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Gimme That Old-Time Macroeconomics
Both Steve Benen and Ed Kilgore get annoyed at fellow journalists complaining that there aren’t any “new ideas” in Obama’s latest. But why should there be?
It was clear early on that this was a crisis very much in the mold of previous financial crises. Once you realized that financial instruments issued by shadow banks — especially repo, overnight loans secured by other assets — were playing essentially the same role as deposits in previous banking crises, it was clear that we already had all the tools we needed to make sense of what was going on. And we also had all the tools we needed to formulate an intelligent policy response — all the tools we needed, that is, except a helpful economics profession and policymakers with a good sense of whose advice to take.
As Mark Thoma memorably remarked, new economic thinking appeared to consist largely of rereading old books. Brad DeLong says that it was all in Walter Bagehot; I think that this is true of the financial crisis of 2008, but that to understand the persistence of the slump we need Irving Fisher from 1933 and John Maynard Keynes from 1936. But anyway, this is not new terrain.
True, there have been some sort-of new ideas in the crisis: the idea that cutting spending is actually expansionary (although Herbert Hoover was all over that), the notion that there is a magic anti-growth cliff at 90 percent debt/GDP. But these new ideas were wrong, and have collapsed in the face of the evidence.
Maybe we need new ways to phrase our arguments; that’s what Obama was doing yesterday, and I’m still trying to figure out whether his new take is useful. But the amazing thing about this slump has been how utterly comprehensible it is — and the absolute refusal of so many people, economists and not, to accept a framework that has worked just fine.
http://krugman.blogs.nytimes.com/2013/07/25/gimme-that-old-time-macroeconomics/
It was clear early on that this was a crisis very much in the mold of previous financial crises. Once you realized that financial instruments issued by shadow banks — especially repo, overnight loans secured by other assets — were playing essentially the same role as deposits in previous banking crises, it was clear that we already had all the tools we needed to make sense of what was going on. And we also had all the tools we needed to formulate an intelligent policy response — all the tools we needed, that is, except a helpful economics profession and policymakers with a good sense of whose advice to take.
As Mark Thoma memorably remarked, new economic thinking appeared to consist largely of rereading old books. Brad DeLong says that it was all in Walter Bagehot; I think that this is true of the financial crisis of 2008, but that to understand the persistence of the slump we need Irving Fisher from 1933 and John Maynard Keynes from 1936. But anyway, this is not new terrain.
True, there have been some sort-of new ideas in the crisis: the idea that cutting spending is actually expansionary (although Herbert Hoover was all over that), the notion that there is a magic anti-growth cliff at 90 percent debt/GDP. But these new ideas were wrong, and have collapsed in the face of the evidence.
Maybe we need new ways to phrase our arguments; that’s what Obama was doing yesterday, and I’m still trying to figure out whether his new take is useful. But the amazing thing about this slump has been how utterly comprehensible it is — and the absolute refusal of so many people, economists and not, to accept a framework that has worked just fine.
http://krugman.blogs.nytimes.com/2013/07/25/gimme-that-old-time-macroeconomics/
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