Tuesday, 2 December 2008

Lunatics (still) in charge of the economic asylums

Global financial markets are crashing, even as the impact is momentarily softened through massive injections of artificial money – which will serve only to extend the pain while numbing us to its virulence. 

But how about us here in little old New Zealand?  No worries:  We’re all going to be okay say the Pollyannas at the New Zealand Institute of Economic Research who “predict,” based on their “models,” that a “pick-up in consumer spending” will “haul” the local economy out of recession “in the first half of next year.”

Clearly these are people who have no conception that their “models” are bad enough at the best of times – and “the best of times” is not the phrase one would use when the fundamentals of the world’s economic structure are creaking like the opening scenes of a Saturday afternoon disaster movie. The world’s money is broken, yet the NZIER and the like continue myopically churning out their “predictions” as if they meant something.

Economics gives no man a crystal ball.  And with “models” as simple as this,* and “predictions” as risible as the one above, it’s no wonder their so-called profession is derided as being so dismal.

* George Reisman points out the standard Keynesian model of GDP, on which the morons at NZIER rely for their risible claim, "is literally playing with half a deck.”

It purports to be a study of the economic system as a whole, yet in ignoring productive expenditure it totally ignores most of the actual spending that takes place in the production of goods and services. It is an economics almost exclusively of consumer spending, not an economics of total spending in the production of goods and services.


  1. Still seeking participants for S&P500 index levels at intrade. Come guys, make money while Keynes is burning :-)

  2. I read that article this morning and had to check to make sure it wasn't an Onion satire!

  3. If the sealing (or ceiling) wax holds the IER prediction could well be right.

    Sure global finances badly need reorganisation as I have said before. But we are putting some expensive patches on the tyres of the economy *we have* and pushing it back on the road.

    I presume you think the NZX and DJI will be lower in 6 months than now. Worth a wager perhaps.

  4. Ruth

    What are you expecting to happen in six months time?


  5. Ruth, do you have an inside knowledge of what's gonna happen in 6 months time, based on your husband's meeting with Governor Bollard? Did your husband ask Bollard for a bail out for the local Citigroup NZ? Just curious.

  6. f this is the 6th most read blog, how come you get so few comments?

  7. Hi LGM,

    I think the pessimism is getting overdone. Everyone is running about like that old Scot in Dad's Army crying "We're doomed! We're dooomed!" A sure contrarian indicator.

    To look at it more optimistically, we have low gas prices,lower prices for milk products, housing stagnant or lower - good, low interest rates, lower fruit and vege prices, tax cuts coming up. Unemployment is rising but still historically low.

    As I know you are aware, Austrian followers are permabears for various ideological reasons. I agree with a lot of their stuff, but they are not objective. A few years ago the called DOW 3000 just before one of the biggest and longest bull runs in history. If you are silly enough to have a permanent forecasting position it should at least be the bullish one -- history has shown you will be right 4 times more than you are wrong.

    We see the markets skittering and sliding around now with these big swings - this always happens just before the herd charges off in a new direction. I have started dipping a toe back into the US market -- now is a time for your watchlist to be getting longer, but caution is still needed.

    IMO 2009 will be a year of opportunity.

    PS to the other poster - The local Citigroup is one of their most profitable branches in the world, so no bailout required, just for your guide.

  8. Ruth

    Thanks for responding. I was interested by your comments. I'd be keen to read what you unearth from your banking & finance sector contacts as the new year progresses. If you have the opportunity please post what they are saying as you hear from them.



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