I don’t hate Obama, but . . .

I’m not one of those right-wing haters, who thinks Obama’s a horrible president.  He has good points and bad points.  But from the very beginning I’ve been pointing out that he really doesn’t understand economics at all.  Conservative economists are often 70% to 90% supply-side.  Liberal economists are often 10% to 30% supply-side.  I’d put Clinton in there somewhere.  Obama is 0% supply side.  He just doesn’t get it.  He also doesn’t understand monetary policy, or the AS/AD model, or macroeconomics in general.  He just doesn’t.

Once he stunned Summers and Romer by indicating that high unemployment was due to things like ATM machines.

Now even Brad DeLong is disgusted.  Here’s the first few words of DeLong’s new post:

Obama turns neo-Austrian:

Read it and weep.

PS.  Yeah, he’s entitled to be neo-Austrian if he wants to.  But then why the fiscal stimulus?

HT:  Patrick Sullivan



30 Responses to “I don’t hate Obama, but . . .”

  1. Gravatar of TravisV TravisV
    25. July 2013 at 13:51

    Might, say, a President John McCain or Mitt Romney have appointed better people to the FOMC than Obama has? Could be.

    However, if McCain or Romney were president, we wouldn’t see the same fire-breathing opposition to monetary stimulus from elite Democrats that we currently see from elite Republicans.

    Who knows, if congressional Republicans weren’t so hostile to monetary stimulus, maybe Obama would have nominated better people to the Fed.

  2. Gravatar of Daniel Daniel
    25. July 2013 at 14:18

    Actually there is a cogent neo-Austrian case for fiscal stimulus, not that any self-described Austrian actually espouses it. As a result of the central bank keeping interest rates artificially low, the private sector, being made up of idiots, indulges in massive malinvestment in useless capital of excessive roundaboutness and whatnot. Things end badly, cash is hoarded, and people are thrown out of work. The dumb private sector, faced now with appropriate interest rates, is for some reason unable or unwilling to make the right kind of investment with the right amount of roundaboutness. Monetary stimulus would only reignite foolish malinvestment and make things worse. So why not fiscal stimulus? Let’s appoint a council of wisest Austrian economists and let them direct government investment!

  3. Gravatar of TravisV TravisV
    25. July 2013 at 14:50

    Here is the neo-Austrian case from a left-wing perspective:

    The massive human suffering of the Great Depression was worth it. In exchange, we got political revolution, FDR and a lot of beneficial structural reforms.

    And FDR did introduce some positive reforms*, such as Social Security and environmental regulation (I think). And the rich finally paid their fair share.

    *Note: there were also huge blunders, such as the massive artificial nominal wage increases of the NRA and the creation of government guarantees of bank deposits.

  4. Gravatar of Mike Sax Mike Sax
    25. July 2013 at 15:48

    I don’t get it. Obama is neo-Austrian because he thinks there was a housing bubble and the financial sector got too big? I mean a lot of people-including economists-believe that.

    Listen if he doesn’t get it fine. However, there’s nothing there that’s so unusual whether it’s right or wrong-much less ‘Austrian.’

    Delong himself says that there was an allocation problem with too much investing in housing-how’s that so different than saying there was a ‘housing bubble?’

  5. Gravatar of RyGuy Sanchez RyGuy Sanchez
    25. July 2013 at 15:53


    Hard money seems to be part of the pack of playing cards new republican congressmen are given when they are elected. Democrats just mostly seem ignorant on monetary policy and I’m not sure who would lead the charge on their side for fire-breathing opposition to easing. Maybe I was just too young to notice during the Bush years of any Dems getting riled up about it.

  6. Gravatar of TravisV TravisV
    25. July 2013 at 15:54


    The problem is the idea that a housing bubble “artificially juiced up” the economy. Not true. If the economy were “artificially juiced up,” NGDP and inflation growth would have been super-high. But they weren’t.

    Similarly, the stock market bubble of 1987 didn’t “artificially juice up” the economy.

    The main causes of the Great Recession were the oil shortage supply shock + unwillingness to tolerate higher inflation.

    And the solution to the Great Recession is easier monetary policy –> higher NGDP growth. Which is the same thing as willingness to tolerate higher inflation.

  7. Gravatar of TravisV TravisV
    25. July 2013 at 15:57

    RyGuy Sanchez,

    That matters. That’s really important! The biggest problem facing the planet right now is tight money. Therefore, since congressional Democrats > congressional Republicans when it comes to monetary policy, then all of us should be rooting for Democrats to defeat Republicans in future elections.

  8. Gravatar of bmcburney bmcburney
    25. July 2013 at 16:16

    Don’t worry, Obama’s neo-Austrianism is purely a matter of political tactics. Obama just wanted to find another way (actually the same old way) of blaming everything on Bush. The fiscal stimulus was also primarily a matter of raw politics, rewarding constiuencies and funding boondoggles for contributors. It only seem contradictory if you look at the issues in terms of economic theory.

  9. Gravatar of Brian Donohue Brian Donohue
    25. July 2013 at 16:33

    “By far the biggest” cause of All Our Troubles is now “a thirty-year failure of economic growth to be equitable growth.”

    DeLong cracks me up. Fortunately for me, I don’t have to listen to Brad (or even you Scott)- I lived through the decade of the 2000s and saw what happened. Obama’s closer to the truth than DeLong here.

  10. Gravatar of ChargerCarl ChargerCarl
    25. July 2013 at 16:44

    Scott all of Obama’s views seem pretty mainstream to me, which means the problem is (as you said) with the economics profession in general. That “Neo-Austrian” view seems to have found a home on both the left and right.

  11. Gravatar of Geoff Geoff
    25. July 2013 at 16:48

    If Obama is 0% supply side, it is impossible, literally impossible, for him to be in any way intellectually connected to Austrianism, neo or new or post or whatever other attempt at guilt by association gobbledygook DeLong wants to spew.

  12. Gravatar of Coleton Stirman Coleton Stirman
    25. July 2013 at 16:57

    Interesting…and I mostly agree, but for America’s sake maybe Obama is just now realizing how naive he has been on econ policy, and takes his decision early next year as seriously as his political fights (i.e. Healthcare & Stimulus package).

    He could redeem most of his inadequacies on economics by making an enlightened choice for fed chief, let’s hope he has the audacity for such a bold move.

  13. Gravatar of Bill Ellis Bill Ellis
    25. July 2013 at 17:11

    “Senate Dems Write To Obama, Saying They Want Yellen Over Summers For Fed Chair.”


  14. Gravatar of Jerry Brown Jerry Brown
    25. July 2013 at 18:15

    From my reading of your blog, you have often viewed the main problem of the economy since 2008 as a lack of aggregate demand as a result of poor monetary policy. If that is true, why worry that the President focuses on demand rather than supply side issues?

  15. Gravatar of Geoff Geoff
    25. July 2013 at 18:35

    I know that I won’t surprise anyone by saying this, but MMs don’t understand economics at all either. By that I mean they don’t understand the actual subject matter of economic science.

    The subject is not AD.

    The subject is not AS.

    The subject is not AD/AS.

    The subject is not “A”-anything, that is, not what we call “macroeconomics.” You can tell when you’re not talking about economics when there are adjectives in front of the root word economics. Like pseudo-science for example.

    The subject matter of economics has nothing whatsoever to do with observable facts actually. All fields of inquiry based on studying past events, past data, are studies of history.

    What Dr. Sumner calls economics, macroeconomics, etc, are all actually studies of social history. The study of social history is not economics.

    Economics is actually a self-reflective, rationalist inquiry into the nature of that which creates social history, i.e. individual action. All the laws of economics, which have not changed since the dawn of mankind, such as the law of marginal utility, the law of demand (which is not refuted by Giffon goods, BTW), the quantity theory of money (properly stated) are established via rationalist inquiry, not by observing history.

    These laws cannot even be observed. We cannot observe a person behaving in accordance with the law of marginal utility. We can only know them to be acting in accordance with the law via understanding what action entails.

    In fact, we cannot even know via observation that someone is making an observation. When you look at someone else moving their hands, letting go of a pile of paper notes, where someone else places a different series of objects back in their hands, we cannot know that this person is choosing the most highly valued alternative out of all possible alternatives they could have otherwise sought after. We can only understand them to be acting thus, because we are actors, we know that’s what we do, and so we infer they are too.

    This approach may seem to be narrow, not very useful, etc, but it in fact builds the entire edifice of everything we know of economics.

    We can’t observe prices as “sticky.” A (misguided) theorist who claims prices are “sticky”, can only think it so, via some self-reflective activity. Prices aren’t actually sticky or loose. These terms have no meaning in economic science, which deals with individual action. If an individual actor changes his ask/bid prices at “speed” X/hr, whereas another individual actor changes his ask/bid prices at “speed” Y/hr, then there is no stickiness or flexibility. The price changes are determined by the individuals. That is the standard. There is no bird’s eye view judgement, and certainly no other individual has the intellectual wherewithal to pretend to be able to do so.

    For price stickiness, the self-reflective activity entails, among other ideas, the idea “I want that person (or those people) to change their ask/bid prices more quickly than they are actually doing so.”

    If prices changed more quickly than the (misguided) theorist desired, then we would be here listening to them complain about prices being “too flexible.” It is a “misguided” self-reflective activity because it is an egoist (all self-reflective activity is an egoist endeavor…this is not a condemnation BTW) activity that isn’t constrained to rationalist ethics of thought. It is a “me and only me” activity that does not respect and does not validate other individual’s activity.

    Nobody but me can determine if my changing of ask/bid prices is too fast, too slow, or just right. It’s always just right, for me, just like your speed of changing your ask/bid prices is always just right, for you. There is no objective, external standard that suddenly judges when prices adjust quickly and when they adjust slowly. No, the rate of unemployment is irrelevant. Individuals are not supposed to hire others or be hired according to objective law. The individual decides when to hire and when to accept a job. That is “the” natural rate of employment.

    If unemployment rises, due to forces NOT individual value related, namely, some individuals crush other individual’s values, via coercion, from petty thugs to the state, then and only then can we say that the natural rate of employment is higher than what we observe.

    Nobody who devotes their life to NGDPLT, or AD, or anything else “macro” dependent, understands economics.

    Know why the rise in interest rates after the Fed announced a “tapering” surprised Dr. Sumner, Nick Rowe, and other monetarist minded folks? It’s because they thought they found an objective law derived from observing social history. They failed to take into account individual subjective value theory, which always throws a monkey wrench in every like-minded attempt.

  16. Gravatar of TravisV TravisV
    25. July 2013 at 19:16

    Bill Ellis,

    Thanks for pointing that out. Hooray for the Senate Democrats endorsing Yellen!


  17. Gravatar of Edward Edward
    25. July 2013 at 19:47

    ” We cannot observe a person behaving in accordance with the law of marginal utility.”

    We CAN observe its corollary, diminishing returns.


    You’re stating empty, vacuous, tautologies here Geoff. Yes, all economics is ultimately derived from individual choice under conditions of scarcity. Yes, individual action is the edifice.

    But that doesn’t mean that we cannot observe large commonalities between individuals, and establish predictive trends from them. When the trend changes we change our model, and incorporate new information. We have open minds, unlike some fanatical people. So we use both methods.. The theoretical (a priori) method and the empirical (inductive or a posteriori)

    As usual you miss the point about sticky prices. None of us are criticizing the people who adjust their prices too slowly! Sticky prices do indeed have benefits. Its the AUSTRIANS who prattle on about lower wages being the solution to unemployment. We take reality as it is and don’t live in some fantasy world, where we wish away inconvenient facts. You would see the entire economy destroyed, the dow go to 1000, unemployment go to 50%, rather than admit a single good thing that comes from an eentsy weensy tiny amount of government coercion. you are a fanatic, truly blinded to the horrifying consequences that putting your belief system into practice would entail.

    I wasn’t surprised by the rise in interest rates. I disagree with Scott about low interest rates usually being a sign of tight money. I agree with you Scott about the OTHER maxim you said, that interest rates are usually an unreliable indicator. The second seems to contradict the first!. (?)

  18. Gravatar of Full Employment Hawk Full Employment Hawk
    25. July 2013 at 22:32

    “Obama turns neo-Austrian: Read it and weep.”

    But also read the comments, where a number of posters, including me, have pointed out that DeLong is misinterpreting what Obama said in his speech and that what he says is in no way neo Austrian.

    His assertian that the finacial system had keept the economy juiced up was not that it kept output above potential output. Rather is was that it kept consumption at a level that, in the face of stagnating labor income was unsustainable. The only way that consumption could be maintained at a level that kept the economy at full employment was by households taking on unsustainable levels of debt. When the bubble burst and the borrowing could no longer be continued, consumption dropped, throwing the economy into recession. This is a very Keynesian argument and in no way Austrian.

  19. Gravatar of Full Employment Hawk Full Employment Hawk
    25. July 2013 at 22:39

    “Hooray for the Senate Democrats endorsing Yellen!”

    Being a progressive, I am on the e-mail list of a number of progressive organizations that are posting petitions opposing Summers, a number of which I have signed. There is very strong opposition to Summers among much of the Democratic base. Hopefully Obama can be kept from making this horrible mistake. And Yellen’s appointment has the added benefit of breaking a major glass ceiling.

  20. Gravatar of Lorenzo from Oz Lorenzo from Oz
    26. July 2013 at 03:40

    Daniel wins the internetz for 25 July 🙂

  21. Gravatar of Jim Buffet Jim Buffet
    26. July 2013 at 03:45

    “I know more about policies on any particular issue than my policy directors. And I’ll tell you right now that I’m going to think I’m a better political director than my political director.”

  22. Gravatar of Mike Mike
    26. July 2013 at 05:28

    I’m not an O’bama hater either…just skeptical of everything he says. The so called “talks on economic policy” are nothing more that the opening of the 2014 Senate campaign effort..it all sounds good to a public eager to blame someone..just because it doesn’t make a lot of sense…well that is secondary…. Republicans could win the senate next year…time to hit the campaign trail….those evil Republicans and their billionaire friends have stacked the deck against you…blah blah blah…it never ends…

    It is all a calculated political move to make the appointment of Yellen seem even bolder and groundbreaking….he may not know much about economics…but he is a brilliant politician…

  23. Gravatar of Greg Ransom Greg Ransom
    26. July 2013 at 10:37

    In the 1970s Hayek endorses the idea of “fiscal stimulus” to alleviate mass unemployment, on humanitarian grounds.

    Of course, Obama has not implemented anything like this sort of policy.

    And, of course, most bloggers who comment on Hayek and Austrian economics have never read Hayek or studied Austrian economics.

  24. Gravatar of Greg Ransom Greg Ransom
    26. July 2013 at 10:49

    Every read a good history of science book where long ago scientists are describing phenomena no one has seen today or who fail to see phenomena all of us recognize as staring us in the face?

    That is Scott Sumner on the economy over the last decade — he is the pre-modern scientists who refuses to acknowledge seeing the phenomena that is staring everyone else in the face, and he claims to see phenomena no one else has ever seen. Scott claims he sees no housing bubble, no boom and must in construction employment, no time structure to price relations in capital producing industries, no malinvestment, etc, etc. etc.

    Someone wrote,

    “I don’t get it. Obama is neo-Austrian because he thinks there was a housing bubble and the financial sector got too big? I mean a lot of people-including economists-believe that.

    Listen if he doesn’t get it fine. However, there’s nothing there that’s so unusual whether it’s right or wrong-much less ‘Austrian.’

    Delong himself says that there was an allocation problem with too much investing in housing-how’s that so different than saying there was a ‘housing bubble?'”

  25. Gravatar of ssumner ssumner
    26. July 2013 at 11:57

    Mike Sax, You said;

    “I don’t get it. Obama is neo-Austrian because he thinks there was a housing bubble and the financial sector got too big? I mean a lot of people-including economists-believe that.”

    No one is claiming that Obama is an Austrian because he thinks there was a housing bubble. No one.

    Daniel. You make my head spin. 🙂

    ChargerCarl, You may be right, although I suspect the left isn’t really Austrian.

    Jerry, My complaint is that he isn’t worried about AD, and that his other policies harm AS.

    FEH, OK I’ll take another look. (Obviously I wouldn’t agree with that argument either.)

    Greg, You said:

    “Scott claims he sees no housing bubble, no boom and bust in construction employment,”

    I’ve said many times that the bust in construction employment was real, but that it had little effect on the unemployment rate, which soared on falling NGDP, not falling housing construction. It’s OK if you disagree, but don’t misstate my argument.

  26. Gravatar of Floccina Floccina
    26. July 2013 at 12:53

    It seems like he is much much better than McCain would have been on foreign policy.

  27. Gravatar of ssumner ssumner
    26. July 2013 at 12:56

    Floccina, An understatement.

  28. Gravatar of Floccina Floccina
    26. July 2013 at 12:59

    TravisV how would the rise in petroleum prices contribute significantly to causing the great Great Recession?

  29. Gravatar of W. Peden W. Peden
    26. July 2013 at 13:40

    There is no simple contradiction between Austrian School economics and socialism. Friedrich von Wieser was a socialist and the single most influential person on the 20th century Austrian School except Carl Menger.

    Wieser’s lack of influential disciples mean that he is one of the most important economists to lack modern devotees. The concepts of opportunity cost and ordinalist marginal utility were fantastic contributions to economics.

    Unfortunately, I don’t think that Obama has been reading Wieser.

  30. Gravatar of Skepticlawyer » Funny summaries Skepticlawyer » Funny summaries
    26. July 2013 at 20:39

    […] across this comment which made me laugh […]

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