DeLong defends Bernanke
As you know, I am not a fan of Brad DeLong’s old-style Keynesianism. But I have to give him grudging credit for this post, which is the best analysis of the Bernanke debate that I have read. You can see how DeLong’s comparative advantage lies in economic history rather than pure theory–he is very good at weighing and analyzing a complex set of political and economic factors.
And that’s why I am focusing on my comparative advantage—getting people to think about monetary issues from a different perspective. People know what I think the Fed should do, I’ll let those with better political instincts than me determine the best way to get there.
PS. Matt Yglesias seems to agree with me that we need to be asking hard questions about what the Fed is trying to accomplish.
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24. January 2010 at 17:55
ZeroHedge has a very well argued position that Bernanke’s Fed is simply waiting till after the confirmation to declare QE (forget more MBS), because there’s no way that demand for US debt can absorb the coming supply without a massive increase in interest rates, which would basically bankrupt the country due to the cost of existing outstanding debt.
http://www.zerohedge.com/article/700-billion-us-funding-hole-desperately-seeking-very-indiscriminate-treasury-buyer
If Tyler Durden proves right, then it’s likely QE will continue until the Treasury has rolled over enough of its short term maturing debt to longer maturities, which it is in the process of doing.
ZeroHedge often takes a strong dollar position on many issues (it’s a favored haven of gold bugs), but on the pure number crunching it’s very hard to argue against his bottom-up analysis of demand for debt. From that perspective, he dislikes Bernanke; of course, that’s one of the few reasons to support Bernanke – I dislike Bernanke because of his anti-regulatory positions which magnify moral hazard. But there’s a huge political cost Obama is going to pay for this, unless the employment situation turns very soon – which is why I’d prefer someone like Woodford.
[And before we have to endure yet another round of “it was regulation that caused the crisis”, I would submit that removing regulation would be fine if we go all the way back to when bank operators were required to have unlimited liability, or bank stockholders endured double-liability…
http://www.tnr.com/article/economy/the-next-financial-crisis ]
24. January 2010 at 18:35
But I don’t think of myself as an old-style C+I+G=Y Keynesian!
I think of myself as a combination Fisherian-Wicksellian-Minskyan quantity theory-flow of funds-irrational exuberance and pessimism guy.
Of course, John Maynard Keynes wasn’t an old-style +I+G=Y Keynesian either. He was more of a combination Fisherian-Wicksellian-Minskyan quantity theory-flow of funds-irrational exuberance and pessimism guy…
24. January 2010 at 18:36
[…] see if he already touched it (I don’t read them all). But before I got around to it he posted this: As you know, I am not a fan of Brad DeLong’s old-style Keynesianism. But I have to give him […]
24. January 2010 at 19:00
Statsguy, Yes, and how about debtors prison for bankers who lose more than $1 billion of FDIC money.
Brad, Of course I meant a sophisticated old-style Keynesian, like Keynes himself, not a hydraulics-type old-style Keynesian. In any case, I’ve been agreeing with a lot of your recent columns, which has me worried.
25. January 2010 at 06:14
statsguy, A few more comments. If we aren’t going to use inflation now, when we really need it, I greatly doubt whether the Fed will use inflation later, when it is not needed to generate a recovery.
I think Bernanke probably now favors regulation. Recall his reaction to AIG—do you think be believes AIG should be able to do anything it wishes in the future? Obviously not.
I’ll bet he’d also favor a minimum downpayment on mortgages,