WSJ Econoblog: Reasons to Pout?

Yesterday, Brian Wesbury and I did the full econoblog thang for the WSJ.

You may recall Brian penned the "Pouting Pundits of Pessimism" piece for the Journal’s Op-Ed page (discussed previously here).

It was a lot of fun; Brian’s a good guy — he’s a lot more Bullish than I, and think’s the economy is hunky dory —  but at least he’s a realist when it comes to inflation.

The whole discussion is on line in their public section here; I think we lay out both sides of the debate fairly well.

Special thanks to Calculated Risk for the chart!


ECONOBLOG: Reasons to Pout?
WSJ, January 6, 2006

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  1. rvirmani commented on Jan 6

    No-one in the US Financial Community is talking about the Oil Bourse that the Iranians are planning to start-up in March.

    Or maybe they all expect the US to invade to ensure that this does not happen.

    So I remain an optimist till march. After that, we will have to see. A petro-euro cannot be good news for the US economy.

  2. royce commented on Jan 6


    You and Wesbury shouldn’t be paired up in a forum like that. Looking at his bio, he’s a lot more politically-oriented than you are. Whenever an expert on any subject begins to associate him or herself with a side of the political spectrum, you have to ask how much of the analysis derives from the demands of politics rather than unbiased reasoning. A better move for the journal would have been to slip in the left’s version of Lawrence Kudlow, whoever that might be.

  3. MPM commented on Jan 6

    Uh, that would be Paul Krugman.

  4. D. commented on Jan 6

    “As far as the housing ATM goes, it may be true for an individual, but it can’t be true for the nation as a whole. If a bank decides to increase the size of my outstanding mortgage, and give me cash, then someone else must have deposited that money first. There can be no borrowing without saving. There must be a debit for every credit. For me to spend more than I earn, someone else must spend less than they earn”

    I call this flunking economics 101.

  5. Spectator commented on Jan 6

    Indeed, Brian Wesbury is a moron. This is the guy that wrote about homeowners having higer equity, so the high debt is no big deal. Like the telcos discovered, homeowners will soon find the equity was fiction and the debt is all too real.

    Economists like him are what keep people from coming to their senses in a bubble.

  6. Algernon commented on Jan 6


    Unfortunately you are wrong. The Fed & its extensions (the banks) continually create money out of thin air & lend it. Why do you think that the purchasing power of the $ has steadily declined for the last 65 years?

    The fact that money can be lent that has never been saved is the primary cause of the misallocation of resources (to wit, recessions) if the Austrians are correct.

  7. Algernon commented on Jan 6

    I’m sorry MPM. I didn’t realize you were quoting Brian Westbury. It is uncanny as he seemed otherwise rather reasonable. (I read the debate last.)

    I lean in Barry’s direction. I don’t think Peterson made a strong case. However, the current accounts deficit is more misleading than the CPI–to the point of being meaningless. And the Asians are a great source of stimulation, both in productivity & capital (both real & printed). These factors may help the US in ’06 quite a bit.

  8. Barry Ritholtz commented on Jan 7


    Wesbury is no moron — he’s a rather bright guy — but you are EXACTLY right about the equity/debt relationship

    In 2000, people felt flush — then the Nasdaq dropped 80% — and most of the geegaws they bought still had to be paid for . . . .

  9. Barry Ritholtz commented on Jan 7

    Royce —

    I actually approached the WSJ about doing a face off with Wesbury after his “Pouting Pundits of Pessimism” Op/Ed last month. It was my idea, not theirs.

    To Brian’s credit, he stepped up. He could have ducked a forum where he didn’t control everything (like the Op-Ed). He gave me the last word, and was a gentlemen about everything. So kudos to him for debating in the marketplace of ideas (rather the world of spin and propaganda).

    Here’s my question: How’d he do in proving his point? Did I ding his arguments at all? (I have my own views as to who won ; )

  10. D. commented on Jan 7


    Our economy is based on banks taking deposits and lending more than comes in. It’s called leverage.

    When someone says something that goes against such a basic notion, my brain shuts down.

  11. B commented on Jan 7

    I’d like to make a few comments about the dollar-in/dollar-out notion posted on this thread as it pertains to the banking community. I am not trying to be critical. Just trying to open your eyes a little wider with a triple shot espresso.

    First off, I am not a banker so I speak from a layman’s perspective. Although banking is a fine career. One you will likely be be a part of in the future. You see, at the rate of “creative destruction” our economy is undergoing, there are two choices for future employment. The haves and the have nots. You’ll either work at a bank or Wal-mart. But, pushing money and paper around all day is a noble cause. Who really wants to make anything.

    Back to econ 101. Does anyone remember the S&L crisis? As I recall, that scenario unfolded as financial institutions lent more and more money, and risky money, to participate in the real estate boom of the time. Can you say “asset backed securities?’ or “zero down mortgages” or “drive by appraisals” or “generous approvals for those with poor credit” or or or or or. There has been tremendous taken on by financial institutions during this housing cycle……er…..speculation cycle. You cannot have a real estate bubble without entertaining the possibility of a corresponding credit/financial bubble.

    So, let’s say a scenario unfolds with a comcomitant slow down in real estate and the economy. What if nonperforming loans increase? What if bankruptcies increase? What if home values fall significantly? And what if people can’t pay their bills and walk away from their homes at even a 1% rate? Oh, and that assumes 99% of homeowners are fiscally responsible. Now that’s a laugh. What if deposits slow down? What if a particular bank(s) see deposits shrink? What about loan reserves? What about the cost of writing own bad debt? Has anyone ever heard of risk management? There doesn’t seem to have been alot in the mortgage sector lately.

    I’m not predicting anything of the sorts. But, the dollar-in/dollar-out scenario is an oversimplification that has already been proven fallible in many past economic events.

    So, a hypothetical. Never come true but a hypothetical. 5 million homeowners default on their mortgage after a real estate crash. Housing prices fall by 20%. Not taking into account all of the other dislocations created in the economy let’s assume their average home mortgage is $100,000 and the banks have to find sellers at a 20% loss since they were loose on down payments and asset valuation at the time of writing the loan. ie, The house isn’t worth nearly what it is underwritten for. What’s $20,000 times 5,000,000? That’s a cool $100 billion in losses. Just a thought.

    Why do people think the Fed is trying to slow down the housing market? For giggles and grins?

  12. royce commented on Jan 7


    It’s hard to decide who wins a debate about what the future holds because both you and Wesbury have certain numbers you’re looking at to reach a conclusion. Who’s focusing on the “right” numbers? We won’t know for a year or two.

    Personally, I thought your arguments were more compelling, but I’m a frequent reader of your blog and so that’s to be expected. Particularly when I’m light on the basics of macroeconomics (and any other kind, frankly).

    Also, I noticed in Wesbury’s analysis was the frequent invocation of doctrine over actually addressing some of the issues you raised, which didn’t strike me as convincing.

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