Clearly there was a strong financial aspect to this, but an interesting post by two senior OECD economists over at vox raises questions as to the direction of causation – they point to new figures coming out on US and international labour market productivity as a possible cause, which later fed into debt problems. They are saying that the market missed this; largely because the data for productivity is slow to come out.
Interesting thought – else where I read that it may have been the 2008 oil price spike that essentially was the trigger on an already over the top lending problem. If you look at their figures (particularly for construction productivity) they have a good point.
Hat tip – BankWatch.
37 comments
17 August, 2009 at 16:54
Alice
Well Andy
I never have liked this inordinate obsession with labour productivity and the “multi factor Productivity style of analysis”. Overemphasis on the resource labour. Im damned sure if you look at these charts you have linked to and you see labour productivity declining and you see new housing starts still rising and the prices still rising – then you are in bubble land and probably paying a fortune for labour if you are a builder. Of course labour productivity would be declining. Isnt that common sense? Look at those bar charts showing new mortgages. However, where did the money come from for the new houses? The banks, credit creation, a bubble. Yes, generally bubbles are the result of overexpansion elsewhere or in a number of sectors.
I dont think they are saying anything really new here. I think its a bit of a buck pass actually. Many would suggest it was the financial services sectors that overextended themselves..not construction and I guess these economists are suggesting it was t’other way round.
Somehow – I just dont think they will get many other economists thinking the cause of GFC was a labour productivity problem in construction problem Andy.
17 August, 2009 at 17:51
Andrew
I will think through this and get back to you.
BTW – I wish I knew what was stuffing up my style sheet. This is annoying.
17 August, 2009 at 19:28
Alice
Yeah – there is something badly wrong Andy – your comment responses are way too far down the page. Like miles down!
That needs fixing.
17 August, 2009 at 21:33
Andrew
I know. I had a custom CSS on this theme that had them moved up the top and had been working for months. A few days ago it stopped working and is now down the bottom – which is the theme default. As I said – very annoying.
17 August, 2009 at 23:36
Andrew
Fixed now :)
18 August, 2009 at 09:33
Alice
That looks much better because you could look at a post and not even see the area for comments as it was.
18 August, 2009 at 12:57
Colin Henderson
@Alice …. there is little doubt that as you suggest the crisis was one of debt and ‘over extension’ as you call it. Agreed.
What the productivity debate gets into though imho, is what earlier predictors could have been observed by economists, bankers, media, bloggers (where were we?) that might have seen the dangers that lay ahead and at least mitigated those dangers.
The piece makes the point that declineing productivity in the construction industry (btw only one example in a long article0 contributed significanlty to asset cost increases in real estate. If we do the arcmschair economist thing, and suggest we saw that indicateor in 2005/6, interest rates could have been increased, demand for real estate suppressed, and after a few contruction companies were put out of business and commodity prices levelled off, maybe we would have had a softer landing than we did.
It is merely on hypothesis that could be drawn here.
18 August, 2009 at 13:29
Alice
On that point I agree Colin
re need for indicators.
I cant help thinking even 2005 was a little late for the rate increases…..I know they were doing the slowly slowly thing with interest rates for a while there (under Greenspan) but I just cant help thinking (and I recall thinking at that time) it was a bit too slowly slowly for quite a while there whilst shares were going gangbusters…
18 August, 2009 at 13:41
Colin Henderson
@Alice …. agreed.
18 August, 2009 at 14:06
ABOM
One key warning sign that was clearly screaming for years, but no one noticed (well, other than a few fringe “unstable tables”) was the diminishing marginal productivity of debt:
http://www.professorfekete.com/articles/AEFGotterdammerung.pdf
18 August, 2009 at 21:21
Andrew
Ohh, yes – Professor Fekete of the Gold Standard University. Where was that one again? I am sure he would not have made up his own university and then made himself a professor of it. Surely not.
Looks like it wasn’t – it is now the Gold Standard Institute after failing to get accreditation from the Hungarian authorities.
He is also good at argument. Apparently, without gold we are marching into the death valley of collectivism. Rational, non-emotive argument there. Yes – we must listen to him and read everything he says.
19 August, 2009 at 11:00
ABOM
Ad hom.
19 August, 2009 at 15:49
Andrew
Come on – I ask for some actual reseach and you come up with this guy that uses arguments like “marching into the death valley of collectivism”? Even if he was from a sensible university that would be questionable.
19 August, 2009 at 17:00
ABOM
Right. And effecitve nationalisation of the underwriter to the US banking industry (AIG), nationalisation of a number of major US banks and nationalisation of GM and Chrysler is called…not collectivism….err….ummm…
19 August, 2009 at 17:09
Andrew
ABOM,
Isn’t that what you are calling for? Nationalise everything – or are you a free banker or Rothbardian today?
19 August, 2009 at 17:18
ABOM
Did you give me conjunctivitis as revenge for me winning the debate over at GS? I’m home today and can barely see. Adenovirus has an incubation period of around 5 days so I’m checking whether you were in the vicinity of either Castle Hill or Sydney city 6 days ago.
I feel your deliberate misreprentation of my subtle, unique position is a cruel sadistic trick to try to show people I’m an emotionally unstable paranoid. You’re tapping my phone too, aren’t you?
By the way, do you think the great Murray Rothbard was in favour of free banking OR full reserve banking? Which one? And was he an “unstable table” for supporting both too?
19 August, 2009 at 17:21
ABOM
Behind every financial sociopath…
http://www.lewrockwell.com/taibbi/taibbi13.1.html
19 August, 2009 at 18:59
Alice
Ha ha ABOM – these women have seriously developed a bad case of “my hubby earns MUCH more tha your hubby ipso facto we ARE SO MUCH MORE SUPERIOR”…. Marie Antionettes in the modern age. Vacuous unintelligent species that devotes days to shopping for the very best accoutrements.
But vacuous and decorative mainly…
ewwww ABOM…ugly is as ugly does. The end of this continuum…….”we who are rich should not be forced to queue with the peasants..”
reminds me of a particularly distasteful episode I witnessed in the airport taxi rank queue not long ago. Should I say this? A jewish women and her husband arrived (he the obviously meek one) and proceeded to queue jump, not once, not twice but three or fours times. People kept telling them to go to the end of the queue and no they kept right on pushing ahead with their bags and trolleys of luggage as if no-one else mattered.
And they got there to the head of the taxi queue, before many who queued patiently…by ignoring everyone else’s objections and shoving ahead basically (with this woman clearly dominating her rather pathetic husbands objections). It was pretty ugly to me.
So when I get into my taxi – I tell the Indian taxi driver what happened and say “how obnoxious – how unvbeleivably rude!!” and the Indian taxi driver roars with laughter, and says
“in India – if you dont push and shove – you dont get on the train..”
he had a point – but have we come to that here,in Australia, already..???
19 August, 2009 at 20:44
ABOM
Easy, my darling. How are we to know she was Jewish? Now, now, let’s not stereotype. Let’s just say “…a particularly rude and aggressive female…” and leave it at that. There has been no scientific study published (to me knowledge) conclusively establishing a clear link between Jewish female genetic identity and arrogance/greed/rudeness/materialism/shallowness/disrespect for others.
Ny the way, I got the conjunctivitis going to an opthamologist for a check up! The irony! Perhaps he knows Andy and they conspired against me…
19 August, 2009 at 20:45
ABOM
My God, I’m going blind! I can’t type!
20 August, 2009 at 09:30
Alice
ABOM – go to chemist and get some Bleph 10 drops (sulphacetamide). Be careful though. The drops are incompatible with silver, but Im not sure about gold so make sure you are not carrying any ingots in your pockets when you put the drops in…
20 August, 2009 at 07:43
Alice
True ABOM – if it wasnt for some distinctive gold jewellry I would have never have known……and I would only have placed them somewhere generally south of the equator. No stereotypes intended.
20 August, 2009 at 10:26
Markets Advisor
You have to be joking that the GFC was caused by labour productivity problems. If you lend money to people who can not repay it from the outset this would generally do it (ie large issues with mortgage back securities markets now in the US and Europe). Taking large leveraged positions in various financial markets would also do it in a melt down. Suspect these two economists might have been sharing some good drugs to come up with this one.
20 August, 2009 at 11:05
Alice
Markets Advisor – I agree.
This is those two OECD economists conclusion
“This brief analysis suggests the financial crisis is not wholly responsible for the deterioration in the real economy. In some sense, financial markets did not detect the deterioration of structural productivity trends in the early 2000s early enough.”
(Not wholly eh???….what… a little foray into blame shifting on labour productivity nicely qualified (not…wholly….) giving themselves an easy as pie backpeddle later..
Well, then – what they are also concluding is that EMH is a dead as a dodo theory then (oh dear, market didnt detect eh?? Market didnt price right?? market wasnt efficient???),…which is just what JQ suggests.
Andy, I think, is also stretching the title of the post more than a little…
coupla zombie hair splitters if you ask me!
20 August, 2009 at 13:00
JamesW
Is this a case of correlation vs causation?
Ie, productivity was falling… but then these Yankees started writing eff loads of bad loans, which in reality caused the real issues we are dealing with now.
Disclaimer: I haven’t read too deeply into the paper by the OECD guys. Soz.
20 August, 2009 at 16:46
Andrew
JamesW,
It may be a coincidence – there are an awful lot of data around that shows many non-banking indicators were doing very odd things before the asset prices started getting high (US government debt, Chinese holdings of debt, the oil price).
The OECD guys were just pointing out that there is a big movement in the sector that triggered the main problem a long time before it happened.
To me, these issues are going to be argued over for a very long time to come (as many people still argue over the Great Depression) and this sort of data is a valuable addition to the quickly accumulating pile.
21 August, 2009 at 13:25
Alice
Where is ABOM? Im worried about his eyes – he needs to keep them on the ball!
Tell me Andy – a paper today is suggesting serial corruption in the financial sector with super funds like the great Macbank (retail) posting crap returns and the non profit funds doing so much better according to some league tables…
serial corruption at some of the biggest funds. Not serial…serially entrenched Andy.
Hopefully people will vote with their feet (only we should let the bastards fail as well).
That will teach em.
21 August, 2009 at 18:18
Andrew
Alice,
It would – and, if what you say is correct then I would fully support their prosecution and punishment.
22 August, 2009 at 19:20
Alice
Me too Andy. But look at what James hardy execs got slapped with…a wet lettuce leaf.
Im still suggesting people vote with their feet (and try and get hold of their own super to do it).
23 August, 2009 at 00:50
Andrew
I would agree. Personally, I took control of my own super years ago.
23 August, 2009 at 03:00
Awake
http://www.freelists.org/post/harbor/Ron-Paul-No-Go
He reckons the USA is Germany II
The guy is a free thinker, and I love the way he sees the world.
http://www.freelists.org/archive/harbor
It will leave you thinking about everything!
23 August, 2009 at 11:45
Alice
I did too Andy. I havent trusted the fees industry for about a decade and a half…
23 August, 2009 at 18:35
Alice
WHERE IS ABOM?????
24 August, 2009 at 02:31
Andrew
I am sure he is big enough to look after himself.
24 August, 2009 at 11:19
Alice
No, he is not Andy. ABOM is very sweet and generous but a little bit vulnerable. He could be, as we speak, be being stripped of his gold and his cash by Vuitton hunting handbag models….
24 August, 2009 at 21:23
Andrew
You seem to know him well.
25 August, 2009 at 21:13
Alice
ABOM??? WHERE ARE YOU??? Are you OK baby?