4 Responses to “It’s quiet out there”

1. Aki_Izayoi
   June 26th, 2009 at 6:06 pm

   

   The unemployment benefits will probably be extended again. I do not know for sure that will happen. Regarding the safety net, it never really exist because the US is not Sweden or Germany. I expect a slowdown in Germany and mild deflation there. I like longing German bonds because I think deflation would be politically acceptable there since they have strong social safety nets to mitigate the harm caused by deflation. Besides that, there really doesn’t seem to be any moral imperative to fight deflation since its harm effects are mitigated.

   During times of crisis, I expect people to gravitate towards behavior that would favor the “in-group”. Largely because it is an evolved instinct, and primarily evolved to deal with the “free rider problem.” Regarding this, people will usually promote nativist policies such as immigration restriction and protectionism. Of course, during this time the job market (at least the unskilled job market) is a zero (or negative) sum game, and the lump of labor fallacy isn’t a fallacy as it is an accurate description of reality. So reducing intranational and internation competition should be promoted by most politicians since it is the long hanging political fruit. However, the US does not have good bread (as in the form of a comprehensive welfare state), but the people really do love the circuses such as “American Idol” which suppresses political outrage. I was initially surprised that protectionism was not vigorously mentioned in the media or by politicians nor does Rush Limbaugh talk about restricting immigration on his how that much.

   Maybe this is a nice blog post:

   http://www.nakedcapitalism.com/2009/06/will-americas-besieged-middle-class.html

2. Graphite
   June 26th, 2009 at 10:47 pm

   

   Aki, you need to wake up and stop using Sweden and Germany, outright socialist states, as your hurdle for whether a “safety net” exists at all. Any politician can hand out a bunch of free stuff (which is what all safety nets really amount to) when an economy is relatively healthy and growing, as most world economies have been over the past 50/60 years when these policies were put in place. Handing out that free stuff becomes much more of a challenge when a third of the population is out of work and clamoring for their sustenance to be provided by the other two thirds. Since all modern welfare spending is of this pay-as-you-go nature, and there is no saving whatsoever to support any of it, it’s my belief that these safety nets are rated for 40 pounds and in fact offer no “safety” at all. As Bob Howe puts it, in a depression these safety nets, whether America’s or Germany’s or Sweden’s, will be as useful as an umbrella in a crowbar storm.

   Now, there are reasons beyond all this to believe that the Obama Administration will be especially catastrophic for the welfare of the lower classes in this country. On that note, look no farther than their entertainment of plans to begin demolishing the housing stock around the country even as more and more people are turned out of their homes.

   The idea that deflation will cause harm to the poor that inflationary policies would mitigate is a Big Lie foisted on this country and the world by people with an interest in propping up asset prices and the expansion in government power that comes with inflationary policies. What do the poor have to lose from deflation? They don’t own the assets that will be collapsing in value, they can default and walk away from debts to buy houses and vacations and other things they never could afford in the first place, and a huge share of their income is spent on items which should become cheaper as deflation progresses. To think that deflation is a bad outcome for the poor you have to believe that its opposite, inflation, would have some kind of salutary effect on employment, which is just Keynesian nonsense.

   At any rate, deflation/inflation is *not* a policy decision that will be driven by the relative strengths or weaknesses of given social safety nets. Whether deflation is politically acceptable or not is completely beside the point. It will happen unless the government becomes very aggressive in printing banknotes. (I do believe the Obama Administration is potentially corrupt enough to follow this path. Something like the replacement of Ben Bernanke with Larry Summers at the head of the Fed would be a major alarm bell for me to move more of my cash into hard assets to protect against this outcome.)

   Yves’ post at nakedcapitalism is silly. “But in our current paradigm, enforcing market principles takes precedence over human dignity.” What nonsense is this? Our government is doing nothing but REPEALING and THWARTING market principles left and right! Granted, in many cases they are doing it for the benefit of well-heeled financiers and elites, but that hardly makes the whole enterprise capitalistic.

   FDR’s New Deal and the WPA did nothing to mitigate the depression of the 30’s, but because it was enacted soon after the recovery from the abyss of 1932, and thanks to a healthy propaganda effort, they managed to convince a bunch of bumpkins (like the one the New York Times approvingly quotes) that it saved the country. It’s absolutely awful historiography.

3. Aki_Izayoi
   June 27th, 2009 at 12:35 am

   

   What do the poor have to lose from deflation?

   “What do the poor have to lose from deflation? ”

   What does the rich have to lose?? Of course. some of them own levered assets that declined in nominal value, but in most cases, they really lost nothing but the gains from asset price inflation. They are still well-connected because economic power is conflated with political power.

   Regarding your question. Well, most of them are in debt and the only asset the poor have to offer is their labor. Doesn’t deflation increase the real burden of debt and lower labor prices? Saying that, it doesn’t mean inflation is a good outcome for the poor in a given country. Of course, the Federal Reserve succeeded in suppressing inflation if we use their definition of inflation. Well, inflation/deflation is the main determinant of the welfare of the poor in a given country. Other variables such as the global supply of labor are more important than that as I implied in the earlier post with my references to immigration and protectionism. But wage inflation benefits the poor in a given country (I use the phrase “in a given country” because I am making the assumption that the normative value of the poor in other countries would be highly discounted due to in-group bias in this post) while wage deflation hurts them. Asset price inflation doesn’t benefit the poor; in fact, it is often harmful to them. Regarding Germany, they do have a high savings rate, and they possess the memory of the Weimar hyperinflation which would discourage the adoption of inflationist policies. (Other EU countries might promote inflationist policies though by Germany has plenty of influence at the ECB). Because Germany already has a large welfare state, I do not see any reason for them to engage in further “stimulus” spending, nor would I recommend it for Germany.

   I did not post my remarks to defend Barack Obama’s policies, but I still think many of FDR’s policies mitigated the harm caused by the Great Depression. Surely, FDR’s policies would not bring economic prosperity, but he at least mitigated the harm, much like a Popperian piecemeal engineer. I also believe the consequences of WWII brought the US prosperity after the War. This doesn’t mean that war is panacea for the world’s current problems.

   Although I did make it clear in other comments that I would probably be counted as a “socialist” here, I did not come here to proseltyize any moral or political beliefs as that would just be annoying and a waste of everyone’s time. However, I am going to make several empirical claims that are tenable: European welfare states have a high relative and absolute standard of living; and during times of crisis people usually gravitate towards behavior that favor the in-group (in the political sphere this means protectionism and immigration restriction.) I did not post my comments to recommend the welfare state as public policy for the US. To the contrary, I do not think the welfare state is politically possible in the US.

4. Steve
   July 6th, 2009 at 7:25 am

   

   “the dependence on stock appreciation for everything from exhorbitant college costs to retirement”….. it ain’t just stocks. I owned a rabbit hutch in Torrance California that I wouldn’t buy today for anything more than $70,000 even in today’s worthless dollars that is still priced in today’s market at over 1/2 a million…. and YOU’re giddy to see STOCK prices drop? let’s see this stupid real estate fall another 50% in places like LA and Arizona. THAT would be cool.