Some curi­ous Neo­clas­si­cal rum­blings

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As reg­u­lar read­ers of this blog know, I argue that the dom­i­nant school of thought in eco­nom­ics, “Neo­clas­si­cal eco­nom­ics”, is not only inca­pable of explain­ing this cri­sis, but actu­ally helped con­tribute to it by its deluded analy­ses of finance and money.

I wrote Debunk­ing Eco­nom­ics eight years ago to explain why Neo­clas­si­cal eco­nom­ics was inher­ently flawed and should be aban­doned. In that book I was merely col­lat­ing the many com­pelling cri­tiques that have been devel­oped by econ­o­mists of this the­ory over the years, that this school of thought has blithely ignored (I unex­pect­edly added one of my own, cri­tiquing the the­ory of the firm, and also dis­cussed flaws in con­ven­tional Marx­ian eco­nom­ics, but that’s by the bye here).

Even so, I never expected that the real world would throw up as dra­matic a proof of the dam­age that a poor the­ory can do to real­ity as this finan­cial cri­sis (the GFC, to give it its cur­rent pop­u­lar moniker). That lead­ing econ­o­mists had no inkling of this cri­sis before it struck, and the pan­icked con­fu­sion amongst neo­clas­si­cally-trained pol­icy mak­ers once it took hold, were good signs to the pub­lic that the alleged eco­nomic experts didn’t under­stand the econ­omy. Ana­tole Kalet­sky has recently “got” that, and oth­ers doubt­less will as the cri­sis rolls on.

But that hasn’t stopped neo­clas­si­cal econ­o­mists from tout­ing how great their the­ory is, nor from mak­ing pro­nounce­ments that indi­cate they still really don’t get it.

One such con­tri­bu­tion from a lead­ing neo­clas­si­cal the­o­rist was brought to my atten­tion via a link to this blog: Brad DeLong’s attack on a Marxist’s analy­sis of the cri­sis. In a post enti­tled Depart­ment of “Huh?”: In Praise of Neo­clas­si­cal Eco­nom­ics,  DeLong mounts an abu­sive attack on David Harvey’s post Why the U.S. Stim­u­lus Pack­age is Bound To Fail.

Harvey’s own post was hardly com­pli­men­tary about neo­clas­si­cal economics–and I’m not going into the mer­its of his cri­tique here either–but I didn’t notice Har­vey refer­ring to the work of any neo­clas­si­cal as “point­less intel­lec­tual mas­tur­ba­tion”, as DeLong obliquely called Harvey’s post.

The intrigu­ing aspect of DeLong’s post was the appeal he made to what is known as the IS-LM model of macro­eco­nom­ics in his attempt to refute Harvey’s cri­tique. DeLong states:

And it is at this point that we draw on neo­clas­si­cal eco­nom­ics to save us–specifically, John Hicks (1937), “Mr. Keynes and the Clas­sics,” the fons et origo of the neo­clas­si­cal syn­the­sis…”

This is ironic to any­one who has read Hicks in detail (as I have), because about thirty years ago, Hicks rejected the IS-LM model as a totally inap­pro­pri­ate tool for analysing a cap­i­tal­ist econ­omy. Writ­ing in the non-ortho­dox Jour­nal of Post Key­ne­sian Eco­nom­ics, Hicks stated that:

The IS-LM dia­gram, which is widely, though not uni­ver­sally, accepted as a con­ve­nient syn­op­sis of Key­ne­sian the­ory, is a thing for which I can­not deny that I have some respon­si­bil­ity.”  (Hicks, J.R., 1980. “IS-LM: an expla­na­tion”, Jour­nal of Post Key­ne­sian Eco­nom­ics, Vol. 3, pp. 139–54)

He then went on to make a num­ber of points against the model he built, which included that it was inap­pro­pri­ate unless we lived in a world in which the future was cer­tain, because to derive the model he assumed that expec­ta­tions of the future remained con­stant and were cor­rect. He then derived what he called the LL curve (and which later neo­clas­si­cals rela­belled the LM curve), in which the demand for money was a func­tion of both the need to pay for trans­ac­tions and … uncer­tainty about the future. As Hicks put it, 

for the pur­pose of gen­er­at­ing an LM curve, which is to rep­re­sent liq­uid­ity pref­er­ence, it will not do with­out amend­ment. For there is no sense in liq­uid­ity, unless expec­ta­tions are uncer­tain.”

The model also pre­sumed that all mar­kets were in equilibrium–something that an older and wiser Hicks realised was utterly inap­pro­pri­ate when applied to the real world. His final state­ment on this was damn­ing:

I accord­ingly con­clude that the only way in which IS-LM analy­sis use­fully survives–as any­thing more than a class­room gad­get, to be super­seded, later on, by some­thing better–is in appli­ca­tion to a par­tic­u­lar kind of causal analy­sis, where the use of equi­lib­rium meth­ods, even a dras­tic use of equi­lib­rium meth­ods, is not inap­pro­pri­ate…

When one turns to ques­tions of pol­icy, look­ing towards the future instead of the past, the use of equi­lib­rium meth­ods is still more sus­pect. For one can­not pre­scribe pol­icy with­out con­sid­er­ing at least the pos­si­bil­ity that pol­icy may be changed. There can be no change of pol­icy if every­thing is to go on as expected–if the econ­omy is to remain in what (how­ever approx­i­mately) may be regarded as its exist­ing equi­lib­rium.”

A point I made repeat­edly in Debunk­ing Economics–because I had no choice but to–was that when faced with com­pelling cri­tiques of their the­ory, neo­clas­si­cal econ­o­mists responded by ignor­ing them. Often, this would fol­low the pat­tern of some­one who, in his youth, had played a key role in for­mu­lat­ing neo­clas­si­cal dogma, but in later life recanted to some degree–and Hicks here is a per­fect exam­ple. The “Young Turks” of the dis­ci­pline would stick with the orig­i­nal idea, and–if they were even aware of the later recan­ta­tion at all–would dis­miss it as  the rav­ings of a senile old man.

Brad DeLong gives me yet another instance of that.

All this wouldn’t mat­ter if DeLong had no influence–just as neo­clas­si­cal eco­nom­ics wouldn’t really mat­ter if all it did was befud­dle stu­dents’ brains. But DeLong has influ­ence, as his pro­file indi­cates:

Brad DeLong is a pro­fes­sor in the Depart­ment of Eco­nom­ics at U.C. Berke­ley; chair of the Berke­ley Inter­na­tional and Area Stud­ies Polit­i­cal Econ­omy major; a research asso­ciate at the National Bureau of Eco­nomic Research; and a vis­it­ing scholar at the Fed­eral Reserve Bank of San Fran­cisco. From 1993 to 1995 he worked for the U.S. Trea­sury as a deputy assis­tant sec­re­tary for eco­nomic pol­icy…”

And neo­clas­si­cal eco­nom­ics has shaped the insti­tu­tions of the mod­ern world, the prac­tice of finance mar­kets, and the set­ting of gov­ern­ment pol­icy. While it is still in charge of set­ting pol­icy, this cri­sis will go on, and on. Only when pol­icy mak­ers start show­ing prac­ti­tion­ers of this dogma the door (to the retire­ment home) will a real attack on the causes of the cri­sis be pos­si­ble.

On a more triv­ial note, Australia’s mar­ket econ­o­mists are demon­strat­ing their con­tin­u­ing igno­rance of the pri­vate debt bub­ble, and how it caused the cri­sis, by their advice that  banks should reduce mort­gage pay­ments when they cut inter­est rates (for non-Aus­tralian read­ers, vari­able inter­est rate home loans dom­i­nate here, but when a rate cut occurs, the banks leave it up to bor­row­ers to alter their cur­rent $ pay­ments. So a rate cut from, say, 6% to 5% on a $100,000 25 year mort­gage results in no change in the pay­ments the bor­rower is mak­ing unless the bor­rower elects to reduce them. As a result, the term of the mort­gage effec­tively drops when the rate is cut, while the pay­ments on the mort­gage remain con­stant).

Jes­sica Irvine reports in today’s Syd­ney Morn­ing Her­ald that

MORTGAGE hold­ers are tak­ing advan­tage of lower inter­est rates to pay off their loans faster, rather than pock­et­ing the sav­ings upfront. This has prompted some econ­o­mists to call for auto­matic reduc­tions to monthly loan repay­ments to help bet­ter stim­u­late the econ­omy.” (Inter­est rate cuts going to our loans, not pock­ets).

Saul Eslake is reported as mak­ing the fol­low­ing sen­si­ble com­ment:

If peo­ple are able to keep their mort­gage repay­ments up as inter­est rates decline, then they’re sav­ing them­selves tens of thou­sands over the life of the loan,” he said. How­ever, “that does mag­nify the increase in sav­ing that occurs when inter­est rates fall, that’s true”.

How­ever my Kosciuszko mate Rory Robert­son seems to be say­ing that we would be eco­nom­i­cally bet­ter off if banks changed their prac­tice so that pay­ments were cut when rates were reduced, because this would increase spend­ing (and Nicholas Gruen appar­ently made a sim­i­lar obser­va­tion):

An inter­est rate strate­gist at Mac­quarie Bank, Rory Robert­son, said inter­est rate cuts would “pack more of a punch” if banks had to auto­mat­i­cally reduce repay­ments.

If the Reserve Bank is cut­ting by 4 basis points and no one’s tak­ing the option of lower loan repay­ments, it means that the pol­icy is not par­tic­u­larly effec­tive in putting cash in people’s pock­ets. I would have thought that was the point of the exer­cise. Just as you squeeze bud­get con­straints by rate hikes, you remove bud­get con­straints by rate cuts. If the money’s burn­ing a hole in pock­ets, you have got a bet­ter chance of it being spent.”

Nicholas Gruen, the chief exec­u­tive of mort­gage bro­ker Peach Home Loans and the eco­nomic con­sul­tancy Lat­eral Eco­nom­ics, said that while in the longer term it was bet­ter if peo­ple paid down debts, in the short term it was bet­ter if they spent the money.

It’s pretty unfor­tu­nate that some of this is hap­pen­ing from iner­tia, not because any­body par­tic­u­larly wants it to hap­pen,” he said.

Ahem. We got into this cri­sis by reck­less debt-financed spend­ing (on both assets and con­sumer durables); at its peak, the increase in debt (at A$259 bil­lion in 2007) pro­vided almost 20% of aggre­gate demand in the econ­omy. Delever­ag­ing from this level of debt is inevitable and painful, but delay­ing it is hardly an alter­na­tive. Just look at Japan–still in Depres­sion 18 years after its debt-financed spec­u­la­tive Bub­ble Econ­omy burst.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Get Rid of the Fed

    pru­dentsaver said: “I am really get­ting more into the view that the dot­com was a P/E bub­ble, and this is an earn­ings bub­ble, and that makes typ­i­cal value investors for­get that the whole econ­omy is in a bub­ble where the fun­da­men­tals don’t count.”

    pru­dentsaver, you might want to check out the first chart titled “US Infla­tion-Adjusted Asset Prices” at this link:

    http://www.debtdeflation.com/blogs/2008/05/05/defer-the-rba-enhanced-independence-act/

    How about there was a debt bub­ble (caused by cheap labor and con­sumer con­fi­dence to take on more and more debt) that greenspan man­aged to direct into real gdp, stock prices, and hous­ing prices that led to those 3 being higher than they should be based on income in the USA???

  • pru­dentsaver
  • Nicholas Gruen

    Steve,

    I think you’re being silly. 

    This may be the first time that any­one has ever called me a neo­clas­si­cal econ­o­mist. Not every­one you dis­agree with is a neo­clas­si­cal econ­o­mist you know.

  • Dear Nicholas,

    Yes I am well aware that there are prac­ti­tion­ers of other schools of eco­nom­ics who dis­agree with me (and dis­agree­ment with me wasn’t the point of that post).

    In fact, if you read it care­fully Nicholas, you’ll see that my ref­er­ences to neo­clas­si­cal econ­o­mists were solely related to Brad DeLong and his ref­er­ences to John Hicks. The next sec­tion of the entry began “On a more triv­ial note, Australia’s mar­ket econ­o­mists are demon­strat­ing their con­tin­u­ing igno­rance of the pri­vate debt bub­ble…”.

    The way the rest of the entry was phrased could have seemed insult­ing to you, for which I apol­o­gise. When I pref­aced it with “Australia’s mar­ket econ­o­mists”, I was think­ing specif­i­cally of those econ­o­mists who work for banks as com­men­ta­tors, and the one per­son who I was crit­i­cis­ing directly there was Rory. I included a ref­er­ence to you there in paren­the­ses, because you were quoted in the same story and with a sim­i­lar com­ment to Rory’s.

    As an eco­nomic con­sul­tant, you’re not a “mar­ket econ­o­mist” as the term is nor­mally used; but that was a quickly writ­ten blog entry, so I was some­what hasty with phras­ing.

    How­ever I am curi­ous as to how you would clas­sify your approach to eco­nom­ics, and what ana­lytic tools you use to guide your argu­ments about eco­nomic pol­icy.

  • Nicholas Gruen

    Steve,

    I joked just the other day that my own approach is ‘applied Socratic wis­dom’, which is to say that I try to realise how igno­rant we all are. 

    One of my favourite quotes is from Robert Solow (a neo­clas­si­cal I guess). 

    There is a long-stand­ing ten­sion in eco­nom­ics between belief in the advan­tages of the mar­ket mech­a­nism and aware­ness of its imper­fec­tions.… There is a large ele­ment of Rorschach test in the way each of us responds to this ten­sion. Some of us see the Smithian virtues as a nee­dle in a haystack, as an island of mea­sure zero in a sea of imper­fec­tions. Oth­ers see all the poten­tial sources of mar­ket fail­ure as so many fleas on the thick hide of an ox, requir­ing only an occa­sional flick of the tail to be brushed away. A hope­less eclec­tic with­out any strength of char­ac­ter, like me, has a ter­ri­ble time of it. If I may invoke the name of two of my most awe­some pre­de­ces­sors as Pres­i­dent of this [Amer­i­can Eco­nomic] Asso­ci­a­tion, I need only lis­ten to Mil­ton Fried­man talk for a minute and my mind floods with thoughts of increas­ing returns to scale, olo­gopolis­tic inter­de­pen­dence, con­sumer igno­rance, envi­ron­men­tal pol­lu­tion, inter­gen­er­a­tional inequal­ity, and on and on. There is almost no cure for it, except to lis­ten for a minute to John Ken­neth Gal­braith, in which case all I can think of are the dis­ci­pline of com­pe­ti­tion, the large num­ber of sub­sti­tutes for any com­mod­ity, the stu­pidi­ties of reg­u­la­tion, the Pareto opti­mal­ity of Wal­rasian equi­lib­rium, the impor­tance of decen­tral­iz­ing deci­sion mak­ing to where the knowl­edge is, and on and on. Some­times I think it is only my weak­ness of char­ac­ter that keeps me from mak­ing obvi­ous errors.

    A PhD advi­sor said my frame­work was ‘mid­dle of the road’. He thought it was a good PhD, but the com­ment was nev­er­the­less some­what dis­mis­sive. It seemed to smack of a kind of fal­lacy in which the really impor­tant thing is get­ting the frame­work right and then the rest is the details of appli­ca­tion. Now that’s def­i­nitely true of celes­tial physics as far as the choice between Ptole­maic and New­ton­ian frame­works are con­cerned when you’re send­ing a man to the moon. I think Keynes came up with a bet­ter view of what’s going on in a depres­sion than the Trea­sury view that he chal­lenged. And the IS-LM frame­work is pretty use­ful, and supe­rior in many ways to what came before it in appro­pri­ate con­texts

    But my approach is to try to think things through as best I can using what resources I have — which is a suite of imper­fect frame­works and some com­mon­sense and expe­ri­ence to try to pay some atten­tion to con­text (econ­o­mists are often awful — in the way that you really have to be trained to be that awful — at this). I then to try to both avoid obvi­ous errors and to think of poli­cies that would be help­ful some­times in terms of sev­eral frame­works. One of the things I’ve found in my micro-eco­nomic work is that there is a han­ker­ing to have debates as if they are debates about frame­works, when in fact they need not be. I wrote one of these up recently and you can see it on Troppo.

    The debate about the pol­icy called ‘export facil­i­ta­tion’ in the Aus­tralian car indus­try was treated as a doc­tri­nal ques­tion of whether you were in favour of pro­tec­tion and selec­tive indus­try assis­tance or not, when I argued that it was actu­ally an argu­ment about the form assis­tance should take (whether it should be porous to intra-indus­try trade or not) all the par­tic­i­pants in the debate accept­ing that there would be sub­stan­tial assis­tance to the indus­try for a con­sid­er­able time. Export facil­i­ta­tion ‘made sense’ both to pro­tec­tion­ist and to anti-pro­tec­tion­ist views of the world, and it seemed to me was so much the bet­ter for it. It meant you didn’t have to know what the ‘right’ frame­work was to fig­ure out that it was a pol­icy worth hav­ing.

    Peo­ple love high level ide­o­log­i­cal bat­tles. It makes them feel they’re on ground that they under­stand. They can pretty much go to sleep and argue by word asso­ci­a­tion “you would say that wouldn’t you?” yada yada. In fact we are always and every­where on ground that we under­stand ever so slightly. 

    I fear you may see these things as an eva­sion — they’re cer­tainly not jump­ing into the nitty gritty of your argu­ments on macro, but I hope you think they make some sense.

  • Dear Nicholas,

    I cer­tainly agree that eco­nomic debate has been far too doc­tri­nal rather than empir­i­cal. It’s some­thing I try to avoid, as you do too. Even when I crit­i­cise Aus­trian approaches, for exam­ple, I try to base my crit­i­cism on ways in which empir­i­cal data under­mines some of their doc­tri­nal beliefs, rather than sim­ply reject­ing them out of hand on the basis of their ide­ol­ogy, or their util­i­tar­ian the­ory of value.

    And there are also ways in which an approach to eco­nom­ics with which I in gen­eral dis­agree can be cor­rect on major points–as again with the Aus­tri­ans because of their quite jus­ti­fied empha­sis upon entre­pre­neur­ship, inno­va­tion and dis­e­qui­lib­rium.

    That said, I think there are method­olog­i­cal issues that per­vade most schools of thought in eco­nom­ics that seri­ously ham­per the discipline’s capac­ity to func­tion as a sci­ence, even given the lim­i­ta­tions imposed by the nature of eco­nomic enquiry. Chief here is the use of the equi­lib­rium abstrac­tion, which occurs not only when neo­clas­si­cal econ­o­mists use IS-LM to analyse macro­eco­nom­ics, but also when Post Key­ne­sian econ­o­mists use Kalecki’s national account­ing iden­ti­ties, and when Marx­i­ans apply Marx’s value iden­ti­ties. It then means that we are treat­ing an obvi­ously dynamic and indeed evo­lu­tion­ary sys­tem as fun­da­men­tally sta­tic, and what­ever our ide­o­log­i­cal under­pin­nings, that “abstraction”–that time can be ignored, for heaven’s sake, when analysing a dynamic system–makes us fun­da­men­tally unsci­en­tific.

    This is what John Hicks him­self came to appre­ci­ate in the late 70s that led him to dis­avow the IS-LM tool that he him­self had invented–though he never came up with a decent alter­na­tive.

    It’s also why physi­cists I know and respect–such as Joe McCauley–have devel­oped the atti­tude that the entire cur­ricu­lum of eco­nom­ics should be evicted at uni­ver­si­ties, because it teaches a mind­set that makes econ­o­mists fun­da­men­tally inca­pable of under­stand­ing the econ­omy.

    Have you had a read yet of the Dahlem Report that I just posted to this site? I think this throws down the chal­lenge to the eco­nom­ics pro­fes­sion in gen­eral. Whether Socratic or old-school Key­ne­sian or staunchly Neo­clas­si­cal, eco­nom­ics has let soci­ety down very badly, and fun­da­men­tal reform is needed. I frankly doubt the capac­ity of econ­o­mists to do this them­selves, because as Keynes once put it so well, “The dif­fi­culty lies, not in the new ideas, but in escap­ing from the old ones, which ram­ify, for those brought up as most of us have been, into every cor­ner of our minds.” Econ­o­mists have used equi­lib­rium meth­ods to analyse the econ­omy for so long that they are almost inca­pable of real­is­ing that this is fun­da­men­tally wrong, whether your equi­lib­rium iden­ti­ties be Neo­clas­si­cal, Aus­trian, Key­ne­sian, or Marx­ian.

  • Nicholas Gruen

    Yes,

    All entirely fair enough. For me any dis­ci­pline that takes any­thing as self evi­dently silly as real busi­ness cycles in any way seri­ously cer­tainly doing its best to sab­o­tage it’s chances. 

    This is a dis­ci­pline that takes a few weeks out of seri­ous dis­cus­sion to dis­cuss (appar­ently seri­ously) whether surg­ing unem­ploy­ment in the wake of the largest finan­cial cri­sis since the great depres­sion is a sud­den deci­sion to take a breather by work­ers? If you spend all your time try­ing to defend the obvi­ous — and ban­ish ques­tions the astro­nom­i­cal equiv­a­lent of which is “how do we know the moon isn’t made of green cheese?” — then you haven’t got a dis­ci­pline that is going to help much. 

    Then again there are sane peo­ple amongst them — includ­ing, IMO Brad Delong to whom you take excep­tion. Well the pas­sage you took excep­tion to was pre­pos­ter­ously arro­gant. (Delong is like a num­ber of America’s uber-econ­o­mists — Larry Sum­mers seems to be one and I sus­pect Mar­tin Feld­stein is another but I haven’t got around to post­ing my — some­what flimsy — evi­dence). And your point about Delong’s quot­ing the IS-LM frame­work may be fair enough in the cir­cum­stances. But gen­er­ally IMO he’s a guardian of san­ity in a lot of respects. 

    Any­way, where we dif­fer is that it seems to me that you think that clean­ing the Augean sta­bles will some­how get things much bet­ter sorted. I think eco­nom­ics is more like his­tory. True it’s a prac­ti­cal sub­ject and his­tory is not — and so it’s a bit more like a sci­ence or like a prac­ti­cal sub­ject like med­i­cine in the sense that we know some fairly good reg­u­lar­i­ties which enable us to know some things about what to do and not do. Increase inter­est rates and that slows the econ­omy, intro­duce rent con­trol (at least in an ill-con­sid­ered way) and it will destroy cities. That kind of thing. But most of this is pretty obvi­ous and doesn’t need any­thing very elab­o­rate to under­stand. (I won­der how far we have got since Smith — though Keynes (and basi­cally the idea of an econ­omy riven with pos­i­tive feed­back) is obvi­ously of great prac­ti­cal impor­tance in man­ag­ing the macro-econ­omy.

    Beyond these things, I think eco­nom­ics is more like his­tory or mil­i­tary strat­egy (or per­haps even more depress­ingly, cor­po­rate strat­egy). For­mal mod­el­ling a la eco­nomic the­ory, or in an empir­i­cal con­text can be worth­while. But it usu­ally takes us tiny steps for­ward (and some­times large steps back­ward in our under­stand­ing).

    I won­der what are the kind of ques­tions we ask about in eco­nom­ics. Are they like the ques­tion “are plan­ets always spher­i­cal, and within what tol­er­ances?” or are they like the ques­tion “When is the strat­egy of encir­clement of use in a mil­i­tary bat­tle?”. I think a lot of the ques­tions are like the lat­ter. Should we con­tinue the export mar­ket devel­op­ment grants scheme? Should we expand it, rejig it? Bug­gered if I know. One the one hand this, on the other hand that. The tools of eco­nom­ics, and the cor­pus of eco­nomic sci­ence gives one clues, hints, allows one to mea­sure cer­tain things. But that’s pretty much it. 

    So while I’d like to see us ban­ish self evi­dent non­sense from the cor­pus of sub­jects seri­ously dis­cussed (it seems so lit­tle to ask!) I don’t think it would make such a huge dif­fer­ence to our find­ing out how best to run a given econ­omy. I’d add that while the extra­or­di­nary sta­tus given to the clev­er­ness of econ­o­mists’ for­mal games does help to derange the dis­ci­pline, part of my appli­ca­tion of ‘applied Socratic wis­dom’ runs to remem­ber­ing that it was ever thus. Other dis­ci­plines have their moments of mon­u­men­tal tri­umphant stu­pid­ity. I’m think­ing in par­tic­u­lar of whomever it was’s cam­paign to estab­lish that stom­ach ulcers were caused by bac­te­ria. As I under­stand it, he was able to demon­strate this pretty clearly, and cure stom­ach ulcers, but it took about twenty years of strug­gle with the med­ical estab­lish­ment before the obvi­ous was finally accepted.

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  • Flawse

    Hi BTB, Brightspark, ueberbaer,GSM, Pru­dentsaver et al

    I post this for what it is worth. It comes from the itulip site and unfor­tu­nately I can­not remem­ber the orig­i­nal poster to give ade­quate recog­ni­tion. The Gold price is pretty well pre­dicted by this func­tion
    257 * exp(0.00045 *x)
    where x = the num­ber of days since Feb 7 2001
    R square = 98%.

    The trade of sell­ing if gold is 10% above or buy­ing if 10% below has worked pretty well apparently…(IN THE PAST)
    It implies a com­pound return of about 18% for Gold. BTB may well point out that it is in Gold’s ris­ing period.

    As I say FWIW.

    BTB I think we all read your posts with great inter­est and include your opin­ions in try­ing to bal­ance out our own posi­tion.
    I’ve been fol­low­ing Gold since it was about US $320 so I have done OK. Lately the A$ has about can­celled out any increase in price. I sus­pect your 30% decline might just be matched by a sim­i­lar decline in the A$…just my own feel for the thing.
    One thing my Gold hold­ing is quite a small por­tion of my over­all assets. It’s just a bit of insur­ance. I have got out of quite a lot of my posi­tions in Junior min­ers these past few months.
    What has me beat is just where to put the money right now. If Steve is right cash looks good! If I’M right NOTHING looks good!!! (except the bot­toms of beer stub­bies and wine bottles!!)I guess it is cash for a while and a quick switch at some stage. (Who thinks he is a clever boy then? !!!!)
    I always get beaten with tim­ing try­ing to short things!!!Holding cash is about as short as I like just now.

  • Flawse

    Hi uber­baer

    Thanks! Sorry for a late recog­ni­tion of your post. I haven’t been around for a bit. I got a bit of a sour taste over in the forums sec­tion so i’ve not been vis­it­ing lately.
    Yes, Michael and I used cor­re­spond a bit. He’s a really good bloke i reckon and really does his best within the con­straints of his posi­tion.

  • Flawse

    Sorry in com­ment­ing I didn’t realise how old those posts were!!!!! Nev­er­the­less the func­tion stands
    Flawse/Outback Ora­cle