John Cochrane presents a good point:
But we’ve heard the defense over and over again: “recoveries are always slower after financial crises.” Most recently (this is what set me off today) in the Washington Times,
Many economists say the agonizing recovery from the Great Recession…is the predictable consequence of a housing market collapse and a grave financial crisis. … any recovery was destined to be a slog.
“A housing collapse is very different from a stock market bubble and crash,” said Nobel Prize-winning economist Peter Diamond of the Massachusetts Institute of Technology. “It affects so many people. It only corrects very slowly.”This argument has been batted back and forth, but a new angle occurred to me: If it was so obvious that this recovery would be slow, then the Administration’s forecasts should have reflected it. Were they saying at the time, “normally, the economy bounces back quickly after deep recessions, but it’s destined to be slow this time, because recoveries from housing “bubbles” and financial crises are always slow?”
No, as it turns out…
You will find further background here. That said, my read on this is quite different than Cochrane’s. He blames post-crash policy, whereas I blame (mostly) “The Great Stagnation.”
Re: “my read on this is quite different than Cochrane’s. He blames post-crash policy, whereas I blame (mostly) The Great Stagnation.
Surely it is three things combined —
1. the cycle — the TGS or the Schumpeterian long wave or some variant of these.
2. policy idiocy before the crisis — e.g. relating to housing, excessive government spending, inappropriately pervasive financial regulation)
3. policy idiocy after the crisis — the John Cochrane version of the critique of Keynesian interventions in the form of discretionary demand management and stimulus, or, indeed, some other version of the activist pick-and-mix in the absence of rules (including e.g. the bailouts).
Bill McBride over @ calculatedriskblog.com has long indicated that he felt the recovery would be a long slog. If my recollections are correct, his conviction solidified in mid ’09 and he began presenting graphs of the ‘distressing gap’ in home sales.
Quite right and he’s always data driven rather than polemic. I’m somewhat encouraged by his recent posts indicating that the housing crater has at least leveled off and is actually improving in some areas. Too bad more people don’t read him.
Isn’t a large part of post-recession policy about consumer psychology and expectations?
If so, even if a policymaker knows recovery will be slow, should he shout it out?
Yeah that seems like a huge point.
Extend and pretend, right?
Surely any honest person admits that policies like bailing out Wall Street, the car makers, delaying foreclosures, and incurring government debt to finance stimulus spending, mostly all hurt in the long run. They make us less rich in the long run. But they do soften the pain in the short run. GM is still going to die, it will just do so more slowly, and everybody knows this. I’m not sure this is exactly the same phenomenon as a slow recovery, but it implies we’ll have a generation or so of slow growth and tight budgets while we pay off the emergency spending, allow the zombie firms to fail, etc.
I don’t think “any honest person” would admit that those policies hurt the economy. Even the “long run” caveat doesn’t help your point. I guess this is the problem of macroeconomics lacking a test laboratory, but do you really think we would be better off in terms of growth rates and employment today (or even in 2017) if we had let global finance, AIG, GM, etc all fail?
The problem with Cochrane and others is that they make a pretty reasonable point and then consistently somehow end up sacrificing the majority of their credibility by trying to convince readers that “bailouts, close-the-barn-door-after-the-horse leaves banking regulation, trampling of property rights that scare creditors away, high taxes and so forth” account for a non-trivial amount of low growth or high unemployment.
Today or 2017, I don’t know, but by 2050 surely.
Today or 2017, I don’t know, but by 2050 surely.
Maybe it would have been better by 2050 is how you’re selling your idea?
@C Unger: You are using “fail” interchangeably with “enter bankruptcy administration”? And, are you using “the economy” interchangeably with “a statistical complilation called’ GDP’”?
I’m sure you know exactly where the economy will be in 2017. I don’t.
Yes, I would have preferred that this recession was a little deeper and my kids had a solvent nation instead of a shambles left to them. I’d rather have taken the medicine now. But whether or not you agree with me on that stance, you agree that we made a decision to _not_ take our medicine now, right? We, at great cost, postponed various reckonings.
@Finch
How can it be that you don’t know where the economy will be in 2017 but are yet very confident of it being in shambles in the long run.
Is long term economic modelling easier than short-term?
> Is long term economic modelling easier than short-term?
Well, yes, I think it is in some sense. Short term all sorts of shocks matter, and long term they average out. I’m not trying to say GDP will grow by 2.3% in Q3 2048 here. I’m just saying that eventually we’re going to pay the piper on this stuff, and the longer we put it off the worse it will be.
We traded the long term for the short term.
Wasn’t that policy implemented by the Fed in it’s dealings with the banks? Even Tarp, where everyone was expected to take money even if they didn’t need it to hide which banks were in rough shape?
I would also suggest that politicians like shovelling money out the door and will naturally reflect enthusiasm and hope for the future. The demeanour of politicians is probably a good counter indicator.
Rahul, the consumers didn’t need policymakers to tell them about the economic damage from the recession and the tough road ahead. In fact, by some measures they were ahead of the curve on this one. Yes, expectations are important, but sugar coating the perceived truth seems like a policy non starter.
Tyler, I blame ignorance. Despite all the talk and all the research of the past N years (N>100), we don’t know what has caused the crisis of the past 5 years in the world market economy and in particular in each of the advanced economies, why its intensity has been so different across markets and national economies, what has been happening during the crisis, why and how the crisis has apparently ended in some advanced economies and in most other economies, know the forces determining the recovery of the world market economy and some advanced economies (in particular the forces determining significant differences in the speed of recovery of employment, output, income and consumption across advances economies). We only know how ignorant we are and since we don’t know what has been happening we can only speculate about what may happen in any time period we choose –from next week to next century.
Our ignorance has been an opportunity for many self-appointed experts to claim that they know. The experts have been fighting to take over the Circus’s main ring. They have been exploiting the weaknesses of the the fraudulent clowns that were supposed to be in charge of that ring. Today the experts go from country to country like Madonna to preach to the converted –but they are just exploiting those weaknesses. At the beginning of the crisis, however, the experts claimed that there had to be a global solution –a Group of Wise Experts should advise the leaders of the national economies and the international organizations should design and execute the global policies. What a BS that idea turned to be.
In the past 5 years we have learnt at least one important lesson –How ignorant we were about what happened during the Great Depression. For at least 50 years before 2008, most discussions about economic crises assumed that we knew what happened during the GD. Now we know how ignorant we were about it.
Perhaps a good “metric” of our ignorance is the number of dead economists and intellectuals that have become famous in the past 5 years and that most of us had ignored for a long time. We don’t have good new ideas and then we use Keynes, Hayek, Friedman, Minsky, and others.
Regarding your Great Stagnation, you have yet to produce the evidence. Hope you are writing a detailed analysis of the evidence that you have been discovering.
I don’t want to be a bore, but what I like about Schumpeter is that he appears to have been right in a kind of encapsulating way. Minsky, who was his student, did not like the message.
All the core crises fit Schumpeter’s basic pattern of the quasi-determining technological and economic dynamic and the periodic *mismatch* of that dynamic with prevailing institutions. I have yet to see any of the current pundits even attempt a head-on argument against it.
The beauty of the Schumpeterian worldview of crises is that at the heart of it the message is there ain’t much you can do about it. It’s similar to Barandiaran’s point in that way. Get used to it (ignorance OR inevitability). There is no mystery. The knowledge was first written down in the Scottish Enlightenment. Retrench and adapt the institutions to each new crisis in such a way that the market dynamic can get back to its relentless work.
With all due respect to their respective professions, what the politicians and economists do instead is heap more sand into the cogs (there are so many different qualities of sand and cogs to argue about, so they blather on about the finer grains and the best cog lubricant instead of repairing the machine).
E. Barandiaran
Where have you been for the past months? In any case, it’s great to see you back. I was beginning to wonder why I keep reading MR – now I remember. For once, a wise voice. Rather than pretending we know something, you expose macro for what it really is – black magic. I must object to the circus analogy, however. In a circus both the performance and the audience are entertained. This circus seems to be solely for the benefit of the performers.
That’s why they are fraudulent clowns. We paid the full-price for real clowns.
What sort of recovery would economists (of both the left and the right) have predicted had they known that NGDP growth would be extraordinarily slow during the “recovery?”
I like your use of scarequotes around recovery. Indeed this has been pretty L-shaped.
Scott, sorry I don’t understand your question. If I had known in early 2008 that NGDP growth would be close to zero for the next hundred years, I would have predicted unconditionally that NGDP growth would be close to zero for the next hundred years. We may have a different understanding of the words knowledge and prediction.
I envy you your faith on the Fed’s ability to control NGDP, but I have always had a hard time with statistical constructs that we know are grotesque approximations to whatever we want to measure. BTW, you should read about Joe Stiglitz’s adventures in Buenos Aires the past few days (he spoke in front of President Cristina K, and she understood that he was endorsing her manipulation of price and output data, so the following day he had to reaffirm his commitment to whatever he tried to say).
And if the Great Recession was caused by what 99% of economists think it was caused by, why were so few economists predicting a Great Recession in the summer of 2008, when the subprime housing crash was fully understood, or even in late September 2008, after Lehman failed and the banking system froze up.
Are you in the 1% or the 99%? And when did you call it?
When has a majority of economists ever accurately predicted any major turn in the economy?
Economists have great trouble agreeing on the past. Even so, they do a lot better with the past than the future.
There were folks who recognized early on that housing prices were a bubble in the same way that some of us recognized the bubble in Internet and other high tech stocks in the late 1990s. The trouble is that the housing bubble was far more destructive since the population of homeowners was a) significantly higher and b) more leveraged than the stock investors. When the house of cards came tumbling down the deleveraging crisis hit. Any locality reliant on property taxes now had to deal with decreasing revenues, hence lots of layoffs in local government payrolls. It does not take anyone with an economics degree to figure out what the impact of all this will be on the demand side of the equation. You now have corporations sitting on money (except for the wealthy few who seem to think they can buy this election) and banks refusing to make loans. My gainfully employed daughter bought a condominium last fall and needed to put down 30% to get the lowest possible interest rate.
It wasn’t rocket science that led the hedge fund managers of Michael Lewis’s “The Big Short” to figure out what was rotten in this country.
Scott, acknowledging a problem is only the *first* step to solving it (or understanding its consequences). Even if many economists came to recognize a bubble in house prices (fueled by lax credit standards, aggressive securitization, and unrealistic expectations of growth) as a serious threat to the economy, that does not mean they should have nailed the forecast going forward. Events outside our own recent experience are tough to forecast and cross-county comparisons like the Reinhart and Rogoff study depend importantly on policy responses and institutions. And another thing about macro forecasting in real time is that the shocks keep coming. Maybe our recovery is so slow because it keeps getting *interrupted* by other adverse shocks rather than we’ve settled into a slow growth equilibrium / TGS argument? I don’t know but I wouldn’t discredit one potential cause of the recession because its adherents appear to be poor forecasters.
Im glad you said it Scott. Why should anyone listen to these guys?
It was obvious it would be slow when the policymakers decided they would pump /huge amounts of/ money into it in such a way that wouldn’t let the markets fix the malinvestments. In short, in 2008.
If Scott Sumner hadn’t posted, an hour ago, I would have said something like this: “Nominal income blah blah blah” -Scott Sumner Now I have to phrase it in the subjunctive.
More seriously, I wonder if one can argue that historically, housing bubble crashes and financial panics are correlated* to slow recoveries because they strongly depress nominal income and the central bank underestimates their impact.
* Or maybe there’s just no correlation, and the economists claiming this are seeing patterns in data.
That IS correlation yo!
Pre AND post crash policy. The Fed fell down on it job of keeping up NGDP growth. If we take the failure as given — and who could have know that in Jan 2009, the stimulus should have been larger and more targeted at statesand local gvernments.
Thought Voldemort (er, K——) called it, absent sufficient fiscal stimulus, but can’t find a specific link. Can anyone post a link to confirm or refute?
This is similar to what I call the “Free Beer Tomorrow” signal.
“Rluser” is correct, Calculated Risk was talking about a long, slow recovery several years ago. But Calculated Risk was also talking about the “overhang” of Bubble-period housing and the “distressing gap” in the pattern of sales.
TC, to what extent do you feel that the “Great Stagnation” has been the result of misallocated resources?
Yes, Krugman was wrong, or something, in 2009. This is certainly much more important than this:
http://www.washingtonpost.com/opinions/rewriting-economic-history-against-obama/2012/08/16/465aa06e-e7d5-11e1-936a-b801f1abab19_story.html?hpid=z3
What does Mankiw think about that, now?
I am amazed at what fools you take us to be. When the Obama administration was pushing its stimulus program, they certainly were not saying that this would be a slow recovery. Here’s their report with the famous chart showing what unemployment would be with and without the stimulus – http://otrans.3cdn.net/ee40602f9a7d8172b8_ozm6bt5oi.pdf. Are you telling me that they did not know that this was a post-financial crisis recovery? The chart shows unemployment which I think would lag GDP, so I would imagine that GDP would go up sooner.
Is it a coincidence that our two most sluggish recoveries have occurred when the federal government has attempted to do the most? And really, what is the evidence for the efficacy of fiscal stimulus? I know Krugman cites WW2, but I think Robert HIggs has a pretty good argument against that. Furthermore, when Keynesians were predicting a collapse after WW2 was over, the economy expanded sharply. Coupled with the apparent failure of this last round of stimulus, why do economists still believe in it?
Krugman rather famously argued in real time that the stimulus was too small.
Well, that cinches it. I guess he is unique in staking out the “we’re doomed unless you listen to me” ground.
“Is it a coincidence that our two most sluggish recoveries have occurred when the federal government has attempted to do the most?”
Not at all. The dispute is over which direction the causal arrow points. Lots of people who receive chemotherapy die within a few years — it doesn’t follow that chemotherapy was what killed them.
Most of all I am amazed that you write that as a response to my comment.
No doubt about the much too rosy scenarios from the administration. What I linked is a critique of a piece where to of the Romney advisers (not Mankiw) argue that the recovery should have been fast – but is slow because the Obama administration screwed up. Now, TC links a Krugman piece from 2009 – and honestly, I don’t know exaclty why, but sure it is 100 % clear and I just don’t get it – where Krugman argues that the recovery could, potentially, be fast. Contrary to what Mankiw claimed at the time. Now that it is convenient, the potentially fast recovery that Obama screwed up, is a good story. And that is now, not 2009 – and I’d like to know what Mankiw smokes to prevent his brain from exploding by going along with those clowns.
Also, there is no mention whatsoever of what seems to me an interesting actual question.
But instead we get a link to a 2009 Krugman piece.
Strange how the Romeny list links this blog.
Paul Krugman and Brad Delong are miserable excuses for human beings. First, they do not attempt to grapple with an adversary’s argument, but (mis)interpret it to make it look stupid. They also act like everyone else is stupid or evil. Their approach is fundamentally bad faith. They totally misrepresented Mankiw’s point that making a prediction of near-term growth depends on when you think the recession will end. When you are still in it, and don’t know how long it will last, you can’t assume that growth (which he agrees should be quicker after a deep recession) will begin right away.
It is sort of comical that PK was insisting that the recovery would be strong. I guess he wasn’t fully appreciative of Obama’s chemotherapeutic powers.
Yes. Everyone who disagrees with you is a fool and a miserable excuse for a human being. When are you Galtian superman all moving to Switzerland and Singapore by the way?
“Paul Krugman and Brad Delong are miserable excuses for human beings.”
For this alone you are the last person on this planet to complain about either of them.
Also, keep in mind that what you say still has nothing whatsoever to do with my comment. If you have thoughts on it I’d be happy if you could share them. However, if all you are able to provide is random rantings on other ranters don’t expect any further answer…
I don’t recall many Krugman articles predicting strong growth. If anything, he complained about the size of the stimulus package.
In 2009 or so, I noticed a fairly large difference in the expectations of more market-oriented vs. Keynesian economists. Market-oriented economists either didn’t make predictions about the pace of the recovery, or else predicted that it would recover fairly quickly. Keynesian economists predicted a slow recovery, based on debt overhang theories, and observations of past recoveries from financial crises.
The last several years have strongly supported this view of the world.
Personally, I’m going to go along with the explanations of the people who predicted it before seeing it (debt overhang), not the predictions of people who either didn’t bother guessing, or got it wrong (structural problems, Obama uncertainty).
You are Incorrect. Austrians predicted a very slow recovery and a double dip (both of which happened).
There is a difference between “why” and “why now”.
Perhaps TGS explains “why”, but certainly something else must have precipitated the Great Recession. My current baseline is: real business cycle plus a lazy Fed.
At economic bottoms the consensus forecast is always for a weak recovery.
Historically the forecast has always been wrong, but this time it turned out to be right.
In 1981 I won the NABE forecasting award by forecasting it would be an average recovery
and my forecast was the strongest one in the contest.
Oh Krugman is going to have a field day with this one… nobody feels like mentioning that many of the economists in the administration were pushing for a stronger policy response early in the crisis, but didn’t get it because of political concerns about pushback from Republicans? Led by idiots like John Cochrane?
Yes Soho, it is obvious that the Obama Administration’s policies of the first two years were dominated by fear about “pushback from Republicans.”
Whatever the reason for the Administration’s failure to pursue a larger stimulus package was, it is simply a fact that Obama’s CEA head Christina Romer crunched the numbers and showed a $1.2 trillion package would have the best chance of pulling the economy toward recovery and that this option was simply not on the table in public. See Ryan Lizza’s New Yorker article from 2009 on the subject. Rahm Emanuel is on the record in that article as saying it was his belief that there was no way Congress would have ever gone along with such a large stimulus bill.
Yes, large Congressional majorities were apparently simply not enough for our tyro President. Now that’s leadership.
The pushback comes from the type of gov’t stimulus: effective tax cuts or wasteful gov’t spending on boondoggles like Solyndra.
Had the Dems pushed for more tax cuts, up to $1.2 Trillion, I’m pretty sure the Reps would have gone along. Remember, it’s usually pretty easy to get things done when you’re willing to do what the OTHER party wants — like Bush did, all too often (like in 2004, not reforming Fannie Mae. Remember Dodd wanting to throw dice?).
Running up gov’t debt to stimulate with wasteful spending would not be successful. Tax cuts might have been.
But only returning Net Worth to individuals who had lost $50-500k in housing equity would get those individuals spending at their prior levels.
Big drop in Net Worth, big decrease in Ag Demand; almost policy invariant. That’s the house price bubble.
What would have been so stimulative about a tax cut? Corporate tax incidence is not particularly high, which is a large part of the reason why after-tax corporate profits are at historic high relative to gdp. How much would you have to cut taxes to match the collapse in interest rates? Surely, we would see the low rate payers expending capital to take advantage of returns “hidden” by too high taxes. Are we so close to the margin that lower taxes will unleash floods of capital expenditure?
I thought a long, slow recovery, held back by a housing overhang which would dampen construction which has usually been a big leader out of recessions, was a fairly commonplace view by 2008.
Where Keynesians and others go wrong is in suggesting that there were magic bullet policy options to make it go away. It was always gonna be like this. Government has done its part, shoring up confidence and being seen to be doing something while we all know they’re just riding the same ship we’re on, and that big shiny wheel they turn isn’t really connected to anything, while not doing anything too stupid or drastic, like cutting the money supply or trying to stimulate our way out of this, but providing enough support to avoid an out-and-out downward spiral.
Everyone hates government, even me, but it really is a thankless task.
Looks like housing is starting to turn maybe.
Bullshit. Local governments have been firing people and cutting pay left and right. That’s not doing their part. It’s inexcusable for the federal government not to provide enough local budget assistance to meet previous levels of spending. Anything else is procyclic and the only purpose would be to achieve long term political goals (smaller government) at the expense of short term macro economic management. Firing teachers you are going to rehire when the economy picks is indefensible. Government employment has been dropping for many quarters now and is serving as a drag on the recovery.
Sheesh- try to say something nice about government. Government employment is a percent of total employment increased from 16.1% to 17.7% between July of 2007 and May of 2010 (seasonally adjusted. One cheer for Keynesian support through the dark days.)
Since then, government’s share of total employment has fallen back to 16.5% of the total, which is about the midpoint for this number between 2002 and 2007. One cheer for stemming the Europization of America.
From peak (January 2008) to trough (February 2010), private-sector employment fell by 8.9 million jobs, more than 7.5% in a span of two years.
From peak (May 2010) to current (July 2012), government-employment has fallen by 1.1 million jobs, a drop of less than 5% in a span of two years.
http://www.bls.gov/cps/cpsatabs.htm
State and local governments ARE in a pickle going forward. And public-sector unions are trying to hang the problem on bankers and the 2008 crisis. But any intelligent observer who has been watching the extravagant, opaque, constitutionally protected stream of pension and medical promises states have let themselves in for over the past three decades (like I, a helpless taxpayer whose only role is to watch my state roll-up more than $100 billion in unfunded liabilities for a government with a $30 billion annual budget, and send in my taxes, which were increased 67% two years ago while the promises keep rolling and the situation continues to deteriorate) understands that this has been a long-time coming and that these promises will crowd out much of the spending the state has historically made in the years ahead, unless something is done.
Maybe because the level of government employment was unsustainable. Anything that can’t go on, won’t.
Also, I don’t doubt that if government payrolls had not been reduced 1.1 million over the past couple years, we would all be enjoying a “sugar high” spurt of growth. But I am not a Keynesian and this feels to me like a strategy of continuing to dig the same hole we’ve been digging for 50 years, which suggests to me even stiffer medicine later.
The pain of deleveraging, reining in government spending, consumers rebuilding balance sheets. We are actually doing it too. Good for you America.
I don’t believe in your fairy dust, or Scott Sumner’s NGDP fairy dust (tho he’s quite clever and I remain mildly intrigued), or right-wing “tax cuts will do the trick” fairy dust.
So now the great stagnation applies to business cycles as well as long term trend growth rates? Wow that is a really awesome theory.
No shit. What a terrible explanation by TC. The problem here is that the data is simply too clear. Housing crash -> demand problems -> terrible recovery. It’s a pretty simple demand side problem which both Keynes and MMT can explain and develop reasonable policy responses for. There is no space for all the other terrible economic models floating around out there to explain what is happening. But people are committed to those models for whatever reason, generally political if you trace back the funding path far enough. And, of course, now people’s reputations are also tied to those models. So you get a lot of denial, nonsense and overly complicated explanations of how what is plain as day is actually night.
Assume a housing crash?
Not sure that the recovery has even started. Nothing has really changed so why should things start to improve?
4.5 million new private sector jobs in 29 months. Little by little.
Thats terrible. Thats much less than breakeven. Breakeven is about 7 million.
We are actually losing with that number
Cochrane talked about this and didn’t mention Reinhart-Rogoff? The only mention is in a comment which asks why it isn’t mentioned?
Economic malpractice.
LOL! I’m still waiting for Mankiw, Hubbard and Taylor to announce that they were in part complicit with the misguided Bush policies. I’m not holding my breath on this one!
Great opportunity for the Krugman skeptics to point out he was wrong. Again, anybody got a link showing he thought recovery would be swift? Or one where he said it would be slow?
Go back and reread Tyler’s post – see the last link.
Sorry. Missed it the first time through. Thanks for the heads-up.
The quote reads to me like an argument against Mankiw’s “unit root” thesis, as opposed to Mankiw’s conclusion. If you read Delong’s article which Krugman references, he specifically argues that you have to look at output AND unemployment. It does not support the claim that Krugman believed in some automatic bounce back, nor does it support the idea that the administration’s stimulus would induce such a bounce back. Well, decide for yourself; but ask yourself why Krugman mentioned Okun’s law:
For one thing is very clear: variables that measure the use of resources, like unemployment or capacity utilization, do NOT have unit roots: when unemployment is high, it tends to fall. And together with Okun’s law, this says that yes, it is right to expect high growth in future if the economy is depressed now.
But to invoke the unit root thing to disparage growth forecasts now involves more than a bit of deliberate obtuseness. How can you fail to acknowledge that there’s huge slack capacity in the economy right now? And yes, we can expect fast growth if and when that capacity comes back into use.
http://krugman.blogs.nytimes.com/2009/02/26/feelings-of-despair/
This article is from the month BEFORE Krugman supposedly assumed a fast recovery.
Where is that hyper inflation I thought we were suppose to get if there is no immediate austerity?
Larry Summers et. al. very well might have screwed the pooch on this one in terms of diagnosis, but keep in mind
*the GDP stats available in 2009 drastically understated the depth of the crash and Congress is incapable of re-calibrating, largely because of partisan intransigence
*there was some hope of separate policy designed to mitigate the housing debt overhang, but it ran into political and practical obstacles
*Obama had to weigh the self-fulfilling prophecy problem of screaming crisis during a contraction. This I think is a huge issue. Imagine the politics of the POTUS stating, in effect, we’re screwed for a few years, the best we can do given federal debt levels is to make it somewhat less awful but it will take 4-5 years to unwind the problem.
IOW, because the country is politically polarized and economically illiterate, and because consumer confidence is important to sustaining AD, Obama’s had a lousy hand to play once it became apparent that the stimulus + 2 years wasn’t going to cut it.
That cranks like Cochrane have given intellectual cover to know-nothings who think the recession disproves all things Keynesian wasn’t helpful to policymaking either. A little bit of inflation would have helped the policy mix, but the Fed is defying its mandate to care about unemployment, in no small part due to ideological fearmongering from certain economists.
Too bad Cochrane can’t be disbarred or something. Some people with a high IQ are daft.
“If it was so obvious that this recovery would be slow, then the Administration’s forecasts should have reflected it.”
I don’t see how that follows. Also, I don’t know what “so obvious” means. It seems to refer to Diamond & Cochrane & some Govt Economists not being very savvy. I would say that if you didn’t know this recovery would be slow & tedious, then should read some people who did. I don’t find such ignorance a badge of honor.
Donald, one thing I find odd about Cochrane’s piece is that he doesn’t mention the policy response at the time. There was some serious fiscal and monetary stimulus put in place in the fall of 2008 onward…not the kind of policies one would choose if you believed the economy would bounce back quickly on its own. I think this particular exercise is a bit of a sideshow, but a more telling comparison would be the ex stimulus forecasts of various groups.
When was it obvious?
When was it not obvious?
When was it not obvious that the last recession had the so-called jobless recovery?
When was it not obvious that the housing bust in California in the early1990s lasted about five years?
It was only not obvious to mouth-breathing market perfectionists on Crape Diem and press secretaries for the White House..
I was for TARP bailout (for about a week) before I was against it. The Big Banks/ AIG should have been allowed to fail, go bankrupt, convert unmet contractual obligations into “new equity” (after wiping ALL old equity) — and the top managers be fired (no golden parachutes).
Because Bush’s friends, and Obama’s many Wall Street supporters (donors!) would lose, there was a bailout instead. To avoid the long slow recession. The failure to avoid the recession validates the critics of TARP and other bailouts. The bailouts supported and support the failed Big Banks.
But that gov’t supported financial system is NOT giving loans at the same old trend rate, so it’s silly to think we’ll be spending at the trend.
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