Just a quick shot. One growing point of tension that I that has both semantic and substantive difficulties is whether or not we regard the situation in the mortgage markets as “structural.”
Clearly the health of the mortgage market is strongly influenced both the business cycle and likely by monetary accommodation directly. It also is dynamic in that we don’t expect things to last.
At the same time its also clear that it changes how monetary policy affects the economy. To illustrate, the problems in the mortgage market are well known but look at commercial banking outside of the mortgage market.
A rapid return not just to normalization but to conditions that are almost as good as it gets.
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Monday ~ March 26th, 2012 at 9:39 am
curtd59
I would love it if you would solve this semantic problem. Because it’s material to the public debate. The technical definition is artificially narrow and as such leads to either dishonest (Krugmanian) or semantic rather than material debate.
To Austrians, “Structural” means that we have misallocated financial capital and thereby caused a misallocation of human and fixed capital such that the cost of reallocating that capital is so high that the fixed capital may be ‘wasted’ and the human capital (human beings) cannot be put to productive ends because the learning curve and lifetime commitments of individuals cannot be altered by the market at ANY possible cost. This circumstance results in a permanent loss of competitiveness in relation to other societies what can allocate capital against the remaining productive workers.
We see this as a permanent loss with human consequences. For example, the misallocation of human capital during both the tech boom and the housing boom mean that certain people obtained higher incomes in a short period of time but by doing so lost the opportunity to gain competitive skills (in relation to their ages) that had ongoing value to them. Furthermore, by implication, it means that those prior skills were of lower marketability than the skills that they might have possessed.
The counter-arguments are that a) people are infinitely fungible (that’s not supportable) or b) we can keep misallocating capital from boom to boom as a means of redistribution, or c) this process is cumulative and causes permanent shifts toward financialization at the top and unproductive labor at the bottom, and production of inferior goods in the middle. I think you err on the side of (b). I think Austrians err on the side of (c).
In more abstract terms I think this is a debate over the welfare of the bottom of society or the middle, with your side favoring the former and the austrians the latter. I also think your side considers this problem immaterial and Austrians (and conservatives) consider it cumulatively destructive. And of course, I disagree with your ‘belief’ that we can fix problems in the future. If that were true we would not have the polarization we do today – a polarization which is being solved, not by reason or argument but by differences in breeding rates and immigration.
Monday ~ March 26th, 2012 at 9:41 am
curtd59
PS: fix your second sentence. Change the second ‘that’ to ‘think’. ( Don’t you hate that helpful error correcting software?) :
Monday ~ March 26th, 2012 at 9:48 am
The Definition Of ‘Structural’ Unemployment | Capitalism v3
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Tuesday ~ March 27th, 2012 at 3:43 am
Two Track Intermediation Read more http modeledbehavior com… « zumoit
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Wednesday ~ March 28th, 2012 at 12:11 pm
TomGrey
The two type of loan errors: giving money to a business that fails to repay; not giving money to a business that would have repaid if it had received money.
Recoveries are based on fewer Type II errors; the trend is still “too tight”. The economy needs a tradeoff with more loans, even if more fail.
I wonder what the absolute size of loan losses graphed would be, and how well it correlates. I suspect huge loans count the same as small loans in the rate, where a “loan capitalization” might be a better metric.