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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

#121

Post by TheCowboy »

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 him, and are arguing against that. I'd like to see more quotes to back up your argument because it is difficult to find it persuasive.

Doing a quick search I found an older blog post where he touches on a lot of the same points that you just did, so maybe you agree with him more than you think:

http://noahpinionblog.blogspot.com/2013/04/the-reason-macroe...

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

#122

Post by nickik »

mrob wrote: post #47
sonnyblarney wrote: post #15

Earlier quoted context omitted.

" 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…

>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.

I just wane explain what Keynes was thinking, even while I don't agree.

For Keynes it was all about overall spending, Aggregate Demand. If overall Aggregate Demand goes down then you have recession.

Then in some cases monetary policy can not raise AD anymore because of the 'liquidity trap' (interest rate at zero).

In that case the only way to get out of the AD whole is for government to spend more money that they have either saved up, or make debt.

Meaning that government could lower taxes, build roads or even to make his point 'pay people to dig wholes and close them'.

He just tried to make the point that it had nothing to do with the productivity gain of the actual activity.

The reason why Keynes was wrong is that the 'liquidity trap' is not a real thing. Second, even if it were real, the government fiscal policy would be unable by itself to raise AD and keep it raised. Even worse, if you tried to do that you would not only end up with AD shortfall but also with high debt (see Japan).

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

#123

Post by zwaps »

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…

But don't get me wrong, I am not defending current Macro. It has been extremely cool&good that everyone, including economists, now believes that the top-of-the-line models are basically garbage and economists are idiots.

It means that people actually doing econ now are rather humble about what they do, and still have to be extremely technical and smart. Indeed, if you bring in a new theory that works, you'll probably be famous very quickly. The bar is pretty high though, your model gotta be inferential and parameters causally identified, while still fitting the data well.

Nevertheless, my macroeconomist buddies got _really_ excited about doing "that machine learning" pretty much years before other fields were even talking about it (until they found out they basically use the same models already), because everyone is looking for the next big idea all the time.

It's exactly the sort of old-style economists who can explain everything with their always-correct theories and basic math and then claim deference by everyone, who don't really have a place anymore - except writing articles for certain business newspapers, that is.

Anyway econ sucks, continue please.

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

#124

Post by sonnyblarney »

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…

" 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.

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

#125

Post by mcguire »

nickik wrote: post #80
mcguire wrote: post #68

" These are important innovations, and they address glaring deficiencies in the pre-2008 models. But they don’t feel like a big break with the status quo. Most importantly, the basic notion of recessions as driven by rational actors’ responses to unpredictable, sudden events — or shocks, as economists call them — remains in place. " One of the fundamental weaknesses of modern economics is its reliance on un-knowable,…

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 discontinuity. This is economics working correctly.

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.

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

#126

Post by mcguire »

nickik wrote: post #108
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…

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.

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

#127

Post by throwawaymath »

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.

> 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?

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

#128

Post by starbugs »

sonnyblarney wrote: post #124
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…

" 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.

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

#129

Post by nickik »

ScottBurson wrote: post #84
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 actor…

The problem with this whole theory is that first of all, the whole future anticipation of taxes simply does not exist empirically specially not at low levels.

You are correct that Keynesian share some things in particular situation with supply siders but its very superficial and only in very specific circumstances.

In theory tax cuts during a recession are a Keynesian policy but the WASTE majority of Keynesian prefer INCREASE in spending.

So in terms of the real world, there is almost never any overlap. Keynesian hardly ever actually argue for lower taxes (because they are usually leftists who want more government).

At the same time supply sider do not want tax cuts in order to boost Aggregate Demand in a business cycle but rather have a more competitive economy in the long term.

I would also recommend strongly to not look at these as two types of economic theories. Keynesian is a very specific theory about a specific situation. While supply side economics is a general branch of economics that looks at growth.

The terms here are really misleading, most economists including people who call them-self 'supply side' think that demand is equally important. Language really makes this whole discussion incredible complex.

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

#130

Post by mcguire »

nickik wrote: post #112
sonnyblarney wrote: post #15

Earlier quoted context omitted.

" 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'.

"So no, it never makes sense to 'dig holes and fill them back in'."

The CCC?

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