Monday, 30 July 2012

Which (macro)-economists are worth listening to?

This post relates to the ongoing blog debate on "the state of macroeconomics", which I contributed to here, and which has drawn in a whole host of economics bloggers who know far more about modern macroeconomic theory than I do.  However, here I want to address a related, more mundane question, but one which is perhaps more relevant to most non-economists' concerns.   That is,  when economists argue about the correct stance of policy, who should we (policymakers, commentators, and the general public) listen to?



This question was prompted by a recent exchange I had with Ed Vaizey and Simon Hughes on the BBC's Daily Politics: I pointed out that not only was the government's decision in 2010 to cut the deficit too quickly doing considerable economic damage, but that this was both predictable and predicted by economists such as Paul Krugman and Martin Wolf. Their response was essentially "how were we to know which economists to listen to? Others were saying the opposite".


This is a fair question.  My answer to it is that policymakers and the public should listen to economists who fulfill two critera: first, they have made empirically testable predictions (conditional or unconditional - see Krugman here) that have proved, by and large, to be broadly consistent with the data; and second, they base those predictions on an analytic framework (not necessarily a formal model) that is persuasive.  In other words, getting it right alone is not enough; it should be possible to show your workings - to explain why you got it right. Otherwise, your predictions may be interesting, but they tell you little about how to formulate policy. 


My shortlist (apologies in advance to those I've omitted) of economists commenting on macroeconomic policy who I think qualify is something like the following:
  • Krugman, Delong and Wren-Lewis on fiscal policy when interest rates are at the zero lower bound;
  • Adam Posen on monetary policy when interest rates are at the zero lower bound;
  • Martin Wolf on private sector savings and public sector deficits (the financial balance approach);
  • Richard Koo on the implications of a "balance sheet recession"
Not all of these economists agree with each other on everything, nor do I necessarily agree with them about everything; for example, Krugman and Wren-Lewis have recently been debating the usefulness of microfoundations in macroeconomic models.  But they each have clear analytic frameworks for thinking about the economy, and have used them to make empirically testable claims; and have largely been vindicated.  


In each case I've provided links to typical examples of what each was saying a couple of years ago; in each case the analysis stands up well in retrospect.  You understand what they are arguing and why, and events since have been consistent with their arguments.  

This in turn generates an obvious list of economists or those commenting on economic issues who got it completely wrong, usually because they were using analytic frameworks that were incoherent or lacked empirical evidence.  I won't name individuals here, so I leave that to readers, but a short list of influential bodies that should have known better includes those responsible for writing editorials at the Financial Times, macroeconomic forecasters at the OECD, the European Department at the IMF (up until recently - their recent stuff on both UK and eurozone has been pretty good) , the senior leadership at the Bank of England and the Treasury, and probably worst of all senior economic policymakers at the ECB and European Commission.  Oh, and the credit ratings agencies, but that goes without saying. 


It is worth mentioning two economists who I respect, admire and find interesting but do not in my view qualify for inclusion on my shortlist. They are Nouriel Roubini and Ken Rogoff. In both cases, I - and maybe this is partly my fault - don't understand what, if any, analytic framework they are using, so I find it difficult to impossible to evaluate their advice. Nouriel's predictions, while often accurate, seem to be based largely on instinct and a sense of which data matters and which doesn't. That's fine - and having an instinct for the data is invaluable - but I just don't know how to evaluate the plausibility of articles like this.  


With Ken, I am even more confused; one of the finest theoretical macroeconomists of the last two decades has staked much of his reputation on a hypothesis - that there is something magic about a 90% debt to GDP ratio - which as far as I can see has no analytical or theoretical basis.  If Ken has an explanation, his paper doesn't let us in on it.  I don't see why we should regard this arbitrary number, based on a relatively small number of country examples in varying economic circumstances, as having any useful predictive power for individual countries in the future

Finally, let me just point out that this is not
 hindsight on my part.  Most of those mentioned above were on the list of economists I read and, whenever possible, consulted when I was still a civil servant involved in policy advice on these issues (2008-11).  And I put this specific list together more than a year ago now in preparation for a talk I gave to a group of government economists.   And this matters.  I don't think there's any doubt that if policymakers, both in the UK and elsewhere (especially in the eurozone) had, during the intervening period, listened to these people rather than their own economic advisers, the state of the UK and world economies would be significantly better than it is now. 






45 comments:

  1. There is one simple criteria that this non-economist would like to put forward for who we should listen to.

    We should listen to any economist who published a detailed description of the economy which predicted the disasters that happened in 2007/8 and gave plausible reasons for the disasters, at least one year in advance.

    The rationale is that if an economist failed to see the crisis coming then they simply don't understand the economy sufficiently well to advise us well. Some of your list appear to fail this criteria.

    At the top of my list of who to listen to would be Steve Keen, not only for being the first to raise the alarm, but for his spirited debunking of economic orthodoxy.

    Locally I would like to see Ann Pettifor getting credit for her contribution to understanding the role private debt played in bringing the crisis on. We ought to be listening to her.

    I agree with your choice of Richard Koo. His descriptions of the Japanese experience are compelling. It's a shame that no one in the government seems to be aware of Koo or the Japanese recession of 1990-2005 and how they eventually dealt with it.

    ReplyDelete
    Replies
    1. Oh good grief. Not to take anything away from Richard Koo, but @Jayarava writes as if he were unaware that even Ben Bernanke was all over what was wrong in Japan in the late 90s and 2000, as was Krugman himself and a number of other economists at Princeton who began focusing on what happens at the zero lower bound. The basic story, with links, is here:

      http://www.nytimes.com/2012/04/29/magazine/chairman-bernanke-should-listen-to-professor-bernanke.html?pagewanted=1&_r=1&ref=magazine

      Also, the idea that someone would have had to have predicted the 2007/8 crisis in something approaching complete detail at least a year earlier to have credibility itself misses Portes point about the necessity for a formal framework and not just inspired intuition, and lacks usefulness as a result.

      Not to mention the fact that a given economist, who could come in swiftly after the fact and show why what happened did happen, and what was to be done, again, as a function of paying attention to the relevant data and having a formal framework with which to interpret it, may have been more focused on other matters. That doesn't diminish his credibility when he comes in and starts using the correct analytic tools.

      Finally, no one, repeat no one, got it all right out of the box in all material details, let alone ahead of time. There was a lot of multivectored causality going on and a lot of it hidden below the surface, not just in terms of "impersonal" economic forces but in terms of irresponsible shenanigans which, where not downright illegal, were certainly immoral.

      It took a while for these details to come to light and for an overall coherent -- and theoretically grounded -- narrative to emerge. A narrative, by the way, which ties together what had gone on in the US with what had gone on in Europe, for example, in terms of the way earlier German relative deflation and the frothy fantasy of the Euro bubble, with the capital flows from the center to the periphery that this made possible, created the fertile ground from which Merkozy-ECB austerianism sprung.

      Delete
    2. billy,

      Steve Keen fits all of your criteria. Every one.

      Delete
    3. Hi Billy,

      Well I have to put my hand up admit a general level of ignorance. But as Unlearningecon says Steve Keen fits the criteria you outline - he did get it all right out of the box actually. Ann Pettifor is another who seems to have got it spot on. They both published detailed critiques of the theory and practice well before the crash. Indeed Keen modelled it quite accurately with his mathematical model. He's a wonk.

      So yes, I am ignorant of mainstream economists, but you appear to be ignorant outside of the mainstream.

      This wasn't a minor adjustment. This was the largest single event in the modern history of economics; a cataclysm on a scale we haven't seen before. The scale is much larger than, though very similar in many respects to, the Great Depression, both in the indicators leading up to it and the downstream consequences. Though of course government responses have been quite different this time.

      Failure to see a blip coming is one thing. Failure to see the biggest crisis in economic history coming is quite another. It suggests that mainstream economics is intellectual and morally bankrupt.

      If Bernanke was "all over what was wrong in Japan in the late 90s and 2000" then he has no excuse for failing to see precisely the same thing coming in the USA. But he did fail. And let's face it Bernanke coined the phrase "Great Moderation" for the inflation of the biggest debt bubble in modern history. The guy is a loser. Here's a link for you: The Case Against Bernanke.

      I'm interested in the coherent theoretically grounded narratives that were springing up before the crisis which suggest that the "no one could have predicted the crisis" narrative is a face saving lie.

      Delete
  2. Thanks Jonathan, I can put PLoS Comp Biol in the bin now, just got some proper holiday reading! Wish there were more lit. surveys like this..

    ReplyDelete
  3. That sounds like an excellent recommendation for non-economists (including policy makers!), and I totally support your conclusion:

    "I don't think there's any doubt that if policymakers, both in the UK and elsewhere (especially in the eurozone) had, during the intervening period, listened to these people rather than their own economic advisers, the state of the UK and world economies would be significantly better than it is now."

    May I suggest that you now compile a perhaps longer but equally or even more useful list: which (macro-)analysts are worth NOT listening to?

    ReplyDelete
  4. "I won't name individuals here, so I leave that to readers"

    As a non-economist, I urge you to rethink this. This reader, at least, finds it very difficult to wade through the enormous amount of information out there, and too often I just throw up my hands when I read something that I think makes sense/doesn't make sense, but would have to do a fair amount of research to evaluate.

    It would be enormously helpful to have names I trust (for exactly the reasons you cite) compile a reference I can share with others, and use for my own critical thinking in a field I'm not tremendously familiar with.

    ReplyDelete
  5. I wholeheartedly agree with the inclusion of Martin Wolf, Richard Koo and Adam Posen (in that order). Not so sure about Kruggers myself, avid reader of his blog and column but only because I enjoy a nice takedown of the BS that masquerades as economic policy these days from the GOP. My issue with Krugman is his pure neo-classical approach and the many flaws that entails, although it pays to simplfy to a certain extent I do not believe we can model any kind of economic problem reasonably with the static models from that flawed school. Someone somewhere described him as 'A keynesian in drag' which I find hilariously fitting. Second here for Steve Keen, similar viewpoint to Martin Wolfs astute observations of the role of private debt but he's done the hard yard on the models and maths.

    ReplyDelete
    Replies
    1. " My issue with Krugman is his pure neo-classical approach and the many flaws that entails, although it pays to simplfy to a certain extent I do not believe we can model any kind of economic problem reasonably with the static models from that flawed school."

      Examples?

      Delete
    2. Krugman himself has given examples of where he has been wrong.

      http://krugman.blogs.nytimes.com/2010/09/01/mistakes/?gwh=2369681EE33F2B727E20E30A68865D3E

      Delete
    3. That's not the point Clarke is trying to make-it's that Krugman's ideas are "flawed". In what respect. Where have most of his predictions from his models not bore fruit? He's been very accurate.

      Delete
    4. For sure he's been right about the liquidity trap, lack of inflation for most countries, bond prices and the big austerity fail, but to be honest anyone with half a brain who's not a right wing ideologue could see those things to be self evidently true. The elephant in the room here is did Krugman see the crisis coming and the answer has to be a categorical no. Therefore I cannot see how someone who did not see the crises coming can correctly identify the underlying causes and steer us a clear path through the economic gloom.

      The reason for this comes down to the heart of issue of neo-classical economics; in an effort to simplify they ignore money/debt. Krugman fails to see how the money creation process actually works and is still in a loanable funds / money multiplier world :( 'Now, I’m all for including the banking sector in stories where it’s relevant; but why is it so crucial to a story about debt and leverage'

      http://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish/

      Unfortunately banks are far too an integral part of a modern capitalist economy to be ignored. Essentially neo-classical economics (the economics that’s taught in most universities) says one person’s liability (debt) is another person’s asset, therefore both cancel each other out thus simplifying the models. Neat, plausible but unfortunately for us all... dead wrong.

      Delete
    5. Eliot,

      In what way did Krugman fail to predict the crisis? He was making noise about the housing bubble at least as early as August 2005.
      http://www.nytimes.com/2005/08/08/opinion/08krugman.html

      He was against the Eurozone since it was first conceived. And he was arguing against the EZ because he was worried about vulnerability to exactly the sort of asymmetric shock that we're seeing causing all these problems today.

      It just seems inane to say that Krugman's predictions can't be trusted simply because he wasn't privy to the exact date that Lehman would fall or didn't realize the Henry Paulson's initial response would be so breathtakingly inept. That information is not the sort of thing that economics can predict. In fact, it has been shown that predicting the exact timing of crashes reliably is nearly impossible.

      The economists that predicted the date of the crash are just as likely to have gotten it right by luck than theory. If commenters like Eliot Clarke or Jaya were in Las Vegas, they would stand around the roulette table until someone ends up betting at 35:1 and winning, then conclude that the winner had a secret trick to winning at roulette. One win at long odds is much less persuasive of a general insight than many wins at shorter odds.

      Delete
  6. I completely agree with your criteria for selecting economists to listen to: they need to (a) be right and (b) have an analytical framework for being right. Indeed, John Paulson's recent performance, albeit he isn't an economist, shows the danger of listening to people who are right about the economy, but don't have a clear explanation for why they are right.

    However, I disagree with you about Nouriel Roubini not meeting the second criteria. In the interest of full disclosure, my data analytics firm was just acquired by Roubini's consulting firm, Roubini Global Economics, but I would have said the same thing a year ago, as we built much of our country analysis model, Quantitative Country Analytics, using Roubini and Setser's National Balance Sheet approach.

    You're right that Roubini has a very good sense of which data matter, but I would argue that the reason he has this is because he uses an approach of looking at what drives the national balance sheet and which data suggest a imbalance that could lead to crisis that endangers growth or where a country's growth model has strong underpinnings. Broadly speaking, this approach, especially the National Balance Sheet Approach, is on pages 32-51 of Roubini and Setser's 2004 Bailouts or Bail-Ins (http://www.piie.com/publications/chapters_preview/378/2iie3713.pdf) and more recently in Roubini’s 2010 Crisis Economics.

    Interestingly, two of the economist you (and I) particularly like, Martin Wolf and Richard Koo, have analytical approaches that reflect elements of the National Balance Sheet by focusing on economic imbalances and their impact on growth. The important thing about all of these National Balance Sheet type approaches is that they begin by looking at stocks to assess potential imbalances and then assess flows on the basis of stocks. Indeed, stock levels determine which flow variables matter most. For example, it seems to me Roubini's emphasis on the importance of the fiscal cliff in the Economonitor post you cite is driven by vulnerabilities elsewhere in the US national balance sheet, particularly the stock of household debt which constrains the ability of households to replace public sector demand.

    ReplyDelete
  7. Following on from Jayarava's comment this is a nice guide to the economists (including Keen) who successfully predicted the 2007/8 crisis by Dirk Bezemer: http://mpra.ub.uni-muenchen.de/15892/ (who recently won funding from INET). Unfortunately Mssrs Krugman and Wolf are not amongst them. Indeed, none of them are particularly well known or 'establishment'. The one thing they do share is an understanding that banks create money and Flow of Funds approaches, which Wolf was a late convert to. Krugman is still in denial on the former point as his debates with Keen show.

    ReplyDelete
  8. Jayarava demands prediction of the 2008 crisis a year in advance, but I suspect there are problems with that notion: (1) it sets too high a bar, because it's entirely possible to see that there's a bubble inflating without knowing if it's going to pop in 1 year or in 3, (2) what about the false negative problem? A prophet of doom looks good right after something bad happens, but only if you forget the number of times doom failed to occur.

    ReplyDelete
    Replies
    1. Not just a prediction but a published detailed analysis of why. Mainstream economists can't even explain the crisis in retrospect. Whereas someone like Ann Pettifor explains not just the present crisis, but also the 3rd world debt crises of the 1970s and onwards.

      The predictions typically describe a dynamic that is not precise chronologically, but which goes through a series of recognisable stages. These can be checked against how events actually unfolded. Because it's not only the prediction that matters, it's the demonstration that they understand the real economy.

      I think it's clear enough that the mainstream do not understand the real economy. When they say that no one could have predicted the present crisis, they mean that the present crisis was not a possible state in their model. As far as I understand the situation the present crisis is still not a possible state in mainstream models.

      If more evidence is required we can always wait for the next crisis. Many of the people who predicted the present crisis are predicting another one quite soon. Whatever people make of Roubini, when I set his predictions of a perfect storm against the ideas of Keen, Pettifor, Michael Hudson, even Joseph Sitglitz, then I feel a cold fear.

      Delete
  9. I would add one criterion to your list: the economist shouldn't be held to a 100% accuracy standard, as long as he or she goes back to failed predictions, figures out what happened, and adjusts accordingly. Mr. DeLong calls this "marking his beliefs to market" in a bit of accounting humor, and it should be the hallmark of any good intellectual in any field.

    Of course, the fact that one side of the political aisle thinks of the term "intellectual" as a negative thing means that somehow, that last statement will be taken as controversial instead of obvious.

    ReplyDelete
    Replies
    1. I entirely agree on "marking beliefs to market" and Brad Delong is indeed exemplary in this respect. I was planning to make this point too but decided it would make the post too long; I plan to return to it (I need to mark some of my own beliefs to market too, of course.).

      Delete
    2. There is something to this. A scientist makes predictions and then looks for proof that their theory is accurate. If the observation is a little different it's often possible to tweak the theory. Unfortunately Neo-classical economics has major problems. Just months before the most major economic crisis in the last 100 years people like Delong were saying that everything was rosy. No tweak is going to help when the predominant model fails on such a catastrophic scale.

      Neo-classicals don't include debt in their models, so they can't model an accumulation of debt leading to a bubble and collapse. Indeed the current crisis is still not a possible condition in their models is it? Nothing I've seen recently makes me think that this has changed.

      As Steve Keen shows there are much deeper problems with neo-classical economics that come from their own literature (which they do not apparently read). For example it is simply not possible to aggregate demand curves and get sensible results. This was shown by Gorman in Econometrica 1953. And was taken up by Sonnenschein, Mantel and Debreu --all neo-classicals--in the 1970s. An aggregate demand curve can take the shape of any polynomial. The necessary post-hoc assumptions to give a downward sloping aggregate demand curve amount to treating the macro-economy as a single consumer purchasing a single product. How could such a system make useful predictions about the real world except by chance?

      Sometimes the post-hoc changes effectively invalidate the model. And unfortunately economics as a discipline does not respond like a science to demonstrations that their fundamental assumptions are wrong.

      In a real science models that make better predictions come to the fore, especially when the consensus model undergoes a massive failure (Newton's failure to predict the precession of Mercury's orbit for instance). And this is precisely what happened in 2007/8. Neo-classical economics underwent a catastrophic failure that lead people like Delong to predict a continuing "Great Moderation" when the world was actually seeing a great accumulation of debt. In a science that would be game over and a changing of the guard. And in fact this is not the first failure of neo-classical on a grand scale. We had the 3rd world debt crisis of the 1970s. The South American crisis of the 1980s. The South-East Asian and Japanese crises of the 1990s. Hell, if you think about it the 1929 crash happened because nascent neo-classical economics screwed up back then too. One starts to ask, what did neo-classical economics ever get right except for capturing the ears of politicians?

      Delete
  10. In U.S. Dean Baker and the rest of the folks at EPI and CEPR. Predicted at the housing bubble (own:rent ratio was one tip-off); and mortgage fraud/collatarlization of junk would cause crisis; also deregulation of bank industry, when rest of mainstream was going along with it.

    ReplyDelete
  11. A test -if you had applied your criteria in 1935, would Keynes have been on your list?

    ReplyDelete
    Replies
    1. Would you not apply the criteria in 1929 rather than 1935?

      Delete
    2. I chose 1935 to allow time for predictions (1929?) to be proved consistent. But would be happy for JP to use any date from that period which might provide a test.

      Delete
  12. I read about the housing price bubble and it's dangers long before 2008. And I read it from Krugman's columns and blogs. He was criticizing Greenspan and Bernanke on doing nothing to stop the craze and urged them to start to let the air out gradually in order to avoid a catastrophic explosion. Of course, his voice was not the only one, but he was one of the few dissidents on the matter with a public presence. Some people might not like his style of popularization, but we are searching for the right model. And Krugman clearly knows something about it.

    ReplyDelete
    Replies
    1. Long before 2008, the Fed *DID* raise the effective Fed Funds rate, which I took as intended to slow down borrowing. Then it started cutting rapidly in late 2007 and early 08, which I took as a sign the Fed had become aware of the increasing fragility of the banking system.

      Shadow banking seems to have continued pretty much unaffected by control of the commercial banks. From my perspective in the investment industry, the truly scary event was the implosion of the Reserve Fund, which, without the immediate and extra-legal provision of depositor guarantees by the Fed, could well have locked up the economy totally by destroying the commercial paper market.

      Perhaps Bernanke was a much better central banker than his clear talents in economics, and Krugman's hectoring about the banking sector, would suggest. In any case, a large part of our failure was to have created a hyperactive, hubristic shadow banking system largely out of the measurement, understanding and control of our economists and regulators.

      Delete
  13. I would add Dean Baker as someone with a good track record.

    Steve Keen and the MMTers in my mind goes in the Roubini-Rogoff list. I have trouble figuring out their method. In other words they don't explain their methods well and also not-conicidently never, ever admit to being wrong about anything, whereas DeLong and Krugman will admit to errors.

    ReplyDelete
    Replies
    1. Could you clarify what you mean by 'don't explain their methods well?' Keen has a variety of descriptions of his model.

      The idea Krugman and Delong admit to errors is buried, incidentally, by their debate (well, Krugman's) with Steve Keen.

      Delete
    2. And why lump Steve Keen with the MMT'ers? I believe he classes himself as post Keynesian or of no particular school. Just someone using empirical methods to try and formulate models which explain the real world, willing to put his models to the test in against real world data and publish charts with r squared’s (correlation) against said real world data. Granted he can be a little over wordy at times in his explanations, and Krugmans effectiveness at getting a point across is to be admired.

      As a side note everyone should also read Koo’s paper: http://www.paecon.net/PAEReview/issue58/Koo58.pdf

      Delete
  14. This is a decadent discussion. Instead of trying to understand the topic (macro-economics) you try to figure out what authority to listen to about it.

    ReplyDelete
    Replies
    1. Was the point not that being inexplicably correct does not cut it?

      Delete
  15. Great post and comments. How about for the next post a list of some of the best up and coming (under 40 or 45?) economists? That would be really interesting as well.
    alternative investment

    ReplyDelete
  16. REALITY CHECK! "first, they have made empirically testable predictions...that have proved, by and large, to be broadly consistent with the data; and second, they base those predictions on an analytic framework ...that is persuasive."

    Sorry, but the answer is not Steve Keen:

    Letter to Financial Times (June 20, 2012)

    HEY, THE SKY HASN'T FALLEN AFTER ALL ...
    From Mr Rory Robertson.

    ...Readers might be amused to know that Prof Keen is famous in Australia because in 2008 he took a high-profile bet that house prices would fall by 40 per cent from “peak to trough”. It was agreed that the loser would trek across 230km of dull roads from Canberra, the nation’s capital, to the top of Mt Kosciuszko, the nation’s highest “peak” (only 2,228m), wearing a T-shirt saying: “I was hopelessly wrong on home prices! Ask me how”.

    In the event, home prices in that episode fell by 5 per cent, not 40 per cent. Wrong by a factor of eight but still a good sport, Prof Keen enjoyed a nine-day holiday trekking the tar to Mt Kosciuszko.

    Awkwardly, average home prices today remain 10 per cent or so above the level at which “Australia’s Chicken Little” sold his home in favour of renting in 2008. The bet now is that pensions will grow faster than rental costs over the next four decades."
    http://www.ft.com/intl/cms/s/0/6cf1dd88-b96c-11e1-a470-00144feabdc0.html#axzz22MUQHTlP

    Is there more than one Australian Paradox? (look it up!)

    ReplyDelete
    Replies
    1. The question is Formerfattie, do you believe Australias house prices are not in a debt induced bubble and they've somehow avoided the US, UK, Japanese, Spanish and Irish disease? If so they are indeed the 'Lucky Country'

      Delete
  17. G'day Eliot. What I am saying is that readers need to be careful where they get their information, especially when their hard-earned cash might be in play.

    For sensible observations on Australian housing markets, I'll go with this guy:

    "Are dwelling prices overvalued? It's very hard to be definitive on that question. There are two aspects to the claim that they might be. The first is that prices relative to income are higher than they were 15 or 20 years ago. If this ratio is somehow mean-reverting, then either incomes must rise a lot or prices must fall. It could be that this analysis is correct, but the problem is that there is no particular basis to think that the price to income ratio 20 years ago was ‘correct’. There are reasons that might be advanced for why the ratio might be expected to be higher now than then – that the mean has shifted – though again there is little science to any quantification for such a shift. In any event, arguments that appeal to historical averages for such ratios lose potency the longer the ratio stays high. In Australia's case the ratio of prices to income on a national basis has been apparently at a higher mean level – about 4 to 4½ – for about a decade now."

    See the charts and more calm fact-based discussion at:
    http://www.rba.gov.au/speeches/2012/sp-gov-240712.html

    Not with this guy: "I’ve consistently argued that what really drives change in house prices is accelerating mortgage debt, and though this uptick in [Oz house] prices [in Q2] did surprise me, it was driven by that same factor: mortgage debt accelerated over the most recent months, even though the rate of growth of mortgage debt continued to decline." (http://www.debtdeflation.com/blogs/2012/08/02/australian-house-prices-update-june-2012/ )

    Huh? Does that sentence make any sense at all: house prices rose in Q2 because mortgage debt accelerated even as it decelerated? (In fact, mortgage growth decelerated over Q2: http://www.rba.gov.au/statistics/frequency/fin-agg/2012/fin-agg-0612.html )

    The contrast between the two analysts is like chalk and cheese. Talk about a bloke in a sea of fog - now Prof Keen is drawing charts that pretend The Bet described earlier had something to do with "real" prices (first chart in link above). In fact, Prof Keen's original forecast - parroted widely in Australia - was a 40% fall in nominal house prices. The re-writing of history is somewhat unbecoming.

    In any case, nominal house prices at present are about 80% higher than Prof. Keen said they will be. Starting at an index of 100, he said they were heading to 60, but today they are sitting happily at 110. And rents are rising nicely. Oops!

    Actually, Australian academics are not exactly covering themselves in glory at present. What do readers think of this effort by University of Sydney scientists? Misconduct anyone? http://christopherjoye.blogspot.com.au/2012/07/journo-skewers-university-of-sydney.html

    Best wishes,
    Rory Robertson

    ReplyDelete
    Replies
    1. Ha ha! I think the moral here is that everyone can be wrong. But you can't move forward unless you stick your neck out, so the saving grace has to be the willingness to question and revise your own ideas.

      The economists to listen to are the ones who themselves are willing to listen and revise. The Paul Krugman vs Steve Keen saga was so shocking because PK simply did not listen (at all.) At least Steve Keen seems a good sport, as you mention in your previous post!

      Delete
  18. We need to distinguish from aspirational v actual. David Hendry writes about testing forecast models at his webpage. This is mostly non-technical.

    http://www.nuff.ox.ac.uk/Users/Hendry/Papers/MPCDFHcho.pdf

    Stochastic simulation models for risk management do not predict a single scenario. The public has little access to this type of model or way of thinking. However, it would be a step forward to mix it in with other mental frameworks.

    ReplyDelete
  19. Ridiculous!

    Austrians predicted the crisis, they also predicted the results of "stimulus".

    Ill think I will listen to them,rather then the people who caused the crisis.

    ReplyDelete
    Replies
    1. Agree. I would nominate Mish Shedlock as one of those. I have recordings of Coast to Coast AM interviews at least as far back as early 2007, possibly earlier, predicting the Real Estate crash.

      Delete
  20. This comment has been removed by the author.

    ReplyDelete
  21. What do you think of Steve Keen. Doesn't he use his own analytical model?

    ReplyDelete
  22. Yeah, Roubini is like the Jimi Hendrix of economic analysis. How the hell does he do that? Let's hope he doesn't accidentally kill himself with champagne and sleeping pills...

    ReplyDelete
  23. This is a site to view volume and volume oscillator chart analysis. This site provides leading technical indicator analysis and provides a great stock screener.

    ReplyDelete
  24. The most important item that many economists got wrong is the fiscal multiplier.

    The fiscal multiplier is NOT a constant.
    The fiscal multiplier is influenced by FED actions. At full employment the FED will counteract fiscal stimulus by tightening the money supply so the multiplier may be less than 1.

    Near the ZLB the fiscal multiplier is greater than 1 and may be substantial, depending on the nature of the stimulus. The expansionary policy of the Fed at the ZLB increases the multiplier.

    Getting this one issue correct will correctly inform policy. Other issues are not as critical.

    ReplyDelete