Classical Economics versus Keynesian Economics. Two conflicting Economic systems  both with pros and cons. Classical Economic theory of economist Adam Smith in the late 18th century.  Keynesian economics is the alternative to Classical Economics which was constructed in the 20th century preceding the Great Depression and used by economists and governments around the world to formulate government policies to regulate the economy and improve society. There are flaws in both economic theories. 

Keynesian economics strongly supports government intervention when needed and encourages increased government spending and building of infrastructure when the private sector is struggling. When the economy improves then less spending is needed. Keynesian economics turned things around and brought US economy back from the dead following the Great Depression. Regulations and acts were introduced following the Great Depression and rebuilt the US economy. The US economy peaked in the 1920's due to market deregulations and over valuation of assets which collapsed and corrected itself- establishment of a new market equilibrium through the use of Smith's Invisible Hand.

Shadow banking system taking over the conventional banking system. Deregulation brought about a lack of financial controls and regulations. There was no international gold standard to set currency rates: currency exchange rates could be manipulated. Shadow banking system played a major role in the GFC and the economic chaos in Europe and the US. Countries in South America and Asia with limited exposure to the Shadow banking system felt a smaller financial impact. The regulations and controls implemented into the financial system were gradually removed over time which lead to the rise of the shadow market, fiat capital and the Wall Street Swindlers bankrupted America and the world through their greed and corruption.

http://en.wikipedia.org/wiki/Shadow_banking_system

Nobel laureate Paul Krugman described the run on the shadow banking system as the "core of what happened" to cause the crisis. "As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realized that they were re-creating the kind of financial vulnerability that made the Great Depression possible--and they should have responded by extending regulations and the financial safety net to cover these new institutions.

Influential figures should have proclaimed a simple rule: anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank." He referred to this lack of controls as "malign neglect."

"...One Ring to rule them all, One Ring to find them,
One Ring to bring them all and in the darkness bind them..." – J.R.R. Tolki

???

You don't understand the fundamental difference and philosophy behind Keyensian and Classical Economics...

Keyensian believes that in the short run, inflationary policies can create real changes in production, and that the economy can sometimes produce less than what it optimally can.

Classical economist believe that we are always producing at the optimum/potential level, and that any inflationary policy only leads to inflation, and no change changes in output.

While it's debateable if Keyens really believe that we can simply inflate the economy forever, and increase output forever like some neo-Classicalist like to state, this is one way to characterize neo-Classical and neo-Keynesian

Neo-Classicals emphasize the expectations people have towards the economy. If there's inflation, people are going to demand higher wages. Then production has to reduce. Neo-Classicalists believe this happens immedietly, resulting in the classical model. On a side note, Friedman will state that governments  are inefficient at carrying out discrentionary policies, inflating an economy even though the recession ended, etc.

Neo-Keynesian accept that over time, the AS curve will shift in reaction to an AD shift. That is, if you inflate the economy, eventually production will return to normal levels. You cannot use government spending to inflate the economy beyond its normal capabilities. However, it still believes that in the short run, you can definetly make real changes to the economy through fiscal and monetary policies.

So, you're against extending unemployment benefits, given the extraordinary conditions we're in now?

@Sqrl: This is nothing even remotely new for Krugman. Get a load of this one from three days after 9/11.

After pushing the broken window fallacy and talking at length about how he hopes the attacks help Democrats push forward his agenda, he ends the column with:

I didn't want to mention this, but now is the time to draw the line. This tragedy will only be magnified if it is exploited for political gain. Politicians who wrap themselves in the flag while relentlessly pursuing their usual partisan agenda are not true patriots, and history will not forgive them.

The man is truly beyond parody, and has been for a good decade now.

whats wrong with that statement, sounds very accurate to me, the USA nationalists used 9/11 as propoganda for there vile imperialist agenda.

Don't respond to my posts ever again, please. You are possibly the least intelligent person I've ever come across on the internet. Your every post makes me want to claw my fucking eyes out.

Personally? Yes I am against extending benefits to 126 weeks.  But that is not what I was saying here.

What I have said is that this article opens my eyes to how much of a political hack Krugman is (or at least can be), and that I had prior to this respected him as someone I disagree with but whom was reasonable and worth considering. That unfortunately is no longer the case.

Why has this article changed my mind?

1) Krugamn happily explains to the reader that normally jobless benefits terminate after 26 weeks and that right now the average unemployment lasts 35 weeks. What Krugman doesn't say is that the current duration of benefits is already extended past the normal 26 weeks to 99 weeks in the states with >8.5% unemployment (and 93 weeks or more everywhere else). In short we are already well beyond the average duration of benefits and nearly 4 times the 26 weeks he implies to his readers the current duration is. This isn't the kind of missing context that he simply forgot to give, the whole article is crafted to attack the right and republicans specifically for blocking the extension and this impression that they need to be extended is central to that idea, it is in fact the crux of the issue. And since he can't achieve that goal nearly as effectively if people know that jobless benefits already are lasting for just shy of 2 years he misrepresents the truth.

http://blogs.wsj.com/economics/2009/11/06/unemployment-extension-adds-up-to-99-weeks-of-benefits/

2)  Krugman says "By the heartless, I mean Republicans who have made the cynical calculation that blocking anything President Obama tries to do including, or perhaps especially, anything that might alleviate the nation’s economic pain improves their chances in the midterm elections. ", ignoring the fact that Republicans have said, and are still saying that they are willing to support and vote in favor of extending benefits if we will simply find the money in the budget to cover the costs associated with doing so.  And in fact a GoP bill was put forth to use unallocated funds from the Stimulus and has received zero backing from Dem leadership. Considering how dire Krugman and others have made this issue out to be, and considering Obama supported and signed the Pay-Go provision..you would think this would be a reasonable request, no?  Well apparently not, because Krugman neglects to mention it (presumably because Krugman personally disagrees with Pay-Go).

   
3) Next, Krugman rails against Sharron Angle (ie Krugman writes "By the clueless I mean people like Sharron Angle") for making the case that unemployment benefits are seen as preferable to getting a job for some people. But in doing so he ignores that this view is hardly the exclusive domain of the right and instead focuses his ire only on members of the GoP.  Just look at Obama NEC director Larry Summers who has made the exact same arguments Krugman attacks Angle for:

    "To fully understand unemployment, we must consider the causes of recorded long-term unemployment. Empirical evidence shows that two causes are welfare payments and unemployment insurance.

    [. . .] by providing an incentive, and the means, not to work. Each unemployed person has a "reservation wage" -- the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.

    [. . .] Unemployment insurance also extends the time a person stays off the job.

    . . . Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy.

    . . . There is no question that some long-term unemployment is caused by government intervention and unions that interfere with the supply of labor."

http://www.econlib.org/library/Enc/Unemployment.html

4) At the end of an article spent laying into the GoP he finally acknowledges that there are Democrats who take issue with these benefits. But he doesn't enumerate their reasons and attack and/or berate them as he does with Angle and the GoP in general. In fact they aren't every categorized as part of the "coalition of the heartless, the clueless and the confused", they are left to a passing mention at the end of the article and spared the insults leveled at people who are apparently much more outrageous because they have the gall to have those views while also having an (R) next to their names.  Based on the structure of the article, this is presumably because Krugman thinks by ridiculing the GoP he can instill in those Dems who side with the GoP some desire to abandon their positions in order to continue to avoid those insults in the future.

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In total it's a transparently partisan attack piece that not only neglects to inform the reader of key information that could change their view on the bill currently being discussed, but actually weaves the information it does give the reader in a way that leads them into believing benefits are currently only 26 weeks so that he can juxtapose this number with a 35 week unemployment average to paint the grisly picture he wants them to see so he can jump up and down shouting about evil republicans who want to hurt the poor and kill kittens.

1. You missed the "normally" part.

Do you actually think saying "normally" makes the reality of the situation clear to even 10% of the people who read the article? If you think this isn't misleading I don't know what to say to you..it's kinda painfully obvious once you know the benefits go to 99 weeks and then read how he tap dances around that fact.  Do you honestly think Krugman forgot that the current benefits go to 99 weeks?  Or do you think he just found that fact somehow irrelevant?  I mean really, why would he not include that fact if not because it was inconveniant to his argument?

Sorry but it comes off to me like you are just making excuses here and you're doing so by pointing to the exact carefully crafted language he used cover for himself.  Plain and simple, smart people like Krugman don't leave out critical details on accident, especially when they're giving you every piece of information above and below the inconveniant piece. I don't know that I've seen a more clear case of lying by omission in the last few years than this one.

2. Krugman obviously thinks the Republicans are heartless, because he thinks that compromise is crap. It's a strategic move to eat up the stimulus money. Krugman thinks we need the stimulus PLUS unemployment benefits.

If this were the case then Krugman could simply just say that couldn't he?  But no he avoids pointing it out because it undermines the image of obstructionists he is trying to reinforce.

People with honest disagreements don't make their point by refusing to acknowledge what it is they disagree with.  That you even think this is the case while Krugman avoids dealing with it is mystifying to me.  How is it obvious that Krugman thinks the comrpomise is crap when Krugman doesn't even acknowledge that there was an offer to compromise let alone what the offer is?

3&4. At the end of the article he also mentions that there are Centrist democrats that are pounding the austerity book...

wait wait wait

I know...I said that in point 4...I'm not sure how repeating it addresses it =P  My point was that he lambasts the GoP for doing it and he mentions the Dems doing it in a "But these are the smart guys so we can change their mind" sort of light.  Sure it is his opinion, but it is called being partisan and I haven't seen it this blatantly from Krugman in the past.  Thus it is my opinion that this is Krugman being a douchebag like all the other political hack douchebags that litter the political landscape. 

It's a fucking OPINION section. If he thinks that the GOP are demons, fine with me.

As long as he also backs up those claims with real, not pseudo, economic theory then I'm cool.

Not sure why you're throwing the "opinion" defense at me.  My major complaint is Krugman playing fast and loose with the facts to advance his opinion...not that he has an opinion or even what that opinion is.

Like I said I have disagreed with but still respected Krugman for a while...so just saying "opinion!" really doesn't cover what I am talking about...like at all.  I don't need people to parrot my views to respect them..I just need them to be honest about their position and acknowledge and account for all of the fact in reaching their views.  After that honest people can disagree while still respecting each other.

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As for unemployment benefits increasing unemployment. Yes, that's true. But that's why I emphasized the EXTRA-ORDINARY part.

It's not like these 10% are the scammers who want to get checks, or people who will become lazy and stop searching. It's simply that THERE ARE NO JOBS, that they can't GET JOBS.

So, knowing there's no way for the 10% to get employment, what do we do?

EDIT: That is, unemployment benefits or not, these people are not going to get jobs, simple as that, end of stories. There's simply none.

You say that you don't want to increase unemployment, but I believe that if we let these people completely fall, the people who are desperately trying to taking stupid ass excel courses and training courses to get any job, they will become long term unemployed (discouraged workers). I mean, if it were absolutely fucking desperately necessary, I will allocate the stimulus to them. But that's such a fucking nut grabbing move, when the stimulus is needed so that we can end the recession quicker, and let the 6% from the 10% get employed again.

Then they can find it somewhere else in the budget.  I think your faith in the stimulus is laughably misguided but that's a whole other discussion really so I won't get into it.  Suffice it to say that the republicans haven't said "we are only ok if you pay for it with stimulus funds" but instead suggested it as one option. If that is objectionable then we can pay for it another way...but considering the dems passed pay-go it is patheticly partisan of Krugman to rail on the GoP for holding Dems to the standard they set for themselves. Wouldn't you agree?  I mean you and Krugman can sit their and say it is a political ploy but then it is easy for the Dems to call their bluff...and really what could you think the political ploy is? Evil GoP Strategist: "Ahah! will make the dems do what they said they would.../cackle damn we're evil!"...I mean is that really what you're envisioning?

Once the economy is normal, once there are actually jobs there to be searched for, I will want to decrease unemployment benefits. I will want to raise taxes and interest rates. I will want to lower spending.

I mean it's so fucking simple.

Everybody thinks that their worldview is simple and obvious.  At the risk of sounding condescending (and I truly and honestly don't mean to be) once you get passed your first major worldview kick you start to see that a lot more clearly.  Some learn it a little faster than others of course =P

Why the fuck, will you want to depress the economy even more, when it is already depressed?

How is not further indebting the US government an act of depressing the economy?  Its plainly and clearly not that at all.  It's not getting involved.  Raising taxes would be an active depression of the economy, not opting to spend more on a program of arguable usefulness that is already extended to nearly 4 times its normal capacity is FAR FAR away from depressing the economy.

It just makes me fucking rip out of my hair when people start singing as if it were a GIVEN FACT "entrepreneurial" spirit will magically lift us out, "business wil 'invest'". Those two don't make sense, if you depress the economy, businsesses aren't going to increase their production capabilities, but probably do the opposite and liquidate.

Actually entrepreneurial spirit will lift us out, but it isn't magic and your view that the people who subscribe to this think it is magic is a straw man argument at best.  It will take a little time and a lot of pain to get to the point where the environment is ripe for it to happen, and most of the pain will be businesses that never should have been allowed to survive previous economic downturns finally meeting their justified end and making waves as they sink. 

But the worst worst worst, is this "we have to endure" or "we have to ride it out". People start talking about the excessive lifestyles we had like some kind of religious nut, and then masochisticly want to hurt themselves. There's no reason to hurt yourself.  Punishing yourself isn't the most logical solution.

I agree, but where we disagree is that building the debt to the levels we have by always using the latest crisis as justification to spend some more is what I consider to be punishing ourselves and being fiscally conservative to begin with is for me the logical solution.  Obviously we disagree on this point, but what I'm saying is don't just assume your view is correct and then state your view....give me an argument of why your view is correct otherwise all you get is a "nuh uh".."uh Huh!" ping pong match. 

http://en.wikipedia.org/wiki/Paradox_of_thrift

http://en.wikipedia.org/wiki/Margaritaville_(South_Park)

Watch that episode, it should be on the website. This is the fucking masochistic attitude that makes no fucking sense.

I'm an avid South Park fan, and have seasons 1-13 on DVD and I loved the margaritaville episode.  But that still doesn't mean I take my politics from a cartoon.