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This is just a muddled explanation of monetarism, which is pretty well clearly nonsense at this point. No macroeconomic developments of the last 100 years conf

This is just a muddled explanation of monetarism, which is pretty well clearly nonsense at this point. No macroeconomic developments of the last 100 years confirm it. > We’re not being punished for our exuberance We're being "punished" for massive malinvestment. Wealth was poured into assets and ventures that could never achieve positive returns. A recession/depression is the process of liquidating malinvestments and redeploying wealth and labor to economically profitable ventures. The malinvestment happens partly from mass psychology and mostly because of artificially manipulated interest rates. The natural market interest rate reflects the amount of wealth available for investment (capital). When people have saved a lot and there's a lot of wealth stored up, interest rates are low. When interest rates are artificially held low, investors and business people get the mistaken impression there's much more stored wealth in the society than there actually is. Then eventually many business plans come to tears at roughly the same time, as it becomes apparent there isn't the wealth to drive demand for the ventures. This is a recession.

Retric 18y ago
Depressions are what happens when Recessions start feeding off of their own fall. Looking back at the great depression the amount of knowledge did not change, the workforce did not change, the amount of natural resources did not change much, but things kept getting worse. Over the long term Recessions are useful but Depressions can cause a lot more harm than good. PS: We are not in a depression, but a major goal should be to avoid a depression while we let this recession fix many of the problems your talking about.
- kingkongrevenge 18y ago
  The change in the depression was massive government intervention. Hoover reacted quickly with unprecedented price support programs and stimulus to preserve the status quo. FDR upped the ante, and kept doing it for many years. There was a depression because the mistakes of the 20s were not swiftly liquidated. The policy prescription for the current crisis is to beef up food stamps and heating assistance programs so people don't starve or freeze, and then let all nonviable businesses fail as quickly as possible so they can be reconstituted as profitable companies.
  - Retric 18y ago
    That sounds like a great idea but are economy is based off of consumer spending which can just free fall. "From 1929 to 1934, U.S. personal income plunged 44%, real output nosedived 30% and the unemployment rate soared to 25% of the American labor force." and the great depression still had 5 years left. "By Jan 1, 1934, as many as half of all residential mortgages were delinquent" let alone all the ones that had already failed. And it can fall far further in the next one. It's a house of cards and the bottom is far further than you might expect.
    - kingkongrevenge 18y ago
      I don't understand how this is a response to anything I've said. Yes, consumer spending needs to plummet. Many thousands of retail businesses need to shut down. They are not viable. The profits in recent years were from phantom earnings: totally unsustainable and artificially credit growth, mounting consumer credit card debt and MEWs. The quicker we get the liquidation and write-downs over with the better.
      - Retric 18y ago
        Yes, consumer spending needs to plummet. Why? We had a positive personal savings rate last month. Once you have a positive saving rate there is no long term problem with spending. (http://www.bea.gov/briefrm/saving.htm http://www.bea.gov/briefrm/saving.htm) Now government spending is honorably out of whack, but that's not really related to what you're talking about. (http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2005/0508.html http://www.frbsf.org/education/activities/drecon/answerxml.c...)
  - baguasquirrel 18y ago
    The general view amongst economists is that Hoover's price supports were the one thing that caused the depression. FDR implemented limited socialism, which did nothing to alleviate the depression-- there was not much he could do about it at that point --but was rather meant to keep people in homes, and clothed.
jacoblyles 18y ago
That's the Austrian view, anyway.
- fizx 18y ago
  Check out this podcast. http://www.econtalk.org/archives/2009/01/roberts_and_han.htmlIts http://www.econtalk.org/archives/2009/01/roberts_and_han.htm... about different viewpoints in economics, and economists talking about how much they know and don't know.
  - diN0bot 18y ago
    http://www.econtalk.org/archives/2009/01/roberts_and_han.html http://www.econtalk.org/archives/2009/01/roberts_and_han.htm...
- mhartl 18y ago
  I find it strange that there still exist named schools of thought in economics; perhaps it's a sign of the field's intellectual immaturity. After all, which schools of thought are there in chemistry or physics? A few centuries ago you could have answered that question, but today it doesn't even make sense. I wonder if economics will ever reach the same level of development. For what it's worth, the only economists who consistently avoid setting off my bullshit meter are the Austrians. And yet, their views border on lunatic fringe according to mainstream economists. In a world where those same economists set policy, that is an alarming combination.
  - whatusername 18y ago
    aren't there some various schools of thought around string theory?
    - ovi256 18y ago
      This concurrs with the grandfather's theory. This particular domain of physics, quantum theory, is certainly new and, we may say, as immature as the other domains were 3 centuries ago.
jorgeortiz85 18y ago
A recession/depression is the process of liquidating malinvestments and redeploying wealth and labor to economically profitable ventures. If what you say were true, then we wouldn't be suffering from unemployment. We'd suffer from massive writedowns in our wealth (as we realize our malinvestments) but labor would be redeployed to new ventures. Effectively, we'd be working our assess off harder than before, but receiving a lower quality of life in return. In reality, however, the economy is not at full employment. If we malinvested before (effectively did useless work), that should be a sunk cost. We wouldn't receive the future benefits we expected from that work, but that wouldn't preclude us from continuing to work. Malinvestment is not a reason for unemployment. No, we're in a liquidity trap. Option A is monetary policy. That has been tried and exhausted. Option B is fiscal policy. Bring out the helicopters!
- kingkongrevenge 18y ago
  > If what you say were true, then we wouldn't be suffering from unemployment. Uh, why not? I don't get it. Of course business liquidations and a decline in capital investments produces unemployment.
  - jorgeortiz85 18y ago
    It's clear that the massive investments in housing over the last few years won't produce the returns we expected. Yes, we're going to suffer because those were bad investments. But look at the bigger picture. We have productive economic resources (labor), why should they ever be sitting idle? It's not like we don't have problems to solve. We have to pay off our debt to the Chinese. We have to figure out what to do when the oil runs out. We have to make sure we don't destroy the planet sometime during the next century. We need to figure out how to take care of all the baby boomers once they retire. There's LOTS of work we need to be doing, but we're sitting around twiddling our thumbs. That makes no sense.
    - ngvrnd 18y ago
      This presumes someone (the government? you?) can figure out what to do with that labor. Traditionally, in a capitalist economy, we let the market figure that out. Right now, the market's in a bit of a state.
mixmax 18y ago
He needs to learn about inflation too ;-)
richcollins 18y ago
I agree that it is nonsense. If hoarding leads to an irrationally priced money, rational people will quickly realize this and exchange their money for other alternatives that have become favorably priced. Once this tipping point is reached, others will realize that they were overvaluing their money and the pendulum will swing back.
bokonist 18y ago
Some people are losing their jobs because they were in sectors that had too much malinvestment ( housing). But many other are losing their jobs simply because of friction caused by the increase in demand for money. All contracts ( wage contracts and debt contracts) were written assuming an easier availability of money. When a deflation occurs, many businesses go bust not because they were "malinvestment" but simply because their contracts were denominated in 2007 dollars, not 2009 dollars. The correct response is to print money to prevent the deflation, thus removing the need for every business in the country to into bankruptcy court to get out of their debts. Before the Great Depression, many people wanted cars and they could afford cars. After the great depression, the production of cars were even greater. Why did the factories need to stay idle during the great depression? Idle automobile factories were not a result of liquidating malinvestment, they were a result of collateral damage from deflation.

Retric 18y ago

Depressions are what happens when Recessions start feeding off of their own fall. Looking back at the great depression the amount of knowledge did not change, the workforce did not change, the amount of natural resources did not change much, but things kept getting worse. Over the long term Recessions are useful but Depressions can cause a lot more harm than good. PS: We are not in a depression, but a major goal should be to avoid a depression while we let this recession fix many of the problems your talking about.

kingkongrevenge 18y ago
The change in the depression was massive government intervention. Hoover reacted quickly with unprecedented price support programs and stimulus to preserve the status quo. FDR upped the ante, and kept doing it for many years. There was a depression because the mistakes of the 20s were not swiftly liquidated. The policy prescription for the current crisis is to beef up food stamps and heating assistance programs so people don't starve or freeze, and then let all nonviable businesses fail as quickly as possible so they can be reconstituted as profitable companies.
- Retric 18y ago
  That sounds like a great idea but are economy is based off of consumer spending which can just free fall. "From 1929 to 1934, U.S. personal income plunged 44%, real output nosedived 30% and the unemployment rate soared to 25% of the American labor force." and the great depression still had 5 years left. "By Jan 1, 1934, as many as half of all residential mortgages were delinquent" let alone all the ones that had already failed. And it can fall far further in the next one. It's a house of cards and the bottom is far further than you might expect.
  - kingkongrevenge 18y ago
    I don't understand how this is a response to anything I've said. Yes, consumer spending needs to plummet. Many thousands of retail businesses need to shut down. They are not viable. The profits in recent years were from phantom earnings: totally unsustainable and artificially credit growth, mounting consumer credit card debt and MEWs. The quicker we get the liquidation and write-downs over with the better.
    - Retric 18y ago
      Yes, consumer spending needs to plummet. Why? We had a positive personal savings rate last month. Once you have a positive saving rate there is no long term problem with spending. (http://www.bea.gov/briefrm/saving.htm http://www.bea.gov/briefrm/saving.htm) Now government spending is honorably out of whack, but that's not really related to what you're talking about. (http://www.frbsf.org/education/activities/drecon/answerxml.cfm?selectedurl=/2005/0508.html http://www.frbsf.org/education/activities/drecon/answerxml.c...)
- baguasquirrel 18y ago
  The general view amongst economists is that Hoover's price supports were the one thing that caused the depression. FDR implemented limited socialism, which did nothing to alleviate the depression-- there was not much he could do about it at that point --but was rather meant to keep people in homes, and clothed.

jacoblyles 18y ago

That's the Austrian view, anyway.

fizx 18y ago
Check out this podcast. http://www.econtalk.org/archives/2009/01/roberts_and_han.htmlIts http://www.econtalk.org/archives/2009/01/roberts_and_han.htm... about different viewpoints in economics, and economists talking about how much they know and don't know.
- diN0bot 18y ago
  http://www.econtalk.org/archives/2009/01/roberts_and_han.html http://www.econtalk.org/archives/2009/01/roberts_and_han.htm...
mhartl 18y ago
I find it strange that there still exist named schools of thought in economics; perhaps it's a sign of the field's intellectual immaturity. After all, which schools of thought are there in chemistry or physics? A few centuries ago you could have answered that question, but today it doesn't even make sense. I wonder if economics will ever reach the same level of development. For what it's worth, the only economists who consistently avoid setting off my bullshit meter are the Austrians. And yet, their views border on lunatic fringe according to mainstream economists. In a world where those same economists set policy, that is an alarming combination.
- whatusername 18y ago
  aren't there some various schools of thought around string theory?
  - ovi256 18y ago
    This concurrs with the grandfather's theory. This particular domain of physics, quantum theory, is certainly new and, we may say, as immature as the other domains were 3 centuries ago.

jorgeortiz85 18y ago

A recession/depression is the process of liquidating malinvestments and redeploying wealth and labor to economically profitable ventures. If what you say were true, then we wouldn't be suffering from unemployment. We'd suffer from massive writedowns in our wealth (as we realize our malinvestments) but labor would be redeployed to new ventures. Effectively, we'd be working our assess off harder than before, but receiving a lower quality of life in return. In reality, however, the economy is not at full employment. If we malinvested before (effectively did useless work), that should be a sunk cost. We wouldn't receive the future benefits we expected from that work, but that wouldn't preclude us from continuing to work. Malinvestment is not a reason for unemployment. No, we're in a liquidity trap. Option A is monetary policy. That has been tried and exhausted. Option B is fiscal policy. Bring out the helicopters!

kingkongrevenge 18y ago
> If what you say were true, then we wouldn't be suffering from unemployment. Uh, why not? I don't get it. Of course business liquidations and a decline in capital investments produces unemployment.
- jorgeortiz85 18y ago
  It's clear that the massive investments in housing over the last few years won't produce the returns we expected. Yes, we're going to suffer because those were bad investments. But look at the bigger picture. We have productive economic resources (labor), why should they ever be sitting idle? It's not like we don't have problems to solve. We have to pay off our debt to the Chinese. We have to figure out what to do when the oil runs out. We have to make sure we don't destroy the planet sometime during the next century. We need to figure out how to take care of all the baby boomers once they retire. There's LOTS of work we need to be doing, but we're sitting around twiddling our thumbs. That makes no sense.
  - ngvrnd 18y ago
    This presumes someone (the government? you?) can figure out what to do with that labor. Traditionally, in a capitalist economy, we let the market figure that out. Right now, the market's in a bit of a state.

mixmax 18y ago

He needs to learn about inflation too ;-)

richcollins 18y ago

I agree that it is nonsense. If hoarding leads to an irrationally priced money, rational people will quickly realize this and exchange their money for other alternatives that have become favorably priced. Once this tipping point is reached, others will realize that they were overvaluing their money and the pendulum will swing back.

bokonist 18y ago

Some people are losing their jobs because they were in sectors that had too much malinvestment ( housing). But many other are losing their jobs simply because of friction caused by the increase in demand for money. All contracts ( wage contracts and debt contracts) were written assuming an easier availability of money. When a deflation occurs, many businesses go bust not because they were "malinvestment" but simply because their contracts were denominated in 2007 dollars, not 2009 dollars. The correct response is to print money to prevent the deflation, thus removing the need for every business in the country to into bankruptcy court to get out of their debts. Before the Great Depression, many people wanted cars and they could afford cars. After the great depression, the production of cars were even greater. Why did the factories need to stay idle during the great depression? Idle automobile factories were not a result of liquidating malinvestment, they were a result of collateral damage from deflation.