CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Friday, November 12, 2010
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
Previous Posts
- Five Ways the Cell Phone Is Changing the World
- Five More States Report Improvements in October
- Is The U.S. A Currency Manipulator?
- Protecting Toads To Keep Private Land Private
- Jobless Claims (4-Week Avg.) Fall to Two-Year Low
- Highly Paid Federal Workers Making $150,000 Or Mor...
- Illinois Loses 1,000 More Union Jobs, and Another ...
- Even The Michigan Economy is Coming Back
- Another Company That Might Leave California
- Debunking Pro-Tax Increase Propaganda
25 Comments:
When, The Conscience of a Liberal, makes the list credibility goes out the window.
VangelV, biased information (which both Krugman and Perry provide, and supported by sound mathematical and empirical models) is more credible than misinformation (which is provided by way too many people, and supported by nonsense).
Hey PT when has Krugman a Keynesian (or any Keynesian for that matter) ever provided anything but noise?
Personally two that I would've used instead are e21 and Ed Dolan's Econ Blog...
Again that's just my personal choices...
Juandos, for example, you may want to read Krugman's Nobel Prize paper (it's short). Here's a partial summary:
Traditional trade theory assumes that countries are different and will exchange only the kinds of goods that they are comparatively better at producing — wine from France, for example, and rice from China.
This model, however, dating from David Ricardo’s writings of the early 19th century, was not reflected in the flow of goods and services.
Krugman set out to explain why worldwide trade was dominated by a few countries that were similar to one another, and why a country might import the same kinds of goods it exported.
In contrast, the lawyers micromanaging the economy offer nonsense.
Two years ago Obama stated we cannot afford another bubble.
Now he says we cannot afford to extend the tax cuts on the rich.
After squandering trillions of dollars, in spending and lost output, the nonsense has been delivered.
Hey PT I've read and reread Krugman's 'Modelling Trade in a World of Plenty' a few times...
Someone must've written it for him if anything he's written for the NY Times is anything to go by...
For me, the Austrian perspective (and common sense perspective) comes from GlobalEconomicAnalysis.blogspot.com.
Always a good read. Sometimes a little political.
Mark Perry: The Great Communicator of the economic blogosphere.
Anyway, what this country needs is optimism. It seems, Dr Perry has attempted to offset the Obama-Pelosi-Reid view of America, which is no small task.
US small business optimism picks up
November 9 2010
The National Federation of Independent Business said on Tuesday that its index of optimism rose from 89 to 91.7 on its scale of 100.
The rise was larger than economists had expected as employment plans and sales trends showed signs of improvement.
“This looks to us like the start of a serious improvement,” said Ian Shepherdson, chief US economist at High Frequency Economics.
In spite of the uptick in sentiment, NFIB said that confidence remains at recession levels and that inventory investment remains weak.
VangelV, biased information (which both Krugman and Perry provide, and supported by sound mathematical and empirical models) is more credible than misinformation (which is provided by way too many people, and supported by nonsense).
Nonsense. Krugman is a Keynesian who has gotten most things wrong and has turned away from economics and towards political advocacy.
What kind of an idiot writes this:
...To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
For me, the Austrian perspective (and common sense perspective) comes from GlobalEconomicAnalysis.blogspot.com
Sorry but when I think of the Austrian perspective Mish is not the analyst who comes to mind. While he is fine on some issues he has a long way to go before he figures out monetary theory.
Vangely
Good point. He mostly bashes Krugman which I appreciate. But that hardly makes him Austrian.
VangelV, so, in August 2002, Krugman concludes "Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
He was correct, and we needed another bubble to combat this recession (i.e. more of a production than consumption bubble, or more of a 1995-00 bubble than a 2002-07 bubble).
Asset bubbles compensate for flat real wages, much like higher dividends compensate for lack of raises in real wages, to improve living standards.
Good point. He mostly bashes Krugman which I appreciate. But that hardly makes him Austrian.
I believe that Mish is a very smart guy and is quite familiar with many of the things that the Austrian school teaches. That means that I find a lot of time to read his argument. My big problem is with his monetary blind spot and his inability to see the danger in the strategy that he has been advocating. Mish has been a big deflationist for a long time and with the exception of a short period in the later part of 2008 has been wrong most of the time. That means that even after they were saved by Mish in 2008/2009 the people who followed his advice would have been way down compared to even a simple diversity and hold strategy but much lower than those that listened to the Austrians and began to move towards gold in 1999/2000 when most of them were pounding the table and telling people to get out of the Dow and into precious metals and energy and other commodities.
Clearly Mish was right about housing but in that he was not any different than the Austrians who saw the bubble. Where Mish was clearly wrong was in equating falling real estate prices with deflation. Given the overvaluation and the terrible lending practices it was clear that real estate and some other big ticket items would collapse in price even if there was no major change in the supply of money and credit.
If Mish cleans up his act on the monetary side and gets his logic straight he would actually be a very good analyst.
He was correct, and we needed another bubble to combat this recession (i.e. more of a production than consumption bubble, or more of a 1995-00 bubble than a 2002-07 bubble).
Asset bubbles compensate for flat real wages, much like higher dividends compensate for lack of raises in real wages, to improve living standards.
Money printing does not create wealth. If it did Zimbabwe and most South and Central American countries would have enjoyed a very high standard of living.
What money printing does is help borrowers by robbing from savers. As such, there is no real incentive to save so people begin to spend money as rapidly as they can. While the process can be manageable, it can get out of hand and destroy the currency and the credit markets. That makes the country worse off and individuals much poorer.
VangelV, sustainable growth helps create wealth, because there's neither strain nor slack utilizing resources.
Economic boom-bust cycles (not to be confused with asset boom-bust cycles) use resources inefficiently, both in the boom and bust phases.
It's better when global imbalances correct slowly rather than suddenly. Similarly, a soft-landing is better than a hard-landing, particularly in a high-skilled economy, where more time is needed to acquire new skills.
Also, I may add, was there economic strain in the U.S. economy in the 2000s?
For several years in the mid-2000s, U.S. actual output was roughly equal to potential output, and the country was at full employment. However, the U.S. didn't overproduce throughout the 2000s.
The U.S. did overconsume, because foreign goods and capital became cheaper and cheaper, which spurred demand. More money was needed in the U.S. economy, because U.S. consumers bought foreign goods and foreigners used those dollars to buy U.S. Treasury bonds, i.e. money was drained out of the U.S. economy and flowed into the U.S. government.
The housing bubble (and related goods) help raise U.S. actual output towards potential output, which caused export-led economies to overproduce even more, although the U.S. economy didn't overproduce.
Why did the banks fail?
There was too little money in the economy. We had restrictive monetary policy and contractionary fiscal policy, which caused the recession.
If there was a $5,000 per worker tax cut (for 150 million workers at the time, or $750 billion), they would've paid-off or paid-down their highest interest rate debt first and increased their monthly incomes. The recession and financial crisis would've been averted, or at least postponed.
"What kind of an idiot writes this"...
Well vangeIV could it be someone who would appreciate it like Peter Orszag as explained by James Pethokoukis in his Reuters blog?
juandos,
From the Pethokoukis piece:
"Orzsag and the Brooking Institution and the Center for American Progress and Matt Miller and David Leonhardt and Ezra Klein and the Democratic Party seem to have missed the Tea Party revolt against Big Government over the past year. It’s like they had two 2009s and are moving straight on to 2011."
That kind of says it all, doesn't it?
Economic boom-bust cycles (not to be confused with asset boom-bust cycles) use resources inefficiently, both in the boom and bust phases.
There is a reason. We have wasted resources (malinvestments) because the financial system can distort the price signals by controlling the interest rate at the short end of the curve and allowing arbitrage to take care of the long end. When rates are too low individual planners overestimate the desire to save and assume that there are more resources available than there actually are. Eventually they figure it out and we get a bust.
It's better when global imbalances correct slowly rather than suddenly. Similarly, a soft-landing is better than a hard-landing, particularly in a high-skilled economy, where more time is needed to acquire new skills.
No. When malinvestments are made they need to be liquidated as quickly as possible. See Japan or the US under Hoover/FDR to see why. Compare that to the Harding depression and you will see why liquidation of bad assets is a good thing for the economy.
For several years in the mid-2000s, U.S. actual output was roughly equal to potential output, and the country was at full employment. However, the U.S. didn't overproduce throughout the 2000s.
Did you look at the housing market? I would say that the US economy overproduced quite a bit.
Why did the banks fail?
They were holding paper that was valued far less than what they had claimed and there wasn't enough equity to cover the losses.
There was too little money in the economy. We had restrictive monetary policy and contractionary fiscal policy, which caused the recession.
This is not true. The Fed kept injecting liquidity into the system, the GSEs bought too many bad mortgages, and the banks lent far more than they should have to people with lousy credit.
If there was a $5,000 per worker tax cut (for 150 million workers at the time, or $750 billion), they would've paid-off or paid-down their highest interest rate debt first and increased their monthly incomes. The recession and financial crisis would've been averted, or at least postponed.
But the dollar would have crashed. Your creditors are not very impressed when the Fed keeps printing money and when the government runs huge deficits.
You are missing the obvious. The US is broke, just as most EU countries are broke. We can't fix anything by spending more and printing money.
VangelV, the solution is producing more (achieving full employment and optimal output). So, Americans can spend more and save more.
VangelV, the solution is producing more (achieving full employment and optimal output). So, Americans can spend more and save more.
The solution is to allow markets to work as they are supposed to. Malinvestments should not be propped up. They need to be liquidated. People who are working in industries that make stuff that is not in demand need to go find something else to do. Consumers who have no money need to stop borrowing so that they can consume more. People who can't afford their homes need to walk away and live in something that they can afford.
Living a lie is never a good idea.
Post a Comment
<< Home