tag:blogger.com,1999:blog-17232051.post1123745695912502123..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: We don't know why recessions or inflations happenNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger69125tag:blogger.com,1999:blog-17232051.post-73963461599840643262014-06-11T18:35:12.478-04:002014-06-11T18:35:12.478-04:00Um, what about the overwhelming evidence that stic...Um, what about the overwhelming evidence that sticky wages are not nearly sticky enough to induce the effects NK models suggest?<br /><br />I think sticky wages in the models are actually more than just sticky wages and the variable becomes a catch all for many different things. It is the NK version of TFP.Unknownhttps://www.blogger.com/profile/13305124836711242805noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-57008762422082908532014-06-08T19:22:19.042-04:002014-06-08T19:22:19.042-04:00Inflation ultimately happens because of the aggreg...Inflation ultimately happens because of the aggregate result of individual people and organizations in the economy deciding to set prices. These actions are motivated by all sorts of psychological and economic factors. At the end of the day, P has to equal MV/Q, but M, V, and Q are themselves also influenced by many of the same psychological and economic factors, so "MV growing faster than Q" although technically true doesn't really tell you much.UserGoogolhttps://www.blogger.com/profile/07451696693372858067noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-1957547398184073282014-06-08T19:17:47.766-04:002014-06-08T19:17:47.766-04:00Inflation doesn't just happen for no reason. M...Inflation doesn't just happen for no reason. My point was that <i>if</i> inflation happens, then that can cause MV to go up. It's also entirely the case that <i>if</i> M or V increases, that can cause inflation to go up. If the government just prints a bunch of money and people don't reduce the velocity at which they spend money, and the economy isn't able to grow to catch up, then inflation must then happen. But the causation goes both ways. It's not money then prices, and it's not prices then money, all four variables are moving around simultaneously and they each influence each other in different ways in order to maintain the accounting identity of MV = PQ.UserGoogolhttps://www.blogger.com/profile/07451696693372858067noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-62860535481434231302014-06-08T13:56:36.829-04:002014-06-08T13:56:36.829-04:00The basic idea is that wages did not rise enough i...<i>The basic idea is that wages did not rise enough in the 05-07 timeframe as they should have, and the result was a financial crisis.</i><br /><br />So you're saying that money was tight ?<br /><br />Gee, if I didn't know better, I'd say it's a point in favour of sticky wages.Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-79424646797839183192014-06-08T13:55:47.324-04:002014-06-08T13:55:47.324-04:00I am in fact one of the very few people who really...<i>I am in fact one of the very few people who really did call it pretty close to when it happened</i><br /><br />Let me repeat myself - did you put your money where your mouth was ? Because hindisight is always 20-20.<br /><br />Also, correlation does not imply causation. In fact, a financial crisis after a fall in nominal spending is exactly what the sticky wages model predicts.<br /><br />So no, I'm not impressed by a model which totally fails to take into account the central bank's reaction. Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-58026975141968361712014-06-08T13:47:01.575-04:002014-06-08T13:47:01.575-04:00So the price level just rises for no reason ?
Lik...So the price level just rises for no reason ?<br /><br />Like I said - idiots should refrain from having strong opinions on subject that are clearly beyond their graps.Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-11157982604236113692014-06-08T00:16:53.952-04:002014-06-08T00:16:53.952-04:00The basic idea is that wages did not rise enough i...The basic idea is that wages did not rise enough in the 05-07 timeframe as they should have, and the result was a financial crisis. People could not handle their debts in a large enough manner and the financial system got drained. <br /><br />If wages rise as they should have, nominal income fall is "typical" and we get a typical hard landing recession with unemployment peaking in the 8.0% range. No financial crisis, no seeing the ugly underbelly of finance. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33116746109047722442014-06-07T22:28:09.479-04:002014-06-07T22:28:09.479-04:00Of course it occurs to me that a big simplificatio...Of course it occurs to me that a big simplification to what I just said is that in principle wages should tend to increase when P does, which dampens that tendency. Still, stickiness itself should tend to promote my argument since if wages are stickier than prices of goods that'll encourage people to find money elsewhere, and not all people make money from wages anyway.UserGoogolhttps://www.blogger.com/profile/07451696693372858067noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-716899454749250212014-06-07T21:38:24.087-04:002014-06-07T21:38:24.087-04:00If things get more expensive for some reason, peop...If things get more expensive for some reason, people have several options on how to react. One is to buy less, but another is to simply get more money elsewhere, by borrowing money or withdrawing from their savings. And if they do that, MV increases. Consumers have limited capability to borrow so that only tells part of the story, but it certainly seems like a factor.UserGoogolhttps://www.blogger.com/profile/07451696693372858067noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45321898741650062572014-06-07T21:19:30.919-04:002014-06-07T21:19:30.919-04:00"The main statistical technique we have to an..."The main statistical technique we have to analyze macro data -- time-series econometrics -- is notoriously inconclusive and unreliable, especially with so few data points."<br /><br /><br />No time series analysis is NOT notoriously inconclusive and unreliable - it actually has many successes (like image processing or control theory). It just can't do miracles when availability of data is small AND data are observational AND NONstationary! Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-59856573521311001642014-06-07T20:19:07.949-04:002014-06-07T20:19:07.949-04:00Sorry, Daniel, but I was not one of those people w...Sorry, Daniel, but I was not one of those people who was sitting there for 8 years going "doom doom doom!" like Peter Schiff, who also was forecasting massive hyperinflation to come with the doom. In fact, over on Dean's blog, I just took him to task for claiming that nobody remembers the housing bubble and reminded him that while he and Roubini were forecasting in late 2006 that 2007 would be a year of recession because of declining construction that at that time I openly disagreed with them, accurately noting that depreciation of the dollar would bring a surge of exports, which it did, and which held the recession off for a good solid year.<br /><br />However, in the summer of 2008 I warned that a full bore crash was coming very soon. The url does not seem to work directly, but Mark Thoma picked it up from Econospeak on July 12 of that year. You can find it by googling "gradual decline before the crash." The top hit gets you to Mark's discussion of my post and his link to it. <br /><br />So, I do not want to get too pompous here, but I am in fact one of the very few people who really did call it pretty close to when it happened and was telling other people who were calling it too soon that they were doing so. Do a little checking before you come on like an ignorant jerk.<br /><br />Barkley Rosserrosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-36340669561672197702014-06-07T18:47:29.899-04:002014-06-07T18:47:29.899-04:00Oh, and with your magical powers of forecasting, I...Oh, and with your magical powers of forecasting, I'm guessing you went short on housing and made a fortune in the process.<br /><br />Well, did you in fact make a fortune ? Or are you just monday morning quarterbacking ?<br /><br /><i>also calling that its collapse would lead to serious economic difficulties. </i><br /><br />Seeing as how housing prices started declining in 2006 and the recession hit in late 2008, it would take a lot of squinting to see the connection.<br /><br />Is this the best criticism you idiots have of sticky wages and EMH ?Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-26103943487052750092014-06-07T16:19:09.958-04:002014-06-07T16:19:09.958-04:00MV doesn't just rise without a reason. Saying ...MV doesn't just rise without a reason. Saying that prices somehow raise MV is just dumb.<br /><br />And no, I'm not assuming V is constant. Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-729389942001989722014-06-07T16:16:33.500-04:002014-06-07T16:16:33.500-04:00Even a broken clock is right twice a day.
If you ...Even a broken clock is right twice a day.<br /><br />If you can't see that, then you're not as smart as you think you are. And you aren't.Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49938410130099897252014-06-07T15:36:14.868-04:002014-06-07T15:36:14.868-04:00By far and away the best article on macroeconomics...By far and away the best article on macroeconomics I have ever read. The only shocking thing about is that apparently it is so controversial. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-89085812712532537272014-06-07T15:28:53.391-04:002014-06-07T15:28:53.391-04:00Maybe we can start by not assuming that any one th...Maybe we can start by not assuming that any one thing is responsible for causing either recessions or expansions.Anonymoushttps://www.blogger.com/profile/05932496549711542374noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-58064713237110447892014-06-07T14:55:48.580-04:002014-06-07T14:55:48.580-04:00there's nothing stupid about the idea that the...there's nothing stupid about the idea that the MV=PQ equation can be read from right to left, as well as from left to right.<br /><br />No response from you as yet regarding your assumption of constant velocity.Ahttps://www.blogger.com/profile/17386123430230365251noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-29287416935270090412014-06-07T14:30:52.801-04:002014-06-07T14:30:52.801-04:00Oh dear, there has been discussion of some of this...Oh dear, there has been discussion of some of this before. Yes, I agree that our understanding of macroecnomic fluctuations is not as good as we would like it to be, and indeed it looks like many recessions/depressions have their own unique peculiarities. Certainly this latest one was triggered by the collapse of the housing bubble and the related broader financial collapse.<br /><br />So, I would like to respectfully disagree with all those above loudly declaring that bubbles can only be identified in retrospect. False. There were many, starting with Dean Baker and including such people as Nouriel Roubini, and Robert Shiller, and, well, me, who called publicly that there was a housing bubble going on based on price to rent ratios being at historic highs and so on, with some of us, me again on the list, also calling that its collapse would lead to serious economic difficulties. That there was a group of economists, mostly non-mainstream, who called what happened pretty closely is a fact that has been discussed here previously. We should not have people saying the blatantly silly and false things I see being stated in this particular thread.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-48806244562187422902014-06-07T14:23:26.142-04:002014-06-07T14:23:26.142-04:00There's a fine line between being open-minded ...There's a fine line between being open-minded and being stupid.Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3701647455294804122014-06-07T14:14:05.465-04:002014-06-07T14:14:05.465-04:00what a silly analogy.what a silly analogy.Ahttps://www.blogger.com/profile/17386123430230365251noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-44358403840231693972014-06-07T13:52:15.595-04:002014-06-07T13:52:15.595-04:00In my universe, rain isn't caused by puddles o...In my universe, rain isn't caused by puddles on the ground.Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-50057893168098578122014-06-07T13:02:50.776-04:002014-06-07T13:02:50.776-04:00Also, you ignore the possibility that price rises ...Also, you ignore the possibility that price rises lead to an increase in the 'money supply', rather than the other way around. Ahttps://www.blogger.com/profile/17386123430230365251noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-52271005140818792032014-06-07T11:54:32.636-04:002014-06-07T11:54:32.636-04:00"Last time I checked, inflation was caused by..."Last time I checked, inflation was caused by the money supply growing faster than output"<br /><br />you're assuming constant 'velocity'.Ahttps://www.blogger.com/profile/17386123430230365251noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-18528913731249699582014-06-07T11:33:09.380-04:002014-06-07T11:33:09.380-04:00Your questions would be fully answered by opening ...Your questions would be fully answered by opening a macro textbook.<br /><br />But, obviously, you can't be bothered to do that, you've got more important things to do - like spouting off uninformed opinions.<br /><br />Fact 1 - financial markets are informationally efficient. It's called the EMH (I'm talking about the weak form). Therefore - BUBBLES DO NOT EXIST.<br /><br />People who talk about bubbles are suffering from confirmation bias.<br /><br />Fact 2 - the financial crisis was the result of a fall in nominal spending. WHICH IS EXACTLY WHAT THE STICKY WAGES MODEL PREDICTS.<br /><br />So yet another point for good ol' sticky wages.<br /><br />Fact 3 - internal devaluation is very unpleasant, and it takes a while. There's also the political dimension - deflation brings extremists to power.<br /><br />The solution is reflation - that is, printing enough money to get everybody employed again.<br /><br />My advice to you would be refrain from having strong opinions on subjects you do no grasp.Danielnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33842904212836855052014-06-07T11:01:22.450-04:002014-06-07T11:01:22.450-04:00"Since a "bubble" is something whic..."Since a "bubble" is something which can only be identified in retrospect, I find it's a useless concept."<br /><br />Because as Bob Barker says, "The Price is Right!" And can be never be wrong! If it's wrong it will change and no longer be "wrong." Like when housing prices drop a third.<br /><br />How would you describe what happened with the housing market? A price correction?<br /><br />The money supply explanation might jibe with what I was saying. Before the excess money would go to wage earners and inflation would manifest itself in wage inflation. Now the excess money manifests itself in profit padding which boost prices as wage have been stagnant for a long time.<br /><br />"You do realize this is yet another confirmation of the sticky wages model, right ?"<br /><br />And yet you claim Volcker's recession was the only time this occurred? <br /><br />I do think there is something to you ideas about the money supply and wage stickiness. I think higher inflation would make it easier to adjust.<br /><br />However I would love to hear your theory about the recent financial crisis. There was no "housing bubble"? If we were able to cut many wage earner's pay to subsistence level there wouldn't been such a dramatic job loss in so short a period?<br />Peterhttps://www.blogger.com/profile/08272747870634233567noreply@blogger.com