Monday, August 26, 2013

Simon Wren-Lewis needs to look in the mirror

This is why the argument is largely a no brainer for economists. [1] Most economists are instinctively against state subsidies, unless there are obvious externalities which they are countering. With banks the subsidy is not just an unwarranted transfer of resources, but it is also distorting the incentives for bankers to take risk, as we found out in 2007/8. Bankers make money when the risk pays off, and get bailed out by governments when it does not. Link
Here is what Ben has to say:
But the point of QE3 wasn’t just to keep rates down and encourage home buying. It was also intended to frustrate holders of conservative, low-yielding assets, pushing them to seek higher returns in riskier investments and thereby fund job-generating business activity — and it seems to be working. Read more.
So, what does Simon want? Central banks that push risk in a downturn, then bail them out in the crash. Or does Simon want banks to stay out of the stimulus business altogether?

Simon is one of the 'multipliers always greater than one' crowd. All solutions come from government stimulus. He cited a really bad study, here This is the typical rigged study. It uses the Cristina Romer method of isolating a set of conditions for research, in this case the study examined governments in which austerity was tried after a negative shock. Then the research concluded that economic estimates prior to the austerity were higher than the results, conclusively proving nothing since all economic estimates are off base after a crash. Then he continues to claim that we smooth consumption over time, which we do not, a well proven error that most economists make. Why do we have economists if all they do is rig research to justify their priors?

No comments: