Economics: The Great Moderation
May. 2nd, 2008 09:11 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
snousleRecent denial over the lack of a recession in Q1 has astounded me. It shouldn't.
I have come to realize that there is an enormous, glaring problem in the average person's understanding of the economy. Media reporting on the economy is all drama, drama, drama. The economist's view, in contrast, is that we have undergone a historic transformation in how the economy works. No, this is not the "New Economy" of the endlessly rising stock market. It's something much less mediagenic.
It's called the Great Moderation. It seems to me that this is the most under-reported story of my lifetime. Because it's really, really big. And really, really boring. That it's Wikipedia article should be a mere stub is astonishing. A relatively good discussion, something less dry than the Bernake speech linked above, is worth reading here.
It has occurred to me that not understanding the moderation is a driver of economic inequality. Being a pessimist means betting on volatility and change. If you believe things are going to hell, you don't invest. And if you don't invest, you get left behind. I mean "invest" in the most general sense; whether it be in money, education, relationships, whatever - it's what you do when you believe the future is in some sense predictable.
That's what bothers me about economic pessimism. This addiction to media drama is leading people to squander their resources out of fear of losing them, when they could be riding the bland wave of the Great Moderation instead.
The media response to the non-recession also makes sense in this context. When I went to dog training classes a few years back, the instructor spent some time talking about "extension behavior". When a dog misbehaves in order to get a particular result, and that result doesn't happen, the short-term response is to try harder. In this case, the yapping dog of the media, which through its noisemaking grabs our attention and sells it to advertisers, has had less and less to work with. Headlines like "Rapid rise in oil prices results in surprisingly little disruption to the economy" don't sell papers. So over the past twenty years, the media has had to yap louder and louder over smaller and smaller stories, due to the systematic damping-out of real economic drama.
It's a dysfunctional relationship, and the accumulation of cognitive dissonance is resulting in some seriously abberant behavior. Like trying to re-define "recession" so that we can satisfy the collective psychological need to be in one right now.
I have come to realize that there is an enormous, glaring problem in the average person's understanding of the economy. Media reporting on the economy is all drama, drama, drama. The economist's view, in contrast, is that we have undergone a historic transformation in how the economy works. No, this is not the "New Economy" of the endlessly rising stock market. It's something much less mediagenic.
It's called the Great Moderation. It seems to me that this is the most under-reported story of my lifetime. Because it's really, really big. And really, really boring. That it's Wikipedia article should be a mere stub is astonishing. A relatively good discussion, something less dry than the Bernake speech linked above, is worth reading here.
It has occurred to me that not understanding the moderation is a driver of economic inequality. Being a pessimist means betting on volatility and change. If you believe things are going to hell, you don't invest. And if you don't invest, you get left behind. I mean "invest" in the most general sense; whether it be in money, education, relationships, whatever - it's what you do when you believe the future is in some sense predictable.
That's what bothers me about economic pessimism. This addiction to media drama is leading people to squander their resources out of fear of losing them, when they could be riding the bland wave of the Great Moderation instead.
The media response to the non-recession also makes sense in this context. When I went to dog training classes a few years back, the instructor spent some time talking about "extension behavior". When a dog misbehaves in order to get a particular result, and that result doesn't happen, the short-term response is to try harder. In this case, the yapping dog of the media, which through its noisemaking grabs our attention and sells it to advertisers, has had less and less to work with. Headlines like "Rapid rise in oil prices results in surprisingly little disruption to the economy" don't sell papers. So over the past twenty years, the media has had to yap louder and louder over smaller and smaller stories, due to the systematic damping-out of real economic drama.
It's a dysfunctional relationship, and the accumulation of cognitive dissonance is resulting in some seriously abberant behavior. Like trying to re-define "recession" so that we can satisfy the collective psychological need to be in one right now.
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Fair enough
Date: 2008-05-02 05:53 pm (UTC)Mybe I should drop economics and just focus on class warefare..
Re: Fair enough
Date: 2008-05-02 06:07 pm (UTC)"Unnaturally"? What, exactly, does that mean? It's as if just saying "good" is unacceptable, so it must be neutralized with some negative connotation. Doesn't that strike you as odd?
Now, when I read the business section, I can't help but notice how easy it is to report exactly the same facts while inverting the tone of every single sentence in an article, simply by substituting words with different connotations. You ought to try it sometime, it's quite enlightening. It shows rather clearly how much BS and how little actual analysis resides in this kind of writing.
no subject
Date: 2008-05-02 06:39 pm (UTC)Overall analysis of this stuff is so tricky, tho. Back about '05 or so, I was linking hot n heavy to my favorite and long gone blogger, the anonomous and erudite ranter who ran the Whiskey Bar. After posting some appalling stat about housing markets overheating or the Chinese eating our debt for us, he'd sometimes wonder aloud about just how things kept going along swimmingly with so much trouble brewing on the horizon. He'd basiclly shrug his shoulders, admit that he didnt have anywhere near to the whole picture available, and hope for the best. His overall housing market predictions seem to be playing out pretty much spot on for now (or at least as how I remember them), but much else he worried about has not come to pass, and his timing was way off.
Soemtimes, all you can do is hope for the best, je?