mykeystrokes.com

"Do or Do not. There is no try."

“Decisions, Decisions”: Why Cruz Is Worse Than Trump

On economics, that is. On other issues — well, who was worse, Mussolini or Torquemada? Decisions, decisions.

But on economics, Trump is a big protectionist, while Cruz is a devotee of the gold standard. And we know quite a lot about what these policies would do.

Protectionism makes economies less efficient, but it does not, in general, destroy jobs. Put a tariff on imports and people will spend less on imports — but they will normally spend more on other things instead. So a worldwide turn toward protectionism would both reduce everyone’s exports and reduce their imports, with the overall effect on spending and hence on employment more or less a wash.

Yes, I know there’s a Moody’s study claiming that Trumponomics would be a yuuge job destroyer, but I really don’t know where they got that result; the best guess seems to be that they’re assuming that former spending on imports just goes away, which is not a good assumption.

And no, protectionism didn’t cause the Great Depression. It was a consequence, not a cause — and much less severe in countries that had the good sense to leave the gold standard.

Which brings us to Cruz, who is enthusiastic about the gold standard — which did play a major role in spreading the Depression.

The problem with gold is, first of all, that it removes flexibility. Given an adverse shock to demand, it rules out any offsetting loosening of monetary policy.

Worse, relying on gold can easily have the effect of forcing a tightening of monetary policy at precisely the wrong moment. In a crisis, people get worried about banks and seek cash, increasing the demand for monetary base — but you can’t expand the monetary base to meet this demand, because it’s tied to gold. On top of that, a slump drives interest rates down, increasing the demand for real assets perceived as safe — like gold — which is why gold prices rose after the 2008 crisis. But if you’re on a gold standard, nominal gold prices can’t rise; the only way real prices can rise is a fall in the prices of everything else. Hello, deflation!

So on economics, again, Trump is ignorant and unpredictable — but Cruz knows what isn’t so, and would lead us to predictably dire results.

 

By: Paul Krugman, The Conscience of a Liberal, Opinion Pages; The New York Times, April 8, 2016

April 10, 2016 Posted by | Donald Trump, Monetary Policy, Ted Cruz | , , , , , , | 2 Comments

“The Forever Slump”: The Debate Between The ‘Too-Muchers’ And The ‘Not-Enoughers’

It’s hard to believe, but almost six years have passed since the fall of Lehman Brothers ushered in the worst economic crisis since the 1930s. Many people, myself included, would like to move on to other subjects. But we can’t, because the crisis is by no means over. Recovery is far from complete, and the wrong policies could still turn economic weakness into a more or less permanent depression.

In fact, that’s what seems to be happening in Europe as we speak. And the rest of us should learn from Europe’s experience.

Before I get to the latest bad news, let’s talk about the great policy argument that has raged for more than five years. It’s easy to get bogged down in the details, but basically it has been a debate between the too-muchers and the not-enoughers.

The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now — within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “risk currency debasement and inflation,” declared a who’s who of Republican economists, investors, and pundits in a 2010 open letter to Ben Bernanke.

The not-enoughers — a group that includes yours truly — have argued all along that the clear and present danger is Japanification rather than Hellenization. That is, they have warned that inadequate fiscal stimulus and a premature turn to austerity could lead to a lost decade or more of economic depression, that the Fed should be doing even more to boost the economy, that deflation, not inflation, was the great risk facing the Western world.

To say the obvious, none of the predictions and warnings of the too-muchers have come to pass. America never experienced a Greek-type crisis of soaring borrowing costs. In fact, even within Europe the debt crisis largely faded away once the European Central Bank began doing its job as lender of last resort. Meanwhile, inflation has stayed low.

However, while the not-enoughers were right to dismiss warnings about interest rates and inflation, our concerns about actual deflation haven’t yet come to pass. This has provoked a fair bit of rethinking about the inflation process (if there has been any rethinking on the other side of this argument, I haven’t seen it), but not-enoughers continue to worry about the risks of a Japan-type quasi-permanent slump.

Which brings me to Europe’s woes.

On the whole, the too-muchers have had much more influence in Europe than in the United States, while the not-enoughers have had no influence at all. European officials eagerly embraced now-discredited doctrines that allegedly justified fiscal austerity even in depressed economies (although America has de facto done a lot of austerity, too, thanks to the sequester and cuts at the state and local level). And the European Central Bank, or E.C.B., not only failed to match the Fed’s asset purchases, it actually raised interest rates back in 2011 to head off the imaginary risk of inflation.

The E.C.B. reversed course when Europe slid back into recession, and, as I’ve already mentioned, under Mario Draghi’s leadership, it did a lot to alleviate the European debt crisis. But this wasn’t enough. The European economy did start growing again last year, but not enough to make more than a small dent in the unemployment rate.

And now growth has stalled, while inflation has fallen far below the E.C.B.’s target of 2 percent, and prices are actually falling in debtor nations. It’s really a dismal picture. Mr. Draghi & Co. need to do whatever they can to try to turn things around, but given the political and institutional constraints they face, Europe will arguably be lucky if all it experiences is one lost decade.

The good news is that things don’t look that dire in America, where job creation seems finally to have picked up and the threat of deflation has receded, at least for now. But all it would take is a few bad shocks and/or policy missteps to send us down the same path.

The good news is that Janet Yellen, the Fed chairwoman, understands the danger; she has made it clear that she would rather take the chance of a temporary rise in the inflation rate than risk hitting the brakes too soon, the way the E.C.B. did in 2011. The bad news is that she and her colleagues are under a lot of pressure to do the wrong thing from the too-muchers, who seem to have learned nothing from being wrong year after year, and are still agitating for higher rates.

There’s an old joke about the man who decides to cheer up, because things could be worse — and sure enough, things get worse. That’s more or less what happened to Europe, and we shouldn’t let it happen here.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, August 14, 2014

August 18, 2014 Posted by | Economic Recovery, Financial Crisis | , , , , , , , , | 1 Comment

   

%d bloggers like this: