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Source link: http://archive.mises.org/13918/krugman-its-aggregate-demand-vs-higgs-regime-uncertainty/

Krugman (It’s Aggregate Demand) vs. Higgs (Regime Uncertainty)

September 16, 2010 by

In my Krugman-in-Wonderland post today, I briefly contrast the views pushed by Paul Krugman and Robert Higgs.

According to Krugman, businesses are not spending because…they are not spending. If they will start spending, then they will be able to spend more. Prof. Higgs, on the other hand, notes the issue of “regime uncertainty.” My money is on Robert Higgs.

{ 11 comments }

Ryan September 16, 2010 at 9:28 am

I really think this issue highlights the sometimes gaping discrepancy between what people say and how they actually act.

Also, I felt Krugman’s point was just begging the question. Okay, so sales are down – but why? Arguing against uncertainty in economic conditions like this is pure foolishness. Anticipation of future events (and their corresponding likelihoods) is a necessary precondition for every economic act.

It’s things like this that make one realize how many basic concepts even greatly accomplished economists either forget or never properly understood.

Mark October 10, 2011 at 2:04 pm

The “why” really isn’t that difficult. 16.5 percent of the population is unemployed or under-employed (this with the labor participation rate significantly below pre-financial crisis levels). Those who have been rehired are making between 15-20 percent less than before. There was huge wealth lost in the residential real estate collapse. There was trillions more lost in the stock market bust. (think wealth effect for these two). The HELOC ATM closed down. For an economy dependent on consumer consumption these numbers are devastating and have nothing whatever to do with regulatory uncertainty. Look at capacity utilization; most businesses are operating well below optimum utilization, i.e. they can materially increase output without hiring one new person or spending a $1 in capital expense.

J. Murray September 16, 2010 at 10:32 am

Krugman – the master of the tautology.

Jonathan M. F. Catalán September 16, 2010 at 11:40 am

Like I wrote on my blog (“It’s Not That Simple, Stupid“), the fact of the matter is that Krugman fails to consider two points:

1. Regime uncertainty and decreased spending are not mutually exclusive, and the former could lead to the latter (and it has, in terms of productive consumption [i.e. investment]).

2. Krugman does not distinguish between unproductive consumption and investment. Expenditure in the latter form must rise (i.e. an increase in productivity), but necessarily the former (i.e. capital consumption).

Jonathan M. F. Catalán September 16, 2010 at 12:14 pm

*not necessarily the former.

Dennis September 16, 2010 at 12:08 pm

Regime uncertainty as described by Professor Higgs is certainly an important causative factor. However, I also believe that the precarious state of bank balance sheets and the financial system in general, especially as it impacts commercial bank lending to businesses, has contributed, and rightly so, to the heightened degree of business caution.

Inquisitor September 16, 2010 at 12:12 pm

Quite funny that AP Lerner has tried to whine on Professor Anderson’s blog again, this time destroying himself with his own source.

Tristan Band September 17, 2010 at 9:59 am

Alternative explanation: Nobody knows jack shit.

Inquisitor September 17, 2010 at 1:51 pm

Indeed, nobody knows jack shit.

Ned Netterville September 19, 2010 at 8:39 pm

Here is how Krugman concludes his latest (9/16/10) NYT column (http://www.nytimes.com/2010/09/17/opinion/17krugman.html?_r=2&ref=opinion):

“But what’s even more important is the principle of the thing. Threats to punish innocent bystanders unless your political rivals give you what you want have no legitimate place in democratic politics. Giving in to such threats would be an economic and political mistake, but more important, it would be morally wrong — and it would encourage more such threats in the future. It’s time for Democrats to take a stand, and say no to G.O.P. blackmail.”

Having been handed his lunch as an economic pundit by men like Professor Higgs and other Austrians so many times, Krugman seems to have switched to political punditry, where he is obviously better qualified. Unfortunately, in his debate with Senator Mitch McConnell, Professor Krugman also endeavors to lecture on matters of principle and morality where he is as profoundly unqualified as he is on economics. After all, he is the putative economist who once referred to World War II as an “enormous public-works project,” and “a fiscal stimulus adequate to the economy’s needs.” (http://www.nytimes.com/2008/11/10/opinion/10krugman.html, and see my comments thereon at: (http://jesus-on-taxes.com/ON_PAUL_KRUGMAN.html)

YAAAAMAN November 27, 2011 at 9:19 am

Im sorry but this has got to be one of your most ridiculous posts man.

“According to Krugman, businesses are not spending because…they are not spending.”

NO! Businesses arent spending because CONSUMERS arent spending! The financial system freezes for a few months, and companies lay off tons of workers. Millions, actually. Those millions of people arent spending anymore, because they have no income! companies see business dwindle and profits with them, so they cut costs rather than spend money.

SIMPLE.

Whats the counter argument?

That companies like walmart actually have an OVERdemand for their goods? And that they would just spend a little more money to increase supply if only obama wasnt being so mean?

Your telling me my local walmart is refusing to increase inventory and refusing to increase payrolls because the manager there doesnt like obama?

Your in wonderland.

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