tag:blogger.com,1999:blog-11027528911364475.post5249626655814503817..comments2024-02-18T21:10:05.205-08:00Comments on EconomPic: The Paradox of ThriftJakehttp://www.blogger.com/profile/07946497592651234440noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-11027528911364475.post-1849920383126528612009-07-08T06:23:56.969-07:002009-07-08T06:23:56.969-07:00All- great points and I appreciate the feedback.All- great points and I appreciate the feedback.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-69220442671442583132009-07-08T04:46:24.925-07:002009-07-08T04:46:24.925-07:00Jake,
There is no paradox. The C+I... formula is ...Jake,<br /><br />There is no paradox. The C+I... formula is simplistic and rests on flawed assumptions. It is an accounting identity that does not always reflect the facts in the real world. End demand by consumers is the key. When end demand shrinks, so does the pie. When future income shrinks, so does the pie. Adding gov't debt will create false demand and may keep the debt system from imploding, but it will also limit future end demand. <br /><br />Too many spent too much based on misperceptions of future wealth (wall street lies). Much of the so-called investment/savings were borrowed from abroad and wwere actually malinvestments as they exceeded ability to pay and were not based on end demand. The bills for all that excess/mis spending are now due. A rude awakening. Debt repayments and debt defaults at the houshold level will accelerate. <br /><br />Despite propaganda to the contrary, U.S. consumers are now realizing that their future incomes will be less than previously thought. Lower savings/investment is to be expected as our economic futute will be smaller than previously assumed.Angry Savernoreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-74736051589359794082009-07-07T16:31:28.452-07:002009-07-07T16:31:28.452-07:00All Krugman proves with this post is that by follo...All Krugman proves with this post is that by following his preferred policy prescription we end up with reduced national savings. We don't know what would have happened to national savings if we hadn't run the deficit. I would call this the paradox of Keynesianism. In trying to avoid the alleged paradox of thrift by deficit spending, we create the very thing we are trying to avoid.Joehttp://alhambrainvestments.com/blog/2009/07/07/proof-of-the-paradox-of-thrift/noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-21710715021374989192009-07-07T10:22:28.873-07:002009-07-07T10:22:28.873-07:00Actually there are at least three interacting para...Actually there are at least three interacting paradoxes at work but fortunately the other Paul (Kasriel) of Northern Trust explains it all:<br />http://www.nytimes.com/2009/07/07/health/07mind.html?ref=health<br /><br />1. Paradox of Thrift - true. But in a current events, macro-static context.<br />2. Deficits - no crowding out nor investment pressure when neither consumers nor businesses are spending or investing. In fact in that situation (our current one) a) the only source of demand is gov't spending, b)when there's plenty of slack no displacement either and c) (in the right conditions, like now)it's the only when from stopping a cyclic decline from taking us over the abyss.<br />3. Long-term Savings - as consumer preferences reset and we all save more investment is increased which results in shifting the economy to a higher growth path; thereby increasing incomes, savings, business spending and investment and gov't tax revenues in a virtuous cycle. Of course the short-term adjustment process can be a bit painful.<br />Paul does a much more eloquent job but the bottomline is Golden Path (puns intended)or Abyss (o.k. doldrums declines but the first is more poetic)dblwyohttp://bizzxceleration.llinlithgow.com/noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-68623437969256744772009-07-07T08:45:36.275-07:002009-07-07T08:45:36.275-07:00matt- well said. that was my main argument (that k...matt- well said. that was my main argument (that krugman advocated for the government spending the keep the larger pie whole)Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-46038290238853795152009-07-07T08:39:46.488-07:002009-07-07T08:39:46.488-07:00Saving is investment. The very act of saving is n...Saving is investment. The very act of saving is nothing more than a postponement of current consumption in exchange for future consumption. While in between, the money is used to lend to entrepreneurs. The rate of interest is what regulates this process. <br /><br />Of course, if you throw in government tampering with 200 year old property laws (GM, Chrysler) and allow banks to operate without traditional legal accounting principles then sure, savers will be less likely to invest where they otherwise would (early stages of production). <br /><br />Additionally, Krugman take the Keynesian approach and advocates for enormous deficit spending. And subsequently, when this pulls down the "overall" level of investment in the economy, this somehow supports his "paradox of thrift?" <br /><br />Seems suspect to me... <br /><br />Best,Matt Stileshttps://www.blogger.com/profile/17977694389453612864noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-47104777369840061692009-07-07T08:04:10.147-07:002009-07-07T08:04:10.147-07:00i completely agree. that can be thought of as the ...i completely agree. that can be thought of as the paradox of deleveraging. it makes sense for every indivual to delever, but when everyone delevers at the same time, the economy is toast.<br /><br />at some point the entire system (now or in the future) will NEED to delever, thus debt growth which was long thought of as productivity, will revert back down.Jakehttps://www.blogger.com/profile/07946497592651234440noreply@blogger.comtag:blogger.com,1999:blog-11027528911364475.post-30882651680624626432009-07-07T07:51:38.910-07:002009-07-07T07:51:38.910-07:00I'd argue against this based on the fact that ...I'd argue against this based on the fact that I think we're in a nonholonomic system- where we are matters, but the path we took to get here also matters.<br /><br />Debt growth has displaced productive growth to a large degree over a long time- it is a creeping problem.<br /><br />The notion that some sector will always be able to temporarily run a deficit to cover another could only be true if sectors retrenched- and even that is debatable from a rational expectations point of view. <br /><br />And there has been no retrenchment for a long, long time, just ever expanding borrowing. At some point there is a limit to this, and I think we're going to see it.Anonymoushttps://www.blogger.com/profile/04490179400711329488noreply@blogger.com