ABSTRACT: When the Financial Times's Martin Wolf asked former U.S. Treasury Secretary Lawrence Summers what in economics had proved useful in understanding the financial crisis and the recession, Summers answered: “There is a lot about the recent financial crisis in Bagehot...”. “Bagehot” here is Walter Bagehot’s 1873 book, Lombard Street.
How is it that a book written 150 years ago is still state-of-the-art in economists’ analysis of episodes like the one that we hope is just about to end? There are three reasons:
The first is that modern academic economics has long possessed drives toward analyzing empirical issues that can be successfully treated statistically and theoretical issues that can be successfully modeled on the foundation of individual rationality. But those drives are disabilities in analyzing episodes like major financial crises that come too rarely for statistical tools to have much bite, and for which a major ex post question asked of wealth holders and their portfolios is: “just what were they thinking?”.
The second is that even though the causes of financial collapses like the one we saw in 2007-9 are diverse, the transmission mechanism in the form of the flight to liquidity and/or safety in asset holdings and the consequences for the real economy in the freezing-up of the spending flow and its implications have always been very similar since at least the first proper industrial business cycle in 1825. Thus a nineteenth-century author like Walter Bagehot is in no wise at a disadvantage in analyzing the downward financial spiral.
The third is that the proposed cures for current financial crises still bear a remarkable family resemblance to those proposed by Walter Bagehot. And so he is remarkably close to the best we can do, even today.
...What would the world look like if everybody had everything they wanted or needed? Delving deep into the details and intricacies of 24th century society, Trekonomics explores post-scarcity and whether we, as humans, are equipped for it. What are the prospects of automation and artificial intelligence? Is there really no money in Star Trek? Is Trekonomics at all possible? Manu will be in conversation with UC Berkeley economics professor Brad DeLong.
Next week's meeting of the Federal Open Market Committee (FOMC) includes a press conference with Chair Janet Yellen. These are five questions I would ask if I had the opportunity to do so in light of recent events.
There's no modern work to teach alongside Theory of Justice and Anarchy, State, and Utopia that really gets at what's interesting about Burkean or social conservatism.... Any book plucked from the past that was concerned with yelling "stop!" tends to date badly to any modern reader who does not think he's already living in hell-in-a-handbasket... talks about how everything will go to hell if the [Jim Crow] South isn't allowed to remain the South.... Oakeshott['s]... "Rationalism in Politics" end[s] up feeling faintly ridiculous by the time he's talking about women's suffrage.... I might say Schumpeter, Capitalism, Socialism, and Democracy, and Kristol, Two Cheers for Capitalism, but the former isn't really distinctively conservative enough and I'm not sure the latter is a classic.
In my view, you go with Polanyi's The Great Transformation--which gets the rational kernel inside the mystical conservative shell--or you go home.
And this is apropos today because Nick Kristof is writing more bilgewater for the New York Times:
Updated from: Live from Over the Rocky Mountains: I see that the War on Nate Silver has broken out again, with another article less appetizing than bilgewater in The New York Times, written by Jim Rutenberg:
Still more recently--as in Tuesday--the data journalist Nate Silver... gave Hillary Clinton a 90 percent chance of beating Bernie Sanders in Indiana. Mr. Sanders won by a comfortable margin of about five percentage points.... The lesson [from Eric Cantor's defeat] in Virginia, as the Washington Post reporter Paul Farhi wrote at the time, was that nothing exceeds the value of shoe-leather reporting, given that politics is an essentially human endeavor and therefore can defy prediction and reason...
But I do not feel today like talking about the anti-empirical reporters--horse-race journamalists who try to avoid learning about horses, tracks, or jockeys--with their alternative methodology of source-flattering. I'm bored with their false and repeatedly disproven claims to magical expertise via choosing and flattering particular sources.
Cardiff Garcia: Welcome to AlphaChat, the business and economics podcast of the Financial Times. I'm Cardiff Garcia....
First up on the show is Brad DeLong, an economist and economic historian at the University of California at Berkeley. He is also the coauthor of the New Book: Concrete Economics: The Hamilton Approach to Economic Growth and Policy. We are going to be discussing this book in a forthcoming episode of Alphachat-Terbox, our long-form sister podcast segment. But for this I have asked Brad to choose three under appreciated moments in economic history, and to give us the lessons we should learn from those events. I do not know what Brad's chosen. I will be learning along with you.
[Cardiff Garcia] Hey everyone, welcome to Alphachatterbox, the long form business economics and tech podcast of the Financial Times.
I'm Cardiff Garcia, and our guest today is Brad DeLong, an economist and economic historian at the University of California Berkeley. He also writes a popular blog, and he’s the co-author, along with Steven Cohen, of a new book called Concrete Economics: The Hamilton Approach to Economic Growth and Policy, and that is the topic of this edition of Alphachatterbox.
Brad DeLong, welcome back.
[Brad DeLong] Yes, yes. Thank you very much. Very glad to be "here", wherever "here" is, in some metaphysical kind of sense.
My paper for the Notre Dame conference on "public intellectualism" is finally making its way through the publication process...
I. The Salience Today of the Economic
Sit down some evening and watch the news on the TV, or scan the magazine covers in the supermarket, or simply immerse yourself in modern America...
A. Elements of Public-Square Gossip
If you are like me, you will be struck by the extent to which our collective public conversation focuses on seven topic areas:
The personal doings of the beautiful, the powerful, and the rich – and how to become more like them.
Local threats and dangers, especially to children.
Amusements – usually gossip about the past or about our imaginary friends, frenemies, etc. (it is amazing how many people I know who have strong opinions about Daenerys Stormborn of House Targaryen1 – many more than have any opinions at all about her creator George R.R. Martin, author of the Song of Ice and Fire novels on which “Game of Thrones”2 is based).
How to best procure necessities and conveniences.
Large scale dangers (and, rarely, opportunities): plagues, wars and rumors of wars, the fall and rise of dynasties, etc.
“The economy”: unemployment, spending, inflation, construction, stock market values, and bond market interest rates.
Now out of these seven topic areas, the first six are found not just in our but in other societies as far back as we have records. They are common in human history as far back as we have been writing things down, or singing long story-songs to one another around the campfire.
What, after all, is the story of Akhilleus, Hektor, and Agamemnon in Homer’s Iliad but a combination of (1), (4), and (6)?3
Last year I published an essay (DeLong, 2000) arguing that modern Keynesians are really monetarists. Even if they--we--do not really like to admit it, most of the key elements in how modern "new Keynesian" economists view the world are derived from or heavily influenced by the work of Milton Friedman.
But that essay left me unsatisfied, for it was only half of the story.
Courtesy of an unknown lurker informing the Mineshaft that "Graeber, on Twitter, sourced [his] Apple claim to his memory of a lecture by Richard Wolff", and of bjk commenting on More on Graeber, I am led to the… unusual opinions… of neo-Althusserian structuralist wingnut--and guy who made it pleasant to be at U.Mass--Richard D. Wolff:
Economic Crisis from a Socialist Perspective: Beginnings for the "reform plus" strategy: The contradictions of capitalism offer us partial yet useful examples of the democratization of enterprise advocated by this “reform plus” agenda. One of these, recurring in California for decades, can illustrate our argument.
...Asked to comment on Keynes’ famous observation “In the long run we are all dead,” I suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay. This was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes’ wife Lydia miscarried.
This is a book that anyone interested in international economic policy and the possible destinies of the world economy needs to read. Paul Krugman is, as I have said before, the best claimant to the mantle of John Maynard Keynes: an extremely knowledgeable professional economist, an excellent writer, and an incisive critic of what international economic policymakers are doing wrong.
Over at Huffington World Post: Future Economists Will Probably Call This Decade the 'Longest Depression': Posted: 01/08/2016 9:28 am EST Updated: 49 minutes ago: Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a 'Great Malaise.' This week, he followed up on that grim prediction, saying, 'We didn't do what was needed, and we have ended up precisely where I feared we would.'
...should be taught in Econ 101. I say production possibilities yes, Edgeworth box no--which, strange to say, is how we deal with this issue in Krugman/Wells. But students who go on to major in economics should be exposed to the box--and those who go on to grad school really, really need to have seen it, and in general need more simple general-equilibrium analysis than, as far as I can tell, many of them get these days. There was, clearly, a time when economics had too many pictures. But now, I suspect, it doesn’t have enough....
First draft October 13, 1997; second draft January 1, 1998.
'Robber Barons': that was what U.S. political and economic commentator Matthew Josephson (1934) called the economic princes of his own day. Today we call them 'billionaires.' Our capitalist economy--any capitalist economy--throws up such enormous concentrations of wealth: those lucky enough to be in the right place at the right time, driven and smart enough to see particular economic opportunities and seize them, foresighted enough to have gathered a large share of the equity of a highly-profitable enterprise into their hands, and well-connected enough to fend off political attempts to curb their wealth (or well-connected enough to make political favors the foundation of their wealth).
Jan 07, 2011 10:15 am, Sheraton, Governor's Square 15 American Economic Association: What's Wrong (and Right) with Economics? Implications of the Financial Crisis (A1) (Panel Discussion): Panel Moderator: JOHN QUIGGIN (University of Queensland, Australia)
BRAD DELONG (University of California-Berkeley) Lessons for Keynesians
TYLER COWEN (George Mason University) Lessons for Libertarians
SCOTT SUMNER (Bentley University) A defense of the Efficient Markets Hypothesis
JAMES K. GALBRAITH (University of Texas-Austin) Mainstream economics after the crisis:
My name is Brad DeLong.
I am a Rubinite, a Greenspanist, a neoliberal, a neoclassical economist.
Revised and Extended: I could now talk about the risks of the Trans-Pacific Partnership. You have already heard a lot about the risks in the previous session here. You have heard about dispute resolution and about intellectual property. You have heard about instituting largely-untested dispute resolution procedures in such a way that they will be very difficult indeed to amend or suspend or replace or adjust in the future.
We all know very well the eurozone’s ongoing experience. We remember that the euro single currency is in its origins a geopolitical project. We remember the origins of the eurozone at Maastricht—the decision of the great and good of Europe that something needed to be done to bind Europe more closely together in the wake of the absorption into the Bundesrepublik of the German East and the collapse of the Soviet Empire. The creation of a single currency was clearly something.
Brad DeLong is a professor of economics at UC Berkeley, where his research focuses on financial crises and 20th century macroeconomics, as well as the political economy of monetary and fiscal policy. He has taught at Harvard University and served as Deputy Assistant Secretary of the Treasury for Economic Policy under the Clinton Administration. Below, he and Goldman Sachs Chief Economist Jan Hatzius discuss risks around liftoff and the structural downshift in rates.
Let me back up: Here in the United States, the current framework for macroeconomic policy holds that the economy is nearly normalized, that further extraordinary expansionary and fiscal policy moves carry "risks", and that as a result the right policy is stay-the-course. I was arguing that the Economist Left Opposition demand--for substantially more expansionary monetary and fiscal policies right now until we see the whites of the eyes of rising inflatio--was soundly-based in orthodox lowbrow Hicks-Patinkin-Tobin macro theory. That is the macro theory that economists like Ben Bernanke, Janet Yellen, and Stan Fischer taught their entire academic careers.
Over at Talking Points Memo: The Melting Away of North Atlantic Social Democracy: Hotshot French economist Thomas Piketty, of the Paris School of Economics, looked at the major democracies with North Atlantic coastlines over the past couple of centuries. He saw five striking facts:
First, ownership of private wealth—with its power to command resources, dictate where and how people would work, and shape politics—was always highly concentrated.
Second, 150 years—six generations—ago, the ratio of a country’s total private wealth to its total annual income was about six.
Third, 50 years—two generations—ago, that capital-income ratio was about three.
Fourth, over the past two generations that capital-income ratio has been rising rapidly.
Fifth, the flow of income to the owner of the dollar capital did not rise when capital was relatively scarce, but plodded along at a typical net rate of profit of about 5% per year generation after generation.
He wondered what these facts predicted for the shape of the major North Atlantic economies in the 21st century. And so he wrote a big book, Capital in the Twenty-First Century**READ MOAR at Talking Points Memo
Growth is Good: An economist's take on the moral consequences of material progress
Economists have always been very good at detailing the material consequences of modern economic growth. It makes us taller: we are perhaps seven inches taller than our preindustrial ancestors. It makes us healthier: babies today have life expectancies in the seventies, not the twenties (and more than half that improvement is not directly related to better medical technology, narrowly defined). It provides us with leisure: eight-hour workdays (rather than ‘Man’s work is from sun to sun, and woman’s work is never done.’) It provides us with enough clothing that we are not cold, enough shelter that we are not wet, and enough food that we are not hungry. It provides us with amusements and diversions, so that there is more to do in the evenings than huddle around the village campfire and listen yet again to that blind poet from the other side of the Aegean tell the only long story he knows—the one about Achilles and Agamemnon. As time passes, what were luxuries become, first, conveniences, and then necessities; what were utopian dreams become first luxuries and then conveniences; and what was unimagined even in wild fantasy becomes first utopian dreams and then luxuries.
Jack Morton Auditorium, George Washington University :: April 15-16, 2015
It has now been seven years since the onset of the global financial crisis. A central question is how the crisis has changed our view on macroeconomic policy. The IMF originally tackled this issue at a 2011 conference and again at a 2013 conference. Both conferences proved very successful, spawning books titled In the Wake of the Crisis and What Have We Learned? published by the MIT Press.
The time seemed right for another assessment. Research has continued, policies have been tried, and the debate has been intense. How much progress has been made? Are we closer to a new framework? To address these questions the IMF organized a follow up conference on "Rethinking Macro Policy III: Progress or Confusion?", which took place at the Jack Morton Auditorium in George Washington University, Washington DC, on April 15–16, 2015.
The conference was co-organized by IMF Economic Counselor Olivier Blanchard, RBI Governor Raghu Rajan, and Harvard Professors Ken Rogoff and Larry Summers. It brought together leading academics and policymakers from around the globe, as well as representatives from civil society, the private sector, and the media. Attendance was by invitation only.
Wrap Up Video:
Session IV: Fiscal Policy in the Future Video:
Vitor Gaspar, Marco Buti, Martin Feldstein, Brad DeLong
J. Bradford DeLong
On the Proper Size of the Public Sector, and the Proper Level of Public Debt, in the Twenty-First Century
Olivier Blanchard, when he parachuted me into the panel, asked me to “be provocative.”
So let me provoke:
My assigned focus on “fiscal policy in the medium term” has implications. It requires me to assume that things are or will be true that are not now or may not be true in the future, at least not for the rest of this decade and into the next. It makes sense to distinguish the medium from the short term only if the North Atlantic economies will relatively soon enter a regime in which the economy is not at the zero lower bound on safe nominal interest rates. The medium term is at a horizon at which monetary policy can adequately handle all of the demand-stabilization role.
I have been playing with FOLD, and having fun. Here I take the transcript of the New York Comic Con "Trekonomics" panel created by the extremely-productive-on-long-airplane-flights Izabella Kaminska, add to it, and annotate it...
Hey! Why hasn't the Financial Times paid for her to step back from Alphaville and turn her Beyond Scarcity series of weblog posts into a book?
Over at Equitable Growth: The very sharp and energetic Peter Passell, who runs the Milken Institute Review these days, commissioned me to write a reader's guide to the secular stagnation debate. I set it up as a four-corner cage match--Bernanke, Rogoff, Krugman, and Summers--and I am proud of it. (But I have to offer apologies to those--Koo, Blanchard, Feldstein come most immediately to mind, but there are others--who have their own serious positions that are not completely and satisfactorily understood as linear combinations of the four I chose to be my basis vectors.) It is out:
Bernanke... says we have entered an age of a “global savings glut.”... Rogoff... points to the emergence of global “debt supercycles.”... Krugman warns of the return of “Depression economics.” And... Summers calls for broad structural shifts in government policy to deal with “secular stagnation.” READ MOAR
...and seeing low wage growth as consistent with the view that the productivity slowdown is real.... The unobserved component approach suggests that productivity growth decelerated to an annualized pace of just 0.82 percent by the second quarter of this year... [in line with] Fed staff estimates of potential GDP growth range from roughly 1.6 to 1.8 percent through 2020.... Yellen might think back to the 1990’s, when a surprise rise in productivity growth temporarily lowered the natural rate of unemployment... [and] reverse that logic now and think that the arguments for tighter policy are stronger....
...All pre-industrial societies, I thought, were Malthusian... at the edge of subsistence... [and] a small elite, 5 or 10 percent... liv[ing] on resources extorted.... This model still seems to me to be pretty good for the Roman Empire. But at least as Goldsworthy describes it, the Roman Republic at the time of the Punic Wars was something very different... social solidarity... loyal allies... strong commitment from a large fraction of the population... military manpower... durability.... Are there any other examples in history like this? And how did they do it?
Sokrates: Yes.... The stream... so... who want to either read what is new or to treat the site as a weblog--that is, have a sustained engagement and conversation with the website considered as a Turing-class hivemind--can do so.... The front-end... to give each piece of content a visually-engaging and subhead-teaser informative welcome mat.... The syndication... to propagate the front-end cards out to Twitter and Facebook.... The stock... a pathway... by which people can pull things written in the past... relevant... to their concerns today.... The grammar: The visually-interesting and subhead-teaser front-end... needs to lead the people who would want to and enjoy engaging with the content to actually do so.... [But,] as William Goldman says, nobody knows anything.
Platon: Is there anybody whose degree of not-knowingness is even slightly less than the degree of not-knowingness of the rest of us?...
Sokrates: My guess... http://www.vox.com--Ezra Klein and Melissa Bell and company--are most likely to be slightly less not-knowing than the rest of us....
Olivier Blanchard, when he parachuted me into this panel, asked me to “be provocative”.
So let me provoke:
My assigned focus on “fiscal policy in the medium term” has implications. It requires me to assume that things are or will be true that are not now or may not be true in the future, at least not for the rest of this and into the next decade. It makes sense to distinguish the medium from the short term only if the North Atlantic economies will relatively soon enter a régime in which the economy is not at the zero lower bound on safe nominal interest rates. The medium term is at a horizon at which monetary policy can adequately handle all of the demand-stabilization role. READ MOAR