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Notes to myself, possibly of interest to others.
-- Bill Northlich

Sunday, November 21, 2010

Wherein I don't understand what Brad DeLong does not understand.

Brad DeLong on the state of the Intelligentsia-sphere. First, he quotes Krugman:
China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House...
Then DeLong:

Indeed, it is now clear that the right-wing objection to the policies of the Obama administration was not an objection to fiscal policy as an inappropriate policy modality for stabilizing nominal spending. It was, instead, an objection to the very idea that the government should try to serve as a stabilizing macroeconomic balance wheel.

The flow of economy-wide spending is low. Thus Ben Bernanke's Federal Reserve is moving to boost the flow. It is doing so by changing the mix of privately-held assets as it buys government bonds that pay interest in exchange for for cash that does not.

That is totally standard....

Governments pre-WWI and even more so pre-WWI did not take on the mission of keeping unemployment from rising high in economic downturns. Why not? There were three reasons, all of which vanished by the end of WWII.
  1. There was then a hard-money lobby: a substantial number of very rich, socially influential, and politically powerful people whose investments were overwhelmingly in bonds. They had little--personally--at stake in a high level of capacity utilization and a low level of unemployment. They had a great deal at stake in stable prices. They wanted hard money above everything.
  2. Back in those days the working classes that was hardest-hit by high unemployment did not generally have the vote. Where they did have the vote, they and their representatives had no good way to think about how they could benefit from stimulative government policies to moderate economic downturns, and they had no way to reach the levers of power in any event.
  3. Knowledge about the economy was in its adolescence. Knowledge of how different government policies could affect the overall level of spending was closely held. It was--the American Free Silver Movement excepted--not the subject of general political and public intellectual discussion.
Today we have next to no hard-money lobby, for nearly everybody has a substantially diversified portfolio and suffers mightily when unemployment is high and capacity utilization and spending are low. Economists today know a great deal--albeit not as much as we would like--about how monetary, banking, and fiscal policies affect the flow of nominal spending, and their findings are the topic of a great deal of open and deep political and public intellectual discussion. And the working classes all have the vote.

But here we are, with Austerians. So cui bono? Who benefits from austerity in the U.S.?  How in the North Atlantic can we have a large political movement pushing for the hardest of hard-money policies when there is no hard-money lobby with its wealth on the line? How is it that the unemployed, and those who fear they might be the next wave of unemployed, do not register at the electoral polls?  Why are politicians not terrified of their displeasure?  And why are principles of nominal income determination that I thought had been largely settled since 1829 now not settled?  Why is the idea, common to John Maynard Keynes, Milton Friedman, Knut Wicksell, Irving Fisher, and Walter Bagehot alike, that the first task of the government is to undertake strategic interventions in financial markets to stabilize the flow of economy-wide spending now a contested one?

Paul sees a material interest link: he sees German and Chinese governments that seek a continued large U.S. trade deficit to allow their export surpluses, Republican politicians who think trashing the economy is the way to majorities, and economists who think that supporting Republican politicians is the road to influence. I don't think that can be a complete explanation: very few people are comfortable living with the idea that they are villains wreaking destruction on the world for their own narrow advantage.
Bill:  I don't get what DeLong does not get.  Yikes - yet another thing I don't understand!

The "right" has been doing this type of thing since at least 2000.  In 2008, what a great turn of events!  A black guy becomes President!  Call him a Nazi!  A Muslim!  There!  See - he's really really bad!

They want the White House.  Winning isn't everything, it's the only thing.

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