GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 12

[Colon™]

Spike, you started off by dismissing Roland's arguments because he's a jurist by profession and not an economist. Don't tell me you did that because you were pushed into the defense.

It took a couple of posts belittling others' credentials before you actually started giving arguments.

[DrSpike]

Colon if you can put your hand on your heart after reading _all_ my posts and say that they are mere rhetoric, and contain no insight into what we were discussing then fine, that is your prerogative.

You stated NAIRU was near useless (quite different from AS, who clearly realises the importance of imperfect models in setting policy), and you stated in another post that there was nothing wrog with ditching discretionary monetary policy. These are both incorrect in my opinion, and I have posted extensively as to my reasons.

And the one post of yours which I did not explicitly address initially (the first one you quote above), because of work yesterday afternoon, I was starting to address in a long post like the response to Hersh when you attacked me.

Face it, there was a disagreement........and far from me hiding behind titles and textbooks I have clearly backed up my case with clear arguments. It is you who is forced to resort to insults and rhetoric because it is your arguments that fail to stand up to rigourous examination.

[DrSpike]

Originally posted by Colon
Spike, you started off by dismissing Roland's arguments because he's a jurist by profession and not an economist. Don't tell me you did that because you were pushed into the defense.

It took a couple of posts belittling others' credentials before you actually started giving arguments.

I dismissed Roland's arguments because there were factors about which he was clearly and unambiguously wrong, not because of his profession.

Truly this is tiresome..........if my writing style has offended you that is a shame, and I will endeavour not to repeat this. What would you have me do when I see something that I know is incorrect? I have always started by gently correcting mistakes......I only get abrasive when challenged. Now challenge all you want, it is what makes debate fun. But if you do challenge someone who (sorry for the immodesty) does in all honesty know far more about the subject in hand than you do then you must be prepared to accept my responses will sometimes be pitched in a confrontary manner.

[DanS]

"And the one post of yours which I did not explicitly address initially (the first one you quote above), because of work yesterday afternoon, I was starting to address in a long post like the response to Hersh when you attacked me."

In order to move the ball forward, it might be helpful to post that response.

[Colon™]

Spike, I posted everything what you wrote in reply to me after what I wrote about NAIRU. The only think you said about NAIRU is that I should just believe you because you 'know' the basics and I don't.

And again, the idea about banning discretionary policy is just an idea. If everyone would dismiss ideas that violate mainstream thought, your beloved Keynesianism would never have existed.
I don't actually think it's viable to apply it rigorously but I do believe it would be a better starting point. IIRC Gordon wrote in his book about a stream of thought that believes govt actions are a cause of economic instability rather than a remedy.
And don't tell me people like Hayek or Kasriel don't know their basics either. It's weak to say anyone who disagrees with your view doesn't know his basics.

And if you're offended by my debating style then start accepting the fact not everyone uses the woolly debating style of academics. I prefer to get straight to the point and I get irritated when people duck issues by chatting beside the issue.

[DrSpike]

*edit* To Dan:

I deleted it, though it looked very much similar to the response to Hersh, since the queries were of a similar nature.

[DanS]

"I deleted it, though it looked very much similar to the response to Hersh, since the queries were of a similar nature."

I don't think anybody would be offended because of liberal cutting and pasting.

[DrSpike]

Originally posted by Colon
Spike, I posted everything what you wrote in reply to me after what I wrote about NAIRU. The only think you said about NAIRU is that I should just believe you because you 'know' the basics and I don't.

Anyone can read through and see I have posted far more than the ones you selectively quoted.

I am all for exploring new ideas.....ironically within academia I am very much non-mainstream, since I believe in building models with agents that have bounded rationality when I think it helps. But when it comes to these discussions I usually end up defending orthodoxy in face of criticisms that just haven't been thought through because orthodoxy is orthodoxy for a good reason - hell when all economists agree on something it a rare thing.

Sure orthodoxy can change.......maybe it will again......let a hundred flowers bloom. But I will not have you implying I have not argued with points, because I have, as is evident.

Let's get to it.....you played devil's adocate a bit without really thinking about your position, on both the discretionary policy (I gave you a chance to admit you were playing devil's advocate, and you desisted, so I was forced to take your opinions as stated) and NAIRU disagreements. Through the course of the discussion it was clear whose side was intellectually consistent, but you felt in too deep to concede that. I think we both know the score here, as does anyone bored enough to read through recrimination and counter-recrimination.

But enough.......short of you calling me the devil incarnate in your inevitable response I can't be assed with this further.........If they have queries I will continue to respond to those such as Dan who seemingly like to gain an insight into the world of economics over and above the interesting but leisurely discussions that often go on here .......for you Colon, since my style repulses you so, I shall trouble you with my opinions no further.

[Colon™]

Sure orthodoxy can change.......maybe it will again......let a hundred flowers bloom. But I will not have you implying I have not argued with points, because I have, as is evident.

Your wrote as reply:

The importance of knowing recent economic history raises its oversized head once more. We didn't reach the dominant paradigm of an independent central bank using an inflation target and floating exchange rates overnight.......it is the culmination of years of painstaking research and trial and error. The targeting of various monetary aggregates......targeting of exchange rates......mechanistic non-discretionary rules, these are all possible. Ultimately they are all inferior to the dominant paradigm.

Sorry, but I honestly don't see an argument contra money supply targeting and not using discretionary spending in there. You just say it's against "the dominant paradigm".

I'm not calling you the devil, I may even agree with you, but you just duck issues and then pretend you gave substantial arguments.

[DrSpike]

Originally posted by Colon

I'm not calling you the devil, I may even agree with you,

That was reasonable - I'll respond. You only agree with me because I have argued my case convincingly. My points are spread around........but the response to Hersh that I posted answered virtually all of your outstanding questions, and clarified my remarks in the post you quoted. I can't post exhaustive answers to everything......and ultimately I can _tell_ you only so much......should you seek understanding in the murky world of economics you have to build on what I say through your own research. Do say at any point......I am a useful resource for references as well as all levels, since I teach everything from undergrads with no economics knowledge to postgrads who know quite a bit and love to challenge my lectures. As I said to Dan in a PM those that challenge without thinking through their challenges are sometimes met with derision.....you will be glad to know some of them don't like my style either.

But the ones who have real talent (and those are the ones I care about) love it - it makes them better economists, and encourages clear thinking. Perhaps I can try more to make more of a change from teacher mindset to participant mindset......I dunno.....but there is much I can give all with an interest in economics here, of that I am sure.

[DrSpike]

As an aside at all times my references to discretionary policy are references to monetary policy, since that is what was under discussion.

[Colon™]

That was reasonable - I'll respond. You only agree with me because I have argued my case convincingly.

The problem is that you haven't laid out any arguments. I can't agree with what you haven't said.

So again, here's my last post about NAIRU, please reply without telling me I don't know my basics or that you are the self-proclaimed point of reference.

(and to avoid misunderstandings, these are rhetorical questions, I don't consider you to be my teacher)

Think so? The history of economic forecasts and policies based on that is pretty bad. How often hasn't it been that a CB kept increasing the rate while the economy was already entering a downturn? Or that govt passed tax cuts that only had their effect when the economy was already blossoming again?

[DrSpike]

Dan's fault

*loose monetary policy*

Now if the economy can grow faster without inflation is there a good reason to keep monetary policy tighter and not realise the potential gain? No, there isn't. And what is more the costs to overly tight monetary policy are huge. The fed does what it is legally bound to do, use monetary policy to hit an inflation target.

I cannot agree that monetary policy was ever too loose. Now there are 2 wrong arguments I see regularly from laypeople here: firstly, and most annoying, is the view that post dotcom crash rates were slashed too aggressively, leading to a present bubble in the property market. The alternative, of course, when investment plummeted, would have been a full blown recession without doubt. Should one criticise the fed? Hell no, you should applaud them.

The second misconception I can empathise with, because it contains an (albeit small) element of truth. This is the view that the initial stock market bubble was the fed's fault. The thing here is, you can hit but one target with one instrument, and it is not the fed's responsibility to use monetary policy to affect the stock market. You can choose to believe that would be a better target than an inflation target, but of course you would be wrong.

*To clarify the dominant paradigm post*

I feel you would benefit from reading what you can find about monetary policy in the 80s, where monetary aggregates were king. You see the question of whether to target monetary aggregates or have an explicit inflation target may seem like no big deal to the casual observer. It turns out to make a huge difference.......due to where in relative terms most of the uncertainty lies, in the real sector or the monetary sector. Hehe, this is back to Gordon again, IIRC he did some of the key work in the 80s on this very topic. It turns out that velocity (in AS's quantity theory of money equation earlier) changes make monetary aggregates too slippery, even when you can control them, which you only can to a limited extent.

*this bit goes to the heart of all the various posts disputing my claims......it really isn't the point to ask whether the CB makes mistakes.......of course they do.....but the way we do things is the best of the ways we have tried. By all means suggest new things.....but that isn't the same as suggesting things we have already attempted and have already observed to be inferior. I made that point because it did not seem you were aware of the relevant economic history*

Ultimately it is easy to criticise the fed, because you can't see the alternative realities and there is always something in the actual reality to ***** about. Do central banks make mistakes? Hell yes.......but the ONLY question that is relevant here is does discretionary monetary policy perform better than simple rules? History/theory/empirics all suggest OVERWHELMINGLY that it does. And monetary authorities make far fewer mistakes because they use models and concepts like output gaps and NAIRU to make their guesstimates. This is why I objected to the claim that such concepts were useless, and I stand by that.

Ha I am not your teacher.......nor would I want to be......but I am someone you can learn from if you so choose.

[HershOstropoler]

DrSpike:

As you aren't the teacher, I suggest you no longer try to rely on the priviledge of academic authority here. We don't even have evidence of your credentials, for all we know you could be a bum housing in a cardboard box with internet access... As for substance, I don't mind lengthy posts, but you are relying strongly on orthodoxy where things get interesting and I feel a bit like in an atheism/religon thread.

"I agree there was a belief (and a reasonable one at that) that a productivity improvement had raised the rate of growth...."

A very speculative belief. 2 GDP revisions ago it all came from computers (mostly the hedonic game, and a bit from other deflator adjustments + cyclical effects) as a certain Mr Gordon has IMO quite convincingly shown back then already. 2 revisions later it should be roughly the same still...

"And what is more the costs to overly tight monetary policy are huge."

Not so fast. Let's assume an Mwhatever growth target that is inflation target + trend growth rate of GDP. Assuming further increased productivity growth by 50 or 100 bps. Staying with the old policy should in the most simple quantative assumptions reduce inflation by that amount, say from 3 % to 2.5% or 2 %.

Is that overly tight, are there risks associated with that ? IMO, no.

"The fed does what it is legally bound to do, use monetary policy to hit an inflation target."

The Fed uses monetary policy to sustain the viability of the financial sector at all cost. That is its real mandate.

"I cannot agree that monetary policy was ever too loose."

That is an amazing proposition. Even not in the Y2K rampup ? Can you explain it ? That is one thing that keeps me puzzled about contemporary economics....

"Now there are 2 wrong arguments I see regularly from laypeople here:"

There you go again....

"the view that post dotcom crash rates were slashed too aggressively, leading to a present bubble in the property market."

Let me refine that argument: the problem there is not so much with fed rates here but with the creeping nationalization of the US mortgage markets through the GSEs. But as to the economy as a whole:

"The alternative, of course, when investment plummeted, would have been a full blown recession without doubt. Should one criticise the fed? Hell no, you should applaud them."

First they should have prevented the extreme boom to prevent that recession. Lacking that, they can't avoid the backlash in growth, they can just try to spread it out over years. That has its own drawbacks and risks.

The US boom was based on expanding imbalances in the US economy. The US economy went downhill when those imbalances stopped expanding - they have mostly not been corrected yet. On the interest rate structure and in real estate, new ones have been added. The whole economic structure is extremely vulnerable to any kind of shock. Is that really better than a recession ? On the whole, I don't think so.

"This is the view that the initial stock market bubble was the fed's fault.... it is not the fed's responsibility to use monetary policy to affect the stock market."

First it was the Fed's fault that it did not manage the cycle properly, and went cheerleading with a lot of stupid lines (and don't make me quote McTeer).

More importantly, yours is a very theoretical argument. The Fed has approached stock market and financial developments in a very asymetric way. It goes down, Alan to the rescue. It goes up, Alan the cheerleader (after the cautious "irrational exuberrance" remark - just shows you that Fed indepency is a joke).

"In addition I feel you would benefit from reading what you can find about monetary policy in the 80s"

There you go again... poopsie, I only know too well. Hey, let's talk about the german reunification shock to get some traction o nthe "irrelevance" of monetary aggregates, shall we ?

"It turns out that velocity... changes make monetary aggregates too slippery"

Velocity changes affecting the aggregates by 3-5 % a year, over several years ? Or is it just a mirage of velocity vis a vis output, as money goes chasing assets ?

I'll leave nr 3) open as this is getting long and you didn't really address it anyway.

"And monetary authorities make far fewer mistakes because they use models and concepts like output gaps and NAIRU to make their guesstimates."

I am convinced around 2010 it will be orthodoxy that the Greenspan Fed beat the BOJ's incompetence record. Maybe we should continue our debate then....

[DanS]

HershOstropoler = Roland?