Re: [Pen-l] What good are economists?

[raghu <mraghu01@xxxxxxxxx>]

On Wed, Apr 22, 2009 at 11:25 AM, Jim Devine <jdevine03@xxxxxxxxx> wrote:
> The problem is summarized by something I read in the ECONOMIST a long
> time ago: if you're going to predict a recession, you can predict
> _that_ it's going to happen but you can't predict _when_.


This excuse works for academic economists but not for the Fed for two
reasons. One, they have access to a great amount of timely data
including surveys, forecasts as well as market trends. Two, they are
in the unique position where they CAN predict exactly when a boom ends
simply because their actions have the character of a self-fulfilling
prophesy.

For instance, Alan Greenspan recognized that credit spreads were
getting too narrow and indicated high levels of risk-taking and said
as much, but did nothing about it.

So "We didn't know there was a problem" is not an excuse that
Greenspan and Bernanke can honestly use. They *knew* there was a
problem. They simply underestimated what it'd take to clean it up when
the bubble bursts.
-raghu.


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