OBAMA ON THE ECONOMY IN GALESBURG: STUBBORN POWER OF FALSE NEO-AUSTRIAN NARRATIVES WEBLOGGING

Obama turns neo-Austrian:

Towards the end of those three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst, costing millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel.

This analysis is, you will not be surprised to see, in my view simply wrong.

We have had three things go wrong:

1. A thirty-year failure of economic growth to be equitable growth.
2. A six-year macroeconomic disaster caused by a shortage of aggregate demand that was driven by a collapse of the credit channel.
3. An economy that in the mid-2000s spent too much of its energy building houses and transferring financial assets.

Of these, the first is by far the biggest, the second is also huge, and the third is relatively minor.

……..Brad Delong

 

Paul Krugman: Stiglitz, Minsky, and Obama:

The president came down pretty much for what we might call a Stiglitzian view… debt was driven by rising inequality…. What’s the alternative? Minsky: debt exploded because the Great Depression was receding into the mists of forgetfulness… lenders and borrowers--enabled and encouraged by financial deregulation--forgot the dangers of leverage. Personally, I’m more of a Minskyite than a Stiglitzian… [but] Elizabeth Warren’s old work on bankruptcy pretty clearly shows that at least some families took on excess debt as a result of rising inequality. But I’m inherently suspicious of any story that makes economics a morality play in which all bad results come from things you consider bad for other reasons too….

There’s a danger in the Stiglitzian approach, namely that people might conclude that fixing the short-run shortfall in demand must wait until we fix the long-run problem of inequality, which is going to be very hard and a long time coming. We need stimulus, or at least an end to austerity, now, even if restoring a middle-class society isn’t going to happen any time soon.

I wouldn’t make too much of these differences; in practice Stiglitzians and Minskyites agree on what should be done,and it’s good to see the president finally talking about the right things. Still, it is interesting to see where he put his emphasis.

 

Jared Bernstein: The President’s Economics Speech, First Impressions: "I thought the President gave a resonant and powerful speech…. There’s little in here the President didn’t touch on back in 2005…. What’s different is that in 2005 he was saying 'here’s what a president should do', in 2013 he’s saying 'here’s what I’d be doing if we had a functional political system'…. And he still doesn’t know what to do… a compelling economic vision… [and] a uniquely hostile Congress… beyond making his case to the people as he did today, taking executive actions, and exhorting private sector actors (CEOs, college presidents; he clearly has some executive orders loaded; I’m hoping one involves improving the job quality of workers on government contracts)…. The arrival of Barack Obama on the national stage… was a source of great hope for those like myself back in 2005…. But at least this progressive economist, one who worked for his administration in the early years, hears him with a very different, and sadder, set of ears today than back then.

As a party-line follower of  Delong/Krugman/Bernstein what's a guy to do? Think for myself? Oh Lord!

Flavius