Re: U.S. deficits fine -- Nobel laureate

From: Robert Vienneau (rvien_at_see.sig.com)
Date: 12/12/04 

Date: Sun, 12 Dec 2004 09:13:05 -0500

In article <o9Rud.22708$yf.21916@fe2.texas.rr.com>, Igor
<jjweatherby@houston.rr.com> wrote:

> sinister wrote:

> >>sinister wrote:

> >>>That's the same blithering idiot who coauthored the paper "The 1929
> >>>Stock
> >>>Market: Irving Fisher Was Right."
> >>>
> >>>Cf the thread "Fine work by our new Nobelist."

> > Face it, dude, Roy smoked you in that debate.
> >
> > Then again, he didn't really have to lift a finger, given the nonsense
> > that
> > litters your posts.
> >
> > [snip]

> I can understand why you would say so. You declared Presscot an idiot
> after reading the abstract then had 20 million question about what the
> paper actually said. You declared the idea idiotic without reading what
> was in the paper. Rob and I had to explain to what it said. Given that
> ir is obvious you declare winners and losers from preconceived notions.
> There was no one smoked in any debate. Roy had A LOT of misconceptions
> about the model that needed to be cleared up and still does. If you
> think the whole mud pies apple pies thing was a smoke then you do not
> begin to understand the theory of pricing or productivity. Then again
> you probably read one sentence and declared a winner just like you read
> one or sentences out of the abstract and declared Presscot an idiot
> before you did two VERY important things.
>
> a. Stop to think about what Presscot meant by undervalued. Maybe look up
> the definition.
>
> B. ACTUALLY READING THE PAPER TO SEE WHAT THE ARGUMENT WAS AND HOW IT
> WAS CONSTRUCTED. It is pretty clear by the paper the definition was a
> LOW P/E ratio. The paper estimates low P/E ratios then uses those as
> proof stocks were undervalued. If you recall once I realized that no one
> but I in that discussion knew what was meant by undervalued and I
> explained it the thread ended. Once you understood it was a statement
> about P/E ratios you just stated oh well the estimate was high with no
> discussion about why. You said oh some other data says this without any
> discussion of why it was better other than it met your preconceived
> notions. Your answer went from Presscott is an idiot to I suspected he
> used a liberal estimate for E. Using a liberal estimate is not idiotic.
> Even at that other than preconceived notions you gave NO argument to why
> the estimate was "liberal".
>
> In fact if you read the debate carefully you will see that Roy was
> saying something similar to the fact that stocks were likely to be
> undervalued or at least not overvalued. Which was getting somewhat
> twisted by the fact he was using a different idea of what undervalued
> then most economist would use. His statement was that people would not
> be stupid and buying a lot of stock with a recession coming on, the
> misconception was the same as Rob's believing undervalued means the
> price of the stock WILL rise in some period of time.

The above is nonsense. Mr. Weatherby does not understand what was
being discussed.

> Roy's argument is
> what Presscott showed people are not stupid they will adjust their
> expectations as they see a recession coming on. This meant that although
> at the time of the stock market crash EARNINGS were still very high,
> DEMAND FOR STOCKS WERE FALLING DUE TO AN EXPECTATION OF DWINDLING
> PROFITS.
>
> The debate was about a technical issue in an equation part of which
> Presscot did not very clear. Presscott assumed his readers were familiar
> with models such as Aghion and Howitt 1991. The only thing really highly
> disagreed upon was would $1000 worth of capital with low productive be
> equivalent to $1000 worth of highly productive capital. The answer is
> likely yes. Why? Because $1000 worth of capital that is not very
> productive is a heck of lot more actual units of $1000 worth of highly
> productive capital. It is like saying buying 500 shovels at $2 a piece
> would give the same productivity gain as 1 $1,000 bakhoe. Prices would
> adjust to give roughly equal returns from each type of capital. The
> shovels are crappy capital but because the BENFIT ADDED FROM A SHOVEL IS
> SO MUCH LOWER THEY WILL SELL FOR LESS BECAUSE FIRMS WILL HAVE A LOWER
> WILLINGNESS TO PAY. Why because there will be LESS demand for that
> input. So $1000 spent on shovels gives 500 shovels is likely to give
> the same extra boost to labor as 1 $1,000 backhoe.
>
> The paper showed RATIONAL EXPECTATIONS WORKS. People set expectations
> and act on them. People saw the increases in taxes by Hoover and the
> movements the Fed was making and knew to expect a negative impact on the
> economy. THAT IS WHY PRICES WERE FAR LOWER THAN EARNINGS OR EQUITY.
> PEOPLE EXPECTED PROFITS TO FALL AND WERE SELLING BEFORE THE CRASH.
>
> So I do not put much stock in someone who does not even read a paper
> before calling the author an idiot when he says I got smoked by someone
> else.

The above is a fumble. It reveals a serious lack of comprehension
of

  "The 1929 Stock Market: Irving Fisher Was Right," Ellen R. McGrattan
  and Edward C.Prescott
     <http://research.mpls.frb.fed.us/research/sr/sr294.pdf> 

-- 
Mostly economics:  <http://www.dreamscape.com/rvien/#PublicationsForFun>
r           c
 v         s a           Whether strength of body or of mind, or wisdom, or
  i       m   p          virtue, are found in proportion to the power or wealth
   e     a     e         of a man is a question fit perhaps to be discussed by
    n   e       .        slaves in the hearing of their masters, but highly
     @ r         c m     unbecoming to reasonable and free men in search of
      d           o      the truth.    -- Rousseau

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