Perspective Please

January 12, 2009

Comments

Alex Tabarrok ~~Tyler Cowen~~ posts some graphs from the Minneapolis Federal Reserve Bank that can help put the economic “crisis” into perspective. The first looks at the percentage change in employment,

The next looks at output,

Based on these two graphs and given that we are 1 year into this recession it is not the catastrophe that many, including President-elect Obama, are claiming. This recession is shaping up, so far, to be typical to mild in terms of recessions when looking 10 of the last recessions since WWII. In fact, I think the only way to describe President-elect Obama’s statements is fear mongering. In looking at the Minneapolis Fed’s other graphs we see the following in regards to this recession:

Are things bad? Yes. Is it the end of the world? Absolutely not…at least not yet going by the data we have so far. The recessions in 1948, 1953, 1957, 1960 and 1981 were worse in terms of job losses 12 months into the recession. In terms of output all the recessions, 3 quarters in, were worse. In fact, after three quarters output being positive is an unusual event. Can we have some perspective on things? This is not the worst recession since the depression…at least not based on the data we have to date.

45 responses to “Perspective Please”

kennysmith (kennysmith)

December 31, 1969 at 11:59 pm

“This recession is shaping up, so far, to be typical to mild in terms of recessions.” Comparing 10 post-WWII recessions http://is.gd/fyGg
charles austin

January 12, 2009 at 1:45 pm

I’m not sure that PE Obama is fear-mongering as much as making a case to the choir of the need to take actions that are far beyond what is justified to exercize ever more control over the economy. Of course, the choir will lap it up.
Dave Schuler

January 12, 2009 at 1:49 pm

This needs underscoring: post-war recessions. With a peak nearly 25% unemployment rate and annual double digit declines in output the Great Depression of the 1930’s was significantly worse than any post-war recession. No post-war recession was remotely as grave as the Great Depression of the 1930’s and the current downturn is mild by post-war standards.

Might it get more severe? Sure. Saying it’s already as severe is the sort of fear-mongering that can help that along.
Drew

January 12, 2009 at 1:51 pm

Done much better than my similar point/tirade a few posts ago.

This is politics: 1) anything bad, its Bush’s fault, 2) anything Obama wants, its justified by the gravity of the situation, 3) if Obama’s plans don’t work, see #1.

The problem is that actions at the government level have real consequences for the long term performance of the economy, and the Average Joe.
Further, an even handed analysis of how we really got into this mess has left-leaning philosphy/players all over the place. That doesn’t bode well.
Leisureguy

January 12, 2009 at 2:15 pm

So far as I can, Bush is guilty of absolutely nothing bad. That’s based on his own assessment, and who should know better?

So far as the figures and graphs are concerned: very interesting. Why are professional economists so worried, I wonder.

One thing to clarify: the definition of “unemployment” has, as you know, changed over the years as various administrations have worked to make things look better. Were the unemployment figures used in the graphs all based on the same definition of “unemployment”?

Similarly, in measuring output: I assume that output is measured in dollars. Were all the historical dollars adjusted for inflation to current dollars?

I imagine you did the graphs right, but those are questions that naturally occur to one when the answers are not included with the graphs.
Scott Swank

January 12, 2009 at 2:18 pm

I think you meant to attribute this to Alex instead of Tyler.

Graph 1: Please look at U-6 to get an idea of how bad things actually are.

Graph 2: You know, Christmas just ended and that graph is “output” instead of “seasonally adjusted output”. Come back at the end of Q1 2009.

No, things are not catastrophic, however I predict you will eat the words “typical to mild” and “fear mongering”. While Bradford DeLong is very partisan, he is also scrupulously honest. Please note his list of folk who are on board with the proposed stimulus. It includes every living economic advisor, going back to Nixon.

http://delong.typepad.com/sdj/2009/01/stupidest-party-alivetm.html

Cheers.
Dave Schuler

January 12, 2009 at 2:26 pm

I think it’s more complicated than that, Drew. Tyler Cowen, for example, whom Steve cites in his post in another post argues that we’re in a depression. So does Megan McArdle who’s certainly no fan of big government.

I think there are a variety of reasons that people are reacting the way they are:

1) a substantial proportion of adult Americans have never experienced anything in their adult lives but the mildest of downturns (the downturn following 9/11, the recession of the early 90’s). They’ve only read about them in books and living through them is something else again.

2) the current downturn is affecting journalists, financiers, bankers, and middle and upper managers. When your neighbor loses his job, it’s a recession; when you lose your job it’s a depression.

3) the current downturn is affecting the coasts (where most opinion makers live) rather than the central part of the country. When you’re a reporter living in New York or Washington, DC and your neighbors are losing their jobs, it gives you a particular perspective on things.

4) political reasons. It’s been a long time between drinks for those who’d like to expand social programs and this is a great opportunity to make that argument.

5) the current turndown has a basis that’s so deeply ingrained into our system that nobody really knows what to do about it. The unknown is frightening.
Bernard Finel

January 12, 2009 at 2:45 pm

This analysis seems deliberately obtuse… not sure why you’d want to do that. Is it really that important to defend Bush’s reputation?

The issue, as I’ve said several times before, is that we have no idea where this one is going. A year into most recessions, job losses might not be reversing, but they have at least slowed. Not this time. If anything, the last two months suggest an acceleration of job loses.

In previous recessions, you had either external shocks or simple business cycle dynamics. Here you have weakening demand, massive wealth loss due to the stock market decline and housing price declines, a tremendous mess in terms of fiscal policy, no room for further monetary-side stimulus, etc. etc. etc.

I really think that a fair assessment suggest that the the current situation is much more dangerous than at least the 2001, 1991, 1981 versions. The mid-1970s recession which combined oil shocks, collapse of Bretton Woods, and loss of traction of other regulatory instruments is a decent analogue… but that was very severe. It took under the early 1980s to bring the consequences of the 1974-75 recession under control — interest rates, inflation, etc.

So, yeah, it isn’t the end of the world, but if we end up with a “recovery” that looks like 1976-1981, I think we’ll realize this one was a very bad one.
Dave Schuler

January 12, 2009 at 2:53 pm

The mid-1970s recession which combined oil shocks, collapse of Bretton Woods, and loss of traction of other regulatory instruments is a decent analogue…

I wouldn’t be surprised if that were right. However, it’s still important to remember that the recession of the mid-70’s wasn’t as bad as that of the late 50’s or the one immediately after WWII and nowhere near as bad as the Great Depression of the 1930’s.
Bernard Finel

January 12, 2009 at 2:58 pm

Just to reiterate my point… look at the first chart. Even in the “harshest” case, you see recovery beginning by month 12 in terms of job losses.

The current recession was very mild for its first six months — so mild we didn’t even really notice it. For the past six months it has become a “median” recession.

The trend line just awful. And that is what is scaring people.
PD Shaw

January 12, 2009 at 3:01 pm

Dave, I have another theory. The productivity numbers indicate that business is in pretty good shape. (Elsewhere I’ve read that this is the first recession where productivity numbers didn’t drop) There are exceptions, not the least of which are businesses that are over-leveraged going into a downturn.

My theory is that state and local government and consumers are over-leveraged. And these are closer concerns than business.
Alex Knapp

January 12, 2009 at 3:03 pm

I’m with Bernard–the trendlines are what’s worrisome here. Let’s not forget that unemployment didn’t reach it’s peak in the Great Depression until four years AFTER the crash of ’29.

Now, I don’t think that we’re going to reach Great Depression bad here, primarily because the United States is much wealthier now and has more robust institutions. But that doesn’t mean it won’t get worse from here.
PD Shaw

January 12, 2009 at 3:03 pm

Bernard, unemployment is a trailing indicator, by as much as 18 months. We could be in recovery mode and still be 18 months out from seeing unemployment go down.
Bernard Finel

January 12, 2009 at 3:07 pm

PD: sure… but the dynamics of “de-leveraging” are horrifying when you walk them out. People shed debt by selling highly leveraged assets, which further depresses asset values, which serves to increase the leveraging on existing assets, which prompts people sell those assets, etc, etc. It is a vicious cycle.

As much as I appreciate the need for calm — because after all, this vicious cycle is fed by fear as much as anything else — there is a fine line because calling for calm and playing ostrich.

Also, by all indications, the 1st quarter is going to be a corporate blood-bath in terms of bankruptcies and lay-offs.

Again.. the problem is that the decline is picking up steam rather than abating.
sam

January 12, 2009 at 3:21 pm

Just in the interests of accuracy, those graphs were posted on MR by Alex Tabarrok. And, at the end of the Minneapolis Fed posting, the authors say:

Length of Recessions

The 10 previous postwar recessions have ranged in length from 6 months to 16 months, averaging about 10 1/2 months. The current recession has surely surpassed the postwar average, but its total length will only be known when the Business Cycle Dating Committee retrospectively determines the final month of the recession.

Depth of Recessions

The severity of a recession is determined in part by its length; perhaps even more important is the magnitude of the decline in economic activity. That is, how much do employment and output fall?

The answer to that last question is pending.
Steve Verdon

January 12, 2009 at 3:58 pm

No, things are not catastrophic, however I predict you will eat the words “typical to mild” and “fear mongering”.

Well let me see…so far we haven’t had the complete failure of credit markets that so many have predicted. I think I’ll wait for the data before I run around saying the sky is falling.

While Bradford DeLong is very partisan, he is also scrupulously honest.

Gee thanks for calling me a liar. It is rather hard to be dishonest about a prediction.

Please note his list of folk who are on board with the proposed stimulus. It includes every living economic advisor, going back to Nixon.

This is a popularity contest? Very sound analysis there. By the way Kling’s prediction of villification for those opposed to a fiscal stimulus package…quite fucking true where DeLong is concerned. Talk about unhinged.

Bernard,

This analysis seems deliberately obtuse… not sure why you’d want to do that. Is it really that important to defend Bush’s reputation?

I’m not defending anything here. I’m asking for people to get some perspective on how bad the situation is and not panic.

A year into most recessions, job losses might not be reversing, but they have at least slowed. Not this time. If anything, the last two months suggest an acceleration of job loses.

Well the last recession had employment not bottoming out until mid 2003 and that recession was considered extremely mild…of course to listen to the pundit class on the Left it was a catastrophe with Krugman making continual references to Herbert Hoover and the Great Depression and a liquidity crisis.

In previous recessions, you had either external shocks or simple business cycle dynamics. Here you have weakening demand, massive wealth loss due to the stock market decline and housing price declines, a tremendous mess in terms of fiscal policy, no room for further monetary-side stimulus, etc. etc. etc.

What? You mean in previous recessions there wasn’t a weakening of demand, a reduction in overall wealth and a tremendous mess in terms of fiscal policy? The question was rhetorical by the way as the answer is no.

I really think that a fair assessment suggest that the the current situation is much more dangerous than at least the 2001, 1991, 1981 versions. The mid-1970s recession which combined oil shocks, collapse of Bretton Woods, and loss of traction of other regulatory instruments is a decent analogue… but that was very severe. It took under the early 1980s to bring the consequences of the 1974-75 recession under control — interest rates, inflation, etc.

You forgot one other factor Bernard, the collapse of the unemployment/inflation trade off that the government had exploited up to that time. This lead to stagflation and the lack of credibility in keeping a lid on inflation necessitated a severe recession to show that Volcker was that committed.

Alex,

I’m with Bernard–the trendlines are what’s worrisome here. Let’s not forget that unemployment didn’t reach it’s peak in the Great Depression until four years AFTER the crash of ’29.

Yes the trend line is worrisome. It does look like it is going to get worse before it gets better, but I think comparing it to the Great Depression is just not sensible.

sam,

The answer to that last question is pending.

Quite right, and the data we have right now indicates it isn’t as bad as people have been indicating, IMO. And things aren’t the same as they were 20 or 30 years ago, again IMO. For one thing I think the last two recessions saw more structural unemployment than cyclical. That is why unemployment was lagging so much, especially in the last recession. Could we see that again? I think it is more likely than in the last recession.
Steve Verdon

January 12, 2009 at 4:02 pm

Oh and Dave, I’ve lost alot of respect for McArdle given that she endorsed that abortion of a bill we now call TARP. I think that is one reason why many banks are still reluctant to loan to each other. Why do anything when you might get a bailout from Uncle Sugar. I think regulatory/bailout uncertainty has lead to some paralysis in credit markets as people wait to see what kind of deals they can get.
ap

January 12, 2009 at 4:08 pm

While Bradford DeLong is very partisan, he is also scrupulously honest.

he is not, however, a scrupulous fact checker.

shorter delong:

OOOGA BOOGA RAWR RAWR IF YOU DISAGREE WITH ME YOU ARE AN EVIL STUPID REPUBLICAN OOGA BOOGA RAWR RAWR
Franklin

January 12, 2009 at 4:15 pm

I just came in here to see who would be the first to blame leftists, despite total Republican control from 2000-2006 in all three branches of government. I see that Drew wins the prize so my work here is done.
Scott Swank

January 12, 2009 at 4:16 pm

Gee thanks for calling me a liar. It is rather hard to be dishonest about a prediction.

I just meant to say that DeLong doesn’t bend the facts to accomodate his worldview. I wasn’t saying that you do. 🙂
PD Shaw

January 12, 2009 at 4:17 pm

Steve, I am seeing the Ted Spread drop; does the TARP get no credit for that?

And the number of articles I’ve read predicting a high number of bankruptcies in the first quarter are premised on the unavailability of credit to withstand a downturn. Which is why I supported the TARP (but not the bailout of Detroit).
Drew

January 12, 2009 at 4:20 pm

Dave S –

“I think it’s more complicated than that, Drew.”

Agreed. I hope you will accommodate my serious posts with some hit and runs from time to time, with a bit of spice added for flavor. As you point out:

1) a substantial proportion of adult Americans have never experienced anything in their adult lives but the mildest of downturns (the downturn following 9/11, the recession of the early 90’s). They’ve only read about them in books and living through them is something else again.

Indeed, an observation (although not original) I have made on these very boards. In fact, it is why I can be so strident in arguing for what I believe are wealth producing, employment creating free market principals. I know what the seventies looked like. And these younger voters IMHO cavalierly assume that feel-good “spread the wealth” rhetoric does not come with an economic price, or that relatively good times are the pre-ordained norm. Careful what you wish for, people.

2) the current downturn is affecting journalists, financiers, bankers, and middle and upper managers. When your neighbor loses his job, it’s a recession; when you lose your job it’s a depression.

I understand. This will sound cold. Maybe those people can put some serious thinking into their votes and (for journalists) reporting now, instead of feel good fluff like when a Barney Frank discounts the mortgage mess with an accusation of callousness to the poor by regulators in the name of “affordable housing.” As you point out – “it ain’t that simple.” This isn’t a midnight college bull session, or high brow cocktail party anymore. Real people’s lives are at stake. They deserve sound thinking, policymaking….and voting. Expanding government, and taxing your rich entrepreneur neighbor sounds great, until he lays guys off to pay for it. (That one is going to get me in trouble.)

3) the current downturn is affecting the coasts (where most opinion makers live) rather than the central part of the country. When you’re a reporter living in New York or Washington, DC and your neighbors are losing their jobs, it gives you a particular perspective on things.

I saw the “red” vs “blue” US vote map based on physical square footage. Wow!! Stunning perspective.

4) political reasons. It’s been a long time between drinks for those who’d like to expand social programs and this is a great opportunity to make that argument.

I know. Plotting since 1980. Even Clinton passed NAFTA and a cap gains tax rate reduction, two tremendously helpful economic policies. That had to be a bitter pill for some. But to your point….San Franciscans are are singing lines from the old Stones tune “..gimme a-little drink….from yer lovin’ cup…”

5) the current turndown has a basis that’s so deeply ingrained into our system that nobody really knows what to do about it. The unknown is frightening.

Again, we are on the same wavelength. However, 18 years of owning/financing businesses facing any number of “crises” informs me that – clearly in uncertain times – the best policy can be to DO NOTHING, especially if it means abandoning what has served so well for a quarter century. Said another way, when you find yourself suddenly driving into dense fog….pull over and stop. Don’t forge ahead and just guess. Those are called 80 car pileups……
ap

January 12, 2009 at 4:21 pm

Michael Cannon, Cato Institute: “The only way Congress can spend money is to extract it from the private sector — either by taxing it, borrowing it, or seignorage. The question then becomes: will Congress spend that money more wisely than the private sector would have spent it? The answer appears to be no. Congress typically spends according to its political priorities, not economic priorities.”

this quote set Delong off and led him to include the author in the category Other ethics-free Republican hacks, whose organizations share in their burning of their own credibility. I am unaware of what about it that set him off. My question then is: Am i so lost in free market orthodoxy that i can’t see what is wrong with this statement? or is delong really that unhinged?
ap

January 12, 2009 at 4:25 pm

franklin, i am sure you will be the first to lay the blame for every issue in 2012 at the feet of pelosi and obama.

i am excited to learn how it will still be republicans fault in 2012…but dems have no blame to shoulder today. hehe, love the blindness of partisan politics.
Drew

January 12, 2009 at 4:27 pm

Uh, Franklin. First, you obviously have not read many of my posts.

Second, call me crazy, but the economy tanked recently. You know, a year to two after the 2006 elections? You were saying something about complete control??

Oh, hell. I wasn’t going to say it. But would you care to inform the Board of how “complete control” of that third branch, no doubt the judicial, tanked the economy?

This ought to be good.
Drew

January 12, 2009 at 4:32 pm

Evolution:

Years ago: “The only thing we have to fear, is fear itself.”

Today: “Follow my policies or your ass is grass.”
Bernard Finel

January 12, 2009 at 4:41 pm

Steve: I not sure we disagree that much really. But in the end I think you are arguing against a straw man.

No serious person is arguing that our current recessions is as bad as the Great Depression. Indeed, I am not sure anyone has said it is likely to get that bad. The most anyone serious has said is that this may be the worst downturn SINCE the Great Depressions (i.e. in the post-War period). It is not there yet, but I think there is good reason to believe it will indeed get that bad. At the very least, this is not an empty argument, and even the charts you present are open to that interpretation.

My comment about things like demand was not that there was no reduction in the past in demand or wealth or whathaveyou.

My point is the the sheer confluence of bad trends is nearly unique — only paralleled by the mid-1970s experience. I could have named other risk factors as well, by the way, including the looming entitlement crunch, the fact that the U.S. is now a net-debtor nation, the long-term stagnation of middle-income wages, the explosive increase in medical costs… There is always bad news in a downturn, and nothing is monocausal, so there is always some confluence of bad news… but the sheer number of bad trends is staggering.

Lest you believe I think this justifies a massive stimulus, let me disabuse you of that notion. Indeed, I am quite agnostic about TARP or the new stimulus package… I am pretty sure that a capital-gains tax cut is not the answer… but other than that I am really not sure what the answer is.

The trends and the underlying context of risk factors facing the nation economy are, in my estimation, virtually unparalleled in the post-WW2 period. It scares the heck out of me.
ap

January 12, 2009 at 5:16 pm

No serious person is arguing that our current recessions is as bad as the Great Depression. Indeed, I am not sure anyone has said it is likely to get that bad

no serious person indeed.

maybe i am taking a unfair reading of your and krugman’s words. but he seems to be suggesting that unless we do exactly as he proscribes, we are indeed heading towards Great Depression part 2. seems to be the type of hyperbole steve verdon was addressing.
Bernard Finel

January 12, 2009 at 5:32 pm

maybe i am taking a unfair reading of your and krugman’s words

Yes you are. Krugman’s argument has been about how we seem to be in a situation where conventional tools of fiscal and monetary policy seem to have lost traction on affecting the economy. He has made it perfectly clear on innumerable occasions that this is what he means when is says “depression economics.”

Indeed, I don’t even know what he proscribes. Do you? Thus far, he is has been mostly skeptical of the various options put out. He was largely against TARP. He is luke-warm — at best — about Obama’s stimulus package. And THAT is his point… there are no obvious solutions. In a standard recession, we have developed a solid set of policy responses — lower interest rates, cut taxes, increase spending. But we now seem to be in a situation where none of it is working.

People are not spending their tax cuts, they are using the money to deleverage. Folks are stashing money away in T-bills paying… zero! Despite the availability of nearly free money for lending, the credit markets are glacial.

We’re already at zero in terms of the interest rates the government can actually control. We are already running a $1 trillion deficit with more to come. And the situation is worsening rather than improving.

In any past recession, given this level of intervention, the economy would already have recovered and we’d be fending off inflationary pressures.

THAT is what Krugman means by “depression economics”
Leisureguy

January 12, 2009 at 5:38 pm

Sometimes I detect an earnest effort to misunderstand the arguments from the other side.
Dave Schuler

January 12, 2009 at 6:37 pm

The most anyone serious has said is that this may be the worst downturn SINCE the Great Depressions (i.e. in the post-War period).

Unless you’re characterizing the president-elect as non-serious, that’s not true. Barack Obama has said that this is the greatest economic crisis since the Great Depression. Actually, I think he misspoke: it’s the greatest financial crisis since the Great Depression.
odograph

January 12, 2009 at 9:09 pm

I think this particular week is a bad one in which to make predictions. Banking numbers, TED spreads, etc. are improving. But the market is down in response to a stalling retail and jobs environment.

For this to be it, the real economy has to respond really quickly to improving bank numbers …
ap

January 12, 2009 at 9:35 pm

Sometimes I detect an earnest effort to misunderstand the arguments from the other side.

like this interview with Krugman:

Q: What was the problem with Greenspan, and where and when did he go wrong?
A: Greenspan is the real thing. He believes the Fed can be the designated driver, the one who takes you home safely after the party has gotten crazy. So he brushed aside any worries about regulating and taking precautionary measures. His belief in the perfection of free markets led us into the ditch we’re in now.

so Greenspan was such a free market ideologue that he thought he could act as a designated driver for the economy? those are mutually exclusive ideas.

*******

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression. So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out.

i guess i see your distinction, i just find it somewhat unconvincing.

‘looks like the beginning of a second great depression’ & ‘will we act swiftly enough’ v ‘No serious person is arguing that our current recessions is as bad as the Great Depression.’
Bernard Finel

January 12, 2009 at 10:56 pm

Barack Obama has said that this is the greatest economic crisis since the Great Depression.

Seriously, what is wrong with you people?

Is there something complicated about plain English?

Saying that something is the worst crisis SINCE the Great Depression is not saying something is as bad as the Great Depression. It is the worst SINCE then. Is the word “SINCE” unambiguous somehow? Is it unclear? Do you interpret the word “SINCE” as meaning “INCLUDING”?

I don’t mean to be a prick about this… actually I don’t care… call me a prick if you want. But if you can’t understand what the word “SINCE” means, then I really can’t help you.

I mean, damn it, WTF. This isn’t rocket science. F___ it.

What in the world am I missing here? I just cannot understand what the issue is. SINCE SINCE SINCE SINCE SINCE SINCE…. Ugh.
Drew

January 12, 2009 at 11:37 pm

Bernie –

I respectfully submit you are being unnecessarily literal.

A politician who says worst SINCE the Great Depression knows what he/she is doing. They mean to invoke the Great Depression.

It ain’t rocket science.
Bernard Finel

January 13, 2009 at 7:40 am

Please accept my apologies for my disrespectful post last night. Sometimes posting online brings out the worst in a person and that is what happened to me.
Leisureguy

January 13, 2009 at 10:14 am

@ap: terrific example. You did indeed manage to misunderstand what Krugman was saying about Greenspan. He’s saying that Greenspan was in charge of making decisions about how the Fed would work to manage the economy and also was providing advice to Congress on actions to take: thus, the “designated driver” image. And what Greenspan advised was to avoid any regulation of derivatives because the free market would take care of everything. Thus the free market idea/ideology. And, as you probably know, Greenspan admitted that he was wrong: there is no free-market fairy that will protect us from fraudulent schemers and dishonest businesses.

A perfect example, ap, of working to misunderstand a clear statement.
charles austin

January 13, 2009 at 1:01 pm

To paraphrase:

Obama Power Aggrandizement Supporter: “This is the worst recession of my life!”
Homer Simpson: “This is the worst recession of your life, so far.”
Drew

January 13, 2009 at 2:01 pm

Bernie –

There is a poster on this forum named “odograph” who wisely observed recently that everyone needs a good spleen venting once in awhile. The people who comment on this forum are obviously here because they are emotionally involved in politics and public policy. It would be pretty dry otherwise.

I suspect most of the commentators understand this, and will cut you some slack.
Drew

January 13, 2009 at 2:18 pm

“Greenspan admitted that he was wrong: there is no free-market fairy that will protect us from fraudulent schemers and dishonest businesses.”

Greenspans testimony got a lot of press, but really….its overblown.

Milton Friedman once observed that the only problem with capitalism, is capitalists, but the problem with socialism is socialism.

A parallel comment would cite the problem with government bureaucrats….or politicians.

Of course capitalists will behave badly at times. But there is no govt pol or regulator fairy that will protect us either. As I have commenterd here frequently. The mortgage mess was predicted by regulators. But the awful grilling the well intentioned – and correctly assessing – Fannie regulators received from the pols makes you want to avert your eyes…and make you want to throw the pols in jail for failure to act. The only thing worse than reliance on markets is reliance on politicians.
Leisureguy

January 13, 2009 at 2:25 pm

And yet regulatory agencies have done very good work, though I admit that it’s mostly limited to Democratic administrations. Democrats believe that the government can do good work, and mostly staff agencies with people who believe in the mission of the agency. The GOP believes that government cannot work, and staffs agencies with people who oppose the mission of the agency and make sure that the agency doesn’t work. We’ve seen many instances of this in the Bush Administration. I could work up a list, but you know (probably better than I) the grotesque Bush appointments to some agencies—e.g., a lobbyist for an industry appointed to head an agency that is supposed to regulate that industry. And Chris Cox of the SEC definitely didn’t believe in regulating the markets (and indeed apparently didn’t even believe in investigating complaints: there were many complaints about Bernard Madoff that Cox simply ignored).

So far as Greenspan’s statement that he was mistaken to believe that the free market would protect us and thus no need for regulations: I wouldn’t call it “overblown” (indeed, I’m not sure what you mean). He said that his belief in the self-regulatory ability of the free market was wrong—a “mistake.” That’s good enough for me.
Drew

January 13, 2009 at 6:43 pm

I’m really, really hoping you do not believe a word you just wrote, liesureguy. You know, maybe this is some sort of spoof.

I remember reading a book, maybe 30 years ago, by a great economist. One of the themes in a chapter on regulation was how the appointees to newly created regulatory agencies tended to morph over time into former industry executives (after all, who knows more about the industry?) and how contorted and distorted the mission of the agencies became over time as regulators and industry participants did their self serving dance. To make his point, the author of this book cited chapter and verse some of the ridiculous historical issues generated by these regulation mills. Talk about grotesque.

The book? ‘Free to Choose’ by Milton Friedman. The regulatory bodies and the episodes recounted? The Interstate Commerce Commission, formed circa 1900 with a whole host of embarrassing episodes. The Food and Drug administration, formed circa the 1950’s, again with a number of silly results. The Consumer Products Safety Commission formed in the early 1970’s. The book was written in the late 70’s That’s a lot of history. Both Democratic and Republican. He has passed, but one can only wonder how thick that chapter would be if he could to write it today.

And now you waltz in and inform us that regulatory agencies do good work “but mostly limited to Democratic administrations” and then go on to take a swipe at George Bush for appointing a former industry exec??

My God, man. I know its fashionable to criticize all things Bush. But you can’t be serious. Your comments reflect a childlike sense of historical perspective and understanding. And if that picture is accurate, you’re not a child. (Not to even mention your apparent avoidance of the mother of all regulatory debacles – the mortgage crisis – with fresh, not yet dried blood, on Democratic hands.)

In an earlier post, you said something about intentional misunderstanding?? Whatup with your post, brother??
Leisureguy

January 13, 2009 at 6:54 pm

Actually, it wasn’t so much that Bush appointed an industry executive. If you read my post more carefully, you’ll see that the person appointed was an industry lobbyist—a person paid by the industry to try to roll back regulations. Once the person was in charge (Consumer Products Safety Commission), not much went well. Nor did it at the FDA, if you’ve been reading news. Or the EPA. Or the SEC. The Bush appointees routinely ignored or overruled the scientific staff in favor of industry desires.

I’ll ignore the twaddle about a spoof, about my childlike point of view. I realize you believe that it helps discussion to include insults along with the argument.

So far as Bush is concerned, you may believe that he did a fine job. I differ.

How exactly is the mortgage crisis due to Democrats? Are you going to trot out the well-discredited Fannie Mae and Freddie Mac argument? For 6 of the past 8 years the GOP controlled both Congress and the Executive branch. I know they want to take no responsibility for what has happened, but it strains credulity.

I agree that regulatory agencies tend to develop into industry advocates, a tendency to be fought vigorously.
Drew

January 13, 2009 at 11:59 pm

Leisureguy –

Actually, I read your post very carefully, to try to make sure I had its content down. (It can be difficult on an internet website to get subtleties.) And yes, although I like to mix it up, I really wandered if what you wrote was tongue in cheek, a spoof.

Industry lobbyist, industry executive. Why play a word game? I know you understand the thrust of the point. If not, then there is nothing I can say to you; you have your blinders on by choice…..an admonishment you made to ap in a previous post. I repeat, I find myself in stunned amazement at your assertions, which cannot be supported in light of 100 years of well documented regulatory history.

As for the “scientific staff.” I do not know your background, or how your personal experiences have formed your world view. I only know mine. And in my experience the notion that “scientific staff” recommendations, in the context of the world of politics and regulatory institutions (or corporate political priorities…….and these days, academic institutions), is untainted or the final word can only be described as bizarre. I thought long and hard about using the term “childlike” because of its obvious offensive connotation. But I stand by it. (I’m not saying you are a some sort of a bad guy. Its just that “childlike” seemed apropos in describing the assertion that Democratic regulators have a consistent history of behaving nobly while Republican regulators consistently don’t.) If you want to hold on to those notions of regulators who wear their hats frontwise under Democratic administrations, and turn them backwards under Republicans, well, suit yourself.

Switching gears, on the mortgage crisis, I’m not sure exactly what has been “trotted out” and is “well discredited.” This sounds alot like “the global warming debate is over” argument. Well, no its not.

I noted that you start your argument with something about “6 of the last 8 years of GOP control.” A real and non-partisan understanding of the root causes of the mortgage crisis starts at least a decade earlier and is much, much, more complicated than who’s-on-first right now. If you stick by your premise, I’m not optimistic this debate can go anywhere useful.

Now you probably think I’m a total prick by now. I’m not. But 12 years of doing what I do and the daily blood curdling debates it involves makes one rather direct, and not good at pulling punches when you truly think the logic and facts of your (debater/partner) are sloppy or incorrect. There are many people here who’s posts I have stopped reading because they are obviously worthless causes. I actually enjoy yours. If you think I’ve got this stuff wrong, then let me have it. I won’t be offended. I hope I have not done same to you.