Nightmare Macroeconomics
February 15, 2010
– Comments (6)
This is a fantastic article, a highly recommended read.
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Nightmare Macroeconomics
by Michael Rozeff
February 14, 2010
[excerpt]
An incubus weighs us down - a nightmare. It is the macroeconomics of smart (high IQ) macroeconomists who have been miseducated into economic ignorance, usually of the Keynesian and New Keynesian variety.
Paul Krugman is such an economist. Austrian economist Bill Anderson's highly recommended blog, Krugman-in-Wonderland, deconstructs Mr. Krugman on a daily basis. There is a lot there that needs to be deconstructed.
Everywhere we turn in academia and in the world's governing institutions, we find more Krugmans, more of these smart but ignorant nightmare economists. They uniformly fail to recognize vital insights of Austrian economics. One of these is that government fiscal and monetary policies do not produce uniform price inflation of all goods and assets. The government is capable of causing prices to rise drastically in real estate even as the prices of bread and labor remain relatively tame.
Olivier Blanchard, an MIT professor who is on leave and the chief economist at the IMF, has impeccable and outstanding credentials. This did not prevent him on February of 2007 from writing
"Riskless rates are low around the world, and this is what lies behind most of the increase in asset and housing prices. For the most part, what we see around the world are not speculative bubbles, but increases in fundamental values, driven by lower interest rates.
Prof. Blanchard could not see that credit, debt, and real estate prices were all rising much more than were incomes. He was unable, because of his training, to look for, see, and focus on non-uniform price rises even when they were evident. That is because macroeconomists usually think of THE price level in their models, and they live in and believe in their models to the exclusion of important economic phenomena like real estate price bubbles that are passing under their very noses.
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