I don't usually post twice in a day anymore, but today I will make an exception. The New York Times has a story on a forthcoming new report by economists Alan Blinder (Princeton) and Mark Zandi (Moody's economy.com) which says the wise & prudent policies of the Federal Reserve and the Federal Government saved us from a second Great Depression.
WASHINGTON — Like a mantra, officials from both the Bush and Obama administrations have trumpeted how the government’s sweeping interventions to prop up the economy since 2008 helped avert a second Depression.
Now, two leading economists wielding complex quantitative models say that assertion can be empirically proved.
In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.
In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
Fuck this noise! Did we avert a second Great Depression? Who knows? It's too early to tell. The economy is going down the tubes again, which I will be detailing tomorrow in anticipation of the sacred GDP number. And we are indeed experiencing deflation according to the consumer price index (CPI), and if the CPI were calculated to include actual house prices, instead of some owner's equivalent rent nonsense, it would have been obvious that we've been in deflation for some time now, not just the last 3 months. The housing market is crashing again. And about 18.3% of Americans are underemployed. The list goes on & on.
But what of the analysis itself? Here's the reaction of Stanford's John Taylor (of Taylor curve fame) from the Times story—
Told about the findings, another leading economist was unconvinced.
“I’m very surprised that they find these big impacts,” said John B. Taylor, a Stanford professor and a senior fellow at the Hoover Institution. “It doesn’t correspond at all to my empirical work.”
Mr. Taylor said the Fed had successfully stabilized the commercial paper and money markets, but he argued that its purchases of $1.25 trillion in mortgage-backed securities have not been effective. And he said the Obama administration’s stimulus program has had “very little impact and not much to show for it except a legacy of higher debt.”
The disagreement underscored the extent to which econometric estimates are heavily reliant on underlying assumptions and models, but Mr. Blinder and Mr. Zandi said they hoped their analysis would withstand scrutiny by other scholars.
The key word Taylor uses here is empirical, as opposed to econometric estimates. But we don't need any economist to tell us what a blind man can see—things are bad & they're getting worse.
In putting lipstick on this proverbial pig, Blinder and Zandi have handed us some rubbish, as in Garbage In, Garbage Out—that's what it's called in computer science. No, let me amend that. It's called Garbage In, Ass-kissing Politically Expedient Garbage Out. Those of us who do not specialize in praising the status quo & brown-nosing have a more colloquial term for it—bullshit.
Calculated Risk informs us that Mark Zandi completely missed the Housing Bubble. But now, together with the academic economist Alan Blinder, he purports to tell us that we should be grateful to the oblivious Powers That Be, who are said to have prevented things from falling apart altogether. But of course, the verdict is not in on that one yet.
Memo To Alan Blinder And Mark Zandi—
cc: Ben Bernanke, Larry Summers, Tim Geithner, Barack Obama
Stop It! Stop Your Bullshit! Your macroeconomic models left out 90% of how our phony economy worked, and all the time Main Street was drowning in a River Of Debt, you high priests economists were giving us all a Big Thumbs Up. Ben Bernanke, whose remedial actions you praise, called this time of endless "prosperity" The Great Moderation (~1983-2007) . Ben didn't see the crash coming either. You are part of a disgraced profession. Get used to it.
And now you have the chutzpah to cite imaginary numbers you obtained from delusional econometric models to say that Things Could Have Been A Lot Worse following an ongoing disaster you didn't even foresee and therefore did not comprehend (using similar models).
The key word in the phrase "ongoing disaster" is ongoing. I will quote Tim Iacono's Lindsey: U.S. Entering Deflation Trap—
Despite yesterday’s somewhat sanguine view, if Federal Reserve Chief Ben Bernanke really thinks that the U.S. economy is headed for serious trouble due to various traps that have been encountered (said traps having previously been set by the deflation and/or liquidity monsters), he has more company with each passing day. Earlier today in “the land of deflation”, [Lawrence Lindsay] lent his support to this view as reported by Reuters—
Former Federal Reserve board member Lawrence Lindsey said on Thursday it will be “obvious” by the end of this year that the U.S. economy has entered a “deflationary trap.”
... “I would expect by December we will see further quantitative easing” by the Fed, Lindsay said.
December seems like such a long time away…
Paul Krugman sketched out the situation for Bernanke creating a new “Fed misery index” that he chose to call a “Fed fail index” since he figures the central bank deserves an “F” for the job it’s been doing in achieving full employment and stable prices.Like many others in recent years, this discussion again strikes me as something that historians will look back upon in a few decades and wonder, “What were those guys thinking? They run an economy on asset bubbles for twenty years and then they wonder why normal monetary policy doesn’t work any more.”
So stop trying to wallpaper over your incompetence. We wish we could issue a Cease & Desist order on subservient, status quo-justifying nonsense, but we can't as long as people like you exist. So I am asking you to be honest for a moment, and stop bullshitting the American people.
I just had to get all that off my chest.