30 Apr 2013

Nick Rowe Has Solved the Mystery of the Great Recession

Economics, Market Monetarism, Scott Sumner 7 Comments

Relying on a “very important post” from David Beckworth, Nick informs us that the financial crisis of 2008 occurred because people began expecting it in 2005.

Call me hard to please, but I want more, Nick.

7 Responses to “Nick Rowe Has Solved the Mystery of the Great Recession”

  1. Transformer says:

    The post is actually about the consequences of falls in expected and actual aggregate demand , and includes the statement:

    “David’s graph starts to head south in 2005. It’s just a bit too early for comfort, if you want to say that declining expected nominal income is what caused the 2008 financial crisis and 2009 recession”

    But other than that your post is spot-on.

    • Bob Murphy says:

      What are you talking about Transformer? It was that precise statement from Nick that prompted my post. Just because he acknowledges the weakness in the MM explanation, means I can’t make fun of it?

      • Transformer says:

        He makes it pretty clear that he is only discussing a hypothesis and that the timelines seem a bit strange if the hypotheses is to be accepted

        Plus Nick seems like such a nice guy it is mean to make fun of him rather than Sumner or Krugman who deserve it.

        • Bob Murphy says:

          Transformer, Nick is a funny guy, and so is David Beckworth. I don’t think I hurt their feelings with this post, though I have been wrong on such things before…

  2. William Anderson says:

    I look to this blog for Great Wisdom, and now we find that the whole damned recession was in our minds! Hoodathunkitt?

    The next time the economy is booming, I promise to think nothing but happy thoughts.

  3. William Anderson says:

    I’ll bet Peter Schiff’s comments in that mini-debate on CNBC with Arthur Laffer put at least two point on the unemployment rate, and no doubt caused Lehman to fail. And everyone knows that had the government bailed out Lehman, we’d still be happily sticking people with $50K incomes into half-million dollar-priced houses.

    Oh, by now those houses would have been worth a million dollars. What a missed opportunity for all of us, and all because people like Peter Schiff saw a half-empty glass!

  4. Nick Rowe says:

    Ah you joker Bob!

    That’s not *exactly* what I said.

    I said that *maybe* an expected decline in nominal income caused *or worsened* the financial crisis. After all, if nominal income drops, it *is* harder for people and firms to pay their debts.

    But I see Transformer has got my back. Thanks!

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