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Notes to myself, possibly of interest to others.
-- Bill Northlich

Monday, March 21, 2011

The Recent Greenspan Thing: Krugman and DeLong waste time

As Yves Smith would say:  Bill here...
Matt Taibbi in his book Griftopia has an excellent section on Greenspan and the roots of his now (in)famous religiositc belief in the almighty power of Markets.  "Dr." Greenspan, in a recent paper, is back energetically defending his beloved Free Markets, despite admitting before congress in October, 2008, that in effect, the ideal of totally free markets does not work in practice.  In the paper, The Doctor attempts to blame the continuing recession on Obama and government interference with markets, which he calls "activism".

It seems that any faint whiff of an effort of people trying to protect themselves by suggesting regulation of the financial system brings Greenspan to the Barricades in defense of Markets (Suggestion, not hard rules, is the base mechanism of Dodd-Frank).  It is left as an exercise for the reader to disentangle the argument of why, if markets are so all-powerful, they need such vigorous defense.  (I'm not the first person to point this out)

Prominent economists Paul Krugman and Brad DeLong among others have deconstructed Greenspan's paper.  Krugman is brief, and DeLong extensive, and both are recommended, despite the headline above.

I (as usual?) have couple of observations much more earthy than DeLong or Krugman on the stupidness of the Greenspaner's latest:
  1. Here, I said
    I've seen a number of articles (herehere), which say that the reason small businesses, the well-known primary generator of jobs, aren't hiring is that there are no customers.  I've not heard or seen or imagined any small business owner saying to herself 'Say, if I could just get a tax rate reduction, I'd hire a bunch of people'.  ...if you've ever been in a small business, you know that taxes, minimum wages, etc, are secondary or tertiary issues to consider in running the business and hiring.
    The argument that rules, taxes, etc, are responsible for any change in economic activity is highly suspect.  A suggestion that such things might be responsible for the Great Recession, is just stupid.  Not ignorant - stupid.
  2. "Dr." G's paper is 17 pages long.  Well, it looks like an academic paper - there are quite a few graphs!  No equations, but maybe this paper is for casual readers.  It's published by Wiley; the Editorial Advisory board includes some heavyweights including Barry Eichengreen, Menzie Chinn, and Williem Buiter (yikes!  R Glenn Hubbard too...).  Typical articles have the typical 20 plus or minus references.  G's paper has five references, two of them by Dr. Alan Greenspan.  Of interest to me, the other three references are from 2004 or so.  The financial crisis never happened.  I feel much better.

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