> There's nothing 'clear' about the kinds
> of correlations made in this infantile
> paper: to equity prices, current account
> deficits, GDP stagnation, public debt...
> there are so many multicollinearity
> problems here it's hard to know where
> to start.
[…]
> Oh come on, pretty much *everyone*
> doing marxist work on finance these
> past couple of decades has made the
> point that the credit and portfolio
> investment system exacerbates uneven
> development whether within the US
> or globally.
>
> It's junk like this paper that makes me
> grieve even more, that comrade
> Henwood has been so sanguine about
> financial crises... :-)
Maybe it's my eyesight, but Michael's interpretation of R&R's paper is not clear to me. I don't see much of the connection between R&R's claims and Doug's views.
Just as I don't understand Patrick's qualms with the paper. How can multicollinearity be a problem in *this* case? And why is it wrong for R&R to focus on the U.S. and limit the analysis to the experience of rich countries? Not every paper has to address every question, you know.
Patrick's reply confuses me because, as evidence has piled up, Doug has (it seems to me) adjusted his gradually shifted his expectations in Patrick's direction. I feel that Doug is now (as opposed to early in the fall) much more inclined to entertain the notion that a serious U.S. economic downturn may be coming – if we're not already in its midst. That doesn't go as far as believing that crisis is the regular mode of being of capitalism, as Patrick seems to think, but the gap has narrowed. Am I right?
After all, Michael is saying that Doug's views and those of Carmen Reinhart are aligned. Reinhart has been saying for a while (as has Rogoff) that asset price inflation and current account imbalances are grave -- and a bad omen for the U.S. economy. Although this comes from the right field (with all the limitations that entails), those views are not antithetical to Patrick's view that global capitalism is experiencing a serious structural debacle.
I don't feel much respect for Rogoff as a person (what tipped me off was his reply to Stiglitz's critique of the IMF in his globalization book). But one has to admit that, from the time he joined the IMF (in 2001), the fund's reports punctiliously insisted on the seriousness of the imbalances. That's been like seven opportunities for ridicule at the AEA annual meetings. Massive China's CA surpluses vis-a-vis the U.S., increasing commodity prices, and – of course -- the subprime credit Ponzi scheme enabled by easy Greenspanian credit masked the imbalances and foster all sorts of weird rationalizations. People in the right are just as prone to mistake their wishes for facts.
If I understand him correctly, Doug has been reluctant to anticipate a serious mess in the U.S. economy as he's come to expect a savvier policy response from the central bankers, more effective that people in the left typically grant them. Curiously, this has coincided with greater humbleness on the part of the central bankers themselves. Bernanke has been saying (as Greenspan belated) that financial innovation and globalization have reduced the effectiveness of monetary policy, that central bankers look at the same data as mere mortals do, etc.