The Numbers Game -- The Economic Recovery

[Chris]

This will return us to the spirit of my series of threads generally titled "Economics is Fun". This one is "The Numbers Game". I will post them when I find them.

Russ Roberts, isn't as fun, but he brings economics down to earth so most anyone interested can understand, though not necessarily agree!



This is part one, I'll post part 2 when I see it.

If you click and go to youtube, you will find references to papers on what they're discussing.

If you go to Russ Roberts: Why Keynesians Always Get it Wrong (and Most Economists Too), in which Roberts is interviewed, you'll get some background on who he is and what school of economics he generally follows. I've been listening to his podcasts at EconTalk for years.

[head of joaquin]

Hey kids, let's pretend that the Bush meltdown had nothing to do with the income gap and the bubble caused by tax cuts. No serious economist discounts the stimulus power of government spending during a recession. It's econo 101, even for monetarists (though they disagree about the ultimate benefits and most efficient ways of proceeding).

Let's pretend.

[Chris]

No serious economist discounts the stimulus power of government spending during a recession. It's econo 101, even for monetarists (though they disagree about the ultimate benefits and most efficient ways of proceeding).

Ignoring your poisoning of the well, it is true, in general, both monetarists and Keynesians advocate stimulii.

Problem is, as is discussed in the Robert's interview, neither monetarists nor Keynesians have any factual evidence to support what is otherwise wishful thinking.

[Peter1469]

Hey kids, let's pretend that the Bush meltdown had nothing to do with the income gap and the bubble caused by tax cuts. No serious economist discounts the stimulus power of government spending during a recession. It's econo 101, even for monetarists (though they disagree about the ultimate benefits and most efficient ways of proceeding).

Let's pretend.

Yes they do. You are limiting your economic view to the Keynesian school (and neo-Keynesian). We have seen the failure of government spending through QE1, 2, and now 3. Lets look at QE3. It is a promise that the fed will buy $40B per month of troubled assets (worthless mortgage derivatives) for an unlimited period of time. (That was the basis of TARP under Bush and the fed then said that would be a stupid investment and used the money for other stuff). The top 5 banks in the US have ~$200T of these assets off their books (because the mark to market rule was suspended). It is going to take a lot of months to buy off that much!

So why has the stock market been largely flat, if not down, since QE 3 started? According to you Keynesians it should be up.

The Great Depression proved that Keynesian economics was a failure. The slow students just have not caught on yet.

[head of joaquin]

Ignoring your poisoning of the well, it is true, in general, both monetarists and Keynesians advocate stimulii.

Problem is, as is discussed in the Robert's interview, neither monetarists nor Keynesians have any factual evidence to support what is otherwise wishful thinking.

Except that it prevented a Second Great Depression, which would have resulted from spiraling deflation. Nobody takes Austrians seriousless but kooks in compounds hoarding gold.

How's that hyperinflation thingie coming, by the way? Still just around the corner?

A huge increase in the money supply, and almost zero inflation. What does that tell you?

[head of joaquin]

Yes they do. You are limiting your economic view to the Keynesian school (and neo-Keynesian). We have seen the failure of government spending through QE1, 2, and now 3. Lets look at QE3. It is a promise that the fed will buy $40B per month of troubled assets (worthless mortgage derivatives) for an unlimited period of time. (That was the basis of TARP under Bush and the fed then said that would be a stupid investment and used the money for other stuff). The top 5 banks in the US have ~$200T of these assets off their books (because the mark to market rule was suspended). It is going to take a lot of months to buy off that much!

So why has the stock market been largely flat, if not down, since QE 3 started? According to you Keynesians it should be up.

The Great Depression proved that Keynesian economics was a failure. The slow students just have not caught on yet.

Pssst: you're arguing against yourself. If we can increase the money supply that much and still have almost no inflation, think about the deflationary spiral Bush's meltdown would have caused had we not increased the money supply.

Connect the dots.

[Peter1469]

Pssst: you're arguing against yourself. If we can increase the money supply that much and still have almost no inflation, think about the deflationary spiral Bush's meltdown would have caused had we not increased the money supply.

Connect the dots.

We have inflation is some areas of the economy, fuel and food, and deflation in other areas of the economy, like home prices.

Personally, I will take deflation over inflation. That is better for savers. Inflation is better for those who live beyond their means.

Had we not increased the money supply, food and fuel would not be so high today.

[Chris]

Except that it prevented a Second Great Depression, which would have resulted from spiraling deflation.

Explain how you know this is true. Let us know how you measure the supposed multiplier effect, and what counterfactuals exist. Demonstrate that stimuli did not make things worse by prolonging recovery, which is, in fact, what has happened.

[Chris]

Part 2...



Again, go to youtube to access papers behind what they're talking about.

[Chris]

Now if you've viewed the above videos, you'll know what's wrong with Krugman's analysis:

The answer — backed by overwhelming evidence — is that this is what normally happens after a severe financial crisis....

About the evidence: The most famous study is by Harvard’s Carmen Reinhart and Kenneth Rogoff, who looked at past financial crises and found that such crises are typically followed by years of high unemployment and weak growth. Later work by economists at the International Monetary Fund and elsewhere confirmed this analysis: crises that followed a sharp run-up in private-sector debt, from the U.S. Panic of 1893 to the Swedish banking crisis of the early 1990s, cast long shadows over the economy’s future. There was no reason to believe that this time would be different.

@ The Secret of Our Non-Success

True, recoveries are slow, but that overgeneralization covers up the difference: if you compare previous recoveries from recessions and the Great Depression you'll see a much sharper incline in recovery than we're now seeing.

WHy's Krugman overgeneralize? Look at his article to see what I elided. Krugman's less an economist these days than a political hack.