Peter Lynch is a wise man and correct about many things. One of my favorite quotes from him is that "If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes". This was never more true than today, when it seems neither amateurs or professionals are adding much value to the debate.
Silliness is widespread. For example, statements from our President that "we will lose 3 million jobs if we do not pass a stimulus bill". Then, after the stimulus is passed and we still lose MORE THAN 4 million+ jobs, a new study is engineered to show that the stimulus worked better than expected, even though the outcome is below the worst-case, no-stimulus forecast.
Keynesianism (a.k.a-government stimulus as savior in all circumstances) is truly a circular argument with no way of igniting any logical/factual debate. A great example of simple logic failute by the economist-elite is seen below:
http://www.truth-out.org/economists-tell-masses-it-could-have-been-worse61935
Economists Tell the Masses: "It Could Have Been Worse"
Monday 02 August 2010
by: Dean Baker,
"the economists are back telling us that we should be thankful that Congress and the Fed enacted the TARP and the other programs that saved Goldman Sachs, Citigroup, and the rest from bankruptcy. A new study by Princeton University Professor Alan Blinder and Mark Zandi, the chief economist at Moody's Analytics, examined the impact of the TARP and the related Fed and FDIC bailout programs. The study found that without the bailout, GDP would have declined by another 6.5 percent and the economy would have lost another 8.5 million jobs. In other words, things might be bad now, but if we didn't shovel trillions in loans and loan guarantees to Goldman Sachs and the rest of the Wall Street gang, they would be even worse.
Before we start thanking Goldman for taking our money, it is worth taking a closer look at the study. The big story here is the counterfactual. What does the study assume the Fed and Treasury would have done if we had not passed the TARP and the Fed had not come through with its vast array of emergency loan and loan guarantee programs?
The answer is that the study assumes that they would have done nothing. In other words, the question asked by the study is "what would the world look like if the federal government had done absolutely nothing to counter the economic and financial downturn resulting from collapse of the housing bubble?"
This counterfactual seems more than a bit unrealistic. Suppose we had let the market work its magic and put Goldman, Citigroup, Bank of America, and Morgan Stanley into bankruptcy. Suppose that once these firms were in receivership and their bank units were in the hands of the FDIC, the Fed flooded the system with liquidity. How would this situation compare with the situation where trillions of taxpayer dollars were put at the discretion of Goldman and the rest through TARP and the Fed's special facilities?
The Blinder-Zandi study tells us absolutely nothing about this scenario. In other words, Blinder and Zandi have constructed an absurdly unrealistic counterfactual and told us that the TARP was much better than this absurd scenario. This is like saying that people who don't eat chicken will starve to death. Under the counterfactual that people who don't chicken don't eat anything else either, they certainly will starve to death.
But that is not a serious analysis of the benefits of eating chicken, and Blinder and Zandi have not given us a serious analysis of the benefits of the TARP. This "it could have been worse" line should be flushed down the toilet. The reality is that greed and incompetence created an entirely unnecessary disaster. Tens of millions of people are still suffering from its consequences. And the Wall Street boys and the economists who are responsible for the disaster are all doing just fine.
People should be really angry about this and a silly study that might be used to tell them otherwise should just make them angrier.
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