Common Fallacies about Macroeconomics

As the recession has deepened and the financial debacle has passed from one flare-up to another during the past year and a half, commentary on the economy’s troubles has swelled tremendously...

The bulk of it has been bad for the same reasons. Most of the people who purport to possess expertise about the economy rely on a common set of presuppositions and modes of thinking. I call this pseudointellectual mishmash “vulgar Keynesianism.” It’s the same claptrap that has passed for economic wisdom in this country for more than fifty years and seems to have originated in the first edition of Paul Samuelson’s Economics...

Vulgar Keynesians are nothing if not policy activists...The eras they esteem as the most glorious ones in U.S. politicoeconomic history are Roosevelt’s first term as president and Lyndon B. Johnson’s first few years in the presidency. In these periods, we witnessed an outpouring of new government measures to spend, tax, regulate, subsidize, and generally create economic mischief on an extraordinary scale. The Obama administration’s ambitious plans for government action on many fronts fill vulgar Keynesians with hope that a third such Great Leap Forward has now begun.

The vulgar Keynesian does not understand that extreme policy activism may work against economic prosperity by creating what I call “regime uncertainty,” a pervasive uncertainty about the very nature of the impending economic order, especially about how the government will treat private-property rights in the future.

source

US Economy: Stable and Strong

Great charts from Carpe Diem

Recession in 2008?

A growing number of top economists believe that the U.S. economy has now toppled into recession...

Economist Bob Brusca of FAO Economics said he doubted that the U.S. was in recession a week ago, but now he believes there's about a 75% chance that a recession began in January.

"That's what recessions do. They come upon you all of a sudden," he said. "When you look back at history, you're struck by how even-keel it is until the bottom just falls out."...

Worries about banks tightening their lending standards is one reason why the Fed announced two large rate cuts in just the course of eight days in late January, reducing the key federal funds rate from 4.25% to 3%.

Most economists aren't looking for additional cuts of that magnitude, but they do expect more cuts...

But the markets want more drastic action by the Fed. The Chicago Board of Trade's fed fund futures are pricing in a 30% chance of a quarter-point cut this month, when the Fed isn't even scheduled to meet.

Those futures are also pricing in a 100% chance of a quarter-point cut in March, and a 28% chance of a half-point cut during the month, up from virtually no chance of a half-point cut ahead of Tuesday's ISM report.

read the CNN story

Durable Goods Orders

Another great chart from Carpe Diem

Durable goods, which are a leading economic indicator, don't indicate a recession.