by Mario Rizzo Her Majesty Queen Elisabeth II asked why economists did not predict the current economic troubles. The British academic community (and some in the American) is using this opportunity to discuss views on the nature and limits of contemporary macroeconomics. This is very useful. Peter Boettke over at The Austrian Economics summarizes and … Continue reading Not Prediction But Explanation
by Mario Rizzo Reportedly, Queen Elisabeth asked why didn't any of the top-tier macroeconomists predict the financial meltdown and Great Recession. So now The Economist and other loyal subjects are trying to answer that question. The Chicago economist Robert Lucas, an American, has also added his opinion. It is deeply flawed but perhaps a comfort to the "Neoclassical … Continue reading Lucas Defending Macroeconomics: Not Enough
by Jerry O'Driscoll In an interview with The Wall Street Journal, German Chancellor Merkel called for an end to risky growth policies built on asset bubbles. "In recent years we've had the Asian crisis, the new economy crisis, and now this great international financial and economic crisis -- we can't slide into a crisis every … Continue reading Bubble or Growth?
by Mario Rizzo An increasing number of articles in the popular press are claiming that signs of economic recovery are becoming more numerous. That may be. However, I am not an economic prognosticator and so I don’t know what to make of that. There is a more basic question. What do people mean by “recovery”? … Continue reading Recovery and the Irreversibility of Time
by Gene Callahan Brian Doherty quotes Treasury Secretary Geithner: "I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk."
by Mario Rizzo “And government spending is as good as anybody else’s.” Brad DeLong seems to think so. But the idea is only plausible because it has been repeated many times and because it is a politically convenient “truth.” I think everyone would agree that we have a complex economy. There is a vast and intricate … Continue reading Is All Spending Created Equal?
by Mario Rizzo Paul Krugman continues to say on his blog that the fiscal stimulus was too small. After all, unemployment is rising quickly: “[I]t’s rapidly becoming clear that yes, the plan was too small.” Brad DeLong has also added his voice to the call for bigger stimulus, again largely because … Continue reading Inappropriate Stimulation
by Sandy Ikeda This passage is from a piece in, of all places, Scientific American, from, of all people, Jeffrey Sachs: During the decade from 1995 to 2005, then-Federal Reserve chairman Alan Greenspan over-reacted to several shocks to the economy. When financial turbulence hit in 1997 and 1998—the Asian crisis, the Russian ruble collapse and … Continue reading An ally on the left? And bleg results
by Sandy Ikeda A comment from Laeeth Isharc on an earlier post raises a fair but, at least for me, uncomfortable point: ...Austrians/Hayekians might perhaps be within a minority of economists able to foresee the disastrous consequences of the inevitable bust.... But I don't recall seeing a single piece by Austrian economists in the academic … Continue reading Bleg: Which Austrians called the Panic of 2008?
By Chidem Kurdas Bubble, bubble, toil and trouble—that’s an apt metaphor for the Federal Reserve policies meticulously dissected by Stanford professor John Taylor, in the Wall Street Journal and other places. He shows that the Fed set the financial crisis in motion and then made it worse. Relative to the pattern that held since 1987 … Continue reading Taylor Rule and Fed Witches’ Brew
by Sandy Ikeda At the Colloquium lunch on Monday, one of my esteemed colleagues wondered aloud whether Paul Krugman’s insistence that the humongous stimulus package needs to be much bigger wasn’t evidence of madness. Then, something came up during the actual colloquium – with Larry White, with whom we were discussing a chapter, dealing with … Continue reading Orthogonal mindsets
by Gene Callahan “History justifies whatever we want it to. It teaches absolutely nothing, for it contains everything and gives examples of everything.” —Paul Valéry, De l’historie, Regards sur le monde actuel My friend Larry White presented at the colloquium yesterday. He gave a nice presentation on the Roaring Twenties and the Great Depression, discussing … Continue reading What’s It All About?
by Mario Rizzo From Tyler Cowen at Marginal Revolution: Note that under standard theory neither monetary nor fiscal policy will set right the basic problems from negative real shocks and indeed the U.S. economy is undergoing a series of massive sectoral shifts. That includes a move out of construction, a move out of finance, a … Continue reading Tyler Cowen is Right about Stimulus — Niggling or Not.
by Mario Rizzo In his column today in the Financial Times the often-excellent Martin Wolf drops the ball. He endorses the view which he associates with J.M. Keynes “that one should not treat the economy as a morality tale.” The third and most important lesson is that one should not treat the economy as … Continue reading Microfoundations are not a “Morality Tale”