The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age

    Any questions

    By Flavius on Tue, 03/22/2011 - 8:01am |

    Brad Delong today is using his blog to lecture his students . Subject: how we got into this current recession , how to get out of it and why some sensible people are making dumb proposals that we should reject.

    You could read it , today's installment takes about ten minutes. But here's what seems to be the key section 

    It is true that the root problem was a derangement in the subprime mortgage market resulting from irrational exuberance which then triggered a derangement in financial markets more generally due to overleverage and misregulation.

    But we could fix mass unemployment without tackling the fundamental roots of the downturn. We just have to pull the fiscal, monetary, and banking policy levers in such a way as to get aggregate demand back to where it should be. We can then clean up the financial mess later on. Job number one, after all, is to cure mass unemployment rather than to fix the fundamentals of the financial system.

    Here's the link to his blog. It's the second section after a piece about WWII

    http://delong.typepad.com/

    Comments

    Delong's subsidiary theme in this lecture was that the ultimate cause of this Recesson was Milton Friedman's personal philosophy

    , what made Friedman so certain that instability in the money stock was the cause and not the effect? I think the answer is that he was a committed libertarian. He was not just an economic libertarian--not just a believer that the government shouldn’t be interfering in the marketplace in prices and quantities and property rights. He was a social libertarian. He was a believer that the government should not be sticking its nose into people’s bedrooms, or into their ideas about how to pursue better living through chemistry. He wanted to say that that government is best that governs least: establish property rights, set up some courts to decide things if people dispute, otherwise just get out of the way--don't interfere with market prices or market quantities or property rights or social mores, but get out of the way in order to maximize individual liberty.The problem is that this does not fit with macroeconomics

    And because  Friedman wanted to believe the state shouldn't interfere in the economy he convinced himself ( and generations of followers) that it couldn't , that the economy didn't need regulation. The ultimate source for the belief in  the "efficient market" which regulates itself. The economists' version of a perpetual motion machine. 


    by Flavius on Tue, 03/22/2011 - 1:54pm