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Really, Alan?

Paul Krugman picked up on Greenspan's latest nonsense at the Council on Foreign Relations.

But..I actually WATCHED Alan on CSPAN in the mid o' the night. I know, I know, save it for a beer.

What he said seems to me to expose extreme lack of macro understanding. It went like this:

The current US capital investment to cash flow ratio is the lowest since 1940. Ok, so companies are piling up cash, not productive investments. Nothing new here. I would suspect a lack of agg demand.

Then, and I do need to go read this I 'spose, something like the Godley triple balance if he discovered it out of whole cloth, its a paper for chris' sake. You know, I down, G up due to stimulus, all else equal. But, says he, this PROVES crowding out!

A confused voice from the audience: "Alan, didn't you just say firms have trillions, say 2 or 3, in cash just sitting there? How does that square with G crowding out?"

Al: Well, G is obviously sucking up all the S from the private sector, so nothing left to put into I.

This is neck snapping. The guy never got beyond Micro 1. As an undergrad.

I didn't know how to react. I was embarrassed. This idiot ran the Fed for how long? Even the dog howled.

I know this is a bit jargony; write me if you want me to expand/explain.


  1. Ayn Rand didn't write textbooks, that's why. By the way, the Maestro's PhD is from NYU.

  2. The confusion in that paper is astounding. He runs a terrible regression, and then misinterprets the results! And absolutely no lit review! You know, Maestro, several people before you have done much better work to test crowding out and the determinants of business fixed investment. Chirinko summed this stuff up in his review paper, and found that investment is fairly inelastic to the cost of capital and very sensitive to sales. You are right, amazing how far idiots can make it.

  3. Also, just finished reading the chapter on Greenspan in Matt Taibbi's book Griftopia. Really great background on the guy. Taibbi calls him a Paris Hilton economist; famous for being famous, but without any talent!


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