Monday, February 08, 2010

Krugman has a point

Here's one I missed from last month. Brad Delong calculates that the Fed holding interest rates too low for three years should have caused a maximum 6% hike in housing prices compared to leaving interest rates 2% higher (where they were before Alan Greenspan's rate cuts). Krugman nods approvingly, and snarks:

This is actually a very broad problem with all accounts of the crisis that try to exonerate the private sector and place the blame on the government and/or the Fed: none of the proposed evil deeds of policy makers were remotely large enough to cause problems of this magnitude unless markets vastly overreacted. That is, you have to start by assuming wildly dysfunctional financial markets before you can blame the government for the crisis; and if markets are that dysfunctional, who needs the government to create a mess?
The U.S. government's non-defense non-Social-Security related portion of the GDP in 2006 was at around 5% of GDP. The notion that the U.S. government could somehow have managed to run housing prices up by 200% higher than they should have been when the U.S. government accounted for such a small part of the economy is ludicrous on its face. I mean, the housing bubble created over $6 TRILLION in asset values between 2003 and 2006 -- the ENTIRE U.S. budget without defense and Social Security was around $1.5 trillion total during those years. Yet you see people making the argument in all seriousness that somehow the U.S. government could create $6 trillion in bubble assets with their actions, akin to a mouse shoving an elephant across the room, showing that a) they're mathematical illiterates, or b) they're dishonest ideologues. Take your pick.

-- Badtux the Math Penguin


  1. c) They listen to a) and/or b) and believe them.

    The most debilitating shortage we have in this country is in critical thinking.


  2. Sorry, that's a special case of (a) (that is, mathematical illiterates).

    The non-welfare-social-security-interest-or-defense budget in 2006 was approximately $550B. This was supposed to have somehow caused $6 TRILLION in housing appreciation? That's like saying that a mouse moved a Cadillac!

    - Badtux the Snarky Penguin

  3. I still think (c) is different.

    While a subset of (a) can happen, I'm referring to those who can do the math, but don't bother, either out of intellectual laziness or simple gullibility. It's a lack of curiosity and critical thinking skill, coupled with an addiction to artificially sweetened Koolaide.


  4. Having made a bit of a study of wing-nuts through reading their blog postings and pushing them on where they get their "facts", I have come to the realization that mathematical illiteracy (innumeracy) is highly correlated with right-wing craziness.

    This is also generally seen with what I call "projective credulity" -- the inability to be able to find the errors in one's own reasoning while seeing (often nonexistent) problems with other people's arguments.

    Which, by the way, is a trait intimately associated with inability to do math, since mathematics is all about merciless critical skepticism of one's own and other's arguments.

  5. I don't see a) and b) as mutually exclusive so since Jazzbumpa has already taken c) I would like d) they are a and b.

  6. Now, correct me if I'm in error.

    But Greenspan was?


    Or A?

    Or Montag's choice?


  7. I guess we need a choice (e) for "blinded by ideology", sigh. Because that was Greenspan in a nutshell -- an ideologue who ignored any facts that did not support his ideology unless his face was absolutely rubbed in them (as happened when, astonished, he admitted to Congress that he had no idea -- NONE -- that traders on Wall Street would ever have taken such risky gambles with the economy!).

    - Badtux the Non-ideological Penguin


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