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Nightmare Macroeconomics

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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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6 Comments – Post Your Own

#1) On February 15, 2010 at 12:01 PM, whereaminow (61.23) wrote:

"Should policymakers therefore aim for a higher target inflation rate in normal times, in order to increase the room for monetary policy to react to such shocks? To be concrete, are the net costs of inflation much higher at, say, 4 percent than at 2 percent, the current target range?" - Blanchard

These witch doctors are certifiably insane. Every last one of them. When will they learn?  Probably never.  So it's high time that Americans started looking at their representatives and saying, "what economic thought shapes your decision making?' and if they get slightest whiff of Keynesianism, the voting public should react with a resounding NO vote.

David in Qatar

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#2) On February 15, 2010 at 12:44 PM, megalong (< 20) wrote:

There is no such thing as a risk-free rate.

Everything put together, sooner or later falls apart.
- Paul Simon

`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.
- Percy Shelly

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#3) On February 16, 2010 at 9:52 AM, binve (< 20) wrote:

whereaminow, Hey David, I agree that economics are by far the biggest political and fundamental issue with the economy and American soceity and critical thinking on this issue must be applied. The status quo is unsustainable. Thanks!

megalong ,

There is no such thing as a risk-free rate.

AMEN TO THAT!!!! So many people forget that market-driven interest rates are a measure of the risk evironment. Which is why the Fed setting rates artifically low is distorting signal in the risk environment. Thanks!..

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#4) On February 16, 2010 at 10:20 AM, fransgeraedts (99.94) wrote:

Since Reagan and Thatcher (neo)Keynesian macroeconomics have been out of fashion and out of power. It is therefore ironic to see them protrayed here as the cause of the economic and financial crisis. Of course to David-from-Qatar and other marketfundamentalists all macro-economic policy is wrong... never mind the fundamental differences between Reagonomics and the post-war Keynesian social-market strategies.

fransgeraedts

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#5) On February 16, 2010 at 10:25 AM, whereaminow (61.23) wrote:

fransgeraedts,

Are you ever going to answer my simple question? I've asked you repeatedly to explain to me how the Cantillon effects on monetary creation don't work against your goals of Social Justice?  Instead of attempting an answer, you slander our position with the term "market fundamentalist" while denying our very good reasons for suspicion.  Will you ever be intellectually and answer our simple question?

Thanks,

David in Qatar

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#6) On February 16, 2010 at 10:26 AM, whereaminow (61.23) wrote:

Last sentence should read "intellectually honest"

David in Qatar

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