Econ 210a Memo Questions for April 20 and April 27, 2011:
April 20: A couple of weeks ago Martin Wolf asked Lawrence Summers a question:
Wolf: "Wouldn’t a reasonable non-economist conclude... here we have this fantastically dangerous [macroeconomic-financial] engine, which you don’t fully understand, therefore... you just cannot risk deregulating it. It has to be under government control, very tightly, all the time. How would you tell a layperson that that’s not a reasonable response?"
And Summers answered: "Well, in some ways it probably is a reasonable response. The last time [we had such a crisis, the Great Depression] – this is an overstatement – but this was why Harry Dexter White was a communist.... [A] very large number of thoughtful people who were communists in the 1930s, because they looked and they saw that just letting the market rip had ended in disaster.... [T]hey convinced themselves that having not just the financial system but the processes of production be controlled and planned as they were in the Soviet Union that had not suffered a similar unemployment problem, would produce a better outcome. And that did not prove to be conspicuously successful."
Were the social-democratic "mixed economies" that developed after World War II a different species of animal than either market classical liberalism or state socialist planning, or are the "mixed economies" just an incoherent mix of organizing principles?
April 27: A couple of weeks ago Lawrence Summers said, of the period between 1968 and 1984:
Summers: "[It was] a Keynesian disaster... the crude application of totally demand-oriented policies that... produced an inflationary disaster..."
To what degree was he right and to what degree was he wrong about the episode of inflation that triggered the election of Reagan and Thatcher and the rightward political shift of the North Atlantic?