If no other blogger will defend bubbles, then I guess I’ll have to
After a two year lull, the WSJ says things are looking up in China:
BEIJING””China’s battered real-estate market appears to be turning around, strengthening an important pillar of growth and reducing the chances that China’s slowing economy will stall in the second half of the year.
According to a survey of property developers and real-estate firms, the average price of housing in 100 major Chinese cities rose in June from May, after nine straight months of decline. The survey follows other signs that the Chinese market has bottomed out, including a pickup in real-estate investment in May and a far shallower decline in property sales during that month compared with April.
An improvement in China’s property market would be important for the domestic and international economy. Real estate and property construction account for about 11% of the Chinese economy, according to GK Dragonomics
And Chinese housing is still quite cheap for a country that is rapidly urbanizing, incredibly crowded, and likely to be much richer in a few decades:
“The worst-case scenarios [about Chinese growth] have been built around a collapsing property market,” said Mark Williams, Asia economist for Capital Economics in London. “If the market isn’t collapsing and is rebounding, the future looks a lot brighter.”
The average price of housing in June rose 0.05% to 8,688 yuan ($1,368) per square meter, according to data released on Monday by China Real Estate Index System, which tracks property prices.
And sales are also increasing:
In Beijing, housing sales also rose 10.5% in June, to 25,602 units, Xinhua news agency reported on Monday. That is a 50.6% increase from a year earlier.
Separately, Standard Chartered recently reported that the slide in real-estate sales moderated in the second quarter of 2012, while sales of apartments in China’s largest cities have started to increase.
Yup, markets work, even in China.
China’s highly publicized effort to boost growth also may have encouraged buyers to believe that prices may be headed up.
Yes, the expectations channel for monetary policy also works in China. Pity we don’t try it here.
The economy is widely expected to slow further, to roughly 7.5% in the second quarter. That has prompted Beijing to focus more on growth, easing monetary policy and approving a number of investment projects.
Yes, with 7.5% RGDP growth it’s time for some stimulus. Two questions:
A. Given that China’s nominal GDP has soared at double digit rates for decades, why is anyone surprised Chinese house prices have risen rapidly?
B. Given that per capita nominal income is expected to continue rising at double digit rates, why is anyone surprised that the current ratio of property prices to (reported) income is rather high?
In fairness to the other side of the debate, the Chinese don’t like second-hand units. And the construction standards (while improving greatly) are still not all that good.
Oh, and the same issue of the WSJ says Dubai is booming once again.
PS. I think I know why I’m almost the only blogger (left or right wing) to defend bubbles. When they burst (and they will) I’ll be open to ridicule. But I’ll still have been right all along, as most bubble critics don’t understand that if markets are very volatile, then even efficient markets will occasionally crash.
PPS. I just noticed that China is now exporting ghost towns:
A giant new Chinese-built satellite city has sprung up on an isolated spot some 30km outside Angola’s capital, Kuanda.
In a promotional video made by Angolan government, this city has been titled as the “jewel in Angola’s post-war reconstruction crown.” People will enjoy a new life style, different from the dust and confusion of central Luanda where millions live in sprawling slums.
This residential project was designed to house up to half a million people, however most of the buildings currently lie empty, and hardly any cars and even fewer people can be seen around. This satellite city is therefore called a ghost town for its isolation by foreign media. To back its argument, BBC correspondent reported that the apartment’s prices were too high for almost two-thirds of Angolans who live on less than US$2 a day, and at the same time obtaining mortgages were difficult for a majority of Angolans.
As whether or not the reported situation is true, the Economic and Commercial Counselor’s Office of the Chinese Embassy in Angola clarified that the whole residential project has not yet been completed, the sales of first batch construction, however, has gone very well. The office said: “What the foreign media reported is not the truth.”
PS. I wanted to attend the Miss World pageant in Ordos, Inner Mongolia. Ordos is China’s most famous ghost town. Alas, my wife said no so I’ll be in Shanghai on that day. Shanghai is definitely not a ghost town. Probably just as well, only Hunter S. Thompson could do justice to that sort of event.
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7. July 2012 at 14:37
Thus, in a Sumnerian world, the only shocks to output would be real. And since economists cannot accurately predict those, let markets and the price system sort them out so long as NGDP expectations are anchored along a level path.
7. July 2012 at 14:43
I’ll defend bubbles, but since I’m not a blogger, you’re still the only blogger to defend them.
Bubbles are bad for some individuals – people who bought near the top and those who lent money to them. The only time that concerns society is if government backed deposits lent to them, or if it reduces the overall economy. It wasn’t the stock market crash, or even bank failures that caused the Great Depression, it was the reduction of the money supply by 33% and GDP by 50%.
If only we had a policy where we didn’t back any loans or bail anyone out but had a monetary policy that kept aggregate demand on track no matter what bubbles pop or what any individual price does. Let the market sort out relative prices and simply tie the dollar to the overall economy(GDP) – not any individual price. Oh, wait, I think someone already thought of that – it’s called market monetarism.
7. July 2012 at 14:53
There is the “Greenspan caused the housing bubble” argument, which I don’t believe, since it depended where you were in the US whether there was a housing (land) bubble and the US economy was not seriously hitting capacity limits prior to the Fed-caused NGDP crash. But that asset prices will tend to be strong if people have strong income expectations, that I believe. (Why this is regarded as a bad thing is a bit of a mystery.) That technological innovation causes asset-price volatility makes perfect sense too.
If folk are so worried about housing (land) bubbles, perhaps they should look at the supply constraints that are clearly a necessary element. But too many folk want the supply constraints, because it keeps the price of their housing land up.
But we cannot abolish uncertainty (see above about technological innovation to start with), or that how people frame uncertainty (Keynes “animal spirits”) will be unstable because it will be vulnerable to new information. What we can do is work on reducing supply-side constraints (Eurozone, I am looking at you also) and anchor people’s income expectations so that the effect of uncertainty becoming negatively framed is less likely to occur across all markets.
Of course, if one takes uncertainty seriously, the Austrian theory of the business cycle becomes much less plausible (but so does not thinking markets are stupid on the “fool me once, shame on you; fool me twice, shame on me; fool me again and again in the same way, I must be a real idiot” principle).
7. July 2012 at 14:59
Also, surely the reason folk cannot find a definitive relationship between uncertainty and economic activity, is that uncertainty can be framed positively or negatively. (Implicitly) assuming that uncertainty is always framed negatively seems an unwarranted assumption to me.
7. July 2012 at 15:29
I love you Scott! Referencing HST just made my day!
7. July 2012 at 17:45
According to the Hong Kong Monetary Authority, mainland China’s central bank has a “revealed preference” for growth over inflation-fighting.
I assume China is doing many things right to obtain growth, from intelligent planning to freeing up markets, to maintaining a culture with a work ethic and honesty as pillars. (I often say culture trumps economics, and the socialist Swedes will have higher living standards than free-market Nigerians for cultural reasons).
Rarely do people mention mainland China has a pro-growth monetary policy.
Too bad the Cold War days are over. We could scaremonger the right by saying that China’s monetary policy is allowing them to pass us by, and so we have to have a more-aggressive monetary policy too.
7. July 2012 at 18:55
I expected a lot of opposition, and got support instead–I guess I’m not as much of a contrarian as I’d thought.
7. July 2012 at 19:37
ssumner:
I think I know why I’m almost the only blogger (left or right wing) to defend bubbles. When they burst (and they will) I’ll be open to ridicule. But I’ll still have been right all along, as most bubble critics don’t understand that if markets are very volatile, then even efficient markets will occasionally crash.
How can bubble critics understand what isn’t even true? Free markets don’t crash from within.
Market critics like yourself don’t understand the free market, and that is why you believe the crashes that result from government intervention, are somehow the fault of private property rights and voluntary trade.
You know, it would help your incredibly shaky position if you showed a rigorous proof of how efficient markets are prone to crashes. If you invoke Minsky, then be advised that fractional reserve banking is not a part of a free market, since it violates absolute property rights that are requisite to it.
7. July 2012 at 19:44
Sumner,
If Ron Paul was ever appointed chairman of the Fed what would you do?
7. July 2012 at 20:35
I think I believe in bubbles, I just don’t believe that they should matter. Building a few too many houses too quickly shouldn’t render millions unemployed throughout the economy. If we had kept NGDP on path the market would have shifted resources from housing to other sectors of the economy smoothly, but instead we get this.
7. July 2012 at 22:53
The 2012 Miss World pageant in Ordos might be the weirdest event ever. I’m tempted to scrape up a ticket.
8. July 2012 at 00:00
Australian house prices are well off their 2010 peaks, I believe due to lower NGDP expectations. While real growth has remained at just below or about trend since 2010, NGDP y/y is now only about 4%, down from 7-8% in 2006-08 and 2010. And the RBA seems pretty comfortable with that, which I think is a mistake.
8. July 2012 at 01:55
So you don’t think Dubai was definitely a scam?
8. July 2012 at 01:56
Hmmmm, current Miss World titleholder not bad at all…
8. July 2012 at 03:54
I guess I have to disagree with those who say that when we don’t comment that means we agree.
Still am skeptical of this idea that the best we can do is wait for the bubble to explode and then pick up the pieces after
8. July 2012 at 04:58
what is a bubble anyway. hindsight is always 20-20; there is a 0% chance we hit this or that forecast, so everyone is likely to be wrong going forward. I think a bubble is just like many other things: i know it when i see it but cannot define it.
8. July 2012 at 05:38
Of course, if you accept certain premises, that (a) markets collapse (volatility doesn’t necessarily imply collapse “” that some prices are volatile doesn’t really imply anything with regards to the general industrial health of an economy) and that (b) NGDP targeting (or monetary growth, in general) induces greater productivity, then the conclusion is obvious: the occurrence of bubbles should be accepted as a necessary evil. But, these premises are neither obvious nor universally accepted.
Lorenzo:
I’m not sure on what grounds you make your arguments against Austrian business cycle theory. There might be good reasons to reject it, but none of them are the ones you suggest.
You claim that Austrians don’t look at uncertainty. This is patently false. I think you base your opinion on a paper by Brady, but as I’ve said before, Brady completely misunderstands the purpose of Hayek’s work on the dispersion of knowledge. Neither Brady nor you, at that, consider that Mises is usually included along Knight and Keynes as an economist who heavily emphasized the role of economic uncertainty. I think you would be hard pressed to actually find any literary evidence for your accusation, except by referencing non-Austrian literature (like Brady’s article) that are obviously not well informed.
(As a quick aside, you mention uncertainty, expectations, and information. But, what causes changes in information? Is information some random variable with no cause? These are obvious questions that you aren’t asking yourself, and maybe they would cause you to re-think your hostility towards theories that you clearly don’t know that well.)
You repeat the “rational expectations” argument, which has already been addressed by a wide variety of literature. It is not a serious criticism — it doesn’t even fit the evidence. It also is undermined by the concept of economic uncertainty, which you so strongly claim isn’t present in Austrian work.
Why attack a theory that has nothing to do with the post you’re responding to? Why attack a theory that you obviously don’t understand well enough to comment critically on it? I’m lost as to your intentions.
8. July 2012 at 06:25
Scott, I’m a little confused by this post with respect to its title. Are you defending bubbles by saying they are not bubbles, and that the real potential output of places like China and Dubai is growing this quickly, or some reasoning to that effect?
If not: Are you defending these bubbles on the basis of, well, at least there’s now growth?
The third possibility, which you didn’t explore, is that one could defend bubbles on the basis that they are efficient. You know that I think we should be suspicious of the Schumpeterian argument that recessions are cleansing episodes of creative destruction, and therefore an increase cyclical macroeconomic volatility causes an increase in real structural growth. But — although, importantly, I do not believe this — I see an argument that bubbles could be efficient. Consider what a bubble is: a swift mobilization of resources and price-driven increase in economic activity in a particular sector. As a matter of theory, there could exist a sector in which such a burst of coordinated over-investment would be a more efficient outcome than a more gradual investment process over the course of a decade or so. This would be plausible in industries with high fixed costs and diminishing marginal costs of production, and especially true where there are large positive externalities — that way during the bubble, investors buy into projects which will turn out to have a slight positive or negative real private return on investment but which produce external benefits such that the real social returns on investment are high. Somehow, I still remember a particular part of Thomas Friedman’s “The World Is Flat,” which quotes Bill Gates arguing this sort of logic for bubbles using the example of undersea cables. (p. 70 – 77, now that I look it up online: http://bit.ly/OKGGll)
8. July 2012 at 07:10
Joe, It would make no difference, as the rest of the committee would ignore him.
Rajat, But they are still way above the 2005 levels, which shows there was no bubble.
Saturos, No, Dubai is not a scam, it’s one of the most successful Arab economies in all of world history. Much freer and more cosmopolitan that the rest of the Arab world. A real model.
Evan, I believe in the EMH, so in that sense I don’t believe in bubbles. Obviously I believe that resources can be misallocated by foolish government policies, and I presume that’s happening in China right now. But I believe the price of Chinese condos is “rational,” given what we know now. And it’s not even clear to me whether they are building too much housing in aggregate. If the alternative is more steel mills etc, I’d prefer housing, since it’s so scarce in China right now and is actually of value to people.
When I use the term ‘bubble’ I always mean “what others regard as bubbles.” I think markets are efficient in setting prices.
I don’t have strong views on your theory. I suppose it’s possible, but would not count on it.
8. July 2012 at 07:50
Hold on Lawrence Welk. The problem with bubbles is that they are defined by hindsight. That is, a run-up is not considered a bubble until it bursts and is thus defined as a mis-allocation of capital–beyond any prudent speculation. And while there are always winners in bubble, it is the losers we use to judge a bubble when we see one.
As for free markets never crashing from within, what exogenous force broke the Pet Rock and Beanie Baby bubbles?
8. July 2012 at 08:46
Thank you for this post, I found it provocative and thought provoking. As far as bubbles go, I thought that they were theoretically supposed to be mitigated by a central bank. That is to say that when a bubble was large enough to influence the economy as a whole, they will create inflation. Then the central banks will constrain their growth – in theory.
I suppose that there haven’t been too many big bubbles in America. I mean aside from the housing bubble (which seemed to me to be largely misallocation rather than quantity) what other bubbles are there? I mean I know libertarians think student loans are a bubble but are they? As long as the ROI is positive in the aggregate then how can it be a bubble? Things haven’t been so much a bubble as to cause ruination such as those McKay described.
Anyways I will think more on bubbles and my own assumptions. Though I also think it is sometimes unfair to compare China’s housing market to the US. I mean the reserve requirements in China are something like 90%, yes? So China’s issue isn’t leverage but long term demand.
8. July 2012 at 08:49
Also I balk at the idea that the 90s dot com boom was merely a “bubble” as critics deride. The longest period of sustained economic growth in US history with the highest employment ratio in modern times was merely a bubble? Then what isn’t a bubble?
8. July 2012 at 09:57
“Yes, with 7.5% RGDP growth it’s time for some stimulus.”
TARGET THE FORECAST!
8. July 2012 at 12:53
JMFC:
Why attack a theory that has nothing to do with the post you’re responding to? Why attack a theory that you obviously don’t understand well enough to comment critically on it? I’m lost as to your intentions.
Lorenzo’s intention is obviously one of political hackery, not economics. He doesn’t feel good about the free market conclusions many Austrians arrive at APART from the pure Austrian theory itself (which is value free). So he believes the Austrian theory has to be attacked. Like you pointed out, he doesn’t understand Austrian theory. This lack of understanding Austrian theory by the critics has been well documented as an almost universal attribute. Very few critics actually get it, and these few who do get it, have all once been accepting of Austrian theory at one point.
Lorenzo has been taken to the woodshed by so many of those who actually understand Austrian theory, the latest one being from Horwitz – who for reasons that baffle my mind actually took the time to address his string of false assertions – that he should be approached as someone whose criticisms are necessarily uninformed.
8. July 2012 at 12:59
ssumner:
When I use the term ‘bubble’ I always mean “what others regard as bubbles.” I think markets are efficient in setting prices.
Please tell us how a market process that requires information the central bank makes unobservable, can be nevertheless “efficient”.
How in the world can investors who observe zero nominal interest rates, and cannot observe market interest rates, make decisions that are market standard efficient?
It would be like saying radio operators who have to use a radio constantly jammed by enemy spoofers, can nevertheless communicate with each other as if the jamming isn’t even there.
There is a difference between the market process being a pretty good way of organizing production and resource allocation, and the market being an omnipotent, invulnerable God that can withstand anything governments throw at it.
8. July 2012 at 13:01
Benny:
Also I balk at the idea that the 90s dot com boom was merely a “bubble” as critics deride. The longest period of sustained economic growth in US history with the highest employment ratio in modern times was merely a bubble? Then what isn’t a bubble?
A period of actually sustained economic growth with the highest employment ratio in modern times? I.e., a world with no bubbles and busts?
8. July 2012 at 13:07
Evan Soltas:
You know that I think we should be suspicious of the Schumpeterian argument that recessions are cleansing episodes of creative destruction
Why should I be “suspicious” of that argument?
Shouldn’t we be “suspicious” instead of central economic planning (monetary and fiscal policy)?
8. July 2012 at 17:10
Sorry, Major Freedom, I’m going to pass on the side argument. I’ve written at length on my blog as to why, and Scott has been gracious enough to feature them on his excellent blog. I also don’t think the fact that I doubt Schumpeter’s view of recessions makes me pro-central planning. I am way more than “suspicious” of central economic planning; and to the extent that monetary or fiscal policy constitutes “central planning,” I reject discretionary economic stimulus and think that monetary policy is best conducted by rules.
9. July 2012 at 09:11
Don’t worry Scott, I’ll attack you: I could have sworn that you have said in earlier posts that you dispute the very concept of a bubble, because of the EMH. Is this kind of like your view that “‘inflation’ is a meaningless term, except when I use it”?
9. July 2012 at 11:07
Evan Soltas:
I’ve written at length on my blog as to why
Sure, but without accepting any of my non-insulting, non-ad hominem, non-offensive responses on your blog.
I thought if you didn’t want to engage there, you might do so here. I hope you don’t believe simply posting your own arguments concerning Schumpeter’s theory, and not engaging any challenges, is sufficient for showing me why I should be “suspicious” of it.
I make such judgments by addressing more than one side of all issues.
Is refusing to not only engage any challenges, but refusing to even post them on your blog, really the best way to go about fact finding and knowledge discovery? Is saying “I’ve posted these all on my blog” sufficient justification? Shouldn’t we foist all criticisms upon an argument to see if it still survives?
——-
Since you do not engage any challenges on your blog, I will attempt to do so here where censorship is non-existent…
Your reason for being “suspicious” of Schumpeter’s theory centers on two main points. I will address both of them:
A. The rate of new start ups being independent of the business cycle.
Schumpeter’s theory does not imply nor argue that new start ups have to relatively decrease during recessions and relatively increase during booms. Nor does the theory imply or argue that creative destruction occurs only during recessions. Recessions are periods with higher than “normal” creative destruction, with “normal” being whatever standard relating to the status quo you want to use. There is no absolute starting date for recessions and there is no absolute ending date for booms. It’s more like a wave than steps. Creative destruction is in Schumpeter’s theory a valuable part of capitalism. It is not something he held only took place during recessions.
That we see new start ups during both booms and busts is not evidence against Schumpeter’s theory. On the contrary, it is evidence supporting it. New start ups during both booms and recessions just means that booms and recessions are not as absolutist as you want to make them, that not every firm has to do well during a boom and not every firm has to do poorly during a recession. Recessions are periods (with fuzzy start and end dates) when creative destruction is more pronounced than prior. Not all firms go bust during recessions, and not all firms earn fabulous profits during booms.
Schumpeter’s theory of creative destruction is a defense of capitalism, not recessions per se.
Applying the theory that recessions are a cleansing process, we should see example after example of new start ups during recessions. If we didn’t, then Schumpeter could not even call recessions a cleansing process. It should be expected that new start ups would flourish during recessions, as labor and resources that have been misallocated during the boom, are put to better more efficient uses by in part being put into new projects, to replace the old unprofitable projects.
What the widespread bankruptcies during recessions actually shows are widespread instances of subjective judgments of millions of individual actors in the market deciding that many firms have indeed invested poorly. You cannot present your personal subjective valuations of firms as outweighing and overruling the subjective valuations of millions of other individual market participants, such that their subjective judgments are to be overruled by your own and those with the power to print money. You are thinking like a central planner when you ex cathedra declare that “even good firms go bankrupt during recessions.” You don’t seem to be see that “good” implies a personal subjective judgment, and yours is certainly not the only one that exists. If many firms go bankrupt during recessions, then you are going to have to accept that millions of other individuals not you have decided those firms are not as “good” as you believe they are.
Moreover, the very claim that even good firms go bankrupt during recessions, which allegedly justifies the state printing and spending money, begs the question. The logic you are using is this: Recessions are punctuated by moments of “good” firms getting wiped out, and “good” firms getting wiped out is bad, hence recessions are bad. This statement is only true if one presumes that recessions are indeed such “good” firm destroying episodes.
There is also a hidden circular logic that was not explicitly mentioned, but is implied nonetheless: The state is justified in printing more money during recessions, and recessions are periods where the state does not print enough money, hence printing money during recessions is good. This statement is only true if one presumes that printing money during recessions is beneficial to begin with.
Yet you cannot decide all this from your armchair. You have to observe what other market actors are doing. In other words, only through the market process can you even know which firms are “good” and which are “bad.” Your error is presenting your own personal subjective valuation as more relevant than millions of other people’s valuations, such that you consider your own subjective values as binding on everyone else’s, even if everyone else are bankrupting firms left right and center.
You accuse Schumpeter of using circular logic when it is you that is using circular logic.
By the same circular logic, I could say that “extra” printing of money from “criminals” is justified even during booms. I could say this: “Me printing money for my friends is justified during booms, because even during booms my friend’s good firms get wiped out, and such good firms only get wiped out because someone is not printing enough money for them.”
B. “Macro-economic volatility” introduces “imperfections” and “random noise”, and hence “corrupts” the market signals firms need to enter or exit industries. Thus recessions are more harmful than good.
This explanation simply refuses, or is blind to, the very CAUSES of “macro-economic volatility.” It treats volatility as arising out of nowhere, from some inexplicable “macro” origin, instead of recognizing that all volatility has a micro-economic origins.
Interestingly enough, it is yet another example of begging the question. The logic you are using is this: Recessions are punctuated by moments of “macro-economic volatility”, and macro-economic volatility is bad, therefore recessions are bad. Yet this statement is only true if one presumes that recessions are indeed such “macro-economic volatility” episodes.
If you instead realized that the volatility associated with recessions is caused by PAST money printing, which thwarted investors and consumers from coordinating their market-based behavior, rather than “not enough money printing in the present”, then you would not view such volatility as “corrupting” either. You’d view such volatility as BENEFICIAL, since with higher volatility, there is a more disciplined investment behavior, rather than the reckless investment behavior that takes place during booms when cheap money is flowing everywhere.
It is beneficial if individual market participants price goods and services, and investment securities, in such volatile ways, because it is people attempting to price relative valuations of resources and labor in accordance with what had theretofore not been allowed, namely, market driven relative valuations, rather than monetary policy controlled valuations.
It’s like a person in a coma who just woke up, who finds his legs wobbly and shaky, and then the central planning minded doctor putting him back into a coma because such wobbling and shaking is bad for him. If instead the doctor understood that the wobbling is only temporary, he’d let the patient recover on its own, however shaky and wobbly it might be after being put into a coma.
—————–
I also don’t think the fact that I doubt Schumpeter’s view of recessions makes me pro-central planning. I am way more than “suspicious” of central economic planning;
I doubt that very much. NGDP is a central economic plan, and you don’t doubt it.
Fiscal and monetary policy are central planning actions. They overrule the market process for the formation of interest rates, spending, and who receives what money for what reasons. To the extent that you are pro-NGDP targeting, you are pro-central planning.
and to the extent that monetary or fiscal policy constitutes “central planning,” I reject discretionary economic stimulus and think that monetary policy is best conducted by rules.
Why did you put scare quotes around “central planning” here? Is it because you don’t actually think fiscal and monetary policy are central planning actions after all? Or did you include central planning in between two quotes because there is a central planning aspect to it after all, and you are saying don’t worry, if it is rules based it is fine?
“Rules-based” monetary policy is still central planning. Market participants having knowledge of such central planner rules does not mean monetary policy ceases to be central planning.
If there were a “rule” that central planners will nationalize any firm the owners of which refuse to pay their workers a wage above the central planner’s mandatory price floor, then that is still central planning.
More important however, even NGDP targeting is “discretionary” monetary policy. It is discretionary on the side of WHO receives the money the Fed prints first before all others. The Fed can choose who to buy from and sell futures to, and I can tell you it won’t be from independent small business Joe Farmer in Nebraska. It will be from the large multinational banks who know what a futures contract even is.
————
9. July 2012 at 11:21
D. Gibson, Is that aimed at me?
Benny, Yes, if you target NGDP, then you can forget about bubbles–they won’t hurt the economy.
Bob, You asked;
“Is this kind of like your view that “‘inflation’ is a meaningless term, except when I use it”?”
Yes, I’m allowed to use those terms in a sort of ironic post-modern sense, as I and only I can see through the meaninglessness of the terms—that they are just a shared delusion of society.
Does that answer your question? 🙂
9. July 2012 at 11:22
Bob Murphy:
Don’t worry Scott, I’ll attack you: I could have sworn that you have said in earlier posts that you dispute the very concept of a bubble, because of the EMH. Is this kind of like your view that “‘inflation’ is a meaningless term, except when I use it”?
This is the same thought process that political thugs at the NSA go through:
Spying on Americans? We’re not spying on Americans!….OK, maybe we’re listening in, but it’s only when we suspect there are terrorists on the other end of the line, it’s not like we’re listening to everyone’s communications…..OK, maybe we’re collecting information for every American’s communications and storing them at a $2 billion facility in the middle of Utah, but we’re just protecting everyone from communications threats from terrorists….OK, maybe we’re…
It’s only “spying” when the regular peons do it. When the very serious people do it, it’s called national defense or stopping terrorism.
————
When Sumner uses the word bubble, it’s allowed, because he’s a very serious person who can handle such phrases that have political consequences. For the rabble, they are told there is no such thing as a bubble, and he waves a magic EMH wand to distract them long enough to work out the new new new solution to end all bubbles, after which he can arise from the cave and say “It was me!”
9. July 2012 at 11:32
ssumner:
Yes, I’m allowed to use those terms in a sort of ironic post-modern sense, as I and only I can see through the meaninglessness of the terms””that they are just a shared delusion of society.
Does that answer your question?
???
You and only you? Everyone else in the world are deluded? Your colleagues, your friends, the posters on this blog, your former supervisor, everyone?
Sieg Heil, Herr Sumner!
Or, less crass:
So being deluded is what made Buffet rich? He didn’t exploit market mispricing better than his peers through knowledge and skill…for 20 years…, but rather he did it through rolling a pair of dice that came up 7s a hundred thousand times in a row? That must be it, because Sumner is not as fabulously wealthy, but he demands to be viewed as smart enough to become wealthy if such exploitation opportunities did in fact exist. He needs to be able to sleep at night by attributing his lack of wealth to bad luck, of rolling snake eyes once too many times. Damn all of you who took advantage of profit opportunities during the real estate bubble before he knew what was going on because he only focused on NGDP growth!
9. July 2012 at 11:44
Major Freedom, give the guy a break: He put in a smiley face. That is Scott’s way of saying, “OK ya got me.”
10. July 2012 at 11:44
Major Freedom, give the guy a break: He put in a smiley face. That is Scott’s way of saying, “OK ya got me.”
Oh I get it. Kind of like when he tells me “MF, you’re an idiot.” LOL Now it makes sense!
11. July 2012 at 08:28
Bob, I’m 100% sincere. The smiley face meant I got you.
15. July 2012 at 04:18
As a student studying in America, I think China’s real estate is a bubble, however I don’t think it will burst anytime soon based on the current price level and demand. The recent real estate price increase was due to easing of monetary policies from the central bank. There is still huge demand for housing in China as more and more people are moving from the rural area to urban cities. As price falls, demand spikes up and the government can’t afford to let real estate fall hard as it’s a big part of the economy.
China’s problem is not its real estate yet, but the collapse of numerous corporations due to worse business environment, higher taxes, higher inflation, more corrupted government and useless regulations. They are collapsing with huge debts held by banks since the government has started tightening within recent years. There is no political will there to do the political reformation, which is the driver of the economic reformation, as China changes itself from an export and investment led country to a more consumption driven country.
A thirty-year fast growth economy is not sustainable. Every country has financial crisis and China will have its own pretty soon as Chinese government will inevitably print more money to spur the economy as it did in 2008-2009. China seems to be able to avoid financial crisis as it did in 1997-98 and 208-2009. However it was because people in China paid the price every time. China’s M2/GDP is 1.81 in 2009, whereas U.S. is 0.6 in 2009. A lot of money was printed. Things always go crazier before they fall hard. I believe Chinese economy would “recover” to a higher point before its big fall coming in couple years first time in three decades.