Already corrected. Amazing.

:-)

I'm waiting for an op-ed from a former Clinton administration official advocating a large deficit-increasing measure, such as a big revenue-sharing plan with state and local governments.

Is the problem that the Democratic songsheet now calls for using deficits as a topic to bash Republicans?

Brad:

I think Shapiro just wanted to be able to make it seem like he was sourcing someone from a top university... ;-)

GO CARDINAL!!!!!!!!

Curt

Who's 2 and 0 this year?

GO BEARS! :) Have to gloat while it lasts, or until Saturday afternoon.

I'm confused about one thing. Back when the
Japanese economy started crumbling, we head a lot
about how Japanese households "saved too much"
and somehow that contributed to the problems.
Now we hear that American household debt is
reaching record highs, suggesting Americans
"spend too much". So, how is it we are falling
into the same deflationary trap?

MIT's Paul Krugman?

Well, the argument that the government should run a surplus--thus trying to boost national savings--while the central bank handled the business cycle was always an argument that relied overwhelmingly on the administrative competence of the Federal Reserve to make discretionary monetary policy and the... limited... competence of the Congress to make discretionary fiscal policy.

After all, a Congress that can't get its act together to pass a stimulus package until they realize that the recession is over--and if they don't hurry up and act their excuse to spend will be gone--isn't a Congress likely to make good business cycle-based spending decisions...

>>So, how is it we are falling into the same deflationary trap?<<

* The same American customer and her willingness or unwillingness to buy either American or Japanese is present in both cases.

* The same Japanese saver and her willingness or unwillingness to bank American customers or the Japanese government is also common to both cases.

Anybody has more clues?

BRAD,

I feel your PAIN. Being an alum of the University of ARIZONA, everyone instantly says: Tempe, right? Wrong!

And I'm also used to Sports Announcers rountinely calling UofAer's "former Sun Devils."

That said: Stanford and Berkeley don't even share the same name! Really bad.

Re:

>>MIT's Paul Krugman?<<

Ah. Touche. But Paul and Princeton are big enough and strong enough to take care of themselves. Berkeley is not...

:-)

>>That said: Stanford and Berkeley don't even share the same name! Really bad.<<

Incidentally, they almost did for a while with the UCSF-Stanford medical venture... if you're ready to confuse UCSF with UCB. I'm sure our colleages at UCSF appreciate that :)

Reminds me of the Second World Congress on Environmental and Resource Economists in Monterey, Ca. My badge read "University of California" which sort of upset a guy from UCLA...

It seems to me, silly fool that I am, that looking at this through the lens of mathematical economics as opposed to "political "economics ala Veblen misses the point.

On the one hand we have producers (the Chinese) who have not had their JP Morgans, their Andrew Carnegies, their Rockefeller+ Texas Railroad Comission, to teach them that "the market" is a fine thing for screwing the little people, but best avoided for real businesses through the creation of monopolies and oligopolies. So we have an inexorable price pressure on US manufacturing that will continue until either China falls apart (chances of happening who knows) or their oligarchs arrive learning from the US experience of the late 19th century (may take twenty years to occur) or the US simply bans/taxes the heck out of Chinese imports (the most likely route---heck, we may start hearing political pressure for this as soon as campaign 2004).

On the other hand, we have an entrenched managerial class that has forgotten that consumers cannot consume without an income. As Max Sawbicky and others have pointed out, the productivity gains of the 90's went mostly to the wealthy---great if you want to create a society like Brazil, but not very useful for sustaining the US as it was throughout the 20th century.

Half the cost of a new computer is MS Windows and MS Office. Moore's Law is a signal which is now disappearing into the noise. DRM and the DMCA and their like are the vanguard of parasites, the now and future rentiers.

If lift/drag is a useful way to look at the economy (desirable but unlikely) aren't MS and Disney increasing the denominator?

For that matter: Go Bears!

Do I understand?

During a deflation, bank assets must be written down in value. As Japan deflated, bank assets backing loans were constantly worth less than the original assessments. So no matter how sound bank loans may have been before deflation, after deflation the loans became increasinlgy risky. We have to protect against the same sort of loss of loan value by our banks, and had better not blithely assume there is no possible parallel between our banks in deflation and those of Japan.

Bubbles are dangerous and stock valuations in America even after 30 months of the bear market are still far above traditional norms. Careful.

Japanese saving was a cause of deflation. Running up debt is inflationary, not deflationary. But even with the inflationary pressures of increasing debt, inflation is already very low. If it wasn't for those inflationary pressures, we might already be seeing deflation. If increasing debt is because of an asset bubble in the housing market, then if that bubble pops, we could be in the same trap as Japan.

Maynard, just a brief note, really the concentration of wealth has been going on for about 30 years now.

Another remarkable point about the bear market is that there has been no apparent negative wealth effect to stem consumer spending even after 30 months. I can not imagine that Americans are simply going to pull money from their homes year on year during retirement and so have no need for stock or bond investments.