It is a common and poor framing of the question to ask whether uncertainty is causing our current economic woes. Just as the path of GDP is more volatile and difficult to forecast than in stable growth years, the path of individual firm sales is similarly more volatile and uncertain. More uncertainty will make households and businesses save more and invest and spend less. There is nothing controversial here. The debate is about the cause of uncertainty, and here I see a troubling correlation between what people think the current villain is and what their non-recession bugaboos are. The narratives struggling to tie the current economic woes to long-run stagnating wages, an undereducated workforce, and anything Democrats do strike me as a tenuous stretch and reflect our tendency to need a compelling narrative when easy explanations do not present themselves.
I think a good test for yourself is to ask “what problems do you think are important today that you didn’t think were important in 2004, and what policies would you favor now that you would have opposed then?”. My answer is that low house prices are a problem today where I would previously said low prices are just transfers from sellers to buyers, and I would favor policies that prop them up when I would previously have opposed them. What are yours?
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Saturday ~ August 14th, 2010 at 1:10 pm
Gary
We should not spend another taxpayer (or future taxpayer) dollar on artificial price pumping. What is needed is for the market to de-lever and let the market dictate prices. The answer is in an innovative market solution, it can come in the way of public/private investment. But we need to stop the bailout programs as it is destroying capitalism, the American way of life and is a huge anchor around the necks of future generations.
Saturday ~ August 14th, 2010 at 5:19 pm
Rebecca Burlingame
2004 was the year I started my own book project, trying to determine causes of the economic malaise and how best to approach it. When I began, I’ll have to say I was more concerned about the growing isolation of people and their inability to connect economically with others, than anything. In answer to your question, I will say that layers of ever growing complexity have come to prevent money from being the flexible tool which it once was, which is why all but the rich have been severely affected.
However I have to agree with Gary about the price of housing. Here’s one way to look at it. Think of the economic linkages that each economic actor in a community has to one another (not the same thing as community inputs and outputs). Once you consider those linkages, you see that some of them do not match up to one another very well, not even close. I wish I could explain this better to you but I have a few more years of research and brainstorming on those linkages before I am truly able.
Saturday ~ August 14th, 2010 at 7:15 pm
When Facts Change: Fed Independence & Transparency « Modeled Behavior
[...] ~ August 14th, 2010 in Bias and Rationality, Economics | by Karl Smith Adam asks, what problems do you think are important today that you didn’t think were important in 2004, and [...]
Saturday ~ August 14th, 2010 at 9:48 pm
jazzbumpa
My view in 2004 (or maybe it was ’05) was that the prices in both housing and crude oil were in bubbles – parts of the rolling bubble phenomenon as mis-distributed financial assets, aided and abetted by a lack of regulation and the proliferation of derivative instruments that nobody knows how to evaluate, roamed the world in search of the next big killing, rather than being channeled into any productive investment – and that there would be problems when they burst. Oil prices have held up more than I thought – I really expected well below $50 by this time.
Actually, I think all the problems of today were problems in 2004 – a futile, misplaced, no-win, war effort, extreme and growing wealth disparity, tax policy close to regressive, the choking of the middle class, and an economy on the edge of depression. The latter was pretty well concealed at the time, but I always thought the alleged recovery from the 2001 recession was a chimera.
And I disagree with you about housing prices. They only look too low by comparison to previous bubble-inflated valuations. By rent income producing capability or any other look at fundamentals, they still need to come down. This is really bad news.
We have a long hard road ahead of us. I think the naughts were a lot like the roaring 20′s, with the rich getting richer and the poor struggling with an ever-smaller slice of the pie; and if policy is made by folks who think like Gary, above, channeling Andrew Mellon circa 1930, then the next great depression is far more likely to become a reality.
Sadly,
JzB
Saturday ~ August 14th, 2010 at 10:13 pm
Rebecca Burlingame
Adam,
Thanks for posing such an interesting question. It’s not that so much has changed, simply that people are becoming more aware. Earlier this summer, an older doctor friend wondered if we would be in a depression now, were it not for the service economy that currently exists. People think, if only government would create jobs this time, etc. etc. but the truth is government hands massive amounts of money to people, for many reasons that never existed in the Great Depression. Makes one wonder, doesn’t it.