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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

#141

Post by sonnyblarney »

starbugs wrote: post #128
sonnyblarney wrote: post #124

Earlier quoted context omitted.

" why so much QE has resulted in so little inflation" The most common theory is that this loose equity sloshing around has gone into stocks and bonds. QE is keeping the stock market up.

This is also what I believe. If you look at the US QEs there is a tight correlation to the stock market. This most likely did not happen by chance. Inflation has simply been confined to some select assets. It's all going to come back into the mainstream economy unless the next recession/depression ends up being extremely deflationary before that happens.

I think the hope is that companies eventually really start to hire more and pay better wages, and then we'll see some actual inflation, and then the Fed will feel safer tightening up.

Currently, we are hitting very low unemployment so wages have nowhere to go but up.

The weird one is housing: as rates stay low, people take on bigger and bigger mortgages leading to 'housing inflation' ... but it's generally not measured as inflation so it's kind another form of stealth inflation.

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

#142

Post by Symmetry »

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…

I liked Debt until I got up to the chapter on the 20th century where I knew something about the history involved and, well, you have stuff like "Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages." The whole chapter was filled with stuff like that and made me realized I shouldn't have been trusting the rest of the book.

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

#143

Post by nickik »

mcguire wrote: post #111
nickik wrote: post #105

Earlier quoted context omitted.

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…

Arguing that Australia's 30 year history of no recession is build on 'financial shenanigans and housing' are the arguments of people who defend a theory that is not workable.

Even were that so, why can Australia managed this 'shenanigans' but others can not.

I agree with the Article, the Australian central bank did its job and they didn't have a crisis, the Fed was a disaster and the US suffered the consequences. The Fed however was 10x better then the ECB and that's why Europe is still not recovered.

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

#144

Post by starbugs »

sonnyblarney wrote: post #141
starbugs wrote: post #128

Earlier quoted context omitted.

This is also what I believe. If you look at the US QEs there is a tight correlation to the stock market. This most likely did not happen by chance. Inflation has simply been confined to some select assets. It's all going to come back into the mainstream economy unless the next recession/depression ends up being extremely deflationary before that happens.

I think the hope is that companies eventually really start to hire more and pay better wages, and then we'll see some actual inflation, and then the Fed will feel safer tightening up. Currently, we are hitting very low unemployment so wages have nowhere to go but up. The weird one is housing: as rates stay low, people take on bigger and bigger mortgages leading to 'housing inflation' ... but it's generally not measur…

What confuses me is that low unemployment obviously doesn't lead to real wage increases (currently).

There seems to be something wrong either with the unemployment stats or something else is not quite right.

As long as the money that is confined in housing assets doesn't reach the "lower" market of people who actually need to spend that money, it's perfectly logical to me that it doesn't appear as price inflation in the general economy.

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

#145

Post by steanne »

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.

that reminds me of the recent article on indonesia using postcards in their rice-distribution program

https://www.npr.org/sections/goatsandsoda/2018/07/10/6273559...

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

#146

Post by zwaps »

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…

A rational actor is one who is able to decide what he thinks about an option, and who makes decisions that are transitive (ie. consistent). In that sense, rationality is still the basis of economics, but this is not what a normal person understands as rationality.

Instead, a more narrow view (partly due to difficulties of dealing with uncertainty, partly due to the context of preferences in a dynamic setting) required adding other behavioral theories which are now rightly considered mainstream in economics as well. All these non-rational actors are still rational in the general sense, in that they make choices based on preferences at some point in time.

There is, by the way, no other science dealing with human behavior that does not assume rationality. In business, this is called "bounded rationality" after Simon, but nowadays is basically and excuse to use rational actors even though we know "they ain't". All sociological actors are rational as well, even though you will rarely find a sociologist write this as a statement. Still, choices are made as responses to the environment of social forces.

Quite generally, it would be impossible to theorize about human behavior if it were irrational. That, in the general sense, would mean that it is not consistent and not predictable and thereby inherently not accessible to science.

What you econ Professor told you is basically correct, but the correct formulation of this you will probably see the first time when you take a course on decision theory or graduate microeconomics.

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

#147

Post by tomrod »

brandonmenc wrote: post #98
kaycebasques wrote: post #71

Earlier quoted context omitted.

Another explanation I’ve heard is widespread adoption of new technologies that have a lot of deflationary force behind them. E.g. Amazon giving consumers extreme price discovery, forcing companies to compete on price. Fracking and other new extraction technologies keeping oil prices down. Businesses adopting new tech to lower costs. Globalization (enabled by tech) keeping wage growth in check. https://www.advisorpers…

This squares with my belief that prices are currently way too high, for just about everything. Do any mainstream economists believe this?

Economist here. With non- zero probability, though the nuance is that inflation is under-reported when housing and energy are excluded from CPI. There is also a claim that hedonic substitution pushes down inflation measures, but that is more of a philosophical argument than a numeric argument.

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

#148

Post by nickik »

mcguire wrote: post #125
nickik wrote: post #80

Earlier quoted context omitted.

Do you actually know what economists talk about when talking about 'shocks'? I mean outside popular media. Economist do actually quite a bit about studying these shocks, and trying to explain what they are, where the come from and so on and so on. Take a simple example, tomorrow there is war between Iran and Saudi Arabia and there is no more oil coming from the middle east. That would be a supply shock. It is true th…

" Take a simple example, tomorrow there is war between Iran and Saudi Arabia and there is no more oil coming from the middle east. That would be a supply shock. " Would it be? One would expect, given that oil prices and the middle east are some of the most watched economic sectors, that there would be a very visible run up to such a war, the effects would be estimated and accounted for, and there would be no economic…

Tons of war happen without run up. Even if the run-up happened threw-out a period of months, it would still be shock.

A shock is change relative to some trend, not necessarily a fixed thing that happens in the news.

> As late as 2006 and 2007, we have economists on record as saying "everything's dandy". This was not due to a lack of data; they had most of the information then that we're arguing about now. Instead, it was because their models said what happened couldn't happen.

In 2006/2007 everything was more or less ok. While there was a housing crisis, GDP growth was on track and unemployment did not go up. You seem to think that everything after late 2008 was predetermined, witch is false.

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

#149

Post by dv_dt »

throwawaymath wrote: post #127
dv_dt wrote: post #102

Earlier quoted context omitted.

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.

> 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. Can you give an example?

Can the field of economics give some rationale as to why the dynamics of money has any sort of stable foundation upon which to reason? Physics has at great pains established that indeed god does not play dice with the rules of the universe, but is mass human behavior that consistent? Is there a unified theory of money that predicts economic cycles from the 16th century as well as the 21st?

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

#150

Post by fbonetti »

howard941 wrote: post #46

Some economists don't accept the damage that austerity coupled with the lack of robust fiscal stimulus continues to exact on the economy.

> lack of robust fiscal stimulus

Have you been living under a rock? We've been in continuous quantitative easing for over a decade. The Fed is just now started to raise rates.

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