Chicago delirium VSOP

25 May, 2018 at 19:09 | Posted in Economics | 3 Comments

 
2011-10-26-dumb_and_dumber-533x299

lucasbob-1Macroeconomics was born as a distinct field in the 1940s (sic!), as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

Robert Lucas (2003)

In the past, I think you have been quoted as saying that you don’t even believe in the possibility of bubbles.

eugeneEugene Fama: I never said that. I want people to use the term in a consistent way. For example, I didn’t renew my subscription to The Economist because they use the world bubble three times on every page. Any time prices went up and down—I guess that is what they call a bubble. People have become entirely sloppy. People have jumped on the bandwagon of blaming financial markets. I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it.

That’s your view, correct?

Fama: Yeah.

John Cassidy

4703325Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the battle of Austerlitz. If I do that, I’m getting tacitly drawn into the game that he is Napoleon. Now, Bob Lucas and Tom Sargent like nothing better than to get drawn into technical discussions, because then you have tacitly gone along with their fundamental assumptions; your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous – that is, by laughing at it – so as not to fall into the trap of taking it seriously and passing on to matters of technique.

Robert Solow

3 Comments

  1. I want my money back. Booth Chicago is no better than Trump U!

  2. “I can tell a story very easily in which the financial markets were a casualty of the recession, not a cause of it”

    Derivative assets have gone down a couple hundred trillion since 2012 but how do we know there isn’t some other obscure category that is currently escaping the attention of regulators?

    https://stats.bis.org/statx/srs/tseries/OTC_DERIV/H:A:A:A:5J:A:5J:A:TO1:TO1:A:A:3:C?t=D5.1&p=20172&x=DER_RISK.3.CL_MARKET_RISK.T:B:D:A&o=w:19981.20172,s:line,z:3,t:Derivatives%20risk%20category

  3. It does not stop at Chicago. Krugman writes:

    “Students of international macroeconomics are fond of quoting “Dornbusch’s law” (named after my late teacher Rudiger Dornbusch): “Crises take longer to arrive than you can possibly imagine, but when they do come, they happen faster than you can possibly imagine.” ”

    Does he seriously think that Dornbusch discovered this idea? It goes to show how self-serving the mainstream elite can be. Any economics written before MIT’s Samuelson and not expressed in terms of a neo-classical framework, is basically not worthy of recognition. If anything is expressed by a MIT economist, it is worth 100 times the weight of it expressed by someone else.


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