Thoughts on Macro
Slowly, the recession and crisis are starting to become clearer. Here I'll jot down some thoughts. 1. Why have I thought that Keynesianism had any chance of being correct? I can't think of good theoretical foundations and there isn't good empirical evidence. Sticky wages and prices really isn't enough. There isn't a simple model of the kind that I always require in microeconomics, or a simple story. But since I haven't thought about it hard for 20 years, maybe I should now, since I have learned a lot about modelling and about the economy. 2. I'm coming to think there wouldn't have been much of a recession except for changed expectations around October 2008. Part of the financial sector was in desperate shape, but it looks to me as if all the investment banks and big banks were in desperate shape, plus some speculative banks and companies like GM and GE, but no small banks outside of Nevada and such places. I've come to doubt even TARP I. Was it just that Secy. Paulsen thought that if New York banks fell, so must the world? That's false. 3. Have we been hoodwinked by the Establishment? I suspect the rest of America has just directed billions of dollars to help New York. And not even all of New York. Not Wall Street-- just the banks.
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