4 ms·

This is 100% true, but what this guy is failing to mention is that it seems that economists don't understand macroeconomics. We are in a terrible terrible mess

by chez17 18y ago

This is 100% true, but what this guy is failing to mention is that it seems that economists don't understand macroeconomics. We are in a terrible terrible mess that was predicted by a very select few that have been shouting out for years by this point. The majority of economists seemed to think everything was just fine. I read somewhere that the world has lost 40% of it's wealth in this recession. This tells me that the old systems, even if I don't understand them, aren't working that great. They very well be the best we have, but it doesn't take a rocket scientists or macro-economists to see that.

yummyfajitas 18y ago
A minor note: we didn't lose 40% of the world's wealth in this recession. In the years leading up to the recession, we wrongly believed the world's wealth to be 40% greater than it actually was. Figuring out that the true value is lower didn't destroy wealth, it just looks that way in many timeseries.
- sethg 18y ago
  How are you defining "true value"? The inflated prices that various assets had at the height of the bubble were "true values" in the sense that their owners could sell them (or, more importantly, put them up as collateral for loans) for those values. Someone who bought a house at the top of the market, lost their job, and is now trying to sell their house so they can move to somewhere more affordable, is certainly feeling a real loss right now.
  - yummyfajitas 18y ago
    I guess by "true value", I mean the value that assets would have had absent the housing-bubble induced speculative premium. My best estimate for this quantity: let gamma = (historical price to own)/(historical price to rent), with "historical" meaning pre-1995. Gamma was more or less constant up until the housing bubble. I'm guessing the "true value" of a house was in the neighborhood of gamma x (price to rent).

by chez17 18y ago

yummyfajitas 18y ago

A minor note: we didn't lose 40% of the world's wealth in this recession. In the years leading up to the recession, we wrongly believed the world's wealth to be 40% greater than it actually was. Figuring out that the true value is lower didn't destroy wealth, it just looks that way in many timeseries.

sethg 18y ago
How are you defining "true value"? The inflated prices that various assets had at the height of the bubble were "true values" in the sense that their owners could sell them (or, more importantly, put them up as collateral for loans) for those values. Someone who bought a house at the top of the market, lost their job, and is now trying to sell their house so they can move to somewhere more affordable, is certainly feeling a real loss right now.
- yummyfajitas 18y ago
  I guess by "true value", I mean the value that assets would have had absent the housing-bubble induced speculative premium. My best estimate for this quantity: let gamma = (historical price to own)/(historical price to rent), with "historical" meaning pre-1995. Gamma was more or less constant up until the housing bubble. I'm guessing the "true value" of a house was in the neighborhood of gamma x (price to rent).