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.