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Politics : View from the Center and Left
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To: JohnM who wrote (142217)8/9/2010 8:53:21 AM
From: Steve Lokness  Read Replies (2) of 542010
 
John;

Arguing that the internet came from government - thanks Al Gore? - misses the demand issue;

The officials’ prescription is to stimulate that demand, for as long as it takes

And here is where the real differences between this noble prize winner and the noble prize winning Krugman stand out. .......My favorite example is housing where we built more and more McMansions. Bigger houses and one was no longer enough so they built two or three. People couldn't afford them in the first place and now are finding they can't afford too live in them. Higher utility cost, higher insurance cost, higher maintenance cost, higher property taxes and BANG - we have a housing implosion. So people realizing this in real time are readjusting. Selling the second house, down sizing and defaulting. All stimulating does is prolong the pain. Sooooooo, the recovery is extended over a long time.

DEMAND! Where will the demand come from? Interesting piece in the NYTimes recently that discusses all the things local governments are doing to meet declining revenues; turning off street lights (yup, doing that in my town) and discontinuing public transportation were a couple of the examples give - but there are lots of examples. This just lowers the demand further of course. Sad, but that can't be changed by building yet more - and bigger houses yet - that people can't afford. So you can stimulate all you want but the end result is just an over suppply of houses AND debt that is billed to our kids and grand kids.

BUT having said this, I agree the article from this winner of the Nobel prize has some pretty strange thinking in it that three people have alluded to already. If the prize winning Phelps can be so strange in his thinking - maybe Krugman is too? You often dismiss offhand someone who counters Krugman saying BUT Krugman knows what he's saying - he is a Nobel Prize winner in economics - welllll, so is this guy.

Steve
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