Comments on: Causes: Economics

By: Orientering om finanskrisen « Ekonomistas

Orientering om finanskrisen « Ekonomistas — Wed, 14 Jan 2009 09:19:58 +0000

[...] intressant inlägg tar upp en läsvärd skrift av Daron Acemoglu (som Johnson skrivit mycket med) som diskuterar vilka [...]

By: Acemoglu takes a dig at Greenspan and raises policy conerns « Mostly Economics

Mon, 12 Jan 2009 11:02:40 +0000

[...] takes a dig at Greenspan and raises policy conerns By Amol Agrawal Simon Johnson in his Baseline Scenario Blog pointed a new paper from Daron Acemoglu. (ME is a big fan of Acemoglu but this crisis has shifted [...]

By: Core Economics » Blog Archive » The failure of unregulated markets

Core Economics » Blog Archive » The failure of unregulated markets — Sat, 10 Jan 2009 03:18:35 +0000

[...] Simon Johnson] MIT’s Daron Acemoglu has written one of the best essays on the financial crisis and what it [...]

By: Knowing and Making

Knowing and Making — Fri, 09 Jan 2009 23:40:28 +0000

[...] They have a nice summary of Daron Acemoglu’s paper which has a focus on behavioural (mental/perceptual) reasons for the financial crisis. [...]

By: Jim Altman

Jim Altman — Fri, 09 Jan 2009 21:15:22 +0000

I do not understand why an economist would be surprised that large, responsible firms with strong concern for their reputation would nonetheless engage in risky opportunistic behavior. Consider a firm whose (smaller? less honest?) competitors are benefiting significantly from risky behavior. In an efficient market, that firm has two choices: It can imitate the opportunistic behavior, regardless of the possible long-term risk to its reputation. Or, it can choose to forego the opportunistic behavior. In the latter event, its profits will drop in comparison to its competitors, as will its stock price. And it will accordingly lose its more aggressive, and some of its better, top employees, starting a vicious cycle in which it continues to lose financial and human capital. Hence, the pressures to adopt the opportunistic behavior are likely to be strong and increase over time, unless the downside risk is readily apparent, appreciable, and imminent. It is not a question of whether failure is punished severely, or even at all; it is primarily a question of immediacy of punishment. If the punishment is not immediate, market efficiency will, I should think, inevitably drive conservative firms to match the behavior of their more risk-tolerant competitors, lest they be driven out of business.

By: What model for the financial system breakdown? Falling dominoes? Cascading outages? « Knowledge Problem

Fri, 09 Jan 2009 19:54:13 +0000

[...] and provides a summary of a paper by Daron Acemoglu on the current financial crisis. Johnson summarizes one of Acemoglu’s points as follows: The seeds of the crisis were sown in the Great Moderation (the low inflation, [...]

By: Geoffrey Morton-Haworth

Geoffrey Morton-Haworth — Fri, 09 Jan 2009 16:25:45 +0000

You are right to say: “The way we think about reputation, including how it is acquired and maintained, is way off base. This is fundamental for both formal economics and how you go shopping.”

The origins of toxic debt and toxic eggs are similar (see http://yalaworld.blogspot.com/2008/10/toxic-eggs-and-toxic-debt.html).

By: Odograph.com » Blog Archive » The Backlash is Justified

Odograph.com » Blog Archive » The Backlash is Justified — Fri, 09 Jan 2009 16:10:37 +0000

[...] (The Baseline Scenario on Causes: Economics) [...]

By: Will Larson's Web Page » The Smartest Guy in the World

Will Larson's Web Page » The Smartest Guy in the World — Fri, 09 Jan 2009 15:50:06 +0000

[...] http://baselinescenario.com/2009/01/08/causes-economics/ [...]

By: Geoffrey Morton-Haworth

Geoffrey Morton-Haworth — Fri, 09 Jan 2009 14:58:12 +0000

Yes, not only is the economy in crisis but economics is in crisis. At the heart of macroeconomics is the claim that we do understand the global economy and can therefore manage it by pulling policy levers, “top down and from the centre”. Evidence shows this is not so. Obama’s latest proposals, for example, might address the US if it existed in isolation, but the US is only a part of the problem.

An alternative view is that the global economy is a complex adaptive system. Like ant colonies, cities and the human brain, it has the ability to learn in its parts and as a whole. As fast as we make new regulations, players in the economy will find ways to circumvent them. Just as the brain exhibits emotions so stock markets display “market sentiment”.

We can manage complex adaptive systems but only indirectly, “bottom up and at the edges”. This is the secret of Grameen Bank’s success.

When physical assets lose their value, all we have left are human assets. The key to liberating value from people lies in improving the quality of dialogue at every interface in the system (unhealthy neurons cause brain dysfunction; healthy neurons restore it).
How do you begin to manage “bottom up and at the edges”? You make it safer to talk.

By: Acemoglu sur la crise financière « Rationalité Limitée

Acemoglu sur la crise financière « Rationalité Limitée — Fri, 09 Jan 2009 08:10:58 +0000

[...] de Daron Acemoglu sur la crise financière et les leçons à en tirer pour la science économique. On peut trouver ici un petit résumé de son point de vue. Acemoglu est l’un des économistes les plus brillants [...]

By: 2 Detailed Posts « The Durable Investor

2 Detailed Posts « The Durable Investor — Fri, 09 Jan 2009 02:59:04 +0000

[...] days ago, the Fed’s new fear of deflation and actions they are contemplating to counter it. The seond discusses another of my themes, the human tendency to create bubbles and the structural issues in [...]

By: Causes: Economics « The Baseline Scenario | Ouhuho Blog

Causes: Economics « The Baseline Scenario | Ouhuho Blog — Fri, 09 Jan 2009 02:37:14 +0000

[...] We have been not reduced of causes for a stream economic crisis. The simple machine of capitalism, together with a routine of creation loans, did not work as it was ostensible to. Capital flows around a universe valid most some-more destabilizing than … Read some-more here: Causes: Economics « The Baseline Scenario [...]

By: engineer27

engineer27 — Thu, 08 Jan 2009 20:12:07 +0000

Your friend Daron may have impeccable economic credentials, but he would be well served to retain the services of a good editor.

So A for content, B- for grammar, diction, and style.

By: Adam

Adam — Thu, 08 Jan 2009 17:23:10 +0000

Pat J, just because millions of people didn’t actively participate in this bubbles does not mean that they wouldn’t participate in bubble behavior and that is the issue. Change the scenario and you’d still readily get people to participate in a bubble. That’s the human component.