Krugmanland Is Powered By Trillion Dollar Coins, Potential GDP, And Unicorn Farts

When you compare government spending to a fictitious GDP figure things don’t look so bad according to Nobel Prize winning economist Paul Krugman.

The crucial thing to understand here is that you do need to take the state of the business cycle into account; it’s not enough simply to do what Nate Silver, for example, does, and look at spending as a share of GDP — a calculation that can be deeply misleading in the aftermath of a severe recession followed by a slow recovery.

Why does this matter? First, if the economy is depressed — if GDP is low relative to potential — the share of spending in GDP will correspondingly look high. Suppose that you have commitments to defense, to Social Security, to Medicare that are growing at rates consistent with the long-run growth in the economy; if the economy plunges and then takes a long time to get back to trend, those spending programs will temporarily account for a larger share of GDP, even if there hasn’t been any acceleration in their growth.

Second, there are some programs — unemployment benefits, food stamps, to some extent Medicaid — that tend to spend more when the economy is depressed and more people are in distress. And rightly so! You don’t want to take a temporary spike in UI payments after a deep slump as a sign of runaway spending.

So how can we get a better picture? First, express spending as a share of potential rather than actual GDP; we can use the CBO estimates of potential for that purpose. Second, keep your eye on the business cycle — and, in particular, on how spending is evolving now that a gradual recovery is underway.

Perhaps we should just move to an all-fantasy based economy. We can call it Krugmanland. In Krugmanland everything would be great all the time.

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  • Brucehenry

    So where is the advocacy of a trillion dollar coin?

    • herddog505

      Should President Obama be willing to print a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely. He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.

      Paul Krugman
      The New York Times
      January 7, 2013

  • herddog505

    What an idea! Why, imagine if we talked our wives into this!

    “What do you mean, ‘We can’t afford that [new fishing boat / trip to Vegas / season tickets]’? Just because we don’t have the money NOW is no reason. You’ve got to think of our POTENTIAL income, honey. Yes, I know that that I’ve maxed out every credit card we have and put a second mortgage on the house. Yes, I know that I spent the kids’ college fund AND took the money from the piggy banks. Yes, I know that there’s no way to actually KNOW what we’ll be making in six months, but, if we close our eyes, tap our heels together three times, and repeat, ‘We’ll have the money’, it’ll come. Pinky swearz. I mean, think about it: how much money did we make when we were ten years old? Compare that to how much we make NOW. See? It just goes up and up and up! It’s math, honey: it’s not hard. Even Paul Krugman can do it.”

  • Commander_Chico

    The oligarchs fully bought into globalization years ago, because it benefits them immensely (by giving more of all kinds of value added to capital than labor than was previously the case in the USA and the developed world). They foisted the diktats of the WTO and NAFTA on the USA.

    Too bad the USA is about the only country that plays by the rules of free trade – everywhere else there’s protection of domestic manufacture and agriculture. But as long as those dividends keep coming in from low-wage foreign manufacture and services, who cares? Oh, you mean the average American who doesn’t have a shitload of stock or emerging market mutual funds care? Oh well, sucks to be them.

    When Ross Perot warned Americans 20 years ago about the “giant sucking sound” of jobs leaving the USA for Mexico (and the rest of the underdeveloped world) few listened.

    Now US manufacturing is destroyed and US wages have been flat or declining for 20 years.

    Average Americans are fucked. For the top it’s the best of times. Soon those of us at the top will be able to easily hire maids and even concubines, like the way it is in Dubai, India, Brazil, or China for those at the top.

    Now, lets hear from all of those who blame unions for slowing down the fall of US wages to Bangladeshi levels. Yes, that will solve the problem of fantasy GDP and deficit government spending – lower wages for Americans. Riiiight.

    • jim_m

      Yes it’s far better to have double digit unemployment (not the bogus numbers the BLS comes out with these days) and labor participation rates that are the lowest in over 30 years.

      It is far better to have millions on government provided unemployment and welfare than to have actual, productive jobs.

      It is far better that unions price labor so high that it is cheaper to send those jobs overseas and pay to ship the goods back here.

      It is far better to pay people not to work and take money from the productive people in society to pay those who are out of work to be idle.

      If you don’t like what you are being paid then go do something to make your labor more valuable.

      What you advocate is that people should just do nothing to better themselves and rely upon government to steal someone else’s money for them. You advocate dependency and sloth. You advocate an unsustainable socialist state that preys upon the productive in order to pay nonproductive parasites who will vote themselves ever larger payouts for being useful idiots to a totalitarian regime.

      People should be responsible for their own lot. If you want something better then you can get off your ass and do something about it rather than demand that government steal from someone to make you happy. When I wanted more I did something about it, I changed careers, took on some risk and more than doubled my income.

      Excuse me if I choose to pass on your fascist state. I’m not terribly enthused about your vision of a nation where if people don’t want to do work for what the work is worth that they can then demand payment from the nation to do nothing. That is what you are demanding. It doesn’t surprise me that you demand some special dispensation because you think that your work is actually more valuable than what anyone wants to pay for it.

      • Commander_Chico

        I am being paid very well, thank you. But as I have said many times, about half the population has below average cognitive abilities and can’t do much to get paid more, unless they are hot women.

        The USA lets itself get reamed by “free trade” when they are the only ones practicing it. Perhaps a little protection for American industry might be in order.

        • jim_m

          about half the population has below average cognitive abilities and can’t do much to get paid more,

          WRONG!!!! Not “about half” is below average. By definition exactly half will have below average cognitive abilities. The issue is whether there is a requirement to make them all as wealthy as everyone else.

          Fact of the matter is that Lake Wobegon is a joke that you obviously do not get. Not everyone can be above average in intelligence nor can we all be above average in income.

          Only a complete dumbass like you would complain that “about half” of everyone is below average.

          What a hoot! How do you expect that we should make everyone above average? Or perhaps your solution is to make everyone average? The communists do that. They make everyone poor so everyone is the same. Some have argued that this is exactly obama’s idea. You seem to advocate for it. You’re really stupid. I suppose you are a good example of one of those “about half” that are below average cognitive ability.

          • jim_m

            As for those who are below average intelligence: Joe Biden seems to do quite well for himself.

          • Commander_Chico

            The problem is not that those who are below average are not getting wealthy; it is that they are not able to make a living working at all.

          • jim_m

            Prove it. You are obviously making a living and your statement above demonstrates borderline average intelligence at best.

            I’ve known a lot of people who were not brilliant but made very comfortable livings. It doesn’t take a college degree to live well.

          • herddog505

            Oh? Then how do you explain the Congress?

          • jim_m

            Chico believes that Hank Johnson is an epic genius.

            “My fear is that the whole island will become so overly populated that it will tip over and capsize,”

            Then of course there is our future Sec of State

          • jim_m

            America is about equality of opportunity. If you want equality of outcome you should move to Cuba. Sorry that the old USSR is defunct because it would have been perfect for you.

    • herddog505

      Commander_ChicoThe oligarchs fully bought into globalization years ago, because it benefits them immensely (by giving more of all kinds of value added to capital than labor than was previously the case in the USA and the developed world). They foisted the diktats of the WTO and NAFTA on the USA.

      This is counter-intuitive. “Oligarchs” like nice, tight, closed systems as this gives them more – if not complete – control. Globalization, unless we’re talking a handful of megacorporations (somehow) calling the shots, is much more competition than it seems to me that they would prefer.

      • Commander_Chico

        The way I see the world system operating now, is that there is a connected group of oligarchies who do business with each other while providing little benefit to their respective national populations.

        Thus you have a U.S. financial elite of banksters, the Chinese “Communist” crony oligarchy, Russian oligarchs, Gulf Arab ruling families, London City bankers, Eurocreeps all sucking the blood out of their people.

        • herddog505

          But aren’t those oligarchs in those other countries protected by tariffs and other trade regulations?

          It seems to me that you’re trying to have it both ways: globalization (free trade) is a tool TEH OLIGARCHY… except when it isn’t.

          • Commander_Chico

            Each oligarchy will shape national policy to suit itself. For American bankers and investors, the benefits of offshoring employment outweigh the immediate consequences. I believe they are wrong – they are destroying domestic demand – but American corporations are run for short-term goals, not long term. The Chinese and Germans, for example, take a longer-term view

          • herddog505

            My job is “off-shored” from Germany.

            Anyway, all you’re saying is that people in business seek the best markets and cheapest labor and other costs. There’ s no TEH OLIGARCHY to it.

    • ackwired

      The history is that the countries on top of the heap favor free trade and the countries on the make favor various forms of protectionism. The US practiced protectionism before it got on top and will soon be practicing it again as we fall from the top.

      • herddog505

        I fear that you are correct.

  • Hank_M

    Doug, you really should have included the first paragraph that Krugman wrote.

    “The fiscal debate in Washington is dominated by things everyone knows that happen not to be true. One of those things is the notion that we have a fiscal crisis, an assertion belied both by the low interest rates at which the Feds can borrow and by the fact that medium-term deficit projections really aren’t that alarming. Another is the notion that our current deficit is driven by a surge in government spending.”

    This is the same Krugman that wrote in March 2003 that

    “..I’m terrified about what will happen to interest rates once financial markets
    wake up to the implications of skyrocketing budget deficits.”

    Krugman is a dishonest political hack. No wonder he’s admired by those on the left.

  • 914

    Hell’s bells! Why settle for a trillion? Let’s mint a Quadrillion dollar unicorn coin and end world debt altogether.

  • Japan also has a declining debt to potential GDP ratio. Forget that its been in a recession since 1990 or that its debt to GDP ratio of over 200% must pop one day. According to Krugman’s fantasy land, everything is hunky dory! When did we let the town clown represent the economic profession?

    • herddog505

      Because the town clown has a shiny Nobel Prize to him credibility with the hoi-poloi and, most importantly, because the right words dribble out of his cakehole.

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