The Failure of Economics

[Polk]

Here's Krugman calling for the Federal Reserve to create a housing bubble by keeping interest rates low following the dot-com bust.

Krugman Did Cause the Housing Bubble - Mises Economics Blog

Actually, that's not what he said, unless I missed it in there somewhere.

Not only that, but how can he "create" bubbles when he didn't have any role in the decision-making process at the Fed?

 

[Oddball]

Paul Krugman is a perfect contra-indicator. He's the Wrong Way Corrigan and Professor Backwards. I have never read a guy more out of touch with reality and so totally wrong about economics.

HOW DO YOU HAVE "FREE MARKETS" WHEN YOU HAVE CRA, FREDDIE AND FANNIE DICTATING WHAT BANKS MUST LOAN?

HOW DO YOU HAVE FREE MARKETS WHEN DEMOCRATS CONTINUE TO STEER FREDDIE AND FANNIE OFF THE CLIFF TAKING THE US HOUSING MARKET DOWN WITH THEM?

Beat me to it.

Also, how do you have free markets when the bad actors -including Fannie/Freddie- get bailed out and the people who defrauded their institutions get off Scot free?

How do we have free markets when interest rates are kept artificially low by the currency monopolists at the Fed?

Krugman might be interesting once or twice a decade if he could manage to put away his uber-left partisan hack hat every now and then.

 

[Oddball]

HOW DO YOU HAVE "FREE MARKETS" WHEN YOU HAVE CRA, FREDDIE AND FANNIE DICTATING WHAT BANKS MUST LOAN?

None of those things dictate loan terms to banks.

You're right....Politicians and race hustlers apply that pressure and the banks merely use what's in place to lend to poor credit risks.

 

[Oddball]

Empiricism > ideology

Empiricism = the ideology of those who use the W.A.G. method to explain the physically unexplainable.

 

[editec]

A great read by Paul Krugman. A few exerts below.

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems.

No, it really shows us what a fools science economics really is. That or how easily most economists can be lead like lemmings over the cliff.

More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy.

They STILL don't understand what the problem is, for christ's sakes!

During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right.

the perfect market theory. And let me tell you something perfect market adherents STILL believe that blather, too.

Why? Because they are playing word games, that's why.

They define the market as being perfect based on the theory that the combined understanding of all its players inevitably leads to the right price.

Such circular thinking as that is the hallmark of faith based imbecility.

There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. ...

Yes there was...an escalting cost of real estate that bore no relationship to people's incomes.

Let me tall ya, the price of RE is STILL too high in relationship to incomes.

Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong.

No, getting paid to see the glass overflowing is what caused them to miss the obvious. Teh bonds were overpriced and the risk understated precisely because the people rating the bonds were paid to see the rosy picture and completely ignore all the obvious flaws in the market.

They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation. ...

Yes, true.

Keynes considered it a very bad idea to let such markets, in which speculators spent their time chasing one another’s tails, dictate important business decisions: “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”

He's right...kinda. Assuming that the laws regulating the market are sane, the market does a great job of arriving at good prices.

But when the regulations are DESIGNED FOR TEH BENEFIT SPECULATORS, then the market no longer really can do a good job.

We HAD the right laws in place, but the fucking idiots who don't understand human greed got rid of those banking and financing laws.

By 1970 or so, however, the study of financial markets seemed to have been taken over by Voltaire’s Dr. Pangloss, who insisted that we live in the best of all possible worlds.

Candidely, I think he's abolsutely right.

Discussion of investor irrationality, of bubbles, of destructive speculation had virtually disappeared from academic discourse.

Thankl you University of Chicago for hatching a generation of nitwit economists.

The field was dominated by the “efficient-market hypothesis,” promulgated by Eugene Fama of the University of Chicago, which claims that financial markets price assets precisely at their intrinsic worth given all publicly available information. (The price of a company’s stock, for example, always accurately reflects the company’s value given the information available on the company’s earnings, its business prospects and so on.) ...

Ah, great minds think alike, I see. Yes U of C was neocon econmists central without doubt.

Finance theorists continued to believe that their models were essentially right, and so did many people making real-world decisions. Not least among these was Alan Greenspan, who was then the Fed chairman and a long-time supporter of financial deregulation whose rejection of calls to rein in subprime lending or address the ever-inflating housing bubble rested in large part on the belief that modern financial economics had everything under control.

I just loved his lamed ased explanation for his complete failure.

You know what siad right?

He said: I trusted the bankers!!!!!!!!!!!!!!!!!

There was a telling moment in 2005, at a conference held to honor Greenspan’s tenure at the Fed. One brave attendee, Raghuram Rajan (of the University of Chicago, surprisingly), presented a paper warning that the financial system was taking on potentially dangerous levels of risk. He was mocked by almost all present — including, by the way, Larry Summers, who dismissed his warnings as “misguided.” ...

Nobody likes a party pooper.

They hate them even worse when they turn out to be right.

Take, for example, the precipitous rise and fall of housing prices. Some economists, notably Robert Shiller, did identify the bubble and warn of painful consequences if it were to burst. Yet key policy makers failed to see the obvious. In 2004, Alan Greenspan dismissed talk of a housing bubble: “a national severe price distortion,” he declared, was “most unlikely.” Home-price increases, Ben Bernanke said in 2005, “largely reflect strong economic fundamentals.” ...

Fucking liars. The economy was NOT fundamentally strong.

One certainly did not need a PhD in econ to realize that.

But there was something else going on: a general belief that bubbles just don’t happen.

Now, how, in 2004 or 2005 could any credible economist think that market bubbles don't happen?

We'd just had the Dotcom bubble, and before that the commercial real estate bubble burst in our faces.

What’s striking, when you reread Greenspan’s assurances, is that they weren’t based on evidence — they were based on the a priori assertion that there simply can’t be a bubble in housing.

a priori assertion = faith based thinking.

And the finance theorists were even more adamant on this point. In a 2007 interview, Eugene Fama, the father of the efficient-market hypothesis, declared that “the word ‘bubble’ drives me nuts,” and went on to explain why we can trust the housing market: “Housing markets are less liquid, but people are very careful when they buy houses. It’s typically the biggest investment they’re going to make, so they look around very carefully and they compare prices. The bidding process is very detailed.”

Hang em.

Indeed, home buyers generally do carefully compare prices — that is, they compare the price of their potential purchase with the prices of other houses. But this says nothing about whether the overall price of houses is justified. It’s ketchup economics, again: because a two-quart bottle of ketchup costs twice as much as a one-quart bottle, finance theorists declare that the price of ketchup must be right.

These idiots need to get out more.

They need to read something other than economics. Seriously, they're blinded by their own self referential theories, and failing to understand that the market is ONLY a reflection of the state of the PEOPLE.

Nobody who was paying attention to the state of the people thought the economy was "fundamentally sound".

The only people who might have thought that were wealthy players in that perversion they were calling a FREE MARKET.

In short, the belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history. And efficient-market theory also played a significant role in inflating that bubble in the first place. ...

they were (still are) blinded by their class affiliation, Toro.

Everybody THEY KNOW is doing okay, ergo the market must be "fundamentally sound".

Idiots.

 

[Thinman]

Paul Krugman is a perfect contra-indicator. He's the Wrong Way Corrigan and Professor Backwards. I have never read a guy more out of touch with reality and so totally wrong about economics.

HOW DO YOU HAVE "FREE MARKETS" WHEN YOU HAVE CRA, FREDDIE AND FANNIE DICTATING WHAT BANKS MUST LOAN?

HOW DO YOU HAVE FREE MARKETS WHEN DEMOCRATS CONTINUE TO STEER FREDDIE AND FANNIE OFF THE CLIFF TAKING THE US HOUSING MARKET DOWN WITH THEM?

Beat me to it.

Also, how do you have free markets when the bad actors -including Fannie/Freddie- get bailed out and the people who defrauded their institutions get off Scot free?

How do we have free markets when interest rates are kept artificially low by the currency monopolists at the Fed?

Krugman might be interesting once or twice a decade if he could manage to put away his uber-left partisan hack hat every now and then.

True, also, there is no better teacher than a bad experience, but financial bailouts, in effect, rewarded bad behavior. There should not have been any bailouts. GM would be back on their feet with a new owner and a different name.

 

[Oddball]

Thankl you University of Chicago for hatching a generation of nitwit economists.

Paul Bin Krugman isn't a Chicago monetarist...He's a Yalie Keynesian Fabian socialist, who has now landed at the economics department of the even farther leftist (if that's possible) Princeton.

Other than that, your dissection was pretty spot on.

 

[Neubarth]

Thankl you University of Chicago for hatching a generation of nitwit economists.

Paul Bin Krugman isn't a Chicago monetarist...He's a Yalie Keynesian Fabian socialist, who has now landed at the economics department of the even farther leftist (if that's possible) Princeton.

Other than that, your dissection was pretty spot on.

In the late thirties, my father was on staff at the University of Chicago. In the Fifties, I grew up in the Hyde Park neighborhood surrounding the University. U of C is a darn good institution and has spawned a multitude of free thinkers. Not all are liberals or Keynesians. There are few conservatives spawned at that institution. I think that is natural for an institution of that manner.

 

[CrusaderFrank]

You can tell that someone is totally clueless as soon as they mention "Deregulation" and the US housing market. I stop reading anything they have to say after that.

 

[Oddball]

Clueless or willfully deceptive....Which fits Bin Krugman to a tee.

 

[Polk]

HOW DO YOU HAVE "FREE MARKETS" WHEN YOU HAVE CRA, FREDDIE AND FANNIE DICTATING WHAT BANKS MUST LOAN?

None of those things dictate loan terms to banks.

You're right....Politicians and race hustlers apply that pressure and the banks merely use what's in place to lend to poor credit risks.

How exact where banks forced to give bad loans?

 

[CrusaderFrank]

None of those things dictate loan terms to banks.

You're right....Politicians and race hustlers apply that pressure and the banks merely use what's in place to lend to poor credit risks.

How exact where banks forced to give bad loans?

It's not that they were forced to make bad loans, it's that they had the Federal Government, who tells them when they can open a new branch or buy a competitor suddenly say, "Give us your loans made to the unemployed and to your migrant farm worker and to people without even a Social Security number" and they obliged!

 

[Toro]

Low interest rates create bubbles, however, and he was certainly calling for that. So for him to then attribute the bubble to irrationality in the market is dishonest, when he advocated for the policy that created the bubble in the first place.

If low interest rates always creates bubbles, then Japan - where interest rates went negative - would have been one rolling bubble after another for the past decade instead of being in a deflationary spiral. But of course, that has not happened.

Also, if one has studied bubbles, one realizes that cheap money is not enough. There is usually some exogenous or technological shock that also accompanies a bubble, as happened during both the technology and housing bubbles.

Irrationality was rampant during the housing bubble. If people were rational, people would not have chased up home prices far beyond their economic value. But people are often irrational, creating a feedback loop whereby higher prices beget higher prices, and as we saw in the financial collapse, lower prices beget lower prices. When people are lining up all night to buy a condo that does not exist and is merely being planned so they can flip it to someone else who is also trying to flip it to someone else - as happened throughout the country - irrationality is gripping the market.

 

[Oddball]

None of those things dictate loan terms to banks.

You're right....Politicians and race hustlers apply that pressure and the banks merely use what's in place to lend to poor credit risks.

How exact where banks forced to give bad loans?

Much the same way states are forced to lower their speed limits, BAC levels and shove seat belt laws down your throat.....Veiled and overt threats.

 

[Polk]

You're right....Politicians and race hustlers apply that pressure and the banks merely use what's in place to lend to poor credit risks.

How exact where banks forced to give bad loans?

Much the same way states are forced to lower their speed limits, BAC levels and shove seat belt laws down your throat.....Veiled and overt threats.

Thanks for admitting you don't have an answer.

 

[Oddball]

Thanks for admitting how clueless you are as to how political pressuring works.

 

[Polk]

Thanks for admitting how clueless you are as to how political pressuring works.

What pressure was applied? None, and yet to keep claiming there was.

 

[Oddball]

What are you, some kind of racist?

 

[eagleseven]

Perhaps this thread should be re-titled "The Failure of Central Banks," given how Paul Krugman called for the Fed to create the last bubble...

 

[Oddball]

Nail, meet hammer.