Brad DeLong

Not too Late for the Social Credit Helicopters!

Duncan Black:

Eschaton: Not Too Late For The Helicopters: A big tragedy of the last few years is the failure to recognize that being in a low inflation world at the zero lower bound was a tremendous opportunity to massively enhance human welfare in this country. Mailing out 10 grand checks to everyone would have been an egalitarian massive boost to the economic well-being of huge numbers of people. Instead, the Fed has goosed asset prices, mostly benefiting the rich. Trickle down through another means, but still trickle down. Better than doing nothing, probably, but there were other ways.

How can you oppose a social-democratic economic policy that had the endorsement of Robert A. Heinlein?

Brad DeLong (Summer 2010): It Is Far too Soon to End Expansion: Wednesday Hoisted from Three Years Ago

Brad DeLong: It is far too soon to end expansion:

It was in 1829 that John Stuart Mill made the key intellectual leap in figuring out how to fight what he called “general gluts”: he saw that what had happened was an enormous excess demand for particular financial assets was driving an enormous excess supply of goods and services – and if you relieved the excess demand in finance you would cure the excess supply of labour. When the government relieves an excess demand for liquid money by printing up cash and swapping it out for government bonds, we call that expansionary monetary policy. When the government relieves an excess demand for bonds by printing up more Treasuries and selling them to finance its own purchases of goods and services, we call that expansionary fiscal policy. And when it prints up cash and bonds and swaps them for risky private financial assets, or when it guarantees private assets and so raises the supply of high-quality and reduces the supply of low-quality bonds, we call that banking policy. 

Exchequer Chancellor Osborne Braced for IMF Verdict

An Article IV consultation for a reserve-currency sovereign that might actually matter:

Rachel Cooper:

Osborne braced for IMF verdict on UK economy: George Osborne is braced for the International Monetary Fund's verdict on Britain's economic prospects amid speculation it will urge him to change course. On Wednesday, the IMF presents its annual healthcheck on the UK and the international body is expected to suggest that deficit reduction should be slowed amid anaemic growth. The “Article IV” report is expected to recommend Mr Osborne change his plans and borrow more to invest in infrastructure or cut taxes. Previously, the IMF was among the strongest backers of the Chancellor's economic strategy, but has gradually changed its tone in response to dwindling growth forecasts.

Martha L. Olney and Aaron Pacitti: More Services Means Longer Recoveries

Martha L. Olney and Aaron Pacitti:

More services means longer recoveries: The four longest recoveries in recent history, as measured by the number of months it took until the economy recovered all of the jobs lost during the recession, also have been the four most recent recoveries—those that followed the recessions of 1981, 1990, 2001, and 2007…. The shift from being a goods-producing, manufacturing-based economy to a service economy… is causing the pace of economic recoveries to slow…. Because services can’t be inventoried nor, for the most part, exported, services are only produced when domestic demand exists.

Goods-producing businesses… can produce in anticipation of increasing demand or in response to increased external demand. Either way, domestic demand need not increase before goods production increases. Service producers are not so lucky. A restaurant won’t produce a meal before you are in the booth. And your dentist can’t produce and inventory a teeth cleaning. You have to be in the dentist’s chair. So service producers must wait…. The greater the share of services in the economy, the greater the share of businesses that must wait for domestic demand to actually pick up…

Jeffrey Frankel: "[It Is] Alberto Alesina [Who] Has Not Been Receiving His 'Fair Share of Abuse'”

Jeff Frankel:

On Whose Research is the Case for Austerity Mistakenly Based?: Several of my colleagues on the Harvard faculty have recently been casualties in the cross-fire between fiscal austerians and stimulators…. Carmen Reinhart and Ken Rogoff… the statistical relationship between debt and growth…. Niall Ferguson… “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.”

Ryan Avent: "Mr Cowen's posts, and many other like them by other authors, sometimes look like elaborate efforts to avoid concluding that German inflation-phobia, while totally understandable and rational, looks like a grave moral error in the current econ

Ryan Avent watches Karl Smith remind Tyler Cowen that people respond to market prices, and piles on himself:

The euro crisis: Der Elefant im Raum: TYLER COWEN writes on the euro-zone economy:

Would the new helicopter drop money be kept in periphery banks and lent out to stimulate business investment? Or does the new money flee say Portugal because Portuguese banks are not safe enough, Portuguese loans are not lucrative and safe enough, and Portuguese mattresses are too cumbersome? The former scenario implies that monetary policy should be potent. The latter scenario implies that the helicopter drop will be for naught and the fiscal policy multiplier also will be low, on the upside at the very least (fiscal cuts still might cause a lot of damage on the downside). I call this the liquidity leak, rather than the liquidity trap.

Karl Smith gives the correct response:

What Tyler calls a liquidity leak, I call markets at work. The ECB provides enough stimulus to get all of the Eurozone going but it all leaks to Germany. Fine. The German market heats up. German wages and rents rise. Retired German doctors start considering the virtues of a flat in Lisbon overlooking the harbor. German consultancies hold seminars on “How to make your Mediterranean town competitive in the new German Outsourcing Model.” This is the way things are supposed to work. The idea that a more competitive and efficient Germany should not command higher wages and rents is bizarre; and is only called inflation because the Eurozone, in its heart-of-hearts, doesn’t actually believe its one monetary union where the richer parts are distinguished principally by the fact that they have more money.

Paul Krugman: One of Michael Kinsley's Problem Is That He Is Not Living in the Real 1970s

Paul Krugman:

The Mythical 70s: It’s actually even worse than Matt [O'Brien] says. For the 1970s such people remember as a cautionary tale bears little resemblance to the 1970s that actually happened. In elite mythology, the origins of the crisis of the 70s, like the supposed origins of our current crisis, lay in excess: too much debt, too much coddling of those slovenly proles via a strong welfare state. The suffering of 1979-82 was necessary payback. None of that is remotely true. There was no deficit problem: government debt was low and stable or falling as a share of GDP during the 70s… a runaway welfare state more broadly just wasn’t an issue — hey, these days right-wingers complaining about a nation of takers tend to use the low-dependency 70s as a baseline.

What we did have was a wage-price spiral… exacerbated by big oil shocks… a case of self-fulfilling expectations, and the problem was to break the cycle.

So why did we need a terrible recession? Not to pay for our past sins, but simply as a way to cool the action…. Was there a better way? Ideally, we should have been able to get all the relevant parties in a room and say, look, this inflation has to stop; you workers, reduce your wage demands, you businesses, cancel your price increases, and for our part, we agree to stop printing money so the whole thing is over. That way, you’d get price stability without the recession. And in some small, cohesive countries that is more or less what happened. (Check out the Israeli stabilization of 1985). But America wasn’t like that, and the decision was made to do it the hard, brutal way. This was not a policy triumph! It was, in a way, a confession of despair….

No, America didn’t return to vigorous productivity growth — that didn’t happen until the mid-1990s. 60-year-old men should remember that a decade after the Volcker disinflation we were still very much in a national funk; remember the old joke that the Cold War was over, and Japan won? So it would be bad enough if we were basing policy today on lessons from the 70s. It’s even worse that we’re basing policy today on a mythical 70s that never was.

One thing going on is that the 1980s did see (a) a reduction in the progressively of taxation and (b) the start of the huge surge in overclass income. For overclass people--or people who are now part of the overclass and who then identified with the overclass like Michael Kinsley--the 1980s were pretty good (as, by the way, were the 2000s up until 2007).

Ken Rogoff (1998) on Optimal Policy in a Liquidity Trap

Ken Rogoff: Comment on Paul Krugman: "It's Baaack: Japan's Slump and the Returnof the LiquidityTrap":

Kenneth Rogoff: This is a truly inspired paper on Japan's ongoing "Great Recession," although I have to keep pinching myself to ask if its main thesis can really be true. Is the equilibrium (full-employment) medium-term real interest rate for Japan actually negative, so that un- less the Bank of Japan (BOJ) resigns itself to sustained inflation, the zero bound on nominal interest rates will present serious problems? Has the BOJ so thoroughly convinced the public of its anti-inflation credibility that it has lost the power to rekindle inflation now that Japan needs it?

Nick Clegg Is a Wizard! He Makes Economic Recovery Disappear!

Jeff Weintraub:

Nick Cohen (and Andrew Adonis) explains how Britain's Liberal Democrats sold their birthright and didn't even get a mess of pottage for it:

Martin Wolf vs. Roger Altman: No, the Bond Vigilantes Are Not Here

Martin Wolf:

A response to Roger Altman: Roger Altman of Evercore partners is a friend of mine, a distinguished public servant and a respected financial expert. But his column “Blame bond markets, not politicians, for austerity” is, in my view, gravely mistaken. Let me quote the first two paragraphs, since they go to the heart of the matter:

Criticism of austerity has reached ferocious levels in Europe. Increasingly, it carries a moral tone, portraying the stronger north, especially Germany, as forcing harsh policies on to weaker nations. Opponents of austerity argue that the north is demanding fiscal tightening and labour market reforms from these stricken states in exchange for vital lending from entities such as the European Central Bank. They see it as kicking economies when they’re down.

This is an important debate, but critics are forgetting a key point. It was not Angela Merkel, chancellor of Germany, or other political leaders who pushed austerity onto Italy, Spain, Greece and the others. It was private lenders, beginning in the autumn of 2011, who declined to finance further borrowing by those countries. Then they stopped financing portions of their banking systems. In other words, markets triggered the Eurozone crisis, not politicians. The fiscal and banking restructuring that followed was the price of rebuilding market confidence.

Nick Crafts: George Osborne Badly Needs to Study the Macroeconomic Leadership Secrets of Neville Chamberlain…

Nick Crafts:

Escaping liquidity traps: Lessons from the UK’s 1930s escape: The UK escaped a liquidity trap in the 1930s and enjoyed a strong economic recovery. This column argues that what drove this recovery was ‘unconventional’ monetary policy implemented not by the Bank of England but by the Treasury. Thus, Neville Chamberlain was an early proponent of ‘Abenomics’. This raises the question: is inflation targeting by an independent central bank appropriate at a time of very low nominal-interest rates?

Bernanke-Haters at the Sohn Conference

Stanley Druckenmiller:

Druckenmiller noted everyone is saying, "love the market long term, looking for a correction." He believes the opposite, loves market short-term, but hates it long term. Strongly disagrees with quantitative easing by Bernanke now. Only agreed with the first QE. "His bond buying is controlling the most important price in the US economy." Says it will end badly, despite money-printing being beneficial to financial assets currently. When Fed slightly tightens, that will hurt things he says. Bernanke completely ignored strong economic data in January and February, but with slightly soft data later, he printed even more money. Expects a "melt-up" in the short-term, due to Fed's current policy…. Bernanke is “running the most inappropriate monetary policy in history.”

Moby Ben, or, The Washington Super-Whale: Hedge Fundies, the Federal Reserve, and Bernanke-Hatred

In February 2012, a number of hedge fund traders noted one particular index--CDX IG 9--that seemed to be underpriced. It seemed to be cheaper to buy credit default protection on the 125 companies that made the index by buying the index than by buying protection on the 125 companies one by one. This was an obvious short-term moneymaking opportunity: Buy the index, sell its component short, in short order either the index will rise or the components will fall in value, and then you will be able to quickly close out your position with a large profit.

Does Anybody Understand Why Clive Crook Thinks Krugman Believes in MMT and Is Lying When He Says He Worries About the Long-Run Deficit?

Clive Crook:

Krugman, DeLong and Radical Centrism - Bloomberg: Krugman proposed raising taxes on all Americans while the recovery was still very weak. He recognized this as a fiscal tightening that would put people out of work. He advocated it because the alternative of retaining the Bush tax cuts would have handed the Republicans a victory, and because -- get this -- he was worried about the long-term deficit implications. There you have it: Krugman the apolitical Keynesian.

I mean, this is damned weird.

Ryan Cooper Tries to Guide Clive Crook Back to Reality

Why oh why can't we have a better press corps?

Ryan Cooper:

Clive Crook Doesn’t Understand Paul Krugman or Liberals Generally: Crook… made the quite specific claim that Krugman was using the 2009 stimulus for partisan ends….

Krugman and his admirers were at the forefront in casting discussion of the stimulus in left vs. right terms. For many Democrats, the top priority in the fiscal-policy discussion was not, in fact, to make the stimulus bigger but to reverse the Bush high-income tax cuts and to make sure that the composition of the stimulus, whatever its size, as far as possible favored higher spending over lower taxes.

Today, Crook is back… moving the goalposts. He conveniently forgets the stimulus debate, around which all his previous claims were centered, and digs up a Krugman column from December 2010, almost two years later…. What is unquestionably clear is that Crook’s earlier claim that “Krugman and his admirers were at the forefront in casting discussion of the stimulus in left vs. right terms” is completely bogus, and he clearly knows it….

David Glasner vs. Martin Feldstein on Appropriate Federal Reserve Policy

David Glasner:

Martin Feldstein writes:

Quantitative easing… is supposed to stimulate the economy by increasing share prices, leading to higher household wealth and therefore to increased consumer spending. Fed Chairman Ben Bernanke has described this as the “portfolio-balance” effect of the Fed’s purchase of long-term government securities instead of the traditional open-market operations that were restricted to buying and selling short-term government obligations. Here’s how it is supposed to work. When the Fed buys long-term government bonds and mortgage-backed securities, private investors are no longer able to buy those long-term assets. Investors who want long-term securities therefore have to buy equities. That drives up the price of equities, leading to more consumer spending….

Fed’s Evans: Low Inflation to Persist for Years

Fed’s Evans: Low Inflation to Persist for Years - Real Time Economics

Josh Barro: Boehner Accidentally Explains Why His Deficit Position Is Phony

Josh Barro:

Boehner Accidentally Explains Why His Deficit Position Is Phony: Yesterday, in an interview with Bloomberg Television, House Speaker John Boehner warned that the U.S. government must balance its budget. After all, he said:

We have spent more than what we have brought into this government for 55 of the last 60 years. There’s no business in America that could survive like this. No household in America that could do this. And this government can’t do this.

LOLCat Sez: When Ur Inflation Below and Ur Unemployment Consistently Above Target, Ur Doin It Wrong

In this case, "you" is the Federal Reserve, and "it" is monetary policy.

Has Clive Crook Recovered His Orientation? Perhaps...

My comment on: http://www.bloomberg.com/news/2013-05-09/krugman-delong-and-radical-centrism.html

Now that is infinitely better!

But do note you are no longer claiming that Paul Krugman trying to radicalize the Obama administration's position on "the stimulus" in the winter of 2008-2009. You are, instead, making a different argument: an argument that Krugman's position at the end of 2010, after the largely-Republican politicization of everything, was not centrist enough.

And do note that the rest of Krugman's column--the part you do not quote--undermines your new argument pretty completely.

Robert Skidelsky vs. Niall Ferguson: John Maynard Keynes Is Not Ke$ha (Also, the U.S. Is Not Greece, and 2013 Is Not 1923)

Ke$ha:

And Robert Skidelsky explains what John Maynard "We'll Keep Dancing 'Till We Die" Keynes really meant by "In the long run we are all dead":

I Say We Start a Kickstarter to "Persuade" David Glasner to Write 38 Posts--One for Each Chapter--on Keynes's "Treatise on Money"

Niall Ferguson Is Wrong to Say That He Is Doubly Stupid: Why Did Keynes Write "In the Long Run We Are All Dead"? Weblogging

Niall Ferguson:

An Open Letter to the Harvard Community: Last week I said something stupid about John Maynard Keynes.  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.

Niall is wrong. His suggestion was not doubly stupid. There is more.

Niall speaks of Keynes's "In the long run we are all dead" as if it is a carpe diem argument--a "seize the day" argument, analogous to Marvell's "To His Coy Mistress" or Herrick's "To the Virgins"--and Ferguson sees his task as that of explaining why Keynes adopted this be-a-grasshopper-not-an-ant "party like we're gonna die young!" form of economics, or perhaps form of morality.

But that is not it at all.

Eric Rauchway: Adam Smithian "Sympathy" and the Sources of Keynes’s Critique of the 1919 Treaty of Versailles: Niall Ferguson Carl-Melchior-Was-Really-Hot Smackdown Watch

Eric Rauchway:

Apropos nothing at all I thought I might address the suggestion, sometimes raised, that John Maynard Keynes’s “love” for Carl Melchior, German representative at Versailles, might substantively have influenced Keynes’s position on what reparations the Germans ought to pay. Keynes made early calculations for what Germany should pay in reparations in October, 1918. In “Notes on an Indemnity,” he presented two sets of figures – one “without crushing Germany” and one “with crushing Germany”.

My John Maynard Keynes Lecture

Little more than quotes from Skidelsky's three-volume Keynes biography strung together, with a little commentary and occasional quibbling…

---

John Maynard Keynes

J. Bradford DeLong Professor of Economics, U.C. Berkeley

Econ 115 Lecture

September 29, 2009

http://delong.typepad.com/files/20090929-115-lecture-9.pdf

5,562 words: September 29, 2009

Who Are the Right-Wing Republicans Whom Clive Crook Thinks Are "Thoughtful [and] Public-Spirited… [with] Vews… Worthy of Respect"?: Tuesday Crickets Weblogging

Paul Krugman observes:

Not Everything Is Political: Clive Crook demands that I engage respectfully with reasonable people on the other side, but somehow fails to offer even one example of such a person. Not long ago Crook was offering Paul Ryan as an exemplar of serious, honest conservatism, while I was shrilly declaring Ryan a con man. But I suspect that even Crook now admits, at least to himself, that Ryan is indeed a con man…

"This Is a Nightmare"

John Maynard Keynes:

The Great Slump of 1930: This is a nightmare, which will pass away with the morning. For the resources of nature and men's devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life… and will soon learn to afford a standard higher still. We were not previously deceived.

But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time…

John Maynard Keynes (1923), "A Tract on Monetary Reform", pp. 80-82

Keynes (1923):

[T]he [Quantity] Theory [of Money] has often been expounded on the further assumption that a mere change in the quantity of the currency cannot affect k, r, and k',--that is to say, in mathematical parlance, that n is an independent variable in relation to these quantities. It would follow from this that an arbitrary doubling of n, since this in itself is assumed not to affect k, r, and k', must have the effect of raising p to double what it would have been otherwise. The Quantity Theory is often stated in this, or a similar, form.

Now "in the long run" this is probably true. If, after the American Civil War, that American dollar had been stabilized and defined by law at 10 per cent below its present value, it would be safe to assume that n and p would now be just 10 per cent greater than they actually are and that the present values of k, r, and k' would be entirely unaffected. But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean will be flat again.

Somebody Has to Be the Pontifex Who Decides What "Keynesian Economics" Is: And I Elect Mark Thoma to Be That Bridge-Builder

Mark Thoma:

Seven Myths about Keynesian Economics: The claim that Keynesians are indifferent to the long-run is one of many myths about Keynesian economics…. This has it backwards. Conservatives who oppose Keynesian economics are not concerned enough about short-run economic problems, particularly unemployment, and failing to address our short-run problems can bring long-run harm…. Keynesians care very much about the long run, but they do not go along with the idea that neglecting short-run issues is the best way to solve our long-run problems.

Tim Duy on Abenomics

Mark Thoma sends us to Tim Duy:

14,000 - Tim Duy's Fed Watch: Seems like just yesterday Japanese policymakers were looking to push the Nikkie to 13,000.  It even seemed like a overreaching at the time…. Today the Nikkei pushed past 14,000. Note too that the 10-year Japanese government bond holds well below 1 percent - fears that aggressive policy would cause rates to skyrocket are once again proved unfounded.

So far, so good for Abenomics.  Now the question is will policymakers back off soon after seeing such positive results?  We have seen such stop-go policy in Japan in the past when attention turns back toward the size of the deficit.  Are Japanese policymakers in it for the long-haul?  

Keynesian Economics: The Gay Science?

Niall Ferguson certainly thought so in 1995. Donald Markwell, author of Donald Markwell (2006), "John Maynard Keynes and International Relations: Economic Paths to War and Peace", emails me a copy of Niall Ferguson's 1995 Spectator article, with its claim that Keynes's belief in "the ideas contained in The Economic Consequences of the Peace" "owed as much to his homosexuality as to his Germanophilia…" for "there is no question that the attraction Keynes felt for [Carl Melchior] strongly influenced his judgment…"

But that is not what he says today:

My disagreements with Keynes’s economic philosophy have never had anything to do with his sexual orientation. It is simply false to suggest, as I did, that his approach to economic policy was inspired by any aspect of his personal life.

I Confess Clive Crook Is Getting to Me: Bloomberg Has Some House-Cleaning to Do Weblogging

Why oh why can't we have a better press corps?

Clive Crook is back again, writing:

Krugman… concede[s] (somewhat to my surprise)… stunningly disingenuous of Krugman…. Krugman… at the forefront in casting discussion of the stimulus in left vs. right terms… not to make the stimulus bigger but to reverse the Bush high-income tax cuts… higher spending over lower taxes… [placed] divisive value judgements about the size and scope of government at the center… the stimulus debate was as political as it gets… thanks to Krugman.

It's the absence of quotation marks in his columns that is doing it to me.

There are, I am starting to think, three kinds of columnists: those who quote people in order to show that they have properly construed the arguments they are praising or criticizing, those who quote people out of context in order to misconstrue their arguments, and those who don't quote anybody at all.

So here's the comment I left on Crook's column:

Laura D'Andrea Tyson: Lessons on Fiscal Policy Since the Recession

Laura D'Andrea Tyson:

Lessons on Fiscal Policy Since the Recession: In late 2008, the United States economy was caught in the midst of what proved to be its longest and deepest recession since the end of World War II. Frightened by steep and self-reinforcing declines in output and employment, both the Federal Reserve and the federal government responded quickly and boldly. The Federal Reserve dropped the federal funds rate to near zero, where it remains today, and began its controversial “quantitative easing” purchases of long-term government securities to contain long-term interest rates. Fueled by the 2009 federal stimulus package, discretionary fiscal policy was also expansionary in 2009-10, adding to growth during the first year of the recovery at roughly the same pace that fiscal policy had achieved during previous recoveries. Then, in a sharp break with history, fiscal policy became a drag on growth in the second year of recovery, and since then the drag has intensified.

Guenter Grass DeLong Smackdown Watch: Monday Hoisted from Comments Weblogging

Brad DeLong : Thursday Dozen Hoisted from the Archives: Keepers from May 2005: Grebmörts said...

I see that you rethought part of your criticism of Guenter Grass shortly after posting it. The events that have happened since 2005 should make you rethink the rest. He complained that the "growing gap between rich and poor" had brought about "the impotence of politics", a political system that responds only to the interests of the elites. Democracy is being destroyed.

That sounds a lot like the situation in the US today. Washington is unable to end this depression because gridlock serves the interests of the overclass.

Grass was right. You owe him an apology.

Paul Krugman: Naive Fiscal Cynicism: It's Not That We Can't Manage Our Debt, It's That Right-Wing Republicans Seek to Break the Economy and the Government

Paul Krugman:

Naive Fiscal Cynicism: Expansionary austerity has been refuted… even the IMF says that short-run multipliers are big… 90 percent red line… was… fuzzy math… bond vigilantes remain invisible… the confidence fairy refuses to make an appearance… austerian economics has imploded…. Yet there remains immense reluctance to draw the obvious policy conclusion, which is not simply that we have too much austerity, but that right now we shouldn’t be having austerity at all.

Martha L. Olney and Aaron Pacitti: The Service Sector and the Business Cycle

Martha L. Olney and Aaron Pacitti:

More services means longer recoveries: Recovery from recessions takes longer than it has in the past. The current crisis aside, this change has not happened because recessions themselves are longer. Nor has it occurred because recessions are deeper than in the past. Instead this change is the result of slower economic growth following the end of a recession. And slower growth means longer recoveries. As shown below, the four longest recoveries in recent history, as measured by the number of months it took until the economy recovered all of the jobs lost during the recession, also have been the four most recent recoveries—those that followed the recessions of 1981, 1990, 2001, and 2007.

Saying More than "When the Storm Is Long Past the Ocean Is Flat"

Paul Krugman:

Keynes, Keynesians, the Long Run, and Fiscal Policy: One dead giveaway that someone pretending to be an authority on economics is in fact faking it is misuse of the famous Keynes line about the long run. Here’s the actual quote:

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

Matthew Yglesias vs. Alex Tabarrok

Hey! Clive Crook! Here is one more reason why Paul Krugman is tired of trying to reason with you people

Matthew Yglesias:

Keynesianism today: Start by stating the argument correctly: This Alex Tabarrok post on growth in the face of fiscal austerity annoyed me as did his co-blogger Tyler Cowen chiming in to say Tabarrok had "nailed it"... the line "In the 1990s growth was strong even while 'austerity' was increasing."

That kind of thing is a dead giveaway that the author isn't even stating the argument for expansionary fiscal policy correctly.

Mark Thoma: David Romer and Joe Stiglitz on the State of Macroeconomics

Mark Thoma sends us to David Romer and Joe Stiglitz on the State of Macroeconomics.

The Long-Run and Short-Run Budget Picture

Opening statement at K-State Debate with Alan Reynolds:

How big a government should we have?

Right now the U.S. has a relatively small government: in a normal year the U.S. government as a whole spends something like 32% of total production. The U.S. government spends about ten percentage points less of GDP than the average rich, industrialized country spends. The U.S. government spends about 15 percentage points less of GDP than a never-Communist country as rich as the U.S. is today would be expected to spend. We are thus, in comparative perspective, a small-government country.

Debating Alan Reynolds: Good to Know My Memory Is Not That Wrong...

At last night's Kansas State's debate, I said that Alan Reynolds had been warning of an outbreak of inflation from Bernanke's monetary policies for 3.5 years now, and it had not happened. "Not me", he said. "You must be thinking of some other guy."

Paul Krugman appears, bringing the refreshments in the form of a reference…

Is a Higher Borrowing Trajectory Warranted or Not?

Carmen Reinhart and Kenneth Rogoff (2013):

Austerity is not the only answer to a debt problem: To be clear, no one should be arguing to stabilise debt, much less bring it down, until growth is more solidly entrenched – if there remains a choice, that is. Faced with, at best, haphazard access to international capital markets and high borrowing costs, periphery countries in Europe face more limited alternatives. Nevertheless, given current debt levels, enhanced stimulus should only be taken selectively and with due caution. A higher borrowing trajectory is warranted, given weak demand and low interest rates, where governments can identify high-return infrastructure projects. Borrowing to finance productive infrastructure raises long-run potential growth, ultimately pulling debt ratios lower. We have argued this consistently since the outset of the crisis.

David Romer: Short-Run Fluctuations

David Romer: Short-Run Fluctuations (January 2013 version).

I Debated Alan Reynolds on Fiscal Policy at K-State in Manhattan Last Night...

Three things struck me of especial note last night:

• First, Reynolds's willingness to throw George W. Bush completely over the side--not even any of Nooners's "he was incompetent, and flawed, and a failure, but he was a regular guy--not somebody who thought he was smarter than you--and in a way we miss him". None of that.

• Second, Reynolds's praise for Bill Clinton--twelve years after Clinton left office. I now look forward to hearing Alan Reynolds praise Barack Obama for his attempts to start reining-in Medicare spending via the ACA and the IPAB come... 2029. But it would be nice if we could during that forward in time to the present--it would be really nice if we could have brung his praise of Clinton forward in time to 1993 when we really could have used it...

• Third, the extent to which those who don't know IS-LM are blind persons in the country of the one-eyed. Reynolds said: "In fiscal policy the government prints bonds, in monetary policy the government--the central bank--buys bonds, if one of these is stimulative, how can the other be?" And he was genuinely puzzled.

Ryan Avent: The Frankfurt Veto

Ryan Avent:

The euro crisis: The Frankfurt veto: AUSTERITY has been under fire from all corners, lately: from IMF reports showing painfully high multipliers on fiscal cuts, to challenges to the Reinhart-Rogoff debt-threshold research, to the European Commission, whose president, Jose Manuel Barroso, noted this week that austerity in Europea has "reached its limits". Even the data itself appears to be rebelling. Eurostat released updated figures this week on euro-area fiscal statistics, which show remarkably little progress toward fiscal goals; Germany was the only European Union economy to run a fiscal surplus in 2012. But despite this, yields on peripheral sovereign debt continued their long march down. Soaring borrowing costs apparently weren't about indebtedness at all, but about uncertainty over the European Central Bank's willingness to act as lender of last resort.

George Soros Leaves a Weblog Comment for Hans-Werner Sinn

George Soros:

George Soros Comment On Hans-Werner Sinn: Hans-Werner Sinn has deliberately distorted and obfuscated my argument. I was arguing that the current state of integration within the eurozone is inadequate: the euro will work only if the bulk of the national debts are financed by Eurobonds and the banking system is regulated by institutions that create a level playing field within the eurozone.

Olivier Blanchard: Rethinking Macroeconomic Policy

Olivier Blanchard:

Rethinking Macroeconomic Policy: Rethinking and reforms are both taking place.  But we still do not know the final destination, be it for the redefinition of monetary policy, or the contours of financial regulation, or the role of macroprudential tools. We have a general sense of direction, but we are largely navigating by sight. I shall take six examples….

Risks of Debt?: Hoisted from Comments Tuesday DeLong Smackdown Weblogging

imon van Norden said...:

Brad: R&R, Hamilton, and many other serious, bright, empirical economists that are not part of your "faction" frequently argue "interest rates may be low now, but they could rise quickly." (Similarly, stock prices may be high now, but they could fall, particularly if long-term interest rates rise.) And in the next breath, they argue that because debt levels are slower and more costly to adjust than asset prices, the prudent course is to slow the growth of debt now.

What say you to this? In your title, you speak of "Risk". Theirs is (I think) a risk-management argument. Surely it deserves acknowledgement.

Jared Bernstein: The War Against the Pointless Pain Austerity Caucus: Not the End, Not the Beginning of the End, But Perhaps the End of the Beginning?

Jared Bernstein:

What Debt Crisis, Indeed? Things that Make You Go Hmmmmm…: OK, I know that what’s happening in the debt debate is more complicated than a grad student found some mistakes in a spreadsheet and the spell that had bewitched the nation was broken. But that’s kinda what seems to be happening. This Politico piece tells of some Democrats coming around to the view that “[t]here’s no short-term deficit problem…and there isn’t even an urgent  debt crisis that requires immediate attention.”… You gotta love the incredibly juicy irony of what’s going on.  Nobel laureates [that's Krugman], former Treasury officials [that's me], think tankers [Josh Bivens and John Irons of EPI], yours truly, and zillions of others have been trying to break through on this for years. Some bespectacled twenty-something [Thomas Herndon] comes along, and for a term paper--a term paper!--tries to replicate Rogoff and Reinhart’s study, he perseveres, gets some solid guidance from his profs, who happen not to genuflect at either the alter of austerity or the academic hierarchy (I’m afraid other profs might have shut the young man down)--and BOOM! Somebody really needs to make a movie out of all of this someday.

What Have We Learned About Fiscal Policy as Stabilization Policy since 2007?

Laura Tyson and I gave a presentation to the IMF Fiscal Forum on Wednesday the 17th. A draft of our paper. I talked about changing perceptions of fiscal policy. Laura talked about changing perceptions of multipliers.

Here is my part of our talk:

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For the past five years, each year I have begun talks by saying that I thought in the previous year that the crisis was at its peak, and that each year I turned out to be wrong, as the crisis revealed itself as even deeper and more of a crisis than it had been the year before.

We are now six years in. The natural thing to do, therefore, is to compare 1929-1935 with 2007-2013. 1929-1933 saw much larger output declines and unemployment increases than 2007-2011--between two and three times as large. But by 1935 the tide had turned nearly everywhere except France, which was still on the gold standard (but about to elect a Popular Front government and drop its link). There had been substantial gap closing between 1931 or 1933 and 1935. The Great Depression was clearly not over by 1935, but the global economy was clearly on the mend.

By contrast, today we have had a slower decline. But we have seen no signs of anything we could call gap-closing, no sign of any returns back to what we used to think of as normal levels of activity. Here at the IMF we speak of a "three speed recovery". In the North Atlantic plus Japan, at least, the speeds are "reverse" in Europe--the proportion of the population at work is dropping--and "neutral" in America--the proportion of the population is stable. Thus it is no longer clear that, when this is over, people will look back and classify it as a smaller worldwide event than 1929-1939. Another five years of the last two years' trends, and it will be 2007- rather than 1929-1939 that will seize the name of "The Great Depression".