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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

#81

Post by pleasecalllater »

bryanlarsen wrote: post #57
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.

Well, that's possible that you're right.

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

#82

Post by davesque »

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…

> Never in this history of humanity have interest rates been held this low for so long.

You mean like in the "long" history of modern banking? This is a weak statement. The time during which governments have wielded this much influence over the minutia of the economy is surely small compared to all of the "history of humanity."

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

#83

Post by partiallypro »

cm2187 wrote: post #52

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 esta…

In part because QE was meant to shore up bank balance sheets, it wasn't meant to be lent. If it's not lent, it doesn't cause inflation. In simplistic terms.

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

#84

Post by ScottBurson »

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…

I saw it argued recently, by an economist, that tax cuts and increased government deficit spending should have the same effects on the economy. I think the essence of the argument is that either one leads to increased saving as people anticipate future tax increases. I don't know if I believe this is completely true, since the money at least initially goes to different people and people aren't actually rational actors, but I'm willing to accept that it's at least somewhat true.

That led me to the thought that supply-side economics, as the Republicans have been pressing on us for the last 40 years, is essentially Keynesian, or at least shares with it the belief that fiscal policy can be used to heat up the economy at one point in time, with benefits realized at a later point. The difference is that Keynes's recommendation was for fiscal policy to support the economy in recessions, and then cut back on spending (or equivalently, by the above argument, raise taxes) in boom times, while the supply-siders seem to want to cut taxes irrespective of the state of the economy, and never raise them.

I'm not an economist, so I don't know how accurate this is, but I find it striking, given the degree to which Keynesian economics has come under criticism in recent years.

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

#85

Post by debatem1 »

Adjusted household income has been essentially flat since the 70s. The percentage of those households with two earners has gone from 25% to 60% during that time. Productivity has grown nearly every year during that time.

This, combined with our rising income inequality, means that the economy is not okay for most people even if a few widely-watched numbers are high. It should not come as a surprise that such an economy would be more fragile than those high numbers would indicate.

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

#86

Post by joefranklinsrs »

cm2187 wrote: post #52

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 esta…

It’s simple; a lot of the QE from US left US and went to emerging markets, when there was an interest rate difference between those markets and US’s 0 percent. Overtime, the profits earned from those overseas investments stayed overseas. However, when China’s stock market collapsed in 2015 and more money started flowing back into US, US raise interest rate in late 2015. This prompted more return of money back into US, which prompted more economic slowdowns in emerging markets (enhanced by political instability in turkey, Russia, and rising debt in China). With fed raising rates higher and higher, and emerging markets slowing down even more, more and more of the QE money flew back to US. Thus the real estate boom in Silicon Valley, NY, and Los Angeles. Ironically, a lot of China’s QE resulted in the same flow; lots of money went into US real estate. And now we have dollar strength, rising interest rates, emerging market crisis, US gdp growth at 4% in q2

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

#87

Post by jaxtellerSoA »

cm2187 wrote: post #52

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 esta…

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

Inflation doesn't work as simply as you might expect. What people believe is actually a big piece of the puzzle. As proof of this look at the Paul Volcker interest rate hikes, that squashed run-away inflation. While his hikes did eventually work, in the short term they did nothing to combat inflation. Why? Because people didn't believe they would help (in fact many thought it would make the problem worse). You had to get the minds of the the investors and spenders on-board before you actually see results (despite what the math might say).

I think the reason QE hasn't caused much inflation is because people either don't care or don't understand (most likely the latter). I am sure intentionally obscuring "printing shit tons of money" as "Quantitative Easing" also helps with the psychological factor so as to not panic the masses.

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

#88

Post by 0x445442 »

JackFr wrote: post #25
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…

Hated Graeber's book on debt, but I thought the idea that debt preceded money was uncontroversial. Homer & Sylla go back at least to the Sumerians in 'A History of Interest Rates'

I didn't read the book but here's the way I think about things.

Federal Reserve Notes represent a proxy for some "work" to be done in the future. Gold represents a proxy for "work" that's already been done.

If what Graeber is getting at is the notion that I'll give you these widgets or perform this service now in exchange for some widgets or work to be done later then I would agree, debt did exist before money.

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

#89

Post by rrggrr »

tomrod wrote: post #61
cm2187 wrote: post #52

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 esta…

QE pumped up balance sheets, cash was not released into the wild.

This is the correct answer. Bank deposits at the USFED skyrocketed. It was FED money, lent to banks to be redeposited with the FED, on which deposits the banks earned interest I might add. It was a both a liquidity injection and a handout. And, it wasn't just provided to US Banks.

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

#90

Post by JumpCrisscross »

smacktoward wrote: post #48
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…

> economics was a science built upon the assumption that people are rational actors

You may have taken a statement made in jest literally. Homo economicus is a known fiction. Just as frictionless, airless physics are a known fiction. They're useful, however, for (a) defining a limit or ideal, (b) pedagogical purposes and (c) starting to think about a problem.

Microeconomics makes falsifiable predictions which can be repeated in experiment. (I'll go ahead and quibble over whether macroeconomics is a science. It's closer to an art, like politics. A field with its own rules and lessons worth learning, but without the capacity to experiment and make falsifiable predictions.)

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