Monday, December 11, 2006

Bears, Bulls, Hawks and Doves in Economics and Finance

When I write about the U.S. economy, I often use expressions like "bearish" and "bullish" . Somewhat less frequently, I also use the expressions "hawkish" and "doveish". These are common terms in economics and finance and I personally like these expressions (which is why I use them), but perhaps not all of my readers understand them. To clarify, these words do in fact refer to four animals: bears, bulls, hawks and doves.

The disticntion between "bulls" and "bears" refers to whether you are optimistic or pessimistic about a particular economy or market, or in other words if you think it will go up or down. When bulls attack you, perhaps because you're wearing something red they attack you butting you with their horns upwards. By contrast, when a bear attacks you, perhaps because it is a mother thinking you're gonna attack her kids or because it is hungry and thinks "dinner is served" when looking upon you or because it thinks you're invading its turf, it smacks you down with its powerful paws. Therefore, "bulls" are the people who thinks an economy or market is headed up, whereas "bears" are the people who thinks an economy or market is headed down.

"Hawks" and "doves" are also used to describe different sides of war debates, but in the context of economics it refers to the attitude towards inflation. "Hawks" want a tough stance against inflation, whereas "doves" wants more of it. Whether you're a "hawk" on "dove" in a particular situation depends on two things: first how inflationary you consider the current environment to be and secondly how much inflation would be ideal for the economy.

Sometimes it is assumed that "bears" and "hawks" are necessarily the same, and that similarly "bulls" and "doves" are also the same. But that is quite often not the case. There are plenty of examples of "doveish bears" and "hawkish bulls".

Examples of "hawkish bears" include me and Peter Schiff. Examples of "doveish bears" include Paul Kasriel, Paul Krugman and to some extent also Nouriel Roubini. Exampels of "hawkish bulls" include supply-siders like Donald Luskin and Michael Darda. "Doveish bulls" include other supply-siders like Larry Kudlow, Jerry Bowyer and to some extent also Alan Reynolds.

It struck me that virtually all "bulls" on the U.S. economy today are supply-siders. There is a split between those like Luskin and Darda who think Fed policy is too loose and those like Kudlow and Bowyer who thinks it is too tight, but they all agree that the U.S. economic future is bright even in the short-term. This reflects their naive belief that the rather modest Bush tax cuts will permanently and significantly raise U.S. economic growth, even though they aren't matched with spending cuts.

"Bears" are generally Austrian or semi-Austrian analysts who see a downturn inevitable because of the imbalances created by Alan Greenspan. Some , like Paul Krugman, are however partisan Democrats who are bearish because they long to blame the future recession on Bush ( Although to be fair to Krugman, he have occassionally conceded that Greenspan might be the main culprit).


Anonymous Anonymous said...

I think you may be interested in a conversation with "doveish bear" Paul Kasriel which adds an interesting analysis of the current situation and how it could relate to the Japanese experience:

Regardless of being a hawk or a dove, there is nothing the Fed can do at this point (either raise rates or lower rates) to avoid a negative economic scenario in 2007. Another worry is what will happen to the huge derivatives market once "collaterals" get squashed, even if the trade is to take place years in the future.


7:08 AM  

Post a Comment

<< Home