Economic Argument for Austerity Based on Excel Error?

[OttoVonBismarck]

This is a message board have the good manners to summarize a long PDF.

1. Identify the three post-Bretton Woods recessions you are talking about.
2. Identify spending as a percentage of GDP during the year those recessions began and each of the next four years.
3. Identify GDP growth rate for the year of the three other recessions you are talking about and each of the next four years.

[The Minsky Moment]

This is a message board have the good manners to summarize a long PDF.

I gave a reference to a 4 page box that contains less text than the sum total of your posts in this thread in a single day.  I also specifically referenced a single chart.  Even for the chronically lazy, that should not be too much of a challenge.

[OttoVonBismarck]

This is a message board have the good manners to summarize a long PDF.

I gave a reference to a 4 page box that contains less text than the sum total of your posts in this thread in a single day.  I also specifically referenced a single chart.  Even for the chronically lazy, that should not be too much of a challenge.

You've obviously underestimated the laziness involved.

[The Minsky Moment]

 

Ok.
The prior recessions in the sample are 1975, 1982, and 1991.
GDP changes (from BEA)
1975-79  -0.2 5.4 4.6 5.6 3.1
1982-86  -1.9 4.5 7.2 4.1 3.5
1991-1995  -0.2 3.4 2.9 4.1 2.5
2009-2013  -3.1 2.4 1.8 2.2 ??

[The Brain]

TL;DR

[fhdz]

Which one is that, Jake?

I don't know fadhz, why don't you tell us?

I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.

[MadImmortalMan]

I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.

So which is better, frequent and short or infrequent and more severe?

[fhdz]

I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.

So which is better, frequent and short or infrequent and more severe?

Frequent and short seems to make the system better, primarily because when they are frequent and short they also tend to be milder shocks and contribute to a stronger system overall. Among the analogies Taleb uses, with which I feel a certain amount of agreement, are forest fires and airlines. Smaller forest fires end up preventing the really big forest fires and one accident/quality problem in the airlines, because of the steps taken after such an accident, decrease the likelihood that we'll end up having 15 planes all fall out of the sky later.

It's like finding yourself sliding off the road in a car - overcorrection always makes your slide (and resulting accident) much, much worse.

The current methods of correction for the economy allow much deeper problems to continue, making resulting crashes (which cannot be predicted with any great success) much more disastrous. Our system is so fragile because risk management methods are predicated around predicting the next disaster - x - without focus on our *exposure* to different kinds of shocks - F(x). Historically we do an awful job of predicting x, but it does seem that we can have some success controlling exposure because it is non-predictive.

[DGuller]

I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.

So which is better, frequent and short or infrequent and more severe?

Frequent and short seems to make the system better, primarily because when they are frequent and short they also tend to be milder shocks and contribute to a stronger system overall. Among the analogies Taleb uses, with which I feel a certain amount of agreement, are forest fires and airlines. Smaller forest fires end up preventing the really big forest fires and one accident/quality problem in the airlines, because of the steps taken after such an accident, decrease the likelihood that we'll end up having 15 planes all fall out of the sky later.

It's like finding yourself sliding off the road in a car - overcorrection always makes your slide (and resulting accident) much, much worse.

The current methods of correction for the economy allow much deeper problems to continue, making resulting crashes (which cannot be predicted with any great success) much more disastrous. Our system is so fragile because risk management methods are predicated around predicting the next disaster - x - without focus on our *exposure* to different kinds of shocks - F(x). Historically we do an awful job of predicting x, but it does seem that we can have some success controlling exposure because it is non-predictive.

I agree with this and disagree at the same time.  It's true that when you manage all the high frequency, low severity risks, what winds up happening is that the risk that will get you is the Black Swan risk.  On the other hand, is that necessarily a bad thing?  Those high frequency, low severity events can inflict huge costs.  Our civilization advanced on the back of eliminating a lot of everyday risks at the cost of making it more vulnerable to mega-disasters, and I think we got a good deal.

[The Minsky Moment]

We did succeed in preventing the rare, high severity risk.  In fact, we haven't had a high severity event in the developed world since the early 1930s.  That compares favorably with the record under 19th century laissez faire where catastrophic panics happened roughly every 20 years (e.g. 1857, 1873, 1893, 1907 in the US).  The forest fire analogy doesn't work at all in this context because we are dealing with a behavioral system here, not a physical sysem.

[Razgovory]

Which one is that, Jake?

I don't know fadhz, why don't you tell us?

I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.

I don't think that's really pragmatism.

[fhdz]

I agree with this and disagree at the same time.  It's true that when you manage all the high frequency, low severity risks, what winds up happening is that the risk that will get you is the Black Swan risk.  On the other hand, is that necessarily a bad thing?  Those high frequency, low severity events can inflict huge costs.  Our civilization advanced on the back of eliminating a lot of everyday risks at the cost of making it more vulnerable to mega-disasters, and I think we got a good deal.

I agree that there are costs associated with high frequency/low severity events, but I think the costs of making ourselves vulnerable to mega-disasters are a bit more hidden and potentially far more severe. It's sort of like paying off an amortized loan over time as opposed to paying less but having a sudden, unexpected, and crippling balloon payment somewhere along the line. I wouldn't say that our current economic structure represents stability; I'd suggest that it gives the illusion of stability while most benefitting those who capitalize on risk without any real skin in the game.

Furthermore, it's not like we have managed to entirely eradicate high-frequency/low severity events, either. They still exist.

[fhdz]

Which one is that, Jake?

I don't know fadhz, why don't you tell us?

I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.

I don't think that's really pragmatism.

OK

[fhdz]

We did succeed in preventing the rare, high severity risk.  In fact, we haven't had a high severity event in the developed world since the early 1930s.

You may have been untouched by the events of 2008 and onward, I suppose.

I typically find your posts exceptionally wise, or at least staggeringly well-informed, but this answer strikes me as one of the most ivory-toweresque things I've ever read from you.

[CountDeMoney]

That's because he's employed.  They get like that.