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Old 10-28-2008, 09:28 PM   #1
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Default Wackonomics

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A MINORITY VIEW
BY WALTER E. WILLIAMS
RELEASE: WEDNESDAY, OCTOBER 29, 2008, AND THEREAFTER

Wackonomics


For the U.S. Congress, news media, pundits and much of the American public, a lot of economic phenomena can be explained by what people want, human greed and what seems plausible. I'm going to name this branch of economic "science" wackonomics and apply it to some of today's observations and issues.

Since July this year, crude oil prices have fallen from $147 to $64 a barrel. Similarly, average gasoline prices have fallen from over $4 to a national average of $2.69 a gallon. When crude oil and gasoline were reaching their historical highs, Congress and other wackoeconomists blamed it on greedy oil company CEOs in their lust for obscene profits. But what explains today's lower prices? The only answer, consistent with wackonomic theory, is easy: Oil company CEOs have lost their lust for obscene profits. Or, maybe, since many of these CEOs are getting up in years, they might have begun to heed Matthew's warning (19:24), "It is easier for a camel to go through the eye of a needle than for a rich man to enter into the kingdom of God."

Speaking of CEOs, there's the "unconscionable," "obscene" salaries they receive, in some cases over $10 million a year. Wackonomics has an easy answer for these high salaries: it's greed. However, CEOs don't have the corner on greed. There are other greedy people we don't scorn but hold in high esteem. According to Forbes' Celebrity 100 list, Oprah Winfrey receives $275 million, Steven Spielberg gets $130 million, Tiger Woods $115 million, Jay Leno $32 million and Dr. Phil $40 million. I need to talk to these people and learn their strategy. I've been making every effort to get that kind of money. I go to bed greedy, dream greedy dreams, awaken greedy and proceed through the day greedy. Despite my heroic efforts, it's all been for naught; I earn a pittance by comparison.

Wackonomics can help us understand what some people call the income distribution. The logical extension of wackonomic thought is that the unequal or unfair distribution of income is the handiwork of a dollar dealer who distributes dollars. The dollar dealer might deal one person a million dollars a year while dealing most others a mere pittance like $10, $20 or $30 thousand a year. Thus, the reason why some people are wealthy while others are poor is because the dollar dealer is a racist, sexist, a multi-nationalist, or just plain mean. Economic justice requires a re-dealing of the dollars, income redistribution or spreading the wealth, where the government takes the ill-gotten gains of the few and returns them to their rightful owners. Wackonomics might have a greed-based explanation for income inequality. There is a pile of money called income and greedy people got there first and took their unfair share. Similarly, economic justice requires a redistribution of income.

Wackonomics isn't just practiced by the uninitiated. This year's Nobel Laureate, Princeton University Professor Paul Krugman, after the terrorist attack on the World Trade Center, gave one rendition of wackonomics in his column "After the Horror," New York Times (9/14/01). Krugman wrote, "Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could do some economic good." He went on to point out how rebuilding the destruction in New York and Washington, D. C., would stimulate the economy through business investment and job creation. For practitioners of non-wackonomics, this reasoning doesn't even pass the smell test. If Professor Krugman's vision is correct, and extending his logic, the terrorists would have made an even larger contribution to our economic well-being had they been able to fly a plane into the White House and destroyed buildings in other cities.

Wackonomics isn't all bad. There's an upside to it. It spares people the bother of having to understand the complexities of the world.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2008 CREATORS SYNDICATE, INC
http://www.gmu.edu/departments/econo...ackonomics.htm
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Old 10-29-2008, 09:31 AM   #2
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Krugman wrote, "Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could do some economic good." He went on to point out how rebuilding the destruction in New York and Washington, D. C., would stimulate the economy through business investment and job creation.
Classic broken window fallacy. (funny...just noticed that this same Krugman quote is actually cited in the wikipedia article on the parable of the broken window as a classic example of a broken window fallacy....great minds)

It's really astounding that a Nobel prize winning ny times op-edding economist can be this bad. It's typically Keynsian, unfortunately...
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Old 10-29-2008, 09:49 AM   #3
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Classic broken window fallacy. (funny...just noticed that this same Krugman quote is actually cited in the wikipedia article on the parable of the broken window as a classic example of a broken window fallacy....great minds)

It's really astounding that a Nobel prize winning ny times op-edding economist can be this bad. It's typically Keynsian, unfortunately...
That link was a really enjoyable read. Thanks.
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Old 10-29-2008, 09:55 AM   #4
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That link was a really enjoyable read. Thanks.
Beat me to it.

Thanks. Its basic opportunity cost stuff, but I'll admit I hadn't heard of the phrase "broken window fallacy".
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Old 10-29-2008, 10:01 AM   #5
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Old 10-29-2008, 10:21 AM   #6
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Beat me to it.

Thanks. Its basic opportunity cost stuff, but I'll admit I hadn't heard of the phrase "broken window fallacy".
I can't remember if I've ever heard that phrase either, but it is a brilliant and simple explanation of an often used fallacy.

I found it interesting that they gave these examples of the fallacy:

Quote:
  • Arguments for public works projects as a way to reduce unemployment
  • Arguments for increasing the number of government employees, in order to provide employment
  • Arguments for protectionist measures such as tariffs, subsidies and/or other regulations in order to protect local industries
Sounds oddly like somebody we know...
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Old 10-29-2008, 10:39 AM   #7
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I'd recommend a little knowledge of Frederick Bastiat to anyone -- whether one agrees with him or not, he's a sensible and accessible fellow that really demonstrates that there's nothing new under the sun when it comes to economic thought. His quotes cited in the link are worth the time.

Speaking of which....I hear now that the powers that be are considering another "stimulus package", something aimed at *letting* taxpayers keep a little bit more of their own money. Moreover, we're going to see this stimulus package even as we shell out $700b to bankers, and do whatever the heck we can to help those troubled homeowners who can't pay their loans stay in their homes, and all the other stuff that goes along with racking up half a trillion in deficits a year....

as Bastiat said on Government...

Quote:
"Government is the great fiction through which everybody endeavors to live at the expense of everybody else."
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Old 10-29-2008, 02:48 PM   #8
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well yes, there is a bad case of "wackanomics" going around.

kg, just who are you suggesting is promoting those ideas today?

btw the krugman reference in the piece is accurate, but the economic prize awarded to krugman was for a completely different area of economic theory than that to which the article he wrote deals with. krugman shows that one may have a great deal of intelligence sometimes but not necessarily all the time...
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Old 10-31-2008, 09:36 AM   #9
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Paul Maynard Krugman-Keynes really is a wackonomist extraordinaire. It's no wonder then that he's prominently featured on the op-ed pages of the NY Times.

babbling nonsense

any quote from the above will do for an example of keynesian nonsense, but this is particularly good:

Quote:
...one of the high points of the semester, if you’re a teacher of introductory macroeconomics, comes when you explain how individual virtue can be public vice, how attempts by consumers to do the right thing by saving more can leave everyone worse off. The point is that if consumers cut their spending, and nothing else takes the place of that spending, the economy will slide into a recession, reducing everyone’s income.
So, according to the same man who thinks it is an economic good for giant airplanes to be crashed into giant buildings, it is bad when "consumers" save their money rather than spend it on crap.

let's repeat....

....saving money, putting it into something which might then be invested in greater productivity = bad for the economy

...racking up credit card debt to buy guitar hero version 14 and 3 year subscription to ASS magazine = good for the economy.

This is how liberal wanker keynesian's think, and it's why our economy is on very structurally thin ice right now.

so what happens if we stop buying games for the PS3 and let our subscriptions to a variety of porn mags expire???? apparently, according to Krugman, the government must up it's purchases of crap to makes sure we have a never ending flow of more crap.

krugmanesque keynesians -- they don't understand the full role their favored monetary, fiscal policies, and regulations play...they count only the benefits and not the costs....then they proscribe bigger taxes and bigger government to fix problems they created in the first place....ever spiraling credit card debt, bigger taxes and bigger government.
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Old 10-31-2008, 10:16 AM   #10
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Originally Posted by alexamenos View Post
Paul Maynard Krugman-Keynes really is a wackonomist extraordinaire. It's no wonder then that he's prominently featured on the op-ed pages of the NY Times.

babbling nonsense

any quote from the above will do for an example of keynesian nonsense, but this is particularly good:



So, according to the same man who thinks it is an economic good for giant airplanes to be crashed into giant buildings, it is bad when "consumers" save their money rather than spend it on crap.

let's repeat....

....saving money, putting it into something which might then be invested in greater productivity = bad for the economy

...racking up credit card debt to buy guitar hero version 14 and 3 year subscription to ASS magazine = good for the economy.

This is how liberal wanker keynesian's think, and it's why our economy is on very structurally thin ice right now.

so what happens if we stop buying games for the PS3 and let our subscriptions to a variety of porn mags expire???? apparently, according to Krugman, the government must up it's purchases of crap to makes sure we have a never ending flow of more crap.

krugmanesque keynesians -- they don't understand the full role their favored monetary, fiscal policies, and regulations play...they count only the benefits and not the costs....then they proscribe bigger taxes and bigger government to fix problems they created in the first place....ever spiraling credit card debt, bigger taxes and bigger government.
Great, great post.
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Old 10-31-2008, 10:30 AM   #11
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...one of the high points of the semester, if you’re a teacher of introductory macroeconomics, comes when you explain how individual virtue can be public vice, how attempts by consumers to do the right thing by saving more can leave everyone worse off. The point is that if consumers cut their spending, and nothing else takes the place of that spending, the economy will slide into a recession, reducing everyone’s income.
Well it just has to be done. We can't keep spending at the ridiculous standard that has been set in recent years. A lot of people are going to lose their jobs in the process, but the economy needs to kind of reset.

And by the way Alex, is there a discount for ordering 3 whole years of ASS magazine?
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Old 10-31-2008, 10:38 AM   #12
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Well it just has to be done. We can't keep spending at the ridiculous standard that has been set in recent years. A lot of people are going to lose their jobs in the process, but the economy needs to kind of reset.

And by the way Alex, is there a discount for ordering 3 whole years of ASS magazine?
Exactly what the economy needs is a kind of reset, IMO....I think, and I've hardly the ability to explain it adequately, but I think one of the consequences of the manner in which our monetary / fiscal situation has been managed over the last 15 years is that it leads to all manner of "mal-investments" -- we get people heavily employed in building mcmansions, investments in companies dedicated to providing pet owners with an internet portal to purchase dog food, etc.... it's going to take time to unwind these bad investments and get people employed in more productive endeavors, and I think it will unavoidably be a painful time.

as for the ASS magazine subscription, yes, it's like 50% off the newsstand price...

...i mean, my friend tells me it's a big discount.
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Old 10-31-2008, 10:45 AM   #13
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Exactly what the economy needs is a kind of reset, IMO....I think, and I've hardly the ability to explain it adequately, but I think one of the consequences of the manner in which our monetary / fiscal situation has been managed over the last 15 years is that it leads to all manner of "mal-investments" -- we get people heavily employed in building mcmansions, investments in companies dedicated to providing pet owners with an internet portal to purchase dog food, etc.... it's going to take time to unwind these bad investments and get people employed in more productive endeavors, and I think it will unavoidably be a painful time.
Yes, it will be painful, but it is undoubtedly necessary. That's one of the reasons that I was opposed to the bailout. The country (and the government) needs to learn to live within its means, not be bailed out.
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Old 10-31-2008, 01:10 PM   #14
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what do you define as "living within our means"?

why is housing a "mal-investment"?

seriously, do you honestly believe that leverage is inherently bad and should not be done?

and yes, when "saving" becomes "hoarding" it is negative for economic growth. if the saving is not reinvested, either by not placing into lenders coffers, or by the lenders themselves not investing, there will be contraction.

"wackonomics" can be true in either direction of the pendulum swing.
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Old 10-31-2008, 01:32 PM   #15
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what do you define as "living within our means"?

why is housing a "mal-investment"?
We already had this discussion. These resources should have gone into factories and businesses in exactly the way a free market that doesn't have government interference in interest rates and affirmative action banking and GSEs in housing.

Why don't you give subsidies to all home building companies for an unlimited time? If houses are so great why don't we build some more? Heck, let's invest ALL our money in housing. - There are no mal-investments after all when it comes to housing...
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Old 10-31-2008, 02:16 PM   #16
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Housing is a mal-investment when the resources necessary to construct a house could be put to more productive means. We don't have anything resembling a housing crisis in the US -- we have an over abundance of housing which is why housing prices are falling.

I've never said leverage is inherently bad....I haven't said anything of the sort.

"Hoarding money" is money in a free-market does nothing other than increase the price of money, thereby encouraging greater lending.
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Old 10-31-2008, 02:42 PM   #17
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housing is a necessary item. it isn't a "mal-investment".

we don't have an "over abundance of housing", we had a distorted valuation for housing.

as the values have declined, sales of units have risen.

it seems that the market is working in this case.

btw if the cost of borrowing increases fewer borrowers will elect to take out loans.
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Old 10-31-2008, 03:44 PM   #18
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housing is a necessary item. it isn't a "mal-investment".

we don't have an "over abundance of housing", we had a distorted valuation for housing.

as the values have declined, sales of units have risen.

it seems that the market is working in this case.

btw if the cost of borrowing increases fewer borrowers will elect to take out loans.
Ofcourse every house will be sold for the right price. The housing boom still created mal-investments in the form of houses that were build on fake demand created by the Federal Reserve robbing the purchasing power of the poor and the middle class.
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Old 10-31-2008, 04:04 PM   #19
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"fake demand"? pretty funny.
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Old 10-31-2008, 09:01 PM   #20
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"fake demand"? pretty funny.
Hmm... What about setting interest rates where Keynes would like to see them, at zero, would that turn the demand for houses into fake demand? If not, how do you think interest rates are set on a free market?
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Old 10-31-2008, 09:12 PM   #21
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Hmm... What about setting interest rates where Keynes would like to see them, at zero, would that turn the demand for houses into fake demand? If not, how do you think interest rates are set on a free market?
my contention is that in a growing population there is always demand for housing.

real demand, not "fake demand".

low interest rates merely faciliatate a consumer in their purchasing power as it relates to debt service.
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Old 11-03-2008, 12:34 PM   #22
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A fine example of something that isn't wackonomics....

Quote:
[price] Stabilization policy is a war on human volition...

When you speak to people about this issue [price stabilization], it is best to use a simple analogy. Choose any good you can think of. Let's say it is the price of milk that takes a sudden tumble and milk producers don't like this state of affairs. Government swears that it will raise the price of milk and does so by fiat. Milk is declared to cost $6 per gallon. What will happen? It will sit on the shelves as consumers move to substitutes.

Then the stores themselves will have surpluses and might even demand compensation. They certainly won't buy anymore from producers. Then the producers will complain. At this point government can bail out the producers, or buy the milk themselves. Perhaps they will ultimately require everyone to buy milk and drink it. But ultimately, short of turning all citizens into tin soldiers, there is nothing that government can do to change the underlying reality. A war on prices is a war on human choice and, ultimately, a war on unchangeable aspects of reality.

To confront this truth is to come face-to-face with economic law. Economic law is something that surrounds us constantly as a fact of life and a driving force of the material world. To deny economic law is akin to denying gravity or the change of seasons. But its principles remain abstract enough to require careful thought in order to discern them and comprehend their meaning.
this is something I really appreciate from the Austrian school -- Economic Laws are just that, Laws. They can't be set aside by government fiat. Government actions create reactions in accord with Economic Laws....

So, let's suppose that Big Gov controls the money supply and interest rates and decides it wants to maintain low interest rates for a decade or more -- there are economic laws that will be obeyed....what should we expect if the government maintains very low interest rates for an extended period of time =>
  • very high leverage rates (ie, everybody's loaded down with debt, and why wouldn't they borrow heavily when the cost of debt is so low);
  • very low savings rates (what's the point of pumping money into a cd when it's returning 2.5%);
  • massive asset price inflation (the price of stocks are "discounted" by the prevailing interest rates, in theory, hence artificially low interest rates leads to artifically high prices. Houses, too....lower mortgage payments = higher housing prices)

Sound familiar?

So what happens when everybody is loaded down with debt, nobody has any savings, and assets are way over-priced????

People quit borrowing, and people quit lending, and people quit buying shit. The only way to prevent this is for the government to put guns to peoples heads and force them to borrow and buy (vote Obama!).

But we're not going to hear that the current economic situation is exactly what one would expect given the long policies and actions of the government -- the toadie propagandists at CNNFOXMSNBC will constantly assure us that the problem lies in the 'free market', notwithstanding the undeniable fact that we don't have anything resembling a free market in money in the first place.
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Old 11-20-2008, 12:15 PM   #23
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some good news mingled with more wackonomics

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The New Frugality: Americans return to thriftiness
By DAN SEWELL, AP Business Writer

Frugality is making a comeback.

Fearful that economic conditions could get worse and stay that way, Americans are showing an enthusiasm for thriftiness not seen in decades.

This behavioral shift isn't simply about spending less. The New Frugality emphasizes stretching every dollar. It means bypassing the fashion mall for the discount chain store, buying secondhand clothes and furniture, or trading down to store brands.

There's more business for repairmen and less for salesmen. Consumers are clipping more coupons and swiping their credit cards less.

...

That kind of scrimping may be good for stressed family budgets, but it's bad for the nation's overall economy — and that has the potential to reinforce the miserly mood. Yet with home prices, 401(k)s and job stability suffering, such frugality is likely to be more than a fad.

"It is a whole reassessment of values," said Candace Corlett, president of the consulting firm WSL Strategic Retail. "We've just been shopping until we drop and consuming and buying it all, and replenishing before things wear out. People are learning again to say 'No, not today.'"
Americans are saving more, consuming less, and ala John Maynard Krugman, prudent living is deemed bad for the economy. This notion that a good economy is built by shopping is such a horrible misconception. It is akin to saying that while it may be good for the economy to spend $1,000 to dig a useless hole in the ground, it is 10x better to spend $10,000 to dig a useless hole in the ground. Babbling nonsense, wackonomics.

Economics is about the efficient use of scarce resources -- getting more out of every dollar is good for the economy, Keynsians and Krugmans are wack.
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Old 11-21-2008, 03:40 PM   #24
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the opposite of wackonomics.

There's a great discussion in this ^^^ on effect of government created moral hazards. Briefly, Schiff says that greed and fear of loss are countervailing forces. People greed for more but the fear of loss makes them risk adverse. The government, however, goes to such great lengths to limit the risk of loss that the fear of loss no longer impedes upon greed -- you're a greedy banker and the government is doing everything it can to make sure you'll never go out of business, what fear of loss do you have? None, you're just an unimpeded greedy banker....something along these lines.
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Old 11-21-2008, 03:52 PM   #25
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Originally Posted by alexamenos View Post
some good news mingled with more wackonomics



Americans are saving more, consuming less, and ala John Maynard Krugman, prudent living is deemed bad for the economy. This notion that a good economy is built by shopping is such a horrible misconception. It is akin to saying that while it may be good for the economy to spend $1,000 to dig a useless hole in the ground, it is 10x better to spend $10,000 to dig a useless hole in the ground. Babbling nonsense, wackonomics.

Economics is about the efficient use of scarce resources -- getting more out of every dollar is good for the economy, Keynsians and Krugmans are wack.
I think your hole analogy is off. He's not saying its better to spend $ 10,000 on one hole. He's saying less holes are being dug - which really sucks for hole diggers.
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Old 11-21-2008, 04:42 PM   #26
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Originally Posted by kg_veteran View Post
I can't remember if I've ever heard that phrase either, but it is a brilliant and simple explanation of an often used fallacy.

I found it interesting that they gave these examples of the fallacy:



Sounds oddly like somebody we know...


It isn't a falacy, per se, but a weakness of basic accounting... and certainly not a falacy of some school of thought of economics versus another.

we DEFINE gdp as the market value of all the goods and services produced by an economy over a year. Because of that definition, if there are a total of 2 people in the economy, and #1 builds windows for a living, and #2 breaks windows for a living... you can have a situation where

#1 pays #2 ten dollars to break a window (which he does)

and then #2 pays #1 ten dollars to BUILD a new window (which he does)

and then rince and repeat.... as fast as humanly possible.


by the end of the year, if these chaps are particularly industrious, they may have built and destroyed hundreds of thousands of windows -- generating millions of dollars of revenues --- and thus causing GDP to skyrocket....

Clearly at the end of the year we will have one of 2 scenarios... one window in the econmy (true well being is unchanged) or zero windows if they haven't yet replaced the LAST broken one (true well being is clearly diminished) ----- true all true. but it is a simple fact derived from the basic definition of the term, not some bizzaro belief that one school of thought holds... but others reject. It is a function of the defintions that ALL accountants and economists use... and everyone is aware of this weakness...

-----it is also why to some (small) extent China's huge growth rate is over-stated. Peasants from western china live in a barely market economy... a family consumes 90 percent of what they produce, and so that 90 percent is never bought nor sold, and is not counted as GDP. However if the same peasants grow the same amount but decide to each sell their crop to each other.... suddenly gdp increases 10-fold. (and the poor saps have to start paying taxes, and their real income declines) ---- well, what HAS happened in China is these peasants have steadily moved to the eastern cities. their productivity increases in these cities (pushing up gdp) but HOW MUCH their productivity increases is overstated because they ALSO move from outside of the market economy, to inside it (souping up the statistics on how much productivity has increased)


I actually thought the original article from this thread kinda sucked eggs

take a basic premise, that every one understands perfectly well (and that NOBODY disagrees with) and then write about it in a particularly whiney and sniping manner.... poof, formula for "poignant commentary". pish.



Krugman's article isn't very well written... but I don't think he is trying to argue that the attacks were a BOON for the economy... he was TRYING to calm the fears, talk in a low even voice and say "things are not as bad as they seem---- some small amount of the economy's productive capability has been destroyed, but even the simple act of replacing what has been destroyed will help begin the recovery". But as I said, it is a poorly formulated piece that could be interpreted in several ways....
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Old 11-21-2008, 04:57 PM   #27
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another portrayal of the principle

http://www.funnyordie.com/videos/ed6...-from-dirttron
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Old 11-22-2008, 10:56 AM   #28
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I think your hole analogy is off. He's not saying its better to spend $ 10,000 on one hole. He's saying less holes are being dug - which really sucks for hole diggers.
I don't think I'm missing the mark by much if it all, and at the least the hole analogy is a logical consequence of thinking of this type:

Quote:
That kind of scrimping may be good for stressed family budgets, but it's bad for the nation's overall economy
This is the notion that a reduction in consumption causes a bad economy -- this sentiment permeates the thinking of Keynesians and Krugmans (ie, every Washington politician, save perhaps one, and every mainstream economic pundit). This is backwards, and they just don't get it. It's like saying that sneezing and sniffling and eating chicken soup causes one to have the flu.

Scrimping and saving is what you get when you have a bad economy, it is not why you have a bad economy. A bad economy, by definition, is one where resources are poorly allocated and inefficiently used. You can't fix problems of resource misallocation and inefficient utilization by spending more money on the same old things...this is something Keynesians and Krugmans don't get, so their answer to everything is to spend more, to encourage people to spend more, to cut credit card rates so people will spend more, etc., etc...
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Old 11-25-2008, 10:47 AM   #29
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This is the notion that a reduction in consumption causes a bad economy -- this sentiment permeates the thinking of Keynesians and Krugmans (ie, every Washington politician, save perhaps one, and every mainstream economic pundit).

Lest I be accused of setting up a strawman:

Quote:
Buy now: why Uncle Sam must put everything on sale
October 26, 2008by FT
by Laurence Kotlikoff and Edward Leamer

The demise of financial titans and the incessant warnings of economic Armageddon have unleashed a tidal wave of asset sales across the globe, eviscerating trillions in personal wealth. Stock prices are now low enough to bring back some buyers, but the contest between fear and greed remains undecided.

The same defensive mentality that allowed the sale of equities at fire sale prices threatens to cause a sharp drop in consumer spending, which accounts for 72 per cent of US GDP. If this happens, the economy will slide into deep recession.

We need to put a halt to self-fulfilling prophecies of doom. The key is realising that recessions are usually consumer cycles, not business cycles. They’re driven by weakening demand first for homes, then for consumer durables, and finally for non-durables and services. As consumers stop spending, businesses stop investing, and the economy “recedes”.
This underlying assumption, that recessions are caused by you refusing to rack up credit card debt, undergirds every Keynesian and Krugman "remedy" for the economy. Hence, according to the Keynesians and Krugmans, it's good if you spend $1,000 on a useless hole in the ground, but 10x better to spend $10,000 on a useless hole in the ground.
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Old 11-25-2008, 02:11 PM   #30
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I just read 2 or 3 entries at Krugman's blog over at the NYT, had to stop though, cause I felt like throwing up...

This NYT article shows that Alexamos was right all along. Now they want to increase student loans, car loans and mortgages in order for Americans to go deeper into debt and use their loans in order to consume more stupid stuff.

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November 26, 2008
U.S. Unveils New Programs to Ease Credit

By BRIAN KNOWLTON and JACK HEALY
The federal government unveiled $800 billion in new loans and debt purchases on Tuesday, hoping another infusion of cash can help unfreeze troubled credit markets and make borrowing easier for homebuyers, small businesses and students.

The Federal Reserve said that it would buy up to $600 billion in mortgage-backed assets from the government-sponsored mortgage finance giants Fannie Mae and Freddie Mac. The agency would also buy up to $100 billion in debt directly from the companies and up to $500 billion in mortgage-backed securities.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Federal Reserve said in a statement.

Separately, the Fed and Treasury Department announced a $200 billion program to ease commercial lending on debts like student loans, car loans or business loans. The Fed would lend up to $200 billion to holders of asset-backed securities supported by car loans, credit card loans, student loans, and business loans guaranteed by the Small Business Administration.

The action by the Federal Reserve on buying mortgage-backed securities brings the full force of monetary policy to bear on the credit markets. Having already reduced the benchmark federal funds rate to just 1 percent, the central bank is now effectively using what economists call “quantitative easing” to reduce the costs of money.

Instead of trying to reduce overnight lending rates in the hope of influencing longer-term interest rates for things like mortgages, the Fed is directly subsidizing lower mortgage rates. It is doing so by printing unprecedented amounts of money, which would eventually create inflationary pressures if it were to continue unabated.

For the moment, Fed and Treasury officials made it clear that the sky was the limit.

Treasury Secretary Henry M. Paulson Jr. emphasized Tuesday that the $200 billion was just a “starting point” for a program that could become substantially larger, possibly including other assets like commercial mortgage-backed securities.

It’s going to take awhile to get this program up and going and then it could be expanded and increased over time,” he said at a news conference. “The first thing is to get it up and going.”

The program would be seeded with $20 billion in “credit protection” from the Treasury Department, which is drawing the money from the original $700 billion bailout.

It gives institutions liquidity and it’s clearly direct lending that will help consumers,” Mr. Paulson said. The announcements came one day after President-elect Barack Obama unveiled his economic team and tried to assure Americans that he was seeking to fill any leadership vacuum, and said his advisers would begin working “today.”

The advisers include Timothy F. Geithner, his choice for Treasury secretary. Mr. Paulson said that because Mr. Geithner is the president of the New York Federal Reserve Bank, he had been intimately involved in the latest rescue planning, and he vowed to continue cooperating “seamlessly” with Mr. Geithner in his new role, and with other members of the Obama economic team.

“We will obviously work seamlessly with the next administration on a first-rate transition, and we will discuss with them very, very carefully any programs that we are developing and any programs that we implement,” Mr. Paulson said. “Tim is very well-positioned for that because he understands everything that we have in place today.”

As if to underscore the transfer of power now under way, Mr. Obama introduced his economic team at a news conference in Chicago on Monday shortly after Mr. Bush made brief remarks outside the Treasury Department.

Mr. Obama expressed support for the Citigroup plan and urged Congress to adopt swiftly a major plan to stimulate spending and to reverse job losses.

“The news this past week, including this morning’s news about Citigroup,” Mr. Obama said, “has made it even more clear that we are facing an economic crisis of historic proportions. If we do not act swiftly and boldly, most experts now believe that we could lose millions of jobs next year.”

Democratic leaders in Congress are gearing up to move quickly on an economic recovery package that aides said could cost more than $500 billion. The goal is to have a legislative package approved by the House and the Senate and ready for Mr. Obama to sign, perhaps on his first day in office, in January.

“We have to make sure,” Mr. Obama said, “that the stimulus is significant enough that it really gives a jolt to the economy.”

The president-elect declined to estimate the size or scope of such legislation, but he said, “We are going to do what’s required.”

In addition to Mr. Geithner as his nominee for Treasury secretary, Mr. Obama also named a former Treasury secretary, Lawrence H. Summers, to head the White House Economic Council and described Mr. Summers’s experience as essential to “navigate the uncharted waters of this economic crisis.”

The selections of Mr. Geithner, who played a large role in the Citigroup rescue plan as president of the Federal Reserve Bank in New York, and Mr. Summers, now a Harvard economist, signaled that Mr. Obama intended to pursue aggressive, yet centrist policies, in finding ways to help jump-start the economy.

Over the next four weeks, Mr. Obama intends to announce most of his cabinet.

While he has already settled on most of the key members, including Gov. Bill Richardson of New Mexico as commerce secretary, the president-elect made certain that his first formal cabinet selections dealt with the economy rather than national security, which more often is given first mention.

Mr. Obama also announced Monday that he had chosen Christina D. Romer to head his Council of Economic Advisers and Melody Barnes as director of his White House Domestic Policy Council. Ms. Romer is an economics professor at the University of California, Berkeley; Ms. Barnes is a longtime aide to Senator Edward M. Kennedy, Democrat of Massachusetts.

Mr. Obama, who has largely been secluded from public view since being elected three weeks ago as the 44th president, is taking steps to be more visible in the next phase of his transition. He is scheduled Tuesday to name his budget director, Peter R. Orszag, who held the job under President Bill Clinton, and is expected to outline new budget reforms that will call on Americans to make sacrifices.

“Right now, our economy is trapped in a vicious cycle,” Mr. Obama said at the news conference.. “The turmoil on Wall Street means a new round of belt-tightening for families and businesses on Main Street, and as folks produce less and consume less, that just deepens the problems in our financial markets.”

As a presidential candidate, Mr. Obama criticized the Bush administration tax cuts for upper-income Americans. On Monday, he declined to say whether he would seek to repeal the tax cuts immediately or rather wait for them to expire in 2011. His advisers have said that his January economic stimulus plan will not include tax increases, for fear of upsetting the economy.

Mr. Obama noted that he still intended to pursue a middle-class tax cut. “The very wealthiest among us,” he said, “will pay a little bit more in order for us to be able to invest in the economy and get it back on track.”

He also said the struggling domestic automobile industry could not be allowed “simply to vanish.” But he also said that companies should not get “a blank check” from taxpayers and that he was surprised the auto companies’ chief executives were not better prepared with specific recovery proposals when they visited Capitol Hill last week.

“My attitude is that we should help the auto industry,” Mr. Obama said. “But what we should expect is that any additional money that we put into the auto industry, any help that we provide, is designed to assure a long-term, sustainable auto industry and not just kicking the can down the road.”

Under the new financing program that Treasury Secretary Henry M. Paulson Jr. plans to announce on Tuesday, the Federal Reserve would create a new special-purpose entity that would buy a wide range of consumer and business debt. The Treasury would contribute the “equity” part of the fund, which would absorb most of the losses that might occur. The Fed would then pump in as much as 95 percent of the money that would be used to purchase assets.

The new fund would, in effect, close the circle in the chaotic evolution of the Treasury rescue effort, officially known as the Troubled Asset Relief Program, or TARP. Under the new version, the government would once again plan to buy assets, including some troubled ones. The Fed would provide most of the money and buy comparatively healthy debt, like bundles of car loans, that private investors have stopped buying in recent weeks.

Laurence H. Meyer, vice chairman of Macroeconomic Advisers, said the new program would give the Federal Reserve a new way to reduce borrowing costs at a time when its standard tool, the overnight federal funds rate, is already close to zero.

“This approach,” Mr. Meyer wrote in a note to clients on Monday, “would allow the Fed to buy private assets that are now very illiquid and trading at distressed levels.”

Mr. Obama offered few specific details of his economic program but suggested that he would include an array of his campaign proposals into his opening legislative package. Rebuilding the economy, he said, “will require action on a great variety of fronts, from education and health care to energy and Social Security.”

Throughout the news conference, which was televised by all the cable and broadcast networks, Mr. Obama spoke in serious tones. There were no bursts of laughter or light-hearted moments, which punctuated his first postelection news conference more than two weeks ago. Instead, he described the financial outlook in some of the bleakest terms he has used.

“The economy’s likely to get worse before it gets better,” Mr. Obama said. “Full recovery will not happen immediately. And to make the investments we need, we’ll have to scour our federal budget, line by line, and make meaningful cuts and sacrifices.”

The announcement of Mr. Obama’s economic team, as well as the broad outlines of his recovery plan, was met by positive reviews from Congressional leaders. But few details have been worked out for how such a sweeping proposal could be ready in time for Mr. Obama’s swearing in.

Edmund L. Andrews, Jeff Zeleny and David M. Herszenhorn contributed reporting.
http://www.nytimes.com/2008/11/26/us...aulson.html?hp
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Old 11-25-2008, 02:33 PM   #31
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Wait.....

so can we walk away from our student loans yet? (pleasesayyespleasesayyes)
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Old 11-25-2008, 02:41 PM   #32
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Wait.....

so can we walk away from our student loans yet? (pleasesayyespleasesayyes)
No, but now that they encourage even more loans to people who can't afford them it'll only be a matter of time! :-)

...but you could tell your wife to quit her job so that your mortgage makes up more than 40 percent of your households income and then they'll make you a special low-interest rate long-term loan refinancing offer that will make you pay less than 40% of your monthly income. That way you'll be able to safe some bucks, because your wife can take care of the house, the children, etc. The other option is ofcourse to stop paying your mortgage if your mortgage is a Fanny/Freddie one...
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Old 11-25-2008, 03:25 PM   #33
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That sounds too complicated... I'll just start an auto company. I think I like the looks of an LLC.
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Old 11-25-2008, 03:26 PM   #34
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That sounds too complicated... I'll just start an auto company. I think I like the looks of an LLC.
I think the mistake I've made is I've never made myself too big to fail.

Does anyone have a trillion dollars I can borrow?
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Old 11-25-2008, 07:02 PM   #35
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I think the mistake I've made is I've never made myself too big to fail.

Does anyone have a trillion dollars I can borrow?
Well, ask your government... Obviously, you'd have to promise them that you'd spend it all on consumer goods in whatever industry the government wants to prop up at that point in time. And DO NOT talk about investing it somewhere. Investments are bad, spending is great - remember!
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Old 11-25-2008, 07:59 PM   #36
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It's almost as if these "economists" never studied 20th century history in school.

Alex is definitely right about one thing. There's no such thing as a truly free market when the government controls the money supply.
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Old 11-27-2008, 11:07 AM   #37
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This underlying assumption, that recessions are caused by you refusing to rack up credit card debt, undergirds every Keynesian and Krugman "remedy" for the economy. Hence, according to the Keynesians and Krugmans, it's good if you spend $1,000 on a useless hole in the ground, but 10x better to spend $10,000 on a useless hole in the ground.
From Fox News this morning:

Be patriotic, shop.


Obviously the Fox News channel talking head, like virtually all other belt way insiders, believes that we can shop our way to an economic nirvana.

...go buy some shit you don't need with money you don't have, it's your duty as an American Citizen.
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Old 12-09-2008, 11:03 AM   #38
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Sometimes watching the government is liking watching a really bad movie. You basically know the plot, and it's best just to follow along and make fun of things rather than to try too take it to seriously.

News from the Department of Really Easy Things to Foresee

Quote:
Homeowners who modified loans are in trouble again

Dec 8 02:14 PM US/Eastern
By ALAN ZIBEL


WASHINGTON (AP) - More than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again, banking regulators said Monday.

The new data raise questions about whether government money may be better spent on creating jobs, rather than averting foreclosures, said John Reich, director of the federal Office of Thrift Supervision office at a housing industry forum sponsored by his agency.

"I do have concerns about allocating federal resources" Reich said.

However, many experts claim the bulk of loan modifications don't actually provide much financial relief for borrowers.

The government's data don't include enough detail about the types of the loan modifications that were made, said Sheila Bair, chairman of the Federal Deposit Insurance Corp. "The quality of the (modifications) are not what they should be," she said.

The U.S. economic picture has darkened over the past month. One in 10 Americans with a mortgage is either behind or in foreclosure, and more than 500,000 jobs were lost in November.

Unemployment stands at 6.7 percent, and the worldwide credit markets have only improved modestly from the freeze that led Congress to approve a $700 billion bailout before the election.

Discussion on Monday's focused on how broad the government's intervention should be, rather than whether the government should play any role at all. The U.S. is on track for 2.25 million foreclosures this year.
So....

a) A bunch of people who weren't capable of managing their financial affairs in January of '08 are likewise incapable of managing their financial affairs in December of '08. No kidding. This is the sum and substance of all of these bailouts -- give our money to people who have already proven an ability to squander their own money.

b) Government discussions always focus on what more the government should do, never on whether the government should do anything in the first place. Always, always, always the debate is between the party that thinks the government should do a helluva lot more (ie, Republicans) and the party that thinks that a helluva lot more isn't nearly enough (Democrats and Commies, but I repeat myself).
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Old 12-09-2008, 11:10 AM   #39
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Originally Posted by alexamenos View Post
Sometimes watching the government is liking watching a really bad movie. You basically know the plot, and it's best just to follow along and make fun of things rather than to try too take it to seriously.

News from the Depart of Really Easy Things to Foresee



So....

a) A bunch of people who weren't capable of managing their financial affairs in January of '08 are likewise incapable of managing their financial affairs in December of '08. No kidding. This is the sum and substance of all of these bailouts -- give our money to people who have already proven an ability to squander their own money.

b) Government discussions always focus on what more the government should do, never on whether the government should do anything in the first place. Always, always, always the debate is between the party that thinks the government should do a helluva lot more (ie, Republicans) and the party that thinks that a helluva lot more isn't nearly enough (Democrats and Commies, but I repeat myself).
This is Katrina all over again, where those $2K FEMA visa cards were handed out and were spent at strip clubs.
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Old 12-09-2008, 02:40 PM   #40
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the wackonomiscists tell us that the root of all economic evil is the failure of consumers to consume, and they assure us that government interventions are necessary to overcome the myriad problems caused by the peoples wont of greed and materialism. So, I wonder what they would do in the situation described below???? Maybe print a few extra zimbabwe dollars to lower interest rates, cut taxes a bit, build a new park somewhere, re-re-regulate some industry, set a few price controls....

Quote:
Zimbabwe: Cash Limits - Case of the Dog Chasing Its Own Tail

Zimbabwe Standard
Vusumuzi Sifile and Ndamu Sandu
8 December 2008

PRICES of basic goods and services more than quadrupled within hours after banks increased cash withdrawal limits last week, further piling pressure on already hard-pressed Zimbabweans. On Thursday banks started allowing depositors to withdraw $100 million a week, up from $500 000 after the Reserve Bank of Zimbabwe reviewed the limits. Depositors, who were resorting to sleeping in queues to access their funds, had called on the RBZ to remove the withdrawal limits. RBZ governor Gideon Gono finally succumbed to pressure after the Zimbabwe Congress of Trade Unions threatened to stage protests against the central bank.

But the rushed measures quickly backfired before depositors could make their first withdrawals. A few hours after banks opened on Thursday morning, the few remaining shops that sell in local currency closed their doors to adjust prices to capitalise on the "windfall". A snap survey in Harare indicated that prices in some cases had gone up four times within hours, creating another nightmare for ordinary consumers who now have to wait for another week before their next withdrawal. Simple household items have become out of reach for most Zimbabweans whose salaries are still pegged in local currency. A loaf of bread selling at $3 million on Thursday morning was pegged at $15 million before the end of the day. Commuter fares went up to $5 million, from $1 million. A 10 kg bag of maize-meal shot up to $100 million from $10 million. A 10kg pack of seed maize cost $405 million.

Only a few people managed to get $100 million at any given time as banks did not have adequate cash. The most affected depositor banks were CABS, ZB, Intermarket and Beverley. "I had to sleep at the queue for me to withdraw $100 million," said Brian Shoko. "I got my cash around 11 am and went straight to the supermarket to look for items I wanted to buy. "But I couldn't believe what I saw: the money was enough to buy just a small bar of bath soap and a loaf of bread." After giving up on buying items at the shop, Shoko decided to go and buy his groceries in outlying areas. "I failed to go there," Shoko said. When I got to the terminus, commuter omnibus operators had hiked the fares to $5 million." "When I resolved to just board the expensive omnibus, I was told that they had no change and I had to find somewhere to change my money."

ZCTU had warned that the tendency by the RBZ to review cash withdrawal limits to match inflation was burdening ordinary people. A fortnight ago, ZCTU President Lovemore Matombo said haphazard increases in withdrawal limits only served to increase the cost of living. But Kumbirai Katsande, the newly elected Confederation of Zimbabwe Industries (CZI) president, said price increases were a response to the demand and supply position. Before the withdrawal limits increases, Katsande said, shops were well stocked. However, there was no corresponding increase in the supply of goods after the limits were increased, he said. Katsande said businesses had to consider the cost of restocking.

The CZI boss called for coordination among stakeholders in policy formulation, implementation and monitoring for the RBZ interventions to work. "They are very good intentions which now have some collateral damage. They have unintended consequences," Katsande said.The government has tried in vain to control prices and the National Incomes and Pricing Commission, which was set up for that specific task has been rendered a toothless bulldog. Katsande said the business sector had called for the disbandment of the Goodwills Masimirembwa-led outfit because it had no influence in the setting of prices. "The problem with the institution is that it gives people false hope," he said.

Economic analysts said the rocketing prices were a natural consequence of the depreciation of the Zimbabwean dollar against major currencies. "The dollar is falling in value and prices have to be adjusted," said John Robertson, an independent economist.
But in an interview on local television, Gono said the NIPC "should do its job". Masimirembwa was not answering his mobile phone on Friday. No comment could be obtained from the Consumer Council of Zimbabwe as executive director, Rosemary Siyachitema, was said to be in Conakry, Guinea, on a business trip.
$15,000,000 for a loaf of bread in zimbabwe, and you thought $4 / gallon of gasoline was high!? I think thats 15 million dollars of the re-valued zimbabwe currency, so that loaf of bread actually cost something like $15,000,000,000 in the pre 2005 or 2006 zimbabwe currency.

$15 billion! You could bailout the big three with $15 billion.

Anyway, as I was saying, I wish one of the Krugman's of the world explain to me how the zimbabwe people's unwillingness to rack up a little credit card debt and purchase goodies is causing such dire economic straights.
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fluffonomics, got a bit fluffy in here, price-to-fluff ratio

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