An informative talk by Paul Krugman on the current economic crisis - and economists

[Craig234]

Link

Krugman explains to the London School of Economics why economists in recent decades have pretty much ranged from 'not too harmful' to 'causing harm'.

His thesis has a lot to do with that Macro economics has entered a 'dark age' by forgetting a lot of accurate things learned in the 30's.

The title of the speech refers to Minski who said that long periods without a financial crash leads to increasing use of leverage ad finally to a crisis when a lot of people at the same time say 'oh crap, there's too much leverage' and they cause a big problem reducing it.

It's refreshing to have someone prominent who is so blunt. Not just anyone can tell the LSE how terribly wrong economists have been.

The link is to part 3 of a three-part talk.

 

[bamacre]

Krugman? Pfffft.

 

[StageLeft]

The title of the speech refers to Minski who said that long periods without a financial crash leads to increasing use of leverage ad finally to a crisis when a lot of people at the same time say 'oh crap, there's too much leverage' and they cause a big problem reducing it.

Sounds reasonable.

 

[bamacre]

Originally posted by: Skoorb

The title of the speech refers to Minski who said that long periods without a financial crash leads to increasing use of leverage ad finally to a crisis when a lot of people at the same time say 'oh crap, there's too much leverage' and they cause a big problem reducing it.

Sounds reasonable.

Sounds like a really bad description of the Business Cycle Theory.

 

[Phokus]

More economists have moved away from the neo-classical framework/Friedmanite/Monetarist style of economics towards new-keynsian/pragmatist/behavioral economics after this latest economic collapse in wall street.

You'd have to be fucking retarded to ignore the asymmetry of information as well as the warped incentives inherent in wall street to think a lightly regulated or unregulated financial market is a good idea.

I guess the idea that GOVERNMENT = BAD is a helluva lot easier than actually looking at how the world works.

Hopefully the idea that the 'rational economic man' can be used as a model for real world economics 100% of the time will be shelved along with other crackpot theories that never worked.

 

[Phokus]

Originally posted by: Phokus
More economists have moved away from the neo-classical framework/Friedmanite/Monetarist style of economics towards new-keynsian/pragmatist/behavioral economics after this latest economic collapse in wall street.

You'd have to be fucking retarded to ignore the asymmetry of information as well as the warped incentives inherent in wall street to think a lightly regulated or unregulated financial market is a good idea.

I guess the idea that GOVERNMENT = BAD is a helluva lot easier than actually looking at how the world works.

Hopefully the idea that the 'rational economic man' can be used as a model for real world economics 100% of the time will be shelved along with other crackpot theories that never worked.

For more on this:

http://en.wikipedia.org/wiki/T...urgence_of_2008_/_2009

In March 2008, free-market guru Martin Wolf, chief economics commentator at the Financial Times, announced the death of the dream of global free-market capitalism, and quoted Josef Ackermann, chief executive of Deutsche Bank, as saying "I no longer believe in the market's self-healing power."[17] Shortly afterward economist Robert Shiller began advocating robust government intervention to tackle the financial crisis, specifically citing Keynes.[18][19] Macro economist James K. Galbraith used the 25th Annual Milton Friedman Distinguished Lecture to launch a sweeping attack against the consensus for monetarist economics and argued that Keynesian economics were far more relevant for tackling the emerging crises. [20].

Thank god these intellectual babies are finally growing up.

 

[Genx87]

This neo-keynesian push is cute and all. But many forget why we left keynesian theory behind in the 1970's. It ended with stagflation. I am sure in 30 years we will see similar threads about the death of keynesian theory again and the rise of classical economic theory.

I dont know how much those economists saw the light or if they didnt like the consequences of a free market. Free markets are harsh and may not be realistic in all situations like what we had last Fall. There is no perfect solution to a complex world.

Personally being somebody who believes the govt should stay out of the market minus provide a legal framework I advocated for the bank bailout last Fall. I took from the 1930s the credit crunch was a driving factor in the destruction of the economy.


My question right now. Has the govt regulation fixed the causes of the meltdown? I havent heard much about new regulation to tighten up the financial markets.

 

[Phokus]

Originally posted by: Genx87
This neo-keynesian push is cute and all. But many forget why we left keynesian theory behind in the 1970's. It ended with stagflation. I am sure in 30 years we will see similar threads about the death of keynesian theory again and the rise of classical economic theory.

I dont know how much those economists saw the light or if they didnt like the consequences of a free market. Free markets are harsh and may not be realistic in all situations like what we had last Fall. There is no perfect solution to a complex world.

Personally being somebody who believes the govt should stay out of the market minus provide a legal framework I advocated for the bank bailout last Fall. I took from the 1930s the credit crunch was a driving factor in the destruction of the economy.


My question right now. Has the govt regulation fixed the causes of the meltdown? I havent heard much about new regulation to tighten up the financial markets.

Stagflation in the 70's was caused due to OPEC pulling supply of oil which introduced price shocks everywhere. Price controls also exacerbated this. New Keynesian theory has nothing to do with government price control but rather creating demand through government fiscal and monetary policy. The reason we're not experiencing a worse economic downturn on par with the great depression is because of New Keynesian economic intervention (we're basically doing the opposite of what we did during the years preceding the great depression)

edit: also this is interesting, never knew about the anchovies

Explaining the 1970s stagflation

Following Richard Nixon's imposition of wage and price controls on August 15, 1971, an initial wave of cost-push shocks in commodities was blamed for causing spiraling prices. Perhaps the most notorious factor cited at that time was the failure of the Peruvian anchovy fishery in 1972, a major source of livestock feed.[16] The second major shock was the 1973 oil crisis, when the Organization of Petroleum Exporting Countries (OPEC) constrained the worldwide supply of oil.[17] Both resulted in actual or relative scarcity of raw materials. The price controls resulted in shortages at the point of purchase, causing, for example, queues of consumers at fueling stations and increased production costs for industry.[18]

 

[Craig234]

So, is one person going to watch the talk?

I'll link a pretty picture to one of the slides he uses, borrowed from the great Atlantic article by Simon Johnson.

It shows part of the problem, in how the financial sector - following the 'free market' ideology - became too powerful and its income shot up.

Chart

 

[bamacre]

If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

 

[sandorski]

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

You fail at comprehension. He did not suggest that, Greenspan did.

 

[bamacre]

Originally posted by: sandorski

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

You fail at comprehension. He did not suggest that, Greenspan did.

Hmm...

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

 

[sandorski]

Originally posted by: bamacre

Originally posted by: sandorski

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

You fail at comprehension. He did not suggest that, Greenspan did.

Hmm...

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

He did not endorse the idea. He merely stated the Need to increase spending on the Consumer side, due to the lack of spending on the Business side. He'd prefer no "Bubble", but it was the only way to deal with the reality at the time.

There is a difference, even if you can't see it.

 

[bamacre]

Originally posted by: sandorski
He'd prefer no "Bubble", but it was the only way to deal with the reality at the time.

LOL, well how the hell else was that going to happen? And as for "it was the only way to deal with reality at the time," wow, because of course we have heard this recently too. And yet for some reason people still can't see that we're only delaying a recession, and making the inevitable worse.

 

[sandorski]

Originally posted by: bamacre

Originally posted by: sandorski
He'd prefer no "Bubble", but it was the only way to deal with the reality at the time.

LOL, well how the hell else was that going to happen? And as for "it was the only way to deal with reality at the time," wow, because of course we have heard this recently too. And yet for some reason people still can't see that we're only delaying a recession, and making the inevitable worse.

No Recession is being delayed. The Recession is here and doing quite well(relatively speaking).

Business Spending would have been the alternative.

 

[First]

Yeah, Krugman has been getting right for years. Good call on behavioral econ which has proven much more apt in recent years. Krugman has been talking about the housing bubble getting out of control since 06 too.

And why are Schiff apologists still posting in these threads? If you're going to post at least don't then wimp out of the debate.

 

[GroundedSailor]

Originally posted by: Genx87
This neo-keynesian push is cute and all. But many forget why we left keynesian theory behind in the 1970's. It ended with stagflation. I am sure in 30 years we will see similar threads about the death of keynesian theory again and the rise of classical economic theory.

I dont know how much those economists saw the light or if they didnt like the consequences of a free market. Free markets are harsh and may not be realistic in all situations like what we had last Fall. There is no perfect solution to a complex world.

Personally being somebody who believes the govt should stay out of the market minus provide a legal framework I advocated for the bank bailout last Fall. I took from the 1930s the credit crunch was a driving factor in the destruction of the economy.


My question right now. Has the govt regulation fixed the causes of the meltdown? I havent heard much about new regulation to tighten up the financial markets.

Without realizing it your basic idea is similar to what economists like Krugman believe. Once you regulate the market it is no longer a 'free market'. The questions now becomes how much regulation.

IMHO Too little regulation leads to anarchy and too much leads to to stifling. Finding that sweet spot had been elusive.

 

[StageLeft]

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

I think that was said in a mocking tone; i.e. "haha, now the fed thinks they can solve it with another bubble". I was about to post this link, too. The guy called it. This is why he called it a bubble. Using that word clearly showed he knew it would be unsustainable and was thus folly.

So, is one person going to watch the talk?

I generally hate audio/video for things of any kind of length because it's a very very slow way to gain information. I can read much faster than somebody can talk.

 

[Phokus]

Originally posted by: Skoorb

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

I think that was said in a mocking tone; i.e. "haha, now the fed thinks they can solve it with another bubble". I was about to post this link, too. The guy called it. This is why he called it a bubble. Using that word clearly showed he knew it would be unsustainable and was thus folly.

So, is one person going to watch the talk?

I generally hate audio/video for things of any kind of length because it's a very very slow way to gain information. I can read much faster than somebody can talk.

Yeah, 'bubbles' are by definition bad, i don't know why bamacre is saying that Krugman was advocating a bubble. He was obviously mocking greenspan.

 

[Mani]

From reading his books, it's almost scary how similar the current situation is to the 1930s. And how similar the republicans today are to the Hoover policies of that time.

 

[bamacre]

Originally posted by: Skoorb

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

I think that was said in a mocking tone; i.e. "haha, now the fed thinks they can solve it with another bubble". I was about to post this link, too. The guy called it. This is why he called it a bubble. Using that word clearly showed he knew it would be unsustainable and was thus folly.

So, is one person going to watch the talk?

I generally hate audio/video for things of any kind of length because it's a very very slow way to gain information. I can read much faster than somebody can talk.

Then what exactly was Krugman advocating the Fed do?

And at minimum, he was at least admitting that the Fed causes asset bubbles, something our economic super stars here seem to not be able to admit.

 

[miketheidiot]

Originally posted by: Genx87
This neo-keynesian push is cute and all. But many forget why we left keynesian theory behind in the 1970's. It ended with stagflation. I am sure in 30 years we will see similar threads about the death of keynesian theory again and the rise of classical economic theory.

I dont know how much those economists saw the light or if they didnt like the consequences of a free market. Free markets are harsh and may not be realistic in all situations like what we had last Fall. There is no perfect solution to a complex world.

Personally being somebody who believes the govt should stay out of the market minus provide a legal framework I advocated for the bank bailout last Fall. I took from the 1930s the credit crunch was a driving factor in the destruction of the economy.


My question right now. Has the govt regulation fixed the causes of the meltdown? I havent heard much about new regulation to tighten up the financial markets.

stagflation was caused by a combination of the end of the gold standard (which had kept the currency artificially valuable for a long time), oil shocks, and very unwise government price controls under nixon.

 

[Craig234]

Originally posted by: bamacre

Originally posted by: Skoorb

Originally posted by: bamacre
If anyone wants to know why Krugman should be totally ignored, read what he had to say in 2002...

http://www.nytimes.com/2002/08...ubya-s-double-dip.html

Typical Keynesian, replace one bubble with another.

I think that was said in a mocking tone; i.e. "haha, now the fed thinks they can solve it with another bubble". I was about to post this link, too. The guy called it. This is why he called it a bubble. Using that word clearly showed he knew it would be unsustainable and was thus folly.

So, is one person going to watch the talk?

I generally hate audio/video for things of any kind of length because it's a very very slow way to gain information. I can read much faster than somebody can talk.

Then what exactly was Krugman advocating the Fed do?

And at minimum, he was at least admitting that the Fed causes asset bubbles, something our economic super stars here seem to not be able to admit.

He wasn't advocating the Fed do anything so much, as I said already, predicting where the economy was going and how the Fed's prediciton would take a housing bubble to happen.

As for your comment about the Fed causing bubbles - that comes up in his talk, and I'm not going to waste the time explaining what you can't be bothered to watch.

But no, his article here does not admit that. Saying the rosy predicitons would need a bubble is not the same as saying the Fed is the cause of the bubbles.

 

[Craig234]

Originally posted by: miketheidiot
stagflation was caused by a combination of the end of the gold standard (which had kept the currency artificially valuable for a long time), oil shocks, and very unwise government price controls under nixon.

Indeed, it was yet another case of the Democrat getting the blame for being in office during the cleanup period for a Republican.

The issue with stagflation/inflation was cleaned up with the credit largely going to Paul Volcker - who was appointed by Carter.

Of course, Carter was pretty short-sighted on other issues, like his Camp David peace accord, and his emphasis on reducing dependancy on middle-eastern oil.

The latter a policy which the pro-oil Republicans promptly reversed, happy for the big oil companies to get more profits, while they launched murderous foreign policies.

 

[Genx87]

Originally posted by: miketheidiot

Originally posted by: Genx87
This neo-keynesian push is cute and all. But many forget why we left keynesian theory behind in the 1970's. It ended with stagflation. I am sure in 30 years we will see similar threads about the death of keynesian theory again and the rise of classical economic theory.

I dont know how much those economists saw the light or if they didnt like the consequences of a free market. Free markets are harsh and may not be realistic in all situations like what we had last Fall. There is no perfect solution to a complex world.

Personally being somebody who believes the govt should stay out of the market minus provide a legal framework I advocated for the bank bailout last Fall. I took from the 1930s the credit crunch was a driving factor in the destruction of the economy.


My question right now. Has the govt regulation fixed the causes of the meltdown? I havent heard much about new regulation to tighten up the financial markets.

stagflation was caused by a combination of the end of the gold standard (which had kept the currency artificially valuable for a long time), oil shocks, and very unwise government price controls under nixon.

I should have written that better. What I meant by it ended with stagflation. Keynesian theory was unable to cope with stagflation. Economists moved away from the theory as the end all and returned to more classical less interventionist theory.

Not that keynesian economics was the cause of stagflation.