tag:blogger.com,1999:blog-17232051.post6741763068041853..comments2024-03-18T22:32:52.802-04:00Comments on Noahpinion: Is the business cycle a cycle?Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger95125tag:blogger.com,1999:blog-17232051.post-27916628284978027992013-02-23T15:58:46.383-05:002013-02-23T15:58:46.383-05:00The most interesting person I've come across r...The most interesting person I've come across regarding business cycles is Martin Armstrong of armstrongeconomics.com. He may be considered a heretic to many acedemic economists. He believes we're entering a sovereign debt crisis and has analyzed data going back to the Roman Empire. A recent post of his quoting Paul Volcker:<br />"As Paul Volcker himself acknowledged that the whole idea of Marxist-Keynesianism was to empower government with the idea that they were all powerful. “’New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.’”Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-43916070605254076402013-02-21T16:53:47.760-05:002013-02-21T16:53:47.760-05:00If you say so, hoss...If you say so, hoss...Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-19387681528213937172013-02-21T15:35:44.874-05:002013-02-21T15:35:44.874-05:00Can the WTF be sustained indefinitely ...
I laugh...<i>Can the WTF be sustained indefinitely ...</i><br /><br />I laughed out loud. (Although I think you are right that there is some global miscalculation of net present values during booms - this miscalculation may be related to JK Galbraith's concept of the "bezzle".)Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-76171959043410693332013-02-21T15:29:13.791-05:002013-02-21T15:29:13.791-05:00Lost in a mysterious universe without any purpose
...<i>Lost in a mysterious universe without any purpose</i><br /><br />The universe's purpose is to increase entropy.<br /><br />Your purpose is to try to reduce local entropy.Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10860921539805757042013-02-20T01:05:50.289-05:002013-02-20T01:05:50.289-05:00I scoffed also! :) As someone who came from engin...I scoffed also! :) As someone who came from engineering to economics, I always tell my engineering friends, "Guess what economists call white noise? Cycles, or innovations!" <br /><br />BTW random side note - I asked one of my macro profs (who worked in Australia for a while) if he knew Steve Keen, and he said "who?" I was very surprised that Keen, who I consider 'famous' in the blog world seems to be not quite so famous in the 'real world'. Amyhttps://www.blogger.com/profile/11573392015410961658noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3453131468254316782013-02-19T14:12:59.192-05:002013-02-19T14:12:59.192-05:00Booms cause busts...
But some busts follow busts....Booms cause busts...<br /><br />But some busts follow busts. (double dip recession in the early 1980s?) Some booms follow booms.<br /><br />So we are looking for cycles without frequency that can cycle down, down or up up as well as down up.<br /><br />Most explanation for business cycles have to do with either time shifting behavior - pausing or accelerating investment or durable good purchases - or with changes in the availability or price of credit. There is no particular reason that having once deferred an investment, it can't be further deferred, and as in the 30s, that this deferral can't keep happening for some time. Neither is there any particular reason that once banks have tightened lending standards, they can't tighten them further. I think both have happened, and why wouldn't they possibly happen again. <br /><br />There is also no reason to think that just because high levels of economic activity may reach some level that is not sustainable it necessarily can only be brought to a sustainable level through a bust. <br /> <br />The more I think about this the less it seems to me that changing levels of economic activity are determined by time and prior period levels. Though clearly prior period levels will be a big factor, that seems to me to be a definitional artifact that what is being measured is a a change from the prior period.<br />Danhttps://www.blogger.com/profile/15136541075745913165noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-79437276974187370162013-02-19T13:49:29.114-05:002013-02-19T13:49:29.114-05:00"Harmonic motion is inherently periodic; it r..."Harmonic motion is inherently periodic; it repeats at regular intervals, while the fake cycles of a trend-stationary AR-type process generally do not."<br /><br />Harmonic motion is not inherently periodic. Ask any physicist or mathematician. Harmonic motion is just what you get when you are balancing two (or more) opposing forces. What you see that looks like a sine wave when something like a sine wave appears is just an artifact of the complex numbers. What is actually happening is that at various times one direction may dominate, but as there are opposing forces, this domination will eventually weaken. This gets you patterns of boom and bust in physics, populations, pure numbers and economics.<br /><br />This view fits the data, the mathematics and any intuitive sense of economics much better than the denialist view. Yes, there are booms. Yes, they are driven by underlying forces. Yes, those forces have their opposing forces. Yes, the boom creates the bust. It is the denialist view that missed the recent housing bust and the slightly less recent dot-com bust. Anyone thinking in terms of cycles was expecting the bust, though most likely off in timing it.<br /><br />(It isn't the 19th century anymore. Mathematics has moved on. Predator-prey models are intrinsically cyclic. Animals actually eat other animals, and if they eat enough of them, they will starve themselves. Sometimes you get nice sine waves. Sometimes you get stuff that looks like statistical noise. You are looking at the same system with the same mathematics and the same explanatory forces.)Kaleberghttps://www.blogger.com/profile/05283840743310507878noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-19000906194618380472013-02-19T11:07:10.871-05:002013-02-19T11:07:10.871-05:00Another clueless attempt to understand the busines...Another clueless attempt to understand the business cycle, for what it's worth:<br /><br />in every economy we have R, "real stuff," which includes a reasonable expectation of future human labour, invention and production.<br /><br />Each individual, in looking at R, will perceive it as slightly larger (or sometimes smaller, but usually larger) than its actual value. For example, if a person is employed, his income looks sufficient to justify a car loan, a home loan, credit, et cetera. Each of those lenders is justified, even when all together they might not be.The aggregate hopefully perceived R of a population I will call R[p]. R[p] is generally larger than R.<br /><br />(R[p] - R) is the amount of wishful thinking in an economy. In a healthy economy, R[p] -R) must be larger than zero.<br /><br />However, when (R[p] -R) becomes too large, such that under the pinpricks of routine testing it is shown to be more false than the investors can tolerate, the wishful thinking field (WTF) will collapse, with the quickest agents recouping their slice of R and many others losing out.<br /><br />Can the WTF be sustained indefinitely, through suppression of pinprick testing and concealment of knowledge of the magnitude of (R[p] - R)? How long can the pie in the sky, like a giant hailstone, be supported by contrary winds?<br /><br />It seems to me that the growth and collapse of ( R[p] - R) bubbles is necessary to lively economies, but must be pinpricked at levels which will prevent them from popping like bubble gum all over the countryside. Ewww...<br /><br />NoniNoni Mausahttps://www.blogger.com/profile/11198589990083966806noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-59434771473258946442013-02-19T09:35:26.334-05:002013-02-19T09:35:26.334-05:00The recession is caused by a bubble. The bubble gr...The recession is caused by a bubble. The bubble grows in an asset class that people can buy on margin. Initially, the market goes up due to fundamentals. <br /><br />The tech bubble was an equity bubble, the 74 recession was an oil-shock. I don't think all recessions are bubbles, and all bubbles aren't debt financed.<br /><br />Danhttps://www.blogger.com/profile/15136541075745913165noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-72748269476279605882013-02-19T09:11:29.646-05:002013-02-19T09:11:29.646-05:00Are you saying math does not work?
I think all I s...Are you saying math does not work?<br />I think all I said was math can not predict the future when the event being forecast isn't coming from the same population that is being analyzed historically. This is not an original point.<br /><br />I am not sure that because 75% of trading is done with math or for any other reason, that that proves it does work.<br /><br />Math is a wonderful tool, the more I learn about it, the more I like it. Danhttps://www.blogger.com/profile/15136541075745913165noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-20768891171906608582013-02-19T07:42:08.311-05:002013-02-19T07:42:08.311-05:00Hey Guy,
this is fun fun fun. let me know if you ...Hey Guy,<br /><br />this is fun fun fun. let me know if you want to do an actual research party on this...Davydehttps://www.blogger.com/profile/15161743272166194930noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-25661363671037630702013-02-19T01:22:48.934-05:002013-02-19T01:22:48.934-05:00Wow, never seen a so live discussion! :D Nice post...Wow, never seen a so live discussion! :D Nice post! your blog should be an authority on off topic business discussions! :P Keep posting!<br /><a href="http://acumenfinance.com.au" rel="nofollow">Merchant bankers, business banking. business finance, business loans</a><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-70870762408552452292013-02-18T22:17:17.091-05:002013-02-18T22:17:17.091-05:00Good call, C.B.! :-)Good call, C.B.! :-)Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-15109988283814662052013-02-18T22:06:23.508-05:002013-02-18T22:06:23.508-05:00Dang. Sorry, Kondratiev! :(Dang. Sorry, Kondratiev! :(Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-54047172760146475282013-02-18T20:04:18.905-05:002013-02-18T20:04:18.905-05:00Sorry, you did link to Kondratiev, in an offhand w...Sorry, you did link to Kondratiev, in an offhand way (that I missed on first reading):<br /><br />"For example, some people now think that there are "business supercycles" that take much longer than what we usually call the "business cycle", and which are periodic."<br /><br />That makes it sound like it was posted up recently on some Blog. At least give the man his due and name him, how many times is the name Minsky mentioned in the post? Kondratiev was executed for his theory, a rather high price to pay for developing an economic theory based on historical study, don't you think?<br /><br />"Kondratiev's ideas were not supported by the Soviet government. Subsequently he was sent to the gulag and was executed in 1938." is a too short summary of what happened to him, he did 10 years hard labor in Siberia, then was re-tried for the same "crimes", found guilty and shot the same day behind the courthouse. It seems his ideas were deemed so dangerous to the Communist orthodoxy of the era that he was considered a highly dangerous "enemy of the state".<br /><br />I get on about this because I see so many websites and authors and "theories" who rip off Nikolai, but never give him his due.<br /><br />For the record, his theory is not about the "business cycle", though it is described that way, it is a high level macro-economic theory involving credit expansion then contraction, technological change, and human emotions, all of which make it difficult or near impossible to define strictly as a mathematical formula. He based it on hundreds of years of price data on basic commodities, and the forces that drove those prices up and down, over long periods, and when (and why) inflation and deflation will occur. <br /><br />Bob Bronson has taken the K-wave theory and expanded on it, and worked in many shorter period wave theories that can be more properly called "business cycles", you have to read the .pdf I linked.<br /><br />Perhaps the most egregious rip-off I am aware of is the book/website "The Fourth Turning" which is heavily influenced by Kondratiev, but never mentions his name, instead the authors claim they thought up their theory all on their own - sure they did.gawnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-87115238162888910582013-02-18T18:53:22.881-05:002013-02-18T18:53:22.881-05:00Related to HSMMs, there is a whole literature on s...Related to HSMMs, there is a whole literature on smooth-transition autoregressive (STAR) models, see e.g. van Dijk et al (2002). These allow "smooth" switching between two regimes. <br /><br />A generalization, multiple-regime STAR (MRSTAR) models, allows smooth switching between more than two regimes. "Modeling Multiple Regimes in the Business Cycle" by van Dijk and Franses (1999) uses this model to study the business cycle.Carolahttps://www.blogger.com/profile/12783977056485775882noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-21852922585575409582013-02-18T12:47:08.901-05:002013-02-18T12:47:08.901-05:00Not that we can repeal the "Hidden Semi-Marko...Not that we can repeal the "Hidden Semi-Markov Cycle" either. :-)Bill Ellisnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24613292916147375892013-02-18T12:16:12.741-05:002013-02-18T12:16:12.741-05:00This is mostly well beyond my abilities, but it se...This is mostly well beyond my abilities, but it seems to me that the notion of cycles can actually be quite dangerous. As intuitive as it might feel that booms cause busts, do we really want to accept that the inverse might also be true? That busts cause booms?<br /><br />As much as that notion gets thrown around when it's time for politicians to make excuses to do nothing, I'm fairly confident it isn't right.Adamhttps://www.blogger.com/profile/00848821084269314215noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24058921424176506942013-02-18T11:37:53.985-05:002013-02-18T11:37:53.985-05:00"Sometimes simple explanations are better (Oc..."Sometimes simple explanations are better (Occam's Razor). :-)"<br /><br />Well, now, that's true. And sometimes simple explanations are less Occams' Razor than Procruste's Bed. That's where the fun comes in - trying to work out what's going on. Multivariate or just some undetected critical factor? Stories are easy; understanding is hard. I learned a long time ago that most ecologists are not statisticians; perhaps that holds true for economics as well.JohnRnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65671099990302629152013-02-18T11:21:49.637-05:002013-02-18T11:21:49.637-05:00I linked to the Wikipedia entry for Kondratiev wav...I linked to the Wikipedia entry for Kondratiev wave cycles in my original post! :-)Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-14392494569381219502013-02-18T08:48:40.712-05:002013-02-18T08:48:40.712-05:00Noah, interesting post and set of comments. As a ...Noah, interesting post and set of comments. As a non-economist, I've slogged through Minsky and found his thinking pretty convincing. The difficulty comes in trying to model it as you have noted. That being said, I don't think that one should give up on simplicity. I remember back to my first semester physics class when we were looking at oscillatory behavior and the professor showed us the film clip of the Tacoma Narrows Bridge collapse (http://en.wikipedia.org/wiki/Tacoma_Narrows_Bridge_%281940%29); I'm somewhat surprised that you as an undergrad physics major didn't remember this classic event. It maybe that the accumulation of debt (Ponzi in Minsky terms) is the disrupting force that pushes the resonance over the top.<br /><br />Sometimes simple explanations are better (Occam's Razor). :-)Alan Goldhammernoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-32399289785566318042013-02-18T08:36:24.358-05:002013-02-18T08:36:24.358-05:00The post plus 74 comments, and no one (except one ...The post plus 74 comments, and no one (except one comment, in passing) mentions Nikolai Kodratiev and his Kondratiev Wave cycle, the original economic wave model. Which seems quite accurate over hundreds of years of history, and has spawned most other Wave theories:<br /><br />http://en.wikipedia.org/wiki/Kondratiev_wave<br /><br />He was executed by Stalin for his ideas, perhaps the highest form of validation. Modern K-Wave derivations have been successfully used to predict markets a decade ahead: <br /><br />http://dshort.com/articles/2010/BAAC-supercycle-introduction.html<br /><br />http://www.financialsensearchive.com/editorials/bronson/0512_Forecast.pdf <br /><br />"models looking for predictable patterns will not work for the same reason that Technical Analysis does not work in the stock market"<br /><br />hmmm, that's odd, since it is said some 70%-75% of all market trading is now done by algorithmic trading programs (the infamous "bots") that base their trades on.... technical analysis. Technical analysis is just math applied to historic price action. Are you saying math does not work?<br /><br />gawnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-42471787782819029162013-02-18T06:45:21.888-05:002013-02-18T06:45:21.888-05:00a) If you detrend the S&P500 by inflation and ...a) If you detrend the S&P500 by inflation and taxes, you see a 37 year cycle<br />b) if you look at the recent dot.com and housing bubble you have a period length of about 7 years, peaks end of 2000, 2007, would give us the bond bubble crash for 2014 : - )<br />c) if the postings would have not only hour, but day as well, it would enhance the readability<br />genauerhttps://www.blogger.com/profile/13492377118433913487noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10893078109111339742013-02-18T05:14:56.656-05:002013-02-18T05:14:56.656-05:00Have a look at Morley's research.
https://site...Have a look at Morley's research.<br />https://sites.google.com/site/jamescmorley/research<br /><br />There it is: Asymmetry, Markov switching, permanent effects of 'cyclical' shocks...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55999954144512902112013-02-18T03:39:12.468-05:002013-02-18T03:39:12.468-05:00My 2c worth on "the great moderation" - ...My 2c worth on "the great moderation" - it wasn't. It was a once off hysteresis curve based on a policy of flooding the greater (globalised) world with dollars until the US middle class noticed their declining real wealth and panicked. Secular trends in declining savings rates, interest rates and large international imbalances doesn't sount like long term equilibrium to me.<br /><br />I think the macro world is not exponential, but the sum of lots of hysteresis curves. This can look exponential in the short term, but will always eventual reach some sort of inflexion point. If we learn to think of the world this way (i.e. understand the impossibility of long term exponentials) we will be able to manage it better.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.com