Monday, March 7, 2016

Noah Smith — The Folk Theory of business cycle


1. NS doesn't seem to know that Minksy's financial instability hypothesis is based on quality as well as quantity of debt.

2. NS doesn't seem to realize either the difference between a currency issuer and currency users, nor does he realize how the currency issuer's debt is the inverse of currency users' debt.

Funny things. People subscribing to the "folk theory" of the business cycle, actually financial cycle, warned about financial fragility prior to the financial crisis while conventional experts in finance and economics missed it.

James K. Galbraith, Who Are These Economists, Anyway?  (2009)

The Folk Theory of business cycle
Noah Smith | Assistant Professor of Finance, Stony Brook University


Brian Romanchuk said...

The article that he says is a beautiful piece of macro is just some argle-bargle about asset pricing. Sort of interesting, but tells us nothing about macro.

Matt Franko said...

Well now all the former BDs are actual banks so they have access to the Fed and directly to the FF market... so that is a big difference for today...

Smith has a point imo he is just not making it in the right way... ie he is defending the mainstream...