One of these holidays I will get around to posting a “Public Enemies, Establishmentarian Economist Edition.” Right now it’s in the fetal stage, but Frederic Mishkin, Larry Summers, Bob Rubin and Ben Bernanke have pretty much locked down the top 4 spots. There’s another Harvardian blowhard financial priest whom I had nearly forgotten about, considering that he hadn’t made an idiotic pronouncement for a long time (what, 3 days or so). He’s Marty Feldstein, and as of right now, he’s seeded at No. 5.
Dec. 14 (Bloomberg) — Harvard University economist Martin Feldstein, head of the group responsible for dating U.S. economic cycles, said there may “easily” be a recession next year if consumers cut spending amid sliding home values.
“I would put it at about 50 percent,” Feldstein, head of the National Bureau of Economic Research, said in an interview today when asked about the chance of an economic contraction. The risk “clearly has been increasing,” he said.
There’s a danger of the U.S. falling into “stagflation,” with gross domestic product shrinking and inflation increasing by around 3.5 percent, Feldstein said. Government figures today showed U.S. consumer prices in November rose the most in more than two years on higher energy, clothing and rent costs.
“We are looking at a slightly higher inflation rate than we want,” Feldstein said. Still, “we are not back to the very high inflation rates we had in the late 1970s,” adding that whether the U.S. is heading for stagflation “depends on how you want to define it.”
…
The Federal Reserve’s decisions to lower interest rates and pump billions of dollars into the banking system may not be enough, and the U.S. will need fiscal stimulus, such as temporary tax cuts, if the economy remains weak next year, he said.
“The Fed is trying to get around what is a very difficult situation, where credit markets are not working in a normal way,” Feldstein said. “But I think the Fed policy tools are limited.”
Fed policy makers lowered their benchmark rate by a quarter-point on Dec. 11 to 4.25 percent, the third cut since September, disappointing some investors who had expected a half- point reduction. The next day, the Fed, European Central Bank and three other central banks moved in concert to alleviate the credit squeeze.
The dollar was helped by the Fed’s coordinated plan and interest-rate cut. The U.S. currency’s gains this week pared its loss this year to 8.5 percent against the euro. [wtf?--ed]
“It needs to come down substantially further in order to shrink our trade deficit,” Feldstein said. “And that’s good news for the U.S. economy in 2008. If the economy is going to have strength, a lot of that strength is going to have to come from our net exports.”
P.S. Dear Kathleen and Vivien,
The US dollar was not helped by Wednesday’s gruesome Charge of the Bernanke Brigade. It was helped because the Fed is seen as boxed in by the latest, craptastic inflation figures, which were abetted by the Fed’s trigger-happy cutting during what was supposedly 4.9 percent Q3 GDP growth.
Please consider taking a macroeconomic course or two.
Sincerely
Eric
The creature from Jekyll Island is being slaughtered daily.
Umm. “Marty” Feldstein is an outstanding economist. He is the head of the National Bureau of Economic Research. That is WORLD CLASS. If you think he is an idiot, you had better invest in a new dictionary.
P.S. Do you think that Greg Mankiw is an idiot? Let’s see, I think he got a PhD from MIT in TWO years. Here’s a recent comment from his blog:
“Thus, if I had to bet a dollar on this year’s prize, I would put it on Fama, Feldstein, or Barro.”
He’s talking about the NOBEL prize.
I didn’t call him an idiot.
In August, Feldstein wanted a 100 basis point cut. He also said inflation was disappearing in the rear view mirror because the debt market implosion was shriveling up the money supply.
He also, more than any other individual financial high priest, made “preventing a recession” the benchmark for the Fed’s performance.
The Fed cannot prevent recessions. It can put them off by printing money until it loses credibility. Then there’s a much worse recession in a comparatively short amount of time.
Bernanke didn’t come close to Feldstein’s idiotic prescription, and we already have 4.3% annualized inflation. If people had listened to Feldstein, an international dollar run would probably be underway.
I don’t care what Feldstein’s credentials are. He has been wrong for the entire duration of the credit crisis, and the United States would have been much worse off for following his advice. His “world class” credentials change nothing.
You are talking about credentials. I am talking about what Feldstein said should be done, and what his August/September forecast for December was; and relating it to what actually happened.
Feldstein said that we would be in the throes of a deflationary meltdown. He wanted cuts, more, more cuts.
Feldstein got fewer cuts than he wanted, and here we are with roaring inflation and soaring long-term inflation expectations.
Mankiw is fine. He doesn’t give self-evidently inflationary policy prescriptions at the behest of the private banks. I have not visited his blog since he put up a graph of the “Intrade recession futures market” and said that “Intrade was predicting the odds of US recession in 2008 to be greater than 50%.”
There were maybe $500 traded on that market in the past year, and it was self-evident from the graph Mankiw posted. But it never seems to occur to academics to check volume depth for the prices they cite, instead of assuming that all prices in all markets are efficient, which was what Mankiw did.
Of course, Mankiw’s post ricocheted all over the blogosphere, even to multibillion-dollar fund manager Bill Miller’s letter to Legg Mason investors, just because Mankiw is a cardinal of the economic sanctum sanctorum. Maybe 4 people on Intrade had swapped $500 worth of bets on some completely illiquid contract over the course of the year. It was a classically ridiculous pronouncement from an academic who had never traded a share of anything in his life.
But I guess compared to Feldstein, that’s an accomplishment.
Don’t even get me started on Fama.
Yes, Mankiw is an idiot.