[Two UPDATEs below, one embedded and one at the end.]
I have to be brief, so if you’re a newcomer to this blog, you won’t get much from this. But back in early 2009, Brad DeLong was very skeptical about the ability of the Federal Reserve to rescue the world economy from the ravages of the Great Recession. Here’s DeLong from January 2009: “The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.”
[UPDATE: I realized I didn’t give a long enough quote to see why there is no wiggle room here. Earlier from DeLong’s January 2009 post:
The difference between now and 1982 was that back in 1982 the interest rate on Treasury bills was 13.68%–there was a lot of room for the Federal Reserve to cut interest rates and so reduce unemployment via monetary policy. Today the interest rate on Treasury bills is 0.03%–there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried “quantitative easing” experiments. [Bold added by RPM.]]
Then later, when Scott Sumner was the toast of the town, DeLong made it sound like he’d been on board with NGDP targeting all along. For example, in January 2011 DeLong put in a seminar paper:
So a bunch of us went nuts at the time, pointing out what a total rewrite of history this was. (E.g. here’s Sumner.) I can’t find the link, but at the time DeLong bit my head off for daring to suggest that he had ever cast aspersions on the power of the Fed in the beginning of the crisis.
And now we’ve come full circle. In a book review DeLong writes:
The dominance of Friedman’s ideas at the beginning of the Great Recession has less to do with the evidence supporting them than with the fact that the science of economics is all too often tainted by politics. In this case, the contamination was so bad that policymakers were unwilling to go beyond Friedman and apply Keynesian and Minskyite policies on a large enough scale to address the problems that the Great Recession presented.
Admitting that the monetarist cure was inadequate would have required mainstream economists to swim against the neoliberal currents of our age. It would have required acknowledging that the causes of the Great Depression ran much deeper than a technocratic failure to manage the money supply properly. And doing that would have been tantamount to admitting the merits of social democracy and recognizing that the failure of markets can sometimes be a greater danger than the inefficiency of governments.
The result was a host of policies based not on evidence, but on inadequately examined ideas. And we are still paying the price for that intellectual failure today.
Fortunately, we don’t need to speculate on how the above three positions all mesh perfectly, as I expect Daniel Kuehn will inform us in the comments.
UPDATE: Daniel Kuehn in the comments tries to defend DeLong by making a distinction between conventional and unconventional policy, and that’s what DeLong did back in 2011 when I noted the apparent inconsistency. But that won’t do. DeLong in 2011 is claiming that pre-crisis, he thought the Fed could and would do whatever it took to keep NGDP growing–including “helicopter drops.” In case it’s not clear, let me make it so: A “helicopter drop” means the Fed literally gives money to the public, without even bothering to buy assets. It is further from conventional monetary policy than QE is. You don’t rely on interest rate adjustments if you’re using helicopter drops to boost aggregate demand.
So, the only way to make sense of DeLong’s 2011 post, in light of what he said in 2009 (and now), is this: “Back before the crisis, I was convinced the Fed would ignore naysayers like me when it implemented unconventional policies. I am frankly astonished they took me seriously.”