a result of good faith economic analysis, and stop using it to score cheap political points by abetting economic devastation of the middle class while simultaneously blaming those failures on their political opponents, then you might have a position from which to argue.
Until then, maybe you should heed your own advice.
December 16th, 2008 at 5:01 pm
I used to oppose the bailout/ loose money policies as well, but at this point we are committed. Make interest rates negative. Charge people to keep their money in a bank. Depreciate the currency so you have to convert each week’s paycheck into something tangible, that week, or it loses its value.
That way at least we can say we tried. And it might make the transition to the new barter economy that much easier.
December 16th, 2008 at 5:07 pm
A principled opposition to Keyensian orthodoxy has nothing to do with Herbert Hoover – indeed, why you would use an american example to a german policy position is ridiculous…
Of course it has something “to do with Heberbert Hoover.” I have no bout many of the Great and Good Men running the country 1928-1932 were also “principled” in their ideas about how to get a deflationary economy moving again. Trouble is, they weren’t just principled — they were wrong (disastrously so).
My guess is that Acer’s great grandparents in Frankfurt had their fortune wiped out in the hyperinflation of 1921, and that this had prompted them to become committed National Socialists by 1932.
December 16th, 2008 at 5:11 pm
Count Zero, a William Gibson reference? Arguably his best novel, but a little dated.
December 16th, 2008 at 5:12 pm
Krugman:
“…zero interest rate policy. And it has arrived. America has turned Japanese…This is the thing I’ve been afraid of ever since I realized that Japan really was in the dreaded, possibly mythical liquidity trap…Seriously, we are in very deep trouble. Getting out of this will require a lot of creativity, and maybe some luck too.”
Krugman finally recognizes the monetary analogy between ourselves and Japan. BTW, Japan ran up huge gov’t debts spending on serial “stimulus packages” which didn’t help much either. Let’s see how long it will take Krugman to recognize the fiscal analogy as well.
Acer #1 = excellent post.
December 16th, 2008 at 5:14 pm
I like the smart responses to the blog post, in stark contrast to the idiocy of the original blog post and its unserious author.
The United States should be borrowing money at this point only to:
- pay unemployment benefits to displaced workers
- retrain workers with new skills
- maintain the solvency of the financial system
- Re-create the infrastructure of the country.
The last one is most important. The United States built and designed most of its roads, highways, neighborhoods and homes in the immediate era after World War Two. In short, it built its infrastructure for a world of $5 a barrel oil. Using this blueprint for a world where oil is going to average $50, $60, or $90 is a recipe for economic stagnation and low economic growth because of the leakages from the economy it creates ($500-$900 billion every single freaking year) which also drives up personal debt, hurts consumer spending, reduces investment in the country, and again seriously harms economic growth.
“Stimulus” is bullshit. What made Yglesias’s smug swipe at Merkel’s position so ridiculous is his inability to understand that this infrastructure program is only unique to the United States. Using Keynesian policies to prop up consumer demand is a recipe for disaster now as it always has been and will be.
December 16th, 2008 at 5:16 pm
My guess is that Acer’s great grandparents in Frankfurt had their fortune wiped out in the hyperinflation of 1921, and that this had prompted them to become committed National Socialists by 1932.
This sentence wins the award for “subtlese Godwin’s Law violation of 2008.”
December 16th, 2008 at 5:25 pm
Glad to see the ‘unserious’ line of crap is making a return.
December 16th, 2008 at 5:35 pm
BTW, Japan ran up huge gov’t debts spending on serial “stimulus packages” which didn’t help much either.
BTW, the United States of America ran up huge government debts in the years 1940-1945. Total net borrowing was something like 80% of GDP in less than six years. Result? Depression was finally defeated once and for all (well, least for another sixty years). If massive stimulus spent on unproductive uses like bombs and bullets pulled us out of depression then, just think of how much better it will work this time around when we spend it on things like aid to state governments, food stamps, and new subway lines.
Also, if you want to know what a commitment to fiscal rectitude does in a deflationary environment, google “downturn of 1937″ and then please get back to us.
Using Keynesian policies to prop up consumer demand is a recipe for disaster now as it always has been and will be.
Following Hooverite economics in a dangerous period of deflation is a recipe for diaster now as it always has been and will be.
December 16th, 2008 at 5:35 pm
k1: If we were to reset, it would be to August 2007, not 2008. People forget that’s when this actually began – that summer (Jim Cramer melting down on CNBC, the fed starting emergency meetings to cut the fed rate, etc) is when shit started to unravel. There is an argument to be made that investors began pulling their money from the market then and putting it into commodities which turned this from an economic recession into an economic catastrophe.
It’s odd: there is an almost inverse correlation until July 2008 between the fortunes of the stock market and the price of oil from August 2007. That, in the real world, is the exact opposite of how those markets should relate.
Brewmn: The auto bailout is opposed by a majority of Americans in a nation that right now can be described as politically liberal. A lot of liberals oppose it. I am one. You cannot look at the numbers of the “big shitty 3″ and not conclude that they deserve to be knocked out and major reconstructive surgery to make them unrecognizable. Here’s a number for you: Since 2006 GM and Chrysler have lost $96 billion. What’s $30 billion going to do that bankruptcy restructing can’t?
Ed: Those policies have some merit. The fact is in the long-run interest rates are going to have to rise.
December 16th, 2008 at 5:48 pm
Great! Now I’m going to start getting those 0% interest balance transfer checks from the US Government. So that’s how Obama is going to take care of all his colored friends.
December 16th, 2008 at 5:49 pm
Wow! A William Gibson reference! impressed!
December 16th, 2008 at 5:54 pm
I’m not going to get into an argument with someone who basically just repeats a lot of the shitty economic arguments that he sees on liberal blogs as Jasper just did above, but I will say this:
BTW, the United States of America ran up huge government debts in the years 1940-1945. Total net borrowing was something like 80% of GDP in less than six years
The United States had little to no government debt before it took out all of those loans – today, the United States already owes trillions of dollars to the rest of the world to investors who will pretty soon be demanding higher interest rates for the loans from their savings that they give us to keep our economy afloat.
The United States of 1945 looks absolutely nothing like the United States of 2008. Consider:
- 1945 marked the start of a post world war baby boom which grew the economy for obvious reasons. In 2008, we are on the verge of the biggest retirement hit in history owing trillions of dollars in entitlements.
- In 1945 the United States was owed money by the rest of the world. Today, the exact opposite is true. We owe everyone, from Canada to Australia to India to China.
Etc, etc. Seriously Jasper, you are over your head, just stop.
December 16th, 2008 at 5:57 pm
The auto bailout is opposed by a majority of Americans in a nation that right now can be described as politically liberal. A lot of liberals oppose it. I am one.
A lot of liberals supported the Iraq War. Maybe you were one. It still turned out to be a disaster.
December 16th, 2008 at 6:10 pm
The problem with the free market argument is that this isn’t a video game. I’m an MBA so all of this intervention sickens me too. But since we can’t reset to August 2008 and try again if the hands off approach spirals us into the GREATEST DEPRESSION I’m not willing to risk it.
What do we do if the hands on approach spirals us into the GREATEST DEPRESSION? Why are you willing to risk that? Or is the possibility that intervention will make the problem worse something that you didn’t even consider?
Of course it has something “to do with Heberbert Hoover.” I have no bout many of the Great and Good Men running the country 1928-1932 were also “principled” in their ideas about how to get a deflationary economy moving again. Trouble is, they weren’t just principled — they were wrong (disastrously so).
You are misinformed or you are lying. Herbert Hoover was an inflationist, not a deflationist. Under Hoover, the Federal Reserve reduced the discount rate from 6% in October 1929 to 2% by the end of 1930. Hoover had all sorts of public works projects, worked ahrd to prevent prices from falling, and pursued a policy of trying to prevent wage and price cuts.
It’s not Herbert Hoover whom Angela Merkel was imitating, but Heinrich Brüning, the German Chancellor from 1930 to 1932, whose deflationary, budget-balancing, tax increase and spending cuts policies led to an economic catastrophe and paved the way for the Nazi seizure of power.
And I suppose that the inflationary, savings-destroying policies of the Weimar Republic were a success?
BTW, the United States of America ran up huge government debts in the years 1940-1945. Total net borrowing was something like 80% of GDP in less than six years. Result? Depression was finally defeated once and for all (well, least for another sixty years). If massive stimulus spent on unproductive uses like bombs and bullets pulled us out of depression then, just think of how much better it will work this time around when we spend it on things like aid to state governments, food stamps, and new subway lines.
If you really believe that the extra consumption during the war years is what rebuilt our economy, then why don’t we just have the government stimulate the economy by razing New York City to the ground and rebuilding it?
What brought us out of the Depression was the massive savings and rationing instituted to help us to fund the war. The forced reduction of consumption actually freed up the resources for investments in factories and infrastructure that were used after the war to create a manufacturing economy.
December 16th, 2008 at 7:01 pm
Re: There is a case to be made that government flooding money into sectors that are fixing to die prolongs and worsens the economic downturn.”
If the auto industry were truly obsolete the way the buggy whip industry was 100 years ago, or the typewriter industry was in the 1990s, I might agree. However I suspect people will be buying and driving cars, of some sort or other, for the remainder of my lifetime and well beyond– even if Matt will be disappointed by that.
December 16th, 2008 at 7:28 pm
If the auto industry were truly obsolete the way the buggy whip industry was 100 years ago, or the typewriter industry was in the 1990s, I might agree. However I suspect people will be buying and driving cars, of some sort or other, for the remainder of my lifetime and well beyond– even if Matt will be disappointed by that.
Yes, but is the current model for the industry obsolete and is Detroit ready to upgrade to the newer model?
December 16th, 2008 at 7:41 pm
…1945 marked the start of a post world war baby boom which grew the economy for obvious reasons.
Acer: So what explained the growth of 1940-1945? I eagerly await your response. And what explains the various deflationary periods during the 19th century, when the US population was growing faster than during the baby boom years?
…today, the United States already owes trillions of dollars to the rest of the world to investors.
As a percentage of GDP, this amount is about the same as it was in 1940. Somehow this did not prevent us from more than doubling that debt in a few, short years, and returning to prosperity.
The United States had little to no government debt before it took out all of those loans.
Nonsense. Public debt at the beginning of the 40s was about half of GDP — in other words about the same as it is now. You don’t have the faintest idea what you’re talking about, Acer. Go home.
If you really believe that the extra consumption during the war years is what rebuilt our economy, then why don’t we just have the government stimulate the economy by razing New York City to the ground and rebuilding it.
Um, because I don’t think it’s a good idea for the country to kills its own citizens when spending the borrowed money on productive uses (food stamps, aid to states, infrastructure) makes a lot more sense.
What brought us out of the Depression was the massive savings and rationing instituted to help us to fund the war.
Oh right. Absolutely. Driving down consumption is exactly what you want to do to fight a downturn! Heck, why don’t you start a campaign right now have people stop spending their money? I suggest going to Obama’s transition website…I’m sure you’ll get a hearing.
Herbert Hoover was an inflationist, not a deflationist. Under Hoover, the Federal Reserve reduced the discount rate from 6% in October 1929 to 2% by the end of 1930.
Hoover was hardly a practionier of Keyensian economics:
Source: http://encarta.msn.com/encyclopedia_761584403/great_depression_in_the_united_states.html
In finishing I’ll give you both a nice excerpt from the good professor:
Emphasis mine. (Source: http://www.nytimes.com/2008/11/10/opinion/10krugman.html?hp)
So, let’s see, an Ivy-leage educated Nobel Laureate thinks we should go full throttle and emulate the massive deficit spending of WWII, and two anonymous blog posters argue against such a course of action. Hmmm. Wonder whose advise the incoming administration is going to take? Tee hee.
Final thought: there is one consolation prize for y’all: my ideas about how to beat depression are going to get tested, so y’all will have the chance to say “told you so” if Krugman and I are wrong. Your ideas, um, won’t get said chance. Thanks for playin.
December 16th, 2008 at 11:20 pm
Count Zero
Well, vaguely appropriate, but not really. Count Zero refers to the “count zero error” (which is similar to, and often confused with, fencepost error) which stems from the fact that, in computer languages, tables and arrays are indexed starting with 0, but our natural system of counting begins with 1.
Thus, the count zero error is the mistake you make when you fail to realize that, in order to get (for instance) the 20th item from an array, you pull it from index 19.
December 16th, 2008 at 11:30 pm
There is no doubt that WW2 spending ended the Great Depression. But the reason we were able to pay the debt back without it ruining us (like it did aruably to the British Empire) was that 1) we artificially kept interest rates low through propaganda (’buy liberty bonds’) and 2)more importantly, the rest of the world’s industrial capacity pretty much had to be rebuilt from scratch during the late 40’s and 50’s while ours was untouched. So unless you going to convince people to put all their savings in gov bonds, and bomb asia and europe back to rubble again, the ww2 analogy is not very helpful.
December 17th, 2008 at 9:14 am
Now lets see if he can manage to use Neuromancer in a post title.
December 17th, 2008 at 11:13 am
Krugman is awesome. And he gives credit where it’s due at his blog:
“The line about atheists in foxholes = libertarians in financial crises came from Jeff Frankel.”
Acer:
“Your snarky, idiotic, and frankly quite lazy use of “herberth hoover! OMGSNARKIAMSOFUCKINGAWESOME!” is just stupid and frankly you should learn how to talk about economics and government policy intelligently or shut the fuck up.”
I love it when some pendantic nerd gets upset over economics theories…
December 17th, 2008 at 1:09 pm
Now I’m not advocating a return to 94% marginal rates, but we very likely will have a lot of room to increase the top marginal tax rates, and other taxes on the wealthiest Americans, without a serious anti-growth effect.
Precisely. Arguing that the government temporarily needs to borrow money to fund Keynesian stimulus is not an argument that the government ought to do so indefinitely. I fully expect taxes to rise after the economy begins to recover. I think every American in his heart of hearts has known this for some time know. I mean, at the end of the day there really is no free lunch. Savings rates are also going to have to rise (they’re doing so now) and remain higher than they have been in recent years.
One other piece of evidence supporting the Krugman approach I almost forgot about: the 1980s expansion during the Reagan years was without question kicktarted by the massive stimulus created by the Gipper’s (for the time) gargantuan deficits. The 1982 recession was arguably the worst downturn since the Great Depression.
December 17th, 2008 at 4:34 pm
So, let’s see, an Ivy-leage educated Nobel Laureate thinks we should go full throttle and emulate the massive deficit spending of WWII, and two anonymous blog posters argue against such a course of action. Hmmm. Wonder whose advise the incoming administration is going to take? Tee hee.
Paul Krugman is NOT a Nobel Laureate. He won a Central Bank of Sweden Prize, which pretends to be a Nobel Prize.
Oh right. Absolutely. Driving down consumption is exactly what you want to do to fight a downturn!
Consuming does not make more magically appear. What we need is to increase production, not consumption. Production is increased by investing money. To invest money, you have to save money.
The massive debts incurred during World War II were funded my massive savings campaigns (liberty stamps and bonds) and the use of resources to rebuild factories, etc., was also partly funded by rationing the consumptive use of resources in order that they resources could be redirected to investment in higher levels of production (e.g. new factories). If FDR had simply printed out the money to fund the war and had not encouraged rationing, we would have run out of resources and have been unable to fight the war.
Heck, why don’t you start a campaign right now have people stop spending their money?
The point is this: what an economy needs in order to grow is savings channeled into investment. Using resources to build tanks and planes and bombs that would simply be consumed cannot possibly help the economy grow (in terms of increasing the standard of living) because you are simply using your productivity to create things that get destroyed without benefitting anyone’s standard of living.
What brought the economy out of the Depression was not the building of huge numbers of war machines. If you believe that, then why don’t we just build lots of buildings in the desert and blow them up? It would make as much sense. What brought the economy back was the redirection of spending from consumption into building higher-order goods (e.g. factories), which was financed by increased savings (i.e. rationing and buying bonds).
Hoover was hardly a practionier of Keyensian economics:
Hoover was hardly a free-marketer. And his public works projects and price floors, and attempts to stimulate borrowing, etc. failed to help the economy just as much as his period of relative fiscal austerity did.
Final thought: there is one consolation prize for y’all: my ideas about how to beat depression are going to get tested, so y’all will have the chance to say “told you so” if Krugman and I are wrong. Your ideas, um, won’t get said chance. Thanks for playin.
Shorter Jasper:
Right or wrong, I’m getting my way! Bwa-ha-ha-ha-ha!
December 17th, 2008 at 5:22 pm
Oh right. Absolutely. Driving down consumption is exactly what you want to do to fight a downturn! Heck, why don’t you start a campaign right now have people stop spending their money?
In any case, Jasper, you are missing the larger point. The issue is not merely that consumption was curtailed; it is that consumption was curtailed with the unconsumed resources redirected to higher order goods (e.g. factories, trucks for transporting raw materials as opposed to cars for personal use, radios, and other consumer goods). I am not suggesting that people hoarding resources is good for the economy. Rather I am suggesting that people redirecting their wealth toward investment instead of consumption is good for the economy.
I agree that war rationing would hardly have helped the economy if the goal were merely for people to stockpile goods. The point is that the rationing and savings were used to fund an increase in industrial productive capacity. That increase in capacity is what brought the economy back, not the increase in actual production (which was mostly toward producing thingsthat were quickly consumed by the war).
Put another way, producing huge numbers of planes to be shot down in the South Pacific did not help the economy, but building the production lines, factories, etc., that were used to produce the planes did.
But in order to build these factories, the consumption of wealth had to be curtailed through savings (bond and stamp programs, and the rationing of consumption which led people to put more of their money into bond and stamp and other savings programs).
December 17th, 2008 at 7:20 pm
Re: 1945 marked the start of a post world war baby boom which grew the economy for obvious reasons.
Um, no. There’s nothing obvious about that claim at all! The baby boomers didn’t begin working until well into the 60s after all. From a pure dollars and cents POV, children are no different than retirees: both consume without producing, and must be supported by the labor of others, one way or another. (In addition most of the boomers’ mothers dropped out the workforce, creating an additional burden on the economy, which has no parallel among seniors). In fact, I find it hard to comprehend why, if the country could support the boomers for 20 years or so while they were too young to work, we are going to have such a hard time supporting them for 20 years or so between the retirement party and the funeral.
Re: more importantly, the rest of the world’s industrial capacity pretty much had to be rebuilt from scratch during the late 40’s and 50’s while ours was untouched.
This is equally wrong. The US was absolutely not the only nation with an intact manufacturing base in 1945. Germany and Japan, it is true, had been severely, massively damaged (and even so had some functioning industry). Northern France, Italy, the Benelux countries, Poland and western Russia had sustained serious damage as well (though the Russians had salvaged a large chunk of their industry by transporting it wholesale east of the Urals). The UK has had some minor damage in the Blitz but by 1945 that was long past. Scandinavia had suffered little. Ditto for the southern arc of Europe. Sweden and Switzerland, both neutral, were completely intact. Ditto for Canada, Australia and South Africa.
March 1st, 2009 at 8:55 am
viagra
Very interesting site. Hope it will always be alive!
March 11th, 2009 at 7:46 am
If you have to do it, you might as well do it right
March 14th, 2009 at 8:33 am
I want to say – thank you for this!
xanax
March 22nd, 2009 at 7:09 am
tramadol
Incredible site!
March 22nd, 2009 at 11:10 am
buy viagra online
Excellent site. It was pleasant to me.
April 2nd, 2009 at 8:43 am
Very interesting site. Hope it will always be alive!
buy cheap viagra
April 14th, 2009 at 10:41 am
Very interesting site, Hope it will always be alive!
viagra