What Economists Still Don’t Get About the 2008 Crisis • Hacker News Board

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

#161

Post by opo » Mon, Jul 30, 2018, 9:07 PM UTC

wahern wrote: post #79

opo wrote: post #20

Earlier quoted context omitted.

In what area, did we have zero percent interest rates back in 1930? Interest rates were lower, but with deflation, the real interest rate has been estimated to have been about 7.87% in 1930: http://www.sjsu.edu/faculty/watkins/dep1929.htm

The key thing there isn't the interest rate: it was the deflation rate: 4% in 1930 and a whopping 10% in 1931. The interest rate was more a reflection of the fact that nobody was lending money. The capital markets froze around the world. Deflation is the key to the Great Depression. And why we had deflation was directly a result of the gold standard. Indeed, Europe saw stronger deflation earlier than we did because t…

>...And all of this was a direct result of the rigidity of the gold standard. The gold standard created a feedback loop that accelerated the global economy into a brick wall--the brick wall being the reality of the finite supply of gold.

Agreed, though like you said it is pretty complicated. The US had about 45% of world gold reserve in the early 20's and even though was a net exporter by 1929 had dropped to closer to 37% due in part to large capital lending to Europe.

http://library.intellectualtakeout.org/library/chart-graph/w...

A major issue though was the hoarding of gold by France:

>...While the tightening of U.S. monetary policy in 1928 is often blamed for having initiated the downturn, France increased its share of world gold reserves from 7 percent to 27 percent between 1927 and 1932 and effectively sterilized most of this accumulation. This “gold hoarding” created an artificial shortage of reserves and put other countries under enormous deflationary pressure.

https://www.dartmouth.edu/~dirwin/Did%20France%20Cause%20the...

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

#162

Post by UncleEntity » Mon, Jul 30, 2018, 9:16 PM UTC

crdoconnor wrote: post #70

mrob wrote: post #47

Earlier quoted context omitted.

>in some extraordinary cases it would actually make sense to dig holes and fill them How is paying people to dig and fill holes better than just giving them money without requiring the useless activity? Even if "dignity of work" is a real thing, there's no way doing useless work could provide it.

Keynes wrote that that would be one way - although, he stressed, not actually a good way - of escaping from a liquidity trap. The real irony is that he was actually decrying digging gold out of the ground and burying it in vaults as he wrote that and among his critics, that kind of "digging a hole in a ground and filling it up" is typically considered above reproach.

Probably because you aren't literally digging gold out of the ground and reburying it, you are transforming land, labor and capital into a finished product which, in this case, is gold bullion.

Be like saying digging a hole and "planting" a fencepost is a wasteful activity because the wood was nearly in the same state to begin with.

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

#163

Post by zxcmx » Mon, Jul 30, 2018, 9:26 PM UTC

UncleEntity wrote: post #162

crdoconnor wrote: post #70

Earlier quoted context omitted.

Keynes wrote that that would be one way - although, he stressed, not actually a good way - of escaping from a liquidity trap. The real irony is that he was actually decrying digging gold out of the ground and burying it in vaults as he wrote that and among his critics, that kind of "digging a hole in a ground and filling it up" is typically considered above reproach.

Probably because you aren't literally digging gold out of the ground and reburying it, you are transforming land, labor and capital into a finished product which, in this case, is gold bullion. Be like saying digging a hole and "planting" a fencepost is a wasteful activity because the wood was nearly in the same state to begin with.

I think the complaint is that the gold bullion will just be hoarded and used as a unit of account. You could have achieved a similar thing with some strokes of a pen.

It's wasted effort in the same sense that bitcoin mining is wasted energy.

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

#164

Post by UncleEntity » Mon, Jul 30, 2018, 9:34 PM UTC

paulpauper wrote: post #27

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…

the post-2009 recovery is more attributable to monetarism, than Keynesianism Peter schiff and other like him have been predicting crisis, recession, bear market, and inflation since 2008 to no avail. they were wrong and have no credibility as far as I'm concerned.

It's actually quite impressive how the central banks avoided a major collapse while walking a tightrope blindfolded carrying their spiked punch bowl and having rabid dogs nipping at their heels.

Then again, "other like him" have always said that the bad things happen when they start to raise interest rates as things that are no longer profitable at the higher rates start to get liquidated and eventually causes the bubble to burst. Don't think anyone could have reasonably predicted the ability to keep interest rates at low as they've been for so long without the "animal spirits" getting restless.

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

#165

Post by dalbasal » Mon, Jul 30, 2018, 9:37 PM UTC

deadmetheny wrote: post #97

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…

Reminds me of an amusing story I read somewhere a while back: >It is the month of August; a resort town sits next to the shores of a lake. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. >Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 dollar bill on the reception counter, and goes to inspect the rooms upst…

Deadly.

This is exactly the sort of reason I enjoyed the book. Its interesting how the story adapts to being told backwards. In most economic stories, the man would spend the dollars and stuff would happen.

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

#166

Post by notacoward » Mon, Jul 30, 2018, 9:43 PM UTC

The one thing all the predictors mentioned in the article seem to have in common is that they're all efforts by the financial industry to wring more profit out of the real economy - i.e. the one that produces goods and services of more tangible value than numbers on a balance sheet. Without proper regulation, competing on the basis of investment returns inevitably creates a race to take ever greater real risks, independently of the risks as portrayed to investors, and employ ever more sophisticated tactics to obscure the difference. That's why I and many others who've lived through more than one economic cycle know that when the ratio of finance-industry profits to real productivity takes a sharp uptick it's time to run for cover.

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

#167

Post by zwaps » Mon, Jul 30, 2018, 10:00 PM UTC

dv_dt wrote: post #149

throwawaymath wrote: post #127

Earlier quoted context omitted.

> 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?

Depends on what you mean by dynamics of money. Social science usually features two approaches, one micro approach based on individual decisionmaking, and one macro approach trying to find general rules to aggregates (so mass behavior).

In terms of micro, yes there are pretty consistent theories as to why and how people use money. Probably the most relevant application thereof are in the microeconomics of banking and in so called microstructure models in finance.

In terms of macro, there is of course also a lot of monetary theory as to why people use money in a certain way.

What does not yet exist is a unified theory linking micro behavior to all aggregates. Such models typically rely on some sort of representative agent, which is known and recognized to be deeply problematic in scientific terms of aggregation. Other approaches exist, of course, such as agent based models. But there is no "theory of everything" yet.

Can economics give rationales? Yes. Peek into any course on the theory of money.

But reasoning from micro behavior to aggregates is difficult in social science. We are currently in the process of figuring out better theories of aggregation, but doing so requires using game theory and decision theory in fully interdependent (so for example networked) contexts trough dynamics, so this as of yet also requires a lot of methodological (read: mathematical) machinery that is not yet developed.

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

#168

Post by Terr_ » Mon, Jul 30, 2018, 10:07 PM UTC

starbugs wrote: post #144

sonnyblarney wrote: post #141

Earlier quoted context omitted.

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…

I suspect that's because the nature of "not-unemployed" is changing. Long ago it usually meant either being out of the workforce (retired, student, homemaker) or a full-time job with benefits.

Nowadays we're seeing a decrease in the last category, and an increase in "underemployment" and people holding multiple low-quality jobs to make ends meet. They aren't "unemployed", but they're not in a strong negotiating position either.

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

#169

Post by neffy » Mon, Jul 30, 2018, 10:19 PM UTC

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 essentially related to how the banking system works, and how it's regulated.

QE money is asset money, it sits on the left hand side of the bank's balances. The money that everybody actually uses is bank deposit - liability money, which sits on the right hand side. Liability money dwarfs asset money in modern economies.

The rest is then a question of what happens when you inject asset money into a banking system, and that depends on the regulatory framework. In the modern banking system capital controls have taken over from asset liability money controls, and that is essentially what has stopped the hyperinflation that some people predicted.

If you look at the deposit money quantities, well the normal rate of expansion for the US is approximately 2x decade, and that continues to be the case.

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

#170

Post by throwawaymath » Mon, Jul 30, 2018, 10:21 PM UTC

dv_dt wrote: post #149

throwawaymath wrote: post #127

Earlier quoted context omitted.

> 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?

That's a dodge. The point in my asking that question is to see if you're sufficiently well acquainted with any meaningful literature to actually provide an example substantiating your claim.

Inverting the question does not obviate the answer to what I asked you. Moreover, as stated your rebuttal question is underspecified: what do you mean by the "dynamics of money" and "stable foundation"? Can I trivially answer this by talking about the relationship between credit and debts, or are you looking for something more specific? You responded to my (very precise and specific) question with a vague, orthogonal dismissal of the entire field.

Why don't you tell me about the "mathiness" in some peer-reviewed economic paper (preferably in a tier 1 journal) that you perceive to only be correlated with real world conditions in "very narrow circumstances"?