The cluelessness of the press continues to amaze me.  The Atlantic magazine has a long article entitled:

The Comprehensive Case Against Larry Summers

That sounds promising, all the various issues addressed in one place.  And here’s what they had to say on Summers views on monetary policy, which is, I thought, what the Fed actually does:

.  .  .

That’s right, nothing.

Monetary policy is extremely important to the welfare of the country.  The press is not doing its job if it doesn’t inform the public what’s at stake.

PS.  Much of what the article says about “deregulation” is wrong.  The regulators were pressuring the banks to make bad loans (although the banks made plenty on their own, without pressure.)  More regulation would have simply meant more pressure on the banks to make more bad loans.

HT:  Frank McCormick



26 Responses to “Comprehensive?”

  1. Gravatar of foosion foosion
    13. September 2013 at 16:04

    You might consider reading Dean Baker on the cluelessness of the press regarding economics

    With the possible exception of sports, the press is generally clueless on any subject regarding expertise.

    “The regulators were pressuring the banks to make bad loans” You do realize this is controversial and that lots of bad loans were made or facilitated by the unregulated “shadow banking” sector.

  2. Gravatar of ssumner ssumner
    13. September 2013 at 16:10

    foosion, I would not exempt sportswriters.

    And no, I’m not aware that there is any controversy that regulators were pressuring banks to make bad loans. Are there actually people who have never heard of Barney Frank?

    As for the shadow banking sector, isn’t that what I said in my post?

    The mountain of bad debt could just as easily have been made before “deregulation.” I use scare quotes because banking in the US has always been very heavily regulated. Indeed the moral hazard created by regulation is a primary cause of the crisis. Banks actually had an incentive to take excessive risks, if they didn’t do so they were hurting their shareholders.

  3. Gravatar of benjamin cole benjamin cole
    13. September 2013 at 16:53

    Quit knocking the media—if Brad Pitt has diarrhea they are right on it.

    Re banks: Remember commercial property dumped almost exactly like residential but there is no federal involvement in such.
    The problem is banks treat property as collateral and so borrowers can leverage up.
    I contend real estate lending, thus, is “sui generis” and perhaps needs some simple regs, like 20 percent down.
    Add on NGDP targeting should result in mild inflation in real estate another major plus…

  4. Gravatar of foosion foosion
    13. September 2013 at 16:55

    Scott, well, at least the press is good at gossip 🙂

    Barney Frank and regulation causings the crisis:

    Your PS appears to cover banks rather than entities not regulated as banks.

    Bankers have an even larger incentive than banks to take excessive risks. Heads they get very large bonuses, tails at worst they move to another bank.

  5. Gravatar of foosion foosion
    13. September 2013 at 17:21

    >>Banks actually had an incentive to take excessive risks, if they didn’t do so they were hurting their shareholders.>>

    Not taking excessive risks may hurt shareholders in the short-run, but the long-run can be another matter. Excessive risks can be risky.

  6. Gravatar of kebko kebko
    13. September 2013 at 17:39

    Foosion, non-financial corporations face no regulations concerning debt levels, but they have much lower leverage than regulated banks. Why aren’t manufacturers leveraging up 20 to 1?

  7. Gravatar of foosion foosion
    13. September 2013 at 17:43

    kebko, do you remember the leveraged buyouts of the 1980s?

  8. Gravatar of ssumner ssumner
    13. September 2013 at 19:08

    foosion. That article doesn’t contradict what I said about Frank, and it’s also pretty inaccurate in all sorts of ways. I never said Frank was the primary cause of the crisis. It mostly repeats the talking points of leftists who want to deny that Fannie and Freddie lost a ton of taxpayer money on bad mortgages. Or that regulators pressured banks to do risky loans. If those government pressured loans were only 0.0000001% of the total it would not undercut my argument in the slightest.

    And it can’t have been Barney because the crisis was global!!! Well it’s good to know that US deregulation didn’t cause it then either.

    I mean seriously, who writes that stuff?

    And bank shareholders do benefit, even in the long run, when banks take socially excessive risks. That’s the problem, isn’t it? Moral hazard.

  9. Gravatar of TravisV TravisV
    13. September 2013 at 19:48

    Honestly, given Obama’s terrible record on Fed appointments, it’s hard for me to understand why Yglesias is saying things like the following about Obama (on Twitter):

    “despite he’s flaws, he’s one of the best presidents we’ve ever had. That why his supporters support him.”

    “Alternate phrasing: Die-hard Obama critics refuse to contextualize political behavior.”

  10. Gravatar of Steve Steve
    13. September 2013 at 21:08

    “despite he’s flaws, he’s one of the best presidents we’ve ever had. That why his supporters support him.”

    despite his landmark successes, he’s one of the worst presidents we’ve ever had. That’s why his opponents want to shut the government.

  11. Gravatar of Lorenzo from Oz Lorenzo from Oz
    13. September 2013 at 22:32

    Obama strikes me as fairly unexceptional as US Presidents go. The US actually does fairly well with its Presidents. Folk may knock the endless campaign but it does produce Presidents who are up to the job. They make mistakes, but that just means they are human. Obama’s record on monetary policy is fairly woeful, but that does not exactly make him Robinson Crusoe among Western leaders.

    The postwar Presidents are a fairly impressive bunch. After all, compare any of them to Herbert Hoover. By that benchmark, they have all done fairly well. Yes, Carter is the worst postwar President, but even he did some useful things.

    Obama is better than Carter, not as good as Reagan (or, for that matter, Clinton). Neither adulation nor abomination is appropriate.

  12. Gravatar of Gene Callahan Gene Callahan
    13. September 2013 at 23:52

    “Yes, Carter is the worst postwar President…”

    Hmm: Truman? Mass murder and an attempt to nationalize the steel industry?

    Bush II: Iraq, the national security state, Guantanamo, the great recession?

    Both MUCH worse than Carter.

  13. Gravatar of Saturos Saturos
    13. September 2013 at 23:54

    Tyler, wage stickiness, again:

    I think we should just display the combined graph of NGDP and average nominal hourly wages on the front page all the time from now on.

  14. Gravatar of sdfc sdfc
    14. September 2013 at 00:42

    Loose money was the major driver of the credit boom, not the CRA.

  15. Gravatar of Saturos Saturos
    14. September 2013 at 00:55

    Bauer and Rudebusch put the secular decline in interest rates down to reduced inflation expectations:

  16. Gravatar of SG SG
    14. September 2013 at 05:13


    I notice you left a comment on MR agreeing with TC’s statement that monetary adjustment would have been most helpful in 2008-2009, but that it’s becoming less appropriate over time.

    Do the Market Monetarists have a coherent explanation of why two decades of Japanese deflation did not produce sufficient wage/price adjustment to bring the economy back to potential output? Why has monetary expansion there been so effective?

  17. Gravatar of ssumner ssumner
    14. September 2013 at 05:35

    Lorenzo, You said;

    “Obama strikes me as fairly unexceptional as US Presidents go.”

    Yup, although average means bad in my view. But he’s not especially bad.
    I think Nixon was worse than Carter. So was Bush II. Johnson was also pretty bad, but his stellar record on civil rights pushes him up a notch.

    Saturos, I left a comment saying I agree with the final sentence of that post.

    sdfc, Neither had much effect, but even if true it would have absolutely no bearing on this post. I didn’t claim that government regulations such as CRA caused the crisis, I claimed it was moral hazard.

    SG, Good question. First of all I think Japan was fairly close to potential by 2007, but below potential in 2002 and 2009. So it’s not a stable situation, they have business cycles just like everyone else except Australia. They self correct to some extent. I tend to believe that nominal wages are also sticky downward at the zero bound for money illusion reasons. If so, then deflation can slightly increase the natural rate of unemployment. But I admit that this area is poorly understood. If Japan succeeds in boosting inflation to 2% we will get an answer to this question fairly quickly. So let’s just wait and see.

  18. Gravatar of Brian Donohue Brian Donohue
    14. September 2013 at 06:19


    Since TIPs were introduced in 2003, aren’t they a pretty good guide to inflation (CPI anyway) expectations? I’ll take ’em over consensus expert estimates meself.

    The story they tell is that all of the ‘lower inflation expectations’ was there by 2003, and expected inflation is higher today than it was then. The ‘new normal’ is a real, demographically-driven phenomenon, and it’s gonna be here a while.

  19. Gravatar of TravisV TravisV
    14. September 2013 at 07:20

    Prof. Sumner,

    What grades do Bill Clinton and Reagan get in your view, given their enthusiasm for deregulating Wall Street without scaling back deposit insurance?

  20. Gravatar of Jim Jim
    14. September 2013 at 07:32

    Obama is not necessarily a bad president compared to prior presidents, but he should be a major disappointment for a large number of people.

  21. Gravatar of dpaff82 dpaff82
    14. September 2013 at 08:29

    “Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw…. The lack of oversight, in short, was no oversight: it was part of the plan.”

    “So who drove the bubble? The blue line, “asset-backed securities issuers.” Notice, by the way, that these were not depository institutions “” and therefore not subject to the Community Reinvestment Act.”

    “The vast bulk of subprime lending came from institutions not subject to the CRA. Commercial real estate lending, which was mainly lending to rich white developers, not you-know-who, is in much worse shape than subprime home lending”

  22. Gravatar of ssumner ssumner
    14. September 2013 at 08:46

    Travis, The two best presidents of the past 50 years.

    dpaff82, You do understand I presume that those studies have absolutely no bearing on anything I said in my post, don’t you? People need to read more carefully.

    But if you are interested, I could point you to lots of academic studies that reach the opposite conclusions.

    Krugman’s right that commercial real estate caused more bank failures than subprime loans. But that’s a 100% moral hazard problem linked to deposit insurance. It has nothing to do with deregulation. And deposit insurance is a “government regulation.”

    One final point. Citing Krugman is a really, really bad idea if you are trying to convince people on the right. He has a reputation in the economics community of using statistics in a very misleading way. I don’t know if his readers understand that, but it is his reputation among economists. We simply don’t trust his claims. Didn’t Krugman assert that Fannie and Freddie were not involved in the subprime fiasco?

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    14. September 2013 at 09:45

    Krugman’s also being disingenuous in saying that the problem was mostly with institutions not subject to the CRA. They were, just under another name; HUD’s Best Practices Initiative.

    Henry Cisneros took Angelo Mozillo aside back in 93-94 and essentially told him that the mortgage bankers had a ‘nice little industry, be a shame if anything happened to it.’ The price to avoid having the Democrats extend the CRA to them–they controlled the presidency and both houses of congress at the time–was to ‘voluntarily’ sign on the the BPI.

    Krugman’s just repeating a Democrat talking point from the majority of the Financial Crisis Inquiry Commission. I.e. he’s lying.

  24. Gravatar of TallDave TallDave
    14. September 2013 at 10:30

    Gell-Mann amnesia strikes again.

  25. Gravatar of ssumner ssumner
    14. September 2013 at 12:30

    Thanks Patrick, That’s confirms what I told dpaff, Krugman can’t be trusted on the facts.

  26. Gravatar of Geoff Geoff
    14. September 2013 at 16:43

    “More regulation would have simply meant more pressure on the banks to make more bad loans.”

    So would have more inflation of reserves, genius.

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