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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

#51

Post by nickik »

So, by their theory what happens if the central bank collapses NGDP by 20% tomorrow? Would that not cause a recession?

I simply don't see the need for a new theory. If you have a monetary contraction its gone cause a huge problem with wages and prices and that has been the most solid empirical result in economic history. It explains tons of stuff that simply could not be explained by this high debt theory.

So lets just look at some basic evidence for that.

As you can see here:

https://marketmonetarist.files.wordpress.com/2014/09/ngdp-ez...

Is is totally clear that in order to go back to the original trend inflation would have to be above 2% for a short time to get back to the level. However the Fed and the ECB were simply not willing to do that. The Fed often repeated that they would do 'everything' but then followed it up with 'but if inflation goes up we stop'

However that policy does not make any sense. The monetary disruption has already happened and then they are massively below trend and are unwilling to go back to the original trend.

This policy however is totally mistaken because it makes macro economic sense to go back to the trend as you want to stabilize long term wages and prices and not force the whole economy to adjust to a new level.

(Btw this is called 'level targeting' and has huge support from many monetary economist)

Now, some New Keynesian agree that this should be the policy, they like the term 'flexible inflation tarting' because they assume perfectly rational central bankers that will figure out the right number but essentially the agree that 'the right number' is going back to trend.

However some of them believe this is not possible because of the 'liquidity trap'. However here is where this recession actually showed that their assumption is simply false. Many countries, like Switzerland have shown that if the central bank is willing boosting NGDP with zero interest rate is no problem. This was actually tough in mainstream monetary macro books before the crisis but somehow this was ignored because 'fiscal stimulus' was the politically favored narrative.

Lets look at one economy that didn't have a recession. Australia is a good example, they never had a drop in NGDP and they didn't have a recession even when their housing 'bubble' and many other things are not that different from many other countries that had a recession.

One more thing:

> other measures are needed. These could include quantitative easing, forward guidance ...

Well, if funny how nobody remembers history. Before the New-Keynesian revolution some of those tools were called 'monetary policy'. This nothing new, but rather the way monetary policy has been practiced for a long time. Central banks that didn't build their entire operational model New Keynesian interest rate theory were perfectly able to act at the Zero Bound.

By the way this is in many way the same problem as in the early 1930s, the theory for this is nothing new. R. G. Hawtrey spend the whole 20s to try to explain people what would happen if there was a nominal contraction and he was exactly 100% on point.

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

#52

Post by cm2187 »

To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation.

The only convincing arguments I have heard so far is that:

1. at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system.

2. inflation happened but it was all concentrated into financial assets, real estate, and salaries for the upper middle class, which expenses (college tuition, luxury flats and houses, restaurants, etc) have seen a double digit inflation (my FT subscription must have doubled in 10 years!). These aren't really measured by CPI indices.

I guess it may also have to do with how the QE was introduced. If it was money printed to pay civil servants it might have had a different effect than introduced in the bond market.

But I don't know if it is reproducible. It feels like we are at the end of the current cycle (it's hard not to be nervous when looking at a 30y chart of the S&P500). QE is pretty much all the way in, rates are low. There isn't going to be much more central banks can do than print even more money. Inflation should show its ugly head sooner or later.

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

#53

Post by jadedhacker »

Ah bloomberg news, understanding that a new economic slowdown is in the cards wants to reassure the public that the economists have learned something. What they've learned is that they are ever more desperate to attempt to coax additional growth out of a slowing machine that increasingly just fails and takes ordinary people with it. Without new markets, the economy will continue to slow and monopolization will continue to increase.

Look to Africa for the empire's new concepts: http://www.tomdispatch.com/blog/175567/tomgram%3A_nick_turse...

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

#54

Post by daniel-cussen »

dnautics wrote: post #24
dalbasal wrote: post #19

It's a pleasure to read an article by a writer who understands of the history economic thought, though I suspect I will disagree with him on a lot of things. Anyway, this is interesting. I'll look up these economists. On the face of it, I think it's interesting how economists are hesitant to consider money real. Money is fictional to most economists. What's real is consumer surplus, utility or some other abstract way…

david graeber's book is great, although i too take a lot of the anti-money tone with a grain of salt. If you're in a marginalized subcommunity, a concrete ledger of debts is far better than an informal ledger of debts, as a position to stand on to defend your ground. You may like "the great wave: price revolutions..." by david hackett fisher for the role of economic conditions on local revolts and global revolution.

To me, the problem with Debt is that while it indicts compound interest as harshly as it deserves, for all its hidden downstream consequences, it does not propose a real alternative to it. He proposes just not paying debts, but this means nobody accumulates capital, even literal seeds.

It is as though he proposed the alternative to sugar be starvation. While those are both equally invalid choices, and are arguably the economic models of capitalism and communism respectively, there is no balance to be struck between the two, and they both lead to death, be it from malnutrition or diabetes. It is only barely better to strike a balance[0].

What we need, really, is bread and fasting, and what this would entail is missing from that book.

[0] Before insulin injections, diabetics, universally having developed the deficiency late in life, were indicated to eat very little, and lived ~5 years at most after diabetes developed, IIRC.

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

#55

Post by InitialLastName »

polskibus wrote: post #36
paulpauper wrote: post #29

Earlier quoted context omitted.

China is not fudging the numbers. otherwise, it would imply that major US companies that do business with China are also fudging their numbers. Trade with china has surged in recent decades.

They could fudge, using subsidies and dumping. For example free overseas shipping for most small items from Ali Express.

THat's not fudging; China has a deal with the USPS where they get to ship to anywhere in the US essentially for free.

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

#56

Post by cyberpunk0 »

dalbasal wrote: post #19

It's a pleasure to read an article by a writer who understands of the history economic thought, though I suspect I will disagree with him on a lot of things. Anyway, this is interesting. I'll look up these economists. On the face of it, I think it's interesting how economists are hesitant to consider money real. Money is fictional to most economists. What's real is consumer surplus, utility or some other abstract way…

The history of economic thought is oppression and greed. Time and Time again.

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

#57

Post by bryanlarsen »

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…

Your impression comes from the media's tendency to try and present "both sides" of a story. So when reporting on an issue that 99% of professors are one side, they'll select one of the 1% and one of the 99% to give interviews.

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

#58

Post by crdoconnor »

dalbasal wrote: post #19

It's a pleasure to read an article by a writer who understands of the history economic thought, though I suspect I will disagree with him on a lot of things. Anyway, this is interesting. I'll look up these economists. On the face of it, I think it's interesting how economists are hesitant to consider money real. Money is fictional to most economists. What's real is consumer surplus, utility or some other abstract way…

>Beyond this relatively simple point, I don't think he had much of anything concrete.

He also made a pretty good case for gold's intrinsic value and economic importance being driven by war.

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

#59

Post by dragonwriter »

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…

> Just ask - you will get at least 5 different answers to every question.

That's because you asked a normative rather than a descriptive question.

Admittedly, econ is a field where there can also be a problem with descriptive questions, but blaming the field of economics for the fact that normative questions involve subjective value judgements and every person has a different framework for making those is quite unfair.

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

#60

Post by fullshark »

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…

In my experience, economic conclusions are almost entirely a result of the initial assumptions that their model was built on. Right leaning economists make different assumptions than left leaning economists so they get different conclusions.
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