Calling All Economics Professors or Those Working in Financial Fields

[Composed Thinker]

I have some questions to ask you people. Do you have some time?

[BikeDeck]

1. How about

How about posting some of your questions for easier and immediate answering.

[Composed Thinker]

2. Well, I'm wondering if these people are full of shit

Tuesday, October 14, 2003
Posted 2:13 PM by Robert Musil
Hair Doktorprofessor: Ape And Essence

Kevin Drum has been criticized recently - especially by Steve Verdon - for aping Paul Krugman. But in today's column, Paul Krugman apes Kevin Drum - without essential improvement. One is reminded of a striking image from the Huxley novel.

The tale begins back in early September of this year, when Lehman Brothers issued a press release regarding what was described as "Damocles," a proprietary early warning system to identify the likelihood of countries entering into financial crises. The press release included a curious acknowledgement that Damocles deliberately omits what it authors consider to be the "biggest risk" in the very subject Damocles is supposed to model:

"Looking beyond the current ambit of Damocles, perhaps the biggest risk to the emerging market economies at present stems from the developed countries, many of which are exhibiting large economic imbalances. .... that would set Damocles' alarm bells ringing." Most conspicuous of these threats is the United States, where any financial crisis could cause considerable spillover effects to the rest of the world.

Damocles' lead author cautioned: "Damocles should be used but not abused ... it must be embedded in a broader analysis..." Media coverage has indeed been widespread but nonabusive. The Nation magazine ran an article based on the release. Other media broadly reported on Damocles. Calpundit quoted this passage from the article on Damocles that finally appeared on October 2 in Economist: ...

(down a little bit on the page)
http://www.musil.blogspot.com/

And Luskin: http://poorandstupid.com/2003_10_12_chronArchive.asp#106619154218117490

[rapier]

6. notes

First, the source, Donald Luskin is a professional supply sider and now almost full time Krugman debunker. He used to have some site offering 'investment' advice. If he is still a professional financal tout I do not know.

Now I'm not up on this model but we don't need no stinking model. Any country since 5000BC running large negative trade balances like we do and sporting vast militaries paid for by borrowing, and having virtually no savings is in a position to have a financial crisis. No need to argue about some model. The facts are simple, and the history inargueable. Virtually all classical economics or any other economics for that matter says the same thing.

So we will let Luskin rage as is his wont but no matter. His enemy is Krugman. Who cares?

[papau]

3. Krugman calls it a model because it is a model - the critic does not

Krugman calls it a model because it is a model - the critic does not understand how the "index" is validated (as in "Steve Antler has already pointed out that Herr Doktorprofessor misrepresents Damocles as an "economic model," where it is an index (Lehman Brothers terms it "a proprietary early warning system," not a model)").

So US financial crisis could cause greater "spillover effects" than a crisis in one of those other "many" developed countries with imbalances: Again KRUGMAN IS CORRECT - this is classic - this is the way one evaluates risk. It is the chance of something bad occurring times the cost of the bad should it occur. What does this critic not understand?

So this critic fellow says models are not exact? Hey - critic -perhaps they are the BEST we have to use to guess the consequence of a given action - perhaps better would be to pull it out of your a** like the supply side's "taxes will increase if you stop taxing, or decrease the taxing, of the rich"?

"Our experience needn't be the same" is to say we are dealing with a likelhood - a risk, Is the critic against risk management? Or is saying we can't be sure we will have a disaster a reason to continue on this path? What is the reason we should trust the critic when he says that Krugman is raising too many alarm bells - well it turns out that we have solid corporate management and regulatory control (those other countries have "institutional weaknesses...poor corporate governance...you can't trust business accounting...and insiders often enrich themselves at stockholders' expense...cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse) - oh wait the fellow that posted noticed these things also exist in the USA. - Looks like a smart Critic - only the critic says these are not to the same degree between countries so we should not trust the model!

Damocles has been validated as a model by testing against past history - and the critic says this is the normal way of testing economic theories (and models) - and he is correct. He then says that a comment that that there may be problems applying the model to the US means the models over-predicts crisis when applied to the US - a jump in logic that has no support in the post or in the write up of the model by the folks at Lehman - but even if true does not mean that the model should be ignored. Better to say that a country whose currency is a reserve currency can get away with crap longer than a country whose currency is not a reserve currency.

So why is it absurd to suggest that our situation - our economics - will not be much different from those test cases used to validate the model? I always thought insufficietly free markets affected the speed of the correction - and the size of the correction when it does occur. This fellow can not be seriously saying there will not be a US correction, can he?

No he says the correction will involve what Krugman says will be involved - a fall in the dollar, a rise in interest rates (where this means a rise above where they would otherwise be because of the stregth of the economy - anyone who has followed the zero interest rate economy in Japan knows that extremely low interest rates may still be too high).

The idiot critic suggest a response by the world to our deficit forever idiot in the Whitehouse will more likely be mounting resistance to the Dollar and US investments - well how is this different from what Krugman is saying - and more important - why does this wording for the disaster change the prediction that a disaster is about to occur?

So our critic asks "why must we at some time see a sharp fall in the dollar and a sharp rise in interest rates" - and never realizes that that is a straw man question -- and that he should ask "when will be see a sharp fall in the dollar and a rise in interest rates above where they should be for an economic recovery" - the answer to which is - if a Dem is not elected President in 2004 - "Soon". The fall in the dollar has been occuring for some time.

Per our Krugman critic "Herr Doktorprofessor says its because that's the way it happens to the Coyote in the Roadrunner cartoons" - and our Krugman critic should know that Krugman is correct because that is how it happens to a country whose currency is a reserve currency......

[sweetheart]

4. its all about hegemony

The investment banks never chat about it, but the entire pyramid scheme relies on that there is a single apex to their pyramid.... and the breakdown in global confidence that bush has exacerbated has broken this confidence-in-hegemony.

It no longer matters what american economists think. They are wrong... and are irrelevant to the world at large. Lehman is so 90's... forgetting the century, and trying to pretend the planets still revolve around wall street... but as has been exemplified in recent years... that wall street is just a paramilitary force used by washington to pervert other nations.

Just ask Mr. Mahathir muhammed (sp?) that leader of malaysia who told america and its economists to fuck off in 98... to his and his nation's benefit. Listening to american economists is a sure fire way to destroy your economy.

Now that hegemony is failed, we are in a period before the emergence of a multipolar global set of trading blocks that squeeze the US and its arrogant economic theory in to balancing its cheque book. As a person myself who has benefitted greatly from that hegemony and once seeing it as benign.. and even in a neo-liberal sense as a way to bring human rights to all human beings... the BFEE has trashed that and the academics no longer have any power... what good are economic theories when stupid unelected politicians start wars without cause and distrupt trade.... until the yankee army stops murdering and pilliaging... no economic theory overturns gross barbarism.

[papau]

5. You may well be correct about World Bank and IMF suggestions!

More often than not - the give up by the small nation does not result in the economic gain because of actions taken by the corporations and governments in the West. A minor problem that got worse under Reagan, calmed down a bit under Clinton as folks saw the pain in Russia and refused a bit of the advice, and now, I suspect, may be a problem that is well out of control should IMF suggestions be taken seriously by any country.