BRIEFLY NOTED: For 2021-05-05 We

Things that went whizzing by that I want to remember... <>




Ian Leslie: Biden's Bet: ‘Biden... is... hinting at... “I think they’re going to write about this point in history… about whether or not democracy can function in the 21st century. Not a joke. Whether autocracy is the answe—these were my debates I’d have in the many times I met with Xi.”... Biden believes that technology and science are moving so fast that they pose an existential challenge to democracy itself. The consensus used to be that if China wanted to catch with the West it would have to democratise—become more free, and more diverse, with power less centralised. But Xi has doubled down on autocracy and centralisation, partly by deploying new technologies. China is still growing. For Biden, it’s up to America to show the rest of the world that democracy is still the best platform… 

LINK: <>


Very Briefly Noted:

Share Brad DeLong's Grasping Reality


Paul McLeary (2007): Is Perry Bacon Serious?: ‘Perry Bacon Jr. wrote what may be the single worst campaign ‘08 piece to appear in any American newspaper so far this election cycle. In the front-page piece, Bacon muses over how the chances of Barack Obama getting elected president might be affected by the fact that he’s not Muslim. Seriously. To build his case, Bacon stumbles artlessly through all manner of rumor, innuendo, and xenophobic smear—never bothering to refute any of it, even though there is plenty of well-documented evidence to knock down much of this stuff. Bacon kicks the whole sorry mess off with the unsubstantiated statement that: “In his speeches and often on the Internet, the part of Sen. Barack Obama’s biography that gets the most attention is not his race but his connections to the Muslim world.” Who, exactly, gives this the most attention?… This habit of reporters—perpetuating untruths by writing stories about the “phenomenon” of those untruths—drives us nuts. Was LexisNexis broken in the scant few minutes it must have taken him to write this story? If so, Bacon must have taken to Internet message boards to troll for xenophobic posts…. Bacon then wraps up by tossing in a quote from an Obama adviser telling us that all’s fine, there’s nothing to worry about. Oh, well, with that tidbit at the end Bacon achieved the all-important Balance, so all’s well in newspaper-land.

LINK: <>

Iskander RehmanMetus Hostilis: Sallust, American Grand Strategy, & the Disciplining Effects of Peer Competition with China=: ‘Sallust’s theory remains starkly unforgiving, almost uncomfortably so, for a modern reader. As political scientist Daniel Kapust notes, this creates a dilemma whereby “the coherence of a community may become linked to the existence of a dangerous foreign enemy.” Healthy democracies should be able to guarantee the conditions of their own success without fear of a great-power competitor, and no sensible individual would argue in favor of cultivating foreign enmity for its own sake. And yet, Sallust’s grim insights, however unsettling, may hold some truth…. An unwelcome new strategic dispensation… may paradoxically provide a clarifying and restorative sense of purpose to a deeply fractious American democracy…. Intense domestic polarization has rendered U.S. foreign policy more volatile, unpredictable and—in the eyes of international observers—unreliable…

LINK: <>

Adam OzimekFuture Workforce: ‘Companies continue to be remote: Nine months into the pandemic, 41.8 percent of the American workforce remains fully remote. Companies say remote work is getting easier, not harder, as time goes on: 68 percent of hiring managers say remote work is going more smoothly now than when their company first made the shift to at the start of the pandemic. Remote work will continue through 2021: Managers believe that 26.7 percent of the workforce will be fully remote in one year suggesting that individuals will gradually continue to return to the office, but a significant share will remain remote in the near future.  The number of remote workers in the next five years is expected to be nearly double what it was before COVID–19: By 2025, 36.2 million Americans will be remote, an increase of 16.8 million people from pre-pandemic rates. Increased productivity and flexibility continue to be key benefits of remote work: Hiring managers cite reduction of non-essential meetings, increased schedule flexibility, and no commute as aspects of remote work that have worked better than expected…

LINK: <>

Nancy QianThe Two Sides of Chinese GDP: ‘In 2019… China’s per capita GDP in 2019 was $8,242, placing the country between Montenegro ($8,591) and Botswana ($8,093). Its per capita GDP in purchasing power parity (PPP) terms—with income adjusted to take account of the cost of living—was $16,804… between Suriname ($17,256) and Bosnia and Herzegovina ($16,289)…. GDP per capita in PPP terms in the US and the European Union is $65,298 and $47,828, respectively…. China’s current level of income inequality… is similar to that found in the US and India…. 600 million people have… an annual income of $1,860…. The Chinese government… will be preoccupied for at least another generation by the need to increase domestic incomes. But… governments can also bolster their popular support in ways that do not foster economic growth… defending… against… earthquakes or the COVID–19 pandemic… territorial disputes in the South China Sea and along the Chinese-Indian border…. The backlash effect…. Many Chinese think the West is seeking to reassert political dominance and feel painful reminders of colonialism and World War II…. Behind the world’s second-highest GDP are hundreds of millions of people who just want to stop being poor…

LINK: <>

Jeet HeerCan We Bring Back Blogging?: ‘The golden age of blogging was… a digital party, where bouncing around through hyperlinks was always bringing in new writers and new perspectives… fresh voices and also of changing minds…. The blogosphere opened up debate, especially in the 21st century revival of feminist, anti-racist, and socialist politics…. There were a lot of factors that led to the decline of blogging… ads… Google and Facebook ate up that revenue. Social media like Twitter and Facebook also provided a new way to micro-blog…. I’m still finding my sea legs as a Substacker. I want to know what works and what doesn’t…

LINK: <>

PROJECT SYNDICATE: Is þe US Economy Recovering or Overheating?

The fact that core inflation is rising on the back of substantial GDP growth and declining unemployment should not come as a surprise. Those who are wringing their hands about economic "overheating" should remember that an absence of price increases would reflect an economy that is still struggling. <>


BERKELEY – The financial and economic news in the United States lately has been dominated by concerns about inflation. “Runaway inflation is the biggest risk facing investors, Leuthold’s Jim Paulsen warns,” according to the cable news channel CNBC. As a potential hedge against inflation, “Bitcoin’s time to shine is fast approaching,” reportsFortune’s Robert Hackett. According to US News and World Report, “There is a lot of talk about inflation in 2021 as fears of high government spending creep in and the recent rebound in prices from pandemic-related levels has some investors worried that the trend will continue for some time.”


And yet, one also reads that “US Treasury yields hold ground even as inflation picks up.” After growing at an annualized rate of 33.4% in the third quarter of 2020, 4.3% in the fourth quarter, and 6.4% in the first quarter of this year, the US economy is on track for a full recovery. The second-quarter growth rate is expected to be at least 8%, and perhaps significantly higher, which means that the US economy, in aggregate, will have fully returned to its pre-pandemic production level by the third or fourth quarter of this year.

In this context, it is no surprise that core inflation (which excludes food and energy prices) rose 0.4 percentage points over the past month. That rate implies nearly a 5% annual inflation rate. But looking back over the past 12 months, the core inflation rate (as measured by the consumer price index) was 2.3%, which is in keeping with the US Federal Reserve’s 2-2.5% target.

The question is not whether there will be some inflation this year, but whether it will represent “overheating” of the economy as a whole. Most likely, it will not. The amount by which economic output in 2021 exceeds potential output will be less than zero. And as the Fed makes clear with every statement it issues, it will not allow a transient wage-price spiral to become embedded in inflation expectations. The outlook for 2021 and beyond is that inflation will hover around the Fed’s target, rather than consistently falling short, as it has for the past 13 years.

Moreover, the US economy is emerging from the pandemic recession with a fundamentally altered inter-sectoral balance. Spending on durable goodscurrently accounts for an additional 1.7 percentage points of GDP, relative to its 2019 level, and spending on housing construction is running at 0.5 points above its 2019 share. At the same time, business spending on structures and consumer spending on energy are both running at 0.5 points below their 2019 shares, and spending on services (hospitality, recreation, and transportation) is 2.2 points below its 2019 share.

These sectoral dynamics will be the most important determinants of inflation this year. By the end of 2021, some 4% of all workers will have moved not only to new jobs but to entirely different sectors. In an economy where businesses very rarely cut nominal wages, the pull of workers from sectors where demand is relatively slack to sectors where it is more intense will require firms to offer wage increases to encourage workers to make the jump.

But we cannot know how much inflation this reshuffling will cause, because we have not really seen anything like it before. Economists will have a lot to learn this year about the short-term intersectoral elasticity of employment supply.

One thing that should be clear, however, is that an uptick of inflation this year is nothing to be upset about. After all, wage and price increases are an essential part of rebalancing the economy. Real production, real wages, and real asset values will all be higher as a result of this year’s inflation, whereas the price level will remain far below what it would have been had the Fed managed to hit its inflation targets in the years since the Great Recession following the 2008 global financial crisis.

While some commentators worry that we may be returning to the 1970s, this is highly unlikely. That decade’s stagflationary conditions followed from a perfect storm of shocks, and were exacerbated by the Fed’s conflicted and confused response under then-Chair Arthur Burns. Today’s Fed leadership is very different, and there is no perfect storm of repeated shocks to match the effects of the Yom Kippur War, Iran’s Islamic Revolution, the 1970s productivity-growth slowdown, and so forth. 

Burning rubber to rejoin highway traffic is not the same thing as overheating the engine.


Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

Subscribe now

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)


PODCAST: Hexapodia XIII: "Mandated Interoperability": We Can't Make It Work, or Can We?

With Cory Doctorow; Noah Smith & Brad DeLong's 30:00 < Weekly Podcast < 60:00 <>


Key Insights:

  • Cory Doctorow is AWESOME!

  • It is depressing. We once, with the creation of the market economy, got interoperability right. But now the political economy blocks us from there being any obvious path to an equivalent lucky historical accident in our future.

  • The problems in our society are not diametrically opposed: Addressing the problems of one thing doesn't necessarily create equal and opposite problems on the other side—but it does change the trade-offs, and so things become very complex and very difficult to solve.

  • Always keep a trash bag in your car.

  • Hexapodia!


Share Brad DeLong's Grasping Reality



Cory Doctorow: How to Destroy Surveillance Capitalism <>

Cory Doctorow: Attack Surface <>

Cory Doctorow: Walkaway <>

Cory Doctorow: Down & Out in the Magic Kingdom <>

Cory Doctorow: Little Brother <>

William Flesch:Comeuppance: Costly Signaling, Altruistic Punishment, and Other Biological Components of Fiction<>

Daniel L. Rubinfeld: A Retrospective on U.S. v. Microsoft: Why Does It Resonate Today? <>

Louis Galambos & Peter Temin: The Fall of the Bell System: A Study in Prices & Politics <>


Electronic Frontier Foundation: <>

Cory Doctorow: Craphound <>

Cory Doctorow: Pluralistic <>

&, of course:

Vernor VingeA Fire Upon the Deep <>

Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)


BRIEFLY NOTED: For 2021-05-02 Su

Things that went whizzing by that I want to remember...


Zeynep TufekciSunday Open Thread for Subscribers: ‘The one big part of the tragedy here is that we had most of the science we needed really early on…. There was more to learn, for sure, but the basics were there. There have been very few scientific surprises… outside of how vaccinable this (luckily!) turned out to be (we didn’t know partly because we didn’t really try for the others exactly because we didn’t care). But sociologically, I am shaken. I knew about all of this, because I teach and study it. The group-think, the institutional resistance and inertia, the cognitive biases, the social dynamics… I know about them all! But I’ve been truly surprised most is how much stronger than I thought these dynamics were, even in a crisis. Perhaps because of the crisis. I’ve learned a lot about viruses last year, but I did not really need that much beyond an introductory textbook to write the policy oriented pieces I’ve published. I think we need to update our social science textbooks and assumptions, though. The dynamics that have dominated our world aren’t novel in the sense that we were new to them, but they are clearly so much stronger than we usually acknowledge…

LINK: <>


Very Briefly Noted:

Share Brad DeLong's Grasping Reality


Jeet HeerThe Reactionary International: ‘Sixty years ago… the Algiers putsch, a failed coup d’état… [to overthrow] President Charles de Gaulle…. On April 21, 2021, a date obviously picked to echo the events of 1961… an open letter warning that France was on the verge of civil war and that military should prepare to seize power… Christian Piquemal, former head of the French Foreign Legion, along with 20 retired generals, 80 officers…. In National Review in 1985…. General Raoul Salan, one of the leaders of the 1961 putsch. Molnar wrote… "to this day half of the French regard Salan’s rebellion as legitimate, but would question de Gaulle’s. It was de Gaulle who tore up the unwritten law of army solidarity…. De Gaulle himself revolted against Petain’s lawful government.” In other words, fascist collaboration was legitimate and the 1961 coup plotters were more justified than de Gaulle’s decision to join the Western allies in the war against Nazism. The Reactionary International, as should be clear, is a proto-fascist movement. For the sake of democracy, it’s urgent that people of this orientation be rooted out of the military in France, the United States, and wherever else they may be found. In late 2020 and early 2021, I took comfort in the fact that Trump seemed to have limited support in the officer class of the American military. This led me to think that for all Trump’s bluster about a coup, he wouldn’t have the crucial military support he needed. I was right to the extent that the January 6 insurrection was, as The American MindT writes, a “shambolic” farce. But it looks like the Trumpists are thinking about how a future coup might succeed. The are starting to realize that they need to cultivate a mutinous cadre in the officer class. That’s a development pregnant with dangers… LINK: <>

Ed LuceThe Rise & Rise Of Tucker Carlson Conservatism: ‘His reaction to Wednesday’s verdict on Derek Chauvin for killing George Floyd crossed even his own thinly drawn lines. The jury’s triple guilty verdict, reached after 10 hours of deliberation, amounted to “an attack on civilisation”, said Carlson…. The true cause of Floyd’s death, Carlson has repeatedly said, was a drug overdose—not the nine-minute asphyxiation that jurors saw over and over. Carlson’s outburst is notable for two reasons. First, he is the most popular conservative TV anchor in the country, with a nightly audience of 3m. Since Donald Trump lost his Twitter account, Carlson has become the most influential voice of aggrieved white conservatism…. Second, Carlson’s outburst illustrated that US racial injustice is not close to having turned the corner. Shortly before the jurors announced their verdict, police in Columbus, Ohio, shot dead a 16-year-old black girl who was allegedly wielding a knife. During the trial, police shot and killed an average of three Americans a day, the majority non-white, including a 13-year-old unarmed black boy. Unlike Floyd’s death, these were not recorded on the mobile phones of passers-by.  That footage meant Chauvin’s case was almost unique. Even then, Carlson wants viewers to believe that Chauvin was the real victim. As Groucho Marx might have asked: who should Americans believe, Tucker Carlson or their own lying eyes? For some people believing is seeing, rather than the other way round… LINK: <>

Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)

HOISTED FROM THE ARCHIVES: Five Books on the Classical Economists (2020-09-29)

This, I thought, was an interview that turned out very well...


The Best Books on the Classical Economists

recommended by Brad DeLong

They were an eclectic bunch, including, among others, a stock market speculator, a moral philosopher, a cleric, a lawyer and a journalist. From the late-18th to the mid-19th century, they provided the first systematic explanations of how economies work, where they fail and how they might be made to work better. Here, Brad DeLong, a professor of economics at UC Berkeley, introduces the classical economists, and suggests books to read to learn more about them and what they were trying to achieve.

Interview by Benedict King

The Passions and the Interests by Albert Hirschman

The Worldly Philosophers by Robert L Heilbroner

The Classical Economists Revisited by D. P. O'Brien

Economic Sentiments: Adam Smith, Condorcet and the Enlightenment by Emma Rothschild

Karl Marx: A Nineteenth-Century Life by Jonathan Sperber


Before we get into the books, could you just set the scene by telling us who the classical economists were, individually speaking. There was Adam Smith, Thomas Malthus, David Ricardo, and Jean-Baptiste Say in France. Are there other obvious ones that you would include in that list?

I would say that Smith, Malthus and Ricardo are the big three, although you can argue about whether Smith was a classical economist or rather a pre-economist. Smith viewed himself very much as a moral philosopher. He always had a much broader range and scope than Malthus or Ricardo in terms of the business that he thought he was in.

If Smith is the first generation, the second generation is Ricardo, Malthus and Say. Then there’s a third generation, people like Alexis de Tocqueville’s friend Nassau Senior, and J.R. McCulloch, who actually held the first professorship in political economy at University College London.

Mountifort Longfield is another, very underrated, writing in Ireland things that anticipated the rest of the profession by 30 years; and John Stuart Mill, of course. There’s also Karl Marx and Friedrich Engels and then there are a bunch of native, homegrown English Ricardian socialists as well, throwing garbage at the rest of the classical economists, saying, ‘you aren’t focused on what’s important, you’re focused on what’s unimportant and what you are doing is running ideological interference for a bunch of nasty people and social movements and you should man up and actually think more deeply about how the economy really works.’

But the way we conceptualize the theory is that Smith originated it, then you have Malthus and Ricardo and maybe Say in the second generation. Then you have people who explicate and develop their doctrines, but don’t make a great deal of progress in understanding until you get to the neoclassical economists, William Stanley Jevons on the one hand and Léon Walras on the other. Once you have Jevons and Walras and company, the thing takes off and turns into the supply and demand, utility economics that we have today.

What were the primary assumptions that united the classical economists and to what extent were they self-consciously a group? Did they know each other and correspond with each other?

They did know each other very well. Ricardo and Malthus, especially, were close to being the best of friends. They viewed themselves as having very important things to say about how the world worked, because they understood—we’ll call it—‘the laws of economics’. They understood how largely self-interested people engaged in economic activity. And, more importantly, they understood how the system as a whole behaved. They had insights that others were deprived of because they bet that the economic system would very quickly head for a point of equilibrium, of balance, and that it would tend to stay at that particular point of equilibrium. This was Adam Smith’s great insight; the point of balance was not something that was intended by any of the people who worked in the market economy. It was, rather, a consequence of the way the system as a whole fitted together, as opposed to a decision by any one individual or group of people that things should be thus and so.

I suppose their predecessors, the mercantilists, would have seen economic management as very much a top-down, government-directed activity?

Very much top-down. They believed that the government should control things in order to achieve particular ends, while Smith developed this view that the system has its own logic and that governmental attempts to interfere with it or even to direct it—unless very sensitive and cleverly thought through, and often even then—will wind up doing things that the government directors did not intend. In fact, you can go back to David Hume’s argument on the balance of trade, which anticipated Smith. He argued that all mercantilist policies achieve is to raise the price level inside the country, making the country’s commodities more expensive, without actually enlarging its real wealth.

And he would have spoken about these things with Smith, right, because they knew each other?

They were indeed best friends. In fact, when Smith’s first book came out, there’s a rather long letter from David Hume, who was in London, to Adam Smith up in Scotland, very curious to learn about how the book is being received. And so page after page Hume says, ‘I’m about to tell you how the book is doing’ and then he writes a paragraph not about that, but about something else completely unrelated, and all the while he keeps dropping into the letter observations about how, ‘you must remember, my dear Smith, that the applause of the multitude and the crowd is not the kind of thing that any philosopher should seek’, that a philosopher ‘should be happy to have a few discerning readers or students and not expect any kind of mass audience of any sort’. And then, at the end, the punchline is,  ‘And so, my dear Smith, you must brace yourself for the utter disappointment that your book has sold out, it has received enormous praise, everyone wants more copies, reprints are on order, and various high government officials are saying, “hey this guy is really smart. Let’s try to figure out some way to channel some money to him so he can think some more.”’

Was that The Theory of Moral Sentiments, or The Wealth of Nations?

The Theory of Moral Sentiments, in 1759.

Let’s move on to the books you’re recommending about the classical economists. The first one is Albert O. Hirschman’s The Passions and the Interests: Political Arguments for Capitalism before its Triumph. This sets out some of the intellectual background of the 17th and 18th century to the emergence of classical economics, doesn’t it? Tell us a bit about the story.

The story is that western Europe seemed to be moving into a new kind of society, a commercial society, in which people were no longer concentrated so much in traditional professions, or constrained by what their parents had done, or by their social position, in determining what they should do.

The individual’s place in society shifted from being embedded in a network in which pretty much everyone you interacted with, you knew quite well and had very strong expectations about what kind of person you were, given your particular role in society, to a society in which there were all these market exchanges, which were in large part, more or less at arm’s length.

Human societies require a substantial division of labor. We’re much more powerful and competent and capable in groups than we are on our own. But, in order to have a division of labor, we have to be dependent on each other. We have to rely on each other to fulfil a great deal of each other’s needs. And that requires an awful lot of social trust. And how do you build that? If you’re making something for someone else or doing a service in return for something else, how certain are you that they’re going to reciprocate, that this is going to be win-win, rather than win-lose? How can you know someone won’t just take the stuff you made for them and then get out of Dodge, leaving you holding the bag?

Back in the original and rude state of humanity, there really are only three groups of people whom you could count on. You could count on your close kin, and not all of them; you could count on your close friends, although not all of them; and you could count on your close neighbors. All of these groups are people to whom you have immensely thick sociological ties. You see them again and again and so you can have confidence and trust that you’re in a gift-exchange relationship, or a guest-host relationship, with this fairly small circle of people whom you know well.

And then we invent money. And we trust money. And, all of a sudden, you don’t have to know the person you’re transacting with well or trust them a lot. You still have to do due diligence and you still have to look in the horse’s mouth, at its teeth, to see how old it is. You still have to ask around to see if they have a reputation. You still need to test out their products. But once you have money, all of a sudden, you can form a win-win division of labor, not just with your close friends, your close neighbors, and your close kin, but with pretty much anyone in the world.

In so doing, you greatly expand the size of the division of labor you can effect, and you greatly expand humanity’s and your potential productivity because you can source whatever you get from the best and most efficient producers in the world, and all because there’s this thing called money that serves as liquid trust. Instead of saying, ‘I’ll do you this favor and make this thing for you now and you’ll do me another favour—we’re not quite sure what it will be—and make something for me in three months’, all of a sudden a transaction can be open and closed in an hour or a minute.

And so, all of a sudden, we are not only vastly more productive, but we begin looking at everyone else in society as a potential friend because they don’t regard us as a clan enemy to be killed, or as a stranger to be robbed. You can trust people beyond the members of your clan, because practically everyone is a potential participant in a win-win exchange. I might wind up being on the other side of a counter and they might do me a favor or provide me with something useful. I provide them with money, which enhances their social power, as well. All of a sudden life becomes potentially a lot better and easier, because the people you run into are not people to fear, but people to welcome, with whom you might be able to trade. At the same time the economy, as a whole, acquires a kind of logic and power and capability that no individual has.

An example of how this works: there used to be a huge, 30- or 40-foot tall bronze statue of Athena on top of the Acropolis in Athens. You could see the sun gleaming off of it as you rounded the southern cape of Attica, sailing into Athens. It weighed something like 80 tons and it’s bronze. To make bronze you need copper, which is very soft, and you need tin, around 10 per cent as much tin as copper. So, they needed about seven tons of tin in order to make this statue.

The historian Herodotus was wandering around Athens and he got curious as to where all this tin came from. There was no tin in Greece. There was no tin he knew of in the Aegean. In fact, there was no tin anywhere in the Mediterranean that he knew of. He asked people and found that nobody in Athens knew where this seven tons of tin had come from. He talked to more people and to the sailors who actually brought the tin. They told him they had bought it in a market in Sicily, in the city of Syracuse.

He talked to other sailors and they began telling him more and more outrageous lies about where the tin came from and how it got there. They told him that, beyond the pillars of Hercules, beyond the Strait of Gibraltar, there were these strange islands where it was foggy all the time and there was tin. You practically just scratched the ground and there was tin. And the tin had gotten all the way from there to Greece. Herodotus disbelieved them. He refused to believe that anyone would live somewhere where it was foggy all the time and so cold.

But the Athenians had bought the tin from the markets in Syracuse in Sicily; and the people in Syracuse had bought the tin from the markets in Massilia (what’s now Marseille in France); and it had come down the Rhone through another chain of merchants; and had been transported from the Seine to the Rhone by another group; and then it had been carried down the river by the merchants of northern Gaul. Before that, it had been carried across the English Channel by yet another group of merchants, who had bought it from the tin miners of Cornwall, who had dug all this stuff out because, for some reason, these weirdos from the east were willing to pay an awful lot of money for this strange metal that was not terribly useful for them, but very, very useful when you have lots of copper, as you do in Greece, and when you can alloy it with ten per cent tin to make hard and durable bronze. It’s called the Bronze Age for a reason.

The economy as a whole knew that there was tin in Cornwall, that you could combine it with copper in Greece to make large and durable statues, but no individual person anywhere in western civilization, such as it was back in the mid-300s BC, actually knew this or knew where tin mining was going on, or how it was produced. And this enormous expansion of human capabilities, together with how it changed human manners and attitudes toward each other, changed the world. It generated a genuinely commercial society, powerful and productive and rich and peaceful relative to earlier societies. And these societies were ones in which you looked upon people as benevolent partners in trade, rather than either strangers you might steal from, or enemies you had to kill, or maybe clan members to be aided.

That shift away from a world in which entrepreneurship is exercised and social power gained primarily by oppressing people and taking their stuff, or making them work for you, to a wealthier, more sophisticated world based much more on win-win exchange is the meat of Hirschman’s book. It’s a look back on how European intellectuals reacted when, all of a sudden, it became possible to run a civilization based not on the passions for those we love and those we hate, but rather on the interests we have in all cooperating, even though we do not terribly care about each other. We’re all useful to each other and so we can live in peace. It’s a wonderful book.

I have always loathed the Institute for Advanced Study, ever since I arrived at Harvard in 1978 and was reading books by Albert Hirschman. I thought he was wonderful and was planning to take his course in the fall of 1979 as a sophomore. Then, in the summer of 1979, the Institute for Advanced Study offered him a zero-teaching job and he went off to Princeton and no one ever saw him in the classroom again.

That made my life worse and I didn’t have the choice to take his course. I’ve never had a chance to do an injury to Princeton’s Institute for Advanced Study so far, nothing’s come around. But they should know I’m in the weeds waiting for them.

How do you square that with the classical economic theory of interest?

Well, passions are important. Once we start thinking that we ought to regard other people with benevolence because society has gotten peaceful and other people are participants in win-win exchange, that does change how we think we ought to view the world and how we ought to think we view our fellow man.

Didn’t David Hume say that reason was the servant of the passions, rather than the foundational characteristic of the human person?

Yes, but as Michael Ignatieff pointed out, Hume’s passions are very pallid things. They’re things like ‘I would like to eat some roast duck tonight’, or ‘I would like to read a book’ or ‘I would like to go to Paris and look at clothes.’

One of the very interesting things about Adam Smith is how he paints a world of a commercial society, of peaceful exchange in 1759, just 14 years after the ’45 rebellion in Scotland and 44 years after the ’15. One of the major themes of The Wealth of Nations is the transition from the old feudal society in all its incarnations, one in which power is acquired by having lots of dependents with weapons and in which the principal use of your wealth is to feed more warriors meat in your hall so that they will fight for you, to a world in which the Duke of Argyll can no longer put 400 Campbell dependents in arms to fight at a week’s notice but, instead, one in which he’s busily buying Louis XV furniture.

And removing his clansmen from his land in order to cover it with sheep…

Yes. But only with the coming of luxury does the Duke of Argyll think that having all these angry, belligerent, drunk wastrels hanging around his palace is not what he really wants. And that plays a major role in moving from a society of acquisition and dominance, to a society of exchange, cooperation and productivity. And, of course, things work the other way around. The passions remain, and one of the passions is that we want people to think well of us, including ourselves.

In The Theory of Moral Sentiments there is a very nice set piece, in which Smith asks a question: what would a philosopher think if you told him that a hundred thousand people are going to die in China in an earthquake tomorrow? Well, the philosopher would feel a little bit sad, but he’d say, ‘They’re far away. I don’t know any of them.’ He’d have some reflections about the vanity of human desires, the imperiousness of chance and the uncertainty of life and these days he’d say, ‘That’s a great topic for my next web-log column.’ He’d spend a couple of hours productively and happily outlining his article and then go to sleep and sleep like a baby.

But, if you were to tell a philosopher that tomorrow morning a madman is going to come into your house, terrorize you, and tear off your little finger, you wouldn’t sleep a wink all night long.

The passions are very firmly engaged in avoiding bodily damage, even to your little finger, as opposed to the lives and livelihoods of distant people of whom you know nothing. And, yet, Smith says that we have taught ourselves that we would regard ourselves as moral monsters to sacrifice the livelihoods of a hundred thousand people who we do not know simply to retain a little bodily integrity. Every philosopher in every London drawing room would be lining up to say, ‘I’m would give away my little finger in order to prevent that earthquake’ and would regard themselves as a good and sane and happy person to be willing to make this sacrifice, even for people whom they did not know at all, even if the people would never know what they had done. And that move into a much more peaceful, friendly and productive civilization—where even war has laws that mitigate its damage—was an important part of the Enlightenment and an important part of the world the classical economists hoped to construct.

Let’s move on to The Worldly Philosophers by Robert Heilbroner. Tell us about this book.

This is a great book. It still has not been equalled. It’s a run through where the classical economists came from, who they were, what they thought and why they thought what they thought and how they worked as a group to try to produce a more productive and peaceful and prosperous civilization.

They regarded themselves as engaged in a holy mission to understand this commercial, and then later industrial, economy in which humanity was increasingly enmeshed and how to properly manage it. The book is truly wonderful. It still saddens me that no one has managed to write anything as good, to give a sense of who these people were, not just the classical economists, but the neoclassical and even the Keynesian economists, too: how they saw the world and the influence they had.

Does it start with Smith?

It goes back a little bit before Smith. The meat of the book goes from Smith to Keynes. Afterwards, there are extra chapters, written for the second and subsequent editions, bringing the story forward further in time. The main thrust of the story is humanity’s coming to consciousness, through the work of economists from Adam Smith to John Maynard Keynes, about how to properly understand and manage a commercial and industrial economy to make it sufficiently productive and to make society prosperous. The added chapters are more of a downer: it turned out that John Maynard Keynes was not the last word in economics after all and that there were economic problems that remained, that humanity proved incapable of successfully managing the economy for public good and social betterment. 

We’ve seen further evidence of that in the Great Recession of 2008-10, the secular stagnation since, the unexpectedly rapid and extraordinary rise in income and wealth inequality since 1980, the probable effects of that rise in inequality upon our politics and our political organization—I don’t think it’s possible to understand either Donald Trump or Boris Johnson without the shifts in income distribution in the North Atlantic since 1980.

Those parts do not fit with what is the happy, enlightening and very utopian, forward-looking story that Heilbroner tells in the core of the book, about each generation of economists solving problems left unsolved by previous ones and, ultimately, arriving at what you could call a Keynesian-Pigouvian synthesis—with some Smithian synthesis—of proper macroeconomic policy to preserve full employment, of taxes and subsidies on especially desirable or especially noxious activities to get the market focused on the right direction, and great trust on the properly managed market economy as a very powerful human social calculating mechanism and institution for coordinating our extraordinarily wide, deep and complicated societal division of labor.

And does the book go thinker by thinker?

It does. Some of them are grouped together. It goes chronologically. Its first major note is Smith. It then goes on to Ricardo’s insights and Ricardo’s blindnesses, then to Thomas Robert Malthus trying to get Ricardo to think about the business cycle systematically and failing to do so, John Stuart Mill’s puzzling over how it was that you could get the economy to do well and how much you had to socialize in order to make the economy work properly for human betterment. That’s what pushed John Stuart Mill towards advocating some form of socialization of the distribution of property, and maybe of more. Even in the early 1870s, John Stuart Mill looked at the economy in which he was enmeshed and said, ‘It’s been great for the rich. It’s been great for production. It has greatly enlarged the size and comforts of the middle class, but the working class is still stuck in the same near-subsistence, life-as-nasty-brutish-and-short trap that it was one, two or five centuries ago.’

He argued that we needed not only a full-fledged redistribution of property and the provision by the government of a lot of goods and services, but a limit to human fertility, that child licenses should be required in order to prevent us falling into the Malthusian trap of human numbers out-running natural resources. Mill looked at all the innovations of the century before 1871. He saw huge gains in productivity and technology, but he also saw that the productivity gains that had been seen over the previous century had not trickled down to the working class. So he rejected the idea that the market economy by itself could and would do the job and became a socialist, in a rather odd way.

You mentioned that Mill was more interested in these social aspects. Were Smith and the earlier classical economists concerned about them, too, but simply expected their system to produce a gradual amelioration across society, which subsequently turned out not to materialise?

I think that Smith thought it had already been largely accomplished and that it would continue to be accomplished. That is, productivity in Smith’s thought had become so great that the workers of Britain were substantially prosperous. They were much more prosperous than they’d been one century before, let alone two or three centuries before and he thought that this trend was likely to continue into the future.

It is Malthus who really brings down the hammer and says that people will ultimately breed no matter what. And because of that there are really only two possible endpoints. One endpoint is that the working class is desperately poor. Children are so malnourished that their immune systems are compromised and they are carried off by the common cold, and women are so malnourished that they can’t really provide their infants with enough milk. Infant mortality is extraordinarily high, or even women so skinny that they cease ovulating. In this endpoint, even though your average woman has ten pregnancies, only two children survive to reproduce and so the population remains stable.

The other endpoint is monarchy, patriarchy and religion, where fathers have such authority that they are able to tell prospective suitors, ‘You cannot marry my daughter until you have a farm of your own and can provide her with a prosperous life. And I don’t care how much she loves you and you say you love her. You’re not getting married until you are prosperous enough.’ But this patriarchy needs to be backed up by monarchy because, if you don’t have a big king at the top to demonstrate the authority of the big father, then how will little fathers retain their authority?

And then you also need religion. The daughters and the prospective sons-in-law need to be absolutely certain that, if they engage in sexual intercourse before marriage, they will go to hell. Otherwise they’ll do what people do. Only if you have your monarchy, patriarchy and religious orthodoxy can you have a society that can stay out of this Malthusian trap.

And it stays out of this Malthusian trap by postponing the average age of female first marriage to 26, so the decade between 16 and 26 is not one in which women have children. It’s only 26 to 36. By cutting down potential fecundity by half, you can actually maintain a good society, which is, of course, the crux of Malthus’s argument against Condorcet, Godwin and co. He argued that they wanted to destroy the authority of religion, they wanted to destroy the authority of monarchs, and Godwin even had this girlfriend, Mary Wollstonecraft, who wanted to destroy the authority of fathers over their daughters. He argued that they thought this would lead to progressive Enlightenment, human knowledge and happiness, but that, actually, it would lead to a world in which everyone is starving to death and fighting over crusts of bread—because our fertility will have outrun our natural resources to such a degree that the world will have become an absolute hellhole.

That’s fascinating. I knew Malthus was a clergyman, but I hadn’t realized that his pessimism was deeply rooted in this allegiance to a very conservative, patriarchal, monarchical view of society. But that was absolutely central to his thinking?

Yes, and Malthus’s point is that the workings of the system—the system, in this case, being both an economy in which there are diminishing returns to scale and limited natural resources—and also human psychology in its orientation towards fecundity, greatly limit the extent to which we can produce utopia. We can only get as close to Utopia as possible by constructing a society in which women are absolutely terrified that they will go to hell if they have sex before 26.

If you can do that, you can manage it, otherwise not. But, of course, other people found other ways out. This Malthusian view of the world is why John Stuart Mill was arrested for distributing birth-control information in the streets of London as a young man. But this—artificial birth control and other expedients—was viewed by Malthus and others as a grotesque violation of the natural order.

And all that’s covered in the Heilbroner book is it? 


The next book is D.P. O’Brien The Classical Economists Revisited. What does this book add to the story of the classical economists beyond what Heilbroner has to say?

It’s about the doctrine of laissez-faire, the doctrine that the government exists in order to protect property rights and established contracts and make sure that contracts are enforced and that that’s the sole role of the government. That’s not something that any sane economists actually taught. But it is what economists were thought to have taught. It is what (usually) right-wing propagandists, people who like the current distribution of property rights and who fear the consequences of a bigger and more intrusive government, especially one that is interested in progressive taxation, said that economists taught. It’s what journalists, usually journalists with various right-wing connections or employers, said that economists taught or ought to have taught.

D.P. O’Brien talks about how economists don’t just worry about how the economy works and don’t just analyze technical questions and draws the links between these concerns and their more general moral and philosophical aims.

If you think about it, first of all, the market economy is going to fail to recognize all kinds of externalities that actually exist in the economy. It is going to fail to recognize pollution and congestion and all sorts of other things. It is going to fail to recognize the benefits of having communities of knowledge and inquiry in which people learn massively from each other without having to pay, because they can observe each other. Thus, we ought to have heavy taxes on pollution and heavy bounties for the acceleration of technological progress.

But, also, a market economy counts every dollar as equal. While, actually, if you’re a good Benthamite utilitarian you count every person as equal. And, if you believe, as Bentham did and as virtually everyone does, that there’s a declining marginal utility of wealth, that each rough doubling of your wealth does about as much to advance your ability to achieve your interests and your potential happiness as the last doubling—that going from £10,000 pounds to £20,000 is worth the same to you in your subjective terms as going from £20,000 to £40,000 and that that provides the same benefit as going from £40,000 to £80,000, that has strong implications. That tends to make you think that the economy gives ten times as much attention or weight to someone ten times as rich as someone else. We see this at its sharpest in Amartya Sen’s studies of the Bengal famine where, because in 1942 and 1943 World War II was raging in the Pacific, all of a sudden there were an awful lot of people in Bengal who had no incomes at all. And because they had no incomes, the market economy rated their well-being as worth zero. And so, in a perfectly efficient, competitive market economy in Bengal, even though there was ample food available to feed the whole population, the value of the lives of those without any income was weighted at zero, and so three million people starved to death.

This is the market economy doing what the market economy always does in a Pareto-optimal efficient manner. It weights those who have wealth, their desires and interests a lot more than the desires and interests of those who have less wealth. And at the limit at which your wealth and income are zero, you have no desire or weight at all.

O’Brien is excellent at how economists wrestle with these distributional questions and, indeed, with Marx’s nightmare that an extraordinarily unequal distribution of wealth was something the system would drive itself to.

So, he’s looking at the classical economist in a broader way and actually thinking about them in terms of modern economic problems?

He’s diving deep, talking not just about Ricardo and Malthus and Smith, but also about the second and third layer people who had all kinds of interesting insights and who greatly expanded knowledge about how the economy worked, but who don’t get the headlines.

Let’s move on to Emma Rothschild’s book, Economic Sentiments: Adam Smith, Condorcet and the Enlightenment.

It’s just a delightful book, looking at Smith and Condorcet. The Marquis de Condorcet was one of these great believers in utopia and in progress and in the Enlightenment. He ran afoul of the Terror during the French Revolution. The story is he was caught and executed when attempting to flee through France in disguise. He went into a relatively low-class, rural inn and, when asked how many eggs he wanted in his omelette, he said, ‘a dozen’. Thus, he was revealed to be an aristocrat, because who but an aristocrat could possibly be so clueless as to think 12 eggs in an omelette was normal. So, he was executed.

Both of these people are thinking much more deeply, much more moral-philosophically, about how to deal with the changing societies in which they were embedded. The market is not adequate for any of these people and yet, also, they were firm believers that they were on the road to utopia.

Rothschild is absolutely wonderful to talk to, but it’s not a book that is terribly accessible, unless you’re a professor-type person. You have to know a lot about economics, a bunch about the economy, something about the 18th and 19th century Enlightenment. The book reminds me, in that sense, of Thomas Piketty’s Capital in the 21st Century, which demands that you know not just economics, but MIT-style economic theory and Balzac and economic history—the types of things that made me think, back when I was seeing early drafts of Piketty, that the book would have an audience of 5,000 worldwide—tops—because you have to know so much to get what’s in it.

Rothschild’s is the same, but it is worthwhile. I’m definitely up for everyone trying to grapple with it. Emma Rothschild gets you to figure out that Smith was, after he died, regarded as a dangerous radical precisely because he would talk about how great it is that England had a society in which political power was held by the landlords. But the reason that that was great was not because the landlords deserved to hold political power, but rather because you couldn’t give political power to manufacturers or merchants because they would be very interested in forming monopolies that benefited themselves and because public education was not advanced in England and so, as a result, the lower classes were stultified by the fact that they were uneducated and trapped in boring occupations.

That was in striking contrast to, say, the citizens of Republican Rome who, because they owned their own farms and owned their own weapons and fought in their own battles, could be trusted with a large share of the sovereignty of the Roman Republic. England had to rely on a professional army and navy and did not have a lower class that was able to deal with having the best political system in the world, which of course would have been that of the Roman Republic. If you read between the lines of Adam Smith, there are an awful lot of arch and sardonic snarks delivered against the rulers of his day.

He’s very much pro-freedom, very much pro-moral sympathy, very much in favor of everyone having a right to equal treatment and equal respect. He hoped that the ruling classes’ successors would be smarter than they were. He thought that there were still an awful lot of things that could be learned. Yet he is very optimistic: he sees the moderns as knowing much more than the classics, sees the Enlightenment as a progressive thing that holds the promise of opening up the possibilities for the future.

Doesn’t Emma Rothschild talk about how Condorcet and Smith saw freedom of economic activity as embedded in much broader ideas of freedom and sociability?

Well, if you don’t have freedom of economic activity, then you’re a serf. And, even if you’re a prosperous serf, you’re still at the disposal of your landlord. You’re still under the domination of somebody upper class in one way or another.

If freedom is the power to say ‘no’ to people who want to exercise power over you, you have to have economic freedom as a dimension to that, or you can be tied to positions you do not want out of fear that you’re going to lose, not necessarily your life, but your livelihood. It’s not enough that there be a free market, you have to have some kind of power to make something useful and interesting and valuable in order for the market economy to be worth it. Otherwise, as Karl Marx said, the freedom of the market is nothing but the freedom to enslave yourself to a boss who overworks you so you can keep your children from starving to death. You require not just freedom to transact and freedom to make and freedom to change your occupation. You have to have resources either inside your head or inside your toolbox, or in the rights to land you’ve inherited, that make your labor actually worth something in the marketplace.

So, Condorcet was wrestling with how to produce a serf-less society?

Yes, one of the big points that Emma Rothschild talks about is whether there should be a free market in grain on the grounds that traditionally a low price of grain was something that governments sought, if they wanted to be popular, most strikingly in the free grain dole to all citizens of Rome that Julius Caesar started. But for governments to do that, they’ve got to put a ceiling on the price of grain. That pretty much requires that you ‘enserf’ other people to produce the grain because why would they sell it below the market price? And what do you do when there’s famine?

One of the best parts of Rothschild’s book is when she talks about how Smith and Condorcet both wanted a free market in grain, so that producers had an incentive to produce and also so that those who might otherwise horde would have an incentive to sell their stockpiles. But you also need to lower taxes to protect tenants who are diverting their rent money to buying grain when there’s a famine and the price of grain is high, and you need to provide sources of income for the unemployed. You would need to do all kinds of things to make sure that those rendered unemployed by things vastly outside their control have the cash they need to take advantage of the freedom of living in a market economy.

Let’s move on to Karl Marx: A Nineteenth Century Life by Jonathan Sperber. This looks at Marx’s relationship to the classical economists, doesn’t it, or why he can be understood much better as a 19th century figure looking back to the early 19th century, rather than forward to the 20th century?

There’s always a question of how one should read Marx. Reading Marx’s Capital is, I think, not terribly useful for most people. There are chapters of it that I absolutely love, but those chapters tend to be toward the end. And there’s an awful lot that is wrong. There’s an awful lot that’s confused. There’s a lot that’s repetitive. There’s an awful lot that is incomprehensible unless you are a mid-19th century German, who started out as a Hegelian philosopher and then became convinced that the real road to change was not through figuring out how to think correctly, but rather through political action, to bring about in Germany something like the French Revolution. You need to have Marx’s understanding that political revolution wouldn’t work without understanding how the economy is put together, because political freedom, the freedom to vote, without an economy that allows for high levels of productivity and also a fairly egalitarian distribution of the products of the economy is worth very little—and the economy by itself would not produce the equal distribution of income required.

If you have that experience, then Capital is written for you because you are tracking Karl Marx’s career to such a degree that it makes sense. Otherwise, you’re better reading someone about Marx than reading Marx. And Karl Marx: A 19th Century Life is an absolutely wonderful book because it takes him very seriously and also points out that what he was worried about are things that still, in large part, afflict our economic system today—such as the question of how to manage it for general and fairly equally divided prosperity. But he had to analyze it in the context of his particular time, with his particular concerns.

In some ways Marx turned Malthus on his head. Malthus thought that the market economy, left unaided—that is without being reinforced by patriarchy, orthodox religion and monarchy—would not produce a good society because individual worker productivity would be low because we’d be so short of natural resources. A scarcity of natural resources would mean that the marginal worker was not very productive and so couldn’t bargain for much in the market economy. And so, the lives of the working class—the bulk of humanity—would remain nasty, brutish and short.

Marx thought that was not a problem. Marx thought human ingenuity, together with technological advance were such that resource scarcity would not be an important thing. So far Karl Marx has won that argument, although global warming may teach us differently in the future. So why then, Marx asked, was it that real wages were so low that even someone like John Stuart Mill could ask why this market economy hadn’t produced anything of value for the working class? Marx thought the problem was that produced means of production—people’s past labor crystallized in the form of buildings, machines and production processes—wasn’t a complement to current labor, but rather a competitor with it. Bosses could store up crystallized past labor in the form of capital.

And, then, the fact that they owned all this past labor in the form of capital meant that they did not require the services of that many living workers in order to produce what they produced, and so as time passed, and as society grew richer, and as productivity increased and science advanced, it would, nevertheless, be the case that the forest of outstretched arms looking for work would get thicker and thicker, while each of the individual arms would get thinner and thinner.

Now, why couldn’t property be evenly distributed? Well, property couldn’t be evenly distributed because of the natural dynamic workings of the market economy—simple chance. You could start out with an equal distribution of property, what Marx would call a ‘petit bourgeois’ distribution. But some people would be lucky, others unlucky. The lucky would get richer and the unlucky poorer. Because the lucky are richer and have more capital at their disposal, they’d be more productive. The fact that they’re more productive will mean they grow even richer and that the distribution of wealth and, eventually, of income will ‘Brownian motion’ itself away into a very inegalitarian, very concentrated distribution.

In that case, you then need the government to do something about it and, in Marx’s view, what you need the government to do is to nationalize everything important and form a free society of associated producers, in which people democratically decide on what should be produced, rather than have a dictatorship of the plutocracy.

Marx was trying to understand why it was that the market economy was not producing a good outcome on its own. He was trying to figure out how it could possibly be that society was structured in this particular way. That was his lifetime’s work and it was a very 19th century life—hence the title of the book.

Did someone like Condorcet have a lot to say about how you could distribute capital more fairly through society?

Condorcet and the earlier classical economists thought there had been a monopoly of property in the hands of the landlord class, those who claimed to own the land because their ancestors had conquered Gaul under the banner of Clovis, king of the Franks back in the 400s. They thought that if you simply moved away from this kind of feudal or semi-feudal concentration of landed property in the hands of a few it would not be a great concern. And, indeed, Smith does not think that income and wealth inequality is a great concern.

You can find passages in Smith, especially in The Theory of Moral Sentimentswhere he says that everyone who turns 70 and has made a great success of life, and is now rich, wants to sit out in the sun in the park and reflect upon how pleasant life is. But you can sit outside in the park when you’re 20 and reflect on how pleasant life is. To have spent hour after hour after hour in the counting house piling up more and more gold that you will never spend on anything that makes you truly happy—that is a psychological deformation that the upwardly mobile rich suffer from.

And, while it’s a good thing for society that these people suffer from this deformation because it makes the economy more productive and prosperous, it’s actually a bad thing for them. They should be much more Stoic and Epicurean. But, instead, the rich work for the rest of us, making a more prosperous economy and, yet, get very little in terms of lifetime happiness out of it. It’s only when you get to Marx and John Stuart Mill that people begin saying, ‘Wait a minute. We do have this society and it’s very productive, much more productive than it was. We have all these wonderful technologies, but why the hell are people still living in the East End of London in the same way they were in the mid-18th century?’

Share Brad DeLong's Grasping Reality

To what extent is Karl Marx a classical economist?

Marx is a German scholastic Hegelian philosopher trying to be an economist even though his natural metier is that of a journalist. However, he decides, I think correctly, that the key to understanding the world of the industrial revolution he was living through was the economy. Hence he decides what he really needs to become is a technical, theoretical economist. And so he spends the years from 1855 to the end of his life trying to nail down the economic argument, but never manages to do so even to his own satisfaction, let alone to the satisfaction of others.

He thought that there was no solution short of socialism. And he had reasons why. He thought you couldn’t simply have the government impose somewhat more progressive taxes to redistribute income and wealth more evenly. Why not? Because money talks. And money talking would control the government. The rich would always have enough influence over the government to prevent it from enforcing an acceptable distribution of income and wealth through the economy.

Anyway, this is an absolutely wonderful book. I wish I’d read it 15 or 20 years ago. It greatly increases my sense of how he reached his positions and why he was so certain that he was right. Also, the book shows that, although he may not have come up with all the answers, he was certainly in there trying to develop them and he certainly came up with points of tension and worries that still worry us today. Marx stands at the origin of a great deal of what is still live in modern economics. The question of what kind of income and wealth distribution a market economy heads for is definitely a major concern today. Marx was one of the very first to produce a theory of the business cycle. I think it’s a wrong theory, but it is a theory. Before Marx, Ricardo and Say denied there was a real problem, although Say changed his mind later on in life. Malthus thought that there was a problem, but got confused and thought it was tied up with the Malthusian problem of resource scarcity.

Interview by Benedict King

10,058 words

Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)

HOISTED FROM THE ARCHIVES: Lessons from the New Deal (2009-03-31)

My testimony before Sen. Sherrod Brown's subcommittee...


Earlier today Eric Rauchway @rauchway wrote that people should take a look at my 2009-03-31 testimony that Sen Sherrod Brown (D-OH) invited me to give:

Twitter avatar for @rauchwayEric Rauchway @rauchway
or see @delong 's Congressional testimony of 2009 Lessons from the New

April 27th 2020

2 Retweets72 Likes

He is right: my 2009-03-31 testimony is damned good!




MARCH 31, 2009

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(Available at: <>) U.S. GOVERNMENT PRINTING OFFICE 53–161 PDF WASHINGTON : 2009…




MARCH 31, 2009

Chairman Brown, Senator DeMint, other Members of the Committee: It is always an honor to be invited here to participate in a small part in our self-rule via representative government here in the oldest and strongest and most successful large Republic in the world. We today face an economic crisis, and a crisis that has few parallels. Thus we are driven back to historical analogies. It can be said that eco- nomic theory is always crystallized history, is always us drawing on lessons from the past. But usually enough of the past has gone into making the theory that we are happy with the crystallized version. For this crisis, however, there is only one even close past parallel: the Great Depression and the New Deal. And so this time it is, I think, best to drink the history raw.

Drawing lessons from the New Deal for the Great Depression requires, first, understanding what the New Deal was. Franklin Delano Roosevelt took everything that was on the kitchen shelf and threw it into the pot on March 4, 1933, and then began stirring—fishing things out that seemed nasty (and watching the Supreme Court fish a bunch of stuff out too), adding spices, adding new ingredients as they came along, all the while watching the thing cook and trying to turn it into some- thing tasty. Try everything—and then reinforce and extend the things that seem to be working well. Ellis Hawley’s The New Deal and the Problem of Monopoly remains the best account of this process. As Franklin Delano Roosevelt said on May 23, 1932:

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand idly by silently forever while the things to satisfy their needs are within easy reach.


It is only after the fact that we can say what the New Deal was. And it is only after the fact that we can try to assess the parts of it that were worthwhile and the parts of it that were not. In the middle of it nobody was really sure what was going on.

I believe that in retrospect the New Deal is best divided into four components:

  • (a) income redistribution to level the gross inequalities and inequities that had grown so large in the Gilded Age;

  • (b) social insurance programs that diminished the risks that Americans would find themselves destitute and totally dependent on spotty and inadequate individual acts of charity;

  • (c) structural reforms of the economy; and

  • (d) what we now call macroeconomic policy—the government’s taking responsibility for and acting as the balance wheel on the aggregate flow of spending and thus production and employment.

Of these I believe (a) and (b), income redistribution and social insurance, surely made post-New Deal America a much better place but had little if any impact on recovery from the Great Depression. I also believe that (c), structural reforms of the economy, had little or no net impact on recovery as well. Some of the structural reforms appear to me to have been well thought- out—REA, NLRA, and Thurman Arnold’s drives for enforcement of the antitrust laws come to mind. Others appear to me to have been neutral or worse—the NIRA and the PUHCA come to mind.

Indeed, last month I reread John Maynard Keynes’s two substantial letters to Franklin Delano Roosevelt in the 1930s and found that my conclusions were the same as those of Keynes, who protested:

[A] great deal of what is alleged against the wickedness of [utility] holding companies is surely wide of the mark. . . . No one has suggested a proce- dure by which the eggs can be unscrambled. Why not . . . leave the exist- ing organizations undisturbed, so long as the voting power is so rearranged . . . that it cannot be controlled by . . . a minority . . . ? . . . Finally, the railroads. . . . Whether hereafter they are publicly owned or remain in pri- vate hands, it is a matter of national importance that they should be made solvent. Nationalise them if the time is ripe. If not, take pity . . . And here too let the dead bury their dead.  1


You are engaged on a double task, Recovery and Reform . . . For the first, speed and quick results are essential. The second may be urgent . . . but haste will be injurious, and wisdom of long-range purpose is more necessary than immediate achievement . . . [T]he order of urgency between measures of Recovery and measures of Reform has [not] been duly observed . . . In particular, I cannot detect any material aid to recovery in NIRA . . . The Act is on the Statute Book; a considerable amount has been done towards implementing it; but it might be better for the present to allow experience to accumulate . . . NIRA, which is essentially Reform and probably im- pedes Recovery, has been put across too hastily, in the false guise of being part of the technique of Recovery.2

This leaves the fourth aspect of the New Deal—the recovery-generating aspect— macroeconomic policy, which I also divide into four components:

  • (a) conventional monetary expansion,

  • (b) quantitative easing,

  • (c) banking-sector recapitalization and regulation, and

  • (d) fiscal policy expansion.

How effective was it? Let me pause to note that if this were 6 years ago in 2003 or 8 years ago in 2001 we would all be taking it for granted that the expansionary monetary and fiscal policies of the types tried during the New Deal were effective. Indeed, had Senator McCain won the presidential election last November the members of this and the previous panel would include one or more senior McCain economic advisors like Douglas Holtz Eakin, Kevin Hassett, or Mark Zandi—all of whom would be arguing that New Deal-like monetary and fiscal stimulus programs were effective as part of the process of arguing for the McCain fiscal stimulus program or the McCain banking recapitalization program that would, had recent history taken another branch, now be moving through the Congress.

Back at the start of the Great Depression none of the major industrial powers of the world pursued expansionary macroeconomic policies. Instead, they held that that government is best which governs least as far as economic policy was concerned and bound themselves with the golden fetters of the classical gold standard. A balanced budget was necessary to maintain confidence that a country would maintain its gold parity—hence no fiscal policy expansion. Under the gold standard the do- mestic money supply was determined by the ebb and flow of gold reserves—hence no, or rather little, conventional monetary policy or quantitative easing. And under the gold standard countries except for Great Britain had very limited powers to sup- port or recapitalize their own banks: when Austria tried in 1931 it found itself faced with an immediate choice of abandoning its banking policy or abandoning the gold standard.

So a New Deal was simply not possible as long as countries remained on the gold standard during the Great Depression—only after the golden fetters were cast off could the government even try to use its monetary, fiscal, and banking policy tools to promote recovery. This constraint gives us as clear evidence as we want that the New Deal—or rather New Deals, for each major industrial country during the Great Depression had its own—mattered for recovery. We know when each of the five major industrial countries cast off the gold standard fetters and began its New Deal. We know how quickly each of them recovered from the Great Depression.

There is a strong rank correlation between how early a country abandoned gold and began its New Deal on the one hand and how rapid and complete its recovery was on the other, as this chart that I have reproduced from Eichengreen (1992) and then added to shows.3 Statisticians will tell you that if you thought before looking at the evidence summarized in this rank correlation that there was only a 50–50 chance that New Deals mattered for recovery, then after looking at this evidence you should rationally be 95.2 percent sure that New Deals mattered.

We economists are pretty sure that all four components of macroeconomic policy helped. It is very hard to write down a model of the economy in which some tools work and others do not. All four operate through boosting spending—conventional monetary policy and banking-recapitalization policy by lowering the interest rates that businesses seeking funding to spend on expanding capacity are charged, quan- titative easing by putting cash in people’s pockets that burns a hole through them if not spent, fiscal policy expansion by having the government spend directly. Any model of the economy in which increases in spending boost not just prices but pro- duction and employment will see all four be effective. Any model of the economy in which increases in spending just cause inflation but don’t boost employment and output will see none of them be effective—but we already know that the odds of such being the right model are only 4.8 percent at best.



Which of the four components of macroeconomic policy helped the most in the New Deals’ aiding of recovery? That is a much more difficult question. The Depres- sion itself provides little evidence of the balance of power between monetary, bank- ing, and fiscal policy.

Christina Romer argues powerfully that quantitative easing was decisive—that ‘‘nearly all the observed recovery of the U.S. economy [starting in 1933] prior to [the beginning of World War II] in 1942 was due to monetary expansion,’4’ and this monetary expansion was entirely quantitative easing because conventional interest-rate open-market policy had been tapped out before the recovery began. 4 One thing that students of the Great Depression do agree on is that it is next to impossible to evaluate how powerful fiscal policy expansion was in the Great Depression because it simply was not tried on a sufficiently large scale. As Eichengreen (1992) wrote a decade and a half ago:

In the U.S., the most important fiscal change of the period, in 1932, was a tax increase, not a reduction, observed budget deficits were small. Cyclically-corrected deficits were smaller still. This is the conclusion of Brown . . . for the U.S.; Middleton . . . for Britain; and Jonung . . . for Sweden . . . In contrast, in countries like the U.S. (and to a lesser extent the U.K.) the [monetary] expansion of currency and bank deposits was enor- mous. The one significant interruption to monetary expansion in the U.S., in 1937, revealingly coincided with the one significant interruption to eco- nomic recovery . . . Even in Sweden, renowned for having developed Keynesian fiscal policy before Keynes, monetary policy did most of the work.

For evidence of the ability of fiscal policy to boost employment and production— if used on a sufficiently larges scale—we have to wait until World War II. Monetary policy contraction, banking-sector collapse, and the transformation of irrational exuberance into unwarranted pessimism carried the U.S. unemployment rate from 2.9 percent up to 22.9 percent from 1929 to 1932. Monetary expansion and banking re- form then drove the unemployment rate down to 9.5 percent by the start of large- scale mobilization in 1940. And wartime government expenditure and deficits drove the unemployment rate down to 1.2 percent by 1944.

Thus my belief is that the principal lessons of the Great Depression and the World War II eras for economic recovery are twofold:

  1. The government should not sit on its hands. The French government sat on its hands, relying on its commitment to the gold standard and the equilibrium- restoring forces of the market to handle the Depression. As of 1937—eight years after the previous business-cycle peak—it was still waiting, like Japan in the 1990s, for the self-correcting forces of the marketplace to come to its res- cue.

  2. All four macroeconomic policy tools are likely to have some power. A prudent policy will not rely on any of conventional monetary policy or quantitative eas- ing or fiscal expansion or banking policy alone, but will instead combine all four—and, like Roosevelt, seek to reinforce success.

The New Deal: Lessons for Today—Questions and Answers

Q: How much has Ben Bernanke’s reputation suffered as a result of his failure to stop the recession?

A: I don’t think Bernanke’s reputation as an economist has suffered at all. I think it is stronger than ever. Friedman and Schwartz’s Monetary History of the United States argued that the Federal Reserve all by itself could have stopped the Great Depression in its tracks—but did not. This thesis of The Monetary History of the United States has taken a profound hit over the last 2 years, for Ben Bernanke has—via open market operations and quantitative easing—done exactly what Friedman–Schwartz recommended and claimed would have stopped the Great Depression in its tracks. Yet we all now think that that is not enough—that we need banking policy and fiscal policy as well. And this is an intellectual loss for Friedman– Schwartz. But it is an intellectual victory for Bernanke–Keynes, who argued that all the conventional interest rate and quantitative easing monetary policy in the world might not be enough if the capitalization of the banking sector vanished and the credit channel got itself well and truly wedged. This is where we seem to be.

Paul Krugman wrote:

Has anyone else noticed that the current crisis sheds light on one of the great controversies of economic history? A central theme of Keynes’s Gen- eral Theory was the impotence of monetary policy in depression-type condi- tions. But Milton Friedman and Anna Schwartz, in their magisterial mone- tary history of the United States, claimed that the Fed could have pre- vented the Great Depression . . . if the Fed had done more—if it had ex- panded the monetary base faster and done more to rescue banks in trouble. So here we are, facing a new crisis reminiscent of the1930s. And this time the Fed has been spectacularly aggressive about expanding the monetary base: And guess what—it doesn’t seem to be working well enough.

The Federal Reserve in the Great Depression

Q: Why do we need to do all this fiscal policy and banking policy stuff? Didn’t Milton Friedman and Anna Schwartz prove that the Federal Reserve caused the Great Depression by inept and destructive policies?

A: I think you have to be careful here. Friedman and Schwartz’s Monetary History of the United States argued not that the Federal Reserve caused the Great Depression but that the Federal Reserve all by itself could have stopped the Great Depression—but did not.

This thesis of The Monetary History of the United States has taken a profound hit over the last 2 years, for Ben Bernanke has—via open market operations and quantitative easing—done exactly what Friedman–Schwartz recommended and claimed would have stopped the Great Depression in its tracks. Yet we all now think that that is not enough—that we need banking policy and fiscal policy as well.

Government Workers and Unemployment

Q: Amity Shlaes writes that the New Deal did not diminish unemployment much—that unemployment was 25 percent in 1933 and still 19 percent in 1938. Doesn’t this prove that the New Deal was ineffective?

A: Amity Shlaes is using the Lebergott unemployment series—and Christie Romer wrote the book, literally—it’s her dissertation—on what is wrong with the Lebergott series. The Romer series or the Weir series paints a very different picture: a fall in unemployment from 23 percent in 1932 to 9 percent in 1937, a jump back up to 12 percent in the recession of 1938, and then a fall to 11 percent in 1939.

As Bush Administration Commerce Undersecretary Michael Darby pointed out, the big difference between the series that matters here concerns their treatment of government relief workers: is someone working for the WPA or the CCC employed or unemployed? From the perspective of ‘‘how good a job is the private sector doing at generating jobs,’’ there is a case for counting them as unemployed. But if the question is ‘‘did the New Deal help?’’ then there is absolutely no case at all for using the Lebergott series because WPA and CCC workers had jobs and were very glad to have them. Shlaes has, I think, simply not read the footnotes to the edition of Historical Statistics of the United States that she got her numbers out of.

Herbert Hoover

Q: Wasn’t the Great Depression really the fault of that dangerous leftist Herbert Hoover with all of his interventionist meddlings in the economy?

A: Herbert Hoover is an interesting case. He wanted to meddle—he wanted to be an activist president—but his Treasury Secretary Andrew Mellon persuaded him not too. Mellon persuaded him to raise taxes during the Great Depression to assure investors that the U.S. would stay on the gold standard and not fund government spending by printing money. Mellon persuaded him to avoid expansionary monetary policy of any kind. Herbert Hoover did call business leaders into the White House for conferences, and did plead with them not to fire workers or cut wages too much, but I have never been able to find any sign that this had an effect—no sign that industrialists called to the White House for meetings changed their business prac- tices in any way. Herbert Hoover did start the Reconstruction Finance Corporation, but funded it at a very low level. Because of Mellon’s blocking position in the admin- istration, the New Deal could not get under way until 1933.

Afterwards, Herbert Hoover was very angry at himself for taking Mellon’s counsel and at Mellon for giving it. Until George W. Bush unleashed his White House staff to slime Paul O’Neill, Herbert Hoover held the record for the most vicious attack by a President on his own Secretary of the Treasury, writing in his memoirs that he was very sorry about the influence exercised by:

[T]he ‘‘leave it alone liquidationists’’ headed by [my] Secretary of the Treas- ury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: ‘‘Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.’’ He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: ‘‘It will purge the rottenness out of the sys- tem. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people’’

Fiscal Policy

Q: Many economists say that fiscal policy does not work—that Roosevelt’s deficit spending did not pull the U.S. out of the Great Depression.

A: They are wrong. Roosevelt’s deficit spending did pull the U.S. out of the Great Depression—but it did not do so until World War II, which was when the deficit spending really took place. The deficits of the New Deal era seemed large and shocking to people at the time, but they were small relative to the scale of the whole economy. Peak unemployment in the Great Depression hit 23 percent. To reduce that to 5 percent would have required deficits as large as 9 percent of GDP or more—which we did not have until World War II. Thus it is not surprising that unemployment stayed above 10 percent until the eve of World War II.

The NIRA and NLRA as Neutral

Q: Did structural reforms like the NIRA and the NLRA help recovery?

A: I think there is somewhat more than a grain of truth in the claim that much of the New Deal, especially its structural interventions in the economy, was ineffec- tive and neutral—as far as its impact on recovery from the Great Depression was concerned. And there is a grain of truth in the claim that some of it was counter- productive.

John Maynard Keynes told Roosevelt so in a letter of February 1, 1938. And Keynes went on to argue that the reason the U.S. recovery had stalled out in 1937– 1938 was that Roosevelt’s policies were not Keynesian enough—that ‘‘the present [renewed] slump could have been predicted with absolute certainty’’ by anybody knowing the year before how Roosevelt was going to try to reduce deficit spending and tighten money. But that the New Deal was not Keynesian enough does not mean that we should be even less Keynesian now than we are being. And the argument that Milton Friedman and John Maynard Keynes were both wrong when they blamed the renewed 1938 downturn on contractionary macroeconomic policies—well that is an argument that Ohanian is a very brave man indeed to make.

The NIRA and the NLRA as Harmful

Q: Wasn’t the New Deal harmful to recovery because it introduced blockages into labor and product markets?

A: I don’t think anyone has argued that the NIRA and the NLRA boosted aggre- gate demand and put more people to work. That said—output and employment were growing very rapidly in the period when the NIRA was in effect, so if it was doing harm it seems likely that other aspects of the New Deal—abandoning the gold standard, giving up the target of achieving immediate budget balance, quantitative easing—were doing good. The years during which the NRA was in effect saw the unemployment rate go from 22.9 percent down to14.4 percent.

And Milton Friedman was certain that the recession of 1937–38 was not due to the NLRA and to greater union power but rather to a bad mistake of monetary policy in raising reserve requirements. In early 1937 the Federal Reserve doubled required reserves out of fear of future inflation, and the economy fell off a cliff as a result. I don’t know anybody who hated strong unions more than Milton Friedman— yet he did not blame them for the recession of 1937–38.

To step back, the ‘‘impediments to market competition’’ that Ohanian blames for the persistence of the Great Depression were still around and were stronger than ever in the late 1940s and 1950s. If they did not produce high structural unemployment then, what reason is there to think that they produced high structural unemployment in the U.S. in the 1930s?

The NIRA: More

Q: What is your view of Roosevelt’s signature initiative of his first year in office—the National Recovery Administration, the National Industrial Recovery Act?

A: I believe that my view of the NRA is the same as John Maynard Keynes’s view: that it was a mistake. When I read John Maynard Keynes’s open letter to Franklin Delano Roosevelt of December 31, 1933, I can hear Keynes desperately trying not to be impolite while discouraging Roosevelt from any further policy moves along the lines of the NRA. Keynes wrote:

I cannot detect any material aid to recovery in NIRA . . . The Act is on the Statute Book; a considerable amount has been done towards imple- menting it; but it might be better for the present to allow experience to ac- cumulate . . . NIRA, which is essentially Reform and probably impedes Re- covery, has been put across too hastily, in the false guise of being part of the technique of Recovery.

I think the NIRA could have done significant damage to the economy had it not been negated by the Supreme Court. As things were, however, I don’t think it had a material effect. Output was too depressed and demand too low for the NRA codes to have materially depressed it further during the short time it was in operation.

The NLRA: More

Q: Some economists blame slow recovery from the Great Depression in the United States on the NLRA and the consequent rise to power of American labor unions— that they pushed up wages, and so priced workers out of the labor market.

A: The NLRA came too late to be blamed for the Great Depression. The most you can do is blame it for the 1937–38 recession. If you are going to blame strong unions for high unemployment in the late 1930s, you then have to come up with a reason for why even stronger unions in the 1950s did not produce high unemployment. And you have to explain why Milton Friedman disagrees withyou—why Milton Friedman does not see union power but rather the contraction of the money stock as the cause of the rise of unemployment in 1937–38.

Slow Recovery From The Depression

Q: Shouldn’t the economy have recovered completely from the Great Depression by 1936? Doesn’t the fact that the Great Depression continued through the 1930s suggest that the New Deal was harmful?

A: The same models that tell Professor Ohanian, starting in 1932, that the Great Depression should have been over by 1936 also tell him, if you start them in 1928, that the Great Depression did not happen at all.

The pattern across industrial economies is: the later you start your New Deal, the worse you do. That is a striking pattern.

Unemployment Lower Before Roosevelt

Q: If the New Deal was such a success why was unemployment lower before Roosevelt, as Professor Ohanian says?

A: This is true only for a very peculiar definition of ‘‘before Roosevelt’’—a normal person would think that ‘‘before Roosevelt’’ meant 1932 or perhaps the winter of 1932–33. But Cole and Ohanian mean, instead, an average of 1930–1932. Nineteen twenty-nine was a boom year of extremely high unemployment. Nineteen-thirty was an average year. Nineteen-thirty-one was a bad year. But it was only after the fi- nancial crises of late 1931, say Milton Friedman and Anna Schwartz, that the cratering of the system of financial intermediation and the sudden rise in the reserve-deposit and currency-deposit ratios turned the downturn into the Great Depression. To compare the New Deal Era to the average of 1930–1932 is not just to move the goalpost—it is to pick up the goalposts and run as fast as you can out of the stadium.

Weekly Hours at the End of the 1930s

Q: Total hours worked per adult in 1939 remained about 21 percent below their 1929 level—doesn’t that prove that the New Deal was a failure?

A: Cole and Ohanian work very hard to try to convince their readers that things got worse after Roosevelt took office. But, as they know well, they didn’t: things got better—they just did not get enough better to get employment back to normal until the huge burst of federal deficit spending that was World War II.

Break their claim into two parts. The first part: unemployment was 22.9 percent in 1932 and down to 11.3 percent in 1939—yes, that tells us that recovery was incomplete.

The second part: hours of work per employed person were 13 percent lower in 1939 than in 1929. Cole and Ohanian assume that all of this decline in hours of work per week per employed person is due to deficient demand rather than to a much-desired increase in leisure. I don’t think that is right. In 1949 hours worked per adult were 18 percent and in 1959, 17 percent below their 1929 level. But does that mean that the economy was even more depressed in the 1950s than it was in 1939? No. You don’t want to maintain that the interwar decline in hours worked tells us about cycle and not trend. Is there anyone who will say that the decline in hours worked from 1914 to 1952 tells us that the economy was performing much worse along a business-cycle dimension in 1952 than it was in 1914? No. The 1914–1950 period saw the last sharp decline in the American workweek—a decline that does not mean that the economy was depressed and performing poorly in 1959 or 1949 (or 1939) relative to 1914 or 1929, but instead that Americans had decided to take a substantial part of their increased technological wealth and use it to buy in- creased leisure.

Private Investment

Q: Didn’t Roosevelt’s New Deal Policies destroy business confidence and deepen the Great Depression?

A: The most aggressive claim to this effect that I have seen comes from Professor Bryan Caplan of George Mason, who wrote that: ‘‘[Robert] Mugabe has made people afraid to invest in Zimbabwe. Why should [Brad] doubt that—on a smaller scale, of course—Roosevelt made people afraid to invest in the U.S.?’’

The answer is: no, Franklin Delano Roosevelt bears no resemblance to Robert Mugabe.

And the answer is: no, Franklin Delano Roosevelt’s policies did not depress private investment by making businessmen more scared to invest in America; when FDR took office, businessmen were already totally scared to invest in America—net investment was well below zero, and could hardly drop any further.

Public confidence in markets reached a nadir in 1933, when half the banks in the country had closed, when Wall Street was out of business, when the Dow stood at its appalling lows. Before the new deal there was no securities industry, no banking industry, no mortgage industry, no capital formation or lending of any kind. Forty percent of home mortgages were in default. It was only with the passage of New Deal efforts—the SEC, the FDIC, the FSLIC—that the mechanisms of private cap- ital began to kick back into gear. Don’t take it from me. Take it from Federal Reserve Chairman Ben Bernanke, who wrote in his essays on the Great Depression that: ‘‘only with the New Deal’s rehabilitation of the financial system in 1933–35 did the economy begin its slow emergence from the Great Depression.’’

Share Brad DeLong's Grasping Reality


Mr. DELONG. Thank you, Chairman Brown, Senator Merkley.

Drawing lessons from the New Deal requires, first, understanding what the New Deal was. Franklin Delano Roosevelt took everything that was on the kitchen shelf and threw it into the pot on March 4, 1933, and then began stirring, fishing things out that seemed not to be so tasty and having the Supreme Court fish a good deal of it out as well; adding spices, adding new ingredients, all the while watching the thing cook.

Now, the aspect of the New Deal we focus on today is the expan- sionary monetary policy aspect. The conventional interest rate re- ductions, the quantitative easing by the Federal Reserve in the late 1930s, banking sector nationalization and recapitalization, and fiscal policy expansion—how effective were these?

Well, I think there is a broad, near-consensus that the expansionary macroeconomic policies of the New Deal era were effective. Had Senator McCain won the Presidential election last November, the first panel here would not have had Christina Romer. She would be back at Berkeley, and I would not be having to teach her course this semester. Instead, it would have someone like Douglas Holtz-Eakin or Kevin Hassett or Mark Zandi, one of John McCain’s senior economic advisers, all of whom would be arguing that New Deal-like monetary and fiscal stimulus programs were effective as part of arguing for the McCain fiscal stimulus program that would in all likelihood—or the McCain banking recapitalization program that would in all likelihood be proceeding through the Congress.

Now, back at the start of the Great Depression, none of the major industrial powers of the world pursued these expansionary macroeconomic policies. They held instead that the government is best which governs least as far as interventionist policy is con- cerned, and they bound themselves with the golden fetters of the gold standard. Only when these were broken could a New Deal begin in any of the major industrial countries, and we know when each of the five major industrial countries of the world back during the Depression case off its golden fetters and began its New Deal, we know also how quickly each of them recovered from the Great Depression. That is the chart up there on your right.

There is a very strong correlation between how early a country abandoned gold and began its own individual New Deal on the one hand and how rapid and complete its recovery was on the other, as this chart I have reproduced from Barry Eichengreen’s 1992 ar- ticle and then scribbled on myself shows. Those economies that abandoned the gold standard and started expansionary monetary and, to a lesser extent, fiscal policies in 1931 did best; those that abandoned the gold standard in 1933 did second best; France, which waited until the very end of the 1930s to start its New Deal, did worse.

Statisticians will tell you that if you thought before looking at this chart that it really did not matter what a New Deal did, that the pluses and the minuses of New Deal policies largely offset each other, that if you thought there was only 50–50 chance that New Deals mattered before looking at this chart, then after looking at this evidence you would be 95 percent sure that New Deals mattered.

Which part of the fiscal and monetary expansion of the New Deals in all the different countries mattered? Probably all of them. It is difficult to write down a model of the economy in which some tools work and others do not. All four of the aspects operate through boosting spending, either through boosting the money stock and hoping the velocity of money will remain unchanged, or through boosting the velocity of money and hoping that the money stock will remain unchanged. And any model of the economy in which increases in spending cause not just inflation but also boost employment and output will see that all four of these policy tools are likely to be effective.

Which of the four components of macroeconomic policy helped the most in the New Deal’s aiding of recovery? That is a much more difficult question. Christina Romer, who was here before, places enormous stress on the quantitative easing policies of the late 1930s, the mammoth expansions of the money supply even after in- terest rates on Treasury securities had already been reduced to ef- fectively zero, and says it played the most major role. Professor Galbraith earlier dissented from that.

Did the fiscal policy expansions help? Well, as Christina Romer said earlier, there were so little of them that it was hard to say. The gap between the size of the Great Depression in the United States and the magnitude of the extra-direct government spending was so large that it is truly hard to see whether fiscal policy might have mattered.

But as Professor Galbraith said, for evidence of the ability of fiscal policy to boost employment and production if used on a sufficiently large scale, we have to wait until World War II.

Monetary policy contraction, banking sector collapse, and the transformation of irrational exuberance into unwarranted pes- simism carried the U.S. unemployment rate up from 3 percent to 29 percent—or to 23 percent from 1929 to 1932. Monetary expan- sion, banking reform, and small deficits then drove the unemploy- ment rate down to 9.5 percent by the start of large-scale mobiliza- tion in 1940. And wartime government expenditures and deficits drove the unemployment rate down to 1.2 percent by 1944.

Thank you.

Senator BROWN. Thank you, Dr. DeLong.

I will sort of go left to right and ask each of you about 5 minutes’… Dr. DeLong, would you weigh in on the 1929–1939, 20 percent hours worked for adults, 20 percent lower? Do you think that is an accurate indicator of…

Mr. DELONG. It is a puzzling question that—and it is indeed the case that unemployment declined, the unemployment rate declined extremely sharply from 1932 to 1939, from 23 percent down to 11.3 percent, according to the Weir measure, and practically all of this is indeed an increase in the fraction of the labor force that has jobs and very little of it being a discouraged worker effect because that discouraged worker effect is not present, at least I at least can’t see it in David Weir’s Labor Force series.

But nevertheless, it is certainly true that hours of work per employed person were 13 percent lower in 1939 than in 1929, and Lee Ohanian wants to conclude that a substantial chunk of this decline is due to deficient demand, that the economy was getting better at sharing the available work hours among the workers but was not producing nearly as much demand for labor as we would want to see.

This is debatable. In 1949, hours worked per adult were 18 per- cent. In 1959, they were 17 percent below their 1929 level. But do we want to conclude that the economy was even more depressed in the 1950s than it was in 1939? No. The decline in hours worked tells us a lot about the cycle and the trend, that the decline in hours worked from 1914 to 1952 does not mean that the economy was performing much worse in 1952 than it was in 1914.

The Great Depression comes in the middle of the last sharp decline in the American work week we have seen, and shows us that Americans back then were deciding collectively to take a substantial part of their increased technological wealth and use it to buy increased leisure. And for that reason, I am more skeptical of the work hours comparison of 1939 to 1932 and 1929 and I tend to think that it makes more sense to take the unemployment rate as an indicator of how complete recovery is.

Senator BROWN. Interesting answer. Thank you.

What role did the Fed play in reversing the Great Depression? What policies, in particular, should it have pursued?

Mr. DELONG. Well, this is—I think when you, in fact, talk about the Federal Reserve and the Great Depression, there really are three questions. The first is did the Federal Reserve cause the Depression? Was the economy going along doing its normal thing and then the Federal Reserve all of a sudden decided to do something bad, and as a result we fell into the Great Depression? And I think the answer to that is clearly no, that the Great Depression started for other reasons. The Federal Reserve was simply a bystander, that, as Professor Galbraith said earlier, there are signs of substantial natural instability, right, in the economy, at least as it stood in the interwar period. Then it starts down and it keeps going down.

The second question is, could the Federal Reserve have interrupted the Great Depression? Milton Friedman and Anna Jacobson Schwartz’s Monetary History of the United States is a very large and very impressive book. I think Professor Galbraith calls it magisterial at some point in his written testimony. It argues the Federal Reserve could by itself have stopped the Great Depression in its tracks had it done enough to print up bank reserves, to encourage the Bureau of Engraving and Printing to print up currency, had it rescued threatened banks. But the Federal Reserve did not do so.

And this thesis of the Monetary History of the United States has, I think, taken profound damage over the last 2 years, for Chairman Bernanke of the Federal Reserve and his team have, via open market operations and now quantitative easing, they have done exactly what Friedman–Schwartz recommended and claimed would have stopped the Great Depression in its tracks. They have expanded bank reserves, the monetary base, and the money supply to an ex- tent I would not have believed possible 3 years ago. Yet we all think that this was not enough, that we need banking policy and probably fiscal policy, as well, in order to keep the Great Depres- sion currently the last depression that America has suffered.

I think this is a substantial intellectual loss for Friedman–Schwartz and an intellectual victory for Bernanke–Keynes, who argued that all the conventional interest rate and quantitative easing monetary policy in the world might not be enough if the capitalization of the banking sector vanished and the credit channel got itself well and truly clogged, which is where we seem to be.

The third question is what role did the Federal Reserve play in spurring recovery, and here we have the debate, and we have seen a piece of it in the debate between Chairman Romer and Professor Galbraith earlier, Christina Romer placing a very heavy weight on the quantitative easing policies of the Federal Reserve and of the gold inflow during the 1930s, arguing that even after the Federal Reserve has done everything it can to lower interest rates on Treasury securities to zero, if it continues to expand the money supply, well, that money burns a hole in people’s pockets and they spend it and that boosts spending, and Professor Galbraith placing more stress on what fiscal expansion there was and on the recovery of the banking system?

Here, well, my office and Professor Galbraith’s office is 1,000 miles away, but in her previous life, Christina Romer’s office is only 50 steps down the hall and she is very, very impressive and very convincing, so I tend to side with Christina on that one.

Senator BROWN. Fair enough…. The last word, Dr. DeLong.

Mr. DELONG. I think that the lesson from viewing fiscal anD monetary policy and government attempts to use them to serve as balance wheels of the economy since the Great Depression, of the abandonment of Herbert Hoover Treasury Secretary Andrew Mellon’s dictum that liquidation is actually a healthy process, part of what economist Joseph Schumpeter called the natural breathing of the economic organism, that we have abandoned that and we think we have these policy tools and have been trying to use them and the question is how effective they are.

And I think the conclusion from 70 years of economists arguing and watching economies and watching the success of these tools is that almost all of the time monetary policy is more effective, and almost all of the time monetary policy is easier to implement and easier to change when conditions change, that it moves faster and it also is more flexible.

But then there come times like today, all right, times when the interest rate on safe short- and medium-term Treasury securities has been pushed all the way down to zero and in which you have to ask, if you undertake further expansionary monetary policy, well, whose incentives are you changing? We are economists. We believe that people respond to incentives, that government policies worked by changing the incentives that people face, but by the time you have pushed interest rates down to zero and can’t push them any further, whose incentives are you changing by continuing to rely on monetary policy?

And it is in that situation that we are now, and that is when you start dragging out the other tools of trying to keep spending in the economy at a normal pace. You know, the quantitative easing part of monetary policy, that maybe you can give people so much money it burns a hole in their pocket and they spend it, that the aggressive banking sector recapitalizations and government loan guarantee programs that we see the Treasury trying to roll out now that have their parallel in operations conducted by the Reconstruction Finance Corporation during the Great Depression, which had, if I may say so, an easier time. The RFC had powers to bring banks into conservatorship without declaring that they were insolvent.

And so to the extent that there is a fear that declaring that banks are, in the view of the government, insolvent will cause some kind of crisis of confidence and a shrinkage of the money stock as people pull their money out of banks, well, the RFC had tools that would avoid this, and perhaps Tim Geithner’s life would be a little bit easier at the Treasury if he had them now.

And last, there is the fiscal policy, that government spending, government tax cuts, with the idea that if the private sector is spending and is not staying stable, well, maybe the government can add to it and so keep things on an even keel. And I think the prudent thing is, when asked which of these should we be doing, is to say yes, all right, that when there is great uncertainty and when you have a number of tools for all of which there is some rea- son to believe they are at least somewhat effective, we will do what Roosevelt did, experimentation. Try them all and reinforce the ones that seem to be working.

8616 words

Leave a comment

Senator BROWN. Thank you, Dr. DeLong.

Thank you all for joining us. This is the first of several hearings that will help Congress shape our response and our reaction to this economic crisis. I appreciate all of the service all of you have given by being here today and the good work you do, each in your institutions.

The record will be open for 7 days for Senator DeMint and the two other Members of the Subcommittee, and if you want to revise your remarks or add anything or respond to any of the questions that you didn’t feel that you got to respond to completely enough, certainly you are free to be in touch with the Subcommittee to do that, also.

The Committee is adjourned. Thank you very much. [Whereupon, at 4:34 p.m., the hearing was adjourned.]

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)


John Maynard Keynes (1938), ‘‘Private Letter to Franklin Delano Roosevelt of February 1’’ <>


John Maynard Keynes (1933), ‘‘Open Letter to Franklin Delano Roosevelt of December 31’’ <>.


Barry J. Eichengreen (1992), ‘‘The Origins and Nature of the Great Slump Revisited,’’ Economic History Review 45:2 (May), pp. 213–39.


See Christina D. Romer (1992), ‘‘What Ended the Great Depression?’’ Journal of Economic History 52:4 (December, pp. 757–784 <>



BRIEFLY NOTED: For 2021-04-30 Fr

Things that went whizzing by that I want to remember...



Free speech advocates who care about the functioning of their community have never thought it appropriate for the free-speech principle to empower chaos monkeys who seek to destroy their society and replace it with something with speech that would be less free:

John MiltonAreopagitica: ‘Yet if all cannot be of one mind—as who looks they should be?—this doubtless is more wholesome, more prudent, and more Christian, that many be tolerated, rather than all compelled. I mean not tolerated popery, and open superstition, which, as it extirpates all religions and civil supremacies, so itself should be extirpate, provided first that all charitable and compassionate means be used to win and regain the weak and the misled: that also which is impious or evil absolutely either against faith or manners no law can possibly permit, that intends not to unlaw itself: but those neighbouring differences, or rather indifferences, are what I speak of, whether in some point of doctrine or of discipline, which, though they may be many, yet need not interrupt THE UNITY OF SPIRIT, if we could but find among us THE BOND OF PEACE…

LINK: <>


Very Briefly Noted:

Share Brad DeLong's Grasping Reality


John AuthersMarkets Give Powell a Break on Inflation. It May Be Transitory: ‘The latest Federal Open Market Committee meeting still left us with a few more clues on how the Fed intends to navigate through an exceptionally dangerous environment…. Virtually every data release for the last month has suggested a very strong recovery. The Fed wants great improvement in unemployment, which is still running at a 6% rate, compared to 3.5% before the pandemic…. So there are two questions. Do we see any signs of rising prices caused by anything more than a transitory bottleneck? And, are inflation expectations showing signs of settling “materially above 2%”? If there is any clear sign of a possible bottleneck, it is in… industrial metals…. Markets give us nice and precise measures of inflation expectations, via the breakevens between inflation-protected bonds, or TIPS, and conventional fixed-income Treasuries. The prediction this generates for average inflation over the next five years is just under 2.5%…. Ten-year expectations are slightly lower…. The best measure to justify continued lenience is the so-called 5-year, 5-year breakeven…

LINK: <>

Patrick WymanAncient South Asia: ‘If we were to touch down in South Asia at the end of the Younger Dryas and the beginning of the Holocene around 12,000 years ago, however, we wouldn’t have seen many people. Archaeological traces of a human presence are few and far between at the end of the Pleistocene. Much of the region wasn’t particularly welcoming to people at that time; the Deccan Plateau, which makes up much of South Asia, would have been exceptionally arid. That is largely because the monsoon, which brings torrential but life-giving rain every summer, was either much weaker or altogether absent. The rain-fed seasonal rivers that make much of South Asia welcoming to people wouldn’t have flowed, leaving only the river valleys of the Indus and Ganges as particularly viable spots for people to live. As the Pleistocene gave way to the Holocene, the monsoon began to take on something more like its current form. As was the case elsewhere in the world at that time, the number of people living in South Asia dramatically expanded with improving climatic conditions. Many of these new residents were the descendants of long-established hunter-gatherers. Some of them kept foraging; others experimented with new ways of life. But others were new arrivals who set themselves up on the edges of the Indus Valley, bringing with them an agricultural package first developed far to the west in the Fertile Crescent…

LINK: <>

Joseph A. Francis: King Cotton, the Munificent Slavery & (Under)development in the United States, 1789–1865: ‘Slaves were necessary for the country’s cotton boom because cotton was not sufficiently remunerative to attract yeoman farmers. Cotton exports then balanced the imports that the Federal Government taxed to obtain most of its revenues. Those revenues were used to fund westward expansion, both directly through the acquisition and conquest of new territory, and indirectly through the policy of retiring the national debt, which pumped liquidity into the country’s nascent capital markets and bolstered the reputation of American bonds among foreign investors. State government could then borrow to finance the transportation infrastructure that connected the new lands to markets, allowing them to be serrled. Westward expansion tended to weaken slaveholders’ position in Congress because they were excluded from the rapidly growing Midwest. They therefore seceded. The North would not let the South leave the Union, however, because secession threatened to take away the Federal Government’s main source of revenues. As a result, the Civil War began, leading to emancipation. Slavery had thus financed the development of the settler society that would eventually abolish it, while the slaves themselves became an underdeveloped nation within a nation… 

LINK: <>

Aswath DamodaranEquity Risk Premiums (ERP): Determinants, Estimation, and Implications–The 2021 Edition: ‘The equity risk premium is the price of risk in equity markets, and it is not just a key input in estimating costs of equity and capital in both corporate finance and valuation, but it is also a key metric in assessing the overall market. Given its importance, it is surprising how haphazard the estimation of equity risk premiums remains in practice. We begin this paper by looking at the economic determinants of equity risk premiums, including investor risk aversion, information uncertainty and perceptions of macroeconomic risk. In the standard approach to estimating the equity risk premium, historical returns are used, with the difference in annual returns on stocks versus bonds, over a long period, comprising the expected risk premium. We note the limitations of this approach, even in markets like the United States, which have long periods of historical data available, and its complete failure in emerging markets, where the historical data tends to be limited and volatile. We look at two other approaches to estimating equity risk premiums – the survey approach, where investors and managers are asked to assess the risk premium and the implied approach, where a forward-looking estimate of the premium is estimated using either current equity prices or risk premiums in non-equity markets. In the next section, we look at the relationship between the equity risk premium and risk premiums in the bond market (default spreads) and in real estate (cap rates) and how that relationship can be mined to generate expected equity risk premiums. We close the paper by examining why different approaches yield different values for the equity risk premium, and how to choose the “right” number to use in analysis…

LINK: <>

Gary GortonRecent Changes & the Future of the US Financial System: ‘The financial crisis has not been solved because financial crises are inherent in market economics. A financial crisis is always about runs on short-term debt, e.g. in the repo market. The general trend in the past couple decades has been a decline in deposits replaced with other short-term debt instruments like repo contracts…. Stablecoin is essentially unregulated free banking that issues deposits. However, free banking never worked in the past, even in cases whether the government required backing. There needs to be credible backing for Stablecoin as they are now runnable without any entity overseeing them…. The fundamental theorem of bank regulation stipulates that bank regulators can only decide the location of the banking system. Without carrots—or incentives—to keep a bank, they can move, as evidenced by the rise of mortgage and loan origination outside of the banking system given the high costs of staying a bank…

LINK: <>

Anton Troianovski‘We Know How to Defend Our Interests’: Putin’s Emerging Hard Line: ‘KYIV, Ukraine — The world according to President Vladimir V. Putin looks like this: Russia is on the rise while the West is in chaos. The West, spurred on by a new American president who is more anti-Russian than his predecessor, seeks Russia’s—and Mr. Putin’s—destruction. And it is time for Russia, imbued with a moral authority and a thinning supply of patience, to hit back. “They may think that we are like them, but we are different, with a different genetic, cultural and moral code,” Mr. Putin said last month, excoriating the United States. “We know how to defend our interests”…

LINK: <>

James H. Stock & Mark W. WatsonIdentification & Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments: ‘The increasing use of external sources of as-if randomness to identify the dynamic causal effects of macroeconomic shocks… the time series counterpart of the highly successful strategy in microeconometrics of using external as-if randomness to provide instruments…. This lecture exposits this approach and provides conditions on instruments and control variables under which external instrument methods produce valid inference on dynamic causal effects…. We consider two methods, a one-step instrumental variables regression and a two-step method that entails estimation of a vector autoregression…

LINK: <>

Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)

BRIEFLY NOTED: For 2021-04-29 Th

Things that went whizzing by that I want to remember...

John Scalzi’I’m a dude with the usual amount of bullshit on his karma; I try to imagine the better version of me, and then cosplay that in public until hopefully it sticks. Or to quote Vonnegut: “We are what we pretend to be, so we must be careful about what we pretend to be”…


Very Briefly Noted:

Twitter avatar for @EyePatchWolfEyepatch Wolf @EyePatchWolf
Buying a PC with Dell: My Journey Into Hell

April 14th 2021

1,543 Retweets6,507 Likes

Share Brad DeLong's Grasping Reality


John QuigginRepublicans & the End of Hard Neoliberalism: ‘After four years of the Trump Administration, and a few months of post-election madness, the Republican Party has completed a transition that has been going on for decades. In the 1980s and 1990s, the Republicans were a hard neoliberal party…. Now the situation is reversed. The Republicans are a white grievance party… [that] still attempt to attract support from corporations by advocating tax cuts….

Think of the Eisenhower-era Republican party as a complicated mixture of many dissolved ingredients, in which the dominant element was the business establishment, and the Trump era party as a crystalised mass of plutocratic economics, racism and all-round craziness. The development over the 60 years between the two has consisted of keeping the mixture simmering, while adding more and more appeals to racial animus and magical thinking (supply-side economics, climate denial, the Iraq war and so on). In this process various elements of the original mix have boiled off or precipitated out and discarded as dregs.

Boiling off is the process by which various groups (Blacks and Northeastern liberal Republicans in C20, liberaltarians more recently) have left the Republican coalition in response to its racism and know-nothingism. The dregs that have precipitated out are ideas that were supposed to be important to Republicans (free trade, scientific truth, classical liberalism, moral character and so on) that turned out not to matter at all. Trump’s arrival is the catalyst seed crystal that produces the phase change. The final product of the reaction emerges in its crystallised form.

LINK: <>

Matthew ZeitlinPersonnel Isn’t Policy, Policy Is Personnel: ‘Janet Yellen is a fiscal and monetary hawk. Or at least she was. Sorta. But no longer…. The Biden administration, as might be expected, has many of the same figures from the Obama years and even the Clinton years…. Yellen herself was Obama’s choice to run the Federal Reserve and the chair of Bill Clinton’s Council of Economic Advisors after some time on the Fed Board. While on the Fed and in the Clinton White House, she supported policies that would be anathema to the current administration, she was affiliated with deficit hawk groups that, for now, have no particular hold over current Democratic Party thinking. And yet I have no doubt that Yellen will be an effective advocate and architect of exactly what the Biden administration and Democratic congress wants to do right: spend money on families, Covid relief, the environment, and not get too stressed about the deficit….

It wasn’t Larry Summers who allegedly told Romer that monetary policy had “shot its wad,” or tried to explain high unemployment with reference to bank tellers and ATMs.  It was Barack Obama…. We are attuned to a model where advisors influence and shape the thinking of their “principal,” but it seems just as likely that the principal shapes the advisors, or essentially farms out different “modules” of thinking to different people (a deficit hawk here, a stimulus advocate there, a health care reformer over there) and then shifts the degree to which she takes their input in accordance with what she already wants to do. Inasmuch as the advisors differ, they differ within a fairly narrow band set by the principal…. [Summers] is as on board for more spending as anyone in Greater Bidenberg—but will remain at least somewhat estranged, even if the winds of change blow from the same direction both within and without it…

LINK: <>

Antonio GramsciPrison Notebooks III: ’That facet of today’s crisis which is lamented as a “wave of materialism” is related to the so-called “crisis of authority”. The ruling class has lost its coordination—is not leading but merely dominant solely by force. The overwhelming majority no longer believe what they used to believe, and so have become unmoored from the ideologies of tradition. This, precisely, is the crisis: The old order is dying. The new order cannot be born. There is an interregnum. It is a time of monsters….

Can a gap between the popular majority and the ideologies of the rulers as serious as that since World War I ended be bridged by simple force, which attempts to stop the ideologies of the future from coming to organize society. Will the current interregnum end not in the normal-history process, which naked force blocks, but rather in a restoration? The shape of the ideologies is such that that can be ruled out in any practical if not absolute sense. he character of the ideologies, that can be ruled out-yet not in an absolute sense. In the meantime depression will lead eventually to wide scepticism, and a new accommodation—catholicism will even more become simply Jesuitism, and so forth.

These are highly favorable conditions for an unprecedented expansion of Marxism’s influence. Marxism’s oversimplicity and inadequacy when it takes its popular form will help it spread. Dead old ideologies turn into skepticism with respect to all theories and frameworks, to a focus on economic fact and money, and to politics that is either fantastical or cynical…. But this reduction to economic money and to political power means exactly the disappearance of established frameworks of ideas as anything other than rationalizations. That opens up the possibility—and creates the necessity—of creating the new culture…

Hoisted From the Archives:

From 2011: LECTURE: Seven Sects of Macroeconomic Error: Wrong Models of the Great Recession

<><> <> 2011-03-14

Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)

BRIEFLY NOTED: For 2021-04-27 Tu


Robert P BairdThe Invention of Whiteness: The Long History of a Dangerous Idea: ‘By the time The Bell Curve appeared, Du Bois’s assertion that racial categories were not biologically grounded was widely accepted. In the years since, the scientific evidence for that understanding has only become more overwhelming. A 2017 study examined the DNA of nearly 6,000 people from around the world and found that while that while some genetic differences among humans can be traced to various ancestral lineages—for example, eastern African, southern European or circumpolar—none of those lineages correspond to traditional ideas about race…. During the second half of the 20th century a number of historians demonstrated that… Du Bois… was correct that it was only in the modern period that people started to think of themselves as belonging to something called the white race.…

LINK: <>


Very Briefly Noted:

Share Brad DeLong's Grasping Reality


Dietz VollrathWho Are You Calling Malthusian?: ‘I recently had a student ask me if I was a “Malthusian”…. It’s always asked in a way that implies it is a belief system, similar to “Christian”, “Muslim”, or “Packer Fan”…. I’m not a Malthusian “believer”, because that isn’t a thing. But I do think that several of Malthus’ assumptions about how economies function, in particular prior to the onset of sustained growth during the 1800’s, are well founded. And those assumptions have implications that help make sense of the world…

LINK: <>

W.E.B. Du BoisThe Souls of White Folk: ‘The Middle Age regarded skin color with mild curiosity; and even up into the eighteenth century we were hammering our national manikins into one, great, Universal Man, with fine frenzy which ignored color and race even more than birth. Today we have changed all that, and the world in a sudden, emotional conversion has discovered that it is white and by that token, wonderful! This assumption that of all the hues of God whiteness alone is inherently and obviously better than brownness or tan leads to curious acts; even the sweeter souls of the dominant world as they discourse with me on weather, weal, and woe are continually playing above their actual words an obligato of tune and tone, saying “My poor, un-white thing! Weep not nor rage. I know, too well, that the curse of God lies heavy on you. Why? That is not for me to say, but be brave! Do your work in your lowly sphere, praying the good Lord that into heaven above, where all is love, you may, one day, be born-white!” I do not laugh. I am quite straight-faced as I ask soberly: “But what on earth is whiteness that one should so desire it?” Then always, somehow, some way, silently but clearly, I am given to understand that whiteness is the ownership of the earth forever and ever, Amen! Now what is the effect on a man or a nation when it comes passionately to believe such an extraordinary dictum as this?…

LINK: <>

EconomistThe Kremlin Has Isolated Russia’s Economy: ‘Since 2014, when Russia annexed Crimea and invaded eastern Ukraine, the Kremlin has commanded the economy like a fortress under siege, building up reserves, decoupling from the world economy, and preparing for the potential impact of Western sanctions or fluctuations in oil prices…. Russia’s economy remains highly dependent on hydrocarbons. Despite years of promises, no meaningful diversification has taken place. Hydrocarbons still account for more than 60% of exports…. Russia’s covid–19-related stimulus measures amounted to just 4% of gdp, according to the World Bank. The pandemic, in Mr Putin’s eyes, is not the proverbial rainy day the nwf was intended for…

LINK: <>

M.G. SieglerIn(tel) Command: ‘Might Gelsinger pull it off…. I finally got around to watching the “Intel Unleashed” presentation from March. While I’m far from an expert on Intel, like a lot of folks in tech, I’m fascinated…. The good news seems to be that new CEO Pat Gelsinger clearly gets this. And perhaps just as importantly, he clearly cares about this, as someone who worked at Intel for 30 years and has now returned to right the ship. And most important still, he seems to have a plan. And to be in command of the situation…. Gelsinger’s… is an actual presentation and not a Q&A. Still, the same thing is conveyed: just how in command he is. And perhaps even more so than Jobs, just how enthusiastic he is about the opportunity…

LINK: <>

Cosma ShaliziIn Soviet Union, Optimization Problem Solves You: ‘There is a passage in Red Plenty which is central to describing both the nightmare from which we are trying to awake, and vision we are trying to awake into. Henry [Farrell] has quoted it already, but it bears repeating:

Marx had drawn a nightmare picture of what happened to human life under capitalism, when everything was produced only in order to be exchanged; when true qualities and uses dropped away, and the human power of making and doing itself became only an object to be traded…. The motion of society turned into a kind of zombie dance, a grim cavorting whirl in which objects and people blurred together till the objects were half alive and the people were half dead. Stock-market prices acted back upon the world as if they were independent powers, requiring factories to be opened or closed, real human beings to work or rest, hurry or dawdle; and they, having given the transfusion that made the stock prices come alive, felt their flesh go cold and impersonal on them, mere mechanisms for chunking out the man-hours. Living money and dying humans, metal as tender as skin and skin as hard as metal, taking hands, and dancing round, and round, and round, with no way ever of stopping; the quickened and the deadened, whirling on.…

And what would be the alternative? The consciously arranged alternative? A dance of another nature, Emil presumed. A dance to the music of use, where every step fulfilled some real need, did some tangible good, and no matter how fast the dancers spun, they moved easily, because they moved to a human measure, intelligible to all, chosen by all…

There is a fundamental level at which Marx’s nightmare vision is right: capitalism, the market system, whatever you want to call it, is a product of humanity, but each and every one of us confronts it as an autonomous and deeply alien force. Its ends, to the limited and debatable extent that it can even be understood as having them, are simply inhuman. The ideology of the market tell us that we face not something inhuman but superhuman, tells us to embrace our inner zombie cyborg and loose ourselves in the dance. One doesn’t know whether to laugh or cry or running screaming.

But, and this is I think something Marx did not sufficiently appreciate, human beings confront all the structures which emerge from our massed interactions in this way. A bureaucracy, or even a thoroughly democratic polity of which one is a citizen, can feel, can be, just as much of a cold monster as the market. We have no choice but to live among these alien powers which we create, and to try to direct them to human ends. It is beyond us, it is even beyond all of us, to find “a human measure, intelligible to all, chosen by all”, which says how everyone should go. What we can do is try to find the specific ways in which these powers we have conjured up are hurting us, and use them to check each other, or deflect them into better paths.

Sometimes this will mean more use of market mechanisms, sometimes it will mean removing some goods and services from market allocation, either through public provision or through other institutional arrangements. Sometimes it will mean expanding the scope of democratic decision-making (for instance, into the insides of firms), and sometimes it will mean narrowing its scope (for instance, not allowing the demos to censor speech it finds objectionable). Sometimes it will mean leaving some tasks to experts, deferring to the internal norms of their professions, and sometimes it will mean recognizing claims of expertise to be mere assertions of authority, to be resisted or countered.

These are all going to be complex problems, full of messy compromises. Attaining even second best solutions is going to demand “bold, persistent experimentation”, coupled with a frank recognition that many experiments will just fail, and that even long-settled compromises can, with the passage of time, become confining obstacles. We will not be able to turn everything over to the wise academicians, or even to their computers, but we may, if we are lucky and smart, be able, bit by bit, make a world fit for human beings to live in…

LINK: <>

From the Archives:

Brad DeLong (1999): An Appalling Article on Graduate Student Unionization by Yale Historian Paul Kennedy: I don’t know what I find more appalling: The open snobbery with which Paul Kennedy ridicules the idea that lower-class union leaders and members might have something to teach about or some concern over conditions of employment of graduate students…. The casual mendacity in his implication that the typical humanities graduate student at a private university gets his or her tuition paid and $12,000 a year with no strings attached…. The sneer at humanities graduate student section leaders at his own university—paid I believe, about $10 an hour… with little prospects for ever getting a tenured professorship like Paul Kennedy’s—for “imagin[ing themselves] as an aggrieved member of an exploited academic proletariat.”… The claim that the UAW’s paying its lead organizer at Yale (a more than full-time job) some $10 an hour is an extraordinarily generous subsidy that will lead to a “new career track for Ph.D.s who find all this campaigning much more exciting than their work on Milton or Freud”…

LINK: <>

Leave a comment

(Remember: You can subscribe to this… weblog-like newsletter… here: 

There’s a free email list. There’s a paid-subscription list with (at the moment, only a few) extras too.)

PODCAST: Hexapodia XII: Þe Cambridge Capital Controversy

By Noah Smith & Brad DeLong: Joan Robinson to Bob Solow: "I would not be unkind if you would not be pig-headed..."

Key Insights:

  1. Getting the rate of profit—the sums that are charged businesses for renting machines and renting space, and for access to the generalized social power to deploy resources that is finance—right is a very, very important thing to do. Why? Because the market economy is a complicated institutional calculating machine for determining how to promote societal wellbeing. It cannot do its job if it cannot see the the constraints imposed on us by nature and current technology. And having the market get the profit rate right is a very important part of that. To say “it’s all ideology” or “it’s all power” or “it’s all distribution” and go the full Sraffa production-of-commodities-by-means-of-commodities is to miss a truly powerful, relevant, and important insight. That’s the strongest statement of what the Cambridge, Massachusetts-MIT side was really getting at—or ought to have been getting at, although they phrased it badly and inaccurately.

  2. If we attempt to use toy mathematical models applied to macro aggregates to say anything quantitative about whether business owners are getting paid “too much” or “too little”, we will fail embarrassingly. Therefore we should never use toy models to do that.

  3. To say that the market-equilibrium profit rate is the optimal one from the perspective of societal well-being is to commit the pseudo-pharisaical mistake of reversing the order of importance. Rather, recognize: the market was made for man, not man for the market. 

  4. The particular language in which the economists of the 1960s carried out this debate was extremely poorly suited to shed light. They cared deeply, they wrote angrily, and most of what they wrote was drivel. So: whenever you are having a discussion, if you want to learn or teach anything, first do this: try hard to figure out what issues really are, and then try hard to figure out what is the right language to talk about these issues.

  5. As always, the key insight is: “Hexapodia”.