Over at Freakinomics Justin Wolfers makes the following observation:

There’s interesting research waiting to be done explaining just why some countries have been hit harder by the global financial crisis than others. . . .

[Graph showing bigger declines in GDP in countries with larger medium and high-skilled manufacturing sectors]

The lesson: the greater your involvement in producing high-value goods, the harder the fall. Perhaps macroeconomic stability comes despite GM, rather than because of it.

Suppose the big drop in GDP in countries like Germany, Japan and Taiwan was not caused by the financial crisis, but rather by the huge drop in worldwide aggregate demand.  In that case wouldn’t you expect output to fall faster in countries that had relative large capital goods sectors (including consumer durables like cars and flat panel TVs?)  And shouldn’t the recession be milder in countries that focus on services, such as the US and UK?  If so, then there’s really nothing “interesting” to be explained.  Sorry to be such a killjoy, but the answer is right in front of our face, we simply refuse to see it.  Monetary policy errors allowed NGDP to fall not just in the US, but almost everywhere.  The results are exactly what the textbooks say should happen.

Den ganzen Beitrag lesen…

A couple of weeks ago I briefly discussed the first important election of 2009, in which Indian voters ousted the communists from government and gave the Congress party an opportunity to accelerate the pace of market reforms.  Now the European voters have spoken:

BRUSSELS – Conservatives scored victories in some of Europe’s largest economies Sunday as voters punished left-leaning parties in European parliament elections in France, Germany and other nations.

Some right-leaning parties said the results vindicated their reluctance to spend more on company bailouts and fiscal stimulus to combat the global economic crisis.

The European Union said center-right parties were expected to take the most seats “” 267 “” in the 736-member parliament. Center-left parties were headed for 159 seats. The remainder were expected to go to smaller groupings.

Right-leaning governments were ahead of the opposition in Germany, France, Italy and Belgium, while conservative opposition parties were leading in Britain and Spain.

Spain, Britain, Germany, France and Italy, I’d say that’s more than “some of Europe’s largest economies.”  Notice that European voters didn’t simply punish the party in office, as one might expect, but singled out those with left-wing views on economic issues.

Den ganzen Beitrag lesen…

In an earlier post I argued that Fed policy almost always reflects the consensus views of economists, and therefore that most economists fail to perceive major monetary policy failures at the time and place they occur.  I applied that conjecture to episodes of inflation and deflation.   Let’s see if we can take that conjecture even further today.

I’d like to argue that almost every American recession shares two characteristics:

1.  Recessions are caused by a slowdown in NGDP growth, which is triggered by tight money.

2.  During every recession most economists fervently deny point 1 applies to the current problem.

That’s a pretty bold claim, but what else would you expect from a blog entitled “The Money Illusion?”

Den ganzen Beitrag lesen…

I am currently on vacation and hadn’t planned on posting, but I thought maybe I should let people know that I didn’t simply disappear.  Unless something major comes up I probably won’t do any more posts until this weekend. I’ll try to catch up on comments when I return.

Den ganzen Beitrag lesen…