Who's Worse: Spending Obsessed Keynesians or Austerity Obsessed Tea Partiers?

I just can't decide which is worse, Kindergarten Keynesians like Paul Krugman - blind to the present disconnect between spending and jobs and to the irrationality of thinking our sin can be our sole savior, or one-minded Tea Partiers - blind to anything other than their own ideology at the expense of economic stability.

On Economic Definitions: Recession

Media's definition: 2 consecutive quarters of negative GDP growth
Economists' definition: Whenever the NBER says so....
And then there's reality:

Debt Debates: Who's to Blame

You could blame Republicans for not compromising

You could blame Tea Partiers for their ideological wall

But you'd be blaming the wrong persons

No, ultimate blame lies with one group: mainstream economics

Why? Where do the tea partiers and the conservative Republicans get this deep underlying notion that economic efficiency (ignoring inconvenient truths like externalities and fairness) is the goal our society should aspire to at all costs? Where do they get the mistaken notion that keeping taxes marginally lower is more important than reducing uncertainty for jobs and business growth? Where do they get the notion that growth can and should be pursued with a complete blind eye to issues of equity and fairness? Where do they get the notion that national income can be looked at in aggregate to be a barometer of economic well-being - as long as profits are rising, things must be going well....?

Where else, but those that taught them - mainstream economics professors across this country that continue to turn a blind eye to the real, full picture - including matters that other economists have been shunned for decades for trying to discuss.

So, if anyone is to be blamed or should feel ashamed it should be mainstream textbook authors that conceal real truth with half truths; and it should be teachers that can't pick their face up out of a glossy text to recognize that ability is as important as willingness - forever getting lost in the assumptions; and it should be researchers who hide behind differential equations and so called 'simulation' models; and it should be students that take it all in without blinking.

Welcome to our future.

Heed the warning, economists.

Various Causes of Mortgage Crisis

An interesting read.... (hat tip to Mankiw)

But, one thing I've learned that may have helped exacerbate the bubble (if one believes that theory - which I do)that I don't see really mentioned here is the fact that banks and loan originators often had direct and overly 'cohercive' relationship with residential appraisers, to the point where appraisers were often 'encouraged' to basically comp, say, home values associated with a higher-priced nearby neighborhood to what they are supposed to be appraising - to inflate the size of value/loan. And by the way, this was fairly common knowledge prior to the explosion of the crisis. . Luckily, the Dodd-Frank financial reform act has accounted for this and essentially is pushing the industry toward the use of middlemen....appraisal management companies that stand between the banks and the appraisers. More here.

How much of China's GDP is pirated?

A story tells about a fake Apple store.

I've had friends that have traveled to China tell me similar stories (in addition to the horrible working conditions, dangerous chemicals used in production, etc)

According to the U.S. Government Accountability Office, "Chinese" goods represent 77% of pirated goods seized in the United States.

All these issues and the currency manipulation....

When are we going to get real with this country? And what is the answer to my posed topic title question? Well I've seen blog posts and magazine articles say that roughly 8% of their GDP is due to 'fake' manufacturing. I don't necessarily buy that number because I can't find the study behind it....

Why Am I Sad?

Because I could never afford to go to Hogwarts.

What IS the disconnect b/w Spending and Jobs?

I am still thinking on this topic. The standard Keynesian line, which I am right now listening to a summary of on today's Diane Rehm Show, is that pumping money via spending or unemployment benefits increases spending which increases jobs. The former can be shown to be true, but the last connection - that between spending and jobs is a bit more suspect. It certainly hasn't materialized during this 'expansion'. We stand still at 9.2% unemployment while spending has increased over the past 2 years and as corporate profits have risen to historic highs.

So where are the jobs? If Keynesianism can't come up with a theory to connect spending to jobs DIRECTLY, then they have no real theory at all. Standard macro textbooks have no theory, other than that 'spending is too low' and that more spending will create more jobs. But never is that actual mechanism explained anywhere. And as I've pointed out in a previous post, even John Keynes himself was vague on this meachanism - preferring to assume it to be true that of course spending would lead to more jobs. The New Keynesians say that prices and wages must adjust before employment starts moving - well it's been 4 years and wages (and to a lesser degree until recently, prices) have been flat, so what is the problem?

Here's what I see reality as being: Spending leads to more spending which, in connection with an already weak labor market and productivity gains (at the expense of employees and the unemployed) lead to higher profits. That's as far as we can get today with mainstream economics. How do you get from higher profits and spending to higher employment, other than the passage of time and allowing the normal long-run profit expectation mechanism, or at the other extreme, direct hiring programs to lead to jobs creation - both of which come with costs.

Regardless, (mainstream) New Keynesianism has a lot more explaining to do because right now, the theory is rather lackluster. I've heard some sympathetic to this concern slighly revise their logic to say, "well, ok, Keynesianism is often only good at preventing further free-fall and not so good and driving out of recessions absent a huge spending package (war)...." Well, I'm sorry, but I'm sick of people creating conveniently made-up realities to match their models. I want an economics to look at reality and try to explain it - as a (former) fellow economist, I say to economists to get your nose out of calculus books and simulated equations and start paying attention to reality.

World Economics Association

I'm a little late in the game, but I'd like to mention that the World Economic Association was launched a couple months ago - a conglomeration of heterodox / open / pluralist economic thinkers. (Read the manifesto here)  It looks like it could be a legitimate platform to conglomerate some of the various pluralist factions.  I just joined.

How to fix America's dependency on foreign goods

First, one has to admit there a dependency and that such a dependency has some problems.
I admit there is, and I do think there are problems when we rely on China and Vietnam and Thailand etc. for many of our goods.   Largest amongst these is the environmental issues that arise from shipping relatively cheap goods across oceans and all the non-monetized costs that the Earth ends up sucking up.

Recently Indy Star Op Ed columnist Matthew Tully wrote: "each beer mug or towel made elsewhere is a job that doesn't exist here..."  

That's the kind of rhetoric you hear from populists and expect from uninformed columnist (like this).  Of course we know that is not true.  Buying cheap goods from others affords us make and sell other kinds of goods through specialization - and that requires and utilizes a whole other kind of labor pool.   Arguably, it affords us a more advanced labor pool.  So Tully goes overboard and over-sells the argument and offers no good solutions.   Only that he wishes someone would "start a dialog."  YOU ARE A REPORTER with a 'major' newspaper - why don't YOU start a real dialog talking about solutions....  But since you didn't here's some of my ideas:

With the exception of perhaps China, our over-reliance on (cheap) foreign goods is NOT their problem - it's solely our problem.  Also, our problem is not mainly the buying of foreign goods, it is the unnecessary/irrational buying of goods, period.  So, first, we (the US) need to get off our high horse and recognize our addiction.

How do we do that?  Well, we need to educate, re-educate, and shift people's priorities.   First, we need to mandate business and finance courses as much if not more than we mandate science and English - in all levels of education.  We need to teach students the value of savings, prudent investment, worthy spending, entrepreneurship, environmental concerns, retirement, etc. WAY earlier than we presently do.  Stop making money an adult issue.  It's not.

I know....now you are thinking.  "Hippie!  How are we gonna pay for all those new programs."  Well, simmer down son and let me tell ya.  I actually have two ideas.  First, we could replace out-dated / unnecessary education programs.  Spelling comes to mind, as does shop...but there may be others.  Second, and this has to do with the "re" part of "re-education," we need to eliminate or scale-back some of our entitlement programs.

OK OK sit down and stop gasping.  Yes, we need to.  I didn't used to think that.  I used to be as much of a liberal as the next guy wearing a tweed jacket, but not anymore.  I've learned via working in government, and observing activity in the economy that people EXPECT things to be GIVEN to them.   Students think As are deserved even if they miss 1/4 of the classes (happens all the time to me - I'm not joking), old or poor people expect hundreds of thousands of dollars in medicare and medicaid and social security, rich people expect big tax breaks from Republicans and the ability to cheat on their wives undisturbed, Chrysler expects to be bailed out when they go bankrupt again in 20 years.... All this means we need to own up to the fact that we have trained the average citizen to expect  that they can buy a house on credit that is way out of their means, that they can run a ponzi scheme unfettered, that they can buy a $400 watch from Wal-Mart meanwhile collecting unemployment benefits.   The problem, my fellow Americans, is that we buy shit we don't need, with money we don't have, from often-times shady States that have no problem feeding our addictions.   One way to reduce the addiction is to reduce the expected high - and the best way to do that is to cut some of it off, and re-educate.