Krugman Creeps Up On An Insight

In the course of explaining that "nobody" understands the liquidity trap, Prof. Krugman skates perilously close to a conclusion he would rather avoid:

But when you have bought so much debt and created so much money that rates are near zero, the public is saturated with liquidity; from that point on, they’re holding money simply as a store of value, which makes it no different from bonds — and hence a perfect substitute for bonds. And at that point further open-market operations do nothing — they just swap one zero-interest asset for another, with no effect on anything.

So why not forget about open-market operations, and just drop the stuff from helicopters? Well, remember that at this point cash and short-term bonds are equivalent. So a helicopter drop is just like a temporary lump-sum tax cut. And we would expect people to save much or most of such a tax cut — all of it, if you believe in full Ricardian equivalence.

Really?  Well, suppose our helicopter flies very carefully and only hovers over the homes of the unemployed; further, suppose the pilot also announces "this is unemployment insurance" before pushing the money out the door.

Now, at least as I understand current Dem talking points, this is no longer a useless tax cut but a vital stimulus program.  But I am not sure when the substantive change occurred.  As the money fell through the air, maybe?

Well.  The unemployed may calculate that aggregate taxes are likely to rise in the future, but they may also guess that those taxes will rise for Someone Else (it's the American Way!).  In which case, they will feel free to spend all of their helicopter windfall.  Of course, The Current Rich may increase their own saving in anticipation of these future taxes, but what about the Future Rich?  Are law school students going to forego pizza in anticipation of higher taxes on their partnership income in fifteen years?  Maybe not.  (As a related puzzle, why is it that temporary tax cuts don't spur permanent changes in hiring and investment but temporary spending increases do?  File that under Unsolved Mysteries.)

Could similar logic apply to a lower-income payroll tax cut today made up by (likely) taxes on "the rich" later, resulting in transfers as stimulative as unemployment benefit extensions?  I am not smart enough to be a Dem strategist or psychologist. I just know tax cuts are something they can't say yes to.

Comments

[Danube of Thought]

If people sense they can invest money and be taxed on the return at a lower rate than those in effect today, they will no longer hold so much of it as a store of value. But if they not only cannot anticipate lower taxes, but only higher (and uncertain) ones, cash seems just ducky.

[Clarice]

Add in the increasing uncertainty of gains --and the administration's studied disrespect for the laws relating to property-- and cash seems more than ducky, DoT.

[NK]

anybody notice how Krugman never talks about the intrinsic and added value of "hard work", or the simple concept of monetary reward being the legitimate motivation for risk taking. I admit I haven't read herr professor's text books, but these fundemnetal concepts are strangers to his columns.

[courtesy]

Gripped by overwhelming fear of cash?

[Soylent Obamacare]

Put your money into ammunition, gasoline, and legal funds.

With enough of these three things you can get all the rest.

[Rick Ballard]

NK,

Krugman's never ending macro economic circle jerk never, ever, even quantifies the size of the hole created by Dem control of Congress. The size of the hole this year appears to be about $473 billion in lost wages and salary (based upon the YoY difference in the 2.9% "contribution" to the HI fund). The annualized difference in transfer payments for:
Food and Nutrition Service
Food Stamps
Health and Human Services Grants (misc)
Housing and Urban Development programs
Medicaid
Medicare
Social Security Benefits (EFT)
TANF
Unemployment Insurance Benefits
(per the Daily Treasury Statement looks like about $152 billion. So, lost wages and salaries of $473 billion will be offset by increased transfers of $152 billion leaving a teeny, tiny $321 billion macro hole for Uncle Ben to fill during his Wild Helicopter Ride.

Those are just actual numbers, of course, and I'm sure that they have absolutely nothing to do with "full Ricardian equivalence" as discussed by those properly credentialed to make policy determinations.

Still - it seems a rather non-negligible hole.

[Ignatz]

Krugman is a creep and he creeps all right-thinking people out, but if he crept up on an insight it was either purely happenstance or somebody baited it with a big fat Enron check.

[Bill in AZ sez it's time for Zero to resign]

SB1070 news:

State Senator Russell Pearce, Author of Arizona’s SB 1070, Seeks to Intervene in Federal Lawsuit to Defend Arizona Immigration Law.

(Washington, DC) — Judicial Watch, the government watchdog group, announced today that it has filed a “Motion to Intervene” on behalf of Arizona State Senator Russell Pearce, author of Arizona’s new illegal immigration law SB 1070, in an Obama Justice Department lawsuit challenging the law which set to take effect on July 29th. On July 6, the Obama Justice Department filed a lawsuit against the State of Arizona and Governor Jan Brewer and requested a preliminary injunction preventing the law from being enforced.

[Bill in AZ sez it's time for Zero to resign]

Not sure what the above means - I'm not a lawyer, just a dumb 'ol redneck engineer clinging to my guns...

[lyle]

Hey, I've got a crazy idea!

Let's all PAY the US gov to hold our cash!

::grumbles further over short T-note/bond position and shakes fist at the sky over the jerks in Greece making our debt look good by comparison::

[Parking Lot]

does "cash" mean actual currency buried in the back yard, or does it mean cash in a bank account?

[pagar]

"With enough of these three things you can get all the rest."

Apparently, that is not true if you are an American. Of course, it's a completely different Story if you are an illegal.

Illegal Alien Thieves Shot At By Elderly Man Could Go Free While He Faces Charges…Update: Elderly Victim Charged with Attempted Murder…

"The Jefferson County DA’s office said that neither Torres nor Cardona have been charged with anything at this point, even though Torres confessed to the crime. However, the homeowner, Wallace is facing twelve felony counts, including four counts of attempted first degree murder. If convicted, he could spend the rest of his life behind bars.

Sources say Torres and Cardona are believed to be in the country illegally and both have an arrest record."

This is beyond insane, way beyond?

[Danube of Thought]

The majority of it is held in money market accounts. I think the term also applies to CD's, and of course non-interest-bearing accounts like checking. Basically it is minimal risk stuff that offers no growth and not much return but is better than the mattress or the coffee can.

[Parking Lot]

lyle

was your short position based on thoughts of hyperinflation instead of deflation?

[Parking Lot]

good, that is where I am mostly positioned, and am sleeping well at nights.

[Rick Ballard]

PL,

Cash is making everyone but the Democrat Three Stooges of the Economic Apocalypse sleep well at night. As Rosenberg says - 3% deflation counts as real income and replaces the interest income being stolen from savers by the Fed's ZIRP. It also means that the yield curve is actually inverted which is one of those little warning signs that more recession is just around the corner. The latest FOMC report acknowledges that fact.

Krugman is actually close to being right in his diagnosis, he just won't acknowledge that cutting the Democrat cancer out is the only way that any kind of confidence will be restored. You really can't blame a cancerous lesion for wanting to avoid the surgeon's knife.

[daddy]

"Sources say Torres and Cardona are believed to be in the country illegally"

Who would these racist "sources" be? How would they know? Did they attempt to ask for documentation from these individuals? What right would these "sources" have to intervene in Federal Immigration matters? I say we boycott Colorado because of these racist "sources", and the sooner the better.

[JorgXMcKie]

When I think of Dems in general and Krugman in particular, I think of W.C. Fields saying, "It is morally wrong to allow a sucker to keep his own money."

OTOH, now that the 2nd Amendment may be in order again, Canada Bill Jones said, "A loaded Smith and Wesson .38 beats a full house every damn time."

[narciso the harpoon]

Krugman has been on record for a biggger stimulus, but that is not the problem, this
one seems to have been designed, allegedly by
the Apollo Alliance, in the most effective way not to work

[Rob Crawford]

This is beyond insane, way beyond?

It's been the policy in Britain for years.

[daddy]

First they came ">http://www.news.com.au/weird-true-freaky/culling-farting-feral-animals-could-curb-carbon-pew-says/story-e6frflri-1225891569720"> for the feral pigs.

Then they came for the warthogs...

[Porchlight]

This is beyond insane, way beyond?

Positively sick. Dear Lord, I hope the elderly man has good legal counsel. I know the illegals will have the best Dem money can buy.

[daddy]

Narciso,

Today's ADN says that ">http://www.adn.com/2010/07/14/1367073/ethics-complaint-by-palin-critic.html"> Sarah Palin just defeated another Ethic's Complaint by Andree McLeod.

I have no idea if there are any more of these complaints in the pipeline but I do hope that after they come for the feral pigs, they consider lumpin' Andree McLeod in with the warthogs.

[Janet]

Haha daddy! My brother worked at a hunting camp down in South Texas & he had a "pet" feral hog named Don't Shoot. It got it's name because Jim would spray paint "don't shoot" on his side so the hunters wouldn't kill him. That hog was a one eyed tortilla eatin so and so! I'll have to print off that story for my brother.

[Rick Ballard]

Narciso,

Here's what the Democrat Stim I looks like:

Education Department programs
2007 67,651
2008 71,033
2009 129,929
2010 175,861

That's spending as of this date for the past four years. Public employees are the real vampire squid sucking the economy dry.

[Danube of Thought]

Dick Morris keeps saying the GOP will take the Senate. I'd be more comforted if he weren't so consistently wrong.

[Clarice]

Me, too, DoT though The New Republic carried a story today to the same affect.

I', waiting to hear Barone or Cost say it.

[Soylent Obamacare]

I'd be more comforted if he weren't so consistently wrong.

The eternal optimist in me believes that the sun shines on a dog's ass every now and then DoT.

[Rob Crawford]

The eternal optimist in me believes that the sun shines on a dog's ass every now and then DoT.

See the video, LUN.

[narciso the harpoon]

Odd how they raised the spending yet they've fired the most teachers in living memory in this neck of the woods, almost in direct
contradiction to the predicted result.

I has forgotten know about that one, daddy, it
comes from that wellwisher Rachel D'Oro, the journalistic equivalent of Kathy Bates
character from Misery.

[daddy]

Me 3 DoT,

Great story Janet. Big LOL.

Of possible interest, this short 2 minute video of an emcee explaining our pending Alaskan economic problems concerning dwindling ">http://www.thealaskastandard.com/content/alaska-oil-production"> in-State Oil Production is definitely worth a quick listen.
Brings you right up to speed on what we are facing up here if we don't get some adults in charge quick.

[narciso the harpoon]

I remember those statistics during the 'dog and pony' Interior Department taking of testimony hearings, the previous spring

[Stephanie]

Putting America to Work

Twenty million has been spent so far on those ARRA signs touting the Stimulus money. Note the similarity of the above slogan to Mooveau Riche's comments before the election, to wit:

Barack Obama will require you to work. ...Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.

Their beneficence knows no bounds... Now bow before ZOD.

So authoritarian. So Chattel-y. So anti-American. Gag.

Current Drudge Headline so I won't LUN cause it isn't a permalink.

I'm just surprised they didn't put the slogan on granite cubes for us to circumnambulate on Zero's birthday.

Since most of the signs are on highway projects, we can, however, prostrate ourselves before them as we sit in traffic. Hey, a few trips to the store and your daily prayers are done!

[Stephanie]

circumambulate... geez.

Of course, somnambulation is an interesting side effect of his preaching, so I'll claim the portmanteau was providence.

[Crawl to that crossing.]

Circumnavigate while genuflecting.
================

[Neo]

I am not smart enough to be a Dem strategist or psychologist. I just know tax cuts are something they can't say yes to.

Simple solution .. a tax only paid by Democrats.
We'll see how party loyalty holds up when faced with having to pay for your convictions.

Next, "We are all Republicans !"

[Janet]

That's a great short video daddy. LUN is an old bookmarked site about ANWR with pictures and some basic info.

That hunting camp my brother worked at was on the King Ranch. They run cattle, lease for hunting, and drill for oil on the same piece of land.

[Janet]

and here is one other older article about drilling in Alaska from Reason.

[daddy]

Janet,

I think I mentioned it before but I went thru' basic jet at Kingsville, and always enjoyed going to a dilapidated restaurant shack on the ranch for chow called Hoot Gibson's. Don't know if it still exists, but he was such a fun guy that I gave him a spare fossil fish I had so that he could stick it in the kind of cruddy unwiped display case he had and it sat there next to the collection of antique barb wire and "round toit's." Much fun, great hot sauce and good Spanish omelettes.

[Janet]

Kingsville was my hometown. Mom & Dad are still there. It was a great place to grow up. I don't know about Hoot Gibson's. Did you ever eat at Kings Inn on Baffin Bay?...another shack looking place on the outside, but good, good, good on the inside. So many of my best friends growing up were military. My Dad worked for the King Ranch.

[Foreign aid first, Americans second, O does.]

UN Education For All

PEPFAR COPs this month(in country?). O announces domestic AIDs as PEPFAR foreign AIDs entitlement goes 'buildings and advertising.' US AIDs is going to be jobs and cash, not treatment as originally intended; but isn't that domestic entitlement, healthcare's fate? O may have planned this and he's in office.

Cash is the actual good, not bad; like futures.

iZOD

[daddy]

Janet,

King's Inn on Baffin Bay was great!

I was only 25 and in training but I was tired of living in the BOQ so I bought a 2000 square foot old frame house in town for $21,500 total. (Amazing to think that that actually had me stretching financially, but somehow I swung it:)

Anyhow, enjoyed living downtown as I got to know the neighbors well and started seeing Kingsville as a fun place instead of a place you wanted to see in the rear view mirror. Really wound up enjoying it. I was on Doddridge Road. Say "Hey" to Mom and Pop. Hope they are doing well.

[PD]

Twenty million has been spent so far on those ARRA signs touting the Stimulus money.

On our recent road trip out west, I saw quite a few of these signs. Actual work being done in the vicinity of said signs, not so much.

I did see a sign at the Hungry Horse Reservoir accompanied by real work being done, though. There were trucks going in and out of a teeny side road that probably hardly anyone ever travels - it was being upgraded. Nice use of taxpayer funds. "The road to nowhere" being repaved for your convenience, even though you'd never use it.

[Fred Beloit]

Oh Tom, what a delicious take down of that oversold gentleman Krugman. I feel a bit bad for him though. It used to be that only Krugman could have every non-book word he writes featured in Memeorandum. But now it seems he must share that status with David Weigel. Memeorandum works in mysterious ways.

[Pops]

What would happen if Republicans acted toward taxes the way Democrats act toward illegal immigration.

Republicans should announce that they would have the same tax enforcement policy that OBama has on border enforcement.

Tax cheats, or what we like to call UNDOCUMENTED EARNERS, are just trying to make a better life for their families and we don't need tax payment enforcement, we need COMPREHENSIVE TAX REFORM.

[Janesquaredance]

Pops - we can start a sanctuary city for taxes cause the official position now is that it is illegal to help federal enforcement but A-OK not to.

[Captain Hate]

I wish Pops was setting Repub strategy instead of the country-clubbing pukes who can't be bothered with such commoner tactics.

[narciso the harpoon]

Hey I wished upon a star, and killfile came back,

[Captain Hate]

LUN for Rove giving a mea culpa on his "biggest mistake at the White House". Long overdue imo. I've got a few more suggestions where he could fall on his butterknife in weekly columns for the rest of the year.

[Jack is Back!]

That comment from Krugman about "dropping money from a helicopter" reminded me of the Weimar Republic and its economic collapse. I read somewhere that a book written in the 1970's by some American academic on this economic disaster and the wreck it caused (the rise of Hitler) is so rare to find and so much in demand that copies are selling for over $700. Anyone know about this? And what it has to say that it is in so much demand?

[fdcol63]

The only thing that I can suggest that might explain Rove's lapse there is the utter disbelief that American politicians - even Dems - would so shamelessly lie and undermine the public's trust and confidence in the Executive branch, as they did.

Confidence that they would need in the future themselves when they regained the WH.

[Janesquaredance]

Capn' did you read Rove's book? He's a pretty humble guy.

[Mark Adams]

Inconvenient facts that kinda mess up the narrative here:

1. Stimzilla CUT taxes for 95% of working Americans. Small businesses, 1st time home buyers, parents, college students -- Obama campaigned on it and delivered. http://is.gd/dsT1t

2. Obama wants to extend the Bush tax cuts for the middle class, just not the Wall Street Barons and Corporate empire builders like BP's CEO. http://is.gd/dsT50

I guess he really isn't a Democrat, but some kinda Socialist/Republican - cuz Dems don't know how to say yes to tax cuts. What EV!

[Clarice]

Top Drudge stories accompanied by a pic of a very verklempt Obama,

LIBERAL MEDIA TURNS: WHITE HOUSE BAD AT POLITICS, COMMUNICATIONS AND SPEAKING...

Europe warns Obama: This relationship not working...

House Dems hit boiling point...

Pentagon warns Congress: Accounts running dry...

Bill Clinton back in White House, holds economic meeting...
Brief for 9 states backs Arizona immigration law.

[fdcol63]

Troll Alert! LOL

[Captain Hate]

No I didn't Jane. I don't have any reason to think he's a humble guy; that isn't what bothers me about him.

I know that criticizing him doesn't make me any friends here. Maybe I'm too tough on him but when I look at the pathetic state of the Republican party today it doesn't put me in an "I'm ok/you're ok" mood.

[Captain Hate]

Dammit: I don't have any reason to think he's NOT a humble guy.

[Old Lurker]

The Rep rot has been there all along, Cap'n.

That group used to be called Rockefeller Reps, then Country Club Reps, and then came Bush 1 ... so W was not alone in being Compassionate.

Conservatives all along have been uneasy about it all.

[narciso the harpoon]

In retrospect, he was a little too clever with
his 'background briefings' with Cooper and Miller, that gave Comey and Fizgerald their inn. Schmidt I don't understand at all, he carries an attitude of supreme confidence but his track record before 2008, was like the
Cleveland Indians, nothing to write home about, sorry Capt, but I was thinking of a random team

[Old Lurker]

Thus it begins.

Drudge links LUN to WSJ where Pete DuPont supports Hilary in 2012. Sort of anyway.

[Captain Hate]

No offense taken, narc; they're pathetic and I know it. Like Schmidt.

Yes, OL, we've always had Vichy repubs in our midst...

[narciso the harpoon]

So we've moved from small pox to mere chicken pox now. I'm sure they will take it under advisement. I think it's more likely that a "clean and articulate" fellow like Bayh will
take the helm

[narciso the harpoon]

So, has the "Two Minute Hate" for Lebron, abated up there. You'd think he had choked
a referree or shot one of his chauffeurs

[Parking Lot]

((LUN for Rove giving a mea culpa on his "biggest mistake at the White House".))

My God what were they thinking when they decided to let the lies stand unchallenged?
I believe America will never be whole until that particularly vile injustice perpetrated against Bush is ameliorated.

[Parking Lot]

((As Rosenberg says - 3% deflation counts as real income and replaces the interest income being stolen from savers by the Fed's ZIRP.))

now I'll sleep even better :)

[Rick Ballard]

From Mr. Adams first link:

The key word in his statement is "working." Obama's claim is based on a tax cut intended to offset payroll taxes. Under the stimulus bill, single workers got $400, and working couples got $800. The Internal Revenue Service issued new guidelines to reduce withholdings for income tax, so many workers saw a small increase in their checks in April 2009.

There was no change whatsoever in the tax rate, the IRS adjustment of withholding resulted in either a smaller refund or an increased tax bill in 2010. Likewise, the "tax cuts" to first time home buyers and those stupid enough to "invest" in higher indoctrination were grants - independent of income levels and an inducement to incur further debt via student loans, 50% of which will have no beneficial result.

The success of the Democrat "Dough for Duds" is reflected in the unemployment rate and generally febrile economy. It appears that another 1 million Americans will join the renter class this year. That's what Democrat "help" has done in the aggregate.

[Janesquaredance]

I think the mistake was that Bush wanted to do the exact opposite of Obama - he wanted to leave politics out of the Oval office. I suspect there was a time in this country when you could do that.

[Captain Hate]

No it hasn't narc. The hate for LeBron is based on 2 things: Him going completely in the tank during the playoffs (for which any type of explanation has yet to be presented) and that disgusting ESPN infomercial that he arranged. If he had told Gilbert, like a man, that he was going to Miami for blah blah whatever, there would be disappointment but not nearly the degree on animosity which will last for a long time. I think he and the entire NBA have a big problem going forward. And I think even the clueless Stern knows it.

[Gabriel Sutherland]

1. Stimzilla CUT taxes for 95% of working Americans. Small businesses, 1st time home buyers, parents, college students -- Obama campaigned on it and delivered.

If only they had a shelf life beyond one year.

The President is a practitioner of Oprahnomics. She's fat. She's thin. She's fat. She's thin. Good lord. Set a growth agenda. Stir the cement. Pour it. Smooth it. And set it. That actually builds a road worth traveling.

Instead, the President practices Oprahnomics constructing a road out of Acai berries.

Americans voted for change and they received a gypsy president.

[narciso the harpoon]

So, he's more like Schmidt then we even realized, I have kind of a low standard for
acceptance of athletes, it seems he fell below it

[hit and run]

Stephanie:
Twenty million has been spent so far on those ARRA signs touting the Stimulus money.

http://abcnews.go.com/Politics/signs-stimulus/story?id=11163180&page=2>Well.

Massachusetts Democrat James McGovern fired back, "This is the best we can get? Not putting up signs?" He continued, "How about paying for the tax cuts for the rich that my friends on the other side of the aisle passed? Hundreds of billions of dollars in debt that you put on the backs of my kids and my grandkids so that the wealthiest of the wealthy in this country can get a tax break."

I'm happy to report that according to one of those ARRA signs,the redistribution of wealth from the evil rich that Bush gave tax breaks to has finally reached the poor,downtrodden people of Jackson Hole.

Thanks for the new airport construction taxpayers! The stone-and-wood lodge feel of the new ticketing and check-in area is really something special.

And to think,all it took was "the worst economy since the great depression" to get it!

Sure,the wealthy like their tax breaks. But what they really want are cushy airports involuntarily paid for by hard working people somewhere else -- and at some point in the future -- as doled out by Democrats in Washington.

And Obama obligingly offers it to them.

[Janesquaredance]

The President is a practitioner of Oprahnomics. She's fat. She's thin. She's fat. She's thin.

Now that's funny.

[Gabriel Sutherland]

Any honest observer will learn that Lebron stabbed the Cleveland Cavaliers in the back. Perhaps the Cavs made a mistake in seeking Lebron's input on coaching and player changes, but the way the collective bargaining agreement is structured the team did not have much choice.

In retrospect, it would have been better for the Cavs to have set their own destiny and traded Lebron for a pile of future options. The plan to leave Cleveland was hatched at least two years ago.

[Captain Hate]

Yes I LOLed at Oprahnomics

[Captain Hate]

I think GS gets it right.

Btw does anybody know what happened to Laura Ingraham on The Spew yesterday? There was no way I was inflicting those dried-out hags on my retinas or tympanic membranes and I'd like to avoid those two witless geldings that Malkin employs.

[Soylent Obamacare]

Jane!

Check your email junk mail folder and let me know that the email I sent to you made it somewhere.

[narciso the harpoon]

When Whoopi asked McCain whether she should be worried about becoming a slave again, that
show 'jumped the Beluga' no self respecting
person, that's obvious excludes cupcake Megan, would have anything to do with it

[PD]

CH, Rove goes into this mistake in his book, which I found to be very interesting reading. He's pretty frank about other failures, including some in his personal life.

[Captain Hate]

Thanks PD. Maybe I'm too hard on Rove; as OL correctly points out, the problems in the GOP predated him by a long period of time. Still I'll empty my bladder on anybody I perceive as falling short of what I consider to be exemplary behavior, including Reagan. I don't grade on a curve.

[Janesquaredance]

Soylent,

When did you send it? ANd was it to fwdaj?

[MattJ]

Krugmans' worry about a tax cut is that much of the money will go to people who will use it to save or pay down debt (effectively the same thing). The difference between that and extending unemployment benefits is that unemployment benefits are targeted at people who are much less likely to save the benefit; being on unemployment, they are much more likely to spend the benefit.

If you are worried about deflation, paying down debt reduces MV, while spending increase MV.