Pointless Econ Debates

 My old mentor Hyman Minsky argued that most recessions are financially induced, from excessive leverage, creating a panic as investors stop rolling over debt and cash flow long-since became negative. The Ponzi borrower borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat. This applies perfectly to many zero-down home buyers circa 2005-7.

 Reading Minsky you’ll see he applied this mechanism to most recessions (eg, not 1945), and so there’s at least one expert–of good faith, not ignorant–who disagrees with Reinhart and Rogoff. Anyway, John Taylor classifies 1882, 1893, 1907, 1913, 1929, 1973, 1981 and 1990 as ‘financially induced.’ Krugman says 73 and 81 were not ‘financially induced’ because they were orchestrated to combat inflation, a novel addition to the classification. Then they get into where to start the recovery, and how far out to go. When the debate gets into such semantics, it becomes pointless.

 Krugman laments that ‘politicization is hurting economics’, though he is economist number 1 for having prestige and throwing around ad hominem like liar and consistently assuming that those he disagrees with cannot possibly be intelligent and honest. DeLong’s posting are even better for over-the-top ad hominem, but he’s in such a strange echo chamber he doesn’t realize he’s disqualified himself from so many positions he covets because even his team understands that rank partisanship becomes a liability at some point (no more Assistant Deputy Secretary positions, but rather, senior adviser posts for groups like the Rent is Too Damn High Party).

You just have to stop and remember: on any big debate, to think that one side is only motivated by ignorance or deceit doesn’t understand the debate. Sure, some, even many, on any side of a big debate are ignorant are tendentious, but as with benchmarking this past recession, reasonable people can quibble with vague categorical definitions.

 I enjoy reading the daily venom from Krugman and DeLong because they are proud to be angry as if their righteous indignation makes them more compelling, unaware that losing one’s temper is a good signal you’ve lost the debate. 

2012-10-23 01:26:50

Source: http://falkenblog.blogspot.com/2012/10/pointless-econ-debates.html