Saturday, June 4, 2011

FYGFD: Repetition


From mine of 1 June:
The picture is different if we look at the change in Federal debt as a percent change, rather than raw dollars:

Graph #3

... the recent massive debt spike (on President Obama's watch) peaks lower than the 1984 debt peak. That is a remarkable and remarkably neglected fact.

Not only is the recent massive debt spike peak lower than the 1984 peak. It looks like a copy of that peak!

Dramatic increase through the broad gray stripe of recession, with a peak near the 20% level, followed by a five point drop. It doesn't look like a repetition of history; it looks like a methodical duplication of policy, as if Obama is copying answers from Reagan. (Sorry, Mr. President.)

Why? Because inflation was not too bad the first time around, and the President was well-liked, and then after a decade or so there were a pretty good few years for the U.S. economy.

Would they do that? Would they copy policy for reasons like that? I don't know. But what I do know, what I'm pretty sure of, is that policymakers don't understand why our economy behaves as it does. So they cannot improve their policies. They can only copy them, and hope for the best. Duplicate prior circumstances and hope that by doing so they also duplicate prior outcomes.

From Lemmings Can Teach Nothing:

No-one really knows

A refreshing article in the NY Times by economist Greg Mankiw admitting that economists guess rather than know what’s going on.


Jazzbumpa said...

I guess there was a time when Mankiw was a real economist - before he sold his soul to the Bush administration.

He totally lost me here, so I'm pleased to see him admit he doesn't know jack about anything important.

BTW - IMHO inflation expectations is somewhere between the tail wagging the dog and magical thinking: "In short, the perception of inflation — or of the lack of it — creates the reality."

I do believe in fairies, I do . . .


The Arthurian said...

Expectations are all that's left, after one drives the economy so far off course that monetary and fiscal policy no longer seem to work.

I'd say expectation does play a role (that's the tail-wagging part) but then, expectations are based on experience, aren't they, despite what Man-q says... That part of your man-q link is pathetic: He's just asking questions, doing economics by innuendo.

If expectations are (idunno) three percent of the total effect, it's a measure of how bad things are that the other 97% of policy is believed not to work.

Fact is, policy still works. The economy is doing what policy tells it to do. But the dopes who set policy fail to understand how the economy interprets their instructions.

The economy is like a computer. It doesn't make mistakes. It follows the (policy) instructions given to it. If there is a problem, the problem is not in the economy but in the instructions given.