While most of my blog readers like my analysis, the same can’t be said for the economics profession in general, let alone the so called market economists–mainly but not exclusively Chief Economists for banks (I would be curious to find out what their own “internal press” looks like!). This page will record some of the negative press I’ve received as a result–and also comments, such as ex-PM John Howard’s recent comment, that argue this isn’t a major crisis.
It should prove an interesting litmus test over time. If I am wrong, then these commentators can bask in their own “I told you so” moments. And if not…
Priceless
I’ll keep a permanent record of outstandingly bad predictions here, and a rolling parade of attacks (or gaffes) in “Run of the Mill”. The piece of cake here has to go to Gerard Baker of The Times of London on January 19, 2007:
Welcome to ‘the Great Moderation’ Historians will marvel at the stability of our era.
“Economists have coined a term for this remarkable period of stability. Taking their cue from the Great Depression of the 1930s and the Great Inflation of the 1970s and 1980s, they have called the current era the Great Moderation.”
And second prize (as of January 2009) goes to Ben Bernanke himself, for a speech he gave in February 2004 on the same topic:
“My view is that improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation. In particular, I am not convinced that the decline in macroeconomic volatility of the past two decades was primarily the result of good luck, as some have argued, though I am sure good luck had its part to play as well. In the remainder of my remarks, I will provide some support for the “improved-monetary-policy” explanation for the Great Moderation…”
Run of the Mill
January 2, 2009: Mark Davis, SMH: Give your pay packet a shave and help save jobs.
Here it is. When I saw this crisis was imminent in December 2005, one major factor that motivated me to go public with my analysis was the certainty that, when the crisis hit, economists would either blame it on wages being too high (”the abolition of Work Choices caused the Depression!”) or would suggest that wages should be cut to reduce the imbalance between the supply of and demand for labour.
The crisis hit too early and was far too global for the abolition of Work Choices to cop it sweet, but here we have “Economic modellers” telling us that a 1% cut in wages will boost employment growth by half a percent…
I have written a Letter to the Editor about this piece of nonsense; I expect to see it published tomorrow. After that, I’ll put a blog entry up on this one:
the Government … should revive the long-dormant instrument of wages policy…Wages have been growing by 4 per cent a year as employees chase rising prices and employers face shortages of skilled workers. But with the economy turning, the old adage that one worker’s pay rise is another’s job will come into play again… the Fair Pay Commission chairman, Ian Harper, would have to award a parsimonious minimum wage increase of $12 a week as opposed to last year’s $22 increase…
The next step would be for employers and employees with collective or individual wage deals up for negotiation this year to accept pay rises of 3 per cent or less.
Economic modellers reckon cutting aggregate wages growth by a percentage point boosts employment growth by half a percentage point. Some think it boosts employment more. In the current environment that could save more than 50,000 jobs.
Early and decisive leadership is needed.
The only thing that should be done “Early and decisively” is that all neoclassical economists should be sent to training camps where they would be compelled to read Minsky, Keynes, Schumpeter and the like (including Marx), and to attend lectures on dynamic modelling by engineers.
December 30: Christopher Joye, Business Spectator: The great house price myth.
“Yet the median Australian home, worth just over $400,000, has been extraordinarily resilient falling by little more than 1 per cent. It is, therefore, highly misleading to presume that the experience of upper income households can be applied to the average Australian home owner as is the media’s wont. While rising unemployment will inevitably put further pressure on prices, this will be counterbalanced by 30-50 per cent reductions in mortgage rates combined with the government’s commitment to support households via greater fiscal stimulus. Australia’s media also needs to come to the party by spending less time fuelling consumer fears with sensationalist headlines and investing more effort objectively analysing the data.
The $3.3 trillion housing market is simply too big a topic to get wrong…”
December 28: The hard times aren’t over yet: Fuel, rent, power bills up next year, SMH. The post itself is just a news piece, but this prediction from Commsec’s economist Craig James is worth preserving for posterity:
CommSec economist Craig James said the economy would emerge from the global slowdown in the middle of next year, driven by higher construction. He said interest-rate cuts and first-home buyer grants would cause house prices to rise 5 per cent, and the Federal Government’s infrastructure program and grants to councils would drive work on roads, railways, hospitals and schools.
Mr James estimated the cash rate would fall from 4.25 per cent to 3.25 per cent by June, bringing more good news to home owners whose loans had variable interest rates. But he said if the economy performed well, interest rates might rise again.
“The Reserve Bank will start making noises mid-year about lifting interest rates, given the strength in our domestic economy and improvements in economies overseas,” he said.
December 4th: Lessons from the national accounts, The Australian Editorial. “Economics is an inexact science, but today’s sophisticated techniques for monitoring performance and the close interaction between countries help authorities avoid the mistakes of the Great Depression… Such an assessment has little in common with the views of doomsday uber-bear economists [No argument with that!--SK] such as the University of Western Sydney’s associate professor of economics and finance, Steve Keen, whose frequent appearances on the ABC and elsewhere have made him a kind of ubiquitous Eyeore”.
December 4th: Christopher Joye, Real estate’s temple of doom, The Australian. “Keen likes to shock by quoting statistics about the rise in household debt without acknowledging that debt-servicing ratios have remained unchanged thanks to vastly lower real interest rates, the emergence of two-income households and higher real incomes.”
December 3rd: Malcolm Maiden, The bottom of the interest rate barrel is a long way off, SMH
November 28th: Bloomberg, ’Rate Cut’ Rory Bets Australia’s Highest Peak on House Prices
November 26 2008: Ross Gittins Housing heads for a soft landing, SMH
November 24 2008: Gittins “Whatever lies ahead won’t be nearly bad enough to be compared with the Depression”
November 16 2008: Howard’s “stop comparing what we now face to the Great Depression” comments, SMH
Gerard Henderson, SMH, October 21 2008. Doomsayer gets instant fame.
Henderson isn’t an economist, but he takes the prize for the most prominent and vitriolic spray to date.
Michael Pascoe, Crikey, October 23: Economists lining up to disagree with Steve Keen
Chris Richardson, Access Economics, reported in The Age, October 23: “Keen on gloom”
Terry McCrann, The Herald Sun, October 16: More bad home-buying behaviour
That’s it for now; I know I’ve missed quite a few though. If you know of any particularly notable brickbats that I’ve missed, please email them to me and I’ll post them here.
