Macroeconomics Under the Microscope
The Other-Wordly Philosophers: an interesting series of articles from The Economist, though the ignorance of Ricardo’s Law of Rent is again present. Read this article on Southern California Real Estate Still Has a Long Way to Fall. Then ask yourself why such destructive issues are ignored and current policy prescriptions do all they can to re-inflate the real estate bubble that got us into this trouble….
With all the talk of economic recovery — even in these pages — we think it’s a good idea to keep things in perspective. Yes, nationwide, things are getting less bad. But the aftermath of the property bust will be with us for quite some time, particularly in Southern California, where there was overbuilding of practically everything — houses, retails, offices, you name it.
This WSJ headline pretty well sums up the situation: “Vacancies Suppress Southern California Recovery.”
These internal critics argue that economists missed the origins of the crisis; failed to appreciate its worst symptoms; and cannot now agree about the cure. In other words, economists misread the economy on the way up, misread it on the way down and now mistake the right way out.
On the way up, macroeconomists were not wholly complacent. Many of them thought the housing bubble would pop or the dollar would fall. But they did not expect the financial system to break. Even after the seizure in interbank markets in August 2007, macroeconomists misread the danger. Most were quite sanguine about the prospect of Lehman Brothers going bust in September 2008.
Nor can economists now agree on the best way to resolve the crisis. They mostly overestimated the power of routine monetary policy (ie, central-bank purchases of government bills) to restore prosperity. Some now dismiss the power of fiscal policy (ie, government sales of its securities) to do the same. Others advocate it with passionate intensity.