Ferris Bueller Fails Economics
For a good laugh over simplistic and fallacious money management advice take a look at Ben Stein's latest column.
I think he may need some Clear Eyes eye drops to cover up what he is smoking.
Of course, I like the comments that give him one-star the best.
Comments (11)
It would be helpful for those new to this site if you would explain why Stein's advice is fallacious.
Published: August 7, 2007 3:03 AM
I second that.
Published: August 7, 2007 4:05 AM
Harriet, joe:
I don't have the time this morning to pick Ben apart piece by piece, but I can refer you to an excellent article by Robert Murphy that explains what speculators actually do, rather than the leftist tripe that Stein spouts:
http://www.mises.org/story/2381
For other signs of all that is wrong with the economy:
http://investing.reuters.co.uk/news/articleinvesting.aspx?type=hotStocksNewsUS&storyID=2007-08-06T162522Z_01_L06888269_RTRUKOC_0_US-MARKETS-FOREX.xml
I've been holding my breath, waiting for when it would happen. If the dollar drops again, I think we're in for some serious trouble very soon.
Published: August 7, 2007 9:10 AM
here is my favorite... I posted it as a comment to Jeremy Siegel's recent article... it appeared at first, but when I checked back 5 mins later, it had been removed! I posted again, and it didn't even show up the second time. What a disgrace...
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"In fact, since a large chunk of credit was created out of "thin air" there is high likelihood that it will evaporate back into "thin air." It seems to us that against the background of rapidly deteriorating real fundamentals the Fed will be forced in the not too distant future to reverse its stance, thus setting in motion the inevitable liquidation of various artificial forms of life that currently comprise bank balance sheets."
http://www.mises.org/story/1480
Published: August 7, 2007 9:20 AM
Stein's use of 1st-grade mathematics in arriving at the overall impact of both the subprime implosion and housing bust are laughable. Even Oppenheimer, yesterday, downgraded approximately 22 energy stocks on the basis of, among other things, the sinking dollar value, the subprime implosion, and the overvalued stock market propped up by government intervention and fools' rallies.
If there is a Stupid Award, Stein is the clear-cut leader for the 2007 prize.
Published: August 7, 2007 9:56 AM
Scott D please enlighten a blockhead. Perhaps the main thing I got from Stein's article is that the sky isn't falling. After all, talking of a strong/weak dollar gets different responses from exporters and importers. Similarly, because I'm not an American I guess I can't feel your pain. Likewise I am still a pessimist with regards to the 'end is nigh' talk when I hear of local people investing millions of dollars in long-term projects that covers decades. I personally wonder what's going to happen all the goldbugs in 30-50 years times if society as we know it doesn't come to end.
Published: August 7, 2007 10:09 AM
TWLP:"Perhaps the main thing I got from Stein's article is that the sky isn't falling."
No. The sky isn't falling. It's just a normal business cycle. But Stein's comments remind me a lot of what the media, central bankers and mainstream economists said during the hyperinflation in Germany during the 1920's and the US in the 1920's. They seem to say the same thing every time a FED-fed boom busts: everything is OK; blaim the speculators.
Stein: "The economy is suffering from a labor shortage, not a surplus of unemployment."
Exactly! Capital intensive industries are competing for scarce resources because consumers haven't cut back on consumption and freed those resources (including labor).
"The Fed is worried about excess demand, not slack demand."
Most mainstream econs think consumer demand drives the economy, but as Austrian econ teaches, savings drive the economy, not consumer spending. Low interest rates increased investment in capital industries and caused increased hiring, driving down the unemployment rate. Now those new employees want to buy consumer goods, too, but there aren't enough to go around. Demand is so strong that it's driving up prices.
Stein: "Corporate profits set new records every day."
As Hayek points out, this is the last stage of a FED-fed boom. Prices rise while wages stay fixed. Rising prices and stagnant wages increase profits for consumer product makers. This causes a decline in real wages. Soon, businesses will switch from capital intensive investment to hiring more labor (because it's cheaper). Capital intensive industry will start losing money and laying off. That's when the unemployment rate goes up and mainstream econs figure out that the sky is falling.
Published: August 7, 2007 12:53 PM
Stein is an idiot. Economists here have been going on about the housing bubble for a few years. And their predictions have held up rather well. The fact that he fails to see the significance of the housing market bust shows that he lacks the theoretical understanding of how we got here.
As for a weakening dollar, it may well boost exports in the short term, but the party won't last long as the full impact of inflation begins to hit. With all that's wrong with the economy, we might in for a contraction of the type we haven't seen in a good while. By next year, the word "stagflation" might just become fashionable again. I hope that it won't be that severe, of course, but that we're heading towards recession is undeniable.
Published: August 7, 2007 3:17 PM
Scott: "By next year, the word "stagflation" might just become fashionable again."
That's my bet, too. I doubt Bernanke can stand the heat when the economy goes south. He'll get in his helicopter and try to shower money on everything. But more money inflation will torpedo the dollar, which will cause import prices to rise and further feed price inflation. Also, it may cause other oil producers to switch from dollars to the Euro and Yen, which will make oil more expensive.
Published: August 7, 2007 5:45 PM
His article is good for giggles I suppose.
Published: August 7, 2007 6:59 PM
I disagree with the premise that market volatility is good for speculators? Speculation is a zero sum game; there is a winner for each loser. Moreover, speculators can perform their voodoo on risky derivatives of other securities that are not volatile at all.
Speculators CAN NOT CREATE FEAR!!! Speculators can only buy or sell securities. They may all do the same thing at once either buy or sell but this creates sell offs and short squeezes as speculation is a zero sum game. They like any other folks are at the mercy of the market they speculate in.
That leaves the last thing that I agree with. That is that the sky isn't falling. This has nothing to do with the Fed or any other organization. It has ONLY to do with the size and diversity the economy.
Now, Brokerage houses gain from volatility as do exchanges.
The media and government are much better at creating fear and panic than any bunch of copycat speculators.
Published: August 7, 2007 9:21 PM