"I think that, once one recognizes this fact that both Keynes and Friedman are to the activist left of even the left edge of today's policy spectrum, one cannot then escape the conclusion that today the entire right wing and a good part of the center is simply not sane. The position of the right today is, in essence, that (a) because the top managements of highly-leveraged money-center banks were unable to understand or control their derivative books, (b) tens of millions of additional people must be doomed to poverty and unemployment, for (c) the market giveth and the market taketh away: blessed be the name of the market.
"And this is simply nutso.
"Our technologies, resources, and preferences are what they were in 2007, and high unemployment because we will not repair our magneto is a choice, and a disastrous one, and an insane one, and a right-wing one.
"Acemoglu and Robinson, I think, want at some level to be thought of as Very Serious People, as part of the Bipartisan Center. They do, I think, fear that if they took those additional logical steps that they would find themselves dismissed as "shrill"--as like Paul Krugman and company.
"So they try to avert their own--and everybody else's--gaze from the fact that right now to be truly technocratic and nonideological is to be advocating policies that are left of the entire political structure."

--- Whether this is an accurate understanding of Acemoglu and Robinson, I think it is 100% correct about how _DeLong_ understands his situation. He really, really wants to be a sensible centrist non-partisan technocratic Very Serious Person, but is unable to do that honestly.

Bloomberg?!?

Not sure how useful this is as an actual visualization, but very nice as eye candy. (And, if you look at the department totals, as an illustration of "an insurance company with an army".)

" if some policy increases consumption of something with zero marginal cost (an idea, an academic paper, a song, an e-book, etc.), a minimum, necessary condition to restrict that policy is that the variety of affected new goods must decrease. So if music piracy increases the number of songs consumed (and the number of songs illegally downloaded in any period of time is currently much higher than worldwide sales during that period), a minimum economic justification for a government crackdown on piracy is that the number of new songs created has decreased (in this case, they have not). Applying The First Law to open access mandates, a minimum economic justification for opposing such mandates is that either open access has no benefits, or that open access will make peer reviewed journals economically infeasible."

I'm reading his book, and finding it surprisingly agreeable.

One of those essays which would really be much clearer, and easier to judge, as a mathematical model.

"These top economists discuss future directions for monetary policy, fiscal policy, financial regulation, capital account management, growth strategies, and the international monetary system, and the economic models that should underpin thinking about critical policy choices. Among the new realities they consider are the swing of the pendulum toward regulation; the need for new theoretical approaches, incorporating advances in agency theory, behavioral economics, and understanding of credit markets and finance based on theories of imperfect information; and the importance for macroeconomic policy to target not just inflation but also output and financial stability."

"Turner argues that the faults of theory and policy that led to the crisis were integral elements within a broader set of simplistic beliefs about the objectives and means of economic activity that dominated policy thinking for several decades. This dominant discourse cast economic growth as the objective, markets as the universally applicable means of achieving it, and inequality as inevitable and necessary. Turner takes on these assumptions point by point, arguing that more rapid growth should not be the overriding objective for rich developed countries, that inequality should concern us, that the pre-crisis confidence in financial markets as the means of pursuing objectives was profoundly misplaced, and that these conclusions have broad implications for the case for economic freedom, for specific areas of public policy (including financial regulation and climate change), and for the discipline of economics itself."

"Recent evidence suggests that the default options implicit in economic choices (e.g., 401(k) savings by white-collar workers) have extraordinarily large effects on decision-making. This study presents a field experiment that evaluates the effect of defaults on savings among a highly policy-relevant population: low-income tax filers. In the control condition, tax filers could choose (i.e., opt in) to receive some of their federal tax refund in the form of U.S. Savings Bonds. In the treatment condition, a fraction of the tax refund was automatically directed to U.S. Savings Bonds unless tax filers actively chose another allocation. We find that the opt-out default had no impact on savings behavior. Furthermore, our treatment estimate is sufficiently precise to reject effects as small as one-fifth of the participation effects found in the 401(k) literature. Ancillary evidence suggests that this "nudge" was ineffective in part because the low-income tax filers in our study had targeted plans to spend their refunds. These results suggest that choice architecture based on defaults may be less effective in certain policy-relevant settings, particularly where intentions are strong."

Is this the first time Kalecki got mentioned on the Times editorial page?

"This doesn't eliminate the question of whether federal flood insurance is a good idea, whether any of it should be subsidized, or whether the public/private nature of NFIP [National Flood Insurance Program] is a good idea. But it does suggest that NFIP isn't flatly nuts. There are millions of dwellings currently insured for flood damage in over 20,000 towns and cities. There's just no way to take a wrecker to all those houses and raze all those towns. That means insurance has to be available to them, and the only entity capable of spreading the risk widely enough to make flood insurance efficient is the federal government. Thus NFIP."

"I imagine that every day Kocherlakota interviews people – from banking, from the top 1%, from the corporate offices of our largest firms – who will kindly explain to him that the problem in the economy is that they just don’t get their demands answered quickly enough.  If only they paid even less in taxes, if only regulations were weakened further, if only every pet demand they ever wanted was granted, then they would allow the economy to take off.
How often does he hear the opposite?  How often do the unemployed disrupt his speeches, chanting about how they aren’t on a magical vacation but instead desperate to find a job?  How often do students show up in huge numbers in his office explaining they they are terrified of entering this terrible job market, a job market likely to scar their careers for decades, instead of apathetic losers who’d rather just play on facebook all day enjoying their “z”?   Maybe it is time that changed."

(If only.)

The "Real Exchange Rate and Economic Growth" paper would make a good exam for undergraduate ADA, but I don't have the time this year to prepare it suitably.  Next year.

"For the kind of profession where a practitioner is handling money or valuables for not-necessarily-sophisticated customers, like bail-bondsmen, insurance brokers, real estate brokers or even the auctioneers he mentions, there's a huge potential for fraud that realistically can't be addressed by generic law enforcement, even if the money that's now spent on licensing were redirected to prosecutors. ..."

Make the central bank democratically accountable?  Heresy!

Later: Steve Laniel's review (http://stevereads.com/weblog/2011/08/21/catching-up-on-reviews/) is quite cutting, and removes my interest in reading this.

"I stand before you repentant..."

"Long story short, the issue here really and truly is one of German households engaging in a very high rate of savings and not one of Germany firms being somehow extra awesome at making desirable products. German firms are great, the German people make a lot of stuff, and on a per hour basis the German workforce is incredibly productive. And good for them! But they’re not actually not outproducing the United States of America, they’re buying less stuff. Which would be fine if when the world turned around to look at what’s happening with these savings we saw the world’s finest banking system financing highly productive investments all ’round the world. But ... I see German banks financing bum real estate developments in Ireland, Nevada, Spain, Florida, etc. It seems to me that people all around the world—but not least in Germany—would be better-off if German households owned more XBoxes, MacBooks, jamon iberico, and feta cheese and fewer indirect claims on mortgage-backed securities."

Economic theory as slaved to the political tides. "Starting around 1968 the majority of Americans, at least, moved from being grudgingly willing to make small sacrifices in order to improve the lives of others, to a more enthusiastic willingness to make small sacrifices in order to make sure that others get hurt."

Shorter DeLong: fucked is the new normal.

The thing is, despite my "modest proposals" tag, the numbers make sense. You'd have to bet against the program working at (back of the envelope) more than 10:1, and think it would deliver _no_ benefits if it didn't completely cure diabetes...

But Brad does not answer his question! Where oh where are the centrist technocrats?

"Knowing that the market is good, their task is to figure out why a good market has decreed that employment in America needs to fall by 8 million relative to trend. (It's not unlike grappling with a just and all-powerful God who doesn't mind a tsunami every so often.)

The workers-have-no-productive-skills explanation is the only one that makes sense, if we first start from the premise that the market is all-good. Never mind that we have a lot of evidence that the market is not good — that we have been periodically suffering from these finance-driven grand mal seizures of the body economic that we call the industrial business cycle for 185 years.

Nevertheless, you can shut your eyes — and economists are very good at doing so. It was Joseph Schumpeter, one of the smartest economists of three generations ago, who began a lecture with: "Gentlemen! A depression is a healthy shock! It is like an ice-cold douche!""

"To be frank, when I dug into the Alesina and Ardagna paper and finally understood the work their 1.5% primary deficit reduction was doing I wandered around stunned for a day or two. I called a bunch of people I trusted on macroeconomics and tried to see if I was missing something; was our elite discourse, the Sensible People Stuff, really being driven by this?"

"While the other side was making these predictions, people like me were saying that classical economics was all wrong in a liquidity trap. Government borrowing did not confront a fixed supply of funds: we were in a paradox of thrift world, where desired savings (at full employment) exceeded desired investment, and hence savings would expand to meet the demand, and interest rates need not rise. As for inflation, increases in the monetary base would have no effect in a liquidity trap; deflation, not inflation, was the risk. ... The 10-year bond rate is about 2.5 percent, lower than it was when Ferguson made that prediction. Inflation keeps falling. The attacks on Keynesianism now come down to “but unemployment has stayed high!” [but] if you took a Keynesian view seriously,... given what we knew in early 2009 ... the stimulus was much too small to restore full employment."

Now that is what I call a _compelling_ homework assignment. (So much so, in fact, that I am not altogether comfortable with the idea of giving it. But at the same time so much of the rest of what they'd be getting in their economics classes is _also_ priming/framing/forcing, in a rather more underhanded way, that this might only be fair.)

"Narayana Kocherlakota (who the bankers of Minnesota, Montana, North Dakota, South Dakota, northwestern Wisconsin, and the Upper Peninsula of Michigan have selected to exercise important public functions) certainly knows more about economics than me. So when he says “[m]ost of the existing unemployment represents mismatch that is not readily amenable to monetary policy” I’m prepared to defer to him or to leave the job of explaining why he’s wrong (if he is wrong) to other people. But ... as a reason to avoid monetary stimulus this makes no sense, and is just a piece of misleading rhetoric that distracts people from the real issue. ... Say that of that 5.1 percentage point increase [in unemployment], 2 ... are due to inadequate demand and 3.1 ... are due to structural factors... monetary expansion could reduce the unemployment rate by 2 percentage point ... [which would be] a big deal. ... we’d alleviate a substantial quantity of human suffering up to and including suicide."

Ans.: No.

"Wouldn’t it be awesome if the Fed and other government agencies took advantage of domestic Nobel Prize winning economists? For christ sake- someone google “Krugman+lost+decade” and tell me how many hits you come up with. He’s done just about everything except tattoo it on his chest and back and then do a pay-per-view boxing match with Tonya Harding." --- Would that work, I wonder?

This sounds promising: "Don't look now, but cap-and-trade is coming to the United States—and there's nothing the Senate can do about it. Earlier today, California, New Mexico, and three Canadian provinces—Ontario, Quebec, and British Columbia—unveiled a plan to set up a carbon-trading system for greenhouse gases by January 2012." (Therefore I predict that the Republicans in Congress will try to find a way to squish it.)

As full-throated a "yay!" as possible, under the circumstances.

"But knowing their hypocrisy, he said unto them, "Why are you putting me to the test? Bring me a dime and let me see it."

And they brought one. Then he said to them, "Whose head is this -- FDR's or Herbert Hoover's?"

They answered, "Roosevelt's."

And he said unto them, "Right. So shut up. Have you morons already forgotten the 20th Century? When the choice is between imitating what worked and what really, really didn't work, why are you pretending it's terribly complicated?"

And after that, no one dared to ask him any question."

"How is it a waste of their time to take someone who is otherwise unemployed and pay them to do such work, especially if it provides us with something of long-term value and them with earned income? AND it stimulates demand. Where is the down side, pray tell? Even if we guess wrong, we'll have much needed improved infrastructure, mass transportation, new energy sources, better educated kids and safer streets and highways.

I believe the problem for Glaeser (and many others who dither while unemployment is high) is a morbid fear that putting people to work with taxpayer money (much as we have done for investment bankers) will crowd out efficient private sector productivity and jobs....some day. I'm left to wonder why crowding out of public infrastructure and education by unproductive, inefficient speculation in private financial and mortgage markets is OK, but I digress."

"The spillovers in knowledge among largely college-educated workers were among the key reasons for the impressive degree of economic growth and spread of entrepreneurship in the United States during the 1990s. Prior ‘industrial policies’ in the 1970s and 1980s did not advance growth because these were based on outmoded large manufacturing models. Zoltan Acs and Catherine Armington use a knowledge spillover theory of entrepreneurship to explain new firm formation rates in regional economies during the 1990s period and beyond. The fastest growing regions are those that have the highest rates of new firm formation, and which are not dominated by large businesses. The authors also find support for the thesis that knowledge spillovers move across industries and are not confined within a single industry. As a result, they suggest, regional policies to encourage and sustain growth should focus on entrepreneurship among other factors." (But: George Mason U. is worrying.)

Look, this is a basic element of democracy: those who wield power need to be accountable for their actions to those over whom their wield that power.

"In that sense, this time really is different: while the first great global financial crisis was followed by major reforms, it’s not clear that anything comparable will happen after the second. And history tells us what will happen if those reforms don’t take place. There will be a resurgence of financial folly, which always flourishes given a chance. And the consequence of that folly will be more and quite possibly worse crises in the years to come." --- I wonder, does Krugman read Ken MacLeod? If not, someone should send him a copy of The Fall Revolution.

"There is nothing wrong with economics, Dean Baker contends, but economists routinely ignore their own principles when it comes to economic policy. What would policy look like if we took basic principles of mainstream economics seriously and applied them consistently?"

Stiglitz expounds on the current crisis, under the pretense of reviewing a book about Keynes.

Uncle Paul explains the economics of climate change policy.

On the radical implications of orthodox economics: "If it was conventional wisdom that a bunch of unelected bankers looking out for rich people were the reason everyone was out of work, politicians would be forced to explain to angry voters why we had this crazy system and might actually consider doing something about it. But, incredibly, it just seems like nobody has any idea. Voters don’t realize it, politicians don’t understand it, journalists don’t cover it. And, in fact, they’re so far from having any idea that it’s really difficult to explain it to them. When you say a bunch of unelected bankers are the reason there are no jobs, they just look at you like you’re crazy. I’ve just spent a page or two explaining it and you still probably think I’m crazy. But it’s true! This isn’t some Ron Paul-type crackpot idea; this is mainstream economics, from Paul Krugman to the head of George W. Bush’s Council of Economic Advisors."

Draft Krugman!

"I hereby deny, abjure, and repent my previous allegiance to the gospel of "Greenspanism." I reject Greenspan, and all his works, and all his empty promises.

I will strive now to walk in the light."

Galbraith jr. arguing for the combination of free trade & progressive labor policies at home.

My reaction to the first half is "preach it, brothers and sisters!" Perhaps inevitably, the constructive proposals of the 2nd half are less compelling.

This should make for some ... interesting discussions the next time DeLong gives a talk at Harvard. (Or make sure it will be a long time before he does.)

Who are you, and what have you done to Martin Wolf? (And could you maybe see about replacing more business columnists with pod people?)

I think this is slightly unfair to the 17th century Jesuits. It is not at all unfair to the Chicago School; if anything it is still too kind.

Robert Solow on the financial collapse, in the form of reviewing Richard Posner's book on the same. I am reassured to find that my own half-baked thoughts align with Solow's.

A world gone mad is one where an ex-_IMF_ economist sounds like he could be writing in New Left Review... (I should ask ZMS if he knows this character)

Kevin Drum's "bank nationalization 101".

OK, this is me disagreeing with an actual economist about the kind of economics he specializes in, but I think Brad is just wrong here. There is a lot of stuff wrong with Harvey's writing (horrible expression, the pretense to be able to say what historical events Really Mean by relating them to the Hidden Forces, etc.). But the plainest interpretation of both his original post and his follow-up is that (1) he thinks a sufficiently large stimulus _would_ work as economics, while (2) we will not be able to get a sufficiently large stimulus due to political and fiscal constraints. Brad is arguing against someone who believes (1') no stimulus could possibly work due to crowding-out effects. I truly don't see how Harvey is saying this. (Harvey, it must be said, does not help his own case.)

Krugman's long-form take on what Obama should do, domestically, in year 1. Where do I sign up to help pressure Obama to do all this?

(And, in a "why oh why can't have a better press" moment, why does our leading public intellectual have to publish this in Rolling Stone, of all places?)

Raising the important historical question: _did_ Baal Mammon take human sacrifices?

Wow. Brad's 100% right, Fama is screwing up something (the accounting-identity sense in which "savings" must always equal "investment") which is so basic that I learned it at my father's knee (quite literally).

"Is economic efficiency a sound basis upon which to make public policy or legal decisions? ... considers the way in which scholars and public decision-makers define, predict, and assess the moral and legal relevance of economic efficiency.

"...begins by identifying imperfections in the traditional definition of economic efficiency. He then develops and illustrates an appropriate response to Second-Best Theory and investigates the moral and legal relevance of economic-efficiency analyses. Not only do virtually all economic, legal, and public policy thinkers misdefine economic efficiency, the author concludes, they also ignore or respond inadequately to Second-Best Theory when analyzing the economic efficiency of public choices and misassess the relevance of economic-efficiency conclusions both for moral evaluations and for the answer to legal-rights questions that is correct as a matter of law."

Dean Baker makes sense.

Stiglitz's Nobel Prize lecture, 2001. VERY good, even allowing for the somewhat Stiglitz-centric tone (and the surprising number of typos; you'd think the Bank of Sweden could afford some copy-editors).

Brad DeLong on the evolution and current state of central banking.

Memo to self: see if library has copy of Heller.

Jamie Galbraith on the bailout bill (pre-Monday)