FIRE Alarm

For some time, these endeavors have discussed data analysis, and the (somewhat) artificial divide between micro and macro versions. There is the real difference, in that micro analysis (nearly) always has population data: all the products, inputs, customers, and the like. Macro analysis, on the other hand, nearly always is limited to sample data. What the alt-right call fake news, when the numbers don't fit their pre-determined result. What the non-stat literate don't or won't admit is that large sample theory kicks in with a rather small number of observations. Macro data sets easily exceed such requirements. The problem is that macro data is seldom actually used in setting policy. Policy is set by political favor-making, irrrregardless of the data. Sigh.

Along the lines of macro data, I've implored gentle reader to dig into FRED data. In particular the simple fact that FIRE has burned down the economy. Not a lot of mainstream pundits have picked up on this. Until today, of course.

In the postwar era, finance has grown enormously as a share of the global economy, often feeding debt-fueled bubbles. In 2015, the economist Alan M. Taylor and his colleagues looked at data going back 140 years for 17 leading economies. Before World War II, there were 78 recessions — including only 19 that followed a bubble in stocks or housing or both. After the war, there were 88 recessions, a vast majority of which, 62, followed a stock or housing bubble or both.

This leads, of course, to

Today, global financial assets (including just stocks and bonds) are worth over $250 trillion and amount to about 330 percent of global gross domestic product, up from $12 trillion and just 110 percent in 1980. Traditionally, economists have looked for trouble in the economy to cause trouble in the markets. But the ocean of money in financial markets is now so large, it's possible that ripples on its surface could trigger the next big downturn.