Comments on: Counterintuitive economics can help politicians Sat, 03 Jan 2015 16:42:55 +0000 hourly 1 By: trevorh Thu, 13 Dec 2012 05:57:12 +0000 Even if you think in term of liquidity trap, you have to fully understand what is trapping liquidity (ie money).
The conventional Keynesian answer is “saving”.

Data I know seems to show that personal and household savings are not increasing (if not decreasing), so people are NOT trapping liquidity (ie saving money). Personal saving is NOT the issue.

What else can possibly trap liquidity?
I can see 2 possibilities:
– Corporations sitting on pile of cash
– Exporting countries like China.

– Corporations won’t release the liquidity for investment (in rich countries, where unemployment is high) because they run out of ideas to invest in rich countries.
– China won’t reduce reliance on export probably because they want employment for the mass to keep them busy and not wage uprising.

So government debt is not going to sustain long term growth and prevent liquidity to be trapped AGAIN! So you have to deal with the things that always end up trapping liquidity anyway. You can’t do anything to China, so the least you can do is to touch corporation.

Think about it as “capitals” trapping liquidity. If you ensure that there is a more equal distribution of capital, then liquidity will be distributed more evenly as well. This requires either people being self-employed or owning shares/stocks in profitable companies that are sitting on cash and trapping liquidity right now. The pile of cash distributed as dividends in profit sharing will definitely reduce liquidity trap problem.

But it is risky to keep capitals (as in companies go bankrupt, stocks/shares/assets go to zero). Not to mention the fraudulent activities involving equity market right now (especially common shares), so people only want to keep safe assets (cash, liquidity), then liquidity is trapped again.

As liquidity can’t trap liquidity, only capitals (of profitable companies) can trap liquidity. You can sing government debt all you want, but then the liquidity trap will come back again.

That’s how I see it, I don’t know what the world elites are seeing.

By: BVN1 Wed, 12 Dec 2012 17:18:36 +0000 Counter intuitive economics, or better yet an understanding of comparative economics, are the only solutions that make sense in this liquidity trap environment. Anatole you should profile Warren Mosler and the Modern Money Theory movement which has provided the necessary framework to view policy options in a private debt deflationary environment. How & Why do central banks afford to pay 100% for useless assets, ie QE’s? Because it doesn’t matter! They only want to get money back into the economy and maintain the low price,rates with the hope and prayer that it will lead to employment and demand when people refinance and lower debt burdens.

The GD proved that fiscal policy and direct investment is public goods is the only way to sustain consistent long term growth. We can’t afford not to pick up this argument and declare it with the realistic, moral authority it deserves.

By: trevorh Wed, 12 Dec 2012 03:47:01 +0000 I want to add a few more observations.

4. Certain individuals will be smart enough to see how the system is operating, they will try to take advantage of it. At the very least, they will try to play defensive to protect their wealth (remember the rush to buy gold just last year).

Even Buffet pointed out, he doesn’t see how people can “invest” in gold (well, they don’t invest in gold to win, they invest in gold to not lose). When you invest in gold, the only kind of jobs you create is perhaps for the miners in South Africa.

That is a prime example of incorrect allocation of financial resources.

5. The writer wrote “Businesses are reluctant to make new investments when they see consumer spending in decline.”
I absolutely disagree, business have so much money, they don’t invest because they run out of value-generating new ideas. If they invest with old ideas, then they can only go investing in developing poor countries where even old ideas have not been implemented (thus investing in poor countries right now generates real value and thus legitimate, real profit).

Having said that, I don’t see any other option. The governments in rich countries are gonna have to spur demand for certain type of labor somehow. Or else you end up seeing riots on the street. In the US, (except the career welfare ones) most people are not as spoiled as those in other more liberal countries like Europe, so some spending might not be that bad.

Anyway, imagine a balance society, but then all of a sudden, one type of people, say the lawn mowers (or accountants), decide to have lot of kids causing imbalance in society. What you end up with is high unemployment because there are only so many lawns (accounts) out there. You have imbalance.

Yes you can stimulate demand for lawn mowing by legislating people to have bigger lawns, or even spend money to create gigantic public lawns (hello pyramids in Egypt) to spur lawn mowing demand. But then this kind of solution is.. I don’t even bother comment more

The more I read expert analysis, the more I can see how the world elites misunderstand how the world operates (or they know it, but they want to milk it, or they afraid people call them Nazi, or they afraid to lose their ‘nice’, ‘benevolent’ mask, or combination of all).

I like truly benevolent people, and I dislike “go eat cake” Nazi kind of people too, but the current thoughtless way simply can’t continue.

I will discontinue my internet at the end of this month, the more I read, the more news I follow, the more things I realize, the more headache my brain has to go through…

By: trevorh Wed, 12 Dec 2012 00:40:23 +0000 Typical mind set of game theory economist.

Major misunderstanding at several levels.
1. The current prosperity of the system based much on production efficiency, you redistribute the resources more evenly will push the system away from efficiency and to a slippery downward slope.

2. Money printing will lead to inflation in basic food and fuel, especially in poor country (hello Egypt). It is ALREADY inflationary in the current situation. Just because people in rich countries can’t feel it, doesn’t mean it is not there.

3. Very DANGEROUS mind set of game theorist: You lose so I win. This is the fundamental driving force in Keynesian game theorist economists’ way of thinking. If the savers lose money (in real purchasing power term), because of the finite zero sum game principle, the wealth doesn’t not disappear. The wealth will thus be transferred to everybody else.

Game theorists thus set forth the idea of life is about redistributing wealth to allow a growing population. It’s ok to steal if you steal from the wealthy. Thus the society breeds an entire industry of people whose job is to prey on someone else with money and saving. If these savers lose money (to them), then they can redistribute the money to the poor and the ones that they consider deserving. They play the role of the benevolent agent of God. They stand between man and God. They become the richest in the society at the same time together with their acolytes screaming for more equality.

Hurt most in the end are those who actually put in real work, real productive work (from constructor, plumber, bakers, farmers, etc…).

It’s never a zero sum game, very simple example. If you steal from a productive person, you might make him very sad, depressed, his dopamine and serotonin levels go down. He will be a lot less productive, he loses and EVERYBODY loses as well. It is not a lose-win situation. It can be a LOSE-LOSE situation. It is wrong to think that when you destroy real wealth of the rich, wealth will magically appear in the hands of the poor somehow because of zero sum game principle.

Who actually win? The crooks who play God, the crooks who steal in the name of “equality”.

In my life, I have met a lot of game theory people. They appear nice, they look nice, they talk nice, BUT they are NOT nice. They are only nice with the things that doesn’t cost them anything, the words, the writing, the other b.s. Talks are cheap, and they are only nice in cheap things. When the niceness requires them to lose something, even if it is just a little bit of convenience, they will bail out (or say that they will be nice if others are nice too). Remember in game theory, the best strategy is not actually to exploit, play dirty and cheat you, the best strategy is behave nice to you at the same time taking advantage of you. PLAY DIRTY but TALK NICE.

Look around and be very careful when you see a game theorist.

By: Sustento Tue, 11 Dec 2012 18:22:36 +0000 Governments don’t need to issue debt in a recession/depression. They can simply print new fiat currency AND spend it directly into the economy.

And before you all start responding like Pavlov’s’ puppies, it is not inflationary in the current circumstances.

By: reality-again Tue, 11 Dec 2012 13:17:28 +0000 Poorly reasoned and poorly written article.
Saying that an economic theory is stupid because it reminds the author of the claim that the earth is flat doesn’t necessarily add weight to the their arguments against that theory.
Many governments borrowed and spent too much, and by doing so they managed to turn bad economic situations into full fledged catastrophes.

By: dbjones Mon, 10 Dec 2012 15:16:54 +0000 Are the terms “spending” and “earning” used in this article congruently with “consuming” and “producing”?

By: sophia.leghorn Mon, 10 Dec 2012 03:12:01 +0000 I’d like to propose another counterintuitive thought. Printing money does not necessarily result in inflation. It only results in inflation if the economy is nearing capacity, which the world economy is nowhere near. I am proposing that the US government print money to stimulate the economy because it is clear that the velocity of money M2 is collapsing. Borrowed money does not stimulate as well as printed money because it requires that the loaned money be taken out of circulation. An increase in savings, which is deflationary, counters the increase in spending. This can also be accomplished by devaluing the currency. Either way, this action is necessary because wealth has become extremely concentrated among a small percentage of the population. The easiest way to rectify this is to devalue that wealth and hand the money to people whose incomes have not kept up with inflation. Before calling me a communist, please note that economists have cheered such actions by other countries such as Argentina and Iceland. They are noted as having taken decisive action required to rectify economic imbalances. Now, I know so many people think that printing money would be madness because it might cause world players to stop using the dollar as a reserve currency. To that I propose another counterintuitive idea: who cares. Having a reserve currency is nothing more than a burden for the reserve country because it requires that our incomes fall via trade deficit when other countries purposefully hold our currency while running trade surplus. So in the end, we need to print money and let the world find another reserve currency.

By: RajaKhalidi Sat, 08 Dec 2012 18:40:10 +0000 Thanks Anatole for more stimulating reminders on the discrete charm of counterintuivity, not to mention the value of more attention to the empirical foundations of common sense. For something that also gives a “second opinion” among international organisations on many of the same issues that your article treats, please check out this UNCTAD Policy Brief No.26 just issued:  /presspb2012d2_en.pdf

We say: “Such measures are often associated with
attempts to improve the “international
competitiveness” of countries. However,
competitiveness is a concept to be
applied at the level of companies, and
even more importantly, it is a relative
concept. While all countries can
improve their productivity performance
and increase the incomes of their
population, the attempt by everyone
to improve competitiveness by cutting
wages in relation to national productivity
can only end in general impoverishment
– a true race to the bottom.”

By: matthewslyman Sat, 08 Dec 2012 09:12:12 +0000 Another excellent article. I’ve been trying to work this out for some time, because I’ve been reading news about economics for some years, and I’ve noticed in practice the counter-intuitive operation of global economics; where national/currency-area level policies sometimes seem to have the exact opposite effect to family & local budgetary policies (contrary to what I previously thought, I have been partly persuaded by the evidences I have seen, just by reading the news over the years). I think I’m finally beginning to understand global economics.

> “From a global perspective, surely the surplus countries (eg China and Germany should spend more and deficit countries, like the UK, should spend less.”
— Otherwise, perhaps some countries are being robbed by the economic fraud of others. It’s simply not right for my neighbour to subvert the system so that he spends, year after year, a significant part of the earnings from my labour.

One of the biggest paradoxes is how the USA can continue spending itself into oblivion (or, what would be oblivion for any other country in terms of the ratio between external debt and GDP, or the difference between budget deficit and GDP-growth); yet nothing bad has happened YET. Will the system collapse all of a sudden, in a catastrophic structural failure? Or can this continue indefinitely?

I think a part of the reason why the US economy hasn’t collapsed already is:
• Lack of alternative growth markets with sufficient legal & regulatory & cultural protection for foreign investors (many African countries have tremendous growth potential but such stifling corruption that foreign investors will never make a cent without bribing local officials big-time).
• The USA is trading internally & externally in their sovereign currency, which is also the standard currency of world trade — which foreign governments and companies are therefore obliged to hold in reserve (whether or not the “Federal Reserve” chooses to follow modest inflationary/confiscatory policies. It might take a big economic shock or a loss of the military-backed “pax Americana” to bring serious consideration of an alternative medium of international trade).
• Comparative political culture between the USA and China (and their respective allies/ effective partners in world trade). China’s political need to continue forcing economic “growth” to happen, irrespective of what is happening in the rest of the world. On the other hand, America renews political good-will every few years with an election (and as a democracy with better standards of individual freedom, finds a “strong dollar” to be politically expedient, to some extent).

I’d like to read more from Mr. Kaletsky…