economic theory

Chart-worshipers, part-swappers, and inequality

The whispers on Wall Street lately have been the feared "double-dip".
There is a much louder chorus of people proclaiming that we are only looking at a "slow-down". Of course they were the same people who were telling us as recently as April that we were in a "V-shaped" recovery.

Generally speaking, Liz Ann Sonders agrees.
"I'm amazed people still say it's not a 'V'-shaped recovery, which to means they're simply not looking at the charts," says Charles Schwab's chief investment strategist...

Ah, yes. The charts. I have several issues with people who say things like this.

Central banks: human behavior, bubbles don't exist!

Excellent article today at Naked Capitalism on Central Banks flawed macroeconomic models:

Macroeconomics is about systematic fluctuations in output, employment and prices. Macroeconomics is also about social interactions between agents who do not understand very well how the world functions. As a result, they watch each other to get clues of what is going on in the world. This leads to herding and group behaviour. This social behaviour is at the core of macroeconomic fluctuations. Keynes gave this a name, “animal spirits”.

All this is absent in [Central Banks' macroeconomic models]-models where agents who understand the complexity of the world, behave in an atomistic way. There is no need to learn from others, since each individual’s brain contains the full information. Everybody understands the “Truth”.