Wednesday, June 30, 2010

Wham! Slam!! TakeDown!!!

Some snotnosed Ph.D./Econ with the Fed recently opined that non-economists were .....ahhh........sorta like Tea Party folks. If not actually knuckle-dragging stupids, well, certainly not very enlightened.

Barry Ritholtz commits revenge on the hapless boob.

...economics is to important to leave to just anyone. Even economists.

Towards that end, and to further illuminate our discussion, I suggest the following questions be used for all economic PhD candidates in their qualifying exams:

[Inter alia]

Starting in 2001, the FOMC started a monetary accommodation that took rates to the lowest levels in over 40 years, and then kept them there for 3 years. Discuss the economic and market impact of these rates. Include commodities, residential real estate, and financial derivatives in your answer.

• Almost the entirety of the economics profession missed the 2008 recession, the worst in many decades, in advance. Why?

• Federal Reserve economists prefer to focus on “core inflation,” excluding food and energy. What is the basis of this exclusion? What impact does it have on Fed policy? What might it mean for policymakers?

• In 1997, the Boskin Commission claimed that inflation was overstated by 1.1%. Changes to how CPI was calculated (Substitution, Hedonics) were made. How did these changes affect subsequent Federal Reserve Policy? What was their impact on actual — not BLS measured — inflation?

Plenty more at the link.

(Note to Strupp: your responses may be entered in my combox.)

1 comment:

J. Strupp said...

Haha I'm not even close to a PHD in econ. but thanks. I'm just a knuckle dragger like you for the most part Dadster. Still I'll take a quick stab at these:

1. Greenspan left rates too low for too long with the nation at full employment and capacity, this action was inflationary. No one disagrees to my knowledge.

2. Barry's point is to show that the entirety of the economics profession missed the bubble. They did for the most part. So did the rest of the world, knuckle draggers included. "The Great Moderation" has been called the "Dark Ages of Economics" by Krugman. That sounds about right.

3. I've explained, at length, why core CPI excludes food and energy. CPI measures inflation INERTIA on prices that are usually set once or twice per year. Food and energy do not fit this criteria. Barry's intent here is to show that energy prices can skyrocket while the rest of prices remains stabile. Usually this is a temporary state (see commodity prices from late 2008 to present).

4. Who cares. Changes to CPI calculations wouldn't have changed policy then or now.