#OT# long article on how economists and economics went wrong

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html
How Did Economists Get It So Wrong?
=================By PAUL KRUGMAN
Published: September 2, 2009 <snip> Few economists saw our current crisis coming, but this predictive failure was the least of the fields problems. More important was the professions blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed.Neither side was prepared to cope with an economy that went off the rails despite the Feds best efforts. <snip>
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A few notes.
1. If economists and policymakers could predict that economic disturbance sufficiently in advance, then it would be prevented and would not happen. (bad loans would not be given in the first place due to lack of demand for securitized bad mortgages).
2. As bad as it was, the crisis of 2008/2009 so far is very mild. Since we are much more leveraged worldwide, than we were prior to the Great Depression, the deleveraging process would be much more extreme and much quicker, than during the Great Depression. Half of the banks failed during the Great Depression. Now, in my opinion, all or almost all banks would fail if not protected by FDIC and TARP etc.
When the crisis just started, I did not think so, but changed my mind after learning a little bit more.
3. There is two ways to increase the ratio of debt to GDP: a) increase debt by printing stimulus money and b) decrease GDP. If a Great Collapse occurred, and GDP fell substantially, then the debt to GDP ratio possibly could have exceeded the projected ratio for the current stimulus deficits.
In other words, it is not at all a given that lack of stimulus would actually prevent the ratio of debt to GDP from rising.
4. The purpose of the money printing that we witnessed, is mainly to restore confidence by providing a certain credible "floor" under the economy.
i

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On Tue, 08 Sep 2009 15:07:12 -0500, Ignoramus15784
<snip>

<snip> ================In other words its all accounting/mind games.
The savers take it in the shorts coming and going. They lost "coming" when the debtors went bust and could not repay what they borrowed. They lost [and are losing] it "going" when what money they have left is depreciated through inflation.
This is playing with fire. Google on <inflation "weimar republic"> or Argentina to see some historical outcomes of this "policy" whene the middle/saving classes are destroyed. http://en.wikipedia.org/wiki/Inflation_in_the_Weimar_Republic http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html http://en.wikipedia.org/wiki/Economy_of_Argentina "Early in the twentieth century it was one of the richest countries in the world,[12] though it is now an upper-middle income country. Argentina is considered an emerging economy by the FTSE Global Equity Index."
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He plays one. Did he get it right? I don't often read his stuff.
Wes -- "Additionally as a security officer, I carry a gun to protect government officials but my life isn't worth protecting at home in their eyes." Dick Anthony Heller
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No answers on if he predicted the crash?
Wes
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I do not think that he ever claimed that he predicted the crash, either. The article is more of an exploration as to why economists did not see it, including himself, as opposed to "I told you so".
I did not predict the crash either, but I was mostly in cash prior to it due to general considerations (too much stupidity was consistently rewarded, which I did not like). Then after the crash, I was all in stocks. As of now I have lightened up on stocks a bit.
i
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On Tue, 08 Sep 2009 14:34:07 -0500, F. George McDuffee
<snip>
More information on how/why the economics community went so wrong.
It now appears that the FRB has pre empted and coopted the economics profession. ==============http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html Ryan Grim snipped-for-privacy@huffingtonpost.com | HuffPost Reporting First Posted: 09- 7-09 02:14 PM | Updated: 09-10-09 05:38 PM
The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.
This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.
"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."
One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past. <snip> =============== This should cause serious questions about "enhancing" the role of the FRB in financial regulation, especially of the "too big to fail" institutions.
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| HuffPost Reporting

Same problem exists in the scientific community. Any scientist that questions global warming loses thier federal funding.
Best Regards Tom.
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