Arnold Kling  

Morning Reading (Somewhat Depressing)

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Compare this:


Officials said the GOP was coalescing behind a proposal designed to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, which were seized by the federal government in September, would be required to purchase the mortgages once banks have made them to consumers.

with this:

This is a horrible, horrible idea. Mortgage rates are ridiculously low right now. You can get a 30-year, fixed-rate mortgage for less than 5 percent. I saw what happened to the S&L industry when they were caught holding 30-year mortgages with 6 percent interest rates in the 1970's. If you make a 30-year fixed-rate loan at less than 5 percent today, then good luck to you...

I am fairly confident that the only people you can get to make thirty-year fixed-rate loans at current interest rates are the taxpayers. They only do it because they (we) have no choice in the matter.

Rogoff and Reinhart forecast the future, based on past slumps.

deep financial crises in the past have mostly been country-specific or regional, allowing countries to export their way out.

The current crisis is decidedly global...weak global demand limits how much the U.S. can rely on exports to cushion the ongoing collapse in domestic consumption and investment.

Rogoff is a congenitally gloomy guy. His vocal intonations would make him the perfect voice for Eeyore. I remember that when I decided to take my general exams a semester early, Ken evenly said, "You've probably doubled your chances of failing, but increased your expected utility."

Finally, the Free Exchange blog concludes a roundtable named for Olivier ("the state of macro is good") Blanchard:


We don't sound like expert diagnosticians debating which of several potential infections could be causing a patient's trouble. We sound like witch doctors who can't agree on just where in the body the lifeforce can be found. We're not comparing engineering schematics. We're pondering the shape of the earth. Is the issue animal spirits? Do we need a placebo? Are debt concerns most important, or should stimulus be as large as politically possible?


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COMMENTS (4 to date)
fundamentalist writes:

That certainly is gloomy reading. I could be encouraged if I thought the macro mess would improve, but the field faced the same crisis over the same issues in the 1970's (according to O'Driscoll) and has made no progress at all. Until mainstream economists quit deifying Keynes and are willing to consider him just another economist among many, no progress will be made at all.

megapolisomancy writes:

Sigh. One of the contributing factors to the financial meltdown was the distortion of the housing market. Now the Republicans want to do it once more. You cannot make this stuff up.

8 writes:

Drudge has a link to a Congressional Quarterly article about Judd Gregg, which says he voted to abolish the Commerce Department in 1995.

Gregg’s 1995 votes were cast for the fiscal 1996 budget resolution, a nonbinding blueprint that outlined the GOP’s fiscal priorities after Republicans won full control of Congress for the first time in 40 years.

The Senate version of the controversial measure envisioned spending cuts of more than $960 billion, almost half of it from Medicare and Medicaid. Democratic efforts to amend it were uniformly rebuked by a united GOP majority on the Budget Committee.

Snark writes:

It seems economists like Blanchard continue to defend macro by clinging to the notion that their models must mature and progress by fault. Like the wings of Icarus, however, this new Keynesian revolution will ultimately melt in the sun and crash into the sea.

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