Kasriel Boskin Smackdown Déjà Vu
As we noted in these pages a few weeks ago, Paul Kasriel gave Michael Boskin’s selective memory a who-dat-what-for.
This morning, Barron’s picks up the same theme:
IT’S PERVERSE OF US, WE ADMIT, but we get a real kick out of a dust-up between economists. If nothing else, it demonstrates that the dismal science is not a science and not necessarily dismal.
What occasions this somewhat less than profound observation is a recent commentary of Northern Trust’s director of economic research, Paul Kasriel, taking issue with an op ed piece in our sister publication, The Wall Street Journal, by Michael Boskin, a former chairman of the Council of Economic Advisers under the first President Bush.
Mr. Boskin blamed the lackadaisical recovery on the Obama administration’s economic policies, a view that is widely shared these days. Paul avers his intention is not to argue for or against those policies, but to express wonder that in fingering the causes of the feeble recovery Mr. Boskin somehow neglected to include the extraordinary contraction in bank credit.
In making his case, Mr. Boskin compared the current recovery with more robust ones, particularly the first quarter of 1983, when Martin Feldstein was chairman of the Council of Economic Advisers under President Reagan.
On that score, Paul finds it “curious” that Mr. Boskin makes no reference to the 1991 recovery when he was the Council’s top dog. Our initial reaction to the omission was, for gosh sakes, Paul, since when is modesty a sin?
Paul then proceeds to note that one year into the rebound in 1983, GDP growth weighed in at 7.7%, accompanied by a 6.4% growth in bank credit. That’s significantly better than the 3% rise in the first year of the present recovery, when bank credit actually contracted an awesome 7.9%.
And it also happens to be a heap better than the 2.6% rise in GDP in 1991, when bank credit rose only 1.4%.
It goes without saying, Paul concedes, that other factors besides bank credit play a part in GDP growth. But he insists that the shrinkage in bank credit has been a substantial element in the disappointing pace of this dispiriting recovery.
As for perhaps the most distinguishing aspect of the current recovery—its abysmal failure to create jobs—he’s quick to affirm its performance on that score pales in comparison with that of the average bounce-back since 1961. Still, he points out, presumably with a mischievous glint in his eye, it exceeds that of 1991.
Paul concludes his critique by suggesting that “perhaps Mr. Boskin is not suffering so much from amnesia, but rather is experiencing an episode of déjà vu.” Mr. Boskin, he explains, intimates the sluggish pace of the current recovery may suggest that President Obama will have a tough time being reelected in 2012.
Yes, agrees Paul, just a the first president Bush failed to gain a second term n 1992, which “terminated Mr. Boskin’s tenure” as chairman of the Council of Economic Advisers. “
Its déjà vu all over again!
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Previously:
Smackdown: Paul Kasriel vs Michael Boskin (September 10th, 2010)
Source:
Suddenly, Everyone Is Not Bearish
ALAN ABELSON
Barron’s SEPTEMBER 18, 2010
http://online.barrons.com/article/SB50001424052970204914704575489810556356820.html
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September 18th, 2010 at 2:56 pm
Never let the facts get in the way of a good political narrative! I saw some right wing fruitcake from home depot on cnbc yesterday saying that bank credit to business is plentiful. There are no jobs because we voted democratic, according to him!
The biggest lie in all of this rhetoric is that uncertainty is bad for capitalism. That’s the stupidest thing I ever heard. Capitalism is *founded* on uncertainty. You only get a return on capital because there’s a risk of loss. The only way to eliminate the risk of loss is to eliminate choice. Thus, the gop is the biggest advocate of collectivist planning in world history.
September 18th, 2010 at 5:00 pm
Well, hey, let’s break it down. Boskin is indeed a political hack. We have no way to judge his economic research skills because they get buried under the politics. He definitely is a “for-sale” kind of guy (whore?) as are most today of necessity.
@411: WTF?????
Boskin is indeed a hack. But where exactly was he in the Clinton administration????
And exactly what wonderfully thoughtful things did he accomplish working on the CPI?
“Thus, the gop is the biggest advocate of collectivist planning in world history.”
I think you may want to include Clinton in that list, not just the gop. If you are indeed an academic historian with any sense of integrity.
September 18th, 2010 at 8:48 pm
Paul Kasriel is top notch.
Bank regulators have been awful — before, during, and now “after” this crisis. Shiela Bair is 33% to blame for unemployment and the entire debacle.
How can banks extend credit and lending when silly regulators are telling them to “delever”?
Dont they understand… the time to “delever” was in 2006-07-08. Now and since the crisis has been the time to LEVER!
Silly, stupid, and the human consequences are painful.
September 18th, 2010 at 8:51 pm
No bank failure report this week?
Please stop quoting the silly “# of failures”… 45 of the last 50 failures have been LESS THAN $100M in costs to FDIC.
The total cost of the last 50 failures is much less than the largest single failure cost and about the same as the largest cost failure of this year. That means ALL the bank failures since May 1st have costs about the same as the single largest one before May first, this year.
I bet the FDIC insurance fund is cash-flow positive the last 4 months.
September 19th, 2010 at 12:08 am
@Cognos — your trivializing of the bank failures does not hold this week, 6 banks closed at a cost of 1/3 billion … the financial foundation is still crumbling
Regulators close 6 banks in Ga, NJ, Ohio, Wis
Regulators shut down 3 Georgia banks, 1 each in NJ, Ohio, Wis; makes 125 US failures this year
http://finance.yahoo.com/news/Regulators-close-6-banks-in-apf-2563556515.html?x=0&sec=topStories&pos=4&asset=&ccode=
The failure of Bank of Ellijay is expected to cost the deposit insurance fund $55.2 million; that of First Commerce Community Bank, $71.4 million; that of Peoples Bank, $98.9 million; ISN Bank, $23.9 million; Bramble Savings Bank, $14.6 million; and Maritime Savings Bank, $83.6 million.
Total FDIC liability: $347.6M … seems many are desensitized by the Billions and Trillions being thrown around, a 1/3 of a billion dollars is still a lot of $$$.
The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of June 30. The number of banks on the FDIC’s confidential “problem” list jumped to 829 in the second quarter from 775 three months earlier.
The drain on the fund continues, the banks will either pass these on as fees to the consumer or take a hit to their margins.
September 19th, 2010 at 12:02 pm
Obsvr-1:
Are you kidding? Is $347M alot for FDIC closures? (Hint, its not!).
The largest bank failures have costs the FDIC $5-10B. So at about $50M average… which is where we have been since May 1… it take 100 bank failure to equal 1 single large one.
Psst… the US banking system has $10s of Ts of dollars. $50M is very, very little.
My point is that is it extremely silly nonsense to count the “# of failures” when some cost $10M and some cost $10B (thats 1,000x as large). The last 6 months have been the lowest cost 6 months to the FDIC since 2008 and losses or costs to bank failures is on a steep decline.
September 19th, 2010 at 12:04 pm
And finally, I question your statement — “The drain on the fund continues”.
Since the last 100 bank failures have been mainly very small… I would not be surprised to find that the fund (which charges insurance on 10s of $Ts in deposits) is now growing or moving out of deficit. Classic slow motion credit cycle.
September 19th, 2010 at 12:10 pm
The Aug-Sep period is on track to be the lowest 2-month period for “costs of bank failures” since 2008.
I will wager that the Jul-Dec 2009 period will be the lowest 6-months in “costs to FDIC” since before the crisis (early 2008 when failure costs were zero).
http://portalseven.com/banks/Failed_Banks_FDIC_Cost.jsp