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You are really making up for lost time as a dean! Terrific.

What about the Wagner act and the destruction of the American automobile companies?

Interesting speech. I would like to have more information about this: "The crisis, we were told, was that credit markets had frozen. However, later research by several different sources indicate that while the major investment houses and other Wall Street firms were having some trouble borrowing, consumer credit and more traditional forms of producer credit were flowing just fine."

Can I have references, please?

As far as I know, the crisis has hit the interbank market, subprime mortgages, commercial paper, asset backed commercial paper and SPVs, and it could have hit the auto and student loan securitization industry had not for the preemptive Bernanke's creation of the hundredth special facility, the TALF (my favourite is the ABCPMMMFLF, they are running out of acronyms).

Here's the Reuters story on the report by financial services consultancy Celent:


And here's Bob Higgs: http://www.independent.org/newsroom/article.asp?id=2402

Be sure to click the links in Higgs' piece.

There's two to get you going.

Steve, if there are links in the Higgs piece, I sure can't see 'em. What am I missing?

Thanks for the links!

This paragraph has links to two sets of data at the SL Fed (figures and "six month plateau" are links):

"Probably the most important measure of credit-market conditions is the amount of commercial-bank credit outstanding. These figures show that although the middle part of 2008 does stand out in the long view, it does so not by virtue of credit’s frightening contraction, but only by virtue of its hitting a six-month plateau from April through September."

Prof. Horwitz,

I read the links you provided and spent some time wandering through FRED. That's very interesting stuff, and although I have the impression that I read Higgs's thesis somewhere months ago, it didn't catch my attention at that time.

I just did some visual inspection of many indicators, and it appears to me that there is nothing particularly severe in this recession with respect to past recessions, too. I.e., things seem to be going as usual.

Adding this to the perverse incentives and the ratchet effect analysed in the great "Crisis and Leviathan", I'm quite sympathetic to his and your thesis, although I'm more pessimistic about the severity of the crisis.

I think that we have a problem of counterfactuals. The data we can read on Fred are dependent on the chosen policies: it is true that there's no evidence that this crisis is more severe than in the last 30 years, but is is nonetheless true that this attenuation of the crisis has been obtained by a massive amount of interventionism that has caused an upward bias in those data: as far as I know, never in the last decades have all these attempts to inflate the markets been attempted, and the fact that we still don't see (and we are just in the midst of the crisis) a more severe impact may be the effect of this hyper-activism.

But the fact that this hyper-activism is necessary may give some hint that the crisis is really more dangerous than previous ones.

I remain somewhat convinced that this crisis is bigger than the previous ones, that given Austrian economics it was easy to expect such an outcome, and that monetary policy has become quite ineffective, so that policymakers actually face a huge problem, and that almost all of what they have being doing so far is making things worse. In few words, although I agree with the "leviathan bias", I'm not that optimistic.

Have I interpreted things right?

Thanks again for the links.

I think you're in the ballpark. I certainly agree that the *policy response* has made this crisis notably worse than past ones. Whether what would have happened without that response would have been worse is, indeed, hard to answer. What I am not willing to do is to take the vigor of the government response as prima facie evidence of the severity. Politicians have every incentive to create the perception of a worse crisis than there really is, or to imagine one where there isn't one, as it is how they accumulate power. I think, given Higgs's work, the burden of proof is on those who believe there was a really major crisis on the horizon to explain why and that our default position should be one of skepticism toward the Chicken Littles.

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