Charles Calomiris (2008): How To Prevent **Manage** Foreclosures
DeLong and Summers: Fiscal Policy in a Depressed Economy: Conference Draft

Noah Smith on the Left Opposition Economists

Noah Smith:

Noahpinion: Did the Krugman insurgency fail?: I encourage everyone to read Henry Farrell and John Quiggin's new article, "Consensus, Dissensus and Economic Ideas: The Rise and Fall of Keynesianism During the Economic Crisis."… Keynesian policy briefly regained its old throne when everyone was panicking in 2009 - everyone became a Keynesian in a foxhole, as Bob Lucas would say - but this brief consensus fell apart under an assault from austerity-minded European central bank economists in 2010-11.

This makes me step back and think about the whole econ blogosphere…. Paul Krugman['s] article, "How Did Economists Get It So Wrong"…. A war was on. The blogosphere was Ground Zero for a very deep and fundamental argument about the purpose and practice of macroeconomics. And suddenly, the policy consequences couldn't be more important. After spending a year sitting on the sidelines of that argument, I decided to turn Noahpinion - which had just been a personal bullshit diary - into an economics blog.

Now it seems that the war is winding down… the frequency of titanic clashes seems to have peaked…. Policymakers… no longer feel a need to deviate from the comfortable pre-2008 consensus that monetary policy is the only necessary tool of demand management…. So does that mean Krugman's insurgency failed? Seen narrowly as a push for countercyclical fiscal policy, I'd have to conclude "yes."… But I do not believe that this is the case…. [T]he Krugman insurgency launched a much deeper, more profound, and more long-lasting war.… [W]hen Krugman, a Nobel Prize winner, came out and said publicly that the macro profession had allowed itself to be satisfied with uselessness and irrelevance, it broke the facade of unity…. If macroeconomists hadn't conclusively discovered how to avert crises and also hadn't conclusively discovered how to recover from crises, what good had they done for society? Why were we paying professors hundreds of thousands of dollars to study this subject if nothing usable had emerged?

I take a different view. My view is that macroeconomists know a great deal about how to avert and cure the macroeconomic consequences of financial crises, and have known how to do it since John Stuart Mill drafted his "Essays on Some Unsettled Questions in Political Economy" back in 1829. A general glut--a desire on the part of agents in the economy as a whole to spend less than their total incomes--is the consequence of a general belief on the part of agents that they are holding too few or the wrong kind of financial assets. It can and should be cured by having some lender-of-last-resort-like agency--the tallest midget in the room--create the financial assets needed for people to be happy with the amount and type of their holdings, and so push economy-wide spending up to income.

And yet, in spite of everything, this was not done. There were lots of technocratic details and questions about how to do it. But back in late 2008 I had no doubt that all of us economists agreed that that was what needed to be done, and it would be done.

I still don't understand why it was not done. I thought that those of us who understood John Stuart Mill (1829) exercised intellectual hegemony over economic policy discourse. And it turns out we did not…