The same thing causing the slow recovery, also caused the recession

Saturos and Johnleemk sent me an excellent speech by William Dudley of the NY Fed.  As usual I’ll start by nitpicking, but then end on a positive note:

In my view, the primary reason for the poor performance of the U.S. economy over this period has been inadequate aggregate demand. There are several explanations for this. Although some were well-known earlier, others have only become more obvious as the recovery has unfolded. . . .

During the credit boom, finance is available on easy terms and the economy builds up excesses in terms of leverage and risk-taking. When the bust arrives, credit availability drops sharply and financial deleveraging occurs. Wealth falls sharply, precautionary liquidity demands increase, desired leverage drops further. . . .

When the bust arrives, over-indebted households and businesses want to increase their saving and liquidity buffers, and financial intermediaries want to raise credit standards. Both responses restrain demand and make a cyclical rebound more difficult.

The Fed’s job is to determine AD, so I’m glad to see they are taking some responsibility for the slow recovery.  But do you notice something missing?  He talks about the “bust” and then the slow recovery, but there is no mention of the recession.  What happened to the great RGDP and NGDP crash of June through December 2008?  Many people think that was the “bust.”  Nope, the housing bust of January 2006 to April 2008 had virtually no impact on the US unemployment rate.   Then unemployment soared when NGDP collapsed, not in the earlier 27 month period when housing construction crashed and banks tightened lending standards.  In mid-2008 economists weren’t even predicting a sharp rise in unemployment for 2009, even though the “bust” was fully understood. Dudley continues:

In the U.S. case, because the bust was concentrated in housing, the scope for a strong cyclical recovery was particularly constrained because the interest-rate sensitive sector that would typically lead such a rebound could not recover until the overhang of unsold homes and the impairment of housing finances was corrected.

Nope.  The steep June 2008 to December 2008 RGDP crash was caused by a huge drop in non-housing output, and hence housing in no way restrained the recovery.  Housing was completely in the toilet in April 2008 and unemployment was still only 4.9%.  All we needed to do to recover was to get NGDP up to a level where the other industries returned (in aggregate, not individually) to April 2008 levels.  Dudley is still misdiagnosing the crisis, and hence not putting enough blame on the Fed for the slow recovery.

The U.S. recovery has also been subpar because it has been taking place in the context of a weak global economy.

That’s true, but not a major problem for a big economy like the US.  Stimulus here would change the entire global outlook.

After all, on the other side of the ledger, the policy response following the crisis has been much more aggressive than is typical. On the monetary policy side, the Federal Reserve cut short-term interest rates close to zero, communicated that short-term rates were likely to stay exceptionally low far into the future, and undertook a series of large-scale asset purchases in order to ease financial conditions further.

Yes, but these things should have been done before or during the Great NGDP Crash.  Instead the Fed didn’t cut rates to zero until (according to monthly data from Macroeconomics Advisers) the Great NGDP Crash was essentially over.  By then the economy was very weak, credit demand was extremely low, and far more aggressive monetary stimulus was needed.

Dudley then discusses 4 factors that slowed the recovery, before getting to the key factor:

I would give each of these four explanations some weight for why the recovery has been consistently weaker than expected. But I would add a fifth, monetary policy, while highly accommodative by historic standards, may still not have been sufficiently accommodative given the economic circumstances.

Translation:  Sumner and the other market monetarists were right in 2008-09, and we at the Fed were wrong.  Was I right because I’m a genius?  Clearly not.  Am I like the broken clock that’s right twice a day?  Maybe, but then explain why at no time in my life did I ever call for much easier money, until late 2008.  I’m a Chicago-trained inflation hawk.  Luck?  Or as Krugman would say, the right model?  It turns out that it was blindingly obvious money was too tight, because the markets were screaming for easier money. It’s just that no one (except Cramer on Mad Money) seemed to notice.

[I wish someone could find a Youtube of Cramer blowing his top in late 2008, when the BOE cut rates and gave hope to the markets, and then the ECB dashed the hopes by doing nothing a few hours later.]

My conclusion is that the easing of financial conditions resulting from non-traditional policy actions has had a material effect on both nominal and real growth and has demonstrably reduced the risk of particularly adverse outcomes.  Nevertheless, I also conclude that, with the benefit of hindsight, monetary policy needed to be still more aggressive. Consequently, it was appropriate to recalibrate our policy stance, which is what happened at the last FOMC meeting.

I get shivers down my spine (in a good way) when any VIP uses the term ‘nominal growth.’

As I argued in a recent speech, simple policy rules, including the most popular versions of the Taylor Rule, understate the degree of monetary support that may be required to achieve a given set of economic objectives in a post-financial crisis world. That is because such rules typically do not adjust for factors such as a time-varying neutral real interest rate, elevated risk spreads, or impaired transmission channels that can undercut the power of monetary policy.

Yup, and the markets know best what sort of policy is needed.

However, policymaking is about making choices between available alternatives. In the long run, even savers would be better off in a world in which aggressive monetary policy generates a strengthening recovery that eventually permits the normalization of interest rates, than they would be compared to a circumstance in which the United States allowed itself to fall into a Japan-style trap of low growth and low rates for decades. So I do not view the effect of low rates on savers as a reason to be less accommodative.

Exactly.

I’ve covered on a few areas where I slightly disagree.  But the paper is full of very wise comments about the interaction of structural changes and monetary policy.  I strongly agree with most of Dudley’s observations.  Read the whole thing.

PS.  In some respects the Board of Governors actually has 8 members, as the New York Fed president always votes on the FOMC.  Good to know the NY Fed president is Dudley.  Now that Kocherlakota has flipped, I’m pretty sure we’ll never see more than 2 hawks on the FOMC at any one time.

Yes Romney (in the unlikely event he’s elected) may get rid of Bernanke.  But he secretly supports Bernanke’s policy, and indeed publicly supported it until the entry of Fed-bashing Rick Perry threatened his path to the nomination.  That’s why Romney would not appoint Taylor to be Fed chief, he’d fear that another 1937 would cost him re-election.  It would be Greg Mankiw, and the Bernanke policy would be continued.


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34 Responses to “The same thing causing the slow recovery, also caused the recession”

  1. Gravatar of marcus nunes marcus nunes
    15. October 2012 at 19:49

    Scott
    I think I succeed in showing that all the so called financial crises induced recessions were mostly caused by the Fed letting NGDP crash. And the robustness of recoveries were also the consequence of robust NGDP growth.
    http://thefaintofheart.wordpress.com/2012/10/16/fire-back-on-the-big-lie-that-recoveries-following-financial-crises-induced-recessions-are-slow/

  2. Gravatar of Morgan Warstler Morgan Warstler
    15. October 2012 at 19:50

    “I’m a Chicago-trained inflation hawk.”

    This is true.

    It is also sometimes true that the gal decked on in Lilly Pulitzer is deeply and “udderly” depraved.

    The difference is we can understand her public modesty, since the consequences of her lies are her own; we know somewhere / sometime she privately enjoys admitting the truth, she doesn’t live in denial as a nun.

    You however, have NEVER said out loud, “my plan = less inflation historically”

    So we have before us a woman in full prim and proper garb insisting she went to Smith as proof of the wild woman inside.

  3. Gravatar of Major_Freedom Major_Freedom
    15. October 2012 at 20:12

    The Fed’s job is to determine AD, so I’m glad to see they are taking some responsibility for the slow recovery.

    Actually, the Fed’s job is to ensure long term low price inflation, which it has done since 2000 (2.4% per year). Don’t forget to take into account the pre-2007 price spike whenever any post-2008 price collapse is considered, and don’t forget that the Fed targets long term price inflation.

    But do you notice something missing? He talks about the “bust” and then the slow recovery, but there is no mention of the recession. What happened to the great RGDP and NGDP crash of June through December 2008? Many people think that was the “bust.” Nope, the housing bust of January 2006 to April 2008 had virtually no impact on the US unemployment rate. Then unemployment soared when NGDP collapsed, not in the earlier 27 month period when housing construction crashed and banks tightened lending standards.

    Nope. You have the causation backwards. NGDP crashed because employment crashed and the spending out of wages along with it, and, again, the Fed isn’t targeting NGDP. Even if spending on final output expanded via direct inflation, that is not the same thing as financing wages. NGDP can rise by billions without a single additional nickel going to wages.

    As for employment, the rate of growth in employment was already declining by late 2005 / early 2006. The growth peaked in early 2008, then precipitously fell thereafter. THEN months later NGDP peaked and started to decline around mid-2008. By the time NGDP growth peaked, employment was already collapsing fast.

    Nope. The steep June 2008 to December 2008 RGDP crash was caused by a huge drop in non-housing output, and hence housing in no way restrained the recovery. Housing was completely in the toilet in April 2008 and unemployment was still only 4.9%. All we needed to do to recover was to get NGDP up to a level where the other industries returned (in aggregate, not individually) to April 2008 levels. Dudley is still misdiagnosing the crisis, and hence not putting enough blame on the Fed for the slow recovery.

    Nope. The problem was not insufficient aggregate spending. The problem was that which caused aggregate spending to fall without the Fed burning federal reserve notes. The problem was incorrect spending and pricing that prior inflation caused. Market monetarists are still misdiagnosing the crisis, and hence not putting enough emphasis on economic calculation.

    That’s true, but not a major problem for a big economy like the US. Stimulus here would change the entire global outlook.

    Sure, it would, but it would only put us to a worse position in the future, just like inflation post-dot.com put us in the path of a housing bubble and financial crisis.

    Yes, but these things should have been done before or during the Great NGDP Crash. Instead the Fed didn’t cut rates to zero until (according to monthly data from Macroeconomics Advisers) the Great NGDP Crash was essentially over. By then the economy was very weak, credit demand was extremely low, and far more aggressive monetary stimulus was needed.

    The economy was weakened during the boom. Credit demand was low like alcohol demand is low during a hang-over. Over $2 trillion of credit was created out of thin air from the late 1990s to the housing bust.

    A more weak monetary policy was needed.

    The issue is not about “spending.” It is about the right kind of spending. Central bank inflation does not provide the right kind of spending. More aggressive monetary policy is just more of the wrong kind of spending.

    We have a bad monetary system. Deal with it. A different rate of hitting CTRL+P doesn’t solve the core problem. It’s the fact that all CTRL+P central planner imposed “rules” are not subject to the market test of profit and loss.

    I get shivers down my spine (in a good way) when any VIP uses the term ‘nominal growth.’

    That’s probably due to the fact that market monetarism is a political strategy, not economics, and political strategies are “tested” by whether or not political power centers adopt that strategy.

    There is no “What do you as an individual want, in accordance with respecting the property rights of others?” No, when it comes to the individual, it is “You may be a net loser due to my central plan, but I don’t care if you are harmed, because I feel giddy when the thugs harming you notice me.”

  4. Gravatar of Major_Freedom Major_Freedom
    15. October 2012 at 20:14

    marcus nunes:

    I think I succeed in showing that all the so called financial crises induced recessions were mostly caused by the Fed letting NGDP crash.

    Lesson #1: Correlation is not causation.

  5. Gravatar of Major_Freedom Major_Freedom
    15. October 2012 at 20:21

    The needed relative pricing corrections cannot occur with inflation. They require liquidation of malinvestments founded upon prior inflation, which requires an absence of inflation, not more inflation.

    If you can’t think outside the central banking box, if you insist that the solution must reside within the central banking box, you will NEVER correctly diagnose the problem.

  6. Gravatar of Jim Crow Jim Crow
    15. October 2012 at 20:46

    Well, regardless of what Romney believes he’s got a coalition behind him with some fairly obvious policy desires. And Fed appointees do require Senate confirmation. If the majority of Romney’s coalition wants an idiot on the Fed board, they’re getting an idiot on the Fed board. They can simply and effortlessly prevent any non-idiots from being confirmed. Whether you like the Republican party or not, they are very disciplined. They’re going to get whatever their power allows and they’re going to have some pretty substantial levers to use on Romney if he wins, just as the framers intended.

  7. Gravatar of Major_Freedom Major_Freedom
    15. October 2012 at 20:59

    If the majority of Romney’s coalition wants an idiot on the Fed board, they’re getting an idiot on the Fed board.

    Wait, I thought Romney wasn’t going to re-nominate Bernanke?

  8. Gravatar of ChargerCarl ChargerCarl
    15. October 2012 at 23:49

    Is Bernanke not accepting a re-nomination? I heard on the radio that if Obama is re-elected it would be between Yellen and Romer.

  9. Gravatar of John John
    15. October 2012 at 23:56

    Here’s the hilarious Cramer moment.

    http://www.youtube.com/watch?v=rOVXh4xM-Ww

  10. Gravatar of John John
    16. October 2012 at 00:01

    It’s worth noting that this video came out in the summer of 2007 and not 2008.

  11. Gravatar of Saturos Saturos
    16. October 2012 at 00:44

    I would definitely vote for Romney if it got Mankiw as the next Fed Chair.

  12. Gravatar of Saturos Saturos
    16. October 2012 at 00:46

    I hope you’re right, Chargercarl, Christina Romer would also be a great choice. Bernanke might have his heart in the right place but he’s got too much political baggage now. If he left he could become “wise old Ben” rescuing the galaxy.

    [I mention this in part as I recall Scott knows nothing about Star Wars ;P)

  13. Gravatar of Saturos Saturos
    16. October 2012 at 00:48

    Is the Fed finally coming to understand that the Taylor rule is absurd, as the “exogenous” equilibrium rate variable is in fact endogenous?

  14. Gravatar of Morgan Warstler Morgan Warstler
    16. October 2012 at 00:49

    Mankiw is a fine choice.

    He sets NGDPLT at 4.5% with no make-up.

    We hit the LT, and IMMEDIATELY the Fed begins screaming that we must automate public sector.

    “Cut public sector, and we can keep rates low!”

    We can have teh awesome tight money and still run NGDPLY until cows come home.

  15. Gravatar of Saturos Saturos
    16. October 2012 at 03:07

    If by cutting the public sector you mean reducing govt borrowing, wouldn’t that always make rates lower than otherwise?

  16. Gravatar of Morgan Warstler Morgan Warstler
    16. October 2012 at 03:34

    No I mean by firing public employees, so that AD shifts lower.

    REAL productivity gains are deflationary. We have now 23M public employees.

    A likely Romney plan would be to use the “Race to the Top” model to dangle big federal money in front of State and Local Govts, based on which government adopted the money labor saving apps.

    This turns Silicon Valley on it’s ear. Suddenly $100B cut from state and local budgets is $20B in ANNUAL tech revenue for start ups making apps. $500B cut is $100B in new annual revenue.

    We’re talking the NEXT BIG HONKING THING. Not another social sharing network based on ad dollars.

    GOV2.0: there’s an app for that. Parking, fishing, court, traffic, potholes, education, social security, health…

    Apps are re-usable, licensable, easy, and push citizens to use / have smart phones.

    Al the while, AD is dropping in public sector, while private sector gets to make it up… OR the fed keeps rates low.

    If inflation happens, we have to get Public Sector delivering gains (fire Madge the cashier in cafeteria) of Tom (the ADA) can’t have his raise. But genrally, in face of even 4.5% inflation, we aren’t going to be keep Public Sector pay up.

    Look, if you are President Romney you want to WIN OVER Silicon Valley AND you want to gut Public Sector Unions (the bulk of your opposition’s campaign funds

    If Romney win and then does it right, the next Dem in 2016 might have to take public funds to campaign!

    A man can’t help but dream.

    Back to work.

  17. Gravatar of Saturos Saturos
    16. October 2012 at 03:56

    Morgan, it doesn’t matter which sector spending is coming from, only that the sum of all people’s spending (whichever sector they earnt the money in) is enough. NGDPLT means the Fed will only have to lower rates to keep spending up if the “natural equilibrium” rate falls. And that depends on aggregate borrowing and saving, so unless firing public workers impacts on that, there’s no reason why it (as opposed to reducing deficits) would allow Fed to keep rates lower.

  18. Gravatar of ssumner ssumner
    16. October 2012 at 06:01

    John, Thanks, but the one I want came out in late 2008. It would be on a date where the BOE cut rates, and then later in the morning the ECB refused to cut rates. There is probably only one day in late 2008 that fits that description. I don’t know if the film even exists.

    Saturos, I’ve seen all the Star Wars films.

  19. Gravatar of StatsGuy StatsGuy
    16. October 2012 at 06:27

    Cramer’s famous rant, and the one I remember vividly (because it expressed my own frustration), was the one John linked above.

    Here is a compilation of his 2008 Fed rants, however… It might be in here, but I don’t know which one. I’ll listen through later today and see if I can find one that matches your description.

    http://www.youtube.com/watch?v=rOVXh4xM-Ww&playnext=1&list=PLB840659051633FCA&feature=results_main

  20. Gravatar of StatsGuy StatsGuy
    16. October 2012 at 06:33

    “REAL productivity gains are deflationary.”

    Morgan, that is outright false. Real productivity gains can be inflationary or deflationary, depending on the elasticity and cross elasticity of demand.

    When flat screen TVs fell from the high statosphere to the mid-stratosphere, that was inflationary – we saw category expansion and upgrading from tube TVs (lower cost, inferior) to higher cost but superior flat panels. This created an overall increase in AD. The average price of a TV bought increased, but the quality also increased dramatically. Indeed, in this situation, I don’t even know how to measure “inflation”.

  21. Gravatar of Saturos Saturos
    16. October 2012 at 06:34

    Hmmm, I remember you being confused by a reference Tyler made several months ago on MR, regarding “striking down old Ben so he comes back stronger”. The consensus was that Ben Bernanke is not Ben Kenobi. As a film buff do you share his contrarian take on the the prequels? or is that just Tyler being, you know, contrarian?

  22. Gravatar of Suvy Suvy
    16. October 2012 at 07:19

    To be fair, the unemployment rate also increased as the increase in total debt turned to a decrease in total debt–in other words, when debt started to decelerate. Debt does matter in an economy.

    One thing the housing bust did do is that it showed the structural failures of the past 30 years. Much of the employment that we have now is a structural problem; it’s not all just demand related, so even if the Fed did more to prop up demand(and I think they should’ve done more), we would still have an unemployment problem.

    The fall in NGDP is a part of AD, but you also have to include the turnover of assets. As the turnover of assets fell, an increase in NGDP would have helped increase AD. The problem was that the asset-driven boom was unsustainable. The price/rent ratio(or the house prices in real terms or the house price/median income ratio or whatever ratio you want to use) increased 70% from 1998 to late 2005/early 2006, which means an increase of around 8% annually while NGDP increased by around 45-50%, which is an annual rate of around 5% while RGDP increased by an annual rate of 2.8%(we’ll say that inflation measured by price level was 3% because P=NGDP/RGDP). Historically, house prices are usually inflation neutral so that would mean that house prices grew at a rate of 5%(at least) above the rate they should have for around 8 years. So house prices would need to correct.

    As for housing being in the toilet in April 2008, in the area that I live in, that’s when house prices peaked. Prices only fell about 20-25% in relation to rents in April 2008, the correction still kept occurring and reducing from demand until earlier this year, so the reduction from demand stopped very recently. So to say that unemployment was completely unaffected by the fall in housing doesn’t seem to fit the data. Also, with something like housing, there’s usually a time lag to when the impact to demand shows up. So if we say the impact to demand is right around a year, demand started to slow down around early 2007ish and the unemployment rate started to drop around 2008, which makes sense

    The great thing about NGDP targeting is that because RDP fell, we would create inflation to increase the price level and house/asset prices wouldn’t have to correct as much, reducing the shock to AD. So NGDP targeting would reduce the demand shock by a lot which would mean that unemployment wouldn’t have fallen as much. That’s the thing I really like about NGDP targeting.

    However, the part that I think is critical to why unemployment is high is because it is STRUCTURAL. We had an economy for the past 10 years that was driven, in large part, due to a housing bubble. We had an economy over the past 30 years that was driven by an unsustainable expansion in credit. All of those factors added to demand on the way up and was a misallocation of resources and capital. Even if policy was perfect since 2008, unemployment would still be high because the unemployment is STRUCTURAL. THE FACT THAT UNEMPLOYMENT IS SO HIGH IS NOT JUST A DEMAND SIDE PROBLEM, IT’S A STRUCTURAL PROBLEM AS WELL!!! The best example to illustrate this is the fact that 50% of businesses are having trouble finding workers.

  23. Gravatar of Suvy Suvy
    16. October 2012 at 07:24

    NGDP targeting would minimize the fall in unemployment that was related to demand, but that doesn’t mean that unemployment would be 4-5% just because we targeted NGDP from 2007-2012. What we need is an economy that’s built on producing things rather than an economy that is inflated by an artificial credit boom.

    In a way, all of the problems that we have are structural; not just demand related. We need an economy that is focused on genuine investment, not on Ponzi growth that is based on asset bubbles. We need an economy built on sustainable growth, not on unsustainable asset bubbles

  24. Gravatar of Morgan Warstler Morgan Warstler
    16. October 2012 at 09:04

    Stats,

    “Indeed, in this situation, I don’t even know how to measure “inflation”.”

    I do.

    Real productivity gains are deflationary. You get MORE for the same amount of money.

    Saturos, you are arguing with Scott.

    Look, liberals argue that cutting govt. cuts AD. And we can’t do that during recession!

    Scott’s TRICK is that under NGDPLT, there is no longer a valid argument that AD will affected.

    So cut away! Gut ‘em! The Fed will make sure we don’t feel it!

    So now the logic is simple:

    At 4.5% RGDP and zero inflation, pushing toward 5% RDGP… we have the right out screaming that Fed can keep rates lower (not raise them) if we reduce pub. sector workforce. Cut public workforce, and BAM! we have lower NGDP!

    At 4.5% inflation and zero RGDP we have public.sector NOT GETTING RAISES – that would increase inflation!!! and we’d have to raise rates!

    BTW, January 1993, Greenspan specifically told Bill he had to choose between “investing” in public sector or private sector rates staying low.

    Expect the right to MAKE IT CLEAR when we have only one totally un-confusing metric called NGDPLT and it determines the cost of $, it’s be Clinton in 1993 for a long long time.

  25. Gravatar of Doug M Doug M
    16. October 2012 at 09:19

    You are playing fast and loose with some of the timing of these numbers.

    When did housing bust? According to Case-Shiller, prices started to depreciate in early 2007. But, if we are going to look at a spike in construction related employment, then prices are not the correct guide. Using building permits as a proxy for construction activity, permits peaked in mid-2007 and declined until 2009.

    What happened in mid-2008 was a finance bust And, that was a dentate bust. While housing was a catalyst for the bust, I would say that many of the instabilities were independent from housing.

    To say that the bust was well understood in mid-2008 absolutely ridiculous. Just look at what happened in the back half of 2008.

    To say that unemployment rose when GDP collapsed is not particularly insightful. GDP IS Employment * Productivity. If GDP falls then either productivity has declined, or payrolls have been slashed. Usually one followed by the other.

    NGDP is not demand. NGDP is output. Typically, demand (sales) falls before NDGP falls. The output in excess of demand appears as an inventory build-up. To say that income equal output (an identity of economics) one must have involuntary demand.

    The change in the unemployment rate has a slight lag to the actual economy, and the level of the unemployment rate has a severe lag (1-2 years) to a turn in the economy.

  26. Gravatar of Justin Irving Justin Irving
    16. October 2012 at 15:09

    @Saturos, I agree 100%. Mankiw would be great. Bernanke has showed that you can’t foretell a Fed chief’s actions based on what he has written, but I figure Mankiw would still increase the odds of easier money. He made his name after all writing about *level targeting* a wage index, even better than NGDPLT!

  27. Gravatar of ssumner ssumner
    16. October 2012 at 17:16

    Saturos, The prequels were much worse than the first two films. I’m shocked Tyler thought otherwise.

    Doug, No you are wrong. Housing construction peaked in January 2006, by April 2008 most of the crash was over.

    NGDP is aggregate demand, and also nominal output.

  28. Gravatar of Major_Freedom Major_Freedom
    16. October 2012 at 18:38

    StatsGuy:

    “REAL productivity gains are deflationary.”

    Morgan, that is outright false. Real productivity gains can be inflationary or deflationary, depending on the elasticity and cross elasticity of demand.

    No StatsGuy, Morgan is outright RIGHT. The way to understand it is to consider real output in the aggregate, not for a given individual good.

    When real output expands, then, ceteris paribus, prices will be lower than they otherwise would have been. Prices are a function of supply and demand. Think of the ratio Price = D/S. Holding demand D constant, an increase in supply S will decrease the ratio (price).

  29. Gravatar of Edward Edward
    16. October 2012 at 19:52

    “The way to understand it is to consider real output in the aggregate”

    I thought Austrians didnt believe in aggregates

  30. Gravatar of An excellent speech by William Dudley of the NY Fed: The same thing causing the slow recovery, also caused the recession « Economics Info An excellent speech by William Dudley of the NY Fed: The same thing causing the slow recovery, also caused the recession « Economics Info
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    [...] Source [...]

  31. Gravatar of Major_Freedom Major_Freedom
    18. October 2012 at 19:19

    Edward:

    I thought Austrians didnt believe in aggregates

    They do, they just don’t hold them as primary, or the engine, or the foundation, of economic phenomena.

  32. Gravatar of Major_Freedom Major_Freedom
    18. October 2012 at 19:21

    In other words, price elasticity cancels in the aggregate. Real supply is deflationary in the aggregate.

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    [...] recognition because further on we learn that: Nor was the speech a full mea culpa. Dudley took no responsibility for the downturn itself in the way that Chairman Ben Bernanke famously blamed the Fed for the [...]

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