Thursday, June 12, 2008

Nobel Economists Discuss the Economy

Excerpts from the Milken Global Conference economic roundtable:

Ed Phelps: Our friends in the financial sector have given capitalism a black eye. Suddenly capitalism is held in less awe around the world. That is a very serious impact.

Phelps is right that capitalism has a black eye right now, but I disagree with who delivered the blow. It should be central banking that gets the black eye not capitalism.

Milken: Another Nobel Laureate, Joseph Stiglitz, has said recently that the U.S. is facing one the worst downturns since the Great Depression. Does anyone agree with that?

Becker: The unemployment rate in the U.S. now is 5.1 percent. Unemployment was 25 percent in the Great Depression. We are so far from that, it is ridiculous. We won't even get close. Things may get worse than at present. But at the outside, the only issue is whether unemployment might rise somewhere between 6 and 9 percent.

Phelps: I'm surprised at how slow unemployment has been rising. So far, this downturn barely qualifies as an official recession, let alone a Great Depression.

Scholes: It is erroneous to compare this to the Great Depression. But there is more unraveling to come. We have to worry about effects on the housing market and where it is going to end. Will the housing shock lead to consumption fallout, which leads to more unemployment and further consumption fallout?

Stiglitz just shows his political colors when he makes comments like that. He's a liberal economist with an agenda. That the current economic slowdown is akin to the Great Depression is nonsense on steroids.

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