An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Wednesday, October 23, 2013
Greenspan on Rational Expectations and Excessive Leverage
Mr. Magoo, er, I mean former Fed Chair Alan Greenspan was on with the CNBC people this morning and takes a pessimistic view of the accuracy of a rational expectations assumption that undergirds much of mainstream economics and thinks that excessive leverage may have been involved in the events that led up to the financial disasters that took place in late 2008. See video below:
Its only taken him 5 years to figure this much out (and if you watch it, you can see he STILL isn't even 100% sure on this...)
At this rate, these people will finally catch up to us in knowledge in 150 years. I don't think western civilization can wait that long (I know I for one cannot).
Greenspan got so much credit for the job creation of the past forty years.
ReplyDeleteIf we're thinking by the Ayn Rand mindset, most of the credit should go to Steve Wozniak, right?
Or, if it has to be public official, you'd probably have to give it to Reagan, who tripled the federal budget deficit and poverty still rose!
These days, Greenspan is looking like a cross between ET and Gollum from Lord of the Rings.
ReplyDeleteTyler - During the Reagan years the US deficit averaged 4.23% of real GDP and 18 million new jobs were created. That doesn't look like an increase in poverty to me.
I stand corrected on Reagan's poverty record. The poverty rate fell by one percentage point during his presidency.
ReplyDeleteActually, Greenspan does look like Mr. Magoo:
ReplyDeletehttp://3.bp.blogspot.com/-f34c2edULf0/UYk7umip5zI/AAAAAAAAHm0/tVCkcWpsRwo/s1600/MR+Magoo.jpg
Maybe they were separated at birth?
Rombach, Reagan also had a private sector that created new money=debt to the tune of 50% of GDP during his tenure.
ReplyDeleteClinton had the private sector create debt=money equivalent to an increase of 50% of GDP, and his rate of Govt money creation averaged .11% of GDP. How the hell did that happen? Could it be because nominal private debt=money grew more but GDP kept up? Hard to see how that happened, quite the mystery in my mind. Anyone have a good answer?
Bush II presided over average annual Govt money creation of 3.43% of GDP, and private debt=money around 80% of GDP.
And Obama has had the first significant reduction in private debt=money to GDP since the Great Depression, and his pace of money creation has been 7.68% of GDP
Auburn - Not sure if I get your drift, but my point was that Reagan ran large deficits from a combination of tax cuts and big defense spending build up but mostly from a collapse in tax revenue from 1982 recession. From 1983 on economic growth was pretty robust. Seems like a MMT success story.
ReplyDeleteAuburn/Ed,
ReplyDeleteI know what you two mean but for visitors let's remember that deficits are endogenous... Not under control of the govt sector Executive...
Savings desires of the non-govt....
"Looks like savings really skyrocketed during Reagan admin...." Etc...
Rsp