Not to pick on Greg Mankiw, but is he saying that it was a good thing that the stock market rose 50% during the two years he was in the Council of Economic Advisors? I’m not at all trying to blame him for what happened, but in retrospect wouldn’t one want to regret the big climb in the stock market that preceded the fall? This is completely out of my area of expertise so I defer to others on this. It looks like Mankiw is making a joke of some kind but I don’t know enough about the background to really understand the point. (Probably this is the same reaction that many readers to this blog get when I make a statistics joke.)
Assuming you're not just kidding us to get a rise, here is the skinny.
Mankiw is a fine economist, but he is also a right-wing hack. When he makes a narrow economic point he is often, if not always, absolutely right. When he writes essentially anything else, he does so as an apparatchik whose party has been in charge, put him in various positions of authority and blown thing up in a way that makes the Hindenburg accident look like small beer.
Everything he writes should be viewed through this prism of failure.
I vote for joke… it's the "when he returned to Harvard", specifying the month, that gives it away; he knows the economic effect of policy / personnel changes are lagged.
John: Sure, but that's what puzzles me. It reads as if he's jokingly taking credit for something positive (a 50% increase in stock prices), but if the stock price run-up was not actually a good thing (if it was, in fact, a "bubble") then he's jokingly taking credit for something negative, which seems strange to me. I mean, Jimmy Carter didn't make jokes about inflation, right? That's why I'm thinking there's something else I'm missing here.
Thank you wcw for your sober, measured pronouncement. I'm sure you're right.
Andrew: I think the tongue-in-cheek implication is that "the evidence indicates" that had he remained in his job, there wouldn't have been a crash, so it wouldn't have been a bubble.
John,
But even in the absence of a crash, is a 50% increase in prices in two years really a good thing? I'd think that a slow steady rise of, say, 7% per year would be preferable. Again, I'm not saying that Mankiw had control over this, it just seems funny to be implying that it was a good thing. I recognize the tongue-in-cheekness of Mankiw's post but I'm still confused on the implicit assumptions.
Also, my impression was that the steep rise is believed to have actually contributed to the crash. But I might be misinformed on this.
1. Mankiw is making a joke.
2. It's not funny.
3. It's particularly not funny since he's a tenured professor at a university with a gigantic endowment. If he worked for a company looking at 10% layoffs between now and the end of the year, I bet he wouldn't be making that joke.
4. Steady is better. A steady money supply allows people to plan. A steady economy avoids waste. People want steadiness in their retirement savings. The whole point of having the whole government economic apparatus (CEA, Federal Reserve, etc.) is to try to cushion the business cycle — and you cushion the downside partly by cushioning the upside as well.
Andrew Gelman:
"John,
But even in the absence of a crash, is a 50% increase in prices in two years really a good thing? I'd think that a slow steady rise of, say, 7% per year would be preferable."
I'm too lazy to Google it, but I suggest that there's a shortage of 50% run-ups in two years which were maintained. At that point, it's a bubble.
ZBicyclist:
"3. It's particularly not funny since he's a tenured professor at a university with a gigantic endowment. If he worked for a company looking at 10% layoffs between now and the end of the year, I bet he wouldn't be making that joke. "
It does lead to the question of why we should trust right-wing economists, since they clearly aren't subject to market discipline.