Linkage
1 day ago
Wednesday, July 8, 2009
What it would like to report for the BBC on Eastern Europe from Vienna!
It's a rough job my ole' friend Ben Shore has...
Excess Reserves
One reason the dramatic increase in the money supply did nothing to the economy last fall is that it has all just gone into Excess Reserves -- bank reserves in excess of what the Fed requires:
Still, I don't see why this implies that the Fed should stop/slow down on QE. The only reason is the worry that inflation will be coming just around the corner. But that just doesn't look like a rational worry at this point...
So, why are we not in print-gobs-of-money-and-KO-the-national-debt mode? Worst case scenario is that we KO the national debt. Best case scenario is that the price level inflates, the dollar weakens, and the economy recovers. Which of these scenarios do we have to fear, exactly?
Here is the similar story in Japan (via the Cleveland Fed ; at least they can do something right). Keep in mind that 30 trillion yen is only $300 billion vs. a debt that is supposedly around $8 trillion. So Japan's QE was never actually that large, and peanuts compared to how much debt it actually could have monetized. What the Fed has already done is much larger.
And remember this Krugman post from a few months back -- what got Japan's economy going was its trade balance...
Anywho, as you can see above, the -- I dunno if funny is the right word -- thing is that Japan's QE didn't KO its debt forever. The Bank of Japan eventually dumped all that debt back on the market. And when it did, Japan returned more-or-less immediately right back into deflation. (Apparently, BoJ officials had not read my undergraduate thesis...)
And, we can see below that while QE in Japan might have weakened the yen a bit at first, the effect was slight and short-lived. What the Japanese should have done, then, was double-down, monetize another $300 bill of debt, only retire it forever rather than just temporarily...
Still, I don't see why this implies that the Fed should stop/slow down on QE. The only reason is the worry that inflation will be coming just around the corner. But that just doesn't look like a rational worry at this point...
So, why are we not in print-gobs-of-money-and-KO-the-national-debt mode? Worst case scenario is that we KO the national debt. Best case scenario is that the price level inflates, the dollar weakens, and the economy recovers. Which of these scenarios do we have to fear, exactly?
Here is the similar story in Japan (via the Cleveland Fed ; at least they can do something right). Keep in mind that 30 trillion yen is only $300 billion vs. a debt that is supposedly around $8 trillion. So Japan's QE was never actually that large, and peanuts compared to how much debt it actually could have monetized. What the Fed has already done is much larger.
And remember this Krugman post from a few months back -- what got Japan's economy going was its trade balance...
Anywho, as you can see above, the -- I dunno if funny is the right word -- thing is that Japan's QE didn't KO its debt forever. The Bank of Japan eventually dumped all that debt back on the market. And when it did, Japan returned more-or-less immediately right back into deflation. (Apparently, BoJ officials had not read my undergraduate thesis...)
And, we can see below that while QE in Japan might have weakened the yen a bit at first, the effect was slight and short-lived. What the Japanese should have done, then, was double-down, monetize another $300 bill of debt, only retire it forever rather than just temporarily...
QE to date...
From the FT (via a poster on Delong's Semi-Daily Journal):
(quote)
The US Federal Reserve is roughly halfway through completing its planned purchases of mortgage and Treasury debt, which constitutes its quantitative easing programme, writes Michael Mackenzie in New York.
So far, the Fed has bought $197.7bn of government securities of a planned $300bn. Purchases of US agency mortgage backed-securities run at $621.6bn, against a target of $1,250bn by the end of the year. The central bank has purchased $96.8bn out of a planned $200bn in agency debt.
The Fed’s buying has not prevented either Treasury yields or mortgage rates from rising, complicating efforts to provide relief for homeowners and other long-term borrowers.
Following the path of higher long-term Treasury yields, the coupon for 30-year mortgages rose above 5 per cent last month, up from under 4 per cent in April.
The recent rise in rates, which accelerated in early June, sparked expectations among some bond traders that the Fed would increase its planned purchases of US Treasuries.
In March the Fed announced its target of buying $300bn in Treasuries and also raised its planned purchases of mortgages from $500bn to $1,250bn and doubled its planned agency buying to $200bn.
The scope of the Fed’s QE programme has aroused concerns it will nurture higher inflation and debase the currency. At its June policy meeting, the Fed stuck to its QE targets and said it would “continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets”.
With long-term rates having eased back and recent Treasury auctions attracting strong foreign buying, the central bank has some breathing room for now, say analysts. Should credit conditions deteriorate later this year or the economy’s recovery falter, the Fed may step up its purchases of Treasury debt.
(end quote)
This would seem to contradict Sumner..."raising its planned purchases of mortgages from $500bn to $1,250bn" is not nothing. He's a U of Chicago grad, so I should have known better.
Still, the question remains -- Why has the Fed only bought back $200 billion in treasuries? We're in the 18th month of recession. The economy still coughed up half a million jobs last month. If buying $200 billion in Treasuries has not ignited inflation or created jobs, why doesn't the Fed buy another $400 billion. (Or $2 trillion?) And why didn't they start doing this last November, rather than wait until this March? And buying only $200 billion over the past four months doesn't strike me as being all that fast. They should pull back the moment inflation hits 5% and employment starts jumping by half a million/month, not while we've had actual deflation in the total CPI over the past 12 months, when the 5 year TIPS spread suggests inflation at 1.3%/year over the next five years, and while the dollar is still stronger vs. most other currencies than it was last summer. Makes no sense to me whatsoever. It still smacks of a Fed that has been waaay too tepid, almost glacial...
And I just don't know what to make of comments like this: "The scope of the Fed’s QE programme has aroused concerns it will nurture higher inflation and debase the currency." But as you can see in the post below, if anything, the dollar is strong at the moment, and this clearly poses a risk as well. Plus, other countries who do not have the US's exorbitant privilege are worried about their falling currency values, with the only difference being that most every other currency has fallen against the dollar since the start of the crisis, lending them some justification.
What do others think?
(quote)
The US Federal Reserve is roughly halfway through completing its planned purchases of mortgage and Treasury debt, which constitutes its quantitative easing programme, writes Michael Mackenzie in New York.
So far, the Fed has bought $197.7bn of government securities of a planned $300bn. Purchases of US agency mortgage backed-securities run at $621.6bn, against a target of $1,250bn by the end of the year. The central bank has purchased $96.8bn out of a planned $200bn in agency debt.
The Fed’s buying has not prevented either Treasury yields or mortgage rates from rising, complicating efforts to provide relief for homeowners and other long-term borrowers.
Following the path of higher long-term Treasury yields, the coupon for 30-year mortgages rose above 5 per cent last month, up from under 4 per cent in April.
The recent rise in rates, which accelerated in early June, sparked expectations among some bond traders that the Fed would increase its planned purchases of US Treasuries.
In March the Fed announced its target of buying $300bn in Treasuries and also raised its planned purchases of mortgages from $500bn to $1,250bn and doubled its planned agency buying to $200bn.
The scope of the Fed’s QE programme has aroused concerns it will nurture higher inflation and debase the currency. At its June policy meeting, the Fed stuck to its QE targets and said it would “continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets”.
With long-term rates having eased back and recent Treasury auctions attracting strong foreign buying, the central bank has some breathing room for now, say analysts. Should credit conditions deteriorate later this year or the economy’s recovery falter, the Fed may step up its purchases of Treasury debt.
(end quote)
This would seem to contradict Sumner..."raising its planned purchases of mortgages from $500bn to $1,250bn" is not nothing. He's a U of Chicago grad, so I should have known better.
Still, the question remains -- Why has the Fed only bought back $200 billion in treasuries? We're in the 18th month of recession. The economy still coughed up half a million jobs last month. If buying $200 billion in Treasuries has not ignited inflation or created jobs, why doesn't the Fed buy another $400 billion. (Or $2 trillion?) And why didn't they start doing this last November, rather than wait until this March? And buying only $200 billion over the past four months doesn't strike me as being all that fast. They should pull back the moment inflation hits 5% and employment starts jumping by half a million/month, not while we've had actual deflation in the total CPI over the past 12 months, when the 5 year TIPS spread suggests inflation at 1.3%/year over the next five years, and while the dollar is still stronger vs. most other currencies than it was last summer. Makes no sense to me whatsoever. It still smacks of a Fed that has been waaay too tepid, almost glacial...
And I just don't know what to make of comments like this: "The scope of the Fed’s QE programme has aroused concerns it will nurture higher inflation and debase the currency." But as you can see in the post below, if anything, the dollar is strong at the moment, and this clearly poses a risk as well. Plus, other countries who do not have the US's exorbitant privilege are worried about their falling currency values, with the only difference being that most every other currency has fallen against the dollar since the start of the crisis, lending them some justification.
What do others think?
What Could be Holding the Fed Back?
Well, it cannot be wage inflation which has held the fed back (hattip to pk):
Or exchange rates. Here's the US dollar per peso, which shows that the USD is still much stronger vs. the Peso than before the crisis started:
Here's the USD per Euro. The dollar is still stronger than it was last summer before the crash, so it can't be that.
Here's the USD vs. the Japanese yen. The dollar has strengthened vs. the yen since January after weakening in the heart of the crisis, so it can't be that either.
I wonder what has caused long-term inflation fears to reside suddenly: yields on long-term bonds (via Krugman), are actually dropping. Is the Fed hitting the spigots again?
Or exchange rates. Here's the US dollar per peso, which shows that the USD is still much stronger vs. the Peso than before the crisis started:
Here's the USD per Euro. The dollar is still stronger than it was last summer before the crash, so it can't be that.
Here's the USD vs. the Japanese yen. The dollar has strengthened vs. the yen since January after weakening in the heart of the crisis, so it can't be that either.
I wonder what has caused long-term inflation fears to reside suddenly: yields on long-term bonds (via Krugman), are actually dropping. Is the Fed hitting the spigots again?
The Monetary Base
OK, Scott Sumner is completely nuts. Here he is debating Ohanian: "Last fall, deflationary policies by the Fed caused the sub-prime mortgage crisis to spread to other types of debt. Unfortunately, almost all economists misdiagnosed the problem, assuming that it was the worsening financial crisis that was reducing demand, when in fact the reverse was increasingly true — falling demand reduced asset values and weakened bank balance sheets."
But the graph of the monetary base above does not show "deflationary policies" last fall. Fed policy may not have been enough, but it was in no sense "deflationary".
Nevertheless, since last fall, there has been a slight decline in the monetary base. Here Sumner may have a point. Still though, I'm a bit confused -- I remember being taught as an undergrad that the Fed doesn't really stress the MB numbers, b/c they seem to be less important in the era of modern banking than they used to be... In the past 2-3 recessions, the MB numbers looked completely unremarkable.
I just checked my Carl Walsh Monetary Theory and Policy book -- he writes that the correlation between M1 and M2 and other economic variables basically broke down after 1982... Sumner's focus on the MB appears misguided...
Fire Ben Bernanke?
Scott Sumner has got an interesting post, charging the Fed Chairmen w/ dereliction of duty: "the Fed did not engage in any QE at all in the first half of 2009, indeed the monetary base fell at near record rates." (QE=Quantitative Easing, which means the Fed creates assets out of thin air and uses it to retire gov't debt.)
Well, he may actually be correct that the reason the recession has been so deep, and that the unemployment rate has climbed so high is that the Fed, and particularly Bernanke, are simply stupid people who’ve spent their careers “doing algebra”… Proof Bernanke has never been the sharpest tool in the shed can be seen from his title and paper “is growth exogenous?” — and I’m not making this up! OF COURSE growth is not exogenous! And, as I've posted before, the papers on the Great Depression I've read of Bernanke's were really mediocre at best.
So, two things — for fiscal stimulus to have been worthless, then you must believe that the entire downturn should have been 100% avoidable, had the Fed started QE policies last fall rather than this spring. I'm not sure I actually believe this, but I don't actually know the record on QE -- so I figured I'd try to find out!
Here's an article from last November: "Total credit extended by the central bank has surged from an average of $885 billion in the week ending August 27 to $2.198 trillion in the week ending November 12."
The article also states: "Quantitative easing has begun."
And this quote is linked to in a post on Naked Capitalism , also last fall: "The US Federal Reserve’s policy is about avoiding a type-one error – underestimating the threat of a depression – at all costs. I was quite surprised last week – though perhaps should not have been – when I learnt that the Fed had quietly adopted a policy of “quantitative easing”."
But then, this March , the Fed once again announced it was starting QE.
But then we have Sumner: "I think you may be right about the Fed’s motives, but if so it shows that QE was always a sham. The Fed was never serious about boosting the base, which means QE was never tried. So while I admit you may be right, it still makes my post worthy of attention doesn’t it? After all, most of the pundits back in March treated the QE like it was an attempt to boost the MB. Nobody predicted the base would have its biggest decline (in the first half of 2009) since 1937."
So, I'm a bit perplexed -- after all, Bernanke is one who has argued that the Great Depression could have been prevented with more quantitative easing, and that Japan's "Lost Decade" could also have been prevented with more quantitative easing, and now that the US is still firmly ensconced in our 18th month now of recession, he's apparently favoring the Fed 1930s/Japan1990s approach to deflation-fighting...
But, perhaps Sumner just doesn't know what he's talking about. It's a bit crazy for him to say that the fiscal stimulus was actually "counterproductive" -- you'd have to believe, first, that Bernanke has been negligent, and second, you must believe that raising taxes and cutting inner city education spending are good to do in a recession, and that the road from San Fran to Tahoe doesn’t need to be repaved.
On the 2nd point, I’m hardly a dispassionate observer — I got a flat on that road which sucks shit (representative of California’s infrastructure and shitty schools), and I’m equally certain that cutting school funding for inner city schools is a f*cking terrible way to balance a budget. New York city increased Met fares for disabled people, and florida increased taxes on retirement homes. South Carolina cut food stamps. Sumner’s argument that a little extra QE would cancel out all these cuts sounds like utter nonsense to my ears.
And the thing to realize about the first point is that there are two ways to fight a recession. One is fiscal policy, one is monetary policy. One way to fight it would be to use only monetary policy. Another would be to use only fiscal policy and hold monetary policy constant. With 9.5% unemployment and rising, with GDP dipping at a 6% annual rate in Q1 (and contracting at 10%+ in many other countries), with a recession which has lasted 18 months and counting, the argument that “Ha! Fiscal policy was not necessary b/c Monetary policy alone would have prevented the recession!” is a bit strange… And, after all, there are costs associated with both as Krugman explained back in March.
In conclusion, just b/c the Fed is staffed w/ psuedoscientists rather than rocket scientists doesn’t mean fiscal policy is worthless… And I still need to read more about what the Fed has and has not done...
Well, he may actually be correct that the reason the recession has been so deep, and that the unemployment rate has climbed so high is that the Fed, and particularly Bernanke, are simply stupid people who’ve spent their careers “doing algebra”… Proof Bernanke has never been the sharpest tool in the shed can be seen from his title and paper “is growth exogenous?” — and I’m not making this up! OF COURSE growth is not exogenous! And, as I've posted before, the papers on the Great Depression I've read of Bernanke's were really mediocre at best.
So, two things — for fiscal stimulus to have been worthless, then you must believe that the entire downturn should have been 100% avoidable, had the Fed started QE policies last fall rather than this spring. I'm not sure I actually believe this, but I don't actually know the record on QE -- so I figured I'd try to find out!
Here's an article from last November: "Total credit extended by the central bank has surged from an average of $885 billion in the week ending August 27 to $2.198 trillion in the week ending November 12."
The article also states: "Quantitative easing has begun."
And this quote is linked to in a post on Naked Capitalism , also last fall: "The US Federal Reserve’s policy is about avoiding a type-one error – underestimating the threat of a depression – at all costs. I was quite surprised last week – though perhaps should not have been – when I learnt that the Fed had quietly adopted a policy of “quantitative easing”."
But then, this March , the Fed once again announced it was starting QE.
But then we have Sumner: "I think you may be right about the Fed’s motives, but if so it shows that QE was always a sham. The Fed was never serious about boosting the base, which means QE was never tried. So while I admit you may be right, it still makes my post worthy of attention doesn’t it? After all, most of the pundits back in March treated the QE like it was an attempt to boost the MB. Nobody predicted the base would have its biggest decline (in the first half of 2009) since 1937."
So, I'm a bit perplexed -- after all, Bernanke is one who has argued that the Great Depression could have been prevented with more quantitative easing, and that Japan's "Lost Decade" could also have been prevented with more quantitative easing, and now that the US is still firmly ensconced in our 18th month now of recession, he's apparently favoring the Fed 1930s/Japan1990s approach to deflation-fighting...
But, perhaps Sumner just doesn't know what he's talking about. It's a bit crazy for him to say that the fiscal stimulus was actually "counterproductive" -- you'd have to believe, first, that Bernanke has been negligent, and second, you must believe that raising taxes and cutting inner city education spending are good to do in a recession, and that the road from San Fran to Tahoe doesn’t need to be repaved.
On the 2nd point, I’m hardly a dispassionate observer — I got a flat on that road which sucks shit (representative of California’s infrastructure and shitty schools), and I’m equally certain that cutting school funding for inner city schools is a f*cking terrible way to balance a budget. New York city increased Met fares for disabled people, and florida increased taxes on retirement homes. South Carolina cut food stamps. Sumner’s argument that a little extra QE would cancel out all these cuts sounds like utter nonsense to my ears.
And the thing to realize about the first point is that there are two ways to fight a recession. One is fiscal policy, one is monetary policy. One way to fight it would be to use only monetary policy. Another would be to use only fiscal policy and hold monetary policy constant. With 9.5% unemployment and rising, with GDP dipping at a 6% annual rate in Q1 (and contracting at 10%+ in many other countries), with a recession which has lasted 18 months and counting, the argument that “Ha! Fiscal policy was not necessary b/c Monetary policy alone would have prevented the recession!” is a bit strange… And, after all, there are costs associated with both as Krugman explained back in March.
In conclusion, just b/c the Fed is staffed w/ psuedoscientists rather than rocket scientists doesn’t mean fiscal policy is worthless… And I still need to read more about what the Fed has and has not done...
Sunday, July 5, 2009
More on Larry Summers' Hero, Milton Friedman
Matt Yglesias who, via Felix Salmon, quotes to a study about the negative externalities of vehicular traffic, which found "that driving a car into Manhattan on a weekday causes about $160 of negative externalities to everybody else."
This, of course, made me think of Larry Summers' hero, Milton Friedman. For him, one of the key examples of egregious abuse of governments anywhere was found in how much it cost to get a taxi license in New York City. The only reason for this, Friedman wrote, was sheer corruption. The licenses were worth more if there was a limited number.
If we priced based on negative externalities alone, however, the price would come to $50,000+/year...
Here's the NYC Taxi and limousine commission. Although they do require what are no doubt some lame classes, a drug test, and some various registration fees, it does not look to be terribly expensive: http://www.nyc.gov/html/tlc/html/industry/faq_ind.shtml#
Update: Commenter Justin Dangel has more perseverance than I: medallions for Taxis still cost around $575,000. This means that roughly they are priced correctly, though still a bit on the cheap side (assuming 6% discount in perpetuity they should be more like $800,000...)... My laziness aside, the point stands -- unless we are at the point where there are so few taxis in NYC it is hard to get one. That hasn't been my experience, but I haven't been to NYC recently. And although I travel extensively, I can't remember the last time I had trouble flagging down a cab in a large city...
Update II: I found my Friedman pamphlet! So let's quote from the master himself: "One common explanation of why government is the problem... is the influence of special interests. A dramatic example ... when I was talking to a taxicab driver in New York City... the number of taxicabs is limited by government fiat... the medallion signifying permission to operate a taxicab ... costs somewhere between $100,000 and $125,000." (This was back in the day of course...)
Friedman then confidently states: "If the limitation on the number of taxis were removed, the benefits would greatly exceed the losses." Friedman apparently thought not at all about the cost of increased traffic. To him the only costs are those absorbed by those who already own medallions. But the widely dispersed costs to other drivers are about $50,000/year per taxi. And this is just a point estimate based on what traffic is like now. If there were no limit on taxis in NYC, traffic would be way, way worse than it already is, and the marginal costs could be higher (or lower, for that matter, but even in this case the total costs would be much higher). Everyone would be worse off. Friedman is correct about something though: "The phenomenon of concentrated benefits and dispersed costs is a valid explanation for many governmental problems." In this case though, there should be taxes and limitations on all cars in NYC, and, if anything, cabs should be taxed more cheaply than normal cars, since taxis are a substitute for people driving. The phenomenon of dispersed costs not born by drivers is the argument for government intervention.
Milton Friedman was profoundly wrong. And in a way which strikes at the heart of his theology.
This, of course, made me think of Larry Summers' hero, Milton Friedman. For him, one of the key examples of egregious abuse of governments anywhere was found in how much it cost to get a taxi license in New York City. The only reason for this, Friedman wrote, was sheer corruption. The licenses were worth more if there was a limited number.
If we priced based on negative externalities alone, however, the price would come to $50,000+/year...
Here's the NYC Taxi and limousine commission. Although they do require what are no doubt some lame classes, a drug test, and some various registration fees, it does not look to be terribly expensive: http://www.nyc.gov/html/tlc/html/industry/faq_ind.shtml#
Update: Commenter Justin Dangel has more perseverance than I: medallions for Taxis still cost around $575,000. This means that roughly they are priced correctly, though still a bit on the cheap side (assuming 6% discount in perpetuity they should be more like $800,000...)... My laziness aside, the point stands -- unless we are at the point where there are so few taxis in NYC it is hard to get one. That hasn't been my experience, but I haven't been to NYC recently. And although I travel extensively, I can't remember the last time I had trouble flagging down a cab in a large city...
Update II: I found my Friedman pamphlet! So let's quote from the master himself: "One common explanation of why government is the problem... is the influence of special interests. A dramatic example ... when I was talking to a taxicab driver in New York City... the number of taxicabs is limited by government fiat... the medallion signifying permission to operate a taxicab ... costs somewhere between $100,000 and $125,000." (This was back in the day of course...)
Friedman then confidently states: "If the limitation on the number of taxis were removed, the benefits would greatly exceed the losses." Friedman apparently thought not at all about the cost of increased traffic. To him the only costs are those absorbed by those who already own medallions. But the widely dispersed costs to other drivers are about $50,000/year per taxi. And this is just a point estimate based on what traffic is like now. If there were no limit on taxis in NYC, traffic would be way, way worse than it already is, and the marginal costs could be higher (or lower, for that matter, but even in this case the total costs would be much higher). Everyone would be worse off. Friedman is correct about something though: "The phenomenon of concentrated benefits and dispersed costs is a valid explanation for many governmental problems." In this case though, there should be taxes and limitations on all cars in NYC, and, if anything, cabs should be taxed more cheaply than normal cars, since taxis are a substitute for people driving. The phenomenon of dispersed costs not born by drivers is the argument for government intervention.
Milton Friedman was profoundly wrong. And in a way which strikes at the heart of his theology.
Saturday, July 4, 2009
Why Economists Should Study Anthropology...
OK, so one big gripe I have with the way that economics is taught is that emphasis has always been on just doing a bunch of math, writing proofs, etc., with no realization that most economists' views on any economic issue are in fact decided, not by any model, but by said economists political views, sex, race, and social position. Economists merely use models to argue for their preconceived political views, often which were developed in high school or before.
Hence, when evaluating someone's argument (or one's own), it is always appropriate to evaluate their (your) biases.
So, I just reread chapter 7 of Friedman & Schwartz's Monetary History of the US in which they argue that the Fed alone could have prevented the Great Depression. Now, that's an almost impossible claim to prove or disprove (Schwartz & Bordo claim to prove it in another paper), but what worried me is that much of the Chapter almost sounds like a white-washing of Hoover and the role of conservative economic ideology during the crisis, both of which, quite clearly, deserve central blame. Why am I worried about this? Because, if I'm not reading Friedman & Schwartz incorrectly, they spend more time blaming FDR for the Great Depression in Ch. 7 than they spend blaming Hoover!!! Now, they never say such a thing, and if they did, it would be crazy, but nevertheless it's a case of having their biases on full display. Blaming FDR for the third banking crisis without blaming Hoover (who, btw, was still President, and who could much more easily have stopped it) is just plain nuts. Crazy. Delusional.
It should be added, though, to Friedman's credit, that he is not nearly as crazy as many conservatives -- both economists and politicians -- who want to balance the budget today while in a recession. He points out that it's just hard to understand why anyone wanted to balance the budget during the Great Depression except that that was just the funny mentality of the period.
And I'm not sure yet which way I come down on the issue -- I don't know nearly enough about it and I feel it's just one of those really difficult questions which in the end is not that important. The Fed wasn't nearly as independent at the time and things CERTAINLY would have gone much better had Hoover gone off of gold sooner, had Hoover stepped in to stop the banking crisis like FDR did immediately after taking office, and had Hoover not convinced himself he had to balance the budget at all costs. And the Fed was extremely aggressive in cutting the discount rate at the start of the crisis -- it just wasn't enough...
Hence, when evaluating someone's argument (or one's own), it is always appropriate to evaluate their (your) biases.
So, I just reread chapter 7 of Friedman & Schwartz's Monetary History of the US in which they argue that the Fed alone could have prevented the Great Depression. Now, that's an almost impossible claim to prove or disprove (Schwartz & Bordo claim to prove it in another paper), but what worried me is that much of the Chapter almost sounds like a white-washing of Hoover and the role of conservative economic ideology during the crisis, both of which, quite clearly, deserve central blame. Why am I worried about this? Because, if I'm not reading Friedman & Schwartz incorrectly, they spend more time blaming FDR for the Great Depression in Ch. 7 than they spend blaming Hoover!!! Now, they never say such a thing, and if they did, it would be crazy, but nevertheless it's a case of having their biases on full display. Blaming FDR for the third banking crisis without blaming Hoover (who, btw, was still President, and who could much more easily have stopped it) is just plain nuts. Crazy. Delusional.
It should be added, though, to Friedman's credit, that he is not nearly as crazy as many conservatives -- both economists and politicians -- who want to balance the budget today while in a recession. He points out that it's just hard to understand why anyone wanted to balance the budget during the Great Depression except that that was just the funny mentality of the period.
And I'm not sure yet which way I come down on the issue -- I don't know nearly enough about it and I feel it's just one of those really difficult questions which in the end is not that important. The Fed wasn't nearly as independent at the time and things CERTAINLY would have gone much better had Hoover gone off of gold sooner, had Hoover stepped in to stop the banking crisis like FDR did immediately after taking office, and had Hoover not convinced himself he had to balance the budget at all costs. And the Fed was extremely aggressive in cutting the discount rate at the start of the crisis -- it just wasn't enough...
Who Wants to Answer a Prelim Question?
Here it is: "In what sense did the Federal Reserve ‘fail’ in the Great Depression? What would appropriate policy have been a) from the point of view of the social planner? b) given the pre-existing monetary and political constraints?"
Have at it!
Let's see, we've got Friedman & Shwartz, Temin, Romer, Eichengreen, Ohanian, Bernanke, Bordo...
Have at it!
Let's see, we've got Friedman & Shwartz, Temin, Romer, Eichengreen, Ohanian, Bernanke, Bordo...
Friday, June 19, 2009
Fiscal Stimulus II
See this from the Center on Budget and Policy Priorities: http://www.cbpp.org/cms/index.cfm?fa=view&id=2815
And on intrade, I see that "the market" says that unemployment will be above 10.75% by December, with an 18% chance of topping 12%!
If in government, I would propose a swift, immediate transfer of about $400 billion to state and local governments to be used for deficit reduction, preventing the cutting of necessary services, preventing more tax hikes, and stimulus, letting the states decide whether to give temporary tax cuts or fund more public infrastructure projects.
It was clear back in February that the stimulus was imprudently small -- that if things got better, it could be scaled back and we really wouldn't have lost much, but that if things got worse, it might be tough politically to send another stimulus back through the Congress, with the Republicans no doubt jabbering about how, why, if the first stimulus failed, why you'd want to throw more good money after bad. And now the public is stupidly more concerned with deficit reduction than fighting the recession.
What I suspect will happen is this: the economy will continue to muddle along, perhaps with slowing unemployment losses, but more or less along a trajectory of 11% unemployment by years end and 12+ sometime next year, by which time GDP may stop contracting, and then we'll go through a whole 'nuther year or so of just very slow growth and a very weak economy. Without any genuine cliff-diving, we won't get another stimulus, but just a Japanese-style muddle.
For this we can thank that brilliant wunderkind Larry Summers.
And on intrade, I see that "the market" says that unemployment will be above 10.75% by December, with an 18% chance of topping 12%!
If in government, I would propose a swift, immediate transfer of about $400 billion to state and local governments to be used for deficit reduction, preventing the cutting of necessary services, preventing more tax hikes, and stimulus, letting the states decide whether to give temporary tax cuts or fund more public infrastructure projects.
It was clear back in February that the stimulus was imprudently small -- that if things got better, it could be scaled back and we really wouldn't have lost much, but that if things got worse, it might be tough politically to send another stimulus back through the Congress, with the Republicans no doubt jabbering about how, why, if the first stimulus failed, why you'd want to throw more good money after bad. And now the public is stupidly more concerned with deficit reduction than fighting the recession.
What I suspect will happen is this: the economy will continue to muddle along, perhaps with slowing unemployment losses, but more or less along a trajectory of 11% unemployment by years end and 12+ sometime next year, by which time GDP may stop contracting, and then we'll go through a whole 'nuther year or so of just very slow growth and a very weak economy. Without any genuine cliff-diving, we won't get another stimulus, but just a Japanese-style muddle.
For this we can thank that brilliant wunderkind Larry Summers.
Tuesday, June 16, 2009
Hoisted from the Comments
Anonymous writes:
And then writes:
I'll admit I had not heard of most of the people you just mentioned. I just took a look at a Bill Fleckenstein article "Printing Money Isn't the Cure", and it looks Acemoglu look like a genius. In or close to a liquidity trap, which is where we are, then printing money is precisely what needs to be done. If inflation is ignited (which is our goal), then the fed can scale back later. And if we have 4-5% inflation, so what?
I have actually had a difficult time finding good economists, but my favorite is probably Joseph Stiglitz, then Krugman. Peter Temin and Gavin Wright have done some good work. David Card is of course excellent. Dani Rodrik can be ok on occasion. For econ history, i like Crosby, Diamond, Landes and Clark (plus krugman's geog & trade). I believe all of these books can tell you something about why some countries are rich and others are poor.
I lean left politically and that explains my economics. I believe Keynesian spending makes sense when you are close to being in a liquidity trap. I think that when state governments cut their budgets in the middle of recessions it's the dumbest policy imaginable. In normal recessions, however, I think the Fed alone is well-equipped to handle things, but I also like having automatic stabilizers. I think all of this is fairly standard for most economists on the center-right, center, center left, or far left. (Usually have faith in monetary policy except for steep recessions/liquidity traps.)
It's time Thorstein Veblen went to bed...
Is there any chance you can mess with the html for the site to widen the margins (it's a pain to read something this narrow!), but I like the work.I'll work on it.
And then writes:
I still don't understand how you're an aspiring academic economist - my personal favorites are mostly people who work in finance (either some of the bigger analysts like Rosenberg and Xie, hedge funders like Dalio, and Fleckenstein, or the enigmas of Roubini/Duy/Setser). You spend a lot of time ripping apart the field, and seem to have a strong interdisciplinary background. Who are the economists you really look to? Are you more of a post-Keynesian? Where do you really place yourself in the field?OK, so the reason I'm an aspiring academic economist is because I think education is actually quite important, and I'd like to change the field. It doesn't have to be the case that academic economists are like medieval priests. They could potentially function as a useful segment of society. Or so I hope.
I'll admit I had not heard of most of the people you just mentioned. I just took a look at a Bill Fleckenstein article "Printing Money Isn't the Cure", and it looks Acemoglu look like a genius. In or close to a liquidity trap, which is where we are, then printing money is precisely what needs to be done. If inflation is ignited (which is our goal), then the fed can scale back later. And if we have 4-5% inflation, so what?
I have actually had a difficult time finding good economists, but my favorite is probably Joseph Stiglitz, then Krugman. Peter Temin and Gavin Wright have done some good work. David Card is of course excellent. Dani Rodrik can be ok on occasion. For econ history, i like Crosby, Diamond, Landes and Clark (plus krugman's geog & trade). I believe all of these books can tell you something about why some countries are rich and others are poor.
I lean left politically and that explains my economics. I believe Keynesian spending makes sense when you are close to being in a liquidity trap. I think that when state governments cut their budgets in the middle of recessions it's the dumbest policy imaginable. In normal recessions, however, I think the Fed alone is well-equipped to handle things, but I also like having automatic stabilizers. I think all of this is fairly standard for most economists on the center-right, center, center left, or far left. (Usually have faith in monetary policy except for steep recessions/liquidity traps.)
It's time Thorstein Veblen went to bed...
Monday, June 15, 2009
Summers is good!
at manipulating newsman.
This is a piece of garbage:
http://www.nytimes.com/2009/06/08/us/politics/08team.html?_r=2&ref=todayspaper&pagewanted=all
Note that, in all of the disputes except one, Summers was allegedly arguing for the more liberal position... I just can't believe that. The other thing is that Geithner, Romer, and Goolsbee are all basically centrists, so one wouldn't really expect any big ideological debates between them. The issue is w/ the Bernstein's, the Volcker's, the Stiglitz's and the Krugman's being cut off.
And they are cut off.
This is a piece of garbage:
http://www.nytimes.com/2009/06/08/us/politics/08team.html?_r=2&ref=todayspaper&pagewanted=all
Note that, in all of the disputes except one, Summers was allegedly arguing for the more liberal position... I just can't believe that. The other thing is that Geithner, Romer, and Goolsbee are all basically centrists, so one wouldn't really expect any big ideological debates between them. The issue is w/ the Bernstein's, the Volcker's, the Stiglitz's and the Krugman's being cut off.
And they are cut off.
Naomi Klein on Summers:
http://www.naomiklein.org/articles/2009/04/why-we-should-banish-larry-summers-public-life
Sleepy Summers
Poor guy. Sleepin' during a White House meeting. Maybe it's time to call it quits so he can spend more time with Peter Orszag's children.
Summers Defending the Small Size of Stimulus...
http://www.youtube.com/watch?v=eGXYvcZF9ek
Don't know how I missed this. Summers is asked repeatedly why the stimulus was too small. He doesn't have an answer. He alludes to "the multiplier", but the stimulus is only around 1% of GDP. The GDP gap is closer to 6-8%. Even with a multiplier of 2 -- implausibly large -- the gap isn't filled. Now, much of the economic news in the past few months suggests that the economy is getting worse at a much slower rate, and may even start to get better soon. There's almost no chance we'll see unemployment below 6 or 7% by the end of next year, however, so the stimulus won't have been wasted. On the other hand, what if the economy doesn't start to get better. What if it keeps getting worse? Then the stimulus will have been way too small, and we'll need another round, which could take awhile to be injected into the economy. That's why we (liberal economists) thought and think that the stimulus was imprudently large. There was no downside to doing too much, only a downside to doing too little, and that's what Obama did.
Don't know how I missed this. Summers is asked repeatedly why the stimulus was too small. He doesn't have an answer. He alludes to "the multiplier", but the stimulus is only around 1% of GDP. The GDP gap is closer to 6-8%. Even with a multiplier of 2 -- implausibly large -- the gap isn't filled. Now, much of the economic news in the past few months suggests that the economy is getting worse at a much slower rate, and may even start to get better soon. There's almost no chance we'll see unemployment below 6 or 7% by the end of next year, however, so the stimulus won't have been wasted. On the other hand, what if the economy doesn't start to get better. What if it keeps getting worse? Then the stimulus will have been way too small, and we'll need another round, which could take awhile to be injected into the economy. That's why we (liberal economists) thought and think that the stimulus was imprudently large. There was no downside to doing too much, only a downside to doing too little, and that's what Obama did.
Bob Allen's New Book Discussion Thread
OK, so Bob Allen made my summer reading list. 17 pages in, however, and I'm already discouraged...
For, on page 4, Allen writes "[Greg] Clark... claims that medieval institutions were almost perfect for economic development." Now, this isn't a wholly inaccurate representation of Clark, but it would be more accurate to say that if the key institutions and keys for development are as the IMF/Washington Consensus sees them, then medieval european institutions were pretty good. Low inflation. Free, well-integrated markets. Low government spending. Very low tax rates (generally 0% on wage income, compared to 50-60% as a top tax rate in many modern european countries). But if these things aren't really the causes of economic growth (as at least I do not believe), then it's inappropriate to say that they are "perfect for economic development", and certainly wrong to say that Clark thinks that. This is just a small issue, however, compared to what comes next...
Allen then writes that "One can reach an optimistic conclusion about medieval institutions only by glossing over their most characteristic forms -- e.g. serfdom. For most of the middle ages, a majority of English were serfs..." But there are two major problems with using this as your key example about how it was poor institutions which held back the world economy before 1760 -- serfdom ended in most of europe by 1450-1500, due to the Black Death-induced high wage economy (thereafter it revived in eastern europe which didn't have the European marriage pattern nor as high of wages). So, there's a 300 year gap between the end of the key institutions Allen sees as holding back economic growth and the start of the modern world, which is problem number one. Problem number two is that if as powerful an institution as serfdom could be eradicated due to the shock of the black death, then does that not imply that institutions also are malleable, and reply to economic shocks?
The next example Allen brings up is about property rights -- he paints a picture whereby commoners had no incentive to invest in things such as land b/c it could just be taken by their lords. While this might be true, since there was a very active land market in England in the late middle ages we can actually test this theory by looking at Clark's series on property prices, and by looking at the variability. What we see, of course, is that property prices were extremely stable for most of the entire period from 1200-1800. (in the netherlands, which experienced more warfare over the same period, prices rose and fell much more...) Stability of prices implies lack of risk of expropriation.
And those are basically the only examples allen has of "institutions" holding back medieval england.
Another thing which caught my eye is on page 16, when he seems to have said that around 1500, "productivity and incomes were low" in britain. That couldn't be further from the truth. We know from clark's time series, eye-witness accounts, and various other series on wages that they were extraordinarily high around 1500 owing to the black death and decimated populations. I suspect this was just an innocent slip-up, however.
I am also sad to see that he modeled his thesis on Paul David's work -- he writes that "David's approach has strongly influenced my own views." This is unfortunate, b/c as Alan Olmstead has shown, a long, careful look at the relative prices of agricultural inputs & output prices in the US failed to support David's hypothesis...
Hopefully the next 250 pages will be better. The book is on an interesting topic and does contain interesting data, however, so I do recommend it!
I'm curious to see what other people think...
For, on page 4, Allen writes "[Greg] Clark... claims that medieval institutions were almost perfect for economic development." Now, this isn't a wholly inaccurate representation of Clark, but it would be more accurate to say that if the key institutions and keys for development are as the IMF/Washington Consensus sees them, then medieval european institutions were pretty good. Low inflation. Free, well-integrated markets. Low government spending. Very low tax rates (generally 0% on wage income, compared to 50-60% as a top tax rate in many modern european countries). But if these things aren't really the causes of economic growth (as at least I do not believe), then it's inappropriate to say that they are "perfect for economic development", and certainly wrong to say that Clark thinks that. This is just a small issue, however, compared to what comes next...
Allen then writes that "One can reach an optimistic conclusion about medieval institutions only by glossing over their most characteristic forms -- e.g. serfdom. For most of the middle ages, a majority of English were serfs..." But there are two major problems with using this as your key example about how it was poor institutions which held back the world economy before 1760 -- serfdom ended in most of europe by 1450-1500, due to the Black Death-induced high wage economy (thereafter it revived in eastern europe which didn't have the European marriage pattern nor as high of wages). So, there's a 300 year gap between the end of the key institutions Allen sees as holding back economic growth and the start of the modern world, which is problem number one. Problem number two is that if as powerful an institution as serfdom could be eradicated due to the shock of the black death, then does that not imply that institutions also are malleable, and reply to economic shocks?
The next example Allen brings up is about property rights -- he paints a picture whereby commoners had no incentive to invest in things such as land b/c it could just be taken by their lords. While this might be true, since there was a very active land market in England in the late middle ages we can actually test this theory by looking at Clark's series on property prices, and by looking at the variability. What we see, of course, is that property prices were extremely stable for most of the entire period from 1200-1800. (in the netherlands, which experienced more warfare over the same period, prices rose and fell much more...) Stability of prices implies lack of risk of expropriation.
And those are basically the only examples allen has of "institutions" holding back medieval england.
Another thing which caught my eye is on page 16, when he seems to have said that around 1500, "productivity and incomes were low" in britain. That couldn't be further from the truth. We know from clark's time series, eye-witness accounts, and various other series on wages that they were extraordinarily high around 1500 owing to the black death and decimated populations. I suspect this was just an innocent slip-up, however.
I am also sad to see that he modeled his thesis on Paul David's work -- he writes that "David's approach has strongly influenced my own views." This is unfortunate, b/c as Alan Olmstead has shown, a long, careful look at the relative prices of agricultural inputs & output prices in the US failed to support David's hypothesis...
Hopefully the next 250 pages will be better. The book is on an interesting topic and does contain interesting data, however, so I do recommend it!
I'm curious to see what other people think...
Acemoglu Text Review
Haven't posted in awhile. Been busy. Arm is better.
Anyway, today I had the considerable misfortune of sifting through Acemoglu's new textbook for a paper I'm writing. It's f*cking terrible. So, I reviewed it for Amazon, and the posted it on DeLong's blog as well. Here it is, for posterity:
This book is bad, bad, bad. Plain and simple. I give it one star b/c I don't know how to advance to the next screen and submit for no stars.
Having suffered the extreme misfortune of having been assigned to read and present some of Acemoglu's papers (some 2-3 times now), I have a lot of pent-up aggression that needs to be released. Now will be that time.
Acemoglu is that nerdy, pudgy, 4-eyed kid from school who everyone picks on and hates b/c he doesn't shut-up, is ignorant, and incredibly and persistently annoying. The kid who says stupid, ignorant things which are just plain dumb on multiple levels, who does not understand what he should know -- just doesn't get it -- and who everyone therefore (or perhaps just me) wants to strangle with their bare hands. He evokes the same feelings in me I get when I watch George W. Bush give a speech. (If you like George W. Bush, then you will love this book!)
So that is how Acemoglu makes me feel when I'm forced to read anything by him. Now, what is it that gives me those feelings? Here are some of the things I hate about his research/book:
1) His famed settler mortality data, which Albouy has convincingly shown were fabricated, do not merely affect GDP via institutions -- they also should and would have affected levels of technology, human capital, and culture, each of which are persistent. The kicker is that since he had data on initial institutions, there was no reason to make up the settler mortality proxy in the first place.
2) His unquestioned use of Maddison's data, which Maddison, by all accounts, simply made up, and which implies (counterfactually) that there never was a Malthusian world. Aside from being made-up, Maddison's data are obviously and fatally flawed.
3) His arrogance in thinking that he could write a book about economic growth without knowing anything about history, and his arrogance in thinking that he could write about geography and development without really having read Jared Diamond (and without even citing Alfred Crosby). It is frustrating that he equates the belief that geography is important for development and history with "geographic determinism" -- that geography is the only thing which matters. No thinking person could believe that, and reading Diamond or Sacchs in the round suggests that they are certainly NOT geographical determinists.
4) As such, he "misunderestimates" the "geography hypothesis" as he calls it.
5) He is a full time believer in the idea that by doing algebra (but not by reading the history of development), one can gain insights into the history of development.
6) A troubling array of shoddy facts, inaccurate statements, frustratingly wrong-headed logic, and all hidden behind a veneer of high-handed math and regressions. Some of these include:
a) His insistence that the North Korea/South Korea split tells us that geography and culture does not matter, and that it is institutions such as property rights which do matter for growth. The trouble with this is that North Korea was taken over by an utter madman who was an absolute dictator and who shut off trade and contact with the outside world. Logically, it's like saying that eating well and exercise do not matter for health b/c, look, you and your brother (who got hit by a bus) ate the same things and exercised the same amount, and your brother got hit by a bus and died. Of course, looking both ways before you cross the street is also important, but then again, who is saying that it isn't? (Acemoglu is basically saying it's the only thing...) The question is which institutions matter, and since North Korea got almost all institutions terribly wrong, the North Korea/South Korea split is actually not insightful.
b) In 'moglu logic, the "Reversal of Fortune" was supposedly that countries like Argentina and North America which were poor in 1500 are now rich, and vice versa has just one flaw. The peoples who lived in modern day argentina and north america are now dead, not rich. and we don't actually have any idea that say, north america was more/less developed than mexico. and certainly don't know if it was rich (and those are two different things, which acemoglu doesn't understand, b/c the world was malthusian then.
8) How does a tenured faculty member at MIT in economics not understand the Malthusian model? WTF?
9) In fact, there are many theories that can be taken "off the shelf" so-to-speak, which do tell us quite a bit about economic development, such as in Krugman's Geography & Trade, the Malthusian Model, Crosby-Jared Diamond, Engerman-Sokoloff, etc., which are all either butchered in Acemoglu's retelling or omitted.
OK, so I've clearly used up more actual thought writing this review than Acemoglu has in his entire research career.
In short, this book is sooooo bad it discredits: not Acemoglu, b/c u can't blame him necessarily, he is what he is, but rather, it completely discredits MIT economics, Robert Solow, growth economics (the soft underbelly of Macro, which is the soft underbelly of economics, which is the soft underbelly of Social science), and the entire economics profession. I am know dumber than i was before i read what parts of this book i could stomach. This book is bad enough to cast a black shadow over the department and the entire field of economics. This book is fodder for those who equate economists with medieval priests or doctors, who babble on about things about which they know nothing, and have no value-added to society.
This book is of interest to sociologists or anthropologists wishing to document the funny "sociology of economics" and the anachronistic, heavily ideological lens with which conservative economists view the world.
Lastly, it is rather strange that while many decrie the fall of U of Chicago, the decline and fall of MIT Economics has hardly been commented on. Clearly, Acemoglu's rise at MIT can and should be equated (in its impact on educated society) with the Vandals sacking of Rome.
that is all.
Have a great day!!!
Anyway, today I had the considerable misfortune of sifting through Acemoglu's new textbook for a paper I'm writing. It's f*cking terrible. So, I reviewed it for Amazon, and the posted it on DeLong's blog as well. Here it is, for posterity:
This book is bad, bad, bad. Plain and simple. I give it one star b/c I don't know how to advance to the next screen and submit for no stars.
Having suffered the extreme misfortune of having been assigned to read and present some of Acemoglu's papers (some 2-3 times now), I have a lot of pent-up aggression that needs to be released. Now will be that time.
Acemoglu is that nerdy, pudgy, 4-eyed kid from school who everyone picks on and hates b/c he doesn't shut-up, is ignorant, and incredibly and persistently annoying. The kid who says stupid, ignorant things which are just plain dumb on multiple levels, who does not understand what he should know -- just doesn't get it -- and who everyone therefore (or perhaps just me) wants to strangle with their bare hands. He evokes the same feelings in me I get when I watch George W. Bush give a speech. (If you like George W. Bush, then you will love this book!)
So that is how Acemoglu makes me feel when I'm forced to read anything by him. Now, what is it that gives me those feelings? Here are some of the things I hate about his research/book:
1) His famed settler mortality data, which Albouy has convincingly shown were fabricated, do not merely affect GDP via institutions -- they also should and would have affected levels of technology, human capital, and culture, each of which are persistent. The kicker is that since he had data on initial institutions, there was no reason to make up the settler mortality proxy in the first place.
2) His unquestioned use of Maddison's data, which Maddison, by all accounts, simply made up, and which implies (counterfactually) that there never was a Malthusian world. Aside from being made-up, Maddison's data are obviously and fatally flawed.
3) His arrogance in thinking that he could write a book about economic growth without knowing anything about history, and his arrogance in thinking that he could write about geography and development without really having read Jared Diamond (and without even citing Alfred Crosby). It is frustrating that he equates the belief that geography is important for development and history with "geographic determinism" -- that geography is the only thing which matters. No thinking person could believe that, and reading Diamond or Sacchs in the round suggests that they are certainly NOT geographical determinists.
4) As such, he "misunderestimates" the "geography hypothesis" as he calls it.
5) He is a full time believer in the idea that by doing algebra (but not by reading the history of development), one can gain insights into the history of development.
6) A troubling array of shoddy facts, inaccurate statements, frustratingly wrong-headed logic, and all hidden behind a veneer of high-handed math and regressions. Some of these include:
a) His insistence that the North Korea/South Korea split tells us that geography and culture does not matter, and that it is institutions such as property rights which do matter for growth. The trouble with this is that North Korea was taken over by an utter madman who was an absolute dictator and who shut off trade and contact with the outside world. Logically, it's like saying that eating well and exercise do not matter for health b/c, look, you and your brother (who got hit by a bus) ate the same things and exercised the same amount, and your brother got hit by a bus and died. Of course, looking both ways before you cross the street is also important, but then again, who is saying that it isn't? (Acemoglu is basically saying it's the only thing...) The question is which institutions matter, and since North Korea got almost all institutions terribly wrong, the North Korea/South Korea split is actually not insightful.
b) In 'moglu logic, the "Reversal of Fortune" was supposedly that countries like Argentina and North America which were poor in 1500 are now rich, and vice versa has just one flaw. The peoples who lived in modern day argentina and north america are now dead, not rich. and we don't actually have any idea that say, north america was more/less developed than mexico. and certainly don't know if it was rich (and those are two different things, which acemoglu doesn't understand, b/c the world was malthusian then.
8) How does a tenured faculty member at MIT in economics not understand the Malthusian model? WTF?
9) In fact, there are many theories that can be taken "off the shelf" so-to-speak, which do tell us quite a bit about economic development, such as in Krugman's Geography & Trade, the Malthusian Model, Crosby-Jared Diamond, Engerman-Sokoloff, etc., which are all either butchered in Acemoglu's retelling or omitted.
OK, so I've clearly used up more actual thought writing this review than Acemoglu has in his entire research career.
In short, this book is sooooo bad it discredits: not Acemoglu, b/c u can't blame him necessarily, he is what he is, but rather, it completely discredits MIT economics, Robert Solow, growth economics (the soft underbelly of Macro, which is the soft underbelly of economics, which is the soft underbelly of Social science), and the entire economics profession. I am know dumber than i was before i read what parts of this book i could stomach. This book is bad enough to cast a black shadow over the department and the entire field of economics. This book is fodder for those who equate economists with medieval priests or doctors, who babble on about things about which they know nothing, and have no value-added to society.
This book is of interest to sociologists or anthropologists wishing to document the funny "sociology of economics" and the anachronistic, heavily ideological lens with which conservative economists view the world.
Lastly, it is rather strange that while many decrie the fall of U of Chicago, the decline and fall of MIT Economics has hardly been commented on. Clearly, Acemoglu's rise at MIT can and should be equated (in its impact on educated society) with the Vandals sacking of Rome.
that is all.
Have a great day!!!
Thursday, April 16, 2009
Summers Wikipedia Page...
Not everything I've added still stands, yet, nevertheless, it does look like much of the dirt on Summers I added (all with citations) is still there...
Check it out: http://en.wikipedia.org/wiki/Lawrence_Summers
Check it out: http://en.wikipedia.org/wiki/Lawrence_Summers
Larry dollar-billz-y'all Summers...
He's become the most prominent Summers critic out there... Guy deserves props. I suspect he's not going to be invited to the White House for any "things" anytime soon...
and then we get this interesting Summers-tidbit at the end:
We discovered, for instance, that Lawrence Summers, the president’s chief economic adviser, made $5.2 million in 2008 from a hedge fund, D. E. Shaw, for a one-day-a-week job. He also earned $2.7 million in speaking fees from the likes of Citigroup and Goldman Sachs. Those institutions are not merely the beneficiaries of taxpayers’ bailouts since the crash. They also benefited during the boom from government favors: the Wall Street deregulation that both Summers and Robert Rubin, his mentor and predecessor as Treasury secretary, championed in the Clinton administration. This dynamic duo’s innovative gift to their country was banks “too big to fail.”
Some spoilsports raise the conflict-of-interest question about Summers: Can he be a fair broker of the bailout when he so recently received lavish compensation from some of its present and, no doubt, future players? This question can be answered only when every transaction in the new “public-private investment plan” to buy the banks’ toxic assets is made transparent. We need verification that this deal is not, as the economist Joseph Stiglitz has warned, a Rube Goldberg contraption contrived to facilitate “huge transfers of wealth to the financial markets” from taxpayers.
But perhaps I’ve become numb to the perennial and bipartisan revolving-door incestuousness of Washington and Wall Street. I was less shocked by the White House’s disclosure of Summers’s recent paydays than by a bit of reporting that appeared deep down in the Times follow-up article on that initial news. The reporter Louise Story wrote that Summers had done consulting work for another hedge fund, Taconic Capital Advisors, from 2004 to 2006, while still president of Harvard.
That the highly paid leader of arguably America’s most esteemed educational institution (disclosure: I went there) would simultaneously freelance as a hedge-fund guy might stand as a symbol for the values of our time. At the start of his stormy and short-lived presidency, Summers picked a fight with Cornel West for allegedly neglecting his professorial duties by taking on such extracurricular tasks as cutting a spoken-word CD. Yet Summers saw no conflict with moonlighting in the money racket while running the entire university. The students didn’t even get a CD for his efforts — and Harvard’s deflated endowment, now in a daunting liquidity crisis, didn’t exactly benefit either.
Summers’s dual portfolio in Cambridge has already led to one potential intermingling of private business and public policy in his new White House post. He tried — and, mercifully, failed — to install the co-founder of Taconic in the job of running the TARP bailouts. But again, Summers’s potential conflicts of interest seem less telling than the conflict of values that his Harvard double-résumé exemplifies.
In the bubble decade, making money as an end in itself boomed as a calling among students at elite universities like Harvard, siphoning off gifted undergraduates who might otherwise have been scientists, teachers, doctors, entrepreneurs, artists or inventors. The Harvard Crimson reported that in the class of 2007, 58 percent of the men and 43 percent of the women entering the work force took jobs in the finance and consulting industries. The figures were similar everywhere, from Duke to the University of Pennsylvania. Dan Rather, on his HDNet television program in December, reported that at Penn this was even true of “over half the students who graduated with engineering degrees — not a field commonly associated with Wall Street.”
Clearly the last person to serve as an inspiring role model for alternative values would have been Summers. But in her first baccalaureate address last June, his successor as Harvard president, Drew Gilpin Faust, stepped into that moral vacuum, zeroing in on the huge number of students heading into finance, consulting and investment banking. “Find work you love,” she implored the class of 2008. The “most remunerative” job choice “may not be the most meaningful and the most satisfying.”
and then we get this interesting Summers-tidbit at the end:
When Lawrence Summers was president of Harvard, he famously delighted students by signing his autograph on dollar bills that already bore his signature from his Treasury secretary days. How we leave that bankrupt culture behind and get to “something good” will be as much a factor in our recovery from this Depression as the fate of the unemployment rate and the Dow.This is pretty much all par for the course... Although the Obama admin has done a few great things that may well have emanated from Summers (funding the IMF -- awesome! -- easing travel restrictions on Cuba, funding for health care), the Obama Admin will never reach its potential with Summers at the helm...
Saturday, April 11, 2009
more bad summers news (broken arm blogging)
Paul Krugman writes:
This is par for the course if you are a Larry Summers critic.
The second item is that my WSJ tells me that Paul Volcker has essentially given up from trying to have any influence... He's completely out of the loop, and so beaten-down that he's not even complaining about it anymore. He's given up. Submissive. Was just completely outmanoeuvred by Larry Summers...
Only a few people warned that this supercharged financial system might come to a bad end. Perhaps the most notable Cassandra was Raghuram Rajan of the University of Chicago, a former chief economist at the International Monetary Fund, who argued at a 2005 conference that the rapid growth of finance had increased the risk of a “catastrophic meltdown.” But other participants in the conference, including Lawrence Summers, now the head of the National Economic Council, ridiculed Mr. Rajan’s concerns.
This is par for the course if you are a Larry Summers critic.
The second item is that my WSJ tells me that Paul Volcker has essentially given up from trying to have any influence... He's completely out of the loop, and so beaten-down that he's not even complaining about it anymore. He's given up. Submissive. Was just completely outmanoeuvred by Larry Summers...
Thursday, April 2, 2009
a reason 4 my silence...
thorstein veblen might be all-powerful when it comes to women, but it turns out, his bones are still as brittle as any mortal man -- and hence, he broke an arm 'boarding in a dangerously icy half-pipe awhile back, hence the low posting volume as of late. yet, he shall return!
in any case--there is a bit of shocking larry summers news --
http://tpmmuckraker.talkingpointsmemo.com/2009/04/larry_summers_ignored_frightening_trading_practice.php
in any case--there is a bit of shocking larry summers news --
http://tpmmuckraker.talkingpointsmemo.com/2009/04/larry_summers_ignored_frightening_trading_practice.php
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