Comments on: Through a glass darkly: the economy and confirmation bias in the econoblogosphere http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html a finance news and opinion site Fri, 19 Mar 2010 15:42:00 +0000 hourly 1 By: Bullish data, recoveries, crashes and the psychology of forecasting redux - Credit Writedownshttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-9578 Bullish data, recoveries, crashes and the psychology of forecasting redux - Credit Writedowns Fri, 29 Jan 2010 15:12:04 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-9578 [...] extrapolate a current trend into the future (see my reaction to this from a post weeks later, “Through a glass darkly: the economy and confirmation bias in the econoblogosphere”)Nevertheless, a piece from NBER guru Robert Gordon that I reported demonstrated to me that I was [...] [...] extrapolate a current trend into the future (see my reaction to this from a post weeks later, “Through a glass darkly: the economy and confirmation bias in the econoblogosphere”)Nevertheless, a piece from NBER guru Robert Gordon that I reported demonstrated to me that I was [...]

]]> By: journal [artist's] » Blog Archive » Through a glass darkly: the economy and confirmation bias in the econoblogosphere - Credit Writedownshttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5305 journal [artist's] » Blog Archive » Through a glass darkly: the economy and confirmation bias in the econoblogosphere - Credit Writedowns Sat, 23 May 2009 17:40:33 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5305 [...] Through a glass darkly: the economy and confirmation bias in the econoblogosphere - Credit Writedown.... Through a glass darkly: the economy and confirmation bias in the econoblogosphere - Credit [...] [...] Through a glass darkly: the economy and confirmation bias in the econoblogosphere – Credit Writedown…. Through a glass darkly: the economy and confirmation bias in the econoblogosphere – Credit [...]

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8324 Edward Harrison Mon, 04 May 2009 19:43:33 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8324 hbl, I agree that the systemic risks and structural and must be addressed. The question is what is the likely path of events if they are and if they are not. I assume that they will NOT be addressed in the U.S.. <br><br>One might think that means immediate doom for the U.S. economy. However, I see a Japanese scenario as a particularly compelling model for how things could proceed. And, if you recall, Japan has had spurts of extremely robust growth over the past 20 years since its bubble burst. Nevertheless, its economy has long grown below trend due to its refusal to fix the structural problems.<br><br>While the U.S. does not have the export advantages of the Japanese, it still has other ways of keeping the gravy train going.<br><br>So I am predicting a muddle through scenario for the medium- to long-term i.e. short business cycles, and below par growth.<br><br>In a later post, I will highlight a book by Michael Panzner which gives the Armageddon scenario. hbl, I agree that the systemic risks and structural and must be addressed. The question is what is the likely path of events if they are and if they are not. I assume that they will NOT be addressed in the U.S..

One might think that means immediate doom for the U.S. economy. However, I see a Japanese scenario as a particularly compelling model for how things could proceed. And, if you recall, Japan has had spurts of extremely robust growth over the past 20 years since its bubble burst. Nevertheless, its economy has long grown below trend due to its refusal to fix the structural problems.

While the U.S. does not have the export advantages of the Japanese, it still has other ways of keeping the gravy train going.

So I am predicting a muddle through scenario for the medium- to long-term i.e. short business cycles, and below par growth.

In a later post, I will highlight a book by Michael Panzner which gives the Armageddon scenario.

]]> By: hblhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8323 hbl Mon, 04 May 2009 19:17:06 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8323 You highlight an important point regarding confirmation bias. However, in my opinion, the key is to figure out which underlying fundamental dynamics are core and which are secondary, and how far through adjustment those dynamics are. My opinion is that the deflation of asset bubbles (especially residential and CRE) are core dynamics, and that these aren't done yet (not yet reverted to traditional price/rent, price/income ratios, and huge oversupply now likely to cause overshoot to downside). Another core dynamic is highly fragile balance sheets (e.g., potential for many households underwater on mortgages, corporate bankruptcies, etc) and I have seen no evidence of a way to heal those in the short term. So until I see evidence that policy is able to halt deleveraging or stop correction of asset bubbles, I'm not likely to join the Green Shoots Brigade. But I do hope I get surprised to the upside, maybe I am looking at the wrong things. You highlight an important point regarding confirmation bias. However, in my opinion, the key is to figure out which underlying fundamental dynamics are core and which are secondary, and how far through adjustment those dynamics are. My opinion is that the deflation of asset bubbles (especially residential and CRE) are core dynamics, and that these aren't done yet (not yet reverted to traditional price/rent, price/income ratios, and huge oversupply now likely to cause overshoot to downside). Another core dynamic is highly fragile balance sheets (e.g., potential for many households underwater on mortgages, corporate bankruptcies, etc) and I have seen no evidence of a way to heal those in the short term. So until I see evidence that policy is able to halt deleveraging or stop correction of asset bubbles, I'm not likely to join the Green Shoots Brigade. But I do hope I get surprised to the upside, maybe I am looking at the wrong things.

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8321 Edward Harrison Mon, 04 May 2009 17:12:20 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8321 Yes, Stevie b. my glass is only barely half full. QE and deficits as far as the eye can see leave me nervous. Until we get through the structural problems, I will be hedged to the downside. Yes, Stevie b. my glass is only barely half full. QE and deficits as far as the eye can see leave me nervous. Until we get through the structural problems, I will be hedged to the downside.

]]> By: Stevie b.http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8322 Stevie b. Mon, 04 May 2009 17:07:41 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8322 Ed - sorry, postings seem to keep "clashing". Re printing money: You and I both thought over 6 months ago that we were entering uncharted territory. Yes, now we're actually in it this could mean upside and sunnier skies, but for me (and perhaps you too) there are still loads more imponderables than "usual" and even though there may be more short-term upside I just don't like the charts, i.e. the longer-term technical picture. Ed – sorry, postings seem to keep “clashing”. Re printing money: You and I both thought over 6 months ago that we were entering uncharted territory. Yes, now we're actually in it this could mean upside and sunnier skies, but for me (and perhaps you too) there are still loads more imponderables than “usual” and even though there may be more short-term upside I just don't like the charts, i.e. the longer-term technical picture.

]]> By: Stevie b.http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8320 Stevie b. Mon, 04 May 2009 16:52:07 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8320 Ed - made my comment before I saw yours, so I think perhaps you're glass is only just barely half-full (or should that be half-fool?!) Ed – made my comment before I saw yours, so I think perhaps you're glass is only just barely half-full (or should that be half-fool?!)

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8319 Edward Harrison Mon, 04 May 2009 16:51:53 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8319 Stevie b, I may well be wrong. The key, though, is to address my own biases to, at a minimum, analyze the situation from a more objective standpoint. I tend to think there are deep structural problems which could blow up at any time. So, my bias is probably to the downside. <br><br>Irrespective, as you say, is this time different? I say it is not i.e. "don't underestimate the power of printing money." Stevie b, I may well be wrong. The key, though, is to address my own biases to, at a minimum, analyze the situation from a more objective standpoint. I tend to think there are deep structural problems which could blow up at any time. So, my bias is probably to the downside.

Irrespective, as you say, is this time different? I say it is not i.e. “don't underestimate the power of printing money.”

]]> By: Stevie b.http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8318 Stevie b. Mon, 04 May 2009 16:44:44 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8318 Ed - the problem with "general views" is perhaps the conviction with which they are held. People do tend to go with the flow but trying to measure the intensity of that conviction is a whole different matter. Bullish complacency was rife for years before this crash. As a 100% confirmed contrarian based on my experiences over the last near-40 years (I look at one-way streets with a very jaundiced eye...!), I was miles too early in trying to guage when to go against this bullishness - and timing is the crux of contrarianism (charts are really essential). My main question for you is - why should complacent bearishness not last as long as the previous bullishness? Yes, the intensity of the decline may moderate, but why should "the system" not just give false starts & actually continue to implode over time? You are in essence saying "this time it aint different". I think (gulp!) you may well be wrong. Ed – the problem with “general views” is perhaps the conviction with which they are held. People do tend to go with the flow but trying to measure the intensity of that conviction is a whole different matter. Bullish complacency was rife for years before this crash. As a 100% confirmed contrarian based on my experiences over the last near-40 years (I look at one-way streets with a very jaundiced eye…!), I was miles too early in trying to guage when to go against this bullishness – and timing is the crux of contrarianism (charts are really essential). My main question for you is – why should complacent bearishness not last as long as the previous bullishness? Yes, the intensity of the decline may moderate, but why should “the system” not just give false starts & actually continue to implode over time? You are in essence saying “this time it aint different”. I think (gulp!) you may well be wrong.

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8317 Edward Harrison Mon, 04 May 2009 16:39:07 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-8317 Yes, Thomas, the problem is structural and that means a weak recovery and potential relapse unless these issues are dealt with. My worry is that a recovery, however weak, will be used as an excuse to forget about the structural problems. Yes, Thomas, the problem is structural and that means a weak recovery and potential relapse unless these issues are dealt with. My worry is that a recovery, however weak, will be used as an excuse to forget about the structural problems.

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5073 Edward Harrison Mon, 04 May 2009 15:43:33 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5073 hbl, I agree that the systemic risks and structural and must be addressed. The question is what is the likely path of events if they are and if they are not. I assume that they will NOT be addressed in the U.S.. <br><br>One might think that means immediate doom for the U.S. economy. However, I see a Japanese scenario as a particularly compelling model for how things could proceed. And, if you recall, Japan has had spurts of extremely robust growth over the past 20 years since its bubble burst. Nevertheless, its economy has long grown below trend due to its refusal to fix the structural problems.<br><br>While the U.S. does not have the export advantages of the Japanese, it still has other ways of keeping the gravy train going.<br><br>So I am predicting a muddle through scenario for the medium- to long-term i.e. short business cycles, and below par growth.<br><br>In a later post, I will highlight a book by Michael Panzner which gives the Armageddon scenario. hbl, I agree that the systemic risks and structural and must be addressed. The question is what is the likely path of events if they are and if they are not. I assume that they will NOT be addressed in the U.S..

One might think that means immediate doom for the U.S. economy. However, I see a Japanese scenario as a particularly compelling model for how things could proceed. And, if you recall, Japan has had spurts of extremely robust growth over the past 20 years since its bubble burst. Nevertheless, its economy has long grown below trend due to its refusal to fix the structural problems.

While the U.S. does not have the export advantages of the Japanese, it still has other ways of keeping the gravy train going.

So I am predicting a muddle through scenario for the medium- to long-term i.e. short business cycles, and below par growth.

In a later post, I will highlight a book by Michael Panzner which gives the Armageddon scenario.

]]> By: hblhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5070 hbl Mon, 04 May 2009 15:17:06 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5070 You highlight an important point regarding confirmation bias. However, in my opinion, the key is to figure out which underlying fundamental dynamics are core and which are secondary, and how far through adjustment those dynamics are. My opinion is that the deflation of asset bubbles (especially residential and CRE) are core dynamics, and that these aren't done yet (not yet reverted to traditional price/rent, price/income ratios, and huge oversupply now likely to cause overshoot to downside). Another core dynamic is highly fragile balance sheets (e.g., potential for many households underwater on mortgages, corporate bankruptcies, etc) and I have seen no evidence of a way to heal those in the short term. So until I see evidence that policy is able to halt deleveraging or stop correction of asset bubbles, I'm not likely to join the Green Shoots Brigade. But I do hope I get surprised to the upside, maybe I am looking at the wrong things. You highlight an important point regarding confirmation bias. However, in my opinion, the key is to figure out which underlying fundamental dynamics are core and which are secondary, and how far through adjustment those dynamics are. My opinion is that the deflation of asset bubbles (especially residential and CRE) are core dynamics, and that these aren't done yet (not yet reverted to traditional price/rent, price/income ratios, and huge oversupply now likely to cause overshoot to downside). Another core dynamic is highly fragile balance sheets (e.g., potential for many households underwater on mortgages, corporate bankruptcies, etc) and I have seen no evidence of a way to heal those in the short term. So until I see evidence that policy is able to halt deleveraging or stop correction of asset bubbles, I'm not likely to join the Green Shoots Brigade. But I do hope I get surprised to the upside, maybe I am looking at the wrong things.

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5068 Edward Harrison Mon, 04 May 2009 13:12:20 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5068 Yes, Stevie b. my glass is only barely half full. QE and deficits as far as the eye can see leave me nervous. Until we get through the structural problems, I will be hedged to the downside. Yes, Stevie b. my glass is only barely half full. QE and deficits as far as the eye can see leave me nervous. Until we get through the structural problems, I will be hedged to the downside.

]]> By: Stevie b.http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5067 Stevie b. Mon, 04 May 2009 13:07:41 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5067 Ed - sorry, postings seem to keep "clashing". Re printing money: You and I both thought over 6 months ago that we were entering uncharted territory. Yes, now we're actually in it this could mean upside and sunnier skies, but for me (and perhaps you too) there are still loads more imponderables than "usual" and even though there may be more short-term upside I just don't like the charts, i.e. the longer-term technical picture. Ed – sorry, postings seem to keep “clashing”. Re printing money: You and I both thought over 6 months ago that we were entering uncharted territory. Yes, now we're actually in it this could mean upside and sunnier skies, but for me (and perhaps you too) there are still loads more imponderables than “usual” and even though there may be more short-term upside I just don't like the charts, i.e. the longer-term technical picture.

]]> By: Stevie b.http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5066 Stevie b. Mon, 04 May 2009 12:52:07 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5066 Ed - made my comment before I saw yours, so I think perhaps you're glass is only just barely half-full (or should that be half-fool?!) Ed – made my comment before I saw yours, so I think perhaps you're glass is only just barely half-full (or should that be half-fool?!)

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5065 Edward Harrison Mon, 04 May 2009 12:51:53 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5065 Stevie b, I may well be wrong. The key, though, is to address my own biases to, at a minimum, analyze the situation from a more objective standpoint. I tend to think there are deep structural problems which could blow up at any time. So, my bias is probably to the downside. <br><br>Irrespective, as you say, is this time different? I say it is not i.e. "don't underestimate the power of printing money." Stevie b, I may well be wrong. The key, though, is to address my own biases to, at a minimum, analyze the situation from a more objective standpoint. I tend to think there are deep structural problems which could blow up at any time. So, my bias is probably to the downside.

Irrespective, as you say, is this time different? I say it is not i.e. “don't underestimate the power of printing money.”

]]> By: Stevie b.http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5063 Stevie b. Mon, 04 May 2009 12:44:44 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5063 Ed - the problem with "general views" is perhaps the conviction with which they are held. People do tend to go with the flow but trying to measure the intensity of that conviction is a whole different matter. Bullish complacency was rife for years before this crash. As a 100% confirmed contrarian based on my experiences over the last near-40 years (I look at one-way streets with a very jaundiced eye...!), I was miles too early in trying to guage when to go against this bullishness - and timing is the crux of contrarianism (charts are really essential). My main question for you is - why should complacent bearishness not last as long as the previous bullishness? Yes, the intensity of the decline may moderate, but why should "the system" not just give false starts & actually continue to implode over time? You are in essence saying "this time it aint different". I think (gulp!) you may well be wrong. Ed – the problem with “general views” is perhaps the conviction with which they are held. People do tend to go with the flow but trying to measure the intensity of that conviction is a whole different matter. Bullish complacency was rife for years before this crash. As a 100% confirmed contrarian based on my experiences over the last near-40 years (I look at one-way streets with a very jaundiced eye…!), I was miles too early in trying to guage when to go against this bullishness – and timing is the crux of contrarianism (charts are really essential). My main question for you is – why should complacent bearishness not last as long as the previous bullishness? Yes, the intensity of the decline may moderate, but why should “the system” not just give false starts & actually continue to implode over time? You are in essence saying “this time it aint different”. I think (gulp!) you may well be wrong.

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5061 Edward Harrison Mon, 04 May 2009 12:39:07 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5061 Yes, Thomas, the problem is structural and that means a weak recovery and potential relapse unless these issues are dealt with. My worry is that a recovery, however weak, will be used as an excuse to forget about the structural problems. Yes, Thomas, the problem is structural and that means a weak recovery and potential relapse unless these issues are dealt with. My worry is that a recovery, however weak, will be used as an excuse to forget about the structural problems.

]]> By: Thomashttp://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5059 Thomas Mon, 04 May 2009 10:00:20 +0000 http://www.creditwritedowns.com/2009/05/through-a-glass-darkly-the-economy-and-confirmation-bias-in-the-econoblogosphere.html#comment-5059 Personally, I tend to agree with you that we are quite close to the bottom. There may not be a strong recovery anytime soon, but I don't quite see why the world economy should continue to be in free-fall beyond Q2. Just my two cents based on my very own crystal ball. Personally, I tend to agree with you that we are quite close to the bottom. There may not be a strong recovery anytime soon, but I don't quite see why the world economy should continue to be in free-fall beyond Q2. Just my two cents based on my very own crystal ball.

]]>