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Embracing Wynne Godley, an Economist Who Modeled the Crisis

JP Hochbaum

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I posted in the past on how sectoral balances are a perfect model to predict where this economy is going:

HATZIUS: There is an accounting identity which is issued, if you start with the global economy, to simplify it, that every dollar of government deficits has to be offset with private sector surpluses purely from an accounting standpoint, because one sector’s income is another sector’s spending, so it all has to add up to zero.That’s the starting point. It’s a truism, basically.

Read more: Goldman's Jan Hatzius On Sectoral balances, NGDP Targeting, And The US Recovery - Business Insider

And finally the NYT is giving it some press as well, eventually this should be mainstream and the rest of the old school economic thoughts that failed this country will go away.

If the economics profession takes on the challenge of reworking the mainstream models that famously failed to predict the crisis, it might well turn to one of the few economists who saw it coming, Wynne Godley of the Levy Economics Institute. Mr. Godley, unfortunately, died at 83 in 2010, perhaps too soon to bask in the credit many feel he deserves.

But his influence has begun to spread. Martin Wolf, the eminent columnist for The Financial Times, and Jan Hatzius, chief economist of global investment research at Goldman Sachs, borrow from his approach. Several groups of economists in North America and Europe — some supported by the Institute for New Economic Thinking established by the financier and philanthropist George Soros after the crisis — are building on his models.

In a 2011 study, Dirk J. Bezemer, of Groningen University in the Netherlands, found a dozen experts who warned publicly about a broad economic threat, explained how debt would drive it, and specified a time frame.

Most, like Nouriel Roubini of New York University, issued warnings in informal notes. But Mr. Godley “was the most scientific in the sense of having a formal model,” Dr. Bezemer said.

It was far from a first for Mr. Godley. In January 2000, the Council of Economic Advisers for President Bill Clinton hailed a still “youthful-looking and vigorous” expansion. That March, Mr. Godley and L. Randall Wray of the University of Missouri-Kansas City derided it, declaring, “Goldilocks is doomed.” Within days, the Nasdaq stock market peaked, heralding the end of the dot-com bubble. 4

http://www.nytimes.com/2013/09/11/b...predicted-recession.html?pagewanted=all&_r=1&
 
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