Saturday, January 03, 2009

Don Luskin's Failure To Connect Cause With Effect

Don Luskin, who as late as in September argued that there were no recession, now argues that the recession won't last forever. I actually agree with him in the sense that sooner or later, there will be some form of economic upswing. It might in fact (though that is far from certain) come as soon as this year as Obama and Bernanke implements extreme increases in the budget deficit and money supply, though any such recovery if it comes will not be sustainable as it would rest on an unsustainable level of money supply growth and budget deficit. This is similar to how Japan had short-lived upswings at least in official statistics in the 1990s whenever the level of "stimulus" was dramatically increased, only to soon experience another slump in what became a period of seemingly permanent stagnation.

Anyway though, what is most interesting is this section when he claims that bears are inconsistent:

"How often over the last 10 years have you heard that Americans don't save enough? That we're going to starve investment and growth because all we do is consume?

Now the same people who've been saying that all this time are saying that we face a permanent recession because consumers will save. Huh? How can the economy be doomed when consumers don't save, and also when they do save?"

Apparently Luskin can't see the difference between the cause of problems and the actual problems, or in this case the boom phase and the bust phase. This is a quite obvious distinction, which can be illustrated with many real life examples. Suppose for example that a soldier in a battle were warned not waste all of his ammo by shooting recklessly because that would result in him running out of ammo. By Luskin's "logic" that should be rejected that by saying "huh, how could shooting needlessly and not being able to shoot both doom you?". Or suppose that someone were warned not to stay up too late because then he would oversleep in the morning when he is supposed to go to work. By Luskin's logic that should be rejected by saying that "Huh? How could both not sleeping and sleeping be a problem?

The first phenomenon in all these cases weren't directly problematic in itself, but they were still problematic because they would lead to these later problems. Cause of problems, and the actual problems, respectively. That shouldn't be too difficult to understand.


Blogger Wesley R. Gray said...

Luskin is quite possibly the biggest dunce on the CNBC bobble head circuit. I'm glad you have highlighted his ridiculous commentary on the economy. How that guy runs an institutional advisory business is beyond me...

5:43 AM  

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