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Guest Post: Regime Uncertainty And The Fallacy Of Aggregate Demand

Tyler Durden's picture


Submitted by James E. Miller of the Ludwig von Mises Institute of Canada,

In a recent New York Times column, economist Paul Krugman once again took to chastising a claim he has infamously dubbed  the “confidence fairy.”  According to the Nobel laureate, the “confidence fairy” is the erroneous belief that ambiguity over future government regulation and taxation plays a significant role in how investors choose to put capital to work.  To Krugman, the anemic economic recovery in the United States shouldn’t be blamed on this “uncertainty” but rather a “lack of demand for the things workers produce.”  Being the most prominent mouthpiece for Keynesian economic policy in modern times, the Princeton professor represents the school’s circular thinking very well.  Keynes and his followers saw most economic slumps as being the result of insufficient spending.  A slowdown in spending means the animal spirits aren’t so aggressive in their lust for immediate consumables.

As a thinker, Keynes viewed a preference for saving over spending as ignorant and asinine.  In his essay “Economic Possibilities for our Grand Children,” he belittled the “purposiveness” of misers who are forever looking toward the future instead of relishing in the present.  The man who behaves with a purpose is “always trying to secure a spurious and delusive immortality” while depriving those around him of his wealth.  This is the heart of Keynesianism.  Saving is seen as a necessary evil while instant gratification is looked down upon as morally repugnant.  Keynes was a hater of bourgeoisie prudence throughout his professional career.  It is likely that this antagonism played a role in the development of his theories on economics.

But even assuming that Keynes took the value-free, deductive approach to economic science, the view of spending as the driving force of improved living standards is still horribly inaccurate.  Human beings possess infinite wants.  So, in a sense, there is never a true lack of demand; just the resources to fulfill desire.  And these resources are not something to conjure up out of thin air.  They must first be produced.  As Henry Hazlitt explains,

…demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions. Supply creates demand because at bottom it is demand.

Goods and services are what ultimately enhance human life.   Without them, man would still be relegated to live as a nomad desperately seeking out food each and every day.  It is through producing, saving, and investing that the eternal scarcity of the world becomes increasingly manageable.  In other words, the act of producing more than is immediately consumed is what saves humanity from a hand-to-mouth existence.  This improved material well-being can then lend itself to further spiritual pursuits.  Murray Rothbard recognized the necessity of available resources for less-material purposes when he wrote:

All great works of art, great emanations of the human spirit, have had to employ material objects: whether they be canvasses, brushes and paint, paper and musical instruments, or building blocks and raw materials for churches. There is no real rift between the “spiritual” and the “material” and hence any despotism over and crippling of the material will cripple the spiritual as well.

As a species, we are forever trying to achieve a happiness dictated solely by our own individual valuations.   This requires labor and production in order to meet whatever ends are sought.  With this truth in mind, it becomes clear that economies don’t necessarily suffer from an absence of demand but really a lack of investment or production.  Since there are always needs to be fulfill, an uninhibited market economy would never undergo a period of long-term unemployment.  There would be capital to be worked and put into use.  So what then causes entrepreneurs and capitalists to withhold investment?

In a landmark article in The Independent Review, economic historian Robert Higgs presented evidence that the Great Depression was not prolonged by a slack in demand but rather the unprecedented intervention into private life by the Roosevelt regime.  Titled “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War,” Higgs summarizes his position:

First, the Great Depression was not just another economic slump. In depth and duration it stands far apart from the next most severe depression in U.S. history, that of the 1890s. We are talking about history, not physics; unique events may have unique causes. Second, the hypothesis about regime uncertainty makes perfectly good economic sense. Nothing in the logic of the explanation warrants its dismissal or disparagement. Third, given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, and the character of the antibusiness zealots who composed the strategists and administrators of the New Deal from 1935 t o 1941, the political climate could hardly have failed to discourage some investors from making fresh long-term commitments. Fourth, there exists a great deal of direct evidence that investors did feel extraordinarily uncertain about the future of the property-rights regime between 1935 and 1941. Historians have recorded countless statements by contemporaries to that effect; and the poll data presented earlier confirm that in the years just before the war most business executives expected substantial attenuations of private property rights ranging up to “complete economic dictatorship.” Fifth, investors’ behavior in the bond market attests in a striking way that their confidence in the longer-term future took a beating that corresponds exactly with the Second New Deal.

Much like the Great Depression, there is evidence abound to support the notion that regulatory uncertainty is presently withholding the private investment that is the true source of economic growth.  The newly released mid-year economic report from the National Small Business Association shows that 34% of small-business owners are expecting a sluggish economy on the horizon while 68% of respondents cited economic uncertainty as the biggest “challenge” to future productivity.  In the September 2012 Small Business Optimism Survey released by the National Federation of Independent Business, the results showed a new record of 22% of respondents who view political uncertainty as a leading cause of their reluctance to expand.  Higgs himself points out in a recent blog post that real private fixed investment has yet to surpass its lowest point during the bust of the dot-com bubble.


Historically, economic downturns have been met with upswings that matched in terms of intensity.  But at no other time since the Great Depression has the recovery been as weak as it is now.  The explanation lies in the fact that something is causing investors to keep money on the sidelines rather than risk putting it towards satisfying the limitless wants of consumers.  Empirical evidence and logic would suggest that it is the current atmosphere of tentative political measures that is frightening capitalists whose job it is to create wealth.  From the unknown consequences of the Affordable Care Act and the Dodd-Frank financial regulatory bill to the expiration of the Bush-era tax cuts at the end of 2012, it is unclear as to the amount of income businessmen will be allowed to keep in the near future.  As economist John B. Taylor shows, the amount of federal government workers engaged in regulatory activity has taken off since 2008.


Likewise, the number of expiring tax provisions has also increased substantially over the past four years.


Since man is endowed with free will, the future is never certain.  Entrepreneurs and capitalists are never guaranteed a profit so they must invest with prudence if they hope to come out with more wealth in the end.  The incessant meddling by the political class makes this process all the more difficult.  There is little incentive to risk precious capital when it could be looted at any time.  Political obscurity and a growing class of planners who take it upon themselves to forcefully engineer society in their own vision makes for an unhealthy business climate.

The theory which puts a lack of aggregate demand as being the cause of economic recessions has the issue backwards.  Demand by itself doesn’t add to the stock of goods in society; only production does.  Because economic theory deals with the interactions of mankind it needs to be applicable to all times and places.  On a desert island, only a true charlatan would insist that a “lack of demand” is holding the primitive economy back from its full potential.  Desert islands are no different from today’s economy; both are still dominated by scarcity.  If the world economy is ever going to recover, the obstacles put in business’s place have to be lifted to make way for investment in real, tangible goods and services.  Consumption will come after.


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Fri, 10/05/2012 - 21:43 | 2861920 Ned Zeppelin
Ned Zeppelin's picture

Nonsense. Sorry.

Fri, 10/05/2012 - 22:16 | 2861980 shovelhead
shovelhead's picture


Stand at an empty supermarket shelf and demand it fill up.

Let me know how it works out for you.

Fri, 10/05/2012 - 22:44 | 2862031 vast-dom
vast-dom's picture

No no no! Of course there was plenty of DEMAND for the iGadget BEFORE it was ever created, with total market certainty! I'd say Aggregate Demand for iPads was there way back in the 1950s and total sheeple confidence latent in this unseen demand curve.



Fri, 10/05/2012 - 23:17 | 2862091 markmotive
markmotive's picture

Ron Paul vs. Paul Krugman

Let the better man win.

Sat, 10/06/2012 - 00:12 | 2862162 Buckaroo Banzai
Buckaroo Banzai's picture

One of the fundamental laws of economics is Say's Law: supply creates its own demand. Of course, this flies in the face of Keynesian doctrine, so Say's Law has been marginalized sine the 1930s.

Economies are driven by production, not consumption.

Krugman is such a despicable fuckwit, he makes me want to puke.'s_law

Sat, 10/06/2012 - 00:40 | 2862180 NidStyles
NidStyles's picture

The funny thing is that they were both morons. Demand isn't created by the goods, it's created by human action.

The only part of Say's Law that is even close to reality is the pricing action through required commerce, but even that isn't from Say, so it's not worth using any of his "Law".


Yes, I have deep seeded issues with Say's Law.

Sat, 10/06/2012 - 01:14 | 2862231 vast-dom
vast-dom's picture

Say's Law is barely Econ 101. It makes a rudimentary point and s good counterpoint to Keynesian idiocy.

Sat, 10/06/2012 - 01:50 | 2862259 NidStyles
NidStyles's picture

I remember learning about it in High School level Econ like 14 years ago. This is below 101 level, and even then the concept was barely notable. I agree that it's a usefull commentary to counter Keynes's idiocy, but Say's Law was outdated with Mises's "Human Action". Demand is created by the action of humans. It is created and driven by humans trying to solve problems and ease their condition in life.


I know why they don't used Austrian School in college, because most colleges are ran by the Government and the University level is stuffed full of Statists that simply suck the teat of the Government to garner funding. The biggest part Randian Philosophy I agreed with was her calling them Looter's.


Sat, 10/06/2012 - 03:26 | 2862278 RichardP
RichardP's picture

Demand is a function of purchasing power.  Any economic cliche that ignores this reality is a non-functional cliche.

Nothing will be demanded from the marketplace if wants run high but purchasing power is non-existant.  Nothing will be demanded from the marketplace if supply runs high but purchasing power is non-existant.

All of the things the above article discussed assumed a sufficient level of purchasing power.  Build it and they will buy it works only if sufficient funds are available to purchase what was built.  Purchasing power will be applied to needs first.  Only if there is purchasing power left over will it be applied to wants.  (Some may ignore needs temporarily in favor of wants, but not for long; needs are defined as those things you cannot stay alive without.)  Marketers for basic goods (gas; food; shelter) have gotten pretty good at raising prices so as to confiscate most disposable purchasing power from a significant percent of the population.  If most purchasing power is spent on needs, it is no wonder that not much is being spent on wants.

Elsewhere on Zerohedge we have a thread discussing the astounding increase in the number of SNAP users.  Couple these folks with the folks standing in bread lines in the Great Depression 1.  It is beyond stupid to say this group of folks aren't/weren't buying things only because no one is/was producing them - and that, if they were produced, these folks would run out and buy them.  What hubris to even write such trash.

The reality is this: without purchasing power spread widely throughout the population, supply will do nothing but sit there.  The owners of the means of production are not stupid (generally).  They know this.  They modify their production to match likely demand.  And they spend big bucks on marketing to create demand.  But demand can be created only if purchasing power is present.  It all starts there.  After all, isn't that why we buy gold - to preserve our purchasing power?  If we can buy stuff, magically just because someone produces it, why bother buying gold to protect purchasing power?

Sat, 10/06/2012 - 08:22 | 2862458 Richard Chesler
Richard Chesler's picture

"Saving is seen as a necessary evil while instant gratification is looked down upon as morally repugnant"

Pretty sure that was meant the other way around.

Sat, 10/06/2012 - 10:57 | 2862663 Bananamerican
Bananamerican's picture

"Empirical evidence and logic would suggest that it is the current atmosphere of tentative political measures that is frightening capitalists whose job it is to create wealth."

This is the new (and entire) Heritage Foundation line, yeah?

it wouldn't be that, unlike GD1, the country had been hollowed out by its own globalist (not "patriotic" but supra-national, Globalist) elites, stuffffed full of 3rd world peasants, and cast adrift in a "muscular" Obamney service economy while also, sowing uncertainty among, what's the phrase (?) .....those "capitalists whose job it is to create wealth"?

Sat, 10/06/2012 - 19:16 | 2863632 BooMushroom
BooMushroom's picture

So say you've got an idea for a product. It'll cost you $10 in materials and 1 hour of labor for each unit. The most that people will pay for it is $25.
After you sell each unit, you must pay a tax on your profit.
If you don't know what your labor cost will be (hourly wage+FICA+SS+benefits) and you don't know what your tax rate will be (15%? 35%? 39.6%) then you cannot calculate whether your idea will be more profitable than a CD at your local credit union.
If you can't figure if the idea would be profitable, why not just wait a while, and collect your .25%?

Sat, 10/06/2012 - 08:56 | 2862462 Sean7k
Sean7k's picture

You fail to allow for time preference and saving. There are reasons people do not spend and it has nothing to do with "purchasing power". People reduce spending in times of uncertainty for reasons of personal security. 

People own gold and silver because of risk associated with other instruments and the destruction of value in an atmosphere of low interest rates. If banks paid interest at a rate above inflation plus a small return, people would place their savings there. They would not worry about risking their savings. 

The author never says people aren't buying because people aren't producing. He says that production begats demand. This is the counter argument to the Keynsians that emphasize demand as a driver for economic activity.

The next part of that argument regards producing products people WANT and at a price they perceive to be fair value. There is a reason as people age, they consume less- even though they have plenty of purchasing power. They don't need as much. They have other drivers(human action) that are purposing their behavior (savings for old age, etc).

Giving a society greater amounts of purchasing power, without first demanding greater production to pay for it is what got us into this problem. We have spent the last thirty years dumping "purchasing power" onto people through debt creation, rather than production. Now that we are having to compete with Europe and others to export our inflation, the chicken has come home to roost. 

It is debt that is at the center of the supply/demand problem. Debt from the selling of fascism through pretty trinkets and socialized entitlements. Debt from crony capitalism and protected industries. 

Miller is not always cogent or as deliberate as he should be, but here, he has sucessfully pointed out the deficiencies in Keyne's and Krugman's machinations. Demand is not the driver of economic activity, production creates the wealth and goods that lifts all boats.

Sun, 10/07/2012 - 04:36 | 2864133 RichardP
RichardP's picture

Demand is not the driver of economic activity ...

Perhaps we have different definitions of demand.  When people have no purchasing power, they don't buy things (I include credit as purchasing power; no purchasing power means no access to credit).  When people don't buy things, inventory doesn't move.  When inventory doesn't move, production slows down or stops.  Economic activity slows down or stops.  All because people are not buying things because they have no purchasing power.

You conclude: production creates the wealth and goods that lifts all boats.  History has demonstrated time and again how untrue that statement is.  Production may create wealth and goods, but that wealth and goods usually stay with the owner of the means of production - unless they are forced to let go of it through the actions of unions or governments.  That is the history of the world.  And when the majority of purchasing power accumulates in only a few hands, which it has a tendency to do without outside intervention, economic disruption ensues.

Sun, 10/07/2012 - 08:46 | 2864473 Sean7k
Sean7k's picture

Your definition of demand is redundant and pedantic- quite a combination. All goods sell at the RIGHT price. Therefore demand always exists. Producers can save just as consumers do and decide to hold out for a greater price, but this has nothing to do with your precious "purchasing power".

As for history, please read a little. The standard of living of the people in the western world, people that embraced capitalism, grew at a faster rate and to a higher plateau than ANY other time in history. For starters, read, "Classical Economics" by Rothbard. 

There is a reason that wealth and goods stay with the owners of the means of production- they take on the risk, they invest the capital and they have the vision and ideas that create productive goods. Labor is just that- a wage for effort. However, with sophistication of machinery and processes, labor has the opportunity to gain in education and skills that make themselves more valuable in the marketplace, generating better salaries.

Economic disruption is a function of government and intervention by said government or its' proxies (even if said proxies own them-The FED e.g.). If people want "purchasing power" they must earn it. To the extent government and unions allow this, people can work and be paid a salary. 

Free markets would eliminate the benefits crony capitalism bestows upon the connected elite corporations. People don't need to worry about purchasing power, they need the liberty to succeed and no barriers to entry. They need a level playing field. 

Sat, 10/06/2012 - 13:32 | 2862939 meghaljani
meghaljani's picture

This argument is clearly refuted by the austrian business cycle theory. Recession is a process where malinvestments, which were created by inflationary credit expansion, are liquidated. Therefore, unemployment and purchaning power will reappear when resources are realocated. In depression 1, people did not have purchasing power for so long because government did not allow realignment of markets to take place; just like they are doing it for now.

Sat, 10/06/2012 - 19:08 | 2863621 BooMushroom
BooMushroom's picture

Purchasing power is created by one's own supply. When farmer Joe wakes up in the morning, he has no excess purchasing power. He milks the cows, collects the eggs from the chickens, and harvests some herbs and tomatoes from his garden. Due to his new supply of food, He now has purchasing power.

Laborer Bob wakes up in the morning with no purchasing power. He goes to his J O B and works for eight hours, and his boss pays him. Now he has purchasing power.

When beaureaucrat Kathleen says that the farmer cannot sell his milk, he has less purchasing power. When she says laborer Bob must spend a large portion of his labor on taxes, fees, and Ocare insurance, his purchasing power is reduced.

Sat, 10/06/2012 - 20:56 | 2863747 NidStyles
NidStyles's picture

Demand exists externally from purchasing power. Not all things have a fiscal cost, and yet they are still in demand. Human Action creates demand, nothing else. Other things may influence the demand to be expressed through fiscal and market movement, but they do not create the demand.

You can use fallacies all you wish and denounce this basic Economic Law, but you are incapable of proving your point outside of the Free-Market. The Human Action argument is the base driver in even Socialist systems, it's the only constant that is present at all times, therefore it's the only rational conclusion that it's the only creator of demand. All other potential "creators" are merely inferrences to the end demand of the chain of Actions. 


What you allude to is Monertariast Theory, and it shouldn't be advocated, because it's irrational and simply incorrect. It didn't work in the 80's and it does work now.

Sat, 10/06/2012 - 15:32 | 2863223 Bloodstock
Bloodstock's picture

I am in full agreement with the above statement, "Demand,,,is created and driven by humans trying to solve problems and ease their condition on life." First and foremost we will attempt to fulfill our needs, then our wants. THose in the need business tend to do better.

Sat, 10/06/2012 - 17:54 | 2863505 LooseLee
LooseLee's picture

Not unlike Buffet, most mutual fund managers, and all Bulltards far and wide.....

Sat, 10/06/2012 - 11:56 | 2862786 Withdrawn Sanction
Withdrawn Sanction's picture

The point of Say’s Law is really that production, of necessity, precedes consumption.  Cars, iPads, and college educations, to name a few, do not grow on trees simply waiting for us to pluck them (but even if they did, the “plucking” itself would constitute a type of production—taking those goods from their native state and putting them into a usable state).   Said differently, one cannot consume what does not exist, and production is process of bringing into existence that which we desire. 

The hoary simplification that “supply creates its own demand” was designed to undermine this basic insight by making Say seem absurd.  There are plenty of individual examples where supply (produced goods) did not meet up with enough demand.  This is not a failure of Says Law (as it holds at the economy-wide level), but rather is an indication that demanders are telling the suppliers to find another (more valuable) line of work.  For the economy as a whole however, a system wide glut of ALL goods implies that goods as such are no longer goods (i.e., they have ceased to be desirable means of achieving some end). 

Looking at Say’s Law from the demander’s perspective, his/her ability to demand goods arises from having first produced something of value for his/her fellow man.  That is, effective demand (ability) comes from production.  In a general sense, the subjective willingness to demand, though directly unobservable in itself, can be taken for granted so long as survival remains a value to be pursued. 

The idea of putting aggregate demand in the driver’s seat was a deliberate attempt by Keynes to unhorse production from its primary role.   His goal was to address the 1930s problem of how supply had become some badly mismatched with demand.  He simply took this imbalance as given, and further, took supply as given, and proceeded to develop ways to stimulate AD so that it would match the level of AS.  By failing to consider how the 2 had become so badly out of balance, his “solution” was bound to fail (as the entire 1930s sub-par economic performance was testimony).   

To make a long story short, the prior decade’s buildup of excessive credit acted as a wedge driven between AS and AD, and in the 1930s it would require both deleveraging and liquidation to restore balance.  This process started but was short-circuited (by Hoover and FDR policies aimed at propping prices and AD).  Does any of this sound familiar for Japan (since 1990), the US (since 2000 or 2007 take your pick), and Europe (since 2010)?  It should.  SSDD. 

Mon, 10/08/2012 - 12:14 | 2868262 BigJim
BigJim's picture

  The funny thing is that they were both morons. Demand isn't created by the goods, it's created by human action.

Except Say never said 'supply creates its own demand''s_law#Assumptions_and_critiques 

Keynes (deliberately, in my view) mis-stated the law so he could 'refute' it. What an asshole the man was. 

Sat, 10/06/2012 - 01:11 | 2862229 vast-dom
vast-dom's picture

Ah, i remember my econ professor teaching Say's Law. It always made sense, in a most basic way. The opposite of this was like most of economics: unreal and forced. 

Sat, 10/06/2012 - 00:20 | 2862158 ACP
ACP's picture

Yeah this article was entirely confusing. It seemed like the first and last sentences in the last paragraph were somewhat contradictory.

I don't agree with the first sentence in the last paragraph, but I do agree with the last sentence in the last paragraph (conclusion). However, based upon the rest of the article, the last sentence means something different to the author than it does to me.

The author seems to think obstacles placed in front of businesses are suppressing production, which is in turn are suppressing the economy by not producing "a bunch of stuff."

My belief is that obstacles to business are suppressing investment in employees/capital expenditures in anticipation of future demand (risk factor). Edit: Increased capital investment during a period of weak demand (with a favorable business environment) would create more employment, thereby accelerating consumption and demand for the "next guy's" product. And so on and so forth.

It seems the author is attempting to apply the wrong economic principles to the current situtaion. Not only that, the explanation is incredibly dissociated.

The author must have a PhD in Economics.

Sat, 10/06/2012 - 00:42 | 2862198 NidStyles
NidStyles's picture

I don't even know a Ph.D. that is this confused and contradictory. I know some people with Master's that are though. Most of the Ph/D/'s I know are Austrains though, and they are not that slow on the uptake and usually can point out irrationality.

Sat, 10/06/2012 - 02:30 | 2862283 RichardP
RichardP's picture

I agree with your assessment of the article.

Sat, 10/06/2012 - 09:08 | 2862488 Urban Redneck
Urban Redneck's picture

Krugman is a MORON becuase he equates Keynes' published writing with improving "society"

Keynes was an aristocrat trying to preserve and extend the wealth of British Empire and TPTB, at the expense of the serfs and lenders alike.  Keynes was the PT Barnum of economic ruling class, and Krugman is a sucker.  

Or, Krugman understands perfectly what Keynes actually thought and expressed in less public forums, and thinks the American people are suckers, who can be easily conned into extending the life of a dying empire.

Regarldless, it's not economics, it's politics.

Sat, 10/06/2012 - 10:05 | 2862541 Vince Clortho
Vince Clortho's picture

I think you have it pretty close to the mark.  I would simply add that the Keynesians need a healthy slave sector to acheive their maximum profit and lifestyle at the top of the pyramid-edifice they constructed.

And you are spot on with Krugman using double speak for public consumption.

Sat, 10/06/2012 - 11:58 | 2862790 Kayman
Kayman's picture

In a closed economy Keynes' pumping of aggregate demand might have a chance of putting people to work.

China should thank the likes of Krugman and Bernanke for boosting aggregate demand in the Chinese economy.

Fri, 10/05/2012 - 22:47 | 2862038 Carp Flounderson
Carp Flounderson's picture

it will if you show up with money in hand... pretty sure you just made a point against yourself.

Fri, 10/05/2012 - 23:30 | 2862110 TWSceptic
TWSceptic's picture

How do you think he got that money? Just by demanding it?


Productivity is at the center of an economy. Demand is infinite, it's basically an irrelevant constant.

Fri, 10/05/2012 - 23:52 | 2862138 Carp Flounderson
Carp Flounderson's picture

Way to confuse the simplest of economic concepts.  Saying demand is infinite makes exactly as much sense as me claiming supply is always zero.

Sat, 10/06/2012 - 01:10 | 2862228 Oh regional Indian
Oh regional Indian's picture

Sell Side = Un-natural.

Demand side = Reality.

Demand side mechanics cometh, this is the fear of the Krugwoman, supply-siders.


Sat, 10/06/2012 - 00:45 | 2862200 NidStyles
NidStyles's picture

Human Demand is infinite. Productivity is merely the focus, not the center. Satisfying Human Demand is the center of the economy, only satisfying that demand is worth noting.


Gah, it's like everyone read Mises but misinterpreted him.

Sat, 10/06/2012 - 12:06 | 2862805 Kayman
Kayman's picture

"Human Demand is infinite."  Nonsense. Satiation trumps all.

How many meals can you eat? How many cars can you drive? How many iPhones can you answer at any one time? How many times can you pull your pud ?

Supply and Demand are 2 wobbly tops dancing drunkenly around each other.

Sat, 10/06/2012 - 19:29 | 2863648 BooMushroom
BooMushroom's picture

Ask a guy in Calcutta what a meal is, and how much it costs. Translate that into USD, and then translate that into politico fundraiser Waygu steak and lobster with beluga caviar and Cristal. Then Translate that back into rupees, and tell the guy in Calcutta how much people spend one one meal in the USA. He will tell you that Americans are, in fact, insatiable.

Mon, 10/08/2012 - 12:21 | 2868284 BigJim
BigJim's picture

 "Human Demand is infinite."  Nonsense. Satiation trumps all.

How many people who play the lottery, and win 'enough to keep them going for a lifetime', wind up being poor again 5 or 10 years later?

People's demand, on average is virtually infinite. It certainly trumps the ability of the Earth to supply it all. 

Sat, 10/06/2012 - 02:33 | 2862285 RichardP
RichardP's picture

Demand is infinite  ...

Demand is non-existant without purchasing power.  Since purchasing power is not infinite, demand cannot be infinite.  Therefore, demand is a function of purchasing power (even if purchasing power = barter).

Sat, 10/06/2012 - 07:14 | 2862413 LawsofPhysics
LawsofPhysics's picture

Bullshit. I need food. I kill you. Now I have food.

Sat, 10/06/2012 - 09:23 | 2862496 CynicLaureate
CynicLaureate's picture

Eat me.

Oh, wait, I guess that's your plan.

Fri, 10/05/2012 - 22:39 | 2862025 Carp Flounderson
Carp Flounderson's picture

Let's see, economics on zero hedge... I haven't read the article yet, but I pretty much assume that the opposite of whatever it says is true.  Will read now and check back in shortly.

Fri, 10/05/2012 - 22:55 | 2862054 Carp Flounderson
Carp Flounderson's picture

yeah, terrible.  priorities=rage first, education second.

Fri, 10/05/2012 - 23:36 | 2862119 TWSceptic
TWSceptic's picture

I looked at your post history. Found this:

Mises articles on economics are always so bad its amazing.


Looks like you could use some education yourself.

Fri, 10/05/2012 - 23:54 | 2862140 Carp Flounderson
Carp Flounderson's picture

Educate me great one ;)  I'll knock down your mises educated ass any day of the week.

Sat, 10/06/2012 - 00:29 | 2862177 Buckaroo Banzai
Buckaroo Banzai's picture


Sat, 10/06/2012 - 00:52 | 2862206 NidStyles
NidStyles's picture

I always hear you retards claim that, but I haven't lost a debate on Economics with any of the critics of Mises... Working on my Master's in Economics as we speak. Would you like to discuss this topic in length?

I can send you my Screenname some where and we can do it in public, or I can send you my email if you are too scared to do it in public.


Sat, 10/06/2012 - 02:37 | 2862288 RichardP
RichardP's picture

Working on my Master's in Economics as we speak.

Be careful what you lead with.  There is a contingent here who think those with PhDs in Economics are stupider than corn.

Fri, 10/05/2012 - 22:46 | 2862032 centerline
centerline's picture

Maybe I am late to this party.  If not, wake up dumb dumbs... here it comes.  Bullish for body bags.

Fri, 10/05/2012 - 23:50 | 2862135 SafelyGraze
SafelyGraze's picture

about those body bags ..

if you're not a member of the 48-hour burialists, you're about to be subordinated. with all the attendent smelliness and crows-pecking-out-the-eyeballs etc
that'll teach you.

"Congress finds the following:
(1) Emergency preparedness .. fails to plan for how to prepare for and respond to mass fatalities ..
(2) Funeral homes, cemeteries, and mortuaries could be overwhelmed should mass fatalities arise ..
(3) Different religions have different customs surrounding death; for example, the Jewish and Muslim religions call for burial of the deceased not later than 48 hours after death."

aka the 2012 super-senior death tranche and free meals for the zombies act

Sat, 10/06/2012 - 10:44 | 2862637 Yes_Questions
Yes_Questions's picture

with all the attendent smelliness and crows-pecking-out-the-eyeballs etc


This is when I'd like the option for multiple up arrow-ing. 


Sat, 10/06/2012 - 07:13 | 2862412 nasdaq99
nasdaq99's picture

there's that and the fact that greenspan and berdonkey basically sucked forward 20 years of housing demand into 7 with their interest rate policies causing there to be 8,000,000 empty houses on this little desert island.  and enabled it with lending laws requiring lenders to lend to people with no ability to pay.  

and then there's chinese workers willing to produce EVERYTHING we consume for $2/hour making us uncompetitive at producing what we consume.

he's vastly overstated his case.

Sat, 10/06/2012 - 09:38 | 2862507 Omen IV
Omen IV's picture

Complete Nonsense ...."Supply creates demand" - NO demand creates supply

an entrepreneur is governed by "risk" - gamblers ruin - is the overestimation of future demand - the bridge to taking risk is the perception that you can get rid of the "stuff" whether it is food, automobile or renting an apartment before it spoils, is obsolete or too expensive.

entrepreneurs don't think of taxes and regulations "first"  - their first instinct is to think about  - "can i sell this" before they make it - goods or services

this article is a Koch / Peterson - think tank promote / propaganda piece - complete garbage - designed to eliminate regulations and taxes - Nonsense - there have been regulations for 100 years or more and in robust / poor economies.

todays problems are rooted in the uncertainty of what are the true values of housing / real estate (demand) especially when the banks are not lending. by definition  -deflation is uncertain - what is the bottom of the demand curve?

Sat, 10/06/2012 - 10:15 | 2862575 Sean7k
Sean7k's picture

How many ways can one person be so deluded?

Demand all you want, without supply- you get nothing.

The only entrepreneurs that think the way you describe are bad ones, one kept alive by regulation and cronyism, that normally would have failed. Good entrepreneurs are capable of creating production that will sell after it is completed, otherwise, their capital investment would be lost. 

Today's problems are rooted in debt creation that exceeds the productive abilities of the economy coupled with consumerism fed with rampant credit and an expanding money supply based on money creation from FED bought bonds.

Deflation is no more uncertain than inflation. It is a correction for malinvestment in an economy that allows the business cycle to clear and restart. 

Please take your huffpo analysis back home.

Sun, 10/07/2012 - 05:03 | 2864141 RichardP
RichardP's picture

Demand all you want, without supply- you get nothing.

I am baffled at this kind of thinking.  Economic activity rests on this observable fact: Demand all I want ... and I'm likely to get someone to step forward and offer what I am willing to purchase.  But if I have no purchasing power with which to demand anything, no one is going to step forward and offer me anything.  If everyone in the "market" is in my predicament (have no purchasing power) the producer will go bankrupt if he continues to produce.

Please re-think your stuff in light of the distinction we are making.  The points made in the article, and all of the points in support of the article, are valid only when there is suffient purchasing power around.  Some of us are making the point that, when purchasing power disappears, nothing is going to get purchased.  Continued production is not going to change that - unless that continued production somehow facilitates a transfer of purchasing power from those who have it to those who don't (through creation of wages or through government edict).

History demonstrates that, when left to itself, purchasing power tends to aggregate in the few hands of the owners of the means of production.  And when demand falls due to a reduction in purchasing power, due to purchasing power being concentrated in few hands, the owners don't ramp up the factories because they know that producing more will enable people to purchase more.  Rather, they curtail production, as is happening right now.


Sun, 10/07/2012 - 09:02 | 2864495 Sean7k
Sean7k's picture

You are baffled because you have no understanding of economics. Demand always exists. Capital and liquidity always exists. You may not have it for personal reasons, but someone else does and at the right price, all markets will clear. Your ignorance of key concepts, including price, value, savings, sound money coupled with your assinine insistence on the phrase purchasing power are the clarion call of the uneducated.

Your failure to understand business cycles, whether austrian or keynsian, leaves you blind to certain realities concerning intervention in markets. When goods are not purchased, it has to do with preference or price- not the supply of money. The world is awash in money. If people don't have it, it is because they don't do anything to earn it. 

Why should people have purchasing power they have done nothing to earn? 

If the problem is state, union or corporate intervention in the markets, then the solution lies in barring their influence from said markets. Entreprenuers cannot function in a market that is clouded from intervention, manipulation of interest rates, instability of input costs or mandatory wage and benefit levels. 

Your infantile "blame the rich" arguments show a decided lack of rigourous study. Economics is not the most difficult discipline, but it does require effort.


Sat, 10/06/2012 - 12:18 | 2862826 Kayman
Kayman's picture

"todays problems are rooted" in mispricing assets thru Fed control of the money supply. 

 Money is not going out into the economy. Money is supporting the rotting carcasses of the self-appointed Too Big To Fail.

If TBTF had any credence, Dinosaurs would still rule the earth. 

Sat, 10/06/2012 - 11:04 | 2862682 buckethead
buckethead's picture

You're geting junked, but this essay is absolutist bunk. Supply and demand are symbiotic. They drive eachother. They modify eachother. 


Adhering to any economic dogma is an excercise in futility. Supply creates demand. How can any remotely serious person claim this?


In economics it is what it is until it isn't. This is the only absolute rule.


FWIW?  True Keyensism hasn't been tried (Only the borrow/spend side... never the repayment), nor has a pure Austrian free market system. They never will be.


Fri, 10/05/2012 - 21:49 | 2861921 Insideher Trading
Insideher Trading's picture

Paul Krugan won the Nobel for economics and Obama won a Nobel for peace.

After looking at the blood of dead women and children on Obama's hands and the dead economic policies at the hands of Krugman....

I don't really give a shit.

It's one big lie.

Sat, 10/06/2012 - 01:00 | 2862214 SafelyGraze
SafelyGraze's picture

ironic about the nobel prizes. not only are they awarded ironically, but they are awarded in reverse.

orwellian-bizarro nobel peace: kookman advocates faking a warthreat 

orwellian-bizarro nobel economics: soebama ushers in the collapse of global economy

who is Chunky Mark?

Sat, 10/06/2012 - 05:13 | 2862353 Oh regional Indian
Oh regional Indian's picture

Kissiger got the prize AND was the centerspread for covergirl.

Yuck!!! Ugh and enough said. The Nobel prize is a long running and brilliant scam.


Sat, 10/06/2012 - 08:25 | 2862463 Richard Chesler
Richard Chesler's picture

Nobel Prize winner is the maximun honor of any bankster shill.

Fri, 10/05/2012 - 21:43 | 2861922 no taste
no taste's picture

Paul Krugman = stupidity.

Fri, 10/05/2012 - 21:43 | 2861923 iamse7en
iamse7en's picture

Tyler, you really gotta do something about the partial RSS feeds. Please fix!

Fri, 10/05/2012 - 21:50 | 2861936 Count de Money
Count de Money's picture

"As a thinker, Keynes viewed a preference for saving over spending as ignorant and asinine."

Keynes never had to worry about losing his job.

Sat, 10/06/2012 - 00:54 | 2862211 NidStyles
NidStyles's picture

He never had to worry about having a job either. He was born into the House of Lord's why would he need to worry?

Fri, 10/05/2012 - 21:52 | 2861939 Cheesy Bastard
Cheesy Bastard's picture

"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens."    

Fri, 10/05/2012 - 21:52 | 2861940 Yen Cross
Yen Cross's picture

Long ( New Guinea),   cannibalism!

Fri, 10/05/2012 - 22:09 | 2861941 LawsofPhysics
LawsofPhysics's picture

There is 7+ billion liabilities demanding a higher quality of life. That requires a real resource and energy demand. Another bullshit article, WTF?

Fri, 10/05/2012 - 21:55 | 2861943 sotto
sotto's picture

I think we concede to much when we call this a recovery.  No such thing has taken place and never will until the gov gets out of the way and stops destroying the economy.  Until then this is what we have to look forward to:

Sat, 10/06/2012 - 10:10 | 2862559 Vince Clortho
Vince Clortho's picture

Who do you mean by "we"?

The only people talking about recovery are politicians and Central Bank Clowns.

Sun, 10/07/2012 - 18:21 | 2866072 LooseLee
LooseLee's picture

...and...sell-side, empty head moronic BULLTARDS!

Fri, 10/05/2012 - 22:11 | 2861947 ebworthen
ebworthen's picture

"“lack of demand for the things workers produce.”

You mean plastic crap diddlies made in China by slave labor sold to people who can't really afford them as they primarily work part time in service industries that waste potentially productive capital and labor?

Fri, 10/05/2012 - 21:57 | 2861949 woggie
Fri, 10/05/2012 - 21:57 | 2861951 Yen Cross
Yen Cross's picture

2001 was the slick "Willey Era", Blame it all on "POLE CAT Willey". Look at the deficit expansion!    The curve goes parabolic,from 2002!, and never looks back!

    Fucking Rubin and Green-Span are the Äuthors!

Fri, 10/05/2012 - 22:08 | 2861970 FreeMktFisherMN
FreeMktFisherMN's picture

cue LTER with some statist, anti LvM rant.

Fri, 10/05/2012 - 22:12 | 2861973 Yen Cross
Yen Cross's picture

r/u relevent?  "Welcome"". we know each other.

Fri, 10/05/2012 - 22:14 | 2861974 Dr. Engali
Dr. Engali's picture

Beat me to it. Although I do think Rand is a little more open to discussion than others, and certainly more so than a year ago.

Fri, 10/05/2012 - 22:21 | 2861993 Yen Cross
Yen Cross's picture

South Africa? The desolation of "white boyz""?     The absolute ( raycist) distruction of anything ÄNGLO?

  That South Africa?

Fri, 10/05/2012 - 22:16 | 2861982 Ned Zeppelin
Ned Zeppelin's picture

Krugman is also nonsense BTW.

Fri, 10/05/2012 - 22:25 | 2862003 Yen Cross
Yen Cross's picture

NED we are 'light years', beyond the  [ existential spark].     Damage control, is my MANTRA!

Fri, 10/05/2012 - 22:30 | 2861988 Dr. Engali
Dr. Engali's picture

I am sorry but I can not comprehend people who view saving as a bad thing. To me it's as simple as the ant and the grasshopper. If you aren't saving for hard times then you are doomed for failure

To take it a step further it neither liberal nor conservative make any sense to me when it comes to this topic and energy. Conservatives claim to be savers but they are willing to consume all of our energy reserves now, while liberals are spenders but they don't want us expanding all resources for energy while at the same time there is more energy demand growing.

Sat, 10/06/2012 - 16:31 | 2863343 donsluck
donsluck's picture

The tale of the grasshopper and ant is really a tale of zen. After all, both survive and reproduce, their existence proves their time-honored success. This is the problem with using an allegory, it over-simplifies the concept. Spenders and savers need each other, neither is "better" than the other. Todays' problem is that the fiscal authorities have massively favored the spenders and upset the balance.

Fri, 10/05/2012 - 22:25 | 2861995 Arkadaba
Arkadaba's picture

Ok I've had a few drinks but isn't this article just really bad?

I especially liked these philosophical gems:


Goods and services are what ultimately enhance human life 

As a species, we are forever trying to achieve a happiness dictated solely by our own individual valuations.

Since man is endowed with free will, the future is never certain


Fri, 10/05/2012 - 22:27 | 2862008 Yen Cross
Yen Cross's picture

Have a few more, and get my "Roast Beef"sandwich /BITCH

Fri, 10/05/2012 - 23:01 | 2862062 Arkadaba
Arkadaba's picture

Ok that was funny - sort of/

Fri, 10/05/2012 - 22:34 | 2862018 Dr. Engali
Dr. Engali's picture

Okay explain to me how goods and services don't enhance life? Do you think life was better when we were using stones for cutting and chopping wood, or do you think we might be better off with a chainsaw? I know I prefer the chainsaw.

Fri, 10/05/2012 - 22:59 | 2862060 Arkadaba
Arkadaba's picture

Yes, I agree that a chainsaw beats a stone for chopping wood. But how did we get there? In order to innovate to the point where the chainsaw would replace the stone, we needed time freed up from cutting those stones. The production of (surplus) goods and services leads to a surplus of free time (because you can save the surplus goods/services and sell or trade it), which does enhance human life (in my opinion) and leads to innovation. So, in that sense, I would agree with the author - if that is what he meant - but I couldn't really tell if that was what he was saying

Sat, 10/06/2012 - 08:40 | 2862470 Sean7k
Sean7k's picture

It's free content. You are not going to get brilliant writing for free. If people wish to learn from the best writers of the Austrian school, they need to read books. See 

Personally, I just try to ignore the bad parts and get on to the comments. There are some excellent commentators here.

Fri, 10/05/2012 - 23:27 | 2862106 MeBizarro
MeBizarro's picture

It is as are almost all of his articles.  I have no idea why Tyler finds so many obscure and generally poor op-ed contributors.

Sat, 10/06/2012 - 02:42 | 2862291 RichardP
RichardP's picture

Since man is endowed with free will, the future is never certain.  What???

Since humans have free will, they are not predictible.  Since humans are not predictible, the future cannot be predictible.  Ergo, the future is never certain.

Sat, 10/06/2012 - 04:52 | 2862347's picture

I woke up this morning and increased aggregate demand for beer. The future's uncertain and on a long enough time line the end is always near.

Sat, 10/06/2012 - 12:06 | 2862803 WarriorClass
WarriorClass's picture

You tell 'em Jim.

Sat, 10/06/2012 - 10:54 | 2862659 Arkadaba
Arkadaba's picture

Just don't believe the future's uncertainity is solely due to human free will. It may may be a contributing factor but what about extreme weather, random asteroids, etc. And I do wonder at times if people really do have free will - most seem to act in a rather predicatable manner.

Fri, 10/05/2012 - 22:38 | 2862020 q99x2
q99x2's picture

The Keiser Report 349 has a meaningful show on what is behind the economy. I liked his report because in the second half is a discussion about Sheila Bair quiting the FDIC and joining Occupy. Pretty much the banksters have put Holder in position to prevent prosecution as they take down the US. So if you're thinking of keeping your money safe in stocks or bonds or leaving it in the hands of hedge funds or in pensions well you are going to be very angry soon.

Oh by the way that Keynes and aggregate demand and stuff doesn't mean much. But the graphs of the TSA and DHS that are not shown would have been meaningful because the banksters now have approximately 200,000 sniper rounds as well as 4 hollow points for every man women and child and an army of paid mercinaries to kill us with.

The Keiser Report says it is Geitner, Holder, the FED and Obama that are the main players in the take down.

Good luck and in God may you trust.

I'm pretty sure I will use Bair's documentation in a speech to my speech class, about the FED, in two weeks.

Sun, 10/07/2012 - 18:30 | 2866086 LooseLee
LooseLee's picture

To The Banksters: Bring it!

Fri, 10/05/2012 - 22:43 | 2862028 newengland
newengland's picture

Another hissy fit from Crookman, the mouthpiece for the Socialist Internationale and their command economy.

He lacks the honesty or integrity to admit his true political agenda: socialism and communism eventually. All around the world, the failure of his sort of ideas is plain to see, yet he Goebbels, like Lenin, like the Red Terror, this time on a global scale by fomenting world wars funded by fake promises, fake money, and a fraudulent corporatist (state fascism) agenda...all whilst he earns a pretty penny or two shilling for his masters, just like Bernanke, Soros and the hapless Obama (Mittens too, probably).


There is no economy for honest people working and paying their way, so long as Big Brother keeps beating everyone until morale improves.

Fri, 10/05/2012 - 22:55 | 2862050 disabledvet
disabledvet's picture

Keynes believed the Fed should lend directly to American business thus bypassing Wall Street altogether. That was 70 years ago! Not even Paul Krugman says that...but I sure do. Of course what we have instead is a "bailout regime"...which is a directly line of money from the Fed to Wall Street...the WORST idea EVER. Are the richest people on the planet not supposed to pay their own way Mr. Chairman? What message are you sending to those who do? Obviously "go phuck yourself" comes to mind...yet that is the backbone of an ACTUAL economy...not some chart-porn made to look like growth. Rich people have no incentive to hire...but if you make them pay with their business interests for what they want...

Fri, 10/05/2012 - 23:06 | 2862066 newengland
newengland's picture

There is no reason for the Fed or old European banks and their monarchist, now socialist fascism, to lend to American business.

The U.S. government has the right to issue currency, and do so for productive purposes for the people, not the usury of private banks and their corporate interests, as per the Federal Reserve Board...which is not federal and has no reserves, but consists of a Board to serve foreign interests with the USA as its latest pawn.

The Fed bails out banks, and pursues the best interests of the Trilateral Commission and the Socialist Internationale, co-opting any big business that kisses its hand, and connives in its corporatist ways, ie state fascism.

The 'Federal Reserve Board' is a privately owned entity, usurping the U.S. Constitution and Declaration of Independence.

Krugman and his fellow traveller crypto-communists are the Goebbels of their generation.

Sat, 10/06/2012 - 02:49 | 2862293 RichardP
RichardP's picture

The 'Federal Reserve Board' is a privately owned entity ...

The Fed is an agent of Congress.  That is a legal classification, and the Fed is beholden to Congress.  This is proved by the fact that Congress can disband the Fed if it wishes to.

By definition, an agent may act as tho they are the entity granting them agency, but only within the constraints spelled out in the document granting them agency.  The Constitution stipulates that only Congress has the power to create and control money.  As an agent of Congress, acting as tho they are Congress, the Fed is fulfilling the Constitutional requirement.

Sat, 10/06/2012 - 04:56 | 2862350's picture

So the Fed "coins" money as the Constitution stipulates?

Sat, 10/06/2012 - 06:34 | 2862391 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Go back and read the Act. The Fed is supposed to temporarily smooth out liquidity to banks during lulls in the business cycle. They're NOT supposed to "target" inflation, or "support employment" and certainly not supposed to "generate wealth effect through the portfolio balancing channel" i.e the stock market. Nor are they supposed to become the most leveraged hedge fund on the planet by buying almost the entire bond market and buying bank's failed loan paper worth $0.40 at $1.00. The mere idea of "price fixing" money is bad and hideously wrong.

Read Jim Grant, get educated about how far away from their mandate the Fed has strayed. Oh what a surprise, because they are privately owned by 14 banks. The organization that gives them their "authority" (the Congress) can't even get an audit of what's on their books.

Sun, 10/07/2012 - 05:10 | 2864145 RichardP
RichardP's picture

The organization that gives them their "authority" (the Congress) can't even get an audit of what's on their books.

Congress could get an audit if they wanted one.

Sat, 10/06/2012 - 10:14 | 2862568 Vince Clortho
Vince Clortho's picture


Sat, 10/06/2012 - 12:10 | 2862813 WarriorClass
WarriorClass's picture

Abraham Lincoln's War Against the States ended with the enslavement of us all and left the Federal Government the final power in this country.  Thus the empire was born.. If you doubt this you should read any of historian Thomas J. DiLorenzo's books on Lincoln, as well as "Lincoln Uber Alles" by Emison. "The Party of Lincoln" is no better than the Marxist Democrats, and until people see through their deception, it's not going to get any better. Another good book is "The Perils of Diversity: Immigration and Human Nature" by Byron M. Roth, and "Alien Nation: Common Sense About America's Immigration Disaster" by Peter Brimelow.  The Fed would never have been  possible without Lincoln paving the way.

Fri, 10/05/2012 - 23:03 | 2862068 Stuck on Zero
Stuck on Zero's picture

I saved a quarter in my change jar on my dresser last night when I emptied my pockets.  Now I feel extremely guilty for depriving someone else of this wealth.


Fri, 10/05/2012 - 23:11 | 2862084 Yen Cross
Yen Cross's picture

You are 100% "normal" Stuck on Zero                        ZINC plated FIAT is dis gusting!

Sat, 10/06/2012 - 01:44 | 2862256 Yen Cross
Yen Cross's picture

 I plastered that link "far and abroad".     

    fonzannoon    gets full credit!

Sat, 10/06/2012 - 08:08 | 2862447 fonzannoon
fonzannoon's picture

Cool video right man? A tech buddy of mine sent it to me. I thought you would appreciate it.

Sun, 10/07/2012 - 20:48 | 2866312 Encroaching Darkness
Encroaching Darkness's picture

I love TED talks - can't always follow every detail, but you know you're being informed, and generally told the truth. What you do with that truth is up to you.....

Fri, 10/05/2012 - 23:07 | 2862077 Pejorative Requiem
Pejorative Requiem's picture

The Democrat dominated thought police are in control with this issue (for now). Thinking differently than supply side? Ridicule we will give! Same as global warming. Who cares about the science........ it's the agenda that matters.

Fri, 10/05/2012 - 23:56 | 2862143 Anusocracy
Anusocracy's picture

Global warming is about moral righteousness, not science.

Sat, 10/06/2012 - 07:28 | 2862421 Oh regional Indian
Oh regional Indian's picture

Actually it is more about getting a resource based caste/economic system in place.

Like Agenda 21 and Codex A.


Fri, 10/05/2012 - 23:12 | 2862086 Cabreado
Cabreado's picture

"If the world economy is ever going to recover..."


Even "recovery" is wrong.

There will be no "recovery" in the midst of corrupt leadership, influence, and control.

Just as important,

there will be no "recovery" in the midst of current expectations.

Recovery of any kind will come from Humility,

and that requires a vast change in current leadership/control -- inhabitants or structure.

One of the natural pollutants of the self-absorbed in control is to discount the innate emotional intelligence, resolve, fortitude of those they pretend to lead.

It a self-fulfilling thing... and we are there, again.

Fri, 10/05/2012 - 23:25 | 2862103 MeBizarro
MeBizarro's picture

"If the world economy is ever going to recover, the obstacles put in business’s place have to be lifted to make way for investment in real, tangible goods and services.  Consumption will come after."

There is some basic truth to this but it is a real overreach at best and at worst misguided. 

Sat, 10/06/2012 - 00:08 | 2862156 Anusocracy
Anusocracy's picture

Business growth basically abides by Leibig's Law of the Minimum. Identify and resolve the limiting factors and the economy will grow.

It is obvious to me that the most problematic limiting factor is the size and scope of government.


Liebig's Law of the Minimum, often simply called Liebig's Law or the Law of the Minimum, is a principle developed in agricultural science by Carl Sprengel (1828) and later popularized by Justus von Liebig. It states that growth is controlled not by the total amount of resources available, but by the scarcest resource (limiting factor).

Sat, 10/06/2012 - 02:59 | 2862294 RichardP
RichardP's picture

It is obvious to me that the most problematic limiting factor is the size and scope of government.

So - shrink the size and scope of government, and all those folks on SNAP and others with no purchasing power will suddenly start buying???

Or do you mean business will recover so those who still have purchasing power will buy things, thereby creating jobs for those with no purchasing power.  Said jobs will create purchasing power for those formerly without it.  Those formerly without purchasing power now have purchasing power and so they can start buying things.

Read that previous paragraph slowly.  The most obvious thing about the transaction described there is a transfer of purchasing power from the wealthy to the poor.  Without such transfer, no buying is going to take place among those without purchasing power.

Demand is a function of purchasing power.  The only question is who is going to control the transfer of purchasing power from the wealthy to the poor and how that transfer is going to be carried out.

History shows that both private enterprise and government can be criticized for how they handle that transfer.

Sat, 10/06/2012 - 08:55 | 2862477 Sean7k
Sean7k's picture

What is it with you and "purchasing power"?  Yes, if people have no money, demand is frustrated. Duh! The devil is in the detail and here, the detail is the influence of government taxation, regulation and spending on the ability of the economy to function. If you haven't an understanding of how these principles work, you might want to study up. 

While history can criticize both private and public enterprise, private enterprise is paid through profit, not theft (taxes) you might want to start there. As it is the theft that diminishes private enterprise from creating those jobs that produce that "purchasing power'. 

Sun, 10/07/2012 - 05:23 | 2864147 RichardP
RichardP's picture

What is it with you and "purchasing power"?

the detail is the influence of government taxation, regulation and spending on the ability of the economy to function.

'Purchasing power' is a catch-all phrase for having money and credit.  You know, having the stuff that enable you to buy things.  Purchasing power.

You sort of answered your own question.  Can an economy function when purchasing power is non-existant?  Can government tax and regulate when purchasing power is non-existant and production has ground to a halt.  (Well, they probably could, but it would have no effect.)

My point again is that the article, and the points made here that support it, will work only when purchasing power is sufficiently widespread.  In our current situation, purchasing power is continuing to shrink.  Which makes the article, and the points in support of it, less and less relevant to today.

Again, build it and they will come (or tax it and regulate it) works only when folks have sufficient purchasing power.  More and more today, folks don't.  What we are facing today is a situation that cannot be fixed by producing more goods.

Sun, 10/07/2012 - 07:49 | 2864229 overmedicatedun...
overmedicatedundersexed's picture

demand, supply, economic terms, lots of good points here while talking around the elephant:

what goals are being worked toward? que bono?

crimes go un punished- crime only benefits a few not society..we have a problem of criminal agents working an agenda that is rarely openly discussed.

no system works for the good of the people, when sociopaths have control for any lenght of time.

justice is not served is the cannot operate when gov is not transparent.

the CFR and the elite who run things are insane thugs, and we act like we live in a rational world.

throw your economic theory away: and look at the real issue: criminal control , we are living in a feudal system without it's benefits such as they were for the serfs.



Sun, 10/07/2012 - 09:53 | 2864522 Sean7k
Sean7k's picture

Purchasing power in NEVER non-existant. Please show any support for your contention- it doesn't exist. People may live at different levels or standards of living, which are a reflection of their ability to produce goods and services that other people want (the market). 

I have never once advocated a "build it and they will come" position. Obviously, any serious deiscussion of economics is over your head, so I will try to make it simple: production of goods and services are based on potential for profit. Profit is the driver that encourages people with capital (or access to capital) to invest in the land, machinery and LABOR necessary to create a product that will yield said profit.

To the extent entrepreneurs are allowed to price inputs at a cost that insures profit, products will be made. Land will be paid rents. Machinery will be purchased (creating more jobs) and labor will receive wages. 

You don't put the cart before the horse. Please tell the exporting economies, ones that produce goods, that their standard of living cannot be raised by working. I can guarantee you, that an economy that pays its' people not to work will die a slow death from debt and inflation, but not until the last dollar of wealth has been transferred. 

We don't have to produce more goods, we have to live within the benefits of our production. If that means a lesser standard of living, then accept it or go somewhere you can improve it. 

Sat, 10/06/2012 - 08:30 | 2862459 Cloud9.5
Cloud9.5's picture

Got oil?

Sat, 10/06/2012 - 00:11 | 2862161 suteibu
suteibu's picture

Indeed.  The assumption that demand can be created simply by production has caused more than a few businesses to fail.  The problem Keynesians have is that they don't know how to generate demand, to get the micro-economy to go against their instincts for survival and spend above their basic needs when there is no confidence in the future. 

Making a billion iPhone 5s will likely result only in deflating the price of the phones, not necessarily creating a demand for all of them at current prices.  The value of management is being able to determine the proper production level to maintain the price and profit margin.  Economists and government hacks seem to lack the management ability to understand this.  Which is why the government should have no control over the economy.

Sat, 10/06/2012 - 06:52 | 2862400 Kickaha
Kickaha's picture


The value of management is to offer the product at the maximum number of retail prices higher than the incremental cost of production.  This requires many marketing strategies, most  of which make it difficult for purchasers to shop for the best price.  Rich people who really, really want the product will buy it when it hits the market at a premium price.  People with less discretionary income will wait for the price to come down, wait for a sale, a rebate, or use a coupon, but sound managers will aggressively pursue these less profitable sales and squeeze the last consumer dollar out of every potential customer as long as they can garner for themselves even a tiny profit per individual transaction.

Eventually, every consumer who wants the product at a price higher than the cost of production and distribution will have one, and sales will slow to a trickle.

That's when sound management will announce the new improved version, and the cycle begins anew.

Maintaining price and profit margin is a goal that will only result in the destruction of the business.  While it might hold some truth in a static world, in a dynamic system it represents nothing but the road to ruin.

Sat, 10/06/2012 - 00:18 | 2862167 Goatboy
Goatboy's picture

I would really like to hear an example of author's free will manifesting without causality. What makes him or any of us different in that respect from monkey? Sure people have more options (thanks to our more complex brains and its results) but that has nothing to do with ability to choose those options consciously. Free will is an illusion! I dare anyone to undermine that statement.

Next, lack of aggregate demand means that majority of people do not have money to buy stuff. They do not have money because their incomes have dwindled or they are unemployed (for slaves (those without economic opportunity) we have fake axiom: job=income). Then we come to a structural problem of technological unemployment which is cheerfully ignored and thrown under the rug, left and right. Unless we pretend heavily (as we did before but less) there will not be more economically meaningful income opportunities through employment; there will be less. I see Miser and venerable Krugman as two sides of the same coin. Does anyone notice that ~6% of US population is employed in production of basic physical goods (including food) for domestic consumption and export? Why is no one talking about this reality? Why they all want to go back to their own versions of past which is dead and gone?

Sat, 10/06/2012 - 07:16 | 2862414 overmedicatedun...
overmedicatedundersexed's picture

if you are medicated, suggestion is effective, in SE asia, when grandpa and grandma got too old to work the opium pipe was provided..they did not eat much, nor complain, diarreha was minimal. to me looking at a peasants life ,in a war zone, it was a good america psychoactives are in a bull market, along with sports on tv. or other MSM provided content (internet anyone?)..the down side to our economy is that medicated people consume much less (drugs excluded)..demand goes down..waking up from the dream state is a big shock and to be avoided at all cost.

reptiles use poison to sedate the prey, then control/consume it. that is why I call our elite reptiles.

you are what you eat.

Sat, 10/06/2012 - 00:42 | 2862196 Stud Duck
Stud Duck's picture

Man, dropped in, read comments, makes me want to go back to the garage for another sesson with the peace pipe!

Sat, 10/06/2012 - 01:32 | 2862245 AynRandFan
AynRandFan's picture

Let me see if I got it straight.

We have millions of unsold homes on the market because of lack of supply.

Makes no sense.  If supply creates demand, there ought to be plenty of demand for unsold homes, right?  We had demand, demand fell, and we ended up with an excess of supply.  Sure looks like to me that a lack of demand created the recession.

Sat, 10/06/2012 - 03:35 | 2862300 RichardP
RichardP's picture

Please consider that that supply has created its own demand.  The banks just don't want to accept the price the demanders are willing to pay.

I haven't thought this through, so I could be wrong - but it seems to me that the only reason the banks can afford to ignore the prices being offered for this unsold supply is because the banks are being subsidized by the government.  Take away that subsidy/protection and I'm guessing that demand and supply would work something out.

Sat, 10/06/2012 - 07:09 | 2862408 Kickaha
Kickaha's picture

You are certainly on the right track.

But even if the mega-banks were forced into bankruptcy, their enormous inventory of foreclosed homes would be sold in huge lots to other mega-rich entities that would still think it best for their own self-interest and overall long-term profits to slowly feed the homes into the market so as not to cause a crash in prices.  To some degree, as long as the entity in charge of the supply stream can afford some storage costs, they can and will manipulate supply to their own advantage.  Just because something exists, that does not mean anyone has placed it on the market where its pricing would be subjected to the vagaries of supply and demand.

Sat, 10/06/2012 - 09:41 | 2862511 cooperbry
cooperbry's picture

I would only add that this artificial supply storage that you've described cannot continue indefinitely.  That is, all of these houses carry with them expenses.  Property tax being the biggest and the expense will ultimately take it's toll even on the richest.  So, ultimately, the market will claim it's victory.

I buy and rent houses part time and I have stopped buying houses because prices cannot be discovered.  Put simply, houses are too expensive given the economic conditions IMO.

This also goes back to the point of this article.  Uncertainty is the likely culprit for businesses not investing.  Who is responsible for this uncertainty?  Right now it's government policy.  Nobody knows what rules and taxes will be foisted upon them.  The two keystone legislative successes that Obama had this term are still having the regulations prepared (Dodd-Frank and Obamacare).  That's two years of writing new rules and directives and forms and penalties and government bullshit.  Not to mention a disfunctional congress with major tax laws expiring this year.

Sat, 10/06/2012 - 11:29 | 2862732 Sean7k
Sean7k's picture

No, we have too many unsold homes because the price asked is too high. All supply will clear at the proper price. If banks were not being supported with FED funding and MBS buybacks, prices would have fallen to levels where all supply would have cleared. Owners and investors would have lost money, the market would have cleared and new homes would be built at a new price point. More people would be able to afford a home at this price and as supply failed to meet demand, prices would have gone up. 

There is more to supply and demand than inventory. Therre are the effects of intervention. 

Sat, 10/06/2012 - 01:33 | 2862249 Dingusdongus
Dingusdongus's picture

My factory has accidentally produced 4 million shoes ( left foot only) moon boot style. I'm less worried after reading this article though. Demand will follow supply, won't it?

Sat, 10/06/2012 - 07:26 | 2862420 homme
homme's picture

If  you can get that boot in a rap video Dawg, it's a shoe in.

Sat, 10/06/2012 - 01:37 | 2862252 Tic tock
Tic tock's picture

Production has hardly been the issue during this crisis - Demand has been the concern, and that because of excessive debt. ...what was the point of this article?

Sat, 10/06/2012 - 01:57 | 2862265 Yen Cross
Yen Cross's picture

 lost in translation?  (tic-/tock-0)

Sat, 10/06/2012 - 02:26 | 2862281 gwiss
gwiss's picture

Damn there's a lot of hacks on ZH tonight.  An entire article and the erudite response is "nonsesense", Ned Zeppelin?  That's it?  No attempt to point out the flaws in argument, no attempt to make a better one?  What, you just get a stiffy for saying SOMETHING and posting it?  No matter what it is?  Stick to texting, that's more your style.  Lots of back and forth saying nothing, just grunts to hear yourself grunt.  Just because you are typing words doesn't mean you are communicating.  Quit cluttering up the board.


The article is fine.  Good exposition of a few select parts of ABCT.  Why anyone listens to Krugman is beyond me.  Keynes actually has some interesting things to say, and in fact articulates some aspects of the economy that are useful descriptions if you are willing to look at things backwards, but because he never had to face the real business world and never had to provide for himself, the economy remained for him a disconnected abstract which existed purely in theory, which is why he can look at the flip side of things and not realize that he is focusing on effects, not causes.  Krugman bastardizes his writings and only portrays the spending side of Keynes, never the savings side.  But then again, Krugman knows which side his bread is buttered on, and he shills away with alacrity.


Both Keynes and Krugman see the economy as a perpetual motion machine, a wondrous contraption which when spun up manages to spit out more energy than is put into it.  And, they hit the nail right on the head when they point out that the drop in the business cycle is in large part due to decreased demand.  But, they stop here, as if they have actually discovered something, which they haven't, for they don't stop to ask why people have less demand, which is in fact the only important question.  They chalk it up to the lemming vagaries of animal spirits, which accurately describes their impression of the capacities of their fellow humans who make up the marketplace we call the economy -- lemmings who need to be told what to do.  They certainly don't believe them to be fellow sovereign individuals who are also making the best choices they can to ensure their own continued access to resources and future safety and happiness.  Nope.  Just simply automatons, lemmings, animals who are prone to panicky and irrational stampedes and therefore must be carefully corraled and cared for by those who are capable of seeing the big picture much better and who have the best interest of the lemmings at heart.


Of course, since Keynesians are pathologically incapable of seeing more than one margin at once, the idea that somehow they see the big picture better is a laughable proposition.  And, as Camus said, "The evil that is in the world almost always comes of ignorance, and good intentions may do as much harm as malevolence if they lack understanding."

Sat, 10/06/2012 - 10:05 | 2862543 TrustWho
TrustWho's picture

Demand falls because disposable income fell. The American peasants are being outsourced by robots, computers, and cheap foreign labor. America, since 1980, has been using the world's reserve currency to consume beyond its means to fuel demand and pull world productive capacity to unsupportable heights. This government contrived goosing of the global economy has stalled and geese are coming home to roost.

Daddy Bernanke, Obama, Romney, Draghi, Merkle, EU, Putin, Chinese government, Chinese peasant masses, India peasant masses, Indonesia miracle economy, all the world's wise men, God, Yaweh, Allah, Buddha, Confucious, Hindu God (easier spelling), Arab strongman (few that are left) can put humpty dumpty back together again. The phoenix must rise from the ashes.

Sat, 10/06/2012 - 11:11 | 2862694 gwiss
gwiss's picture

Yes, although that leaves the question of why disposable income fell, doesn't it?  And, remember that my demand falls as I watch that other guy lose his job and his house, even if my income has not fallen an ounce.  Humans are not stupid, we plan ahead, and that is the etiology of the liquidity trap, which certainly exists.  But, central planners do not like us to plan ahead and try to react to events in an intelligent fashion, because when we do so we create a system which is in a way self aware and thus tends to not only counteract their intervention but also does so in novel and unexpected ways, because we don't actually want to do what they want us to do.  What they want us to do is to run our individual finances right at the redline with no buffer at all for unexpected events, and thus to spend every ounce of income we have as well as every ounce of income we may earn in the future, and they want us to spend it all right now, today.  Spending this all now creates a big boom, which is a boon to politicians whose future gaze is truncated at 4 years, and by the time we reach the Minsky moment and the credit cycle must contract, they have already cashed out and are long gone.


I would disagree that we have only been debauching the reserve currency since 1980.  We have been doing so since the end of WW II, and this debauchery plus being the only advanced industrial power left standing was actually what got us out of the deleveraging cycle represented by the last Great Depression.  To some extent this debauchery was mandated by international demand for reserve currency dollars (the Triffin dilemma), which was why we were able to run a current account deficit for years until it finally caught up with us in 1971, which is when the US formally declared itself insolvent without actually saying the words by defaulting on our promises to redeem international dollars for gold. The debauchery has only accelerated since then.  We are facing a crack up boom of biblical proportions.

Sat, 10/06/2012 - 18:51 | 2863601 TrustWho
TrustWho's picture

I picked 1980, because Reagan took deficit spending to new levels and the debt prior to Reagan was less than $1 trillion. The large deficit allowed Japan to pick up their export pace by recirculating their excess greenbacks to America by purchasing US Bonds; thus keeping yen depressed versus Japan accumalating greenbacks. China followed the Japan model in 1990 and took it (ok Walmart) to a new level when China joined WTO.

No doubt, Nixon's decision in 1973 to terminate the gold backed pledge was huge,especially foreign countries response to their new currency risk.  Many parties (countries) have benefitted from this promise with the devil, but the devil is now demanding his due.

I believe we agree on these issues much more than we disagree.

Sat, 10/06/2012 - 02:37 | 2862287 suteibu
suteibu's picture

God Entity: Bender, being God isn't easy. If you do too much, people get dependent on you. And if you do nothing, they lose hope. You have to use a light touch, like a safecracker or a pickpocket.
Bender: Or a guy who burns down a bar for the insurance money.
God Entity: Yes, if you make it look like an electrical thing. When you do things right, people won't be sure you've done anything at all.

Goes for the quasi-science call economics and lame-brained politicians, too.

Sat, 10/06/2012 - 03:02 | 2862297 cranky-old-geezer
cranky-old-geezer's picture



The '30s depression and the current depression have similar causes.

'30s depression was triggered by sudden withdrawal of credit in 1929 causing the stock market to crash. 

It was the beginning of the "dump" phase of Fed's first major economic "pump & dump" where the economy was "pumped up" in the '20s by easy credit allowing people to get over their heads in debt, then "dumped" in the '30s by withdrawing credit (calling in loans, tightening credit standards, refusing to make new loans). 

This depression had the same trigger, sudden withdrawal of credit in '08 causing the stock market to crash, just like '29.

It was the beginning of the "dump" phase of Fed's current "pump & dump", where the economy was pumped up in the last decade by easy credit allowing people to get over their heads in debt, then dumped in '08 by suddenly tightening lending standards, which has continued to the present day.

There is one major difference between the '30s depression and the current depression. 

In the '30s there was no firing up the printing presses and printing trillions of dollars for Wall Street bailouts. Back then there were no "too big to fail" Wall Street firms.  Several Wall Street firms bankrupted and went out of business.

And the US dollar didn't lose value during that time.

In the current depression Bernanke fired up the printing presses, printing trillions of dollars for all kinds of Wall Street bailouts, preventing any major Wall Street firm from going bankrupt.

But the US dollar has lost much value in the process, somewhere around 50% now.

That's 50% silently stolen from every American and anyone else getting paychecks in dollars, on top of taxes.

That stolen 50% is the reason this depression will be deeper and last longer than the '30s depression.  When people are looted blind, they don't have any money left to spend on things, discretionary consumption drops way off, and the economy slows to a crawl, exactly what we've seen the last 4 yrs.

Since '08 the Fed has stolen trillions of dollars of wealth from the American people, giving it to Wall Street and the government in the form of bailouts and buying treasury debt.

Wall Street and the government are the only people with boatloads of money to spend these days.  Everybody else has been looted and are still being looted.

If you haven't gotten a pay raise since '08, you're now working for HALF the pay you got in '08, thanks to 50% debasement of the US dollar since '08.

No, this depression isn't ending anytime soon.  As Bernanke continues running the presses in open-ended QE3, the US dollar will lose more value, stealing more from every American, reducing discretionary spending even more, making this depression worse as time goes along.

Industry sectors producing "big ticket" items like homes, cars, appliances, etc, are way down since '08, because people no longer have money for those things. And it's gonna get worse.

Industry sectors producing big ticket "leisure" items like boats, RVs, etc are really hurting.  Sales of those type things has dropped off a cliff, and it's gonna get worse.

Krugman and similar "politically correct" economists won't dare mention how the Fed is rapidly debasing the US dollar these days, running the presses wide open transferring trillions of dollars of wealth from the American people to Wall Street and the government.

They won't dare mention how the Fed is LOOTING the American people, which will make this depression deeper and longer than any previous one.

Sat, 10/06/2012 - 03:33 | 2862317 formadesika3
formadesika3's picture

Supply doesn't create demand; supply awakens demand. If demand wants to sleep, he rolls over snorts and says "fuck off bitch!

Sat, 10/06/2012 - 03:43 | 2862323 RichardP
RichardP's picture

Supply maybe doesn't always create demand, but it can.  Consider:  highways were supplied; sex in the back seat was demanded.  Airplanes were supplied; mile-high encounters were demanded.  The internet was supplied; sexting (or at least encounters with underaged girls) was demanded.  And so on.

Sat, 10/06/2012 - 04:21 | 2862333 Kina
Kina's picture

Need is the mother of demand. Unless your pockets are full of surplus cash or cheap loans.

Sat, 10/06/2012 - 04:49 | 2862344 Zero Govt
Zero Govt's picture

Krugman will point the finger at anyone and anything other than the 2 primary candidates of this depression: bankers and politicians

bankers by indebting everything that moves, politicians that tax/suck everything that moves

but Krugman is a parasite too living off productive peoples backs, that's why you'll always find academics in bed with bankers and politicians flying the red flag of socialism ...bed fellows down the ages

Sat, 10/06/2012 - 06:04 | 2862375 lolmao500
lolmao500's picture

Here we go again folks!

Turkey has fired into Syria for a fourth day after a Syrian mortar landed near a Turkish village, reports say.

Turkish troops responded immediately after the mortar landed near the village of Guvecci in Hatay province, according to Turkey's Anadolu Agency. BBC News

Sat, 10/06/2012 - 06:37 | 2862393 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

Probably the CIA manning the mortars on the Syrian side. They'd love to pull the Turks in so their ally the US can really get going.

Sat, 10/06/2012 - 07:29 | 2862395 falak pema
falak pema's picture

When the Turcs took Constantinople they found the town elders in conclave discussing the sex of angels and how many could sit on a pin head.

Here we are in pseudo-science discussion once again; based on a doctrine that was never practiced in the USA since the Great depression, having been superceded by Keynes and then by Friedman; to which it felt it was a distant cousin...more than to Keynes. 

But our current Oligarchy reality is Ottoman! The new rulers of financial world have raped the economy in total financial hubris, like new empire builders. They have destroyed the foundations of the democratic City and its capitalist mantra in one fell swoop; and its not over; if anything it gets worse every day drowning in derivatives and sovereign debt soup; while the Oligarchs rake in the money.

Must we indulge our minds in sterile debate of what the "real" economic solution is while the rape of economy continues or should we try and stop this incommensurable crime of white collar Oligarchs that is visibly condoned by the regulators and the crony political class; either clue-less and impotent or worse and unqualifiable?

I'd hate to finish like those Constantinople Greeks; not that the Ottomans were greedy rapists like this current ilk, without any sense of values, except greed is good. They at least were empire builders of first calibre.


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