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What Economists Still Don’t Get About the 2008 Crisis

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Re: What Economists Still Don’t Get About the 2008 Crisis

#41

Post by criddell »

dfee wrote: post #21
Finnucane wrote: post #17

I remember distinctly the moment I realized the housing bubble was going to end badly. I was wondering in the early 00's how house prices, more or less everywhere, could continue rising past what most people could actually afford to pay. I hadn't really being paying much attention to the financial world, but sometime in 2004 or so, I saw an ad on tv for a mortgage deal that seemed to make no sense. I looked it up and…

I wonder that same thing today. To me, it feels like the bubble burst in 2007. But, that we're still here today, seems to indicate it didn't really pop, but instead it's a side-effect of another system. Recently in Southern California, listening to the local NPR affiliate, they were covering a candidate race where one candidate accused the other of not hearing his constituents: ~"House prices have fallen, and that's…

> "House prices have fallen, and that's bad for our voters. I hear them, and he doesn't."

There are a few things that are absolutely essential to life: housing, clothing, food are among the most basic. If the price of clothing or food increased at the same rate as houusing, people would be rioting.

Re: What Economists Still Don’t Get About the 2008 Crisis

#42

Post by zjacobi »

I've been reading through Anna Schwartz's papers on monetary economics and I think they're the real story on what economists still don't get about the 2008 crisis.

If you read through the old monetarist research, you see that change in money supply has a better correlation with recession than basically anything else. This holds true even when you control for the possibility of reverse causation, when you make sure that you're actually dealing with a leading indicator of this cycle rather than a lagging indicator of the next cycle, etc, etc.

Keynesians think that the only measure of how tight or loose monetary policy is comes from interest rates, so they can't wrap their heads around how 1% interest rates can still be tight money. The real story of the economics crisis is that the banking crisis deposit:reserve ratio through the floor. This means that a bunch of money disappeared as banks preferred liquidity. The central bank didn't do enough to replace this money, so people couldn't hold the money balances they wanted and stopped spending. The Fed said they were doing all they could to spur inflation, but that's obviously false. The central bank can always inflate the currency and the fact that they weren't hitting their inflation targets shows that they had tight money.

Keynesians ultimately don't think money is important enough to model and until they change that, they're going to be confused.

Re: What Economists Still Don’t Get About the 2008 Crisis

#43

Post by nafey »

paulpauper wrote: post #22

the post-2009 recovery is now the longest ever ,exceeding the 90's even, and I think it will last much longer given how low interest rates still are and the absence of any problems. I think this calls into doubt business cycles and other concepts economists take for granted. The steady-state economy (similar to that of Australia) where there are few, if any, recessions may be the applicable model. People get too hung…

"its different this time"

Re: What Economists Still Don’t Get About the 2008 Crisis

#44

Post by throwawaymath »

pleasecalllater wrote: post #28

I think they just don't understand almost anything. I have a real problem with the economists. Take four professors of economics into a room and ask a simple question. A question like "is this a good thing for X to implement Y", like "is this good for the Great Britain to exit the EU" or "is this a good thing to increase taxes for the rich". Just ask - you will get at least 5 different answers to every question. Thos…

> Take four professors of economics into a room and ask a simple question. A question like "is this a good thing for X to implement Y", like "is this good for the Great Britain to exit the EU" or "is this a good thing to increase taxes for the rich".

Just ask - you will get at least 5 different answers to every question. Those answers will usually exclude each other.

Have you actually done this? Survey results from people who have done this (such as [1]) suggest that economists frequently do come to a majority consensus.

Furthermore, if you ask a group of software engineers how to design or implement complex software. you'll find many conflicting suggestions about which languages, libraries, programming models, databases, etc to use. Does that mean none of them know what they're doing, or does it suggest that complex systems don't have simple, straightforward solutions?

I'd like to gently suggest that you might not know as much about economists and what they know as you think you do.

_______________

1. https://people.uwec.edu/jamelsem/fte/fte/efl/teacher_stuff/a...

Re: What Economists Still Don’t Get About the 2008 Crisis

#45

Post by HillaryBriss »

dfee wrote: post #21
Finnucane wrote: post #17

I remember distinctly the moment I realized the housing bubble was going to end badly. I was wondering in the early 00's how house prices, more or less everywhere, could continue rising past what most people could actually afford to pay. I hadn't really being paying much attention to the financial world, but sometime in 2004 or so, I saw an ad on tv for a mortgage deal that seemed to make no sense. I looked it up and…

I wonder that same thing today. To me, it feels like the bubble burst in 2007. But, that we're still here today, seems to indicate it didn't really pop, but instead it's a side-effect of another system. Recently in Southern California, listening to the local NPR affiliate, they were covering a candidate race where one candidate accused the other of not hearing his constituents: ~"House prices have fallen, and that's…

> "House prices have fallen ..."

huh? where in Southern California? over what time period?

Re: What Economists Still Don’t Get About the 2008 Crisis

#47

Post by mrob »

sonnyblarney wrote: post #15
hayekfan wrote: post #8

Keynesian Economics are the economics of political convenience. If something goes wrong, we can juice the economy by engaging in extaordinary activities which generate the illusion of wealth resulting in increased spending. These ideas were very popular until Great Britain encountered stagflation - conditions under which both economic recession and inflation coincided and traditional Keynesian levers and predictions…

" If something goes wrong, we can juice the economy by engaging in extaordinary activities which generate the illusion of wealth resulting in increased spending." This is not what Keynesian economics is. It's perfectly rational for the government to step up their investment in things like bridges and roads as the private sector weakens for a bit. This restores confidence in markets, and keeps money flowing through th…

>in some extraordinary cases it would actually make sense to dig holes and fill them

How is paying people to dig and fill holes better than just giving them money without requiring the useless activity? Even if "dignity of work" is a real thing, there's no way doing useless work could provide it.

Re: What Economists Still Don’t Get About the 2008 Crisis

#48

Post by smacktoward »

ksec wrote: post #9

My own theory after digging sometime into Economics is that no one seems to have a clear idea what on earth we are actually doing. We all seems to have our own theory, and they all seems to answer half of the question. And in practice none of them currently models the world we have now. And it will take a long time before any of those theory are proved to be correct this time around. May be we can finally say Keynesi…

> My own theory after digging sometime into Economics is that no one seems to have a clear idea what on earth we are actually doing.

I still remember the moment I realized this. It was on the first day of my first class in Economics 101, when the professor began by telling us that economics was a science built upon the assumption that people are rational actors. I thought about all the people I'd ever known, and all the deeply irrational things I'd seen them do, and got the sinking feeling that I had committed myself to studying a field of thought that had chosen the wrong rock upon which to build its church.

Re: What Economists Still Don’t Get About the 2008 Crisis

#49

Post by TheCowboy »

throwawaymath wrote: post #44
pleasecalllater wrote: post #28

I think they just don't understand almost anything. I have a real problem with the economists. Take four professors of economics into a room and ask a simple question. A question like "is this a good thing for X to implement Y", like "is this good for the Great Britain to exit the EU" or "is this a good thing to increase taxes for the rich". Just ask - you will get at least 5 different answers to every question. Thos…

> Take four professors of economics into a room and ask a simple question. A question like "is this a good thing for X to implement Y", like "is this good for the Great Britain to exit the EU" or "is this a good thing to increase taxes for the rich". Just ask - you will get at least 5 different answers to every question. Those answers will usually exclude each other. Have you actually done this? Survey results from p…

I like your point about software engineers. Economics, like software engineering, is a dynamic field where knowledge advances at an irregular pace.

IGM Economics Experts Panel is interesting to read example of an expert survey. Economists also self-report their confidence and how strongly they agree with a statement.

http://www.igmchicago.org/surveys/trade-disruptions

Re: What Economists Still Don’t Get About the 2008 Crisis

#50

Post by johngalt »

pleasecalllater wrote: post #28

I think they just don't understand almost anything. I have a real problem with the economists. Take four professors of economics into a room and ask a simple question. A question like "is this a good thing for X to implement Y", like "is this good for the Great Britain to exit the EU" or "is this a good thing to increase taxes for the rich". Just ask - you will get at least 5 different answers to every question. Thos…

There certainly are consistent answers in economics. But they tend to read more like safety rules than active policy measures. E.G. Regulatory price fixing below market rates will create shortages. The runaway printing of money will simply cause the value of money to fall relative to commodities (inflation).

Questions such as "What is leaving the EU going to cost the UK economy?" Or "When will we have the next recession and what will cause it?" Are much more nuanced questions. Mostly because markets are predictive, and any new information is immediately incorporated into those predictions. It is like asking "what sort of software failure is going to cause the next major computer breach?" If we knew the answer, we would fix it and our prediction would be immediately invalidated. Computer experts were predicting the rise of cryptolocker variants when Heartbleed & Shellshock happened. Then you had everyone auditing all their OSS stacks, when out of left field we get big news from Intel on Meltdown/Spectre.

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