If low inflation is better than high inflation, then what’s wrong with deflation? In 1929 the US had an outstandingly efficient model. Banks were conservatively managed (although branching laws meant there were far too many of them.) We ran budget surpluses, trade surpluses, zero inflation, low unemployment, low taxes, etc. Tariffs were a bit too high, but nobodys perfect. And this policy regime was destroyed by the same people who had built it; conservatives. The left blamed the Depression on the economic model, not deflation. Then they proceeded to dismantle the model, which delayed the recovery for six years more than necessary. In the 1990s Argentina finally started to move away from their statist model. There were signs they might follow in the footsteps of Chile. They achieved fast growth from 1991-98, even while bring inflation down from 171% to less than 1%. But the conservatives always seem to go too far. If low inflation is better than high...

It's the delivery as much as the joke that gets the laughs. Wise taxpayers who get stimuli tax rebate checks should mostly save them, realizing that future taxes must rise to pay for those checks. For similar reasons, wise taxpayers should also spend less upon hearing about government spending increases. So with wise taxpayers it is not obvious that tax rebates or government spending increases would help much with the downturn. The consensus among macro-economists seems to be that people can in fact be fooled by such stimuli, but as Tyler indicates, it is not clear which policies most fool us. In particular, the more public attention we give to the stimuli, the less they might work. We might make people realize that they need to compensate via saving, and the more we scare folks into thinking we need huge stimuli, the more we might scare them away from normal economic activity levels. So should we stop explaining macro-economics...

I've long had a side business snarking economists, more so recently. It's not that I claim any significant knowledge of the art - my snarks are usually limited to exploding silly assertions based on misinformation about systems about which I have some knowledge. Garbage in, garbage out. So, it's refreshing to read recent expressions of self doubt, and hard critcism of policy actions. Alex points to some policy criticism. Practically every day the government launches a massively expensive new initiative to solve the problems that the last day's initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public's perception of the government's competence and trustworthiness. Too true, and I expect that doubts about government competence will increase. Greg expresses some doubt about the principles that economists seem to have abandoned. Many macroeconomists . . . are skeptical of the Keynesian model. And even...

Does anybody really know what's happening? On a day when a consumer confidence report that showed Americans were more pessimistic about the economy in October than at anytime in 41 years, the Dow Jones industrial average rose 889.35 points, or 10.8 percent, to 9,065.12, closing above 9,000 for the first time in a week. The broader Standard & Poor’s 500-stock index was 10.79 percent or 91.59 points higher, and the technology-heavy Nasdaq was up 9.53 percent or 143.57 points. Stock analysts struggled to make sense of the gains. . . “To say today is a turning point is no more than to say yesterday was the beginning of the end,” Mr. Silverblatt said. “I could make either argument, and I don’t believe either of them.” . . . Crude oil fell 49 cents, to $62.73 a barrel. . . Shares in Europe also finished higher. The Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips,...

Via Samizdata -> the Spectator: If you had purchased £1000 of Northern Rock shares one year ago it would now be worth £4.95, with HBOS, earlier this week your £1000 would have been worth £16.50, £1000 invested in XL Leisure would now be worth less than £5, but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and re-cycle. Lately I've had a taste for Fat Tire Amber Ale from New Belgium Brewing. A local road house has it on tap. It does come in cans, but it isn't available near by in that package, and more experienced drinkers tell me that it isn't as good as the draft. So, I'll invest in my spare tire, which is in need of recapitalization. I don't have...

Like everyone else, I'm still trying to sort out what has happened, and so have some notion of what will happen. So far most of the gabble has been political chicanery. Another shoe drops. So much for tirades against American greed. Ambrose Evans-Pritchard says it is ironic that European banks have turned out to be deeper in debt than their US counterparts. We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that it was for "regulatory capital relief rather than risk mitigation". In other words, it was underpinning a disguised extension of credit leverage. Its collapse would have set off a lending crunch across Europe as banking capital sank below water level. It turns out that European regulators have allowed even greater use of "off-books" chicanery than the Americans. Mr Paulson may have...