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John Lounsbury, Managing Editor and Co-founder of Global Economic Intersection, provides comprehensive financial planning and investment advisory services to a small number of families on a fee only basis. He has a background which includes 34 years with a major international corporation, 25... More
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  • Krugman: Recession is Over and Trade is Worse then the Great Depression 12 comments
    Oct 14, 2009 2:09 PM

    Krugman also comments on the serious nature of employment (or lack of employment) in a Wall Street Journal Blog (here) by Kelly Evans.  Krugman was speaking at the World Business Forum in New York.

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  • optionsgirl
    , contributor
    Comments (5202) | Send Message
     
    John- all the "cheerleader" economists are backing down from their previously rosier ( but not TOO rosy) pictures. Even a schizophrenic can muster a moment of lucidity, here and there. No offense meant to schizophrenics, I know if I had that serious disease, I would be quite angry to be compared to economists.
    14 Oct 2009, 02:14 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6879) | Send Message
     
    Krugman is actually telling the truth, for a change, albeit in a roundabout fashion.

     

    And "trade" is going to be the final nail in the "double dip" coffin.
    14 Oct 2009, 02:18 PM Reply Like
  • Plant the seeds
    , contributor
    Comments (226) | Send Message
     
    Options girl Krugman had been giving fairly pessimistic outlooks for most of this year, even though he is a self proclaimed liberal economist.
    14 Oct 2009, 02:21 PM Reply Like
  • John Lounsbury
    , contributor
    Comments (4046) | Send Message
     
    Author’s reply » Commenters - - -

     

    Krugman is a conflicted "liberal" economist. He is an avowed Keynsian. He is also an independent thinker. That leads to some unexpected opinions and conclusions. On the bottom line, he is data driven and that keeps him grounded. He can wander off the track I tend to follow with data, but he always seems to stay logical. That means he can be reasoned with, which is a valuable characteristic of which some economists with labels don't have a very long supply.

     

    One place he has settled, along with Simon Johnson, James K. Galbraith, William Black, Joseph Stiglitz and others is a place I came to at the beginning of 2009. That place is the one that is calling for a reintroduction of the principles of capitalism to financial markets. It is a place where the capital markets compete to intermediate the financing of production and commerce and do not use up capital to trade securities and create more "money" through credit instruments that serve no real purpose beyond producing "creation" fees and a larger artificial trading market.

     

    This means separating commercial and investment banking. This means regulating interdependencies that create the opportunities for stacked dominoes to develop. This means assuring (through regulation) that capital markets are competing to provide financing for production of things of utility and commerce involving such items. Derivatives with values orders of magnitude greater than the underlying real assets provide no value to the world outside of the financial engineers who create and trade them. There must be some optimal relationship between the total nominal value of derivatives and the value of the underlying assets. I don't know where that level is, but I am quite sure it is not 1000 times (or more), which is where we have gotten to.

     

    This entire area is one of great research potential. Done properly, it could well be Nobel Prize quality work. I wish I had the capability to tackle it. The most I can probably contribute to this is to be a cheerleader.

     

    Thanks for letting me clutter my own comment stream with a rant.
    14 Oct 2009, 03:12 PM Reply Like
  • optionsgirl
    , contributor
    Comments (5202) | Send Message
     
    I am referring to his support of programs like TARP and calling for additional infusion of funds to the same bailed out companies when I call him a cheerleader, and am not stating that he hasn't been pessimistic. Pessimism doesn't count for much when you advocate failing policies, in my opinion.

     

    On Oct 14 02:21 PM Plant the seeds wrote:

     

    > Options girl Krugman had been giving fairly pessimistic outlooks
    > for most of this year, even though he is a self proclaimed liberal
    > economist.
    14 Oct 2009, 03:56 PM Reply Like
  • doubleguns
    , contributor
    Comments (9658) | Send Message
     
    I think YH still needs to smoke him.
    14 Oct 2009, 04:00 PM Reply Like
  • Swashbuckler
    , contributor
    Comments (715) | Send Message
     
    Mr. Lounsbury--I don't want to put you on the spot, so I'm not offended if you don't care to answer this question. I know very little about the particulars of Krugman's work. My understanding is that he received a Nobel prize in economics. Do you think he deserved it?
    14 Oct 2009, 05:06 PM Reply Like
  • John Lounsbury
    , contributor
    Comments (4046) | Send Message
     
    Author’s reply » Swash - - -

     

    I haven't studied Krugman's research history. I understand that his prize was awarded for his work on international commerce. The award was generally well received by potential critics. Here is a link to a Forbes article www.forbes.com/2008/10...

     

    Sorry, but this is one of the many things I'd like to know more about but have not had the time to do the research.

     

    On Oct 14 05:06 PM Swashbuckler wrote:

     

    > Mr. Lounsbury--I don't want to put you on the spot, so I'm not offended
    > if you don't care to answer this question. I know very little about
    > the particulars of Krugman's work. My understanding is that he received
    > a Nobel prize in economics. Do you think he deserved it?
    14 Oct 2009, 06:01 PM Reply Like
  • Swashbuckler
    , contributor
    Comments (715) | Send Message
     
    Mr. Lounsbury----Thanks for your comment and the link. My understanding has been that although some areas of Nobel prizes are suspect, typically in economics they are earned. The Forbes article seems to reflect well on Krugman's work on international commerce. I appreciate your response.
    14 Oct 2009, 06:20 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11589) | Send Message
     
    Oxymoron: a combination for epigrammatic effect of contradictory or incongruous words (as cruel kindness, laborious idleness).

     

    Clearly there is NO CONNECTION between global trade and economic health. Perhaps this is the legendary 'decoupling' we have been told for years now was occurring. (I think the decoupling is actually between rationality and wishful thinking. Rationality is now the empty house; and wishful thinking is on that slow boat to China.)
    15 Oct 2009, 06:38 AM Reply Like
  • Plant the seeds
    , contributor
    Comments (226) | Send Message
     
    John,
    Thank you for your reasoned comment. I was first introduced to Krugman by a conservative economist at U of Chicago, who was a big fan of his work on international trade, not so much of NY times columns. I also had a class where we used his textbook on international trade.

     

    He definitely has Keynesian impulses but much of his writing doesn't quite fit that bucket. He has studied the mechanism of international trade, the role of deficits, role of specialization, monetary flows. He is probably the authority on Globalization and its effects.

     

    He is definitely a cheerleader for liberal economics.

     

    I hear your point on financial engineering. But I would add that we could go back to the simple world from the turn of the last century, where you applied for a loan at the bank and got approved for it (or not). Adding credit swaps does allow risk averse investors to hedge against the loans they provide, this probably increased the funding of new startups, emerging technologies. The problem was when these instruments started being used as trading vehicles for the proprietary desks at investment banks. There needs to be limits put on this activity to reduce the level of speculative versus investment activity, to avoid the overinvestment & bust cycles.
    On Oct 14 03:12 PM John Lounsbury wrote:

     

    > Commenters - - -
    >
    > Krugman is a conflicted "liberal" economist. He is an avowed Keynsian.
    > He is also an independent thinker. That leads to some unexpected
    > opinions and conclusions. On the bottom line, he is data driven and
    > that keeps him grounded. He can wander off the track I tend to follow
    > with data, but he always seems to stay logical. That means he can
    > be reasoned with, which is a valuable characteristic of which some
    > economists with labels don't have a very long supply.
    >
    > One place he has settled, along with Simon Johnson, James K. Galbraith,
    > William Black, Joseph Stiglitz and others is a place I came to at
    > the beginning of 2009. That place is the one that is calling for
    > a reintroduction of the principles of capitalism to financial markets.
    > It is a place where the capital markets compete to intermediate the
    > financing of production and commerce and do not use up capital to
    > trade securities and create more "money" through credit instruments
    > that serve no real purpose beyond producing "creation" fees and a
    > larger artificial trading market.
    >
    > This means separating commercial and investment banking. This means
    > regulating interdependencies that create the opportunities for stacked
    > dominoes to develop. This means assuring (through regulation) that
    > capital markets are competing to provide financing for production
    > of things of utility and commerce involving such items. Derivatives
    > with values orders of magnitude greater than the underlying real
    > assets provide no value to the world outside of the financial engineers
    > who create and trade them. There must be some optimal relationship
    > between the total nominal value of derivatives and the value of the
    > underlying assets. I don't know where that level is, but I am quite
    > sure it is not 1000 times (or more), which is where we have gotten
    > to.
    >
    > This entire area is one of great research potential. Done properly,
    > it could well be Nobel Prize quality work. I wish I had the capability
    > to tackle it. The most I can probably contribute to this is to be
    > a cheerleader.
    >
    > Thanks for letting me clutter my own comment stream with a rant.
    15 Oct 2009, 10:59 AM Reply Like
  • Plant the seeds
    , contributor
    Comments (226) | Send Message
     
    Micheal,
    The crux of the decoupling argument as I understood it was that domestic demand in emerging countries especially in Asia was growing with rising incomes and would lead exporters to look inwards and supply these markets versus the excessive dependence on the slow boat to America that opened them to severe outcomes when the American consumer pulls back.

     

    The evidence has been mixed from this recession. While their exports did crash and burn, some of the chinese demand did pull Asian economies up, along with continued increases in domestic demand.
    On Oct 15 06:38 AM Michael Clark wrote:

     

    > Oxymoron: a combination for epigrammatic effect of contradictory
    > or incongruous words (as cruel kindness, laborious idleness).
    >
    > Clearly there is NO CONNECTION between global trade and economic
    > health. Perhaps this is the legendary 'decoupling' we have been told
    > for years now was occurring. (I think the decoupling is actually
    > between rationality and wishful thinking. Rationality is now the
    > empty house; and wishful thinking is on that slow boat to China.)
    15 Oct 2009, 11:05 AM Reply Like
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