28 Jul 2010

Believing Is Seeing: Brad DeLong on the Depression

Economics 9 Comments

I thought Brad DeLong’s reaction to a Greg Mankiw piece was so perfect, I used it in my talk today on the Great Depression at Mises University. Here’s DeLong (HT2 Krugman I think):

Mankiw’s broader point is that since we have seen nothing like this before except for the Great Depression, we should be humble and risk averse–and hence have the government stand back and wash its hands of the situation.

However, even a minor and hasty acquaintance with the Great Depression teaches that the belief that the government should stand back and wash its hands because the self-regulating market quickly returns to full-employment equilibrium is the most arrogant belief possible.

And even a minor and hasty acquaintance with the Great Depression teaches that having the government stand back and wash its hands is the most risky strategy conceivable.

This is simply fascinating. DeLong has convinced himself that the government stood back and did nothing during the 1930s, and that’s why the world was stuck in the Great Depression for a decade.

Even if Hoover really were the liquidationist that DeLong (erroneously) believes him to be, that still would leave open the question: Why did the Great Depression occur under the laissez-faire Hoover, but not under the laissez-faire [insert the name of every earlier US president]?

In other words, the Keynesians can argue that Hoover did “too little, too late,” but it’s a bit much for DeLong to say that the brute facts shout out the failure of laissez-faire in the 1930s.

If the standard Keynesian theory were correct, then obviously DeLong is right and Mankiw is wrong. But of course, Mankiw’s whole point is that maybe the standard Keynesian view is wrong, and that we need to exercise some humility before saying, “Welp, obviously we need more stimulus, because the patient is still sick!”

Let’s keep in mind that the pro-austerity forces have numerous examples on their side. (I’ll post on this separately either today or tomorrow.) Krugman et al. are forced into going through and explaining away all the cases where (a) austerity led to economic growth and (b) big government deficit spending led to economic stagnation.

On the flip side, the Keynesians have no real example of deficit spending leading to a healthy economy. On the contrary, they point to awful economies (like US from 1935-1937 1934-1936 or in 2009) as examples of “near misses” where things would have been even worse–so they assure us–if Calvin Coolidge had been in charge.

And then, in the face of this huge imbalance in the empirical record, and in the face of the obvious craziness of Keynesian theory–“just have the politicians spend money on anything at all, that will make us richer”–DeLong thinks only a fool could doubt the Keynesian prescriptions.

Believing really is seeing.

(No doubt I do the same thing with respect to my free-market worldview. It’s still fun to point it out in DeLong’s case.)

9 Responses to “Believing Is Seeing: Brad DeLong on the Depression”

  1. Taylor says:

    Believing really is seeing.

    (No doubt I do the same thing with respect to my free-market worldview. It’s still fun to point it out in DeLong’s case.)

    And your religious views. But no need to go there.

    Have you noticed any spike in your blog traffic now that you have had a Mises Academy online class and a Mises University in person class of new students to introduce to Bob Murphy’s special brand of zany, libertarian economic carnival ride fun?

    • bobmurphy says:

      I actually don’t check the traffic much at all. Like Michael Savage, I can’t let ratings influence my rants. Love me or leave me, baby.

      I do know that as of about a month ago, the daily page views (I think that was the metric, it might have been visits) was double what it had been about 8 months earlier.

  2. Dilip says:

    On a related topic, you might be interested in this paper released by Blinder/Zandi on how the fiscal stimulus in combination with the TARP saved the economy from catastrophe:

  3. RG says:

    I think the doubling of the comments sections is evidence of said exposure.

    DeLong (and many more by extension) reminds me of a delusional Cubs fan. It’s an intevening fan, or an umpire, or a goat that keeps their amazingly talented team from winning the world series every year.

    Hey Brad, misallocating resources has consequences (see nearly every major personell decision by the north siders since 1908).

  4. Bob Roddis says:

    On this strange subject, today we have Yglesias the Warrior Keynesian:

    with the economy depressed it’s better to spend the money in Afghanistan than not to spend it.

    I snuck in my own snarky comment #2 thereafter.

  5. fundamentalist says:

    Yes, please read the Blind and Blinder, I mean, the Blinder and Zandi paper, then read Arnold Kling’s commentary on it over at econlib.org.

    DeLong just proves the fallacy of trying to derive economic theory from history. It’s a relatively trivial pursuit to find the evidence you want to support your theory. Any crackpot theory imaginable can find evidence in history if you’re selective enough and has some imagination.

  6. Jonathan Finegold Catalán says:

    Is Mirron rubbing off on Mankiw?

  7. Matt M says:

    @ fundamentalist

    Exactly! I had comments along the same lines. While it may be fun to debate numbers with these people, it really has no value. The most recent similar spin in the constant analysts all over the place saying that it is okay to expire the Bush tax cuts because that would put them back to the level of Clinton, who reigned over a “decade of prosperity and surpluses.”
    The ridiculous notion that people can extrapolate the effect of tax rates in a multi-trillion dollar economy drives me insane. The Austrian crowd needs to be able to continually show the “unseen” broken-window affects of the current policies we are implementing often and consistently, and maybe, just maybe, some mainstream politicians or news media types will get it to the public.