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Is Having Missed the Crisis a Requirement to Be a Media Expert?

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Wednesday, 28 April 2010 22:15

Just about the whole economics profession missed the housing bubble that sank the U.S. economy. Fortunately for them, economics is not a profession where performance matters. The "experts" who completely missed the largest economic disaster in 70 years are still the sole source for the overwhelming majority of news stories on the crisis.

This is especially painful in coverage of the Greek and now larger euro crisis. Those of us who read Keynes (a group which should include all economists, but apparently excludes nearly all media "experts") know that the problem is that the European Central Bank has to make more money available to its members to get through this crisis. While many governments hold superstitions about the benefits of rain dances and the causes of inflation, there is no basis for concern that printing money will cause inflation in the current economic situation.

The story that reporters should be writing that is that the superstitions of many European governments (with Germany topping the list) are needlessly inflicting pain on tens of millions of people across Europe. Ironically, these superstitions may ultimately have a severely negative effect on Germany's economy as well.

Economists who are not clueless about this crisis could explain this situation to readers. It is unfortunate that most major media outlets have chosen to rely exlcusively on economists who are.

 

Comments (7)Add Comment
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written by AndyfromTucson, April 29, 2010 9:11
The media want experts who will cooperate with hyping whatever story seems to be resonating with the public at the moment. It makes sense that the economists who were good cheerleaders for the housing market would also turn out to be good cheerleaders for today's fad - deficit handwringing. There are economists who know which side of the bread is buttered and then there are the naive ones who call it like they see it.
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written by Queen of Sheba, April 29, 2010 10:47
The EU central bank in Frankfurt is doing a terrible disservice to the other EU countries by being in a snit over the deceptive economic games played by Greece when they entered the Union. The "superstitions" they hold about inflation are only rationalizations for their sulk.

The central bankers' refusal to make money available to Greece is tantamount to refusing to help your neighbor put out the fire consuming his house because the fire was started by your neighbor's smoking in bed after assuring you that he didn't smoke at all. Pretty soon the fire spreads to your own house because you refused to help put it out when it first began.
Decline of the West?
written by leo, April 29, 2010 11:24
"Ironically, these superstitions may ultimately have a severely negative effect on Germany's economy as well."

Ironically, these superstitions may ultimately have a severe negative effect on the political side of the ledger.

Do we have to go through another Great Depression just to remember that awful economic conditions can have absolutely toxic political consequences?

This isn't exactly a shining moment for western democracies. My, how far we have fallen from the glory days following the defeat of communism.
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written by Zach Halstead, April 29, 2010 6:48
"there is no basis for concern that printing money will cause inflation in the current economic situation."

Printing money will not solve any problems, in fact it will make them much much worse. What we need now is deflation, prices need to fall further in order to cancel out all of the malinvestments that have been created in the last 20 years due to massive credit expansion and lower than market interest rates by central banks. A recession should be embraced so we can have solid footing in the future.

Too much money and regulation was the major reasons for the boom and bust, and all Baker is saying that we just need more of this. This is backwards thinking. A sacrifice is needed in the short-term in order to achieve long-term growth. However, with all the money already pumped into the economies around the world, an inflatioary bubble and corresponding boom is now inevitable. More printing of money will just make these distortions worse.
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written by Queen of Sheba, April 30, 2010 1:52
Zach;

This rant of yours is a joke, right? There was no money - there were massive amounts of debt (and still are, on the books of the TBTF banks, because they know if they were honest about all the junk they would most definitely wake up to find themselves in the crapper); there was no regulation - there were regulators who ignored what few regulations remained and ignored the warnings of whistleblowers while they watched porn. Printing money may not be the optimal way out of this mess, but it's the best one we have in the current moment. Right now we have to dig ourselves out of the hole we're in, and doing away with all regulation while cowering in fear of inflation is no way to proceed.
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written by RW, April 30, 2010 8:12
Dean,

there is a bit more to it. How would the ECB help Greece? The direct machanism would be to purchase greek debt. But Art 123 of the Treaty on the Functioning of the EU states:

"1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public
authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions."

This provision makes sense to avoid running deficits through the printing press - unfortunately it has no exit clause for deflationary crisis. The ECB is to some extent working around this prohibition by accepting low quality collateral from banks.

But there is still the question of a bailout: If you get bad debt on the ECB balance sheet, all member countries will in the end pay for it (it's like the Fed buying California's debt). So in the end, it's not much different from the pooling of a bailout fund that currently happens.

If your point is about ECB policy concerning the debt of all member states, it is prohibited from buying that debt directly, but it can be monetized through the banks.

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written by scott, May 01, 2010 4:22
Of course it is. The only thing allowed on tv are sophists and whores. Earnestness is too complicated, confusing and really undermines what the network is looking for. We are in a Hegelian dialectic that is quickly reducing itself to absurdity.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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