Notes From Babel

I’m No Economist, but…

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…sometimes my intuition is right.  I suggested before that, even had our policy makers known that the feel-good era of handing out houses like they were Cracker Jack prizes—made possible by the clever securitization of subprime mortgages—would certainly end in disaster, it wouldn’t have changed anything.  “who was going to tell willing lenders and willing borrowers not to transact, not to keep driving the economy up, not to increase homeownership, based on some wonk’s grumpy prognostications?”  Who would ever stand up and urge us all to put an end to the good times?  Particularly when none of us would have listened anyway.

According to Bruce Bartlett in The New American Economy, this is not unlike the flat-footedness that spun an economic crisis into the Great Depression.  Economists then knew that Federal Reserve monetary policy was at the heart of the economic problem:

Keynes, Irving Fisher, and many others perfectly well understood the monetary origins of the Great Depression virtually from day one.  They tried to explain this fact in many forums—books, academic papers, congressional testimony, op-ed articles, newspaper interviews, etc.—but to no avail.  The problem was that they simply could not get through to the policymakers with the power to make a difference.  Even in the face of the greatest economic crisis of modern times, policymakers and politicians found it easier to keep policy on automatic pilot rather than admit that they might be responsible for it.

(Emphasis added.)

This is the problem with trying to get clever with macroeconomic policy: it inevitably requires that we have policymakers who are robust, think-on-their-feet, apolitical dynamos.  I challenge you to produce another oxymoron of that level of magnitude.

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Written by Tim Kowal

December 9, 2009 at 8:42 pm

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