Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Hey cool - the economic crisis is already over!

by Jerome a Paris Fri May 9th, 2008 at 02:13:22 AM EST

The eagerness over the past few days by pundits and financiers to call the financial crisis essentially over has been quite remarkable. I've been collecting articles all saying the same thing and have selected a few here.

A LOT of heavy-hitters have spoken in almost identical terms on the topic:


Paulson sees end of credit crunch

US Treasury Secretary Henry Paulson has said that the worst of the credit crunch may have passed.


Financial crisis mostly over, Dimon says

WASHINGTON (MarketWatch) -- The financial crisis that began last summer and rocked markets is mostly over, the chief executive of JPMorganChase & Co.  said Thursday. "I look at it as like 75-85% done," said CEO Jamie Dimon.


Worst of US credit crisis over but economy to remain weak

SINGAPORE : John Thain, the newly-installed chief executive of US investment bank Merrill Lynch, has lent his voice to the view that the worst of the US credit crunch is over.

Several prominent people, including well-known investor Warren Buffet, have said over the last few days that the credit crisis in the US has eased.


Greenspan says worst of credit crisis over

(Reuters)--Former Federal Reserve Chairman Alan Greenspan said on Thursday that the worst of the credit crisis is over, according to sources who attended a speech he delivered in New York.




Paulson, Greenspan, Buffett, the CEOs of major banks - that's a lot of firepower in just a few days to say that things are all fine and dandy. And it has been accompanied by similar articles from known or unknown pundits, further solidifying the common wisdom:


The Housing Crisis Is Over

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.


Buy as bankers move from denial to depression

The Kübler-Ross thesis describes successive stages of denial, anger, negotiation, depression and acceptance. From banks, we have seen the phases of denial and anger. Denial that things were really serious. Anger that the authorities had not acted promptly enough to bail the industry out.

But those days seem to be over.

You even get oil price increases spun as good news, as they are apparently a sign that traders now believe in the resiliency of the US economy, ie leading to stronger gas demand.

So what's up??

As usual, the reality is in the fine print, present in most of these articles:


Pauslon

However, he acknowledged that the US economy was still facing tough times as people coped with soaring petrol prices and a weak job market.

(...)

"Later this year, I expect growth will pick up."


Thain

But like Warren Buffet, Mr Thain believes that the US economy as a whole continues to be in a poor shape.

(...)

But I'm still concerned about the US economy overall.

"I'm concerned that the impact of falling home prices, rising energy prices, rising food prices, rising unemployment - all (of these) will have a negative impact on the consumer, and that will be a drag on the US economy going forward."


Greenspan

Greenspan also said house prices still had a long way to fall and that it was unlikely they would stabilize by year-end, according to meeting attendees who provided Reuters details of the speech at the Alternative Public Strategies Conference.

(...)

The attendees, who declined to be identified by name, said Greenspan mentioned that U.S. growth was likely to be sluggish for an extended period of time and that a so-called doomsday scenario was unlikely to materialize.


Housing market optimist

Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

So, to be clear: financial markets are no longer in meltdown mode. The Bear Stearns bailout has been interpreted as both the bottom of the crisis, and a sign that authorities will do whatever it takes to bail out the sector. Financiers are no longer panicking, and think they have discounted the worst of the crisis now.

Which doesn't mean that such worst has already happened - just that financiers think they have the corresponding losses covered in their books. The losses are still due - they just won't be unexpected - what will drive the markets now is only the differential, if any, between the somewhat negative predictions they have made and the reality as it unfolds.

But that reality - housing prices falling for at least another year, growth stagnating for a while, joblessness and bankruptcies increasing - is still ahead.

It's just been discounted. Which is cool.

Except, of course, if you cling to the (Deeply Unserious) notion that the biggest bubble in history is unlikely to be followed by anything but the biggest bust in history, and the worst headache in history.

Or if you think that the current crisis, which occurred in the supposedly most benign economic conditions in years (with record growth, profits and corporate strength), is unlikely to stop as the economic outlook worsens, and companies fire workers or go bankrupt.

Or if you think that, given the housing market situation, people will stop having negative savings rate and will start tightening their belts a bit to build back the cushion no longer provided by their houses.

Or if you think that oil and commodity prices are no longer determined purely by the economic outlook of the US or Europe, and are on a long term upwards trend, which will further bite into consumers' spending capacity.

But hey, all these top bankers and policy makers tell us (and the media dutifully make the relevant headlines) that it's alright, so it must be...

Display:
http://www.dailykos.com/storyonly/2008/5/8/165135/2136/325/511228

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu May 8th, 2008 at 04:56:42 PM EST
Say it with me: The Surge is Working.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:16:46 PM EST
[ Parent ]
yup, sure is...but is it love or is it viagra?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Fri May 9th, 2008 at 02:39:27 AM EST
[ Parent ]
It's Voodoo-nomics ejaculating...
by das monde on Fri May 9th, 2008 at 03:34:57 AM EST
[ Parent ]
I was curious to see what kind of activity this would get at dKos and I see my expectations were met.

The site has turned into the equivalent of a bunch of rabid fans at a sports match. There is no room for discussion amidst all the screaming and rooting for the home team.

One of the consequences of this narrow focus and obvious partisanship is that the site is no longer of any influence. People don't quote the essays and the popular bloggers aren't asked for their thoughts elsewhere.

One can have a loyal following but no influence. Just look at the tabloid press - millions of readers, but no editorial clout.

It's too bad, it could have been a force for change. A site like Talking Points Memo now attracts all the thoughtful political analysts and current authors. Huffington Post is trying to do something similar as well as adding entertainment figures to make the site more like a regular newspaper.

Markos' political naiveté is the cause of this lost opportunity.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri May 9th, 2008 at 09:08:31 AM EST
[ Parent ]
European Tribune - Hey cool - the economic crisis is already over!
Or if you think that, given the housing market situation, people will stop having negative savings rate and will start tightening their belts a bit to build back the cushion no longer provided by their houses.

You don't mean that they might actually cut back on consumption.....?

That's not going to do a whole lot for shareholder value....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu May 8th, 2008 at 05:18:54 PM EST
Consumer borrowing unexpectedly surges in March - Business on The Huffington Post

Consumer borrowing rose in March at the fastest pace in four months, more than double the increase of the previous month, in what was seen as a sign of rising economic stress.

The Federal Reserve reported Wednesday that consumers increased their borrowing at an annual rate of 7.2 percent, compared with a 3.1 percent rate of increase in February.

The gain was much larger than economists had been expecting and reflected strong borrowing on credit cards and also in the category that includes auto loans. The increase in consumer debt totaled $15.3 billion at an annual rate in March, much bigger than the $6 billion increase that economists had been expecting.

by das monde on Fri May 9th, 2008 at 03:39:54 AM EST
[ Parent ]
Also on HuffPo, pending home sales hit new low.
http://www.huffingtonpost.com/2008/05/07/pending-home-sales-hit-ne_n_100585.html
Karen in Austin

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher
by Wife of Bath (kareninaustin at g mail dot com) on Fri May 9th, 2008 at 06:28:01 AM EST
[ Parent ]
das monde:
The gain was much larger than economists had been expecting and reflected strong borrowing on credit cards and also in the category that includes auto loans.

I suspect a lot of that consumer borrowing won't have been spent on consumer items.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 9th, 2008 at 07:25:52 AM EST
[ Parent ]
The vengeful ghost of Supplyside-Economics haunts Austrian papers:

Robert Mundell:

European Tribune - Comments - Hey cool - the economic crisis is already over! European Tribune - Comments - Hey cool - the economic crisis is already over!
Mundell: Die USA leiden an einem Überhang an Immobilien, und den abzubauen wird bis zu einem Jahr dauern. Aber dank der niedrigen Zinsen wird sich der Rest der Wirtschaft rasch erholen, und dadurch werden auch die Häuserpreise wieder steigen. Für die USA_bin ich recht optimistisch, für Europa viel weniger.Mundell: The United States suffer from a surplus of real estate, which will take up to a year to reduce. But thanks to the low interest rates the rest of the economy will recover quickly, and thereby the house prices will rise again. For the USA I'm quite optimistic, much less so for Europe.

Possibly a global effort?
by generic on Thu May 8th, 2008 at 06:17:12 PM EST
European Tribune - Community, Politics & Progress.
The United States suffer from a surplus of real estate,

so the economy will all be o.k. if the US cedes California and Texas to Mexico?

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Thu May 8th, 2008 at 06:20:58 PM EST
[ Parent ]
California?  Yes.  Texas?  No.  Texas is fine on house prices.  California is another planet.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:14:45 PM EST
[ Parent ]
but surely Texas has a much better real estate/house price ratio. you'd get rid of much more real estate for the same amount of house price in the economy if you got rid of Texas.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu May 8th, 2008 at 07:18:48 PM EST
[ Parent ]
If you're trying to convince me that we should get rid of Texas, then quit preaching, Reverend.  You had me at "Hello". ;)

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:21:42 PM EST
[ Parent ]
some vague memory says that Texas  actually has the right to leave the US written into the agreements that incorporated it into the USA, but that could be something i'm entirely immagining from a drunken haze.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu May 8th, 2008 at 07:26:39 PM EST
[ Parent ]
Or it could be something that Texans made up.

Hell if I know.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:30:30 PM EST
[ Parent ]
True.
by the stormy present (stormypresent aaaaaaat gmail etc) on Thu May 8th, 2008 at 07:35:00 PM EST
[ Parent ]
true it can leave?
or
true it was a drunken haze?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu May 8th, 2008 at 07:48:15 PM EST
[ Parent ]
I actually think it might be true.  I seem to remember something like that from high school or middle school.

Although, granted, that was a haze, too, so perhaps we're both wrong.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:58:13 PM EST
[ Parent ]
i seem to remember that if it leaves, it gets to split into three separate sections. this is a bit too many details for alcohol induced hallucinations. (or not enough)

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu May 8th, 2008 at 08:00:43 PM EST
[ Parent ]
Close.  Five different sections, but only the one with  Austin wouldn't suck (MHO).

http://www.snopes.com/history/american/texas.asp

As for the economy, I wonder if all the folks who knew that WMDs were not going to be found in Iraq (which includes a lot of us) are the same as those who know that things are going to get a whole lot worse for a long while, no matter how many paid-for Pollyannas break wind out of their mouths.

Karen in Austin

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher

by Wife of Bath (kareninaustin at g mail dot com) on Thu May 8th, 2008 at 11:49:47 PM EST
[ Parent ]
It was always my impression that written into law or generally unwritten, Texans could always do whatever they actually decided to do, and t'hell with anyone who tried to stop 'em.

For example, i understood that lawmaking was done at the bar of the Driscoll Hotel, then later transferred to the "legislative" process.

"That's right, you're not from Texas
Texas loves you anyway."

Mr. L. Lovett

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Fri May 9th, 2008 at 03:04:14 AM EST
[ Parent ]
Ah, the bar at the Driskoll Hotel... it's also where all the real contacts are made during the Austin Heart of Film Festival and Screenwriters Conference.

I'd love to be a year-round fly on the wall at that place; lots of scoops to be had.

Karen in Austin

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher

by Wife of Bath (kareninaustin at g mail dot com) on Fri May 9th, 2008 at 06:23:09 AM EST
[ Parent ]
I believe that contention was settled by the War between the States, or did you think that war was about something else?

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Fri May 9th, 2008 at 09:12:30 PM EST
[ Parent ]
Alas, Texas is disappearing:

A large sinkhole that has swallowed up oil field equipment and vehicles in southeastern Texas is still growing but there have been no reports of injuries or damage to homes.

Television news footage showed a tractor, oil field equipment and telephone poles falling into the sinkhole as it grew near Daisetta, northeast of Houston.

Or, perhaps, it's being outsourced.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu May 8th, 2008 at 10:56:50 PM EST
[ Parent ]
Now if the sinkhole would only take Houston, that would be progress.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin
by Crazy Horse on Fri May 9th, 2008 at 02:59:18 AM EST
[ Parent ]
This guy has not the slightest idea how the economy works, has he?

Where does he think the credit=money will actually come from for this recovery?

Or rather - won't come from.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu May 8th, 2008 at 06:30:59 PM EST
[ Parent ]
This guy has not the slightest idea how the economy works, has he?

No.

(This has been another edition of Simple Answers to Simple Questions.)

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:13:15 PM EST
[ Parent ]
Y'all in Europe apparently haven't gotten the memo that only the WSJ is supposed to be stupid enough to publish this goofball.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu May 8th, 2008 at 07:16:21 PM EST
[ Parent ]
They don't call it the Austrian School of Economics for no reason.

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. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 9th, 2008 at 03:07:24 AM EST
[ Parent ]
The reason is that if they called it the Alabama School of Economics, people might notice.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 9th, 2008 at 07:23:16 AM EST
[ Parent ]
Same thing, though, since the Austrian School is based in Auburn, Alabama, here in the states.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 9th, 2008 at 10:25:36 AM EST
[ Parent ]
FT.com / Comment & analysis - Misleading growth statistics give false comfort

The recent government report that US gross domestic product increased 0.6 per cent in the first quarter was very misleading. It implied that economic activity was rising in January, February and March. But the increase actually refers to the rise from the average level in the fourth quarter of 2007 to the average level in the first quarter. Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.

Private sector payroll employment peaked last November and has fallen five months in a row, shedding more than 300,000 jobs. Industrial production was lower in March than in December and January. Real personal income net of taxes and transfers is also lower than in January. Real retail sales have fallen since the start of the year. Private housing starts are down 13 per cent in just the two months since January and 36 per cent from a year ago.

Hard numbers: The economy is worse than you know - St. Petersburg Times

Ever since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the vigor and muscle of the American economy are measured.

The effect has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed.

Under John Kennedy, out-of-work Americans who had stopped looking for jobs -- even if this was because none could be found -- were labeled "discouraged workers" and then excluded from the ranks of the unemployed.

Lyndon Johnson orchestrated a "unified budget" that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in Social Security to mask the emerging federal deficit.

Richard Nixon created a division between "core" inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of "volatility," categories that happened to be troublesome (and thus in the "headlines"). At that time, it was food and energy (as it is now).

Under Ronald Reagan, the Bureau of Labor Statistics decided that housing was overstating the Consumer Price Index and substituted an entirely different "Owner Equivalent Rent" measurement, based on what a homeowner might get for renting his house. This methodology, controversial at the time but still used, sidestepped what was happening in the real world of homeowner costs. Some say that led to the mortgage crisis today.

Under the first President Bush, officials moved to reorient U.S. economic statistical measure away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics said the underlying goal was to reduce the inflation rate in order to reduce federal payments -- from interest on the national debt to cost-of-living outlays for government employees, retirees and Social Security recipients.

Under President Clinton, the convoluted CPI changes proposed under Bush were implemented. And the Clintonites tinkered with the unemployment number, in part, by changing its housing economic sampling, disproportionately eliminating inner city households. That is believed to have reduced black unemployment estimates and eased worsening poverty figures.

Yet anothe article on creative government statistics:

Kevin Phillips: Washington's Great "No Inflation" Hoax - Business on The Huffington Post

by das monde on Fri May 9th, 2008 at 03:57:13 AM EST
Now that the USA has become the world leader in citizen imprisonment, imagine what our unemployment statistics would be if the incarcerated had to be counted among the unemployed.

Karen in Austin

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher

by Wife of Bath (kareninaustin at g mail dot com) on Fri May 9th, 2008 at 06:26:00 AM EST
[ Parent ]
One doesn't have to imagine - there have been attempts to estimate this. Of course, the incarcerated would not all be unemployed if they were released, but it's likely that a higher proportion of them would be than of the general population.

I can't find any details right now, but I seem to remember that with normal incarceration levels, unemployment figures would be about 2% higher than they currently are, while employment figures would drop a bit (I think by less than 1%). Does anybody have reliable data for either of these figures?

by gk (gk (gk quattro due due sette @gmail.com)) on Fri May 9th, 2008 at 06:43:40 AM EST
[ Parent ]
Or if you think that, given the housing market situation, people will stop having negative savings rate and will start tightening their belts a bit to build back the cushion no longer provided by their houses.

Well, it looks like, for the moment, instead of starting to save, US consumers have switched to credit card borrowing...

Bloomberg.com - U.S. Consumer Debt Rises More Than Forecast in March

Consumers are turning to credit cards after banks tightened standards for home-equity loans and other borrowing. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession.

``Consumers are strapped as incomes are not keeping up with inflation and this is leading them to rely increasingly on credit to see them through the worst housing downturn since the Great Depression,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. ``The days of extracting cash from one's home to spend on goods and services are long gone.''



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri May 9th, 2008 at 07:56:35 AM EST
This just in...

Bloomberg.com: Citigroup Leads Wall Street Drive to Hurt Taxpayers (May 9 2008)

Taxpayers from Massachusetts to California are paying Wall Street banks to end derivative contracts gone bad as they exit the collapsing auction-rate bond market, with penalties in some cases topping $10 million and compounding the pain of rising borrowing costs.

Sacramento County, California, paid Morgan Stanley $5 million to cancel an interest-rate swap agreement when it refinanced $79.5 million in auction-rate securities last month. The fee added to the cost of the bonds after the rate on the securities more than doubled to 9.8 percent in March as dealers stopped supporting the market.

...

States, cities, hospitals and colleges face penalties exceeding $10 million to terminate swaps that failed to protect them against higher rates, according to interviews with borrowers and advisers. That's on top of the $1 billion in fees they're paying to dealers to help sell bonds that would replace auction- rate securities they sold, based on industry averages.



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. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 9th, 2008 at 09:11:01 AM EST
Offered up by Google in my gmail inbox...

Reuters: "I love you Mom but can't afford to send flowers" (May 6, 2008)

Love for Mom is a given, but buying flowers on her big day may not be.

A slump in flower sales since late last year will likely continue through Mother's Day, another example of Americans cutting back on spending due to recession fears and escalating food and gasoline prices.

"If you look at what's happened on Valentine's Day and Christmas, the market for flowers has cooled," said Eric Beder, an analyst at Brean Murray. "Growth has slowed in the past two quarters. Mother's Day will probably be a slow quarter, too."



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. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 9th, 2008 at 09:20:54 AM EST
another example of Americans cutting back on spending due to recession fears

Another example of an economic commentator getting cause and effect backwards.

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. — John M. Keynes

by Migeru (migeru at eurotrib dot com) on Fri May 9th, 2008 at 09:22:38 AM EST
[ Parent ]
It's right up there with "inflationary expectations".

Sure, Joe Blow is so keen on borrowing to buy his house because he has inflationary expectations.

But Joe doesn't have them in relation to what he consumes 'cos he's interested in the past, not the future.

He wants a pay rise not because he thinks prices are going to go up, but because they have gone up and he can't buy what he used to.

Only economists could assume anything else, but then they don't live in the real world.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 9th, 2008 at 10:47:33 AM EST
[ Parent ]
Joe Blow doesn't really think about inflation when he's borrowing for a house.  He's thinking, "I like this house.  My monthly payment will be $xxx.xx, which I can/can't afford."  And he'll think about it in relation to rent if he's a renter.  Someone might point out to him, "Hey, Joe, inflation's going to be higher in the coming years, so, yeah, that's a good interest rate!"  But that's the extent of it.

People have inflation expectations, but Joe's only thinking, "Man, meat and cereal are costing me a lot more these days."  He thinks that will continue to be the case, watching the news.  But he's only going to adjust his budget gradually as he needs to.

The problem economists run into when they talk about consumers and firms is that they see all of these adjustments and assume people and businesses will handle them immediately.  That would be silly.  He/it might plan a bit ahead of the game, but he/it has no idea what, exactly, is going to happen.  Most of the adjustment is gradual.  Economists -- and, again, this really applies to economists of a certain persuasion -- take this fuzzy term, "expectations," and build automatic clearing of markets into things.  Granted, it's more a convenient assumption they make in cases where they're likely focusing on some other issues, but still: It's silly.

Welcome to the fight over sticky prices and wages.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 9th, 2008 at 11:34:45 AM EST
[ Parent ]
Drew J Jones:
Joe Blow doesn't really think about inflation when he's borrowing for a house.

Of course he does. He thinks house prices are going to go up. They always go up, don't they? If he didn't, then he wouldn't buy.

Drew J Jones:

People have inflation expectations, but Joe's only thinking, "Man, meat and cereal are costing me a lot more these days."  He thinks that will continue to be the case, watching the news.

But IMHO he asks for his wages to go up to restore the status quo ante. Not to pre-empt inflation.

I doubt whether inflationary expectations play much, if any, sort of role in Joe's thinking - unless he's an economist....


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 9th, 2008 at 12:44:49 PM EST
[ Parent ]
Of course he does. He thinks house prices are going to go up. They always go up, don't they? If he didn't, then he wouldn't buy.

Okay, yes, that's true.  I was thinking more along the lines of how it impacted his real interest rate at a given price.  But you're right.  He'll be thinking about the price of the asset, too.  Really, though, I don't think that's going to impact him much unless prices are moving strongly in one direction or another (like they are now).

But IMHO he asks for his wages to go up to restore the status quo ante. Not to pre-empt inflation.

I completely agree that's his initial move.  He's falling behind, so he asks for a higher wage.  But I suspect that, if the inflation is sustained, he'll think of the future to some degree.  I don't think it's an either/or kind of thing.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 9th, 2008 at 01:00:51 PM EST
[ Parent ]
Drew J Jones:
I don't think it's an either/or kind of thing.

Indeed.

I don't think many things are "either/or". Unfortunately we are up against people who think they are......

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 9th, 2008 at 01:05:23 PM EST
[ Parent ]
I know.  It's a real pain in the ass to maintain integrity in economics while diving into day-to-day political battles, because it's almost never clear-cut.  The gas-tax fight was one exception, and I was pleased by the reaction from economists across the political spectrum.  But that's very rare.

It's funny.  The pundits will occasionally bring up Harry Truman's statement that "All my economic advisors say, 'One the one hand _, and on the other hand _.'  Someone give me a one-handed economist."  And I always think, "Yeah, and we have a word for one-handed economists: Frauds."

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 9th, 2008 at 01:10:12 PM EST
[ Parent ]
So Truman was 30 years ahead of his time, he would have liked Milton Friedman and the Chicago Boys.

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. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 9th, 2008 at 02:12:28 PM EST
[ Parent ]
Well, he was kidding.  No, he would not have liked Friedman and the Chicago crowd.  Truman was the Democrat who put universal health care into the party's platform and integrated the military.

He's a weird one in the history books.  One of the most hated presidents in history during his time, yet he's now looked upon as a true maverick and one of the all-time greats.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 9th, 2008 at 02:16:49 PM EST
[ Parent ]
Have you read Naomi Klein's book?

I would REALLY love to see a discussion of it here among people who actually have some economics background.  The insights are pretty fascinating, but the book def. has an agenda (hey, that I agree with) so I'm really interested to know what others think of it.  

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.

by poemless on Fri May 9th, 2008 at 02:28:22 PM EST
[ Parent ]
I think they just rolled out a big advertising campaign for The Shock Doctrine in London today - there were large posters in many tube stations.
Maybe I'll get a copy and read it, on your recommendation ;-)

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. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 9th, 2008 at 06:54:09 PM EST
[ Parent ]
I keep meaning to read it, but I haven't gotten around to it yet.  I may actually grab it tonight if I can drag my lazy behind down to Barnes & Noble.  My father read it and loved it.  I suspect I get the general idea, having heard Klein talk about it on Maher's show, and she's right.  Having an agenda doesn't change her being right.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri May 9th, 2008 at 07:17:08 PM EST
[ Parent ]
I'm about halfway through, and I keep on learning new things, and I cannot really point yet to really partial accounts of stuff I know.

I'm planning to go back to the reviews in the FT and the Economist I saw a while back and do a compare.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat May 10th, 2008 at 06:49:11 AM EST
[ Parent ]
I think the eXile did a review too. ;)

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Mon May 12th, 2008 at 02:19:18 PM EST
[ Parent ]


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