Today's Buggy Topic

It's found at the Marginal Revolution, where once more prof bug defends a moderate Keynesian view about the utililty of both monetary and fiscal stimuli to offset what is emerging as the longest recession in the US since WWII . . . although not the deepest so far.  That honor goes to the 1981-82 recession, when unemployment rose to double figures . . . a level that hadn't existed until then since 1940 and not rivaled since, though who can say what it could be without proper countercyclical monetary and fiscal policies?

No need to say more by way of introduction.  Click here for the buggy posts, two of them; and as usual, fairly long with some hard-headed evidence. 

Today's Buggy Topic

It's accurately captured by the subject heading here, and --- as usual --- prof bug posted it elsewhere: this time, at the Marginal Revolution . . . an unusually good economic web-site, run by Professor Tyler Cowen.  A uncommonly flexible libertarian --- Cowen actually blames the system-wide financial-meltdown this year on largely market-failures (convinced libertarians always trace the failures back to governmental policies that interfere with otherwise self-adjusting, self-regulating, optimum-working free-markets) --- he has claimed that he can't find any examples of successful pump-priming policies in the past.  And that claim encompasses Nazi Germany's fast recovery from the depths of the Great Depression in early 1933 . . . two months before FDR took office and confronted an even worse economic depression and higher unemployment.

The Second Buggy Take on the Topic

As you'll see if you click here --- a link that will take you to today's lengthy reply to a stimulating post by Professor Cowen on Nazi Germany in the 1930s --- this is the second time prof bug has commented on the topic, with that earlier comment linked to in the buggy reply. 

The topic, please note, is not just historical.  If we can't find examples of effective fiscal stimuli in previous recessions --- which means with good multiplier effects on prodding GDP growth back toward its long-term potential and hence toward full employment --- then doubt surrounds the announced plans of President Obama to institute large-scale pump-priming initiatives soon after he arrives in office next month.  The same doubts, of course, would apply to other democratic governments in Japan and the EU, similarly bent on implementing fiscal expansionary policies.

The Further Relevance of Nazi Germany: FDR's New Deal

Except for Canada --- a sparsely populated country in 1929, which was only partially industrialized and largely dependent on exporting agricultural products, minerals, lumber, and fishing --- Nazi Germany was the only wealthy country in the early 1930s to suffer roughly the same huge decline in GDP and employment as the USA.  And like Hitler's dictatorial regime, FDR's democratic government immediately initiated pump-priming measures . . . though on a more limited basis. 

The Results?

By 1936 --- as you can see from this informative chart --- the New Deal programs brought about almost as speedy an economic revival in America as Hitler's combined public-works and fast rearmament programs did in Germany. 

But only through 1936. 

The US then suffered a recession between the fall of 1937 and late summer 1938.  The causes: FDR and his advisers, contrary to right-wing mythology, were wary of deficit-spending; never pumped the prime nearly as much as Hitler's dictatorial government did in Germany; and in 1937, as tax revenue began flowing into the federal government from the new social-security system that went into effect in 1936, the federal deficit changed into almost a balanced budget.  Combined with the Federal Reserve's raising interest rates --- out of fear, believe it or not (amid deflationary falls in the general price level) of inflation --- the shift toward a balanced budget ended the big fall in unemployment from over 20% in early 1933 to 9.1% through the pre-recession months of 1937.

Note the key point here.  Tersely put, although GDP growth itself recovered rapidly from late 1938 until we entered World War II in late 1941, unemployment itself remained disappointedly high at over 8.0% until then.  In effect, only the big sustained arms programs and the creation of a vast American military of 10 million men and women brought unemployment down to under 4.0% and hence near its level in 1929 before the onset of the Great Depression.

By Contrast, Nazi Germany . . .

Continued to grow fast and reduce unemployment as Hitler expanded his rearmament programs throughout the decade, bent on an unprecedented brutal war to conquer all of Europe, make it Judenfrei with his diabolical genocide --- Jews blamed simultaneously by the Nazis for being the whip-masters of Communist Russia and capitalist-democratic America and hence the biological enemies of the Aryan peoples, destined to rule the world --- and kill off millions of Russians and others to establish vast living space (Lebensraum) for German colonization in all of Russia east of the Ural Mountains . . . all preparatory for a war for global mastery in a showdown war with Jewish-ruled America, Hitler's biggest bugaboo alongside Jewish-ruled Communist Russia itself.

Enough said by way of introduction.  Click on the link to the buggy comments at the Marginal Revolution for his evidence-driven interpretation of all this.

Happy Imminent New Year, Everybody

And let us all share a hope that in less than a month, with the start of President Obama's administration and a new Democratic Congress to back him up, our country will flourish much more noticeably than in the dismal Bush-W era . . . both at home and globally. 

Today's Buggy Topic

It's found at Carpe Diem, where, alas, a lot of heady and not very informed huffing-and-puffing was expended in dozens of posts in a thread that Professor Mark Perr --- who runs the laudable, data-driven blog --- started with a long quote from someone who said that financial "bubbles" not only are inevitable, but essentially good for free-markets.  The huffing stuff, followed by some name-calling, soon erupted with some followers of Austrian-economics who think that free-markets would work to near-perfection, without bubbles and subsequent recessions, if only we returned to pre-1700 monetary policies

The Austrian View of Money and Banking 

In those days, you understand, all money was strictly tied to gold; there was no "fractional banking" --- which means that banks couldn't keep only, say, 10% of their depositors gold-linked money on hand and lend out the rest through a multiplier effect (creating what's called fiat-money); and to top it off, there were no central banks that could expand the money supply, presumably (in Austrian economics) as much as central bankers' hearts desired.  The result?  There couldn't be any excessive credit-creation that entails a boom phase of economic growth in the business cycle --- full of misallocated investment --- and that subsequently leads invariably to a credit-crunchy and recession.  In fact, there couldn't be a business cycle . . . just steady, non-inflation economic growth.

Yes, there'd be some ups and downs in growth, but all the downs would be easily explicable: existing technologies used in production would be losing steam, capital accumulation based on those dominant technologies would therefore start running into diminishing returns, and economic growth would sputter . . . only for the deus ex-machina to intervene: hard-driving, risk-taking entrepreneurs who would, in a struggle for profits and glory, lead the successful to innovate new technologies and start solid, non-inflationary economic growth again.

Alas,

Austrian economists --- who frown on empirical work as useless (just check your logical premises and deduce rigorously what is and will happen to economies over time) --- forget to tell us that before 1700 all the economies of the world, despite different levels of technological advance, were stuck in a Malthusian trap: any spurts of economic growth for whatever reason would, if they lasted several years or more, would invariably lead the masses to have better diets, reproduce more profusely, and soon enough, population would grow faster and hence per capita income would fall back to an equilibrium-level that existed before the spurting economic advance.

It was only with the industrial revolution of the late 18th and 19th centuries --- pioneered for good reasons by England --- that certain economies in the world began to escape from the Malthusian trap and have been able to sustain increased growth in per capita income despite explosive growth in population . . . both in the rich, the rapidly developing countries, and the more backward ones. (In the very rich ones, which means West Europe, Japan, and the English-speakng world --- plus two or three small Asian dynamos, population growth has fallen noticeably since the high rates of the 19th and early 20th centuries.  In fact only the US, of these rich countries, is near replacement levels --- births more or less equaling deaths each year.  All quite apart, moreover, from immigration.)

Enter Prof Bug's Comments

Overwhelmingly, the posters at Carpe Diem are free-market enthusiasts, though probably 90% have no idea what the differences are between, say, Austrian economics --- a kind of small cult-like group on the fringes of libertarianism --- and the far more innovative, far more influential New Classical economics that ignored Keynesianism, re-linked economic analysis to the classical and neo-classical economists of the 19th and early 20th centuries, and under the influence of Milton Friedman and his students and followers have dominated economic theory for the last 30 to 40 years.

So one aim of prof bug's comments were to enlightened them on this difference.

Crowding that aim in center-stage of those buggy comments is a second objective: to note for the Carpe Diem posting-crowd --- most of whom seem to have never taken economics in college or, if they did, to have forgotten it (there are exceptions!) --- that there are different versions of Keynesianism, often very critical of one another.

Enough Said 

Click on this link to access the relevant thread and the bugged-out commentaries --- a duo to be exact.   In the meantime, if you want to deepen your knowledge, click on this link to a very good article in wikipedia on Keynesian economics --- easy-to-follow and unusually perceptive about the subject.  Note the links at the bottom of that wiki-article to related articles on New Keynesianism and the more radical Post-Keynesian version.

Oh oh.  It turns out that in the initial buggy post Carpe Diem --- there are two others in that thread --- prof bug erroneously listed the same web-address twice.  That left out a link to another thoughtful Post-Austrian Economics article.  Click here for it when you're through looking at the three bugged out commentaries.

Today's Buggy Topic

It's another in the lengthy bugged-out series, three months old by now --- maybe longer, who can remember that far back in time? ---about the policy lessons of the Great Depression era of the 1930s and whether they could and should be applied to the US and virtually all other countries these days amid the first system-wide financial crisis on a global scale, along with serious recession, since that dismal period 8 decades ago. 

More specifically, a thread was started in early December, 2008 at the Marginal Revolution by Professor Tyler Cowen of George Mason University --- a talented, wide-raging libertarian economist of unusual flexibility --- on whether Nazi Germany was an example of successful Keynesian fiscal-stimuli?  It's a good case-study, the more so because Hitler's Germany --- along with its quasi-fascist Militarized Japan --- experienced a noticeably fast recovery from the depths of the Great Depression in 1933.  Yes, far faster than the US in the New Deal era . . . that recovery the more impressive because Germany, alone in Europe, suffered roughly the same huge drop in GDP and employment as the USA between 1929 and 1933.  

Click here for a very good chart that documents the plunge in GDP in those initial years and the speed and strength of the recovery by 1939, the year World War II erupted in Europe. 

Enter the Controversies About the Nazi-German Recovery

Did the Nazis pursue strong and sustained public works fiscal stimuli, especially between 1933 and 1936 --- by which time both the American New Deal programs and Nazi German policies showed a strong recovery . . . only for the German recovery to continue, thanks to ever faster rearmament in preparation for trying to conquer all of Europe, until 1939?  Was there ever any strong fiscal stimuli other than rearmament in the first three years of Nazi rule?  (Hitler came to power in January 1933.  FDR took office in March of the same year.)  Even if the fiscal stimuli between 1933 and 1936 were largely in arms-production --- the entire German economy, like its equivalent in Militarized Japan, restructured for large-scale war --- were they really that powerful in their galvanizing GDP growth between 1933 and 1936?

Interestingly, Keynes --- a convinced proponent of democracy. who admired FDR (only to be disappointed when he met Roosevelt and found that FDR was actually a fiscal conservative, who worried about deficit spending) --- seemingly thought so.  Note the qualifier about FDR's fiscal conservatism.  Essentially, the first Roosevelt administration reversed the Federal surplus and turned it into a fairly moderate deficit between 1936 and 1937.  With US GDP back to its 1929 level by late 1936 --- and unemployment down from over 20% to around 9% --- the 2nd Roosevelt administration actually reversed the deficit trend and tried to bring in a balanced Federal budget for 1937. 

The Result

Along with a reduction of the money supply by the Federal Reserve --- which feared that the fast GDP growth between 1933 and 1936 signaled a new inflationary era --- the reduction in deficit spending sparked a recession in mid-1937 that lasted nearly a year and sent unemployment rising to almost 13%.  Despite a new interest in deficit spending that FDR then embraced, unemployment by the end of 1939 was still at a disappointing level of 11.3%.  The disappointment was all the greater, please observe, because GDP itself had soared in that period. 

It was only with massive rearmament by the US after Pearl Harbor --- December 7th, 1941 --- that unemployment returned to the 1929 level of around 4.0% . . . aided, of course, by 11 million men recruited or drafted into the military in WWII.

No Need To Say More By Way of Introduction

Click here for the link to the Marginal Revolution link and Prof Bug's lengthy, documented  commentary on Nazi German recovery.

Today's Buggy Topic

Look again at the subject-title of this post: it captures faithfully the issues that prof bug dealt with in a lengthy commentary left earlier today at the Marginal Revolution, a very good economic blog run by Professor Tyler Cowan of George Mason University . . . an unusually flexible libertarian too.  As it happens, many of his libertarian posters even regard him as a heretic --- maybe worse, an apostate . . . some sort of quasi-socialist in disguise. 

For some libertarians, you see, anything the government does beyond what Adam Smith espoused 230 years ago in the Wealth of Nations is socialism.  These guardians of what they regard as true-blue free-market economics are followers of Austrian libertarianism ---a theoretical school inspired early in the 20th by a group of talented economists in Vienna . . . most notably, in their influence, Ludwig von Mises and Friedrich Hayek (the latter a winner of a Nobel prize in economics.)  All of these economists had to flee to Britain or America in the 1930s, along with thousands of other talented Austro-Hungarian and German artists, scholars, writers, and scientists --- first Austria fell to a right-wing dictator early in the 1930s, then for the Germans after Hitler came to power in 1933, and then again when the Austrian population ecstatically united with Hitlerian Germany in 1937.  A more recent Austrian economist of note was the American Murray Rothbard. 

Inspiration, Not Nationality 

Since the 1930s, as this reference to Rothbard suggests, the Austrian school of economics refers to those who have been inspired by Hayek and von Mises . . . and not to nationality.  Even so, its influence is very limited in mainstream free-market economics . . . overwhelmed by far different free-market traditions that derive in particular from classical and neo-classical economists in Britain, America, and parts of Europe in the  19th and early 20th century, and --- more to the point --- by the enormous influence of Milton Friedman at the University of Chicago and his students and followers world-wide. 

Triumph Since the Early 1970s and Decline

The Chicago department, for instance, has won well over a dozen Nobel prizes alone since they were introduced for economics in the late 1960s, and inspired dozens of others.  This updated, Chicago-inspired theoretical school goes under the name of New Classicism.  And has seemed to come a cropper, at any rate for the time being, in the global financial meltdown, credit-crisis, and world-wide recession.

What has very recently emerged out of the shadows where it has been since the mid-1970 are various schools of Keynesian theories, all of which argue for far greater regulation of financial markets and the need for both

stimulative monetary and fiscal policies to combat the serious global recession . . . the first world-wide one for decades, and worse yet, the first since the Great Depression of the 1930s to coincide with a systemic financial crisis around the globe. 

The Buggy Commentary on Japan

No need for any lengthy introduction, just the opposite.  Just keep one point in mind --- the reason for the growing interest here and elsewhere in the collapse of the Japanese economic and financial systems of the 1990s. 

In that decade, Japan went from being what most of the media and lots of economists thought was the pre-destined new global financial and economic hegemon --- its highly regulated, half-statist economy far superior to American free-market and limited governmental roles in the economy --- only for it to vie with Germany (another highly half-statist economy, only in a different sense from Japan) to see which of them would rack up the worst economic growth-record in the industrial world since the Great Depression.  

Revealingly, both seemed to finally emerged after nearly 13 years or so of stagnation with a recovered ability in 2003 and 2004 to maintain some sustained economic growth.  Nothing impressive, mind you; but at least in the 2.0 - 2.50 range of annual growth until this year (Germany actually doing worse than Japan until 2006).  And both economics --- heavily structured to rely on export-led growth as the prime stimulus to industrial production and GDP growth, and by contrast to keep private consumption notably limited compared to the US, UK, and some other industrial economies --- benefited from the booming global economy until the start of this year. (Data for all this will be found in the buggy commentary left at the Marginal Revolution.

Oh, One More Reason Why Japan's 14 Years of Lost Economic Dynamism Is So Front-Page Relevance

Today's 2nd Buggy Topic

No need to add much here by way of introduction: the second prof bug topic today reflects the subject-title above, and you'll find it set out in a thread at Carpe Diem, the impressive data-driven economic blog of Professor Mark Perry of the University of Michigan.  Click here for the link.  And please note an unintended repetition in the lengthy bugged out comment there starting with the end of point (6 

Can't say why.  And maybe Prof Perry will be kind and delete the repeated materials if he has a chance.

Today's Buggy Topic

It can be found in a thread at Economist's View, one of the very best economic blogs on the web --- run by a talented economist, Mark Thoma of the University of Oregon . . . himself a moderate Keynesian in macroeconomic matters.  The topic concerns a stinging criticism by Paul Krugman, the recent Nobel Prize winner in economics, directed at Germany's resistance to the British-French-Spanish initiative --- and espoused by all other EU members as well --- to undertake twp simultaneous policies: 1) large independent expansions of fiscal spending in each member-state to fight the current recession and financial meltdown. and 2) coordinated fiscal expansion at the regional EU level itself. 

                                 INTRODUCTORY COMMENTS

Why Fiscal Stimuli Matter, Especially in the EU Eurozone

The Economist View thread started with the Krugman criticism, taken from the New  York Times on December 15th, followed by a lengthy set of angry exchanges by posters about Germany as the odd-man-out in the EU in fiscal expansion.  That opposition, very pronounced until last weekend --- and still intact, if slightly moderated since then --- has brought Germany into conflict with Britain, France, and essentially all the rest of the EU . . . a total of 26 member-states besides Germany, with 16 of them in the Eurozone itself. 

Why are fiscal stimuli so important in the EU? 

It's easy enough to explain.  In particular, important as such stimuli happen to be for the US and other non-European countries, they're doubly so in fighting the current recession in Europe . . . and for one stand-out reason: none of the eurozone countries --- including four giant economies: those of Germany, Italy, France, and Spain (which account for about 67% of the total EU GDP for 2008, roughly 12 trillion euros) --- have any control over interest rates, money supply, or exhange rates.  It's the EU Central Bank that controls these, and it's essentially independent of all member-governments.  

As for the remaining 11 member-states outside the eurozone --- three of them in West Europe (Britain and tiny Sweden and Denmark) and the rest new members in East Europe --- they are free to pursue their own interest rate and other monetary policies.  They are doing so already.  And free to depreciate or devalue their currencies against the euro?  In law, yes.  As a practical thing, though, any such policy would generate sharp conflict with all the Eurozone members and its Central Bank, and so it's essentially a non-starter.   

Well, What About the Eurozone Central Bank?  Won't It Pursue Expansionary Monetary Policies Like the Fed?

The answers: yes and no.

Almost always, to clarify briefly, since the start of the Eurozone in 1999, the European Central Bank has pursued more conservative interest rate policies than either the Federal Reserve or the Central Banks of Britain, Canada, Australia, and Japan . . . often, it should be added, wisely so.  But is it still wise?

Only recently, as it happens, the European Central Bank --- faced with all the bad news about the Eurozone countries slipping into recession (not least in Germany) --- has the European Central Bank moved to cut its short-term rates.  That was just last week in the run-up to the EU Summit meeting.  The Central Bank, to be specific, halved short-term interest rates to 2.5%.  It seems a lot, no?  Maybe so; it all depends on the standard of comparison and the European Bank's judgment of the gravity of the recessionary trends in the Eurozone.

Right now, anyway, that 2.5% short-term rate is still more than 10 times higher than the Federal Reserve's equivalent, and much higher, too, than the rates in Britain, Canada, Australia, and Japan.  

Hence the Significance of Fiscal-Stimuli in the EU

Today's Second Buggy Topic

It was left earlier today in a thread at the Marginal Revolution, a good economic web-site run by Professor Tyler Cowen . . . himself an uncommonly flexible libertarian, willing to admit markets do fail now and then --- yes, even in a system-wide sense as in the current financial meltdown. 

The thread was started with Cowen's commentary on Bernard Madoff, the former chairman of the NASDAQ stock market, who then --- as the world now knows --- created his own hedge fund and ran it for decades.  In the process, Madoff became known as a financial wizard . . . yes, even greater than the two Nobel Prize-winning economists who created and ran Long Term Capital Management in the late 1990s.  Alas, just as LTCM turned out to blow apart in 1998 --- it had leveraged its dubious assets 30-fold compared to its $4 billion capital investments (and had, moreover, off-balance assets and other make-believe stuff worth $1 trillion) --- so the longer staying power of Bernard Madoff, who provided 10-15% return to his (earlier) investors, year-in, year-out, turned out to be built on flimsy plaster-of-Paris and to melt down just a couple of days ago when the FBI arrested him and he confessed that his brainstorming hedges in shorts-and-longs and derivatives and others were about as in touch with reality as a Loony-Tunes cartoon. 

The Cunning Con-Game Clarified

More concretely, the whole Madoff hedge-fund --- or maybe private-equity fund (neither has been regulated and the border between them, fuzzy to begin with, became fuzzier still, distinguished originally by the private-equity investing mainly in illiquid funds and the hedgers gambling in liquid ones) --- turned out to be a gigantic, long-living Ponzi-scheme, the biggest fraud in financial history . . . at any rate, since the Dutch bought all of Manhattan from the local Indian guys for about $24 in 17th century terms. 

Sidebar Comment: On hedge-funds, what they are and what their future is likely to resemble in a new, highly regulated environment, click here for an illuminating and humorous account.  For a biting, even more mirthful account of the entire make-believe foundations of how American and other financial wizards and firms believed they could outwit everyone making money on money the last few years --- the upshot of which is our global crisis in financial markets and real economies everywhere --- click here for Michael Lewis's account.  And if you want the most thorough, and simultaneously the easiest-of-all accounts of how the world got itself into this mess, go to NPR's remarkable account found at This American Life

In his scheme, believe it or not, Madoff did no investing in earth-bound funds at all --- whether liquid, illiquid, or ethereal.  He would simply take on new, rolling-in-dough investors --- rich private families, half-demented hedge-funds run by other speculators, banks, Central Banks, and governments all around the world, Kings, Sheiks, and daft draft-dodgers loaded with dough --- all of whom were eager to pay huge, huge fees to BMIS LLC (Bernard Madoff Investment Securities) for the privilege of letting him invest their money each day and use it, unknowingly to them, to pay big dividends to the older investors the next day. 

There's More Too

Of course, once the older investors got a nifty return, they would then invest more money, and so Madoff could use it to pay off the newer investors.  They, in turn --- delighted how quickly their investments were paying off --- would then pour in more money . . . all, you understand, for those skyhooting fees; and on and on the game went until KABOOM!  Bernard in custody.  Headlines blasting world-wide.  Investors left with dropped jaws and, in some instances no doubt, unable to pay their mortgages on $20 million mansions or costly call-girls on-the-keep.

Well, as it happened, the investors have now lost collectively $50 billion . . . the big losers, of course, the newer ones.  Yep, just $50 billion --- Madoff pulling in money for decades, you understand, by reeling in his gargantuan monthly fees --- based on a total capital investment by others of $700 million. 

At the web-site of BMIS LLC --- or just plain B**S for those in the know now --- the following claim is found on the home-page:

Mr. Madoff has "a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."

Others Too 

And the same kind of fancified claim, no doubt, was made by mortgage-brokers, commercial banks in the mortgage business, investment banks buying the financial derivatives based on these mortgages --- one such mortgage, not that unusual, worth $750,000 given to an illiterate, out-of-work Mexican immigrant in California --- and then passed along a chain of get-rid-of-the-risk and get-big-fees-lickety split that extended world-wide, involving AIG and credit-swaps with Ponzi-like intermediaries (many with no brick-and-mortar location) around the globe.  With what consequences we are now familiar.

The Buggy Comments on All This 

Found here.  Note: be sure to click on the "Next" button at the bottom of the initial page of comments at the Marginal Revolution. 

Is There a Moral Here?

Sure is . . . and nobody ever put it better than the great, great George Gershwin in one of his most famous songs, Nice Work If You Can Get It:

Today's Buggy Topic

It's found in a long thread at Economist's View, an unusually informative economic blog run by Professor Mark Thoma of the University of Oregon --- himself a moderate centrist, with Keynesian inclinations in macroeconomics.  Meaning?  In effect, there tends to be at times a systemic market-failure in the private economy, owing to a variety of influences, that prevents it from achieving full employment on its own . . . especially when there is mass uncertainty in financial markets about the near- and mid-term future of the economy's growth and price-performance.

The Keynesian Spectrum in Economics

Most Keynesians these days --- called New Keynesians --- locate the trouble in price and wage-rigidities in the face of rising unemployment.  One cause of these rigidities: what are called menu-costs, all sorts of contractual arrangements and transaction costs in changing them that make it difficult for business firms to reduce prices quickly in response to declining demand for their products, whether goods or services.

Another cause . . . in particular for the stickiness of money-wages in the face of declining business profits and rising unemployment?  It lies in what's called "efficiency wages:" specifically, business firms are reluctant to harm the morale of their more senior, better-trained workers by reducing their money wages --- even, as in the Great Depression, in the face of a falling general price-level and hence with reductions in money wages offset by reductions in the price falls that keep real wages at the same value as before.  Then, too, retraining new workers for specialized tasks --- even assembly-line production of, say, cars --- can be expensive and take time.  And finally, in case of inflation --- the opposite problem we now face, mind you --- workers who demand and get nominal (money) wage increases early on, before workers in other firms even in the same industry, actually experience an initial boost in their real wages.  New Keynesians call this a system-wide coordination problem.

The Outcome?

In the face of these market-failures that prevent the US economy, to stay with it, from achieving both full employment and price stability on its own --- exactly the opposite assumptions that enter into the New Classical theorists who have dominated economics for the last three decades --- New Keynesians emphasize the need for active and adaptable monetary and fiscal policies by the Federal Reserve for the former policies and, at times of serious recession like now, fiscal stimuli.

Enter the question: which stimuli are likely to be the most effective in enhancing GDP growth? Macro-economists, starting with Keynes (who drew on the work of some younger colleagues), call these multiplier-effects.  For which $1 spent by the government will you get the biggest bang in dollar-terms for increasing GDP?

The Controversies

It is the disputes among economists about these crowding-out effects that complicate the calculations of multiplier effects.  At the extreme, the dominant free-market theory about the business cycles these days --- especially the recessionary tendencies --- is that no government fiscal stimuli will work, and for that matter the same is true of expanding the money supply as Milton Friedman, the most influential free-market theorist of the last century, contended.  (Friedman regarded Keynes as the first modern monetarist.) 

That New Classical theory is called real business-cycle theory, its two pioneer theorists, Edward Prescott and Finn Kyland, shared a Nobel Prize a few years ago . . . Kyland, observe, now at UC Santa Barbara, Prof bug's former university.

The crux of real business-cycle theory?  Recessions and the inevitable upswing away from them into a boom phase are the result of "real" shocks to the economy, especially in the impact of technological  change and how it affects the marginal productivity of capital.  And since these are real shocks, neither fiscal nor monetary policies can offset them.  If anything, efforts to deal with nominal (money-supply changes) or fiscal stimuli will only prevent the US economy from recovering its long-term potential growth trend . . . the latter set, as even Keynesians fully agree with, by strictly supply-side influences: growth in capital investment, growth in the labor force and its quality, and technological progress.   

There Are Only So Many Spending Alternatives and the Problems of Crowding-Out

And all of them have to take into account, when considering multiplier effects, what their impact will be on private market consumption and investment, as well as on US exports and imports.  For instance, you don't want to "crowd out" private investment with the increased government spending being financed by the Federal Reserve selling the new US Treasury bills and bonds in financial markets that would divert those private savings (capital) from being used for private investment . . . as a result, say, of rising interest rates.  The latter, of course, is not a big concern now that we face a system-wide financial crash, the first time since the 1930s; but it will emerge as a consideration once the economy recovers again.  And --- as the Reagan and Bush-W eras have shown --- tax cuts that lead to large federal government deficits end up "crowding out" US exports, making them more expensive as foreign capital pours into the US to buy the new US Treasury bills being issued to finance the growing federal deficits.  And, if you're trying to target increased household consumption, you want to minimize leaks out of US economic growth into more and more expenditures on imported goods.

So What Are the Fiscal-Spending Alternatives and What Are the Predicted Multiplier-Effects of Each?

• Tax cuts as happened earlier twice in this decade, financed by growing federal deficits (the opposite of what Bush and libertarian economists claimed would happen)
• Tax cuts linked to promised and actual reductions in government spending . . . something that has never happened, even in the Reagan period when big government was supposed to be the problem, not the solution
• Note that either of these tax cut policies can be implemented with promises to be temporary or permanent
• Increased unemployment benefits: both in dollar terms and length, with the assumption that the unemployed will be able to help boost private-market consumption . . . quite apart, of course, for humanitarian motives behinds the benefits.
• Increased poverty spending.
• Federal government support for local and state governments, the latter's budgets badly strapped and most of them unable to run fiscal deficits legally (and the last thing you want in a serious recession is for them to raise taxes).
• Increased military spending . . . which certainly ended the high unemployment levels that fast economic growth in the New Deal era didn't end until World War II.
• And various kinds of infrastructure spending, with of course private construction firms and state-and-local employees who specialize in road-and-bridge construction, the electrical grid, dams and irrigation systems, airports and railway systems, public transportation, port-facilities, and for that matter --- depending on what you target --- education and health facilities.

Enter the Buggy Take on This

Professor Thoma began his thread with a lengthy and highly illuminating set of his comments, plus extensive quotes from other economists about the best way to increase fiscal spending --- to get the biggest bang for each buck spent.  The buggy prof joined the thread of posted-replies with a lengthy analysis of his own.  It's actually a revised version of an earlier analysis on the same subject that prof bug posted on December 5^th, 2008 at the Marginal Revolution (a good and flexible libertarian web site).  When, please note, prof bug writes up his extensive analyses and comments an d posts them at other web sites, he bangs them out at bursting speed, and seldom does any revision except for running a spelling check.  This time, because he had some free time on his hands, he took the initial post and revised it with an eye to more coherence and sharpening the analysis. 

Click here for Professor Thoma's stimulating commentary and the extensive quoted materials and for prof bug's reply.

Today's Buggy Topic

As usual, the subject-title captures pretty faithfully the bugged-out topic today, and equally as usual, the lengthy buggy commentary unfolds at another economic blog . . . this one the Marginal Revolution, a very good web-site run by an uncommonly flexible libertarian economist, Professor Tyler Cowen of George Mason University.  The latter is a fount of free-market libertarianism . . . some of the University of Chicago sort, others of the Austrian school that deplores all central banks and fractional commercial-banks that, together, can increase or decrease the money supply in various ways. 

Free-Market Theorists Divided 

The two free-market schools --- the Chicago one far, far more influential (the Austrian one confined to a few iconoclasts in libertarian circles) --- don't really get along well with one another. 

Milton Friedman, for instance --- the most influential of the Chicago school Nobel Prize winners --- has dismissed the Austrian views of the banking system and money supply as muddled and wrong.  Moreover, the prestigious University of Chicago economists agree that there are market-failures such as environmental pollution, though they tend to argue, thanks to what's called Public Choice theory, that governments are not likely to correct them or, with some likelihood, may make them worse. 

By contrast, Austrian economists tend to argue that even mentioning market-failures opens the door to socialism.  They go on to argue that if anything like a market-failure exists, sooner or later --- usually very soon, you understand --- an enterprising entrepreneur or existing business will correct it, seeing as how any correction will reward him with profits. 

The Quantity Theory of Money Disputed or Ignored in Free-Market Economics

Only fair to point out that Friedman's key policy for stabilizing the economy --- especially in a recessionary time: in short, the use of the quantity theory of money and the expansion of the money supply --- lost favor even in free-market Chicago-style theories from the 1970s on. 

In its place, a combination of rational expectations and real business cycle theory entailed the conclusion that supply and demand in all markets was in equilibrium, except when --- as in a recession --- there were shocks to GDP at full employment that came from the "real" economy . . . above all, imparted by technological changes and innovations that prevented both fiscal and monetary policies from having any chance to affect the business cycle in a recession. 

In particular, sooner or later, the technological changes will raise the rate of return on capital investment, and the economy will on its own will return to its long-term potential growth-rate and full employment.   

If anything, efforts by monetary policymaking to shorten a recession will likely create uncertainty in the minds of savers and investors and prolong the time-period in which GDP returns to its full-employment and long-term potential.  (All free-market economists have tended since Milton Friedman's work to dismiss fiscal stimuli as an impossibility except for one change: a permanent reduction in taxes.  Any short-term reduction --- like George W. Bush's tax-cuts in 2001 and 2003 (or again last spring with a rebate) --- will not be spent wholly or at least largely by the public, it's argued.  Instead, the public knows that temporary tax-cuts that aren't linked to concrete cuts in government spending of an equal amount will lead to future taxes being raised to pay for increased national debt, and so they automatically use the tax cuts either to pay off existing debt or to save the money in financial markets . . . anyway, not spend the government "hand-out" on consumption products.

Click here for a good analysis of real business-cycle theory  --- for which two University of Chicago-trained professors, Finn Kydland (now of UC Santa Barbara) and Edward Prescott --- shared a Nobel Prize in economics a few years ago.

Keep in Mind . . .

Obviously, the existing Federal Reserve does not share this kind of strong free-market theory, any more than the current Bush-W Secretary of the Treasury, Henry Paulson . . . nor their views on the need to regulate financial markets.  And, of course, the same kind of dismissal in matters of fiscal stimuli have also marked the George W. Bush presidency for 8 years, not to mention the firm commitment of President-elect Obama to engage in a massive program of public works and other government spending to deal with the existing financial and economic crisis.

Enough Said: Here's the Buggy Commentary

It clashes with the pessimism of an extravagant sort that flourishes in certain economic circles --- among Austrians on the right and someone like Paul Krugman on the left (at times anyway) --- who think the US is likely destined to emulate the 10 years or so of Japanese slow growth, in-and-out of recessions, and deflationary tendencies correlated with severe debt-deleveraging.  Click here for the buggy criticisms of this view.

Today's Buggy Topic

At Carpe Diem --- in a long thread about Toyota's lack of legacy costs even in his home-base country (Japan) --- there appeared a extravagantly stupid remark about the IQ of Asians compared to Americans.  To wit:

"Asian IQ is about 20 points higher than the American IQ." --- Matt Young

Click here for prof bug's counter and some earth-bound data about IQ across countries, along with some information about the correlated outcomes in PISA exams --- administered by the OECD every 5 years to 15 year olds across a few dozen countries that test the conceptual knowledge of high-school students in math, science, and reading.  Prof bug, please note, has commented several times over the years about IQ, and what we have learned, say, about the mix of biological and sociocultural influences in shaping them. 

For one lengthy bugged-out analysis --- also found at Carpe Diem (earlier this year) --- click here.  For another click this link.

A Final Comment Or Two

Why people on the Web say factually stupid things --- prof bug means blatantly at odds with reality, like the statement above --- remains something of a mystery, especially since it would only take a minute or two to google a topic and get accurate information.  Apparently, three decades of largely nonsensical stuff about self-esteem that our schools have pushed energetically --- largely for politically correct reasons, little else --- have produced a couple of generations of students and graduates who are convinced that whatever they say publicly must be OK because, hey, dude: it's my view and if you don't like it, f-you, Jack!  

What A Pedagogical Sham

As it happens, high self-esteem correlates in many psychological studies with callousness and even angry and bullying behavior towards others (on an average).   According to the most exhaustive study that analyzed the data of 326,641 Americans and others of differ ethnicity/race and gender across the entire life span, tracked at various ages (8 different age-categories)):

"On average across all ages, males had higher self-esteem than females (Cohen's d
.22, p  .01), high-SES individuals had higher self-esteem than low-SES individuals (d
.17, p  .01), and U.S. participants had higher self-esteem than non-U.S. participants(d
.10, p  .01). Blacks had the highest self-esteem, followed by Latinos, Middle Easterners, Asians, and Whites. The magnitude of these effects is comparable to that reported in previous research on gender (Kling et al., 1999; Major et al., 1999; Robins, Hendin, et al., 2001) and ethnicity (Gray-Little & Hafdahl,2000; Twenge & Crocker, 2002)."

As for the causes of bullying in schools, there is a clear correlation between lack of self-control --- and for that matter ADHD (attention-deficit hyperactivity disorder) --- and the tendencies of school kids of all ages to become bullies.  For one recent study, click here.  On the problems and costs of emphasizing the pursuit of self-esteem --- as opposed to self-control, self-regulation, and self-discipline, plus the boosts to self-respect that follow from concrete achievements --- click here. 

Today's Buggy Topic

It's another commentary on the plight of the US Automakers, and prof bug's comments are found at Carpe Diem, a very good economic blog run by Prof. Mark Perry of the University of Michigan.  Click here for prof bug's analysis whether US Automakers have been producing vehicles inferior to the Asian or European Auto Companies . . . with the buggy analysis linking to and drawing on the rankings of the two companies, J.D. Powers and Associates and Consumer Reports, that rank vehicles in several categories like compaq, mid-size, and large cars or the same for SUVs and so on. 

Today's Buggy Topic

It's found at Carpe Diem, the libertarian web site run by Professor Mark Perry of the University of Michigan, and the topic --- relevant of course to our current economic and financial troubles --- speaks for itself.  Click here to access Prof Perry's views and prof bug's take on them.

Today's Buggy Topic

It's part of the series, started a couple of months ago --- maybe longer, can't recall for sure --- that prof bug has been busy posting about, and familiar to regular visitors here: more specifically, what we can learn from economic theories about the causes of our current system-wide financial meltdown on a global level and the resulting recessionary trends . . . and, by extension therefore, what policy guides they offer the Federal Reserve and our government for dealing with these huge challenges. 

More Specifically, Today's Topic Is About ...

. . . two contrasting theories of recurring financial crises that mark the ups and downs of the business cycle, a regular feature of free-market capitalism ever since the start of the industrial revolution, and maybe earlier too in its predecessors in parts of West Europe.  One is a free-market view of a heterodox sort even in libertarian circles, and with virtually no influence in mainstream economics: in a word, Austrian business cycle theory, especially in the hands of a Nobel Prize-winning economist Friedrich Hayek.  The other is the work of Hyman Minsky, a radical Keynesian who --- besides his academic work as a scholar at Washington University in St. Louis --- had also been a banker for many years.  He, too, has had a limited influence on mainstream economics --- though you now see a fair amount of references to him on the web, amid our current economic turbulence . . . financial and economic. 

The two theories as applied to the current crisis were touched on in passing at the Marginal Revolution by Professor Tyler Cowen of George Mason University, himself a flexible libertarian economist . . . in fact, evidently considered something of a suspect heretic by full-throated libertarians because he doesn't think governments are responsible for any and all market failures in our economy.  That includes his argument that government policies --- such as promoting home-ownership in various ways, not least by Fannie Mae and Freedie Mac as government-backed agencies that buy banks' house-mortgages or at times (as now) offering subsidized mortgages to qualifying house-buyers themselves. 

Enter the Buggy Professor

In the thread that followed Prof Cowen's original comments, the vast majority of the posters --- libertarian students or followers, plus a few dissenters  --- seemed to prof bug to have no idea who Hyman Minsky was and what his theoretical analysis of the business cycle's recurring financial booms-and-busts amounted to.  After all, even in the more moderate New Keynesianism that flourishes these days as the major opponent in macroeconomics of free-market theories --- its most prominent exponent, Gregory Mankiw of Harvard (a Republican who was appointed by President George W. Bush om 2003 to head his Council of Economic Advisers ) --- regards Minsky's work as too radical and too pessimistic about the causes of these financial booms-and-busts and what can be done to curb their worst excesses.

What with this obvious ignorance about Minsky's theoretical work --- which would likely inspire hostility anyway, not just substantively but because it leads to an insistence on careful regulation of financial markets --- prof bug set out a fairly lengthy analysis of Minsky's work.

Minsky's Contributions

Today's 2nd Topic

It's found at Professor Mark Perry's Carpe Diem, where prof bug responded to a post of Prof Perry's.  Even though prof bug had some fun looking up a few stats --- no point in posting the usual blogging comments, is there? You know, "This is my opinion, Jack! And if you don't like it, f-you." --- it was just a non-musical divertimento for the buggy prof while he was busy trying to puzzle his way through something more serious.

Click here for Prof Perry's commentary and the thread that followed in which prof bug tossed in some evidence-based comments.

1. Today's Buggy Topic

The work of the greatest economist of the early-to-mid 20th century, John Maynard Keynes, sparked a revolution in the entire discipline of economics, creating a radically new approach to the economy on a macro-level --- the cumulative components of national income as determined by aggregate demand.

Neo-Classical Economics Before Keynes 

Until then, with only a few exceptions --- interestingly, early in the 19th century mainly: plus the innovative work of Knut Wicksell, a Swedish economist a generation older than Keynes --- economists focused on what we would now call micro-economics:

• Assumptions about the motives and behavior of individual economic agents like entrepreneurs, managers, workers, savers, and investors (seen in the new classical revival since 1970 as not just rational calculators, but fully informed about the economy as much as any economist's complex model of its workings);
• Analyses of supply and demand for the products of individual competitive firms.
• A focus on opportunity costs: an individual work engages in trade-offs between how much work and income he or she wants as opposed to leisure (part-time work, full-time work, re-education, upgrading skills and the like), just as that worker as a consumer knows that spending money, subject to a household budget, on a fancy car might come at the expense of a summer vacation with the family
• Marginal and cost-benefit analysis: the trade-offs here by workers, consumers, business owners and managers, and savers and investors should b analyzed at the margin: how much benefit as opposed to costs of spending money and time will, say, the head of a manufacturing firm will his or her firm's spending money at the margin for each new machine --- as opposed to using the old machine --- entail in raising profits at the margin over a certain amount of time, taking into account the interest-rate of getting a bank loan for the machines?
• The price mechanism as an effective and indispensable set of signals used by businesses to increase or decrease out-put or --- the price signal as the relevant interest-rate --- as a way of bringing savers and investors together and coordinating on an aggregate level, efficiently, through supply and demand in various markets, all the interactions of individual and rational self-seeking workers, consumers, investors, savers, and business owners.

More Microeconomic Concerns: Criteria for Measuring the Efficiency of a Market Economy

Early in the 19th century, moreover there were also efforts by Jeremy Bentham and the utilitarian school --- using a rigorous individualistic view of the economy (specific, self-seeking, and rational agents) --- to come up with criteria for measuring the overall efficiency a national economy's workings. 

In particular, the aim was to have an ideal but realizable measure of  how efficiently a market economy was operating: above all, whether it operates or not with market failures and self-correction so that the economic decisions of tens or hundreds of millions of individual agents within a national economy like the US's (not to forget several billion agents in a global system of growing economic interdependence) will be coordinated by the price mechanism for goods and services, wages for workers, and profits for business owners and for savers who lend their money in order to generate maximum productivity with existing resources and full employment.

• Since 1900, the major criteria used go back to the work of an Italian economist, Vilfredo Pareto.  He postulated that given a certain distribution of income and wealth, a free-market economy will end up with maximum efficiency at the "Pareto frontier" (as it's called): at the frontier, there's no way for the economy to be reorganized differently, including, remember, the once-and-for-all permitted re-distribution of income and wealth for theoretical purposes, without reducing the well-being of at least one agent in the economy.  Until the frontier is reached, Pareto improvements would be made by a free-market that would bring the free-market economy to the frontier by improving at least one individual's economic well-being (in money-terms) without harming the well-being of anyone else.   

The overall result according to neo-classical economists who set out the modern agenda of micro-economics in roughly the period between the 1870s and the early 1930s?  Easy enough to say:

• Once an economy is at the Pareto frontier in this way --- remember, by the price-coordinated decisions of hundreds of millions or more individuals --- it will also be in a condition of general equilibrium, though shocks such as a war or a natural disaster or a stock-market boom and burst might cause temporary dislocations and require some time to pass before the market economy returns toward the Pareto frontier again and in a condition of general equilibrium. 

The Key Outcome for Our Concerns Here?

In a condition of general equilibrium, two pivotal outcomes will ensue.

1. Full employment will automatically occur. 
2. And so, similarly, will the economy's allocative uses of capital, labor, and natural resources be at maximum efficiency --- at the Pareto-optimum frontier.  At that point,  no one individual's economic well-being (measured in money terms) could be improved except at the expense of the well-being of others.  In game-theoretical terms --- game theory not developed until near the very end of WWII by two genius mathematicians at Princeton (the most famous being John von Neumann) --- there are Pareto-improvements in a market economy not operating at the Pareto frontier: at least one person's well-being could be improved without harming others.  At the frontier, though, any efforts to improve one worker's or investor's or individual business firm's well being will be fully at the expense of others . . . a zero-sum condition: someone's benefits add up to someone else's losses, even if those losses were spread over tens of millions of other individual economic agents' well being.

Today's Buggy Topic

 To make sense of our continued efforts to apply lessons from two sectors of economics for policy guides in dealing with the current financial crisis and recession --- specifically, lessons from the Great Depression and from macroeconomic theory since then --- you should read the previous buggy post, left here yesterday . . . December 1, 2008.  It will give you a certain perspective on what follows.

A Reminder

There are only two kinds of counter-recessionary policies at the disposal of a central bank and a government . . . in the US, the Federal Reserve independent of the government, a fairly widespread phenomenon in the industrial countries (not all) in order to create more private market confidence in its non-political decision-making. 

First Policy Options:

Monetary policy--- traditionally limited until this extraordinary last two months to the Federal Reserve influencing the monetary base: increasing or restraining the total number of dollars held by the public as currency and bank reserves --- has aimed at either some interest-rate target or the quantity of money.  In a recession, it seeks to expand the monetary base, and through a multiplier effect (the money multiplier), it can usually have a powerful impact on aggregate demand.  In an inflationary period, it does the opposite: it seeks to reduce the monetary base and reign in price rises.  The topic is much more complex than that, but we won't say anything more here until we finish dealing with fiscal policy.

Just keep in mind that what we have witnessed on the part of both the Federal Reserve and the US Treasury since mid-September has been radically innovative --- tremendous sums of money (trillions of dollars now) being delved out to commercial banks, investment banks, brokerage houses, and insurance companies, plus now to semi-governmental agencies like Freddie Mac and Fannie Mae in the housing mortgage markets . . . all in return for guarantees of preferred stock or financial assets held by these private and semi-private institutions.  Not to forget an extraordinary expansion of regulatory powers over the entire financial system that --- had these and the money-commitments been made by a Democratic administration --- would have had Republicans screaming Socialism! Socialism!

Second Policy Options, Our Concerns So Far in This Ongoing Series:

Fiscal Policies --- the ability of governments to set tax policies and spending policies . . . including subsidies and bailouts to troubled firms or whole industries.  Witness the US car industry, certain to get some government loan-guarantees sooner or later.  Yes, the industry and its supply lines and dealerships and all the related services for autos far too important to let it enter into bankruptcy . . . even chapter 11 of the bankruptcy laws, which restructure a company in trouble to make it more viable financially again.  That would take way too long to complete, what with the financial urgency of our existing system.  Not to mention the impact on potential customers for Detroit-3 cars.

Two Posted Buggy Commentaries Left Elsewhere and Linked To

Both were left recently at Carpe Diem, the impressive libertarian economic blog run by Professor Mark Perry of the University of Michigan . . . a site unrivaled, whether or not you agree with the thrust of Prof Perry's views, for its data-driven links and commentaries. 

Click here first.  Then, more up-to-date, click here

Warning: Tomorrow's Buggy Commentary on Fiscal Policy Will Be Somewhat More Technical

It was left earlier this evening and deals with a more complicated topic aimed at economists (remember: prof bug has a Ph.D. in both economics and political science, but was a practicing political scientist for his 40 years at UC Santa Barbara).  The link will be to another econ web-site and focus on which multiplier-effects should fiscal expansionary policy aim at . . . tax cuts financed by deficit spending (temporary or permanent), various kinds of increased government deficit-spending,  and the need to take into account the spillovers onto private consumption, private investment, and exports and imports . . . all crucial components, along with government spending (- taxes) of aggregate demand and GDP. 

Reasons for Being Thankful

Prof bug hopes everyone had a pleasant Thanksgiving holiday, and heaven knows, we have a lot to be thankful for --- not least, the imminent end of George W. Bush's ham-handed internship as our disastrous president the last 8 years.  Starting with an extravagantly mishandled occupation of Saddamite Iraq after a quick, decisive military victory . . . the misguided, near-calamitous occupational policies clung to, with dumbfounding stubborness until the very end of 2006.  And the economic disaster starting even earlier in the first Bush administration with the appointment of unqualified people to our regulatory agencies, along with the long-standing persistence into most of the Bush era of Alan I'm-in-a-state-of-stunned disbelief Greenspan at the Federal Reserve. . . all contributing mightily to our present financial meltdown.

National Revival 

Well, fortunately, our country has an unusual political way of renewing itself with largely unknown or half-known political leaders, semi-outsiders who start a run for the presidency in party primaries with little financial support or national coverage like Bill Clinton in 1991-92 and Barak Obama in 2007-08.  Or, in the case of Ronald Reagan after the near-disastrous Jimmy Carter era that ended in 1980, with a former governor not holding any political post for six years when he won the presidency in the fall of that year. 

Similarly, relevant to today's topic as you'll see momentarily, there was the replacement of the calamitous Herbert Hoover years of the Great Depression, 1929-33, by the former governor of New York, Franklyn D. Roosevelt . . . the alleged traitor-to-his-class, or so his Republican opponents in high hats called him.  For that matter, a relatively unknown Senator from Missouri, Harry Truman --- in office as Vice President for only two months at the start of FDR's 4th term in 1945 when the president died --- turned out to be a remarkably successful leader too . . . not least in foreign policy, when he and his major appointees shaped our ultimately successful policies for the new menacing era of the nuclear-infested cold war with the totalitarian Soviet Union and global communism.

And if we are lucky, the start of President Obama's administration in less than two months will initiate another era of national rejuvenation too: both at home and on the global scene.

Enter Today's Topic: Back to the Economic Lessons of the Great Depression for Today's Policymaking

About 8 or 9 days ago, prof bug posted a couple of lengthy commentaries at two libertarian web sites of high quality, Carpe Diem run by Prof. Mark Perry of the University of Michigan and Marginal Revolution under the guidance of Prof. Tyler Cowen of George Mason University on the role of fiscal stimuli in the New Deal era of FDR as a critical part of the New Deal recovery after the Hoover era, during which  US GDP fell somewhere between 30-44% --- depending on the inflation/deflation measure used to arrive at real GDP (in constant 1929 dollar or constant and chainlinked 2000 dollars) --- and unemployment soared to over 20%, while serious deflation led the economy's price-level to plunge around 25%. 

Where Art Thou, Oh Brother-Post?

At the Marginal Revolution, the thread started with Prof. Cowen summarizing his New York Times regular article on the lessons of the Great Depression. 

Though it was a good to-do list for an educated readership of the Times with little knowledge of economics, never mind the Great Depression itself, Prof. Cowen pooh-poohed the use of fiscal stimuli in the FDR recovery years --- which was in line with his libertarian commitments --- and restricted his recommendations on that score to Obama's planned tax cuts for the middle class.  Enter the buggy prof.  In a long commentary, he noted how important fiscal stimuli were; noted, too, how Prof. Cowen forgot to mention another critical lesson of the Great Depression era --- the need, so far materializing successfully today, for international cooperation in a highly interdependent global economy across national boundaries; and added a few other comments . . . all set out, so prof bug in his naïveté though, in a respectful semi-scholarly manner.  Or so he thought. 

Alas, after existing on the Marginal Revolution site for three days or so, Prof. Cowen deleted these bugged-out views and sent them into cyberspace oblivion . . . except, ha ha, prof bug (now case-hardened in posting his usual standard-model 1000-2000 word comments full of hard empirical evidence of various sorts) kept a copy on his own harddrive. 

And it will follow soon if you click on the continued link below here.

First Though: Why the Censorship-Execution?

As you'll see, it's a remarkably terse commentary . . . only 852 words-long, hardly enough for the usual buggy prof stuff to warm up and start its introductory preamble.  Which leaves us all wondering, the buggy professor most of all: is prof bug a walking, wind-up wind-machine, or is he a fairly careful, evidence-concerned writer who is also alert to the need not to be superficial and simply lay down obiter-dicta in line with some ideological bias concealed in the decor of a theoretical commitment . . . the latter, of course, further rationalized as rigorously scientific, right?

Well, it's Prof. Cowen's right . . . no two ways about it; certainly not anything to complain about, just to note.  He's a good economist and has a much broader range of literary and artistic interests than your average specializing scholar these days.  And though, as you'll see in another buggy post today or tomorrow, he also guillotined another lengthy buggy commentary in a different thread --- this one dealing with an exchange between two economists there about the viability of the Soviet economy in the late 1980s before the entire Soviet system and Communism collapsed into an historical toxic-dump for good --- prof bug has to add that Prof. Cowen has generally been decent and tolerant about the buggy stuff left on his site. 

So no, no complaints.