Paul Krugman economics: Deny, deny, deny!

[piezoe]

Quote from Ricter:

"I am only insisting that it is the right path to follow now, compared to the alternative path some of you want the Fed to follow." That sounds like relative safety to me.

Without looking up the strict definition of "equilibrium", couldn't I say that the equilibrium theorists are correct, but that no one is willing to endure the volatility of "letting Nature run its course"?

Yes, That's true. We did not want to wait and see what would happen if we let nature run its course. The main tenet of equilibrium theory is, however, wrong. Markets don't move toward equilibrium, they move away from it. After a major correction of market excesses gets underway, the market, if not interfered with, is very unlikely to go spontaneously back to equilibrium.

The classical economists, Adam Smith for example, believed that markets, through the pricing mechanism, would spontaneously react to excesses, and would be pushed back to equilibrium. A necessary condition was that markets must be "free" to move in the direction that the price mechanism wants to push them. Consequently what we may term "free market" economists, the ones that believe in equilibrium theory anyway, insist in a minimal amount of market regulation, so that markets will be "free" to seek equilibrium.

I think it would be fair to say, at least in regard to market equilibrium theory, that Alan Greenspan is, or was until he got "religion" , a member of this classical school, -- and that, I think, is the reason for his evident lack of interest in regulation. He was the regulator in chief; yet he did not believe in regulation! [He did, however, believe in using monetary policy.]

In the nineteen fifties Ferrari's were criticized for their notoriously bad brakes, to which Enzo Ferrari responded "Brakes! Who needs 'em?" Greenspan was the Enzo Ferrari of the U.S. economy. When he uttered his famous remark, "irrational exuberance" he affirmed that the market was far from equilibrium, which should have been a helpful clue suggesting market equilibrium theory was not working as expected; yet inexplicably he stuck to his belief that the pricing mechanism would soon bring the market back toward equilibrium. It didn't.

I am oversimplifying somewhat. The Austrian School "free market" proponents seem to have a somewhat different view of the forces that result in market equilibrium. [I am most definitely not qualified to offer intelligent criticism of the Austrian School.]

Enter George Soros, who offers that not only is market equilibrium theory all wrong, but that it could not be more wrong! Markets don't move toward equilibrium, they move away from equilibrium. This is not something that only George Soros believes, because there is a large body of economists that agree with Soros, at least as far as market equilibrium theory being wrong. Beyond merely declaring equilibrium theory to be wrong, however, Soros has made a very nice contribution to our understanding of why this theory is wrong, and what mechanism is responsible for pushing markets away from equilibrium.

Soros' explanation is embodied in the concept he calls "reflexivity". Other economists have had similar ideas, especially the behaviorists, but probably none has done a better job of explaining the failure of equilibrium theory than Soros.

While Soros, as a young man, was studying at the London School of Economics he also got interested in studying philosophy with Karl Popper. Soros acknowledges his association with Popper has profoundly influenced his thinking, and this background in philosophy has, it seems, been invaluable to Soros in later years in understanding markets as they exist in reality, rather then as they exist in Economics text books.

One of the key ideas I got from studying Soros' is that when markets get relatively far from equilibrium it should be possible to recognize this, and act to restore balance. In other words, it is possible to prevent major market distortions. Major bubbles are preventable!

 

[piezoe]

Quote from PiggyBank:

Speak for yourself. You're on a trading site, and I bet a whole bunch of people on here (definitely me) would be willing to let nature run its course. Furthermore, if the feds were sticking to the rules, they wouldn't have been meddling in this matter to begin with.

I'll take you at your word that you would have been willing to let "nature take its course." You would not have liked the depression that would have resulted. And if you lost your job because the government was not there to leverage up as the private sector leveraged down, you would not have been happy with your unemployment running out. And if you owed anyone money, you would not have enjoyed paying them back using dollars that had more buying power than the dollars you borrowed.

With regard to the Fed. The Fed is following "the rules". Maybe not "your rules," but they don't have to follow "your rules."

Just because someone has a brokerage account does not necessarily mean they have common sense.

 

[piezoe]

Quote from Tsing Tao:

...Keynesians have had their way the last few decades....

This is profoundly untrue. Look back at my long post where I reproduced the deficit data from the St Louis Fed. There is strong evidence that during the Reagan and Bush years the government was following the exact opposite of Keynesian economics!!!!! They were generating huge deficits in boom times!!!!!

 

[PiggyBank]

Quote from piezoe:

1) I'll take you at your word that you would have been willing to let "nature take its course." You would not have liked the depression that would have resulted. And if you lost your job because the government was not there to leverage up as the private sector leveraged down, you would not have been happy with your unemployment running out. And if you owed anyone money, you would not have enjoyed paying them back using dollars that had more buying power than the dollars you borrowed.

2) With regard to the Fed. The Fed is following "the rules". Maybe not "your rules," but they don't have to follow "your rules."

3) Just because someone has a brokerage account does not necessarily mean they have common sense.

1) I bet it seems like a depression to the millions who STILL don't have a job, whose UI bennies ran out, who owe money etc. Economies expand and contract that's how a capitalist society works and that is what we are supposed to have here in the US. The idea that people who were over-leveraged themselves were going to take a bigger hit, sucks for them, but it's just the way it is. Their greed is no different than that of the banks or anyone else. Since you're trying to appeal to my emotions, like all libs do, I'll let you know that my family lost everything when i was younger and Uncle Sugar Daddy wasn't there bailing us out. In fact my Dad (who was an employer for like 20+ years) couldn't even get UI for whatever reason lol. Shit happens, deal with it. Your problems aren't mine, and are certainly not the whole nations.

2) I wasn't referring to the federal reserve but the fed govt. Although I disagree with the whole idea of the federal reserve as well, that's a different discussion for another time. The fed govt itself has no authority in our Constitution to be bailing out private companies, or passing economic 'stimulus' packages etc. So no, they aren't following the rules.

3) exactly, and you don't reward/encourage/pander to stupidity. If you can't handle the risks you're taking, or you don't understand them, it's gonna cost you. When you're a free person, YOU are responsible for your actions, not anyone else. it would be like playing poker and betting big, then losing and demanding that you don't have to pay because the guy who beat you is better at it, or you don't know how to play. lol how retarded.

 

[PHOENIX TRADING]

Quote from piezoe:

I'll take you at your word that you would have been willing to let "nature take its course." You would not have liked the depression that would have resulted. .

WRONG: I for one would have been better off with a relatively short lived depression. The current inflation is hurting my finances.
Having a job in this economy going forward will not automatically protect one from the inevitable inflation to come.

 

[piezoe]

Quote from PiggyBank:

1) I bet it seems like a depression to the millions who STILL don't have a job, whose UI bennies ran out, who owe money etc. Economies expand and contract that's how a capitalist society works and that is what we are supposed to have here in the US. The idea that people who were over-leveraged themselves were going to take a bigger hit, sucks for them, but it's just the way it is. Their greed is no different than that of the banks or anyone else. Since you're trying to appeal to my emotions, like all libs do, I'll let you know that my family lost everything when i was younger and Uncle Sugar Daddy wasn't there bailing us out. In fact my Dad (who was an employer for like 20+ years) couldn't even get UI for whatever reason lol. Shit happens, deal with it. Your problems aren't mine, and are certainly not the whole nations.

2) I wasn't referring to the federal reserve but the fed govt. Although I disagree with the whole idea of the federal reserve as well, that's a different discussion for another time. The fed govt itself has no authority in our Constitution to be bailing out private companies, or passing economic 'stimulus' packages etc. So no, they aren't following the rules.

3) exactly, and you don't reward/encourage/pander to stupidity. If you can't handle the risks you're taking, or you don't understand them, it's gonna cost you. When you're a free person, YOU are responsible for your actions, not anyone else. it would be like playing poker and betting big, then losing and demanding that you don't have to pay because the guy who beat you is better at it, or you don't know how to play. lol how retarded.

I have a little more respect for you now that I understand where you re coming from. We are not as far apart on these issues as you might have imagined. But the issues you raise are different from the issues I was addressing.

 

[Tsing Tao]

Quote from PHOENIX TRADING:

I for one don't buy the concept that both bond and equities can't implode simultaneously.

They absolutely can. But traditionally, one moves to bonds when equities are overvalued.

 

[Tsing Tao]

Quote from piezoe:

This is profoundly untrue. Look back at my long post where I reproduced the deficit data from the St Louis Fed. There is strong evidence that during the Reagan and Bush years the government was following the exact opposite of Keynesian economics!!!!! They were generating huge deficits in boom times!!!!!

In general, the past few decades has been to spend, spend spend, and when that doesn't work, it's because you're not spending enough. In the last decade, it has been to spend, and print. Print until you can spend some more.

Just because they haven't followed Keynes's philosophy of saving during boom times doesn't mean they weren't more aligned with Keynesian beliefs than any other known theory. Keep trying to call out technicalities, but the rest of us (sans Ricter and yourself) aren't falling for it.

 

[Tsing Tao]

Quote from piezoe:

I have a little more respect for you now that I understand where you re coming from. We are not as far apart on these issues as you might have imagined. But the issues you raise are different from the issues I was addressing.

You could apply all this to yourself. You still haven't proven that QE has helped the recovery. That was your opening argument in this thread.

 

[PHOENIX TRADING]

Quote from Tsing Tao:



Just because they haven't followed Keynes's philosophy of saving during boom times doesn't mean they weren't more aligned with Keynesian beliefs than any other known theory. Keep trying to call out technicalities, but the rest of us (sans Ricter and yourself) aren't falling for it.

Plus the current and former crop of Keynesian's NEVER, EVER advocate saving under ANY conditions anyway.
So arguing original Keynesian philosophy vis a vis real results is dishonest at best anyway.

Who the hell do they think they are kidding?
Seriously I've never had an econ class but I know better than to fall for bait n switch BS.