The crybabies who blamed economists for not predicting the financial crisis

Back in 2008, it seems like everyone from the Queen of England on down was blaming economists for not predicting the financial crisis.  I seem to recall that Bob Lucas pointed out that economic theory explains why economists cannot predict financial crises, so our failure to do so was a feather in the cap of modern economic theory.  I also seem to recall that lots of people rolled their eyes at his seemingly too clever excuse.

In the past I’ve argued that Lucas was exactly right, but in this post I’ll assume he was wrong.  I’ll assume the EMH is wrong.  Even in that case I’m going to argue the complaints were silly, just a bunch of crybabies.

So how do I respond to those people who are moaning that we didn’t warn them that a crisis was coming?  One answer is that some economists, such as Nouriel Roubini, did issue warnings.  But then the crybabies might respond, “But most economists didn’t warn us.  How were we to know that he was the one to listen to? The economics profession as a whole should have issued a warning, so that it was unambiguously clear to the public that a financial crisis was coming.”

To summarize, a few economists did warn the public, so the crybabies’ lament only makes sense if you assume that these people wanted the profession as a whole to offer a clear credible warning to the public.  Something that would be believed.

Were you the sort of person who believed in Santa Claus, and thought he would bring you a fairytale castle floating on a cloud, with unicorns prancing about in front?  If not, why would you make such a patently unrealistic demand of the economics profession?

You wanted us to warn you that a big financial crisis was coming so that you could sell all your stocks before they went down?  I ask this because a prediction of a severe financial crisis is implicitly also a prediction of a massive asset price collapse.  So the people complaining that economists didn’t predict the financial crisis are (whether they know this or not) effectively complaining that economists didn’t warn them that their 401k plan was about to lose a few hundred thousand dollars.

Let’s suppose we have a time machine and economists from October 2008 can go back 6 months in time, to April 2008.  They are told to warn the public that a massive financial crisis is coming in the fall.  They warn the public that Lehman won’t be bailed out, and its failure will trigger a rush for liquidity and a Great Recession.  What exactly would that warning have done, other than move those events up 6 months in time?  Then the crybabies would have asked why we didn’t warn them in October 2007 (assuming they didn’t lynch the economists for causing the crash.)

And as for those stocks you were going to sell if economists had warned you of the crash—just who did you plan to sell them to?  And at what price?

A better argument is that the economics profession didn’t warn the public that public policy was creating excessive lending, as Fannie and Freddie and FDIC and TBTF were creating moral hazard.  In fact, I did warn people I met about this problem (but I completely failed to forecast the financial crisis.)  Some other economists also warned about moral hazard, but not all.  But no one wants to listen to a bunch of killjoy economists on public policy questions.  It would be like blaming economists for tariffs, or rent controls.

When I explain to non-economist commenters what economic theory tells us about some public policy, they almost universally blow off my advice, unless it coincides with their pre-existing view on that particular public policy.  No one cares what economists think, so don’t blame us for areas where we have no control.  (Monetary policy is a different case; there the economics profession actually deserves far more blame than it’s gotten from the public.)

PS.  I see that Trump threw a temper tantrum when his aides told him that Iran had been adhering to the nuclear agreement.  We now have an administration with no ability to negotiate because no one trusts them to keep their word.  The focus of his top aides is not dealing with foreign crises but rather managing unnecessary crises created by an out of control and mentally ill president.  North Korea knows we’ll renege on any agreement we sign with them, and so a nuclear deterrent is their only option.  Meanwhile they show their population images of Trump threatening to destroy their country.

Meanwhile Trump has abandoned the utilitarian approach of the Obama administration and the slaughter of innocent civilians has been skyrocketing:

Airwars reports that under Obama’s leadership, the fight against ISIS led to approximately 2,300 to 3,400 civilian deaths. Through the first seven months of the Trump administration, they estimate that coalition air strikes have killed between 2,800 and 4,500 civilians.

Trump seems like excellent black comedy to me, but unfortunately there are lots of dead women and children for whom he is no joke.

PPS:  New Flash:  Americans horrified to discover Hollywood producer behaving like a President of the United States.  Hillary and Fox News particularly disgusted by this behavior.

PPPS:  Another gem:

Speaking over the phone, Mr Reich said he asked his friend whether other Republican senators were preparing to follow Senator Bob Corker and “call it quits with Trump”.

His source told him: “Others are thinking about doing what Bob did. Sounding the alarm. They think Trump’s nuts. Unfit. Dangerous.” . . .

“Tillerson would leave tomorrow if he wasn’t so worried Trump would go nuclear, literally,” he added.

“Who knows what’s in his head? But I can tell you this. He’s not listening to anyone. Not a soul.

“He’s got the nuclear codes and, well, it scares the hell out of me. It’s starting to scare all of them. That’s really why Bob spoke up.”

Trump ran for President as a crazy man, and we are shocked to discover he is governing as a crazy man?


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42 Responses to “The crybabies who blamed economists for not predicting the financial crisis”

  1. Gravatar of Chuck Chuck
    14. October 2017 at 08:45

    The clown show rolls on and the silly goyim clap and cheer.

  2. Gravatar of Steve F Steve F
    14. October 2017 at 09:34

    It’s crazy how successful he has been at credibly selling that he is crazy.

  3. Gravatar of Jerry Brown Jerry Brown
    14. October 2017 at 10:48

    Scott Sumner, maybe you didn’t lose your job, or lose a lot of income, or have your house foreclosed on, or go bankrupt from the great recession we had. But many people did and they are not ‘crybabies’ for being upset about it.

    As the economist you love to criticize said- “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

    Do you really want to come across as defending the entire profession even though most of them missed this?

  4. Gravatar of Kevin Erdmann Kevin Erdmann
    14. October 2017 at 11:05

    The problem was the opposite. The consensus had been expecting a housing downturn for years, so when it finally came, it was seen as a return to normalcy, and signs for the need for stability were interpreted as overdue comeuppance.
    There were too many economists predicting a downturn and since a downturn wasn’t necessary, our acceptance of it led to whistling past the graveyard.
    See this graph.
    http://idiosyncraticwhisk.blogspot.com/2017/09/housing-part-257-practically-everyone.html

  5. Gravatar of Christian List Christian List
    14. October 2017 at 11:11

    I know a crybaby that cries about Trump all the time…

    I agree with the non-Trump, non-crybaby parts of your post though.

  6. Gravatar of Major.Freedom Major.Freedom
    14. October 2017 at 14:20

    “I seem to recall that Bob Lucas pointed out that economic theory explains why economists cannot predict financial crises, so our failure to do so was a feather in the cap of modern economic theory. ”

    I seem to recall that it has now been almost 10 years since you began the perpetual failure to grasp the fact that the Lucas Critique applies to NGDPLT.

  7. Gravatar of Benjamin Cole Benjamin Cole
    14. October 2017 at 16:13

    As they say “Making predictions is hard, especially about the future, and doubly so when efficient markets rule.”

    But does the public hold economists responsible for the downturn?

    Or was it missives from premier economists such as Martin Feldstein post-collapse, such as this one on
    April 19, 2009: “Inflation is Looming On America’s Horizon.”

    QE and huge budget deficits meant an inflationary holocaust was pending, said Feldstein.

    “It is surprising that the long-term interest rates do not yet reflect the resulting risk of future inflation,” Fledstein wrote. At the time of his prognosticating, 10-year U.S. Treasuries offered a 4.97% yield. Let us hope for the Feldstein family that Martin left the investing to someone else. The same bonds offer a 2.34% yield today.

    The orthodox macroeconomics profession appears unable reconcile results to theory. So they repeat what Feldstein said in 2008.

    In Japan, the Bank of Japan has bought back 45% of government bonds, and holds interest rates at 0% on 10-year JGBs. They pay negative interest on reserves. There more more job openings and than job seekers. Like the US, they cannot balance the national budget. The problem in Japan is near-deflation.

    Explain Japan using conventional macroeconomics.

    I am not sure the public at large really has any view on macroeconomists. or the craft. They do know about the New England Patriots or Harvey Weinstein.

    For econo-junkies in the public (including me), yes, the performance of the orthodox macroeconomist profession post-2008 , as exemplified by Feldstein, is lamentable at best.

  8. Gravatar of msgkings msgkings
    14. October 2017 at 16:31

    @Ben Cole:

    “Explain Japan using conventional macroeconomics.”

    Sure, population drop and high personal savings. That’s it.

  9. Gravatar of E. Harding E. Harding
    14. October 2017 at 19:03

    “Meanwhile Trump has abandoned the utilitarian approach of the Obama administration and the slaughter of innocent civilians has been skyrocketing:”

    Also, the Islamic State is losing huge cities like Mayadin and Hawija in literally under two weeks’ worth of combat. This has literally never happened before in IS’s history. Manbij in mid-2016 took two months. The Trump administration’s policies are saving lives relative to counterfactual, Sumner. You should know this. I’m not some hardcore trust-Trump-on-every-word type, but you’re making a truly idiotic mistake here. There was nothing “utilitarian” about Obama’s approach of allowing the IS to spread.

    Trump is governing as a rational ignoramus who became President. He’s not acting even remotely crazily. No serious psychiatrist would diagnose Trump as mentally ill. He’s an average guy who’s more successful than you, which is why you hate him.

    When I explain to non-economist commenters what economic theory tells us about some public policy, they almost universally blow off my advice, unless it coincides with their pre-existing view on that particular public policy. No one cares what economists think, so don’t blame us for areas where we have no control.
    Very true, Sumner.

  10. Gravatar of Steve J Steve J
    14. October 2017 at 19:18

    Harding – I think you are pulling the “saving lives” part out of your ass. I agree with you that killing more civilians does allow us to make quicker progress against ISIS. Whether or not that saves lives over the long run is a much more difficult question.

  11. Gravatar of E. Harding E. Harding
    14. October 2017 at 19:27

    Steve, I think it does save lives, since IS’s policies kill well over 500-900 (the supposed increase in civilian deaths over Obama; note that most of the anti-IS progress has been under Trump) civilians in its territory over 9 months.

  12. Gravatar of Steve J Steve J
    14. October 2017 at 19:28

    Seems like there is a pretty simple explanation for why the crisis was not widely predicted. The amount of leverage on the mortgages was not widely known. And for those who understood the leverage it was not in their financial interest to allow that information to spread.

  13. Gravatar of Steve J Steve J
    14. October 2017 at 19:34

    Harding – as long as we are not creating the next generation of terrorists with our techniques of killing the current generation then I agree with you. I am sure Obama’s advisers thought his policies would save lives over the long run. There is no easy way to know who is correct.

  14. Gravatar of Benjamin Cole Benjamin Cole
    15. October 2017 at 00:35

    msgkings:

    Actually Japan’s savings rate has plummeted and is sometimes negative, in recent years.

    http://www.bbc.com/news/business-30603313

    So, are you holding that a nation can run chronic national budget deficits, run gigantic QE programs, pay negative interest on reserves, hold interest rates at zero, and have chronic worker shortages, and yet stay near near deflation, and this all explained by conventional economics (because of an aging population)?

    I don’t recall that in my old textbooks (which are very old): “All rules of orthodox macroeconomics are off when you have an aging population.”

  15. Gravatar of Tullius Tullius
    15. October 2017 at 07:09

    This contribution asks for dissent.

    At first here some food for thought:

    http://www.cobdencentre.org/2017/08/why-economists-cannot-forecast-recessions/

    In November 2007 i read the first articles about a coming recession the general public response at that time was that these economists are irrelevant and only “second class” writer. The mainstream economist (like here in Germany) preached that we need a low wage labour market sector so that can people have an easy entry into the labour market and can later get on to the first “labour market”. This is idea went into labour market regulations and today still journalists write that every third worker will climb. The problem is that official statistics show the low wage sector is increasing (20% +) and almost 40% of all workers do not have any wage increase since the GFC.

    And how react economists ? Maybe, we were wrong but will have soon a new a theory. And i add: for mistakes ordinary people will pay and these people will elect someone like Trump or AFD in Germany because they have to live with the problems of false politics. They are not against globalization they do not lower their living standards. They are not against immigration but they see how mismanaged immigrations damages their life. So i can add many more examples.

    Joseph Stiglitz realized a little bit that overselling the effects of globalization has a mistake (https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Volcker%20Award%20Speech%20Paper.pdf) – at least he admits it and does not change the fact that Trump and people like Icahn learnt this lesson much earlier. Liberals were blind and deaf and refused to acknowledge any problems and seek for solutions. Now they have the price for it.

    I do not want dismiss economy as alchemy. Every science has its limits but a general problem with most graduates (of all faculties) is that they know much more in their field than others but they do not know what they not know so there is a tendency to exceed their limits.

    After reading many economists tracts that economy could be the model example for David Humes philosophy.

  16. Gravatar of ssumner ssumner
    15. October 2017 at 07:34

    Jerry, You said,

    “But many people did and they are not ‘crybabies’ for being upset about it.”

    No one said they are. Please reread the post until you figure out what I am saying. It’s not that hard–written in plain English.

    Kevin, No, they weren’t predicting a financial crisis and recession. Yes, they were predicting a housing downturn, but that’s not what the post is about.

    Trumpistas, Even his own aides think he’s a moron that has to be constantly babysat to avoid a nuclear war. Please just admit you were wrong, and stop making fools of yourselves.

    Tullius, You said:

    “does not change the fact that Trump and people like Icahn learnt this lesson much earlier.”

    Is this a joke?

  17. Gravatar of Tullius Tullius
    15. October 2017 at 07:55

    No. During the campaign i saw some interviews and Icahn spoke about the problem of ordinary people (i was surprised).
    Trump climate policy is an other example. The Liberals and Lefties speak about saving the world and climate and profits for the coal industry but they do forget that behind any industry are employers and when you target the coal industry you have care about their employee. That has not happened and Trump used this mistake (and many others) in his campaign. I will not say that Trump will offer a solution but he was step ahead of all others because he showed he cares about them. But a climate policy where you sacrifice your own people will have not work when every person has a vote.

    And i will add (to your dismay, sorry): I think a reelection of Trump is possible. He needs only a good run of the economy in 2020 and incompetent opponents (both is possible, Dollar is already weak).

  18. Gravatar of Kevin Erdmann Kevin Erdmann
    15. October 2017 at 09:08

    Here’s an analogy, Scott. Your doctor says you eat too much red meat. You ignore his advice, but you notice that you are beginning to feel fatigued. Your doctor says it’s only natural, since you are ignoring his dietary advice. You keep complaining and the fatigue gets worse. Finally, after a couple of years, he does some tests and finds out you have cancer. But by then the cancer is too developed and you die. It turns out that red meat isn’t that bad for you, although it does appear to be somewhat related to an increased cancer risk.
    Most people blame you for eating too much red meat and say that doctors are useless if they can’t cure cancer.
    You are saying that we can hardly blame the doctor for not realizing fatigue was a sign of cancer.
    My point is that the obsession with red meat was the problem. If the doctor hadn’t been so sure about his concerns for your diet, he would have done the tests two years ago when the cancer was still treatable.
    So, perceptions about red meat are really what’s killed you, but the irony is, the outcome has only convinced you, the doctor, and everyone else about the danger of red meat.
    So, in my comment above, I said the problem was that everyone agreed that eating too much red meat might cause you to feel tired. You replied that it is true that everyone agreed about that, but that that wasn’t what your post was about. But it is what your post was about. This wasn’t a generalized case of doctors not knowing how to cure cancer. It was a specific case of doctors being misled by their concerns about red meat.

  19. Gravatar of E. Harding E. Harding
    15. October 2017 at 10:33

    “Even his own aides think he’s a moron that has to be constantly babysat to avoid a nuclear war.”

    Quote, please. And not from some “anonymous sources”, who as we all know are wont to make stuff up.

  20. Gravatar of David Levey David Levey
    15. October 2017 at 11:49

    Scott,

    You’re giving Roubini too much credit. He was predicting a Balance-of-Payments crisis leading to a massive run out of dollar-denominated assets. Stuart Brown and I wrote an article that appeared in the March/April issue of Foreign Affairs that the editors cleverly titled “The Overstretch Myth, or How We Learned to Stop Worrying and Love the Current Account Deficit.” We argued that there was minimal risk of that type of crisis. Setser and Roubini replied in the next issue and we did a rejoinder. The crisis that eventually came was totally different from the one Roubini had predicted and, ironically, led to a flight into the dollar.

  21. Gravatar of David Levey David Levey
    15. October 2017 at 11:53

    Sorry. Forgot to mention the year. It was 2005.

  22. Gravatar of Major.Freedom Major.Freedom
    15. October 2017 at 12:19

    Required reading:

    https://medium.com/incerto/the-most-intolerant-wins-the-dictatorship-of-the-small-minority-3f1f83ce4e15

    One key takeaway:

    …the formation of moral values in society doesn’t come from the evolution of the consensus. No, it is the most intolerant person who imposes virtue on others precisely because of that intolerance. The same can apply to civil rights.

    This insight applies to Fed counterfeiting “rules”.

  23. Gravatar of Major.Freedom Major.Freedom
    15. October 2017 at 12:21

    This is a perfect description of the NGDPLT do gooders:

    “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.” ― C.S. Lewis

  24. Gravatar of Scott Freelander Scott Freelander
    15. October 2017 at 13:39

    Trumpistas, an unprecedented number of leaks from an administration can only mean that many in the administration are actually worried about its policies and/or that the administration is too incompetent to hire people who are onboard with the agenda and keep them onboard. There’s no way in which this reflects positively on Trump, especially in light of the sky high turnover so far.

  25. Gravatar of Postkey Postkey
    15. October 2017 at 14:19

    ” I seem to recall that Bob Lucas pointed out that economic theory explains why economists cannot predict financial crises, . . . ”

    This B.L.?
    “My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”

  26. Gravatar of Becky Hargrove Becky Hargrove
    15. October 2017 at 16:04

    You’re basically right about economists not being responsible for financial predictions. But that doesn’t let economists off the hook for not coming up with rational explanations as to why central bankers would decide to embark on tight money, in one nation after another, in concert with one another. There’s far more at stake in all this than interest rates and inflation levels, yet citizens have yet to hear explanations from economists that make sense, about changing structural realities in the real economy.

  27. Gravatar of Benjamin Cole Benjamin Cole
    16. October 2017 at 03:02

    Bitcoin at $5,700, up 10-fold in one year.

    1. Okay, there can be bubbles sometimes. I cry uncle on that one.

    2. Does this suggest an incredibly large demand for a currency that allows untraceable transactions?

    3. The $32 trillion in offshore bank accounts—the tip of the iceberg? Are nations losing the ability to tax income?

    4. Why is the largest foreign direct investor in the US….Luxembourg? Then Switzerland? And offshore Britiannia (Cayman Islands et al.).

  28. Gravatar of Saturos Saturos
    16. October 2017 at 08:21

    I still don’t understand why the Trump phenomenon occurred just when it did. Clearly America’s presidential optional-voting democracy was always vulnerable to such a left-field demagogic phenomenon, someone with perfect ability to perform bait and entertainment for the media with enough lust for power and enough millions behind him (any actor who wanted the job could have played the same role I feel). Yet none succeeded before this decade. Why? Obviously it’s clear that it was already game-over by the time he had the Republican nomination. Thus also clear that the system had no particular power to shut out existential threats by defeating them in the actual final election: Democrats choosing the useless Hillary was exactly as much of a sign of Democratic weakness as it seemed. And thus all the focus on internet meddling in late 2017 is already missing the ball.

    So why did he get the nomination at all? Everyone says their hand was forced as soon as he managed to divert most of the Republican base to his side by early 2017. But was it? Did they have to pick him, even knowing they’d be giving nukes to an unstable man? How exactly does such an entire-party capitulation play out, when and why does it occur, and why never before 2016? No pundit I’ve read seems to be able to quite answer this. I wonder how many hidden factors are at play.

  29. Gravatar of Carl Carl
    16. October 2017 at 09:49

    “No one cares what economists think, so don’t blame us for areas where we have no control.”

    But I think it’s about epistemology not control. I assume, perhaps wrongly, that as a market monetarist you believe that value and moral hazard are qualities discovered through the market process. How do I interpret a statement from you saying a liquid market is currently mis-pricing assets?

  30. Gravatar of mpowell mpowell
    16. October 2017 at 11:15

    Saturos – There are many answers here, but the most immediate reason Trump won the Republican nomination is that Ted Cruz is deeply and profoundly despised by the rest of the Republican party elites. Cruz had done the work with the voters to win the nomination, but instead of Republican elites getting behind Cruz once Bush eliminated himself, they dithered around until it was too late. If President Cruz had been palatable to those folks, the rest of the contenders drop out after NH under tremendous party pressure, endorse Cruz, and Cruz picks up enough votes to turn Trump’s plurality wins into losses. This isn’t the whole story, of course, because the fact that Trump already had 30-40% of the Republican base is itself an anomaly, but hatred for Cruz put him over the top.

  31. Gravatar of mpowell mpowell
    16. October 2017 at 11:24

    Regarding the OP, I don’t think your answer Scott is all that consistent with your other views. You should be saying that the only reason we had a crash was because the fed didn’t keep NGDP stable. To an extent, this is what Erdmann is saying – the fed was distracted by their desire to see the housing bubble pop and reacted in slow motion to indications of a broader problem. And this is the most valuable thing you could try to teach people – if the economists really know a crash is coming, the fed should really be able to prevent it.

    There is probably another story about how with highly leveraged positions and very slim trading margins, big positions sometimes collapse and the resulting collateral is very hard to predict. That’s definitely a story you could tell about 2007-09, but so much of the impact for the broader economy hinges on how the fed responds I don’t see how you could possibly hope to predict a crash like this. It depends on predicting things like, “this housing bubble crashing will require the fed to act within 6 months, not 12 and do more than just cut rates really fast to 0% since I know they will only get into QE after things have gotten really bad”. That’s just not a reasonable thing to expect to be able to predict.

  32. Gravatar of TravisV TravisV
    16. October 2017 at 11:31

    “Taylor Impresses Trump for Fed Chairman, Warsh Slips”

    https://www.bloomberg.com/news/articles/2017-10-16/taylor-is-said-to-impress-trump-for-fed-chairman-as-warsh-slips

  33. Gravatar of Cameron Blank Cameron Blank
    16. October 2017 at 12:03

    The article above linked by TravisV actually mentions Scott by name.

    “They would not say why but Warsh’s academic credentials are not as strong as other candidates, and his tenure on the Fed board has been criticized by a diverse group of economists ranging from Scott Sumner to Nobel laureate Paul Krugman.”

    I’m guessing neither Scott nor Krugman think much more of Taylor becoming Chairman.

  34. Gravatar of Mark Mark
    17. October 2017 at 14:47

    I greatly dislike the man and wouldn’t mind seeing him impeached, but I think Scott should limit his blogging on Trump; he’s loses his reasonableness and sense of proportionality on that topic, and adopts an amusing credulity toward anyone speaking ill of him.

    Also, it’s fair to expect economists to make *conditional* (probably highly conditional) predictions, about the economy. The conditions – Fed policy, fiscal policy, which banks will get bailed out, etc. – are of course very difficult to predict, which may be one thing that separates econ from other sciences.

    Incidentally, Scott, your mortal enemy John Tamny actually wrote a decent article about this awhile ago on why no one really predicted the financial crisis, even people who thought they did, because to do so, they would’ve had to predict Fed behavior, which banks would get bailed out, etc. And no one is claiming to have predicted all such things, which had they gone differently, the crisis may well have gone a very different way.

  35. Gravatar of Larry Larry
    19. October 2017 at 09:40

    Noah Smith disagrees with you.

    Here’s the link: https://www.bloomberg.com/view/articles/2017-10-17/fixing-macroeconomics-will-be-really-hard

    The title of the article is: “Fixing Macroeconomics Will Be Really Hard — The field is still reckoning with the failure to see the Great Recession coming.”

    Noah Smith says,

    “But behind the scenes, macroeconomists have been rethinking the basics of how they approach their discipline.”

    You, on the other hand, poo poo the whole thing. And you focus only on public policy. Apparently you do not think that free market activity can cause or contribute to such a downturn.

    I think that, you, too, should rethink your approach to macroeconomics.

  36. Gravatar of Mark Mark
    20. October 2017 at 02:22

    Larry,

    “You, on the other hand, poo poo the whole thing. And you focus only on public policy. Apparently you do not think that free market activity can cause or contribute to such a downturn.”

    Well, obviously if someone thinks public policy is mainly to blame for the downturn, they’re going to focus on it. Just like how someone like Noah Smith or Peter Schiller is going to focus on ideas like the irrationality of markets rather than, say, capital controls or tax policy and how they misdirect capital: because they already believe they have the right class of explanation for the crisis. Of course much of the “let’s rethink macroeconomics” mantra underlies the belief that post hoc explanation for the crisis (too little regulation, irrational markets, “crisis of capitalism” etc.) is somehow self-evident. It seems to me less like a sincere appeal to intellectual modesty than an attempt to bypass actually having to demonstrate that one’s explanation of the financial crisis is true.

  37. Gravatar of ssumner ssumner
    20. October 2017 at 09:28

    Tullius, You said:

    “And i will add (to your dismay, sorry):”

    Dismay? Anyone not having fun watch Trump make a fool of himself every single day has no sense of humor. Yes, he might be re-elected.

    David, Thanks for that info.

    Carl, You said:

    “How do I interpret a statement from you saying a liquid market is currently mis-pricing assets?”

    Which market?

    Mark, yes, conditional forecasts should be expected.

    Larry, “Free market activity” doesn’t cause plunging NGDP, tight money does.

  38. Gravatar of Carl Carl
    24. October 2017 at 08:55

    Scott, regarding your question about which market:

    You wrote, “A better argument is that the economics profession didn’t warn the public that public policy was creating excessive lending, as Fannie and Freddie and FDIC and TBTF were creating moral hazard. In fact, I did warn people I met about this problem (but I completely failed to forecast the financial crisis.) Some other economists also warned about moral hazard, but not all.”

    But how did you know the lending was excessive?

  39. Gravatar of Willy2 Willy2
    26. October 2017 at 00:05

    – Steve Keen has one formula that is the basis on which he predicted the financial crisis.
    – Steve Keen had in the 1st half of the 1990s already a mathematical model that predicted that there was a crisis coming. He only didn’t know when.
    – Steve Keen saw that e.g. the australian economy entered a recession in the 1st quarter of 2008.
    – People who kept looking at the proper charts knew that there was a crisis coming. Look at charts like interest rates, gold, silver, yield curves, etc.

  40. Gravatar of Willy2 Willy2
    26. October 2017 at 00:24

    – There’re a number of people who want to get rid of the RINOs (Republican In Name Only) and replace those “moderate” Republicans with more conservative, more right wing Republicans. Never heard of people like Jeff Sessions and Roy Moore, both from Alabama (Not the most progressive state in the Union, to put it friendly)

    One of those people is Steve Bannon. Watch this video:

    http://www.newshounds.us/bannon_and_hannity_wage_war_gop_democracy_101017

  41. Gravatar of ssumner ssumner
    26. October 2017 at 07:57

    Willy2, Bannon wants to get rid of RINOs like Trump?

  42. Gravatar of Willy2 Willy2
    26. October 2017 at 12:50

    – Not necessarily. The right wing, almost neo-nazi, (extreme) christian bunch has an agenda and when Trump doesn’t execute that agenda (soon enough) then Trump is “toast”. But my take is that as long as Trump is an “usefull idiot” then Trump will remain President.
    – Bannon is the main leader of a bunch on a mission to destroy all what reeks of “liberalism”, “cosmopolitism”, “globalism”, “(alt-)leftism”, etc. And that includes destroying the (influence of the) Democratic party.
    – If you want know more about Bannon and his thoughts:
    https://www.youtube.com/watch?v=dSdeMdo_mic
    https://www.youtube.com/watch?v=27joDucrCeM
    https://www.youtube.com/watch?v=HBnX2wxBFYg

    https://consortiumnews.com/2017/08/29/the-alt-rights-alternative-reality/

    This doesn’t bode well for the US !!! (Leave a reply)

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