Stats to ponder
I’m lucky enough to be flicking through the latest Review of Economics and Statistics so I thought I might sum up a couple of interesting tidbits while I’m reading: Read more
Archive for year: 2009
What am I missing on Ricardian equivalence?
Paul Krugman appears to be saying that a temporary increase in government spending can provide a stimulus EVEN WHEN full Ricardian equivalence holds. All the comments on his blog are saying how simple his explanation is, and how the Chicago school is full of morons – but I don’t really think his argument water tight.
Show us ya pimples!
Brad Taylor doesn’t think that the government should be installing acne-revealing lighting to ward off teenage hoodlums. In the UK they’re installing special lights that highlight acne in areas where teenagers congregate to get drunk, intimidate people and write graffiti all over the walls. Apparently it’s been very successful at dispersing the crowds!
So crowds gather, litter, intimidate people and vandalise the area without actually paying for the cost of their actions. That’s an externality if ever I saw one! Read more
Consumer prices – not asset prices
Earlier I mentioned a piece by Steven Gjerstand and Vernon Smith that was a bit harsh on monetarism – as it ignored that the monetarist explanation and a economic readjustment explanation could be complements instead of substitutes.
Now Barry Ritholtz points out another interesting point from the piece – their discussion of the fact that house price growth was effectively taken out of the CPI. The money quote is:
If home-ownership costs were included in the CPI, inflation would have been 6.2% instead of 3.3%. With nominal interest rates around 6% and inflation around 6%, the real interest rate was near zero, so household borrowing took off.
Let’s discuss.
Read more
Consumer debt, monetarism, and depressions
Economist’s View links to an interesting article by Steven Gjerstand and Vernon Smith.
In this article they say that the high level of consumer debt in a number of countries is a concern – and indicates the possibility of a depression style contraction. This has the ring of truth. However, they also say:
The causes of the Great Depression need more study, but the claims that losses on stock-market speculation and a monetary contraction caused the decline of the banking system both seem inadequate
I am not quite sure that this is the case. Ultimately, there is a distinct difference between the contraction caused by a tightening in the money supply and a contraction that results from the reallocation of resources in the global economy. The Great Depression faced both – thanks to central banks around the world we only face the issues associated with the reallocation.
I see the monetarist explanation as an explanation of some of the “policy errors” during the Great Depression – not a strict explanation of the pain experienced during that period. Lets have a little discussion: