Rolling US Economy Into The Shitbin Thread

Ritholtz has some things to say.

1) the endless paragraphs about Mr Black Swan were pointless and irritating and 2) the defenders of VaR kind of have a point when they say it's a model for 95% or 99% of situations and actually it performed exactly as expected. This is a 1% situation we're dealing with and the fact that managers and executives didn't have plans for dealing with it has nothing to do with VaR itself. Of course if he'd said that in the beginning of the article he wouldn't have reached his 9000 words or whatever it was, and wouldn't have got to fawn over "NT" - as I call him. One last quibble with it - when you promise an anecdote it should be snappy and tellable in a pub. He takes two pages to get around to it.

― Tracer Hand, Monday, January 5, 2009 10:13 AM (11 minutes ago) Bookmark

Yeah, agreed. TBH I got through about half the article and put it aside.

I came to my own conclusion at least several years ago, with no real background in biology or zoology or chemistry, that evolutionary models were probably mostly bunk. It only takes intuition to realize that it's not possible to model the unpredictable, that nature can evolve organisms of incredible complexity spontaneously, and that models are exactly the kind of thing that lull people into a false sense of security with their pseudo science. Sometimes I'm tempted to think that they were an outright fraud designed, or at least used, to convince naive believers that sophisticated facts were being used to explicate God's creations. That's most of what "science" is really about.

― Lamp, Monday, January 5, 2009 10:19 AM (8 minutes ago) Bookmark

Touche, I guess. But economics, unlike evolutionary theory, actually IS a pseudo-science.

We weren't talking of trillions of dollars of debt or deficits with tax cuts. The magnitude of proposed spending being bandied about is unprecedented. Oh, and yeah, Barry wants to cut $300B in taxes, so am I supposed to cheer for that? Okay, rah rah rah.

What worries some people is that in a frantic infusion of spending, money will not be carefully spent. And judging from TARP and Paulson's lying giveways, I'd say there's a reason to have healthy skepticism.

there were shitload of people who knew they were abusing these models but would rather hav $100m than get fired - im kinda w/the guy whos all u cant get mad at math - the whole situation is more of a regulatory failure than anything imo

which isnt to say the black swan argument isnt relevant or fascinating and can basically applied to everything cause it is and can - it was kinda lame how the author kept being all what abt the ONE% and then towards the end is all offhandedly of course they had models to deal w/the fat taild black swan

btw i saw black swan taleb on charlie rose recently and he was really unconvincing - not a v good speaker

i thought the article was pretty cool if not essential tho

that black swan dude is jerk when i was school i wrote an article questioning some of his stats work and he sent me the most condescending and assholish email about what and idito i was - this from someone that cant even fuck with bayesian analysis. maybe he is some kind of genious but fuk him.

that article annoyed me like CRAZY it had some retarded assumptions the first of them being that VaR is the be all and end all of risk modelling. my first job as lol 18 y.o. was working in risk mgmt and we were doing non-VaR modelling esp on swaps and hedges which lol credit derivatives. and i mean cmon my old bank never went bust and its not like we were all that brilliant we just had a more risk-adverse executive than the wall st. dudes. and when i left my job in 2006 we were writing reports about credit risk in part because some of the macro models had been red alerting for 18 months.

any model is only as good as the ppl using it. so this whole "they went with their gut!" thing is moronic. when the lehman hedge-fund managers "went with their gut" it meant ignorning advice from internal advisers, tweaking models to get more favourable results and just generally ignoring data due to greed. the market feels like an elaborate three card monte right now and plenty of ppl misjduged and mismanaged. the models WERE faulty but that's means that data-driven mgmt is worthless???

dude do u still hav the email post it here plz

lol i looked i dont have my school account anymore i might be on his website tho i think he has a section called "morons who dont get my towering intellect".

and look the post above is evidence that i'm an idiot dont get me wrong but if even i could tell that things were bad in 2006, enough that i even went out and changed careers, then i dont know if the models are the problem.

What worries some people is that in a frantic infusion of spending, money will not be carefully spent.

Republicans Some People are perfectly within their rights to be Worried about this. They were also worried about FDR's plans too - the WPA was vilified before it even existed, as a vast feeding trough of corruption and wastefulness. Luckily the oversight programs of these things were so stringent that little if nothing in them was ever found to have been embezzled, funnelled or otherwise recoagulated, which is pretty amazing given the amount of money on hand. Obama needs to try and match this obv.

That's a totally different issue than whether deficit spending is a good idea long-term though, which is what I thought your problem was.

i think he has a section called "morons who dont get my towering intellect"

Ecce Dumbo

You guessed my problem was deficit spending--there wasn't really a need to make that assumption, or to even conflate that assumption with tax reduction--but in fact what worries me is the recent example of TARP and virtually every other federal cash extravaganza (the auto bailout, the bailout of Wall Street, widespread abuse in Katrina funding, Iraq, etc. etc. etc.) I'm excited that you think there will be stringent oversight but I am much more dubious than you.

There's plenty of reason to worship at the altar of Keynes when it comes to deficit spending but before I sign off on something this big I'd love to see a historical comparison of, say, The New Deal numbers vs. what's being talked about right now.

haven't we discussed mr. black swan before (in this thread or somewhere else), and haven't many of us concluded that our current economic lol shitstorm ISN'T a black swan? in that there were plenty of people as far back as the beginning of this decade who were discussing the real estate bubble, and later on people who were looking cockeyed at the obtuse financing and modeling techniques that allowed it to swell?!? whether those folks were in a position to do anything constructive about it is another question.

also, don, no-one is saying that the kind of fiscal stimulus that obama is thinking about is not to be questioned, deserves no oversight (yes, especially after paulson's blatant attempt to appoint himself Economic Czar after the lol lehman/aig debacles and his ham-handed oversight of TARP), or even that if passed it will have no long-term economic consequences (some of them potentially bad). to be simplistic, i simply think that excessive handwringing about it right now is like worrying about water damage to buildings just before the firemen try to put out a three-alarmer that's threatening several city blocks.

well one thing that might give hope for better executed spending than tarp etc is http://obamarama.org/wp-content/uploads/2007/03/obama-wants-you-to-sign-up-for-obamarama.jpg http://streetknowledge.files.wordpress.com/2008/01/george-bush-sour.jpg

indeed

also, don, no-one is saying that the kind of fiscal stimulus that obama is thinking about is not to be questioned

Really? I'm not sure how you explain this, then:

i'm more worried about the "blue dog democrats" who will try to scuttle any Obama-led economic recovery package on the grounds of bloating the deficit and national debt.

Is it too much to ask to see a serious discussion of the impact of massive federal stimulus? Are we supposed to trust Obama to do this for us? What's excessive handwringing, anyway? I'm just supposed to trust Congress--after their fuckups in TARP and everything else to just dole out trillions more dollars?

Er no you're supposed to insist on stringent oversight. No one is arguing with you.

The opposite of "not pass any Obama plan" isn't "pass any Obama plan", like.

My argument is that it is the height of sanity to have any program like this vigorously debated in Congress and the hallways of academia before signing off. Oversight is worthless if we have no idea what the possible long term economic consequences are. And again, the past history of Congress is dismal oversight.

^^^ this. the handling of TARP so far has been egregious - little oversight, no direction, frequently counterproductive. i hope obama and his team do better but that doesn't absolve us of responsibility. the more scrutiny and debate the better.

to be simplistic, i simply think that excessive handwringing about it right now is like worrying about water damage to buildings just before the firemen try to put out a three-alarmer that's threatening several city blocks.

i think its worth considering whether whats in the buckets is water or oil

OK sure let's have a "debate", as long as it's not like the climate change "debate" or the creationism-vs-evolution "debate".

http://clusterstock.alleyinsider.com/2009/1/if-government-spending-is-the-solution-why-are-we-in-a-recession

Don how can you take seriously someone who quotes this (from Krugman):

What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.

And immediately says this:

See, he's not so much concerned with what those Americans would be doing -- whether they're building bridges or pushing papers

Krugman says it matters - people can be employed to produce something useful, rather than unemployed, producing nothing. Your author says Krugman doesn't mind whether they produce anything useful or not.

It's just flimflammery. Your author doesn't actually have a reply to the obvious answer to his question: "The government wasn't spending money in productive ways."

haven't many of us concluded that our current economic lol shitstorm ISN'T a black swan? in that there were plenty of people as far back as the beginning of this decade who were discussing the real estate bubble, and later on people who were looking cockeyed at the obtuse financing and modeling techniques that allowed it to swell?!?

― Mad Vigorish

In a big enough world, any event will have been predicted in advance by some expert somewhere, no matter how suprising, "paradigm-shattering", etc. And it's a pretty big world. I think it's fair to call the CElolS a black swan because of how suddenly and completely it seems to have shattered the faith of a generation of ideological free-marketeers, and how few of the experts most immediately affected seemed to see it coming.

Anyway, the NYT article is interesting, if way too long & rambly for the information it contains. I'm tempted to agree with the basic argument: In making high-risk decisions of any kind, it's foolish to rely on statistical modeling alone. The more variables involved, the greater the likelihood of artifacting and other modeling errors -- i.e., the greater the likelihood that users are modeling what they already believe (or want to believe), rather than any objective reality that exists outside the closed system of the model and its users. Then there's the pressure to produce results of a reassuring sort, and the difference between research conducted with academic exactitude and scepticism and that done mechanically to satisfy a job or client requirement.

But I'm not sure how much direct blame modeling deserves. It seems like a cog in larger system of certainties and assumptions, some ideological, some quasi-scientific, some merely egocentric.

On top of that, for most of the spending period he's talking about - 2000 to now - the US wasn't in recession. Keynesian deficit spending isn't some all-purpose credo (the way tax cuts are for Republicans and Libertarians) - it's a specific remedy for recession, when other macroeconomic instruments don't work. So comparing 2000 - when the US had a massive surplus and a still-inflating housing bubble - to now, in terms of what the government ought to be doing with its money, is just a little... cuh-razeh ((c Seal))

xpost

Ecce Dumbo

XD

Jeezus Tracer you are obstinate. Why do you have to conflate everything?

- What was the effect of stimulus rising from 30 to 35% of GDP? Would we have been in a recession earlier without this stimulus?
- What effect did stimulus spending have on monetary policy and vice versa?
- Per Krugman, what is useful employment?
- How exactly does massive stimulus change the fundamental problems facing our global economy? And assuming it does, what are the negative effects?
- How long can we continue massive deficit spending and increasing our debt? What is the relevant research on this topic?
- How does massively stimulus affect our ability to confront federal healthcare and SSA obligations?
- What are the greatest long-term economic problems created by massive federal debt?

And please, stop reviving the "massive surplus" in 2000 canard.

more importantly than either of you feeding each other with your hands may be the question of how long the US can maintain its current deficit after it pulls out of iraq and repeals dubya's tax cuts

What was the effect of stimulus rising from 30 to 35% of GDP? Would we have been in a recession earlier without this stimulus?

That wasn't a "stimulus", that was just overall government spending, right?

What effect did stimulus spending have on monetary policy and vice versa?

Again, what stimulus spending are you talking about? The only stimuli I can remember are those checks Bush gave everyone, which they promptly used to pay off their credit cards.

Per Krugman, what is useful employment?

Making something or performing some service that has benefits into the future, I'd imagine.

How exactly does massive stimulus change the fundamental problems facing our global economy?

The fundamental problem for the next couple of years is that money and debt are not moving around. Massive coordinated government spending - the US, UK, and others - will get money and debt circulating, allowing business to take out loans, keeping people employed. Government programs themselves will also directly employ people, reducing the massive strain on state governments who are currently wondering how to deal with the number of unemployment claims.

And assuming it does, what are the negative effects?

This is your case to make.

How does massively stimulus affect our ability to confront federal healthcare and SSA obligations?

Good question. I don't know.

What are the greatest long-term economic problems created by massive federal debt?

Again, you need to enumerate these. I'm not convinced of any of them, especially given the US's position as the global reserve currency. One might be to hand China and India more political power.

And please, stop reviving the "massive surplus" in 2000 canard.

Er alright, I just meant to say that "government spending" isn't automatically Keynesian. If it comes as a direct response to recession, is combined with tax cuts, and is aimed at creating goods or services that have future benefits rather than being sat on, then it is. Your author has conflated the two.

I think it's fair to call the CElolS a black swan because of how suddenly and completely it seems to have shattered the faith of a generation of ideological free-marketeers, and how few of the experts most immediately affected seemed to see it coming.

well yeah, the experts who saw it coming were not immediately affected because it's not hard to dodge a bullet if the bullet is actually an elephant and the elephant is actually being pushed towards you on a cart so slowly it will be five years before it gets to you

so of course the "experts" most immediately effected didn't see it or pretended not to see it, presumably hoping as in Reagan's two terms that the "into the shitbin" moment wouldn't happen until the next chump was sworn in

and proving milton friedman's bullshit to be a bunch of bullshit doesn't make any of this crap a "black swan" either

government spending is basically pretty awesome as long as you don't forget to take back a big chunk a year later in taxes, which is one of the problems with war contracts, and another thing you should be careful to do when spending as a government is not to just hand the keys to an incompetent banker and go to bed, which just happened

there is absolutely no reason to believe at this time that any of obama's spending plans will look, smell or act like dubya's spending plans did, and obama has already announced that he is in favor of sane tax policy

but let's keep whining about shit that hasn't happened like the shit that just happened isn't the fucking problem

who appointed hank paulson? it was bill clinton who appointed him, right?

ned raggett appointed him

was ned raggett also responsible for providing all the kool-aid at the federal reserve meetings

i think we're all forgetting someone in this debate

hstencil

This thread has been locked by an administrator.

was ned raggett also responsible for providing all the kool-aid at the federal reserve meetings

I had to do SOMETHING.

I'm not convinced of any of them, especially given the US's position as the global reserve currency. One might be to hand China and India more political power.

Of course you're not. You're not even curious as to what they might be because it would undermine your ideology. In fact, the vagaries most of your answers suggest a lack of intellectual curiosity. But fine--they were my questions and I'm sure you think I'm partisan in asking them. That wasn't my intention.

To wit, if you think that there are legitimate questions to ask of a massive stimulus program like this, what are they? What concerns do you have?

My main concern is "How the hell am I going to make time to research exactly what's been going wrong with our economy for the past 30 years so that I can ask intelligent questions about this stimulus package?"

you don't have to do that Dan. Just trust that our elected officials to do that for you. They've been reliable in that capacity for the past 30 years.

I had to do SOMETHING.

and all this time, i thought that you appointed the Chief Justice of the U.S. Supreme Court ... o_O

you don't have to do that Dan. Just trust that our elected officials to do that for you. They've been reliable in that capacity for the past 30 years.

uh yeah not so much

I'm certain there are actually good reasons for the stimulus package and, on balance, I am much more for it than against it. It does seem to run completely counter to the way I thought economics in this country is supposed to work, though, and makes me think it's merely postponing an inevitable crash.

well, for starters, the Obama administration can appoint people to key administrative and/or advisory positions that know what they are talking about and are trustworthy. idealistic, perhaps, but that's how it's been done.

frankly, just shitcanning Paulson and his crew -- and making sure that they don't hold another position of authority at any level of government ever again -- would be a good start.

The thing is, there are clearly competing school of economic theory at war here, and someone can be very knowledgeable and trustworthy within their school but still be the absolute wrong person for the job because the parameters of the situation run completely counter to the assumptions that make their economic model work. Furthermore, it could very well be that no one has a good economic model for dealing with the economy as it is today, in which case the appointee's knowledge of current economic theory is only helpful insofar as it supports his/her ability to craft and implement new theory.

on that note, it is really, really hard for me to imagine a future which is anything but bright and bold and fan-fucking-tastic compared to the recent past, just knowing that actual competent people will be filling appointed positions. it also might help that the president-elect does not believe in the laffer curve and that his administration so far does not appear to be a gang of fucks who are explicitly bent on gutting the US government from the inside and handing their buddies blank checks to do whatever they want as long as it has nothing whatsoever to do with domestic infrastructure.

xpost to eisbaer

(there is that, too)

dan, of the two schools that appear to be "at war" in our current conundrum, one has just been massively discredited. the only defense of chicago/friedman ideas at this point is to suggest that they have been hijacked by lunatics, imo.

uh yeah dunno about massively Tombot but if there were ever a time for blindly worshiping Keynes, it's right now.

http://paul.kedrosky.com/archives/2009/01/04/is_financial_hi.html