15 Dec 2012

Brad DeLong Has Met the Enemy, and He Is Him

DeLong, Economics, Federal Reserve 13 Comments

Brad DeLong explains how it’s not easy being in a club of Cassandras:

Back in the middle of 2011, in the circles in which I traveled–policy-oriented macroeconomists who actually knew something about the world and about financial history–there was a rough consensus that we all ought to make one last charge for more aggressive policies to boost growth and reduce unemployment. We did not think there was much chance that we would actually influence policy: it was more to lay down a marker for the future…

We had, after all, worried in 2005 that the housing bubble might collapse and create a sticky macroeconomic situation. And we had been ignored. We had, after all, worried in 2007 that the major banks risk management structures were inadequate to the situation. And we had been ignored. We had, after all worried in 2008 that the Treasury and the Federal Reserve’s focus On not enabling moral hazard meant that they were running enormous risks that they did not understand. And we had been ignored….

Thus in the summer of 2011 we expected to be ignored again.

We expected to hear about the limited efficacy of quantitative easing and the substantial risks associated with the expansion of the Federal Reserve balance sheet; about the importance of confidence and the necessity of the near-term down payment on long-run deficit reduction; and about how it all costs the US must not become Greece and was in some danger of doing so. [Bold added.]

That part I’ve put in bold is now a running theme at DeLong’s blog. He is dismayed at the poor arguments put forth by people viewing further Fed action as somehow “risky” and demands to know just what these fools have in mind by such talk.

Given that DeLong and his merry band of truth-seekers have been fighting the good fight against these liars and fools for at least 8 years now, it’s funny that back in January 2009, when Gary Becker wondered why so many economists were suddenly in favor of government fiscal stimulus, DeLong he blogged this in response:

Ummm… Gary… Please phone Reality on the white courtesy phone.

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.

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.

The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected–but I already knew that, or rather I had thought I already knew that.

13 Responses to “Brad DeLong Has Met the Enemy, and He Is Him”

  1. Christopher says:

    How do you remember things that people wrote 4 years ago?

    • guest says:

      Bob Murphy is literally a memory hole.

      Metonymically, a “Bag of Holding”, if you will …

  2. Teqzilla says:

    Delong writes like he wants to be caught. The more obnoxious he is in asserting something the more certain you can be that he is pulling a fast one.

    • Bob Roddis says:

      I really can’t decide if Keynesians know they are lying or not.

  3. Jonathan M.F. Catalán says:

    Another thing that bothers me is the strategy employed. DeLong is basically shifting the faults of a slow recovery to whoever doubts the efficacy of monetary and fiscal stimulus. Fiscal policy apart, monetary policy has been quite unconventional since the beginning of the crisis, and the results are wanting. This alone doesn’t speak towards what direction we should take monetary policy, but it is evident that resistance to monetary policy isn’t the only problem — monetary policy advocates have been getting it wrong, too.

    • Matt Tanous says:

      I thought the monetary and fiscal policy was supposed to fix the “animal spirits”. Are you telling me that DeLong is saying that it can’t do that? That the “confidence fairy” hasn’t returned and THAT’s why nothing is working?

  4. gienon says:

    DeLong DeLusion.

  5. The Existential Christian says:

    I’m not educated enough to fully understand the arguments DeLong puts forth, but his whole demeanor makes me instantly distrust him.

  6. Yancey Ward says:

    DeLong is an airbag. Nothing surprises me when he writes.

  7. Jason B says:

    “What I find amazing about Murphy is his unwillingness to do even the most cursory due diligence about, well, about virtually anything…”

    -Brad Delong 11/9/12

    Seems as though Brad could benefit from being a little more diligent about knowing what he thought 4 years ago.

  8. JP Koning says:

    Another DeLong quote for you, this from his paper with Summers (2012) :

    “As is clear from the actions around the world, central banks do have room for maneuver even when there is not room for changes in interest rates. The room for maneuver principally takes the form of (i) the ability to operate directly on a wider than normal range of financial instruments, and (ii) the ability to precommit future policy.” See here.

    • Matt Tanous says:

      And here I was thinking that “monetary policy has shot its bolt and has no more room for action”…

  9. AC says:

    Careful, DeLong will delete your blog

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