Keynesian Economics

[BuddhaC]

Inflation punishes savers. I thought it was universally agreed with have a big consumption problem in the world?

You talk about Japan, but their standards of living actually increased steadily over that period. Japan is an interesting case study. But it's far from perfect as they use the ponzi scheme we use as well for their monetary system.

If someone needs a car, they will buy one. If they don't really need a car, they probably won't (whereas they might today). I don't see that changing.

According to this:
The growth rate of real income was: (Table 3 page 18 in text, p^t)
1980-1990 1.03702
1991-2001 1.00304
2002-2006 1.02185

p^t is defined, first paragraph of page 19 (in the text, not on the pdf) as "The growth rate of real income[,] ρ[^]t"

That's an average real income growth rate of .3% for a ten year peroid. (And this, imo, is weighted a little bit by the 2.9% real income growth in 1991, the first year of the 'gradual' crisis)

 

[BuddhaC]

The problem with your belief is that turd companies don't last very long unless credit is extended to them needlessly. Most of these companies had nothing going for them but an idea (in particular during the dot com bubble, and many failed horribly). When credit is reasonably tight just an idea usually won't net you a loan, let alone a multimillion dollar loan (x a few thousand), causing a dramatic bubble that effects everyone's bottom line regardless of whether they were invested in it or not.

'Just an idea' should never get you a loan. We can never know if those bubbles would have occurred without easy money (well, perhaps precluding the most recent one), and since those that lend recklessly have a tendency to get away with it because of government privilege so what do they have to fear? Is it a problem with consequences or the system. I will give you that loose lending helped spur the Great Depression but that was really a problem because of government mis-management / incorrect implementation (claiming a deposit with a 30 day stay on payment is a 'time' or savings deposit is ridiculous, yet those kinds of deposits only required a 3-5% reserve versus the higher ~11% needed for demand deposits).

 

[NoDrama]

According to this:
The growth rate of real income was: (Table 3 page 18 in text, p^t)
1980-1990 1.03702
1991-2001 1.00304
2002-2006 1.02185

p^t is defined, first paragraph of page 19 (in the text, not on the pdf) as "The growth rate of real income[,] ρ[^]t"

That's an average real income growth rate of .3% for a ten year peroid. (And this, imo, is weighted a little bit by the 2.9% real income growth in 1991, the first year of the 'gradual' crisis)

Sounds more like stability in prices rather than deflation.

Standard of living isn't just about wealth, it's also about quality and availability of employment, class disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product, inflation rate, number of vacation days per year, affordable (or free) access to quality healthcare, quality and availability of education, life expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious freedom, environmental quality, climate and safety are some of the other factors to consider.

We could get a nice improvement in income if government forced everyone to work 100 hours per week, but would that equate to an increase in the living standard?

 

[BuddhaC]

What isn't valid? People stopping payments on their home? People will continue to make mortgage payments on underwater property because they expect things to get better, not all , but many.

You couldn't just eliminate the Fed without having another system already in place. Eliminating the fed would eliminate the supply of money, which would cause major deflation.

You could just have free banking.
@Parker, the Chinese has a consumption GDP percentage of around 30% but they can only do this because they're investing heavily in infrastructure and exports. Consumption is not bad, if too many people quit consuming someone loses a job.

 

[BuddhaC]

Sounds more like stability in prices rather than deflation.

Standard of living isn't just about wealth, it's also about quality and availability of employment, class disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product, inflation rate, number of vacation days per year, affordable (or free) access to quality healthcare, quality and availability of education, life expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious freedom, environmental quality, climate and safety are some of the other factors to consider.

We could get a nice improvement in income if government forced everyone to work 100 hours per week, but would that equate to an increase in the living standard?

Because the PDF is such a bitch to copy from I won't be doing that but you can see multiple periods of deflation on the graph. Couldn't find a real standard of living for japan, which is why I went with real wages.

 

[BuddhaC]

Sounds more like stability in prices rather than deflation.

Standard of living isn't just about wealth, it's also about quality and availability of employment, class disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product, inflation rate, number of vacation days per year, affordable (or free) access to quality healthcare, quality and availability of education, life expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious freedom, environmental quality, climate and safety are some of the other factors to consider.

We could get a nice improvement in income if government forced everyone to work 100 hours per week, but would that equate to an increase in the living standard?

Yea I tried to find a real standard of living graph on japan but couldn't. There's multiple peroids of deflation in the table though, but it's a bitch to copy and paste.
"As far as economists are concerned, this is a tragedy and a disaster. How the mighty have fallen. Japan’s GDP is essentially unchanged since the early nineties, its share of global GDP falling from 17 to just 4%. China overtook it last year to become the world’s second largest economy, and now it limps along as a economic failed state, a cautionary tale for students of capitalism.

And yet, the lights are still on, everything still works. Literacy is high, and crime is low. Life expectancy is better than almost anywhere on earth – 82 years to the US’ 78. The trains run to the second. Unemployment is only 5%, and levels of inequality are enviable. Real per capita income growth matches America’s at 0.7% over the past decade. It’s hardly a basket case. In fact, it is living proof that growth isn’t necessary to deliver a high standard of living."

EDIT: From the same above source:
"Environmnental campaigner Junko Edahiro agreed that young Japanese are beginning to aspire to 'a kind of prosperity not based on resources.'"

 

[Parker]

If you owe $250,000 on a house and currency deflates (for arguments sakes) 25%, your house asset value would only be $187,500, right? What do you think that would do to the economy?

Maybe some of you more economic minded people can correct me. I'm just the resident philosopher.

LMAO Talk about stacking the deck. Mild deflation or inflation is what you strive for. Can I use your 25 percent but instead inflate and say thats a good thing?

You mean if I was going to sell my house. Who sells their house every few years?

 

[Parker]

Would you buy something today if you thought it would cost less tomorrow?

So you're never going to buy anything according to you since prices are always going down? Look around, we dont save. WW2 was the last time we did and only because there was little quality goods to purchase.

 

[Parker]

You cannot put a nominal value on the outcome. During the Great Depression they were seeing 10% a year. It is circumstantial
Deflation has a negative effect on debtors. Therefor why would they issue debt when they feel they can get a better price in 2 years? or 5 years? This causes an illiquid debt market. An illiquid debt market pushes rates up even higher. Then when deflation stops and you start to see an increase, these debtors are stuck paying high interest rates, and many will probably default. There-for creating a downward spiral..

You're not taking into account productivity gains like we saw in the late 1800's. Why get into debt?
Its always about the purchasing price of the dollar.

 

[BuddhaC]

So you're never going to buy anything according to you since prices are always going down? Look around, we dont save. WW2 was the last time we did and only because there was little quality goods to purchase.

"Japan's high personal savings rates, driven in part by the demographics of an aging population, enabled Japanese firms to rely heavily on traditional bank loans from supporting banking networks, as opposed to issuing stock or bonds via the capital markets to acquire funds." - this is from wiki, cited from The Return of Depression Economics and the Crisis of 2008 by Paul Krugman

 

[Parker]

"Japan's high personal savings rates, driven in part by the demographics of an aging population, enabled Japanese firms to rely heavily on traditional bank loans from supporting banking networks, as opposed to issuing stock or bonds via the capital markets to acquire funds." - this is from wiki, cited from The Return of Depression Economics and the Crisis of 2008 by Paul Krugman

hasnt their economy been awful for quite some time do to government easing?

"Japan's postal savings system which channels money into public works projects that have little if any social payoff, is monumentally inefficient; so is the practice of rolling over the debts of companies that will never regain profitability and hence keeping capital employed producing what nobody wants."- Krugman 2001

Japans problem was caused by their expansionary monetary policy

 

[BuddhaC]

hasnt their economy been awful for quite some time do to government easing?

"Japan's postal savings system which channels money into public works projects that have little if any social payoff, is monumentally inefficient; so is the practice of rolling over the debts of companies that will never regain profitability and hence keeping capital employed producing what nobody wants."- Krugman 2001

But their standard of living increased D:, . But I'm sorry, my response was to your statement that individuals inherently don't have a propensity to save and my reaction was that it entirely depends on the cultural/demographic make-up of a country. Not to mention the 'zombie' banks.

 

[Parker]

But their standard of living increased D:, . But I'm sorry, my response was to your statement that individuals inherently don't have a propensity to save and my reaction was that it entirely depends on the cultural/demographic make-up of a country. Not to mention the 'zombie' banks.

Understood on that now

I don't see how their standard of living has increased. Their economy has been stagnant for along time. Differences in monetary growth and real growth?

 

[BuddhaC]

Understood on that now

I don't see how their standard of living has increased. Their economy has been stagnant for along time. Differences in monetary growth and real growth?

OGsomething stated that the SoL increased so, assuming he means in real terms (which it would have to be in a deflationary environment), I took him for his word since I couldn't find anything for or against the statement. However most of the economic indicators were/are bad.

 

[Parker]

OGsomething stated that the SoL increased so, assuming he means in real terms (which it would have to be in a deflationary environment), I took him for his word since I couldn't find anything for or against the statement. However most of the economic indicators were/are bad.

As much as I rail against GDP I took that into account lol. Production is up in Japan

I wonder if not having to spend billions on a military help?

 

[BuddhaC]

As much as I rail against GDP I took that into account lol. Production is up in Japan

I wonder if not having to spend billions on a military help?

Pretty sure they still have a self defence force, albeit minuscule for their size. Not having to crowd out the private sector to fund a military has seemed to help Costa Rica out substantially, especially when compared to regional neighbours. Increasing their military spending probably would have been a good vehicle for government stimulus, seeing as they already have a very impressive infrastructure in place.

 

[Parker]

Pretty sure they still have a self defence force, albeit minuscule for their size. Not having to crowd out the private sector to fund a military has seemed to help Costa Rica out substantially, especially when compared to regional neighbours. Increasing their military spending probably would have been a good vehicle for government stimulus, seeing as they already have a very impressive infrastructure in place.

Why increase spending? All that will do is take money out of the productive private sector. Spend 1 million on a bomb vs spend 1 million on goods and services in the private sector.

 

[BuddhaC]

Why increase spending? All that will do is take money out of the productive private sector. Spend 1 million on a bomb vs spend 1 million on goods and services in the private sector.

That's making the assumption that the private market has demand for that additional 1 million in goods and services, which due to stagnation it apparently didn't. Instead of producing a hole and filing it up with dirt the military provides a very real service, defence.

 

[Parker]

That's making the assumption that the private market has demand for that additional 1 million in goods and services, which due to stagnation it apparently didn't. Instead of producing a hole and filing it up with dirt the military provides a very real service, defence.

If that is true about no demand, although I dont see how, but at what cost is always the kicker. The amount of savings has gone down since the people have to pay for it. Future value or future spending if that is the right term is hurt.
We know government doesnt spend wisely. Usually cronyism and lack of competition. How many bomb makers are there? I know the value of an apple but not the value of a bomb.

 

[BuddhaC]

If that is true about no demand, although I dont see how, but at what cost is always the kicker. The amount of savings has gone down since the people have to pay for it. Future value or future spending if that is the right term is hurt. We know government doesnt spend wisely. Usually cronyism and lack of competition. How many bomb makers are there? I know the value of an apple but not the value of a bomb.

Future value, if real interest rates drop too much because of supply (caused by deflation) then people may simply decide that the present value is worth more than the banks can compensate for in interest rates. The thing is that their infrastructure doesn't really need (or didn't need) improvement because it was already well-maintained (unlike ours) and thus (my belief) is that they turned the public works. Depending on the type of work they did public works programmes might not even serve to maintain job skills (which deteriorate with time if unemployed long enough). Where being in the military adds to your job skills, and can potentially exponentially add to your opportunities to develop higher-levelled skills (entirely based on the country, but here in America if you're a vet you get very hefty educational bonuses). As well bombs don't have to be made by the government, they can be government-demand driven but private-produced like the American Air Force. This also goes with the expansion of military bases which, again depending on the country, can mean that private contractors are brought in which directly helps the private sector. You have this 'crowding out' effect, where money becomes more expensive for the private sector because the government is driving up demand (which increases prices) and thus possible entrepreneurial activities are stopped from ever occurring, but when you're in a liquidity trap or just have stagnant/declining aggregate demand then you don't have to worry about that because there's nothing significant to crowd out.

EDIT:
Additionally, they /already/ were willing to spend the money on inefficient public works (the same folly of the New Deal) what I'm proposing is that there's certain sectors that the government can use that are more relatively efficienct than others.