Friday, June 1, 2012

Krugman: 2 million people don't matter

Krugman: 2 million people don't matter. This does not count all of the multuplier effect jobs that service construction.

Krugman has decried that we live in a dark ages of macro-economics. He's right: basic counter-cyclical policy has been forgotten, and he is correct in attacking the hausterity community. Sadly, he's also part of the dark ages of macro-economics, when he refuses to put the other half of the equation in place. The government, in a down turn, borrows money to restructure the economy. This was the other part of the New Deal: to spread demand vertically and horizontally, and create an economy that could unlock economic energy. For those misty eyed about the new deal, don't worry, this generation will give you a chance to do it again.

The Skipping Stone

Some time ago when certain individuals were trumpeting the coming expansion, sans real data, this blog was putting forward the skipping stone thesis: namely policy makers were afraid of another significant downturn, but because of the red queen's race, did not want to have a robust expansion, therefore, as soon as enough expansion took hold to ease the fears of a wipe out of the present political order, they would turn to austerity again, and economies would slow. This is a consequence of the end of cheap oil, and the accumulation of assets in the hands of those oilarchies with small stakeholder bases versus the accumulation of assets in the hands of those who control the capital system. That's the real argument of political economy in a nutshell: how to keep the holders of capital rents ahead of the holders of sovereign resource rents. Everything should be looked at through this lens.

According to the skipping stone, the US economy would be allowed to slow to near standstills, and then there would be a pump of money, largely by revenue reductions and other capital inflation measures, id est QEFoo. This is why mid-cycle governments such as the UK are taking their recession now, with two years to recover, Sarkozy's fall in France being an object lesson.

The skipping stone thesis is, of course, supported by employment data. But why listen to people who have actually come up with ideas based on employment data, when you can hire hacks whose job it is to give people in denial self-spin? It's not like there are really barbarians inside the gates who will make trouble. Demographics isn't destiny, but it is a measure.

So while the boomers fiddle around with how to distribute the wealth they are robbing from the millenials - decisions, decisions, spend it on prop up home values or to pay for expensive medical treatments? So many thieves, so few victims.

One more time: it is blazingly obvious that America trading oil rent for land rent and driving the sprawlconomy is a broken mechanism of spreading the benefits of internal capital demand, and until we realize this, we are going to keep putting our hand in the fire, and getting it burned.