TIme lags and causality

Gordon Mohr gojomo at usa.net
Thu Sep 25 11:25:56 PDT 2003


Russell Turpin wrote:
> I suspect the greatest question in the
> analysis will be issue of time lag and
> causality. Nixon had been President for
> only a few months before the 4th quarter
> retraction of '69,and Dubya was just
> finishing the left-over inaugural cake when
> the dot-com implosion reverberated through
> the economy.

Agreed. Nixon's economic strategy was boneheaded
(price controls!?) but afer inheriting the Great
Society & Vietnam war, and then facing the oil
price shock, it's dubious to lay the blame for
either contraction during his "watch" at his
administration's feet.

Similarly with Bush2: after 18 years of growth
with  only one small recession in the middle, the
tech bubble, a fed bubble, and an uncertainty-
lengthening war, it's tough to say he's the cause.

Indeed, the very idea that any of these
figureheads actually have a major effect on the
economy is a sort of mass consensual hallucination
that seems mostly effective in distracting and
diverting the gullible, rather than offering
any proscriptions for the future.

To the extent that government policies do affect
growth, I suspect the lag is on the order of
decades, with the growth in any one year being
a function of the last 10-20 years' tax, spend,
borrow, and regulatory environment. Only with
years of time to adjust do individual habits and
slow-moving institutional arrangements actually
respond to the full incentive mix shaped by government
policy. Some capital markets can move quickly, but
then the full effect of capital redeployments on
economic output takes many years to play out.

- Gordon



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