Austerity and Deficits - answering paul krugman

[oldickeastman]

Austerity and Deficits

Krugman: So the austerity drive in Britain isn't really about debt
and deficits at all; it's about using deficit panic as an excuse to
dismantle social programs. And this is, of course, exactly the same
thing that has been happening in America.

Eastman: Krugman lacks a theory of the financial elites, he does not
get to how they benefit from dismantling social programs and what
their overall objective is -- wealth maximization? monopoly? macro-
monopoly where the bank manipulates what the nation state used to
manipulate? security by weaking the opposing class of debtors?
Instead he views politics -- money power lobbying - as outside of
economics rather than inside where it must be part of the
analysis. .


Krugman: The boom, not the slump, is the right time for austerity. So
declared John Maynard Keynes 75 years ago, and he was right. Even if
you have a long-run deficit problem - and who doesn't? - slashing
spending while the economy is deeply depressed is a self-defeating
strategy, because it just deepens the depression.

Eastman: Everything is wrong about this though it sounds good wearing
Keynesian fiscal-policy glasses. The word "boom" is wrong as its its
cousin "bubble" -- because economic growth and expansion is a normal
condition, with startups replacing obsolecent products, production
methods, industries that should go on all the time. But if you
view booms-bust cycles and bubbles that must eventually collapse but
can be "kept up" or restored to "up" with government fiscal spending
in a bust and kept from growing too big with increased taxation in a
boom -- then you will adopt Krugman's position. But the fact is that
boom is the normal state of capitalism and life -- only the addition
of debt-money and interest drain and a private credit monopoly that
enables the leaders of one sector of the economy, finance, to
manipulate macro variables of price level (inflation and deflation),
employment, productivity, balance of trade all lead to the sabotage
of economic development and improvement -- so that the financiers'
wealth is maximized at the expense of the borrowing sectors
(government, households and domestic production.) There is no need to
slow down a growing economy with taxation. However, there is a need
to reflate an economy in deflation and there is a need to provide
money that starts to decay to nothing a month after it is borrowed and
then tries to pull out even more money to pay the compound interest.
All depressions are financial. It is wrong to blame borrowers when
the creditors have control of the monetary "measuring rod" (the
purchasing power of the dollar) in which the contract was
written. .

Krugman: So why is Britain doing exactly what it shouldn't? Unlike the
governments of, say, Spain or California, the British government can
borrow freely, at historically low interest rates. So why is that
government sharply reducing investment and eliminating hundreds of
thousands of public-sector jobs, rather than waiting until the economy
is stronger?

Eastman: Because they profit from deflation. Because their dollar
holdings (hoardings) appreciate in value in a deflation and when the
deflation has done its job and every asset of the borrowers is in
receivership and flooding the market (houses, businesses, privatived
public lands, utilities and other assets) they can buy up these
tangible assets for pennies on the dollars that built them. The
government is reducing expenditure because that speeds the deflation
and hence the wealth of the creditor class - Rothschild and
Rockefeller families at the top of the list of gainers.
Furthermore deflation reduces total return on tangible assets in the
form of capital losses in the domestic production sector, and and
speculators behind the deflation have built their portfolios to gain a
windfall from this. Tangible asset prices down and financial asset
prices up—i.e., interest rates down. .

Krugman: Over the past few days, I've posed that question to a number
of supporters of the government of Prime Minister David Cameron,
sometimes in private, sometimes on TV. And all these conversations
followed the same arc: They began with a bad metaphor and ended with
the revelation of ulterior motives.

Eastman: Economists don't ask economic agents (or the politicians
they hire) why they are pushing deflation/austerity. They don't have
the whole picture -- all they know of the cow is the teat they have
found -- and the few master planners/conspirators at the top are
certainly not going to state their true objective function -- their
real motives. But why does Krugman not have a developed theory of
banking elite as economic agents within the economy. They have more
control than the Fed (they created and dictate fed policy and control
directly its most important levers -- and they own it) yet they are
not studied -- because science, even the science of economics, has
the goal of prediction and control -- and the bankers don't want
people predicting and control them or understanding what they are
after or how they are gaining at the expense of sectors of the economy
or -- and this is most important -- how they are completely
unnecessary and actually a gigantic net loss to the efficiency of
market system in terms of serving consumers and the
nation. .

The bad metaphor - which you've surely heard many times - equates the
debt problems of a national economy with the debt problems of an
individual family. A family that has run up too much debt, the story
goes, must tighten its belt. So if Britain, as a whole, has run up too
much debt -- which it has, although it's mostly private rather than
public debt -- shouldn't it do the same? What's wrong with this
comparison?

Eastman: This idea is not original with Keynes -- theories of
underconsumption are very old. And clearly C H Douglas, John Hobson,
Arthur Kitson and Soddy were way ahead of Keynes and his invisible
partner Richard Khan in turning out the Keynesian model and the
Keynesian soltuion of deficit-financed government spending during
deflation and high taxation during inflation. The error of Keynes is
that the reflation they offer is deficit-financed which means that the
money will be returned to the banks taking with it compound interest
so that even greater deflation must necessarily follow. Krugman
refuses to look at this because doing so will blow up Keynesianism and
his function as defender of the Keynesian error of neglecting long
term consequences of deficit financed fiscal
stimuli. .
.


Krugman: The answer is that an economy is not like an indebted family.
Our debt is mostly money we owe to each other; even more important,
our income mostly comes from selling things to each other. Your
spending is my income, and my spending is your income.
So what happens if everyone simultaneously slashes spending in an
attempt to pay down debt? The answer is that everyone's income falls
-- my income falls because you're spending less, and your income falls
because I'm spending less. And, as our incomes plunge, our debt
problem gets worse, not better.


Eastman: Krugman is seriously wrong here, and their is a long
tradition of this error. Keynes and Paul Samuelson (whom Krugman has
replaced as national spokesman for Keynesian economics) both stated
that "we owe it to ourselves." I have developed an alternative model
that much better fits the facts and yileds much better prediction.
That model is that there are two distinct systems, the upper loop of
creditors, banks, multinational corporations and speculators
(currencies, futures, derivatives, bonds, real estate) who are the
creditors and the lower loop of households (95 percent of them),
government (domestic public goods) and domestic production (the
tangible goods and services we produce and provide to earn our
incomes). When government deficit spends the upper loop gets the
contract and it also gets the interest on the deficit spending. The
lower loop builds up the tangible economy in the easy money phase and
they turn over ownership of those assets to the upper loop in the
deflation phase -- all according to plan, the cycle of sowing and
harvesting by international banking families.

.
Krugman: This isn't a new insight. The great American economist Irving
Fisher explained it all the way back in 1933, summarizing what he
called 'debt deflation' with the pithy slogan "the more the debtors
pay, the more they owe." Recent events, above all the austerity
death spiral in Europe, have dramatically illustrated the truth of
Fisher's insight.

Eastman: Krugman is mentioning Fisher now -- and Fisher is right.
But Fisher is a monetarist (like I am) and he blamed debt and
deflation together as the causes of serious non-equilibrating
depressions. I have been saying in postings and in Youtubes -- with
extensive quotes of whole chapters of Fisher -- that austerity leads
to increased real debt, even if nominal debt goes down. Just like you
real wage can go down in an inflation even if your nominal wage is
going up (albeit going up slower than the prices of production
goods). But Fisher advocated a monetary reflation, not the deficit-
financed government spending stimulus Krugman would stick us
with. .


Krugman: And there's a clear moral to this story: When the private
sector is frantically trying to pay down debt, the public sector
should do the opposite, spending when the private sector can't or
won't. By all means, let's balance our budget once the economy has
recovered ' but not now. The boom, not the slump, is the right time
for austerity.

Eastman: What Krugman is saying very dishonest. I hope I can make
it clear why in the next two sentences. Krugman wants government to
fill in with its own borrowing when the household and business sectors
are trying to pay down. This is a favor to the crediters so that they
do not have a contraction of their loans outstanding. But isn't it
far better to have money in the economy that is not bank-debt, that is
not loans at interest that must be paid back. We need money that
circulates and stays circulating and must not go back where it came
from taking its Federal Reserve Note brothers and sisters with it as
"interest" hostages. Because then the people go austere and the
government does not but rather replaces consumer spending/borrowing
with government spending /borrowing - the people do not escape debt
at all -- rather they just change the means by which they will be
paying the same interest burden -- they will be paying interest (on
the increased national debt) through the IRS rather than through
checks written to their lending banker. Krugman is no enemy of
the financial sector.

Krugman: As I said, this isn't a new insight. So why have so many
politicians insisted on pursuing austerity in slump? And why won't
they change course even as experience confirms the lessons of theory
and history?

Eastman: Krugman offers deficit-financed fiscal policy to keep up
total lower-loop borrowing even in a deflationary depression that will
get worse when principal and interest on the "stimulus" begin to drain
away. If he was an economist on the side of the national economy and
the people he would advocate what the populists have advocated: 1)
Repudiation of debt (because it was built up in a fraudulent scam
system that is inherently a deathtrap for any nation); 2) a move to
pure national "thin-air" fiat money and 3) distribution of the new
money directly to the household sector through national dividend that
gives free-and-clear new purchasing power to all consumers so that the
economy can be driven by consumer demand -- so that there can be
consumer sovereignty strong enough to make the better entrepreneur
profitable and the marginal entrepreneur earn "normal" profits and
only the "wrong" entrepreneur make losses and go out of business.
That is who a market economy should work. The only justification of a
market economy is that it best serves the need of the people of the
nation that regulates that economy. For that we need nationalist
populist social credit economists and not Keynesians and Austrians and
Neo-classicals etc who all work one way or another for the "upper
loop" who from the perspective of the good of society are not better
than an organized crime syndicate. .

Krugman: Well, that's where it gets interesting. For when you push
'austerians' on the badness of their metaphor, they almost always
retreat to assertions along the lines of: "But it's essential that we
shrink the size of the state."

Eastman: Yes, they do. And they are wrong. It is essential that we
shrink the power of the financial sector over money creation (and
destruction) and credit expansion and contraction. The state must be
the regulator of the economy in the national interest. The
international bankers do not run the financial sector in the national
interest -- they feed on the lower loop, they do not serve it.
Government as regulator of the economy should be above all markets and
especially above the banks and speculators. That is not the case
today. That is what constitutions are for. As for the providing of
public goods like power, water, airports, bridges, roads, social
security -- that is a decision of the houshold sector through their
elected representatives and their own political participation out of a
sence of public duty (this is absent from more hireling politicians) -
the people decide what mix of public and private goods they want. But
the pound of flesh exacted by the usury system of debt-money has to
come from either households or business or government services --
because not politican or group of politicians is willing to stand up
and declare that the financial sector is completely under government
regulation - that the lenders are not above the government of the
people. That is what you will never hear from Paul Krugman. All he
wants it to make sure that when the people are going bankrupt and
can't borrow any more from the upper loop that the government will
step in and continue the level of borrowing - so the creditors will
have a safe market for their loanable funds to replace the unsafe and
shrinking private sector borrowing. .

Krugman: Now, these assertions often go along with claims that the
economic crisis itself demonstrates the need to shrink government. But
that's manifestly not true. Look at the countries in Europe that have
weathered the storm best, and near the top of the list you'll find big-
government nations like Sweden and Austria.

Eastman: The more Austerity in the household sector the more banks
can borrow from their favorate debtor -- the US government, backed by
the power to tax and sell government land and other public assets. Of
course the anti-government Austrian economists and the conservatives
are for government borrowing and for taxes, like the VAT and
cigarettes and property, that hit the lower loop households the
hardest. The debate between Keynesians and Austrians/conservatives/
libertarians is itself fraudulent - because both represent service to
the upper-loop creditor class at the expense of the household,
domestic production, and public services
sectors. .

Krugman: And if you look, on the other hand, at the nations
conservatives admired before the crisis, you'll find George Osborne,
Britain's chancellor of the Exchequer and the architect of the
country's current economic policy, describing Ireland as "a shining
example of the art of the possible." Meanwhile, the Cato Institute was
praising Iceland's low taxes and hoping that other industrial nations
"will learn from Iceland's success."

Eastman: Yes, but I explain why and Krugman doesn't. The elites
tauted the easy money "building phase" the bankers initiated in those
countries - cheap loans from the switch to the Euro -- making the
Irish think they can borrow to build a Gaelic Empire by borrowing
cheap and building -- but then the deflation began and everything
that was built and a lot of the treasure of land and beauty and wealth
of Ireland had to go to pay the interest in a super deflation - a
deflation deliberately engineered for such a harvest of Irish assets.
Krugman doesn't go there. He writes for the New York
Times. .

Krugman: So the austerity drive in Britain isn't really about debt and
deficits at all; it's about using deficit panic as an excuse to
dismantle social programs. And this is, of course, exactly the same
thing that has been happening in America.

Eastman: And it isn't really about dismantling social programs as it
is about extracting purchasing power from Ireland's lower loop to
enable the bankers to buy up the medical industry, the government
utilities, the businesses that were built up by the Irish in their
moment of large amounts of credit. The credit itself was not at fault
-- it was the fact that the piper would have to be paid in principal
and interest and the fact that the international lenders could start
the deflationary depression at any moment they choose by simply
calling in loans to get the downward spiral started. Krugman would
have you believe that the masters of this scam just don't like social
services -- that is absurd. Krugman has failed to explain their
behavior as I have done. He is not an economist of the people -- he
is a shill propagandist for the money
power. .

Krugman: In fairness to Britain's conservatives, they aren't quite as
crude as their American counterparts. They don't rail against the
evils of deficits in one breath, then demand huge tax cuts for the
wealthy in the next (although the Cameron government has, in fact,
significantly cut the top tax rate). And, in general, they seem less
determined than America's right to aid the rich and punish the poor.
Still, the direction of policy is the same -- and so is the
fundamental insincerity of the calls for austerity.

Eastman: Krugman pretends he smells like a rose - but he is merely
ensuring there will be a next time - by getting government to go into
debt -- so the total debt drain will not be diminished. The Money
Power needs Keynesians to set up the next round. Krugman does this
admirably. .

Krugman: The big question here is whether the evident failure of
austerity to produce an economic recovery will lead to a "Plan B."
Maybe. But my guess is that even if such a plan is announced, it won't
amount to much. For economic recovery was never the point; the drive
for austerity was about using the crisis, not solving it. And it still
is.

Eastman: And notice that Krugman does not offer you a "B" plan,
other than deficit spending. His solution is as lethal and as upper-
loop-serving as the Austrians call for austerity and deflationary gold
standard or competing currencies so that our debts payable in paper
can be changed into debts payable in gold.

The US dollar is no longer the international currency. The plan is
for the old Rothschild directed international gold standard. The same
booms and busts obtain under such a standard -- all of the great
depressions of the 19th and 20th century were under gold standards.
Ron Paul is not the answer to Paul Krugman or Geithner or Bernanke.
Only populist Houshold Dividend and debt repudiation are the
answers.