A ‘catlike economy’

A short summary of how dysfunctional economic reasoning really is.

Last week the International Monetary Fund hosted a conference of some of the world’s top macroeconomists to assess how the most intense crisis to have shaken the industrialized economies since the Great Depression has changed the profession’s collective understanding of how the world economy works.

Two things struck me about the conclave. The first was hearing George Akerlof, a Nobel-winning economist from Berkeley, take to the lectern to compare the crisis to a cat stuck in a tree, afraid to move.

The second was realizing how, after five years of coping with the consequences of the disaster, there is still so much uncertainty about what policies are needed to prevent another financial shock from tipping the world economy into the abyss again a few years down the road.

We don’t have a sense of the final destination,” said Olivier Blanchard, chief economist of the monetary fund. “Where we end I really don’t have much of a clue.”

Footnote: Olivier Blanchard, chief economist of the I.M.F. said economists don’t know “what financial stability actually means.”

And they thought ‘economic stability’ meant low and stable inflation. That´s not it. They have to progress and realize that economic stability means NOMINAL stability.

2 thoughts on “A ‘catlike economy’

  1. The globe’s central bankers waged a 25-year war on inflation. They just can’t understand they already won (and long ago in Japan). And that winning wasn’t everything.

    Maybe I am a nut to want democratic control over central bankers. But really, would the public embrace the perma-rcession that central bankers are embracing?

    And some guy in Spain, or Italy, in Greece. He is watching his economy be destroyed. And what can he do? Who can he vote for?

    A very bad situation.

    You now, maybe Arthur Burns erred in pursuing growth. But give me Burns over the current crew.

  2. In my profession, technical architecture, when we want to deploy something new, we have to explain how much it will cost and what will be gotten out of it before we can just go and do it, a cost benefit analysis complete with all the facts and figures – and upper management really frowns on hidden costs and gotchas that whittle away the value. And that is where I am completely stuck intellectually on the obsession with putting ceiling on all prices. No one has been able to explain to me what we’re supposed to get out of it, prove that we have gotten it, or that it is worth the cost to society in general. In fact I think it’s even more costly than a little bit more inflation in terms of social costs because the loss of a job isn’t just a cost that is born by affected individual; and thus it doesn’t really preserve purchasing power at all.

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