Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

What Economists Still Don’t Get About the 2008 Crisis

bloomberg.com

Post reply on HN
Print view View original

111–120 of 247 posts

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

#111

Post by mcguire »

nickik wrote: post #105
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…

And yet Australia and many other had and have high housing prices as well and they didn't have recession. So this oversimplified theory is really just your confirmation bias.

The theory is a bit oversimplified, but not incorrect given that the previous poster isn't alone in seeing the problem in the US, and the experiences of other countries.

Why Australia wasn't involved is a different question. (http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1301.0Chapter...)

"...and they didn't have recession."

Yet. How much of Australia's economic growth is made up of financial shenanigans and the housing industry?

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

#112

Post by nickik »

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…

You should learn about the 'Sumner critic'.

If monetary policy is not already allowing fiscal policy to expand then 'digging holes and filling them in' has ZERO impact on AD.

And if that is the case then you don't need fiscal policy at all. So no, it never makes sense to 'dig holes and fill them back in'.

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

#113

Post by dzdt »

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…

The cause of inflation is usually described as too much money chasing too few goods.

Economists often use quite narrow definitions of money, counting things like cash and bank accounts, and maybe CD's, but never other valuable liquid financial assets like stocks and bonds and real estate.

But financial decision makers absolutely do consider their full set of assets in deciding how much purchasing they can afford. How much purchasing power is chasing the available goods is really the relevant statistic for causing inflation.

In quantitative easing, the Fed gave new dollars in exchange for existing financial assets (bonds, mortgage backed securities, etc). The exchanges were roughly at market value, meaning the dollars had the same purchasing power as the assets.

The exchange let the Fed control long term interest rates and increase the supply of safe assets (dollars) in the market, which was needed as banks were forced to increase their holdings of safe assets to deleverage.

Since total purchasing power didn't increase, there was no cause for inflation.

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

#114

Post by fallingfrog »

JumpCrisscross wrote: post #92
fallingfrog wrote: post #75

Earlier quoted context omitted.

I get the sense that that relationship will reverse itself as soon as the market turns down. Bear in mind that a day trader can cash out in a second; you and I will will have to wait two business days.

> a day trader can cash out in a second; you and I will will have to wait two business days Why the delay?

You can log on to your 401k account and move your position over to treasury bonds or something that looks safer, but they will wait two business days to process the transaction. I know from personal experience; don't see much information online about the phenomenon. My guess is that they are legally allowed to do this, probably because they wrote the law.

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

#115

Post by mindcrime »

zjacobi wrote: post #42

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 th…

I've been reading through Anna Schwartz's papers on monetary economics...

Not being familiar with Anna Schwartz, I went googling and came up with these two links... posting here in case anybody else was wondering as well.

https://library.duke.edu/rubenstein/findingaids/schwartzanna...

http://www.nber.org/people/anna_schwartz

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

#116

Post by rsync »

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."

I don't know if this is the correct answer, but a very simple answer would be that we were/are in a massively deflationary environment and (things like QE) have been necessary just to stay in place ...

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

#117

Post by kolbe »

closeparen wrote: post #23
segmondy wrote: post #11

Earlier quoted context omitted.

They know what they are doing, the main players are extracting wealth. The financial market is one big casino were the bankers can extract as much wealth as possible in the name of providing liquidity. The suckers(masses) are the rest of us via our 401/pension funds. They know what exactly they are doing.

Active traders tend to lose money relative to the “rest of us” passive index investors.

Is this based on research or just that theoretical model that passives do better while actives churn fees in a zero sum game?

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

#118

Post by dood »

One of HN's favourite quotes applies here too:

"It is difficult to get a man to understand something, when his salary depends on his not understanding it."

Ironically, the incentives for economists to understand booms and busts are much weaker than the incentives not to understand.

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

#119

Post by JumpCrisscross »

dv_dt wrote: post #102
JumpCrisscross wrote: post #90

Earlier quoted context omitted.

> 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…

Physics was able to go on from the simplistic models, refine and extend them to both a wide scale and very high quality of theoretical and empirical concurrence in exquisite detail and generality. On the other hand, economics goes on from Homo economicus into a mass of mathiness with very poor empirical correlation except perhaps in very very narrow circumstances.

> economics goes on from Homo economicus into a mass of mathiness with very poor empirical correlation except perhaps in very very narrow circumstances

If by "very narrow circumstances" you mean setting pricing, organizing distribution, predicting the effects of price increases and decreases, determining capital costs, making portfolios, and a whole bunch of other stuff that microeconomics makes precise and in a wide variety of circumstances predictably-correct predictions, sure. There is no economics on the Sun's surface.

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

#120

Post by JumpCrisscross »

fallingfrog wrote: post #114
JumpCrisscross wrote: post #92

Earlier quoted context omitted.

> a day trader can cash out in a second; you and I will will have to wait two business days Why the delay?

You can log on to your 401k account and move your position over to treasury bonds or something that looks safer, but they will wait two business days to process the transaction. I know from personal experience; don't see much information online about the phenomenon. My guess is that they are legally allowed to do this, probably because they wrote the law.

> they will wait two business days to process the transaction

This was a decision your 401(k) provider made. The proper person to gripe to is whomever in HR chose a cheap provider. (They make up for reduced administrative costs by (a) being less efficient and (b) capturing float.)

Post reply on HN