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Do you find yourself considering the financial crisis and thinking “well, neoclassical economists have certainly come through this one with their reputations enhanced! Anyone with a world-class heterodox economics department should certainly be thinking about closing it down right now, there’s no interest in that sort of thing!”. Well, if you do, then you’re almost certainly working as an administrator at Notre Dame University.... I mean, what the byOurLady heck do they think they are playing at. Back in April 2008, the decision to place clear fresh water between the nice professional efficient market types in the “Economics and Econometrics” department, and the dirty f**king hippies in “Economics and Policy Analysis” might have made some sort of sense, in that... it would have improved students’ chances of getting into prestigious economics graduate programs where they could write “counterintuitive” and “fascinating” job market papers about penalty shootouts and speed-dating...
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The front page of Friday’s WSJ was not its finest hour. Along the top was the headline “Bankers Face Sweeping Curbs on Pay” — something which occasioned Justin Fox to note that “in the pre-Murdoch era that would have been a 600-word story on page A24, headlined ‘Fed Mulls Pay Guidelines’.” Underneath that headline was the biggest front-page story: “U.S. Missile U-Turn Roils Allies”. Except there was nothing in the story to indicate that any allies were roiled at all. The online story now has the headline “Allies React to U.S. Missile U-Turn”, along with a formal correction of the old headline. Dean Starkman wants to know “whether this is part of a larger story”: of course it is. The WSJ is now being edited by a man who cut his teeth in the fiercely competitive Australian and UK markets, where front-page stories drive newsstand sales and newsstand sales drive profits. Sweeping curbs on pay and roiled allies make for great headlines, and mean that readers are that much more likely to s
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Some economists at the University of Chicago reeeeaaaally didn't like Paul Krugman's article about the state of macroeconomics. Big surprise, I know. Still, it was interesting to hear first-hand how aggrieved people felt (not any of the U of C economists mentioned in this post, I should add).
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In many cases, Republican lawmakers asked Democratic leaders to make specific concessions on health care reform. When Dems like Max Baucus agreed, the GOP balked anyway. But there are other areas in which Democrats simply embrace policy ideas endorsed, or even created by, the right. For quite a while, conservatives liked the idea of giving an Independent Medicare Advisory Council more power to determine what the program should pay for. It's a straightforward, money-saving measure. When the Obama administration agreed, Republicans decided they didn't like their own idea anymore.
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Akerlof and Shiller ask, “Why did most of us utterly fail to foresee the current economic crisis?”, and their answer is that we failed to take animal spirits into account. My own response is: “What do you mean ‘we’, white man?” Lots of us were uneasy about the twenty-year boom/crash cycle we found ourselves stuck in, but few of us are economists. Lots of people also tried to tell the economists that their models were dangerously unrealistic, but economists were securely protected by tenure and were being rewarded very well by the malefactors who controlled the economy, so why should they care what anyone else said? Economists are smarter than anyone know tons and tons of math, you know.
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I’ve long been struck by Ralph Nader’s imperious view of politics.... [N]ow he’s out with a “novel” that apparently argues that a small posse of enlightened plutocrats will save us. Citizens’ groups aren’t up to the task... Only enlightened businesspeople, working from inside (with the assistance of a perky parrot), can.... So the problem... is simply scale (small good, big bad) and temperament (replace the evil bizpeople with the good ones). He seems to have no idea that competition and profit maximization make people, who may be perfectly warm and lovely in their private lives, do monstrous things.... Of course, as Liza Featherstone pointed out long ago, when faced with a union organizing campaign in crunchy Vermont, B&J fought it as roughly as any thuggish Southern mill owner would. “It’s business, man!,” as Liza’s title explained.... Ralph did pretty much the same thing when faced with organizing campaigns in a couple of his own shops, Multinational Monitor and Public Citizen...
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[T]he Fed... welcome[s] anything that strengthens the balance sheets of banks.... Nor is the central bank in any rush to begin pulling back from its current policies.... But the lesson I prefer to focus on is the one from this decade, which is that central bankers ignore financial bubbles at their peril... the Fed can no longer think of its job solely in terms of the trade-off between inflation and unemployment. Nor should it become complacent about restrained consumer prices while ignoring rapidly rising prices for financial assets. As Alan Greenspan discovered, it is also a mistake for central bankers to assume that they can quickly sop up excess liquidity whenever they decide the moment is right. Alan Blinder... may be right when he says it's too early for the Fed to begin raising interest rates.... But it is certainly not too early for the Fed, at the conclusion of its meeting Wednesday, to warn...that its current policies cannot, and will not, continue indefinitely...
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Yes. By the way, another name which comes to mind in this conversation, another fellow I also knew and a remarkable character named Nick Sibley, of the pioneering Hong Kong investment bank Jardine Fleming, formed as a joint venture by Jardine Matthiesson and the British merchant Bank Robert Fleming.... They were the pioneers in China. In Hong Kong, they were kings. Sibley was the public face of Jardine Fleming. He once said that giving liquidity to bankers is like giving a barrel of beer to a drunk. You know exactly what is going to happen. You just don't know which wall he is going to choose...
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This post generated some interesting comments. Here is one interchange: "Give over. Cuba in 1957 was a developed narcostate. When you compare it with Italy and Spain, are you really suggesting that Italy and Spain would have developed to where they are today if their only industries had been basic agriculture, plus the provision of cocaine and casino services to Germany and France?" Posted by: dsquared on May 14, 2003 11:15 PM. "Well Monte Carlo hasn’t done too badly, D^2. But I suppose it doesn’t have the agriculture." Posted by: Matthew on May 15, 2003 04:40 AM
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Brad confesses the reason for his lapsed Greenspanism. I hadn't seen the explanation that he opposed tight regulation of finance, because he thought the purpose of structured finance was to trick people into bearing more risk that they want to bear and that this is a good thing, since people are irrationally unwilling to bear risk. Oh my not just Greenspanian but a Straussian believer in <strike>noble</strike> <b>welfare enhancing</b> lies. I might have found the argument convincing in 2006, so I'm glad I didn't read it...
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The United States is indisputably undergoing a financial crisis and is perhaps headed for a deep recession. Here we examine three claims about the way the financial crisis is affecting the economy as a whole and argue that all three claims are myths. We also present three underappreciated facts about how the financial system intermediates funds between households and corporate businesses. Conventional analyses of the financial crisis focus on interest rate spreads. We argue that such analyses may lead to mistaken inferences about the real costs of borrowing and argue that, during financial crises, variations in the levels of nominal interest rates might lead to better inferences about variations in the real costs of borrowing. Moreover, we argue that even if current increase in spreads indicate increases in the riskiness of the underlying projects, by itself, this incr
