Feldstein: Holy S*&#!

Shorter Martin Feldstein:

-More Fed regulation of financial institutions is needed;

-The  national fall in house prices is unprecedented ;

-The biggest risk is paralysis of the credit markets.

-Any recession will last longer and be more painful than past downturns;

-Fed will not be able to end the recession as it did previously by turning off tight monetary policy.

Amazing how some people who you think have an ideological rigidity can surprise you sometimes . . .

Our Economic Dilemma
WSJ, February 20, 2008; Page A15

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  1. SPECTRE of Deflation commented on Feb 20

    On the ground events have a way of changing attitudes like nothing else. Ben with his study of the Great Depression will be no better prepared because events are so different this time that old solutions no longer fit the bill, pun intended.

  2. JustinTheSkeptic commented on Feb 20

    It’s about time he comes over into our camp…just make sure he brings plenty of food and water – it’s going to get tough out there!

    And no! I’m not trying to frighten anyone – just facts man, just facts.

  3. Joe Klein’s conscience commented on Feb 20

    Is Feldstein some hardcore Republican(I am not familiar with him, though maybe I should be)?

  4. Dirk van Dijk commented on Feb 20

    Joe Klein’s Conscience,
    Yeah he is about as GOP as they come, although in the (increasingly shrinking) rational wing of the party. Was papa Bush’s cheif economics advisor and has held lots of posts under GOP administrations. He is also the guy who decides if we are in a recession or not in his capacity as the head of the NBER.

  5. VJ commented on Feb 20

    Amazing how some people who you think have an ideological rigidity can surprise you sometimes . . .

    Desperate men require desperate intervention.

  6. SPECTRE of Deflation commented on Feb 20

    Dirk van Dijk, more politics? Can we please discuss without stereotyping individuals?

    He’s an economist with his particular philosophy concerning the study of economics. It doesn’t mean he’s right, but slurring people on Party affiliation doesn’t belong in an economic discussion unless we discuss his individual thoughts and ideas. Barry highlighted the points we need to concern ourselves with regarding his evolving thoughts. Hell, we all do that when the situation dictates.

  7. Mr. Beach commented on Feb 20

    Like many, Feldstein uses the word “unprecedented” in describing the fall in national housing prices. This is disingenuous because it suggests “unforeseen”.

    Many, many analysts including our esteemed host, Barry, have been commenting for years about the insanity of the mortgage and housing market.

    Where was the Fed when we were discussing NINJA loans, neg-arm mortgages, condo buildings with >50% speculators?

    This entire insanity rests at the feet of the Fed. The Fed failed to oversee banks. The Fed kept interest rates too low too long.

    It is now time to pay.

    Of course, we’ll hear rounds of : “No one could have foreseen…”

  8. Joe Klein’s conscience commented on Feb 20

    Dirk van Dijk, more politics? Can we please discuss without stereotyping individuals?

    Would you say the same about Kudlow or Arthur Laffer as well? The two of them are defined by their politics.

  9. Josh commented on Feb 20

    Martin Feldstein is the George F. Baker Professor of Economics at Harvard University and President and CEO of the National Bureau of Economic Research. From 1982 through 1984, Martin Feldstein was Chairman of the Council of Economic Advisers and President Reagan’s chief economic adviser. He served as President of the American Economic Association in 2004. In 2006, President Bush appointed him to be a member of the President’s Foreign Intelligence Advisory Board.

    The National Bureau is a private, nonprofit research organization that has specialized for more than 80 years in producing nonpartisan studies of the American economy.

    Dr. Feldstein is a member of the American Philosophical Society, a Corresponding Fellow of the British Academy, a Fellow of the Econometric Society and a Fellow of the National Association of Business Economists. He is also a member of the Trilateral Commission, the Council on Foreign Relations, the Group of 30, and the American Academy of Arts and Sciences.

    Dr. Feldstein has received honorary doctorates from several universities and is an Honorary Fellow of Nuffield College, Oxford. In 1977, he received the John Bates Clark Medal of the American Economic Association, a prize awarded every two years to the economist under the age of 40 who is judged to have made the greatest contribution to economic science. He is the author of more than 300 research articles in economics.

    Dr. Feldstein is a director of two corporations (American International Group and Eli Lilly), a Governor of the Smith-Richardson Foundation, and an economic adviser to several businesses and government organizations in the United States and abroad. He is a regular contributor to the Wall Street Journal.

    Martin Feldstein is a graduate of Harvard College and Oxford University. He was born in New York City in 1939. His wife, Kathleen, is also an economist. The Feldsteins have two grown daughters.

  10. Fred commented on Feb 20

    Unprecedented does not imply unforeseen. They are two very different words. A foreseeable reversal of price appreciation can in fact be unprecedented. Kind of like Manhattan residential real estate, right? If prices (finally) pullback, would one say it was either unforeseen or unprecedented? That depends on how much, right? One could also argue that the appreciation in assets over the last 20 years was in fact unprecedented and unforeseen. Cuts both ways.

  11. michael schumacher commented on Feb 20

    Is Spectre the de facto content police now??

    get a life….. and worry less about others and more about yourself.


  12. Fred commented on Feb 20

    One other comment, stop blaming the Fed for everything. It gets old. Is it really the role of the central bank to raise rates because things are going well? Had that been the response in 2006 or earlier, we would be here blaming them for cutting the expansion short and causing a recession. The Fed doesn’t control how folks decide to spend money or not. Culturally, we like to buy unnecessary stuff and that’s one of the core issues here.

  13. SPECTRE of Deflation commented on Feb 20

    MS, no I was following the Editor’s lead in trying to stay on point. You know, like finance and not politics. It seems it may be impossible though with folks wanting to talk politics in an election year.

    The next time I give to the American Cancer Society, I will list you as a standout because your humanitarian spirit is what they are all about as an organization. Peace to you and yours.

  14. mhm commented on Feb 20


    Your book list includes “How to Shit in the Woods” by Kathleen Meyer… Really, do you expect the recession so bad nobody will have a house?! :)

    I’m pleasantly surprised you also list “Gödel, Escher, Bach”. I think that balances things out.

  15. SPECTRE of Deflation commented on Feb 20

    Larry Kudlow blows and Laffer is a laughing stock. I have no love for fools on either side of the aisle be they politicians or economists. This country is royally screwed unless we come together as a nation and kick all the bums out. Will it happen? No, we are too stupid, and I now fall into the hoarding camp because of it.

  16. a guy called john commented on Feb 20

    following up on mhm’s comment:

    barry, do you ever read fiction?

    BR: Sure! Not as much as I used to, but: I was a huge sci-fi fan — Philip K. Dick, Larry Niven, C. J. Cherryh.

    In non sci-fi, I love anything by Carl Hiassen — he’s great beach reading. Anything by Woody Allen.

    Oh, and don’t forget the WSJ OpEd page — thats mostly fiction, right?

  17. cinefoz commented on Feb 20

    Re Mr. Feldstein:

    His WSJ piece reminds me of the commercial where the old bore who is making the commencement address pontificates that “A well turned phrase is like a well heeled shoe,” who then smiles proudly at his observation. Let’s all stand up and applaud and send him on his way, back to wherever he’s been napping.

    Whether or not you agree with his analysis and conclusion, it comes across as a day late and a dollar short.

    As of this moment, the markets disagree with the doomsters. You have to love the stock market … it takes a licking and keeps on ticking. The word ‘relentless’ comes to mind.

    Maybe if we wait long enough, the next dip in a few months will be declared as really a delayed part of this one, and the doomsters will claim victory.

  18. Mr. Beach commented on Feb 20

    @Fred: Thanks for the lesson. But you are wrong.

    In the political arena, words have meaning beyond their usually accepted definitions.

    WSJ’s opinion page is as political as they come.

    Politicians use “unprecedented” to give themselves cover for their inactions. Many folks predicted the housing, mortgage and credit crisis — but the Fed took to no action. This was a collosal error. An error that will be written about in history books.

    The only way to save some shred of academic integrity is to say that the crisis in “unprecedented” and slyly imply that it was unforseen.

  19. Scott Frew commented on Feb 20


    It seems just possible to me that whatever ideological rigidity Marty F may have possessed loosened up just a tad when he was passed over by W for head of the Federal Reserve. When that position was still dangling out there, the incentive to toe the economic all is contained line was probably a bit stronger than it is at this point.



  20. MarkTX commented on Feb 20

    As of this moment, the markets disagree with the doomsters. You have to love the stock market … it takes a licking and keeps on ticking. The word ‘relentless’ comes to mind.

    The word “RIGGED” may be a better definition.

  21. E commented on Feb 20

    Depends on which markets you look at. The credit markets seem to confirm the doomster view. Ditto the housing market.

  22. cinefoz commented on Feb 20

    When the market rises, people accrue wealth. Some feel better about their situation and spend some of it. This is a wealth effect. It is a good thing. Everybody prospers.

    This might have something to do with the missing V that Ross wrote about earlier today. V is starting to build steam and will take off shortly. Get ready to take off with it.

  23. dblwyo commented on Feb 20

    mhm – et.al. GEB is a wonderful book as well as OT here since it talks about complex systems, feedbacks and unintended consequences. After all who’d have thunk Aunt Ant ? :). How ’bout “Strange Loop” ? Tried that yet ?

  24. cinefoz commented on Feb 20

    And for those who feel the wealth is just inflation and not worth anything, then I have a suggestion.

    All those little pieces of green paper in your wallet and under your mattress … you’re right. They aren’t worth shit. In fact, they’re all evil and cursed. They will bring you nothing but bad luck. I’ll do you a favor. Just send them to me. I’ll even pay for the postage. You don’t need to thank me. I do it out of considerate compassion.

  25. donna commented on Feb 20

    “Is it really the role of the central bank to raise rates because things are going well? ”

    Um, actually, YES.

    Geez. Did you miss the 70s or are you just that young?

  26. dblwyo commented on Feb 20

    Barry – nice compression of what was already a short, concise & pithy piece. If y’all get a chance check out Rose’s interview which is now online. Perfect complement.
    That said Martin’s piece is, IMHO, not materially different in direction, substance or detail from what he’s been saying for 2+ months. It also reflects an informed assessment from one of the world “top ten ranked” economists with vast experience in the real world.It ALSO is nearly identical to what one of his few peers, Larry Summers has been saying for slightly longer. The Tweedle bothers – Summers is also on Rose & a fellow holder of the John Bates Clark Medal. BtW and FWIW I just put my Marty clip up along with colored charts, etc. earlier today if you want a graphic interpretation of the WTF business cycle debates.

  27. E commented on Feb 20

    “When the market rises, people accrue wealth. Some feel better about their situation and spend some of it. This is a wealth effect. It is a good thing. Everybody prospers. ”

    That’s a good point, cinefoz. Do you think the inverse is true? Like, for example, the housing market?

  28. Estragon commented on Feb 20


    Just to pick a nit (lots of it about today, it seems), the fed’s job isn’t related to whether things are “going well” (strong growth) per se. The fed’s job is to adjust rates based on the rate of growth relative to their estimate of the sustainable potential rate of growth.

  29. cinefoz commented on Feb 20

    Re the market’s close today, and even yesterday for that matter ….


    E, about housing … yes, the market’s rise will help offset it. Soon, housing will start to get better and spending will pick up even more. The wealth effect isn’t limited to financial assets. And some people were ruined in the credit collapse. Market’s always recover. So do people.

Read this next.

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