Great Moments in Economic History

Speaking before a group of protesters in Zuccotti Park, Nobel economics prize winner Joseph Stiglitz urged on the crowd, telling them they are “right to be indignant.”  Professor Stiglitz goes on to explain, correctly in my view, that we have a financial system of socialized losses and privatized gains.

What the good professor fails to mention is only a few years ago, for what I understand was a nice paycheck, he was denying this very fact.  In 2004, along with Jonathan and Peter Orszag, Professor Stiglitz wrote a paper for Fannie Mae in which he “estimated” that the “risk to the government from a potential default on GSE debt is effectively zero.”  The paper goes on to argue “that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.”  Now I understand his Nobel is in economics, not math, but $2 million sounds no where near the actual cost so far of $160 billion.

14 thoughts on “Great Moments in Economic History”

  1. Pretty much the entire economics profession has been proved wrong in a multitude of ways, especially at cato.

    Whereas Stiglitz has changed his tune (although he still sounds pretty clueless on macro) cato continue to advocate exactly the same policy they also do.

    Just sayin’.

  2. “Pretty much the entire economics profession has been proved wrong”: does that mean that there were no effective incentives to be right?

  3. “Pretty much the entire economics profession has been proved wrong”

    The Austrian School wasn’t. The Austrian School was vindicated utterly. But the cause identified by the Austrian School- state economic intervention at its core, of nationalised money, and nationalised control of interest rates- is not a truth that people on either the Left or much of the Right want to hear.

    No other school of economic thought has been so consistently correct, and so consistently ignored.

  4. Tim,

    Your footer says “copywright 2006-2007”. Does that mean you think you did your best stuff 4 years ago or do you need to update your site?

  5. Ian B has the right of it. I’m a libertarian minarchocapitalist not simply because it is consonant with my world outlook, but because it is the only socio-political system I have seen that has a robust intellectual underpinning. Marxism is flat-out wrong, as Popper and von Mises demonstrated. Our sad, etiolated crony capitalism is just a Sesame Street version of fascism, as the Public Choice theorists have shown. No-one is willing to really grasp the nettle and led true economic freedom out of the bag. It would pull the emergency handle on the gravy train of too many millions of political bloodsuckers, for a start. It wouldn’t be turkeys voting for Christmas. It would be Variola voting for smallpox eradication.

  6. Brilliant. Guys, I’m glad you came.

    The housing bubble popped in the US in 2006. From 2006 to 2007 we say a shift of workers and production from housing to export industries. increasing increased from just below 5% to just above 5% and housing construction declined only slightly more than export industries increased.

    Then we saw a big fall in aggregate demand and a financial crisis in 2007/08 and *all* sectors declined. It wasn’t malinvestment that caused this recession but poor management of aggregate demand. Austrianism has no explanation as to how slightly too many houses, and slightly too expensive housing, in 20% of the world economy can cause the whole world to crash and half of it to suffer for 3 years.

    I am amazed that Hayekian macro lives. The micro is fun, its entrepreneur based which is awesome. But the macro is too similar to marxism for my liking. All this talk of over investment is to reminiscent of marx for my liking.

  7. Left Outside, with all due respect, if you don’t think “Austrianism” has an explanation, then you haven’t really got a very good understanding of “Austrianism”.

  8. “The housing bubble popped” & “It wasn’t malinvestment that caused this recession …. “, in the same post.

    /giggles

    I’ll get my coat

  9. The housing bubble popped

    No, the problem was the the housing bubble in the USA stopped inflating which meant that re-mortgages couldn’t be made before special introductory rates ended and real life kicked in.

  10. Left Outside

    Because the availability of land labour and time does not increase with an increase in means of payment, heightened demand in the sector financed by credit will have removed production capacity of goods better adjusted to our true wealth. And therefore a period of saving and investment, a painful transfer of capital, must precede renewed full scale consumption. An overall fall in demand is therefore not incompatible with the idea of malinvestment.

  11. Ian B.:

    Austrians are ignored because, quite simply, their repertoire does not include “management” of an economy in the sense of applying policies and programs nor production of justifications of policies and programs proposed by others.

    Austrians are, whether viewed from either right or left, particularly odious; in a very real sense, they propose doing nothing. Worse yet, often they actually propose doing away with many already-extant programs and policies, many of them long accepted and beloved by one or another segment of the population (which segments, added together, may actually constitute a potential ruling majority).

    Overwhelmingly, politicians have recognized that the very best defense against Austrian arguments is simply to ignore them entirely (and in this have been able to count on the support of the various popular media and the overwhelming preponderance of what passes for economic and political education at all levels).

    Austrians have, perhaps, been luckier than they realize. If their theories and proposals were more widely known and understood than has been the case, they might well find themselves objects of extremely unwelcome attention from the very many whose very existences would be severely threatened.

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