Man Without Qualities

Tuesday, June 24, 2003

Bubble Buddies II

My prior Bubble Buddies post should have pointed out one of the most curious aspects of the New York Times Krugman-Altman- Morgenson-Lohr series of articles described in the post: Each of those articles focuses on some aspects of the "fundamental strengths" of an economy which is sending decidedly mixed signals, but why is there a near-obsessive focus on broad "fundamentals" in each of these articles to the exclusion of important monetary considerations?

The relationship between "fundamental strengths" of the economy and proper Federal Reserve actions - which most directly affect the money supply - is subtle, complex and anything but naive.

Is it too much to suspect that the Grey Lady's nearly-exclusive focus on "fundamentals" is related to the Times other obsessive focus on the short-term (read 2004) political milage and implications of too many of the economic developments the paper is now covering? And, in the case of Herr Doktorprofessor Krugman, is this a case of his academic vanity, which causes him to foolishly dismiss monetarist considerations, further impeding his economic perception?

Because the Krugman-Altman- Morgenson-Lohr set fail to understand and address (and, at least in Herr Doktorprofesspr Krugman's case, even accept) the sophistication of modern monetarism, they are blind to a distinct and important question, related to economic "fundamentals" only through sophisticated monetarist considerations: Should the Fed cut rates at all and what are current low rates now doing to the economy?

Mr. Altman's article purports to directly address this question, but is woefully short on essential monetarist considerations, while the Krugman article casually dismisses the significance of low interest rate effects (although Herr Doktorprofessor claims to be a liquidity theory expert), and the other articles never even pause to consider them.

It will take a better mind than any available at the Times to answer, or even frame, the questions of what the Fed should do tomorrow properly and what effects interest rates are having on the economy now.

UPDATE: At least this Times article seems to be in the right ball park - although there is still no real exploration of monetary effects. They seem to be hidden in black-box assertions that the Fed "is concerned" or "has concluded" one thing or another.

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