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What Economists Still Don’t Get About the 2008 Crisis

bloomberg.com

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

#131

Post by zwaps »

TheCowboy wrote: post #121
zwaps wrote: post #104

Please also be aware that by reading pundits like Noah Smith, you are buying into what is basically a historical fanfic of economics "schools" fighting fiercly over who is right. This sells a lot of articles, but it doesn't really reflect academia (if it ever did). The god to honest truth is that macroeconomics in aggregated form is an undertaking based on extremely scarce data, and it always was. Traditional statist…

I agree that the headline and tone of this article are engaging in unnecessary hyperbole, but this description of Noah Smith's views and arguments are not consistent with what I've read. I don't see him arguing for a Grand Theories perspective of economics, and he grounds his arguments in empirical evidence and is vocal about the need to do this. I also think you have contrived an exaggerated view, attributed it to h…

You are probably correct that I am not really reasonable in singling out Noah. I apologize for being wrong here.

It's just that he is front and center in in this econ-blog industry that has been often unhelpful in making people with ideas engage the literature in an academic context, which (in other areas) I am a bit bitter about.

I am sure he is a nice guy personally, and switching from his AP position without actually doing research to Bloomberg was probably putting more bread on the table, but still, the whole WAY the debate about economics is lead in the public has been stinted away from scientific context toward hostility and tribe mentality, and I do believe he is partly to blame for that.

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

#132

Post by Symmetry »

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…

I think that the Fed's Interest on Reserves (IOR) policy explains the situation pretty well. Back in 2008 when everything was collapsing the most recent inflation data the Fed had showed that inflation was running above target due to oil prices. This wasn't true, inflation had actually nose-dived, but it takes months for the Fed to process all the numbers to figure out what the inflation rate was.

In order to inject lots of money into the economy without causing inflation the Fed went to Congress for permission to pay banks interest on the money that they kept on deposit with the Fed beyond the money they were required to keep. Normally banks keep the minimum required reserves with the Fed and lend out the rest but the Fed hoped that paying interest on the reserves would encourage the banks to sit on the money rather than lending it out where it could chase goods and services and cause inflation.

This was all new territory and the Fed's economic models for how IOR would effect the broader economy weren't validated. That's probably part of the reason the Fed's predictions about inflation and recovery were so off as the crisis progressed.

EDIT: You can see the large effect of the policy in the graph of excess reserves over time. The policy is still in effect.

https://en.wikipedia.org/wiki/File:EXCRESNS.png

https://en.wikipedia.org/wiki/Excess_reserves

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

#133

Post by nickik »

pwned1 wrote: post #4

Umm, Austrian Business Cycle Theory? https://en.wikipedia.org/wiki/Austrian_business_cycle_theory

What was described in the article really is not Austrian Business Cycle Theory.

Hayek when he wrote his version in the 20s deliberately did not go outside of the general equilibrium economics.

Actually his mostly in agreement with modern monetarist interpretations of monetary shock being on of the prime problems.

Read George Selgin, Walter White and Steve Horowitz if you are interested.

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

#134

Post by gnarcoregrizz »

aero142 wrote: post #77
dfee wrote: post #21

Earlier quoted context omitted.

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…

I've got a working theory that I am bouncing around my head. It's basically thoughts about the efficiency of markets and their ability to price in all value provided. The biggest growth is in housing and education. Basically, if moving from Iowa to Silicon Valley will result in a net gain in income, then housing will adjust to consume as much of that gain as possible. If education will result in higher lifetime earni…

housing and education are also targets for federal subsidies

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

#135

Post by fallingfrog »

JumpCrisscross wrote: post #120
fallingfrog wrote: post #114

Earlier quoted context omitted.

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.)

Fidelity is a cheap provider?

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

#136

Post by nickik »

clarkmoody wrote: post #69

Reading through this thread we have a bunch of theories about what must be right. And there are a few predictable responses of "the government didn't do enough." So I'll throw in the Austrian Theory of the Business Cycle to the mix: https://en.wikipedia.org/wiki/Austrian_business_cycle_theory Basically, the artificial expansion of bank credit kicks off the boom. The bust must inevitably follow. And the credit expansi…

One should not that this theory is not incompatible with modern monetarism.

Hayek had a concept called secondary deflation they fit the pattern of 2008.

The problem with ABCT is that Hayek and Mises both made the mistake that they assumed to much correlation between the boom and the bust.

While Hayek had the 'secondary deflation' concept, he failed to realize that this was the far more destructive part (if mishandled by the central bank).

So Hayek did not spend enough time on that and it caused him to misunderstand the Great Depression even when his theory was actually capable of explaining it.

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

#137

Post by debatem1 »

throwaway1909 wrote: post #91
debatem1 wrote: post #85

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 econo…

Could you give some citations?

Sure. This is pretty much my point in two charts:

https://www.financialsense.com/sites/default/files/users/u61...

http://www.pewresearch.org/ft_dual-income-households-1960-20...

If you want to zoom in on more recent events wikipedia has a pretty compelling chart here: https://en.wikipedia.org/wiki/Household_income_in_the_United...

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

#139

Post by nickik »

mcguire wrote: post #126
nickik wrote: post #108

Earlier quoted context omitted.

Whatever the truth is about the numbers you present. The argument that the recession happened because of a fragility of inequality is a highly speculative theory. I have not heard a single economist make that claim. Also, it fails as an explanation because you are explaining a momentary event with a long term situation.

" Also, it fails as an explanation because you are explaining a momentary event with a long term situation. " Yes. This is why plate tectonics is widely known to be false.

The earth quake does not just happen because of tectonics. You need some sort of translation mechanism how a long term buildup can lead to a event.

Just saying, 'there are plates' is not an acceptable explanation of earth quakes.

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

#140

Post by sctb »

cyberpunk0 wrote: post #56
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.

If this is constant then you don't need to keep posting about it, please.

https://news.ycombinator.com/newsguidelines.html

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