Matt Nolan

Market panic: Should we trust it?

/in /by

Mark Perry at Carpe Diem has an excellent post comparing the 1991/92 recession to the current recession in terms of “media reporting”.

As he illustrates in his post, the constant comparisons to the Great Depression also occurred during this time – even though for the US it was a relatively mild recession.

Although I am a little more pessimistic about the current outlook for economic growth than Mark Perry is, I agree with his point, and think that it is especially relevant to today – there is often an incentive for people to exaggerate the severity of a crisis (to sell papers, or extract surplus from government).  As a result, instead of just buying the hype, economic commentators should try to keep in mind what is fundamentally going on – whatever you think that is 😉

In terms of New Zealand we should also remember that 1991/92 was a terrible recession – unemployment reach 12% and average income (according to the GNDI) fell 10%.  Even a repeat of this type of recession is a cause of concern for us here in little old NZ.

Matt Nolan

Arnold Kling on the economics profession

/10 Comments/in , /by

Arnold Kling from Econlog has an excellent post on the debates between economists. One of the best quote for me was:

There are economists making the case against the stimulus in ways that I find unpersuasive (Eugene Fama, for example). But the economists making the case for the stimulus are not doing a very good job, either.

There is no definitive answer. Those that are selling stimulus as the ONLY possibility are merely using a different set of value judgments than those selling the market as perfectly self-correcting. Ultimately, as Arnold says:

My advice to Will Wilkinson would be to distrust one-handed economists when it comes to macro

Economic models are incredibly useful for framing a situation like the one we are in now. However, don’t let the ideology of certain economists be more persuasive just because it is from economists.

I would add that by far the most balanced economic discussion on the crisis has come from Econlog and Marginal Revolution. And the reason that there description has seemed so balance is because they are TRANSPARENT with their value judgments – massively different to many of the other US economists on the blogsphere.

Matt Nolan

Institutions fail: What about it?

/8 Comments/in /by

Over at Anti-Dismal, Paul Walker has replied to a comment I posted with a couple of posts. Now I thought I should repay the favour by writing something up 🙂

Update: Paul replies here.  I agree with absolutely everything he says, but ultimately I think our views on what constitutes “optimal” action still differ as a result of different value judgments.

You should definitely go read the posts, they are very good posts which cover the idea of government failure, and the limits to market failure through asymmetric information. I completely agree with all the objective parts of his posts. However, I still believe my response to “Now there may be something wrong with the price system, but there is a lot more wrong with the government system”:

That’s really your key value judgment isn’t it. I’m not sure I agree. I am not a fan of “multipliers” – but in the face of a large, sustained, market failure I find it hard to conclude that there is no role for government.

Here’s why:

Read more

Matt Nolan

Currency manipulation: What they don’t tell you

/3 Comments/in , /by

It appears that one of President Obama’s first concerns is “currency manipulation” by China – very interesting. The administrations view seems to be:

The US has long felt that China has artificially depressed the value of its currency to boost exports – to the detriment of US business – but the Bush administration always stopped short of formally declaring China a currency manipulator.

However, I would also note who in the US it benefits: The US consumer. When China devalues their own dollar, they are making exports more cheaply for the rest of the world – including the US.

I’m all for market pricing the in the face of good information – but lets not forget that US consumers have benefited from this action.

Matt Nolan

Chinese growth slows rapidly

/in , /by

Given the increasing importance of China as a trading partner to New Zealand (they are our 4th largest trading partner, account for 4.5% of our exports in the year to November *) and as a major support for our main trading partner, Australia, the rapid slowdown in growth in China should be concerning.

Both Calculated Risk and Econbrowser mention that Chinese economic growth has slid to 6.8%pa in December – down from 9.0%pa in September.  According to Nouriel Roubini this indicates that Chinese economic activity was virtually unchanged between the September and December quarters (seasonally adjusted) – indicating a massive loss of momentum in the worlds fastest growing economy.

This slowdown is a lot more rapid than expected – as is illustrated by this graph from Econbrowser:

Matt Nolan

Stimulating private risk taking: A note

/in , /by

Originally I was going to post this as a comment on Anti-Dismal’s blog.  But then I realised that I’m probably the busiest I’ve been in my life at the moment, and I need to make anything I can into a blog post.  So here is a comment on this post.

Read more