Sunday, July 19, 2009

Down Under's Dr. Doom Dukes It Out With Dr. Bounceback Down Under

Well, that is an exaggeration, but they were both in the same room at points and are friendly. I have just returned from Computing in Economics and Finance, 15th conference of the Society for Computational Economics, held at the University of Technology in Sydney, Australia this past week. While dominated by wonkish quants who worship DSGE models in central bank basements ("putting some learning in them will make everything all right"), there were also some heterodox types, most prominently Australia's Dr. Doom, aka, Steve Keen, a Post Keynesian who has been math modeling Minsky since before it was fashionable and is now all over Aussie media having loudly called the crash early. He also runs a lively blog, Debtwatch. Brenda Rosser and I saw him perform, which he does well, with his array of slides of misery and mounting debt, and so on.

Dr. Bounceback is Jim Morley of Washington University in St. Louis, whose talk was not as well attended as Keen's, but interesting nevertheless. He has recently been touted on some blogs (econbrowser at least) for being out on a limb as the most optimistic forecaster around, arguing that the depth of the fall will in the pattern of inventory adjustment models give us a strong bounceback, and while he was a bit more cautious in his talk, bringing in model averaging and recognizing that the current situation has other factors messing things up, he is still probably the strongest voice for a "V" pattern, as opposed to a "W" or a "U" or an "L," as these things get labeled in the world of alphabet business cycles. One can access a description of the bounceback model in a paper by Morley and Jeremy Piger, "Practical Computation of the 'Model-Free' Business Cycle"(pdf). I note that while some may think he is very conventional, he is not that big a fan of the DSGE models, and is friendly with his Post Keynesian colleague at Washington University, Steven Fazzari.


Daro said...

"...having loudly called the crash early."

Well put. With the emphasis on these people getting the credit more so for putting their neck on the line and getting their message noticed in contrary times. Coz tens of thousands called this crash starting with you, me and everyone I know personally except the traders I worked with, so it just narks me when commentators just say: "and so-and-so... who CALLED this recession!!" (wow - there's a queue around the block..)

Ha! My word verification is "hatein". You know me....

Myrtle Blackwood said...

Daro wrote (on her website): "The last depression saw the rise of the psychopath as a functional and successful raw capitalist operator. They possessed a mental dysfunction that is perversely exceptionally functional for a lassaiz faire environment...

Well put.

But how does one describe aspects of this dysfunction?

A recent article at Steve Keen's Debtwatch website is helpful here.

"Having identified eleven researchers who did “see it [the financial crisis] coming”, Bezemer then looked for the common elements in the way that these researchers analysed the economy. He argued that if there were common elements—and if these differed from the approach taken by the overwhelming majority of economists, who didn’t have a clue that a crisis was approaching—then the only useful economic models would be ones that included these common elements.

He identified four common elements [which were a concern with the following:]

*** financial assets as distinct from real-sector assets,

*** the credit flows that finance both forms of wealth,

*** the debt growth accompanying growth in financial wealth, and

*** with the accounting relation between the financial and real economy.”

A non-economist might look at these elements in puzzlement: surely all economic models include these factors?...

“No-one saw this coming?” Balderdash!
Published in July 15th, 2009 Posted by Cassander in Debtwatch

Of course, we're not just experiencing a financial crisis. And it really bothers me [frightens me!] that the overwhelming majority of economists are not exploring the incredibly dangerous relationship between the build up of financial debt and the wholesale destruction of the natural environment by economic players (most notably the large transnational corporations).

I put my full support behind Dr Doom here. If I could master the method of presentation that Mr Keen has; something that might frighten people out of their complacency, I would. I was really delighted to see Steve Keen in action!

So thanks Barkley for making sure I attended his session :-)

PaulE said...

"he is the strongest proponent of
a V-shaped pattern...."
With the recession already 18-months old, we are long-past the V-pattern. The best we can hope for is a U-pattern, surely. said...

You're welcome, Brenda, :-).

Regarding Steve Keen, I should probably also mention that he is at the University of Western Sydney and is author of the very pungent book, Debunking Economics.


The question of which letter it will be depends on what happens after we stop going down. However, we are still going down, and that we have gone down so hard is exactly why Dr. Bounceback says that we shall have a V, maybe. Dr. Doom leans more to the L end.

PaulE said...

rosserjb: the time element then is completely missing in the V-shape description? We have nothing like the frequency coefficient in a sinusoidal.
I wonder if we can't do better, say by describing a recession as for example a 2-2-3 or some such, like 2 quarters of decrease, 2% drop from peak and 3 quarters to regaining previous peak. Just a thought! said...


Frequency component suggests some kind of overall cycle model. That is not what Morley has. It is more a model that runs along on trend and then gets these shocks. So, how deep and hard the shock is determines how hard and fast the bounceback is, once it starts. So, again, in this sort of model, the longer and harder it goes down, the harder it bounces back. Frequency of overall cycle is irrelevant.