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How the crisis could change economic theory
Bubble Meter —
Here's an interesting look at how our little housing bubble may change macroeconomic theory. The crisis exposed the inadequacy of economists' traditional tool kit, forcing them to revisit questions many had long thought answered, such as how to tame disruptive boom-and-bust cycles. ... "We could be looking at a paradigm shift," says Frederic Mishkin, a former Federal Reserve governor now at Columbia University. That shift could change the way central bankers do their job, possibly leading them to wade more deeply into markets. They could, for ...
Tuesday links: leverage cycles
Abnormal Returns —
... How the “leverage cycle” affects how much individuals are willing to pay for certain assets. (WSJ also ...
The rising fortunes of John Geanakoplos
Marginal Revolution —
It is a front-page WSJ article, read it here. Excerpt:
In a 2000 academic paper, Mr. Geanakoplos offered a theory. He said that when banks set margins very low, lending more against a given amount of collateral, they have a powerful effect on a specific group of investors. These are buyers, whether hedge funds or aspiring homeowners, who for various reasons place a higher value on a given type of collateral. He called them "natural buyers."
Using large amounts of borrowed money, or leverage, these buyers push up prices to extreme ...
links for 2009-11-03
Economist's View —
... On not listening - Paul Krugman
Crisis Compels Economists To Reach for New Paradigm - WSJ.com
Can ...
The Hubris of Economics
The Big Picture —
On Tuesday, the 2nd most emailed article on WSJ.com was Crisis Compels Economists To Reach for New Paradigm.
It is an intriguing look at problems in the field of economics. It went, however, way too easy on both economics as a profession and its practitioners. The article fails to ask some very basic questions about the soft dismal science, nor does it discuss the fundamental incompetency of many economists.
Given the failures of the profession — failing to anticipate the worst recession in decades, missing the warping effect of the housing boom, not recognizing the credit collapse until too late — a more damning ...
Drumbeat: November 4, 2009
The Oil Drum - Discussions about Energy and Our Future —
Goldman’s Currie Says Oil Drives Dollar Down, Not Vice Versa
(Bloomberg) -- Crude oil, which has risen 80 percent this year, is causing the U.S. dollar to weaken, driving metals and other commodities higher, according to Jeffrey Currie, head of commodity research at Goldman Sachs Group Inc.
While oil has risen, the U.S. currency has weakened, leading to speculation that the dollar’s depreciation is driving investors to buy oil as an inflation hedge, thereby pushing up the price of crude.
“I would argue the other way,” Currie said in an interview yesterday in London. “I would argue that higher oil prices drive the dollar down and then the weaker ...
The Hubris of Economics | The Big Picture
FinanceProfessor.com —
The Hubris of Economics | The Big Picture : Barry Ritholtz discussing a WSJ piece ( Crisis Compels Economists To Reach for New Paradigm .) "...an intriguing look at the problems of the the field of economics. It went, however, way too easy on both the profession and its practitioners. The article fails to ask some very basic questions about the soft science, and does not discuss the fundamental incompetency of many economists. Given the failures of the profession — failing to anticipate the worst recession in decades, missing the warping effect of the housing boom, not recognizing the credit collapse until too late — a damning indictment of the dismal science ...
Guest Post: Wall Street Journal Admits Economists Were Wrong, But Fails to Discuss their INCENTIVE for Being Wrong
naked capitalism —
By George Washington of Washington’s Blog.
The Wall Street Journal admits this week that economists blew it:
The pain of the financial crisis has economists striving to understand precisely why it happened and how to prevent a repeat…
The crisis exposed the inadequacy of economists’ traditional tool kit, forcing them to revisit questions many had long thought answered, such as how to tame disruptive boom-and-bust cycles…
“We could be looking at a paradigm shift,” says Frederic Mishkin, a former Federal Reserve governor now at Columbia University.
That shift could change the way ...
The Autumn of the Paradigm: A Fairy Tale
EconoSpeak —
Seems everyone these days is talking about a "new paradigm". The Wall Street Journal: "Crisis Compels Economists To Reach for New Paradigm" "'We could be looking at a paradigm shift," says [Prince?] Frederic Mishkin, a former Federal Reserve governor now at Columbia University.George Soros: In response to the policy challenges presented by the economic crisis and the need to develop fresh approaches to economic theory, a group of top academics, policy-makers, and private sector leaders today announced the creation of the Institute for New Economic Thinking (INET).David Leonhardt in the New York Times Magazine, ...
links for 2009-11-12
J. Bradford DeLong's Grasping Reality with All Eight Tentacles —
Charles Babbage (1832): On the economy of machinery and manufactures
Paul Krugman: The agony of Fox Business
James Wolcott is made of sterner stuff than I am: he actually has the fortitude to watch Fox Business, where the talking heads manage to find nothing but ...
