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Source link: http://archive.mises.org/14026/put-on-a-happy-face/

Put On a Happy Face?

September 27, 2010 by

Some people are saying that all we need is optimism, as if our attitudes alone cause and fix the business cycle, and as if the real world doesn’t matter at all. Actually, the “bad attitudes” of consumers and producers are the real fix: they lead to deleveraging and saving. FULL ARTICLE by Doug French

{ 30 comments }

Paul Krugman September 27, 2010 at 9:09 am

Saving is bad because it reduces economic activity. We need lots and lots of government spending to stimulate the economy. If that doesn’t work, that’s proof that we need even more government spending. Government spending is just using idle money anyway, so nobody loses but everyone gains.

Allen Weingarten September 27, 2010 at 3:19 pm

Paul Krugman was lecturing students, when he asked one of them a question. The student replied “I didn’t hear the question, but the answer is more government spending.”

fundamentalist September 27, 2010 at 9:16 am

It’s sad that Cowen’s economics comes down to the power of positive thinking. Why study economics at all? Just grab some pop-psychology books or Zig Ziglar pick-me-ups!

J. Murray September 27, 2010 at 9:20 am

Standard Keynesian excuse – if the system isn’t working, blame the people for being bullheaded and not going along with it.

We have to work with reality, not demand reality work with us.

Deefburger September 27, 2010 at 9:24 am

The one thing any bank needs and absolutely cannot have “by decree” is trust. Trust can only be given voluntarily by those doing the trusting. Without it, the institution will fail. Trust is the reason the monetary metals do so well when the fiat banking systems are in dire straights, they are tangible and can be trusted implicitly for that reason.

Trust went out the window when the public-at-large, the real Economy, saw their wealth saved over the years disappear in a puff of smoke (and mirrors), and was exacerbated by the bailouts, which saved the institutions that lost the wealth, without replacing the lost wealth. There is simply no way for a rational person to trust in those institutions any further.

The trust is gone. If the Fed-Treasury had not saved it’s own institutions and let them go belly up instead of bailing them out, then the actions they did take would still carry some weight in the minds of the public. As it is, they won the battle of collapse, but lost the war.

Paul Krugman September 27, 2010 at 9:49 am

Who needs trust? They’re not backed by trust, they’re backed by guns. They can use guns to steal from everyone else when they’re in trouble.

Deefburger September 27, 2010 at 10:13 am

And that’s a reason to do business? You are a madman, and, I suspect, a troll.

Paul Krugman September 27, 2010 at 10:37 am

You don’t need to trust the bank. All of the bank’s unsound investments and fractional reserve loans are backed by the police power of the state. So yes, it is a reason to do business with them instead of a bank not backed by the police power of the state.

Tom Rapheal September 27, 2010 at 12:07 pm

Deefburger meet sarcasm, sarcasm Deefburger

Deefburger September 27, 2010 at 9:48 am

@Paul Krugman

You are confusing the movement of debt with the movement (in the other direction) of value. Typical Keynesian mistake. First of all, the debt is idle and unlimited because it is not tangible. Yet the value that moves in the other direction in an economic exchange IS tangible to those exchanging. Fiat money is a transfer from the economy to the issuing bank, not an exchange. Throwing more debt into the economy benefits only the bank, not the people-at-large. They are the producers of the economic activity and the wealth that moves within the economic system. All the banking system is in this scenario is a middleman. You can’t start a deal from the middle of an exchange and you cannot create wealth from nothing. An “IOU for a beer”, is not a beer. Second, the bank is not a part of the economy. It is a middle man by force, and un avaiodable except in barter. Dumping a pile of tokens between a buyer and a seller will not make a sale happen. The bank, no matter how “important” you may think it is to economic activity, is not a player. It is a un-welcome referee. Throwing more balls onto the field will not start a baseball game.

Beefcake the Mighty September 27, 2010 at 9:54 am

Why does anyone take Tyler Cowen seriously anymore?

newson September 27, 2010 at 8:23 pm

to btm:
thought you might be interested in this lively discussion: http://bit.ly/9zzq23

Beefcake the Mighty September 27, 2010 at 9:05 pm

Thanks newson, I saw this when it first came out last year, I didn’t know it still had life.

newson September 28, 2010 at 12:58 am

revisionism has a slow-burn fuse.

Tim Kern September 27, 2010 at 10:45 am

Think: if we have seen nearly $2 trillion in “free” money (as opposed to “earned” money) added to the system since Bear, Stearns proved that anything the government does with anyone’s money is constitutional, why have consumer prices not risen?

Could it be that we have seen rising prices only in the near-cash repositories of the ruling class? Consumer prices aren’t rising because consumers haven’t gotten the money — there is no upward pressure on the price of used private airplanes, toilet paper, cars, clothes, restaurant meals, or… single-family houses.

Look, though, at prices of stock indices — up 30% and more since March 2008. The companies aren’t “worth” any more — their production is down; their credit ratings have declined — but the stock prices keep going up. Could it be that those with plenty of money got the bulk of that extra money, and they are bidding only against each other?

Seattle September 27, 2010 at 1:08 pm

Another perfect prediction given to us by Austrian theory. Demand curves are only pushed up by inflation for the individuals who receive the new money. For now this money is staying in the financial markets so, predictably, the inflation is limited to that sector.It is interesting to note the gains in the stock market have only been nominal: The growth rate’s been surpassed by Gold at every turn. The characteristic sign of a bubble.

billwald September 27, 2010 at 2:52 pm

The 2 trillion isn’t added to the system in a supply and demand sense until it is used to buy consumer goods. The 2 trillion has been used to buy economic power by bankrupting the small banks and transferring their assets to the big banks.

Deefburger September 27, 2010 at 11:06 am

Why does anybody take fractional reserve seriously anymore! Or Keynes for that matter! I don’t think anybody outside of the governing elite and the banking elite has any real belief in either fractional reserve or Keynes’ so called theory. The only people pushing that kind of thinking are the same people at the receiving end of the wealth and power the fiat money brings in when those same people get rid of the debt notes they created themselves, through loans and funding legislation.

If all I needed to do to eat was write an IOU, I’d be eating Prime Rib every night. I’d be a fractional reserve bank or the secretary of the Treasury! The only way a Federal Reserve note can have intrinsic value is for the Federal Reserve Bank to cease to exist. Then the “legal tender” becomes a collector’s item and has more value than it does while the bank survives. A 4 quadrillion Zimbabwean note wouldn’t buy a sneeze, until the bank that issued it failed. Now it’s worth a week of Mochas or a nice dinner! Why? Because it ain’t money! It’s currency, but not MONEY. Money is real store-able usable wealth that is completely independent of the creator of it. Fiat “money” is not independent of the issuer. An IOU is not independent of the issuer.

newson September 27, 2010 at 8:37 pm

tell that to the monetary equilibrium schismatics! horwitz, dowd, selgin etc.

Bruce Koerber September 27, 2010 at 12:15 pm

Propagandists Want Everyone To Be Happy.

The hope of Tyler Cowan is that the disease spreads! The disease of Keynesianism that is injected through government channels is all cheery – spend like there is no tomorrow – so why, he wonders, can’t business owners?

Tha answer is obvious, business owners are a part of the market economy which operates under the criterion of trustworthiness which is part of business ethics. Business owners cannot cheerfully lie and steal through coercion like the government and expect to stay in business. Therefore businesses are not going to behave like counterfeiting mobsters who cheerfully embezzle and blackmail and murder.

Rick September 27, 2010 at 1:19 pm

Mutual funds are nearly 97 percent invested and investor sentiment indexes are high.

This likely has more to do with lack of confidence rather than confidence in the system. Nobody smart wants to keep their money in a money market account now. With interest rates so low and the Federal Reserve Note in such a vulnerable position, you might as well put your money in a mattress if you’re not going to be invested. People are investing in Treasuries (of all things), bonds, “boring” dividend paying stocks… and gold, etc… because those are seen as safer than cash now, not because of giddy enthusiasm for the economy or the current monetary policies.

Also, a bear market “suckers rally” was engineered. The stock market is up in the last year or so. Why wouldn’t people be invested in that? As for investor sentiment being high, a contrarian would say that means it’s time to sell and take profits. Or at least sell your more speculative growth stocks.

It’s a preservation strategy. Smart investors are invested in the “safe and boring” stuff because they want to preserve what they have and grow what they can. But the biggest thing is preservation because people know all is not well. So preserve now and wait for another crash, then scoop up the bargains later. I would guess that many small business owners and other individuals are thinking along a similar vein.

One of the other problems is activist government. It gridlocks the people because everyone is just waiting for the next shoe to drop… what’s the next law or mandate?

As for the so-called “optimism no matter what”. It’s armchair nonsense. A debunked and discredited pop culture.

guard September 28, 2010 at 5:48 am

I’m waiting for the next shoe to drop. If things continue as they are going (not much reason to believe otherwise) government will not be able to resist sucking the value out of gold also. Confiscation, extra taxes, limits on buying or selling, etc. They will try to cover every route of escape from the monetary system.

weak stream September 27, 2010 at 4:42 pm

This kind of psychobabble would be laughable if it were not dangerous. Like the WIN (Whip inflation now) campaign of Tricky Dickey, the “Put On A Happy Face and Blow Money” approach today encourages people to commit financial suicide. Just like the private jet flying “Global Warming” folks that want the rest of us idiots to live in tents, I say “Dr. Ben, you first”.

Dave Albin September 27, 2010 at 6:05 pm

The good news is that people do find a way to stay positive and get what they need. Systems of bartering (called time shares, I believe) spring up – voluntary exchange knows no limits, except those forced on us by the state (which people tend to ignore, especially during times like these). We’ll just keep on meeting our needs. People figure things out on their own – just think what we could do without the distractions the state puts on us! That’s enough to keep me optimistic….

John B September 28, 2010 at 4:00 am

Of course I agree with you. As should any sane person.
My question to your conclusion that, now is the time to save, is: What the heck does one save in? Where can one effectively save?
(Did you see the UK Daily Telegraph headline yesterday telling savers to stop moaning and to start spending, by the way?)
Money, cash, is being devalued.
Gold is now very expensive and anyway, always was difficult and expensive to buy.
Property values are falling, and where they aren’t, they probably will be because they have been a bubble mal-investment.
Commodities are difficult to store.

How does one save ?!!

John B September 28, 2010 at 4:08 am

http://www.telegraph.co.uk/finance/personalfinance/savings/8028884/Savers-told-to-stop-moaning-and-start-spending.html

I note the gentleman from the BoE they are quoting is a Mr Bean. Is there more to this?

J. Murray September 28, 2010 at 5:50 am

The Rowan Atkinson character? Sounds appropriate.

elgecko84 September 29, 2010 at 8:06 am

Personally, I can’t wait for the next boom. If 10 years ago I knew what I know now (thanks to Mises), I would be rich. I plan on taking full advantage of the next round of expansionary policy to build my retirement fund! I’ll invest in whichever market the govt targets and get out before the inevitable bust. Am I missing something?

Daniel September 29, 2010 at 8:28 am

Come to Brazil then!

Robert October 1, 2010 at 1:41 am

Hmm… economic development is driven by consumer spending, business investments, government spending and exports. And in a sense, at least in theory, it is true that when there is no “optimism” and willingness to spend money by consumers and businesses and at the same time there is weak abroad demand limiting exports, the government needs to mobilize funds for the economy to grow. And then there is the expectation that everyone will follow the government’s good example but this is only an expectation…

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