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How Keynesian Policy Led Economic Growth In the New Deal Era: Three Simple Graphs

by Mike Kimel

In this post, I will show that during the New Deal era, changes in the real economic growth rate can be explained almost entirely by the earlier changes in federal government’s non-defense spending. There are going to be a lot of words at first – but if you’re the impatient type, feel free to jump ahead to the graphs. There are three of them.

The story I’m going to tell is a very Keynesian story. In broad strokes, when the Great Depression began in 1929, aggregate demand dropped a lot. People stopped buying things leading companies to reduce production and stop hiring, which in turn reduced how much people could buy and so on and so forth in a vicious cycle. Keynes’ approach, and one that FDR bought into, was that somebody had to step in and start buying stuff, and if nobody else would do it, the government would.

So an increase in this federal government spending would lead to an increase in economic growth. Even a relatively small boost in government spending, in theory, could have a big consequences through the multiplier effect – the government hires some construction companies to build a road, those companies in turn purchase material from third parties and hire people, and in the end, if the government spent X, that could lead to an effect on the economy exceeding X.

This increased spending by the Federal government typically came in the form of roads and dams, the CCC and the WPA and the Tennessee Valley Authority, in the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables it falls under the category of nondefense federal spending.

Now, in a time and place like the US in the early 1930s, it could take a while for such nondefense spending by the federal government to work its way through the economy. Commerce moved more slowly back in the day. It was more difficult to spend money at the time than it is now, particularly if you were employed on building a road or a dam out in the boondocks. You might be able to spend some of your earnings at a company store, but presumably the bulk of what you made wouldn’t get spent until you get somewhere close to civilization again.

So let’s make a simple assumption – let’s say that according to this Keynesian theory we’re looking at, growth in any given year a function of nondefense spending in that year and the year before. Let’s keep it very simple and say the effect of nondefense spending in the current year is exactly twice the effect of nondefense spending in the previous year. Thus, restated,

(1) change in economic growth, t =
f[(2/3)*change in nondefense spending t,
(1/3)*change in nondefense spending t-1]

For the change in economic growth, we can simply use Growth Rate of Real GDP at time t less Growth Rate of Real GDP at time t-1. The growth rate of real GDP is provided by the BEA in an easy to use spreadsheet here.

Now, it would seem to make sense that nondefense spending could simply be adjusted for inflation as well. But it isn’t that simple. Our little Keynesian story assumes a multiplier, but we’re not going to estimate that multiplier or this is going to get too complicated very quickly, particularly given the large swing from deflation to inflation that occurred in the period. What we can say is that from the point of view of companies that have gotten a federal contract, or the point of view of people hired to work on that contract who saved what they didn’t spend in their workboots, or storekeepers serving those people, they would have spent more of their discretionary income if they felt richer and would have spent less if they felt poorer.

And an extra 100 million in nondefense spending (i.e., contracts coming down the pike) will seem like more money if its a larger percentage of the most recently observed GDP than if its a smaller percentage of the most recently observed GDP. Put another way, context for nondefense spending in a period of rapid swings in deflation and inflation can be provided by comparing it to last year’s GDP.

So let’s rewrite equation (1) as follows:

(2) Growth in Real GDP t – Growth in Real GDP t-1
f[(2/3)*change in {nondefense spending t / GDP t-1},
(1/3)*change in {nondefense spending t-1 / GDP t-2}]

Put another way… this simple story assumes that changes in the Growth Rate in Real GDP (i.e., the degree to which the growth rate accelerated or decelerated) can be explained by the rate at which nondefense spending as a perceived share of the economy accelerated or decelerated. Thus, when the government increased nondefense spending (as a percent of how big the people viewed the economy) quickly, that translated a rapid increase in real GDP growth rates. Conversely, when the government slowed down or shrunk nondefense spending, real GDP growth rates slowed down or even went negative.

Note that GDP and nondefense spending figures are “midyear” figures. Note also that at the time, the fiscal year ran from July to June… so the amount of nondefense spending that showed up in any given calendar year would have been almost completely determined through the budget process a year earlier.

As an example… nondefense spending figures for 1935 were made up of nondefense spending through the first half of the year, which in turn were determined by the budget which had been drawn up in the first half of 1934. In other words, equation (2) explains changes in real GDP growth rates based on spending determined one and two years earlier. If there is any causality, it isn’t that growth rates in real GDP are moving the budget.

Since there stories are cheap, the question of relevance is this: how well does equation (2) fit the data? Well, I’ll start with a couple graphs. And then I’ll ramp things up a notch (below the fold).

Figure 1 below shows the right hand side of equation (2) on the left axis, and the left hand side of equation (2) on the right axis. (Sorry for reversing axes, but since the right hand side of the equation (2) leads it made sense to put it on the primary axis.)

Notice that the changes in nondefense spending growth and the changes in the rate of real GDP growth correlate very strongly, despite the fact that the former is essentially determined a year and two years in advance of the latter.

Here’s the same information with a scatterplot:

So far, it would seem that either the government’s changes to nondefense spending growth were a big determinant of real economic growth, or there’s one heck of a coincidence, particularly since I didn’t exactly “fit” the nondefense function.

But as I noted earlier in this post, after the first two graphs, I would step things up a notch. That means I’m going to show that the fit is even tighter than it looks based on the two graphs above. And I’m going to do so with a comment and a third graph.

Here’s the comment: 1933 figures do not provide information about how the New Deal programs worked. After all, the figures are midyear – so the real GDP growth would be growth from midyear 1932 to midyear 1933. But FDR didn’t become President until March of 1933.

So… here’s Figure 2 redrawn, to include only data from 1934 to 1938.

While I’m a firm believer in the importance of monetary policy, for a number of reasons I don’t believe it made much of a difference in the New Deal era. As Figure 3 shows, changes in nondefense spending – hiring people to build roads, dams, and the like, explain subsequent changes in real GDP growth rates exceptionally well from 1934 to 1938. This simple model explains more than 90% of the change in real GDP growth rates over that period.

Of course, after 1938, the relationship breaks down… but by then the economy was on the mend (despite the big downturn in 1938). More importantly (I believe – haven’t checked this yet!), defense spending began to become increasingly important. People who might have been employed building roads in 1935 might have found employment refurbishing ships going to the Great Britain in 1939.

As always, if you want my spreadsheet, drop me a line. I’m at my first name (mike) period my last name (kimel – note only one “m”) at gmail.com.

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Math is Math: There Was No "Second Stimulus"

One of the best rules in mathematics is that, to determine the value of all the variables, you need only as many distinct equations as you have variables. (previous sentence edited for clarity.) So let’s combine a couple of recent articles (h/t Mark Thoma for the first, Digby for the second.)

Richard Florida finds three studies of State Government Spending Multipliers. The three studies find multipliers of 1.5, 1.7, and 2.12. Let’s be nice (in context) and use the lower one. StateMultiplier = 1.5

David Dayden notes that budget cuts in just two (large) states can be matched against the Fed’s “stimulus” monies. Let’s see how much, putting the best face possible on the data (i.e., taking the most optimistic projections). CADeficit (ignoring “reserve”): $26.4B (12.5 + 12 + 1.9). ILDeficit: $19B (13 + 6).

That gives us a CA-ILEconomyCost of (26.4 + 19)*1.5 = US$68.1B

The Federal Stimulus is $55-60B. Again, let’s be optimists and say $60B. The required multiplier is then:

FedMultiplier * FedStim = CA-ILEconomyCost

FedMultiplier * $60B = $68.1B

FedMultiplier = 1.135

That’s the minimum multiplier needed just to counter those two states. Add in Texas (whose shortfall appears to be on par with California’s, and is larger than Illinois)and you’re at 1.77.

Only 47 states to go.

The maximum multiplier needed just to solve the CA-IL gap is 1.71. Add in TX and you’re at 2.63 with 47 states to go.

The Right-Leaning Econ Bloggers (e.g., Tyler Cowen and Greg Mankiw; I apologize to the former for linking him to the latter) argued in 2008-2009 that Federal Stimulus has a multiplier of 1.3 or less.*

1.3 would put the economy at neutral if the multiplier is 1.7 (median estimate) and most but not all of the CA ambiguities break the wrong way.

And that’s just eliminating the effect of those two states. Add in TX and the multiplier goes to 2.64—rather close to Christina Romer’s 3.0 that was attacked continually by Mankiw et al.

Repeat after me: There was No “Second Stimulus.” If the economy is going to go into full recovery—i.e., can I have jobs with that?—it will have to be from Private Sector Investment, which has been (let’s be nice) on the sidelines so far,* and really doesn’t appear to be warming up to replace TARP.

*Strangely, this was not argued by them as an argument that the initial “stimulus” was too small for the even-then-obvious shortfalls in C and I; I can’t believe they thought MX was going to cover the difference, but that’s a side discussion, perhaps.

*We can quibble over whether that was and remains the correct decision. As has often been noted here, a lack of demand is not exactly an incentive to expand, unless you think that will be changing soon. A true recovery should have convinced firms that a change is gonna come.

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Campaigning on Tax Increases II The Republicans.

Robert Waldmann

Kevin Drum writes
“The GOP leadership has released “Tread Boldly,” a guidebook for Republican members of congress during the summer recess, and it includes a whole section called “Spending Restraint Solutions for Discussion.” Finally, we’ll get some details! So here they are:

‘Canceling unspent “stimulus” funds, saving up to $266 billion …’

Being hep and up to date with the interwebs, the Republicans posted a pdf.

My point is that they just declared their willingness to increase the taxes paid by over 95% of working US families. There is no way they can get “up to $266 billion” by cancelling other parts of the stimulus and not cancelling the tax cuts.

Notably “of the $787 billion in the Recovery Act, about 94% is either in tax cuts, payments, or projects under contract. “ Are the Republicans proposing that the Federal Government violate signed contracts ? Wouldn’t that be a seizure ?

The payments include extended unemployment insurance (I’m not sure that’s the only payment). Total additional government consumption (the standard word for government investment too) was $ 265 billion, so one can’t save $266 billion by cutting the un-contracted funds (about $ 50 billion).
http://tinyurl.com/383zez

Of course the Republicans would like nothing less than to have to explain that the ARRA included tax cuts for over 95% of working families in the USA and to explain that they want to eliminate those cuts (as all currently Republican legislators not from Maine voted against those tax cuts).

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"Run Government Like a Business" = Deficit Spending

We’re used to that line by now. Ross Perot—one of the more prominent people who got rich due to government contracts—used it, Carly Fiorina and Meg Whitman are using it (while desperately hoping you don’t pay attention to how they ran Lucent/HP or eBay), and Aaron Sorkin even had Charles Grodin say it in Dave, if only to establish his Sensible Centrist cred.

So how are businesses running their debt-laden firms? Ask the WSJ and ye shall receive:

U.S. corporations have taken full advantage of low interest rates, going on a bond-issuing binge that has left them with tons of cash, which they appear to be holding largely as insurance against a new bout of financial turmoil, rather than spending on new hires. Nonfinancial companies were sitting on about $8.4 trillion in cash as of the end of March, or about 7% of all company assets, the highest level since 1963. Even before its [$1.5 billion at the bargain-basement interest rate of only 1%] bond issue, IBM had $12.3 billion in cash and short-term investments, which accounted for about 12% of all its assets.

The WSJ is, of course, worried about The Savers:

Meanwhile, though, savers are seeing some of the worst nominal returns in decades. As of June, the weighted average interest rate on deposits, money-market funds and other highly liquid investments stood at only 0.29%. Returns on riskier investments aren’t great, either: The average yield on near-junk bonds with maturities close to 30 years stood at about 5.9% this week.

As Brad DeLong said recently, in a slightly different context, “I share [the] belief that these numbers ought to be higher. But I also think that I don’t have very good reasons to claim that I am right that they should be higher.”

Neither does the market.

And it’s not as if those companies were all saving during the Good Times. Indeed, they were arguably more poorly managed than the government. As Floyd Norris noted almost two years ago:

Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S&P500 showed:

Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion

The net flows there is -$220B, give or take a billion. It’s spending roughly $1.10 for every dollar you earn. And, to make matters worse, nearly twice as much was spent to make people go away (buybacks) than to reward loyalty (dividends).

If the government really were to be run like a successful business—the way the S&P500 are run, the way IBM is run—they would be borrowing long-term right now at that 2.82% 10-year or even than 4.00% 30-year rate.

If it’s good enough for IBM, it should be good enough for the U.S. Government. The Mitt Romneys and Ross Perots have been telling us that for years; many we should listen?

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Recovery? or We’re Gonna Need a Bigger Stimulus?

Sometimes, I hate being right. Most of those times are when I take a pessimistic view of data; this has happened a lot recently.

It gets worse when the people who agree with you are none other than The Giant Vampire Squid. As the Wall Street Journal notes:

Zero — First quarter GDP growth, minus the temporary factors of government stimulus and inventories, as estimated by Goldman Sachs.

With the economic recovery already nine months old, it’s easy to forget just how tenuous it remains. Consumers are spending and businesses are investing, but an uncertain amount of that activity depends on temporary lifts, most notably the American Recovery and Reinvestment Act of 2009.

I promise to get enthusiastic about inventory growth when people stop claiming that the drop in sales is based on the Demand side of the equation; that the banks aren’t holding more than $1 Billion in Excess Reserves because they want to, but rather because they can’t find borrowers.

Looking at state budget projections for next year, the reality that inventories cannot grow indefinitely, the unemployment and discouraged-workers levels, and the growth in long-term unemployment, it’s difficult to find engines for growth.

Real GDP recovery is described fairly as, at best, lethargic. And now we know that even the lethargic recovery is stimulus-induced, not real.

But the headline numbers have given an excuse to do nothing, and steroid withdrawal is, I am told, a very painful experience.

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The 1920s Depression: Glenn Beck, Thomas Woods, and "Benefits" of Cutting Taxes to Combat a Recession, Part 2

by cactus

Last week I wrote a post about some nonsense Glen Beck was peddling, with said nonsense originating with Thomas Woods.  Woods claimed a smorgasbord of things, the dollar meal version being:

1.  lefties talk up how the New Deal (big gubmint, tax hikes) saved the economy from the Great Depression but it didn’t

2.  there is a conspiracy of silence about the recovery from the 1920s Depression because it shows that if the government does nothing (with the possible exception of cutting taxes), the economy will roar, as it did throughout the 1920s

Last week I put up a graph showing the marginal tax rates and the recessions from 1920 to 1940.  The graph of the data doesn’t quite mesh with the words that Woods chooses to use.  What we see is that while Republican administrations were happily cutting marginal tax rates in the 1920s, the economy kept going into recession after recession culminating with Great Depression.  In fact, between the end of the 1920s Depression and the start of the Great Depression (not including either one), the economy was in recession 30% of the time.  Conversely, once the New Deal started and the Big One ended in ’33, there was only a single recession before WW2 started.

Today we’re gonna do something different.  We’re going to look at economic growth and see how well that meshes with Woods’ storyline.  Now, the problem is… where do we find data?  After all, the Naitonal Income and Product Accounts tables were not being calculated back in the ’20s.  But…  Woods quotes a number or two on GNP, which he gets from Smiley on GNP.  Smiley, in turn, pulls his GNP data from the Historical Statistics of the United States.  I’m always leery of using pre-1929 national accounts data from the HSUS since its made up of interpolations, but I guess its as good a source for that data as one is likely to find.  Either way, they’re clearly good enough for Woods, so I cannot imagine he would object to us poking around.

Anyway, I had to enter the data by hand, and I’m using a mini-mini laptop right now, so hopefully I didn’t screw up anything, but here’s what real GNP per capita in 1958 dollars (I’m not changing the HSUS data at all…. I want to make sure Woods would approve) looks like:

Figure 1 - Woods & Beck Part 2

Sorry about the step figure look, but I wanted to get the recessions (the gray bars) as accurate as possible… and while that data is monthly, real GNP per capita from the HSUS is yearly.  Now, Woods’ focus is on the recoveries…  but the the graph doesn’t exactly scream at you that the Mucho Tax Cuts and Deregulation Roaring ’20s massacred the Drab Socialist New Deal period.  As a result, he adds a lot of verbage which I do encourage you to read.  I prefer to take a different approach, though.   I created the graph below, which I think is pretty self-explanatory.

Figure 2 - Woods & Beck Part 2

So there it is.  All of Woods’ verbiage boils down to this…  relative to the New Deal policy he excoriates, his example of success is a time of slower growth, more time spent in recession, and it all culminates in what may be the worst economic situation this country has ever faced. 

Now, you may be thinking…  Woods doesn’t realize that the policy he is promoting produced worse results than the one he is attacking.  But I disagree.  I believe he knows what the data shows.  I provided a few examples last week where Woods seemed to me, at least, to be very misleading.  One technique for doing that which I pointed out last week was to cite someone else when passing off incorrect data, but not to point out that the data was wrong.  That allows Woods not to outright lie, but it does lead readers to believe something which is not true.  Here’s another example…   Woods states:

Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”

Now, Woods is very carefully not stating himself that the Fed did nothing. He himself states that the Fed’s actions were hardly noticeable.  That may be…  I have no way to measure that with the poor data that is available to us now.  But Woods goes farther.  He tells us that an economic historian has stated that “the Fed did not move to use its powers to turn the money supply around and fight the contraction.”  Which is stronger than hardly noticeable.  Does Woods agree with this statement?  Well, he doesn’t quite say so.  But what he never writes is this – “well, this dude says the Fed did nothing, but he is wrong.”  And by not doing that, by telling us what some historian said but not indicating we should not believe that historian, Woods is, in effect, endorsing that economic historian’s statement.  And by now, after two posts, you should realize that I’m only bringing this up because the Fed actually did something. 

As we can see on page 440 of this document from the FRASER collection at the Federal Reserve of St Louis, back in that era, there could be different rates at different Federal Reserve Banks.  And just about all the big ones had rate cuts in 1921 before the end of the recession.  Take the New York branch, the most important one.  The rate was 7% at the start of the year, was cut to 6.5% in May, cut again to 6% in June, and cut again to 5.5% in July, the month the recession ended.  One can argue that the Fed moved a little late – which would make “hardly noticeable” potentially true, but it certainly makes “the Fed did not move” BS.  This is just one of several examples where, in my opinion, Woods is careful not to lie by commission.  But readers will read it and conclude something that is untrue. 

So there it is.  After two posts, I conclude:

1,  the Roaring 20s prior to the start of the Great Depression were a period of deregulation, many tax cuts, and many recessions with very short lived recoveries.  The culmination of the Roaring 20s was a great economic disaster, perhaps the worst in American history.   None of this applies to the New Deal Era prior to the start of World War 2. 

2.  Over the length of the Roaring 20s “recovery” and the New Deal recovery, growth was quite a bit faster during the New Deal years. 

3.  Woods writes carefully and precisely enough that it is hard to conclude that he does not realize 1 and 2.

4.  Knowing what Woods appears to know, and knowing that economic policy has tremendous consequences on people’s lives, Woods is nevertheless willing to promote policies that did much more poorly than he implies and to attack policies that did much better than those he promotes

5.  Glen Beck is either in on the con or he’s being had.

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Inflation Detour II: Crisis and Recovery across Great "Fluctuations"

We are now almost 24 months into the Great Recession. While many expect NBER will eventually say that The Great Recession ended several months ago, they have not yet.

By contrast, the recession that began The Great Depression, per NBER, lasted 43 months. It seems only fair to compare the two, so I trust I can be forgiven for not yet having declared The Great Recession over.

One of the problems is that of official government data. Many of the statistics we now consider “standard” were first tracked as part of the government funding and jobs created by FDR’s Administration. (The irony of multiple economists and idiots arguing that the data shows that those programs should never have happened should not be lost on the reader.)

For an examination of Wall Street, though, reasonable proxy data is available. With some issues noted, we can use the change in Real Prices as a proxy. Comparing the two periods produces:

Fairly comparable. The market had a better six months prior to the October 1929 crash, which is rather neutralized by the drop about five months after the first Depression Recession begins, which is steeper than the comparable drop in the current period.

In spite of all the support for the banking system, the recovery is fairly comparable to the one from the Great Depression—at least so far.

Below the fold, let’s look at Main Street.


As noted above, most of the data required for measuring Main Street—most especially a reliable measure of unemployment—is not available publicly. (If anyone wants to provide me with a copy of the Haver Analytics data, for instance, I won’t complain. Meanwhile, see this post at CR for a graphic of that data from the Depression Era.)

So let’s take another approach. Accept, for the sake of discussion, the traditional Republican argument that inflation reduces the ability of Main Street to grow business, borrow money, and generally live.

If we therefore take the inverse of the Annual Inflation Rate, we can see the “gain” the consumer makes. (Note that, in most periods, the consumer is deemed to have lost. Reality may be different, as smoothing hides may variances. But that is always true, and likely always shall be.)

So let’s look at how Main Street fares, then and now:

Judging strictly by the two periods, it appears that Main Street did significantly better—speaking in terms of earning power—during the time leading up to and beginning the Great Depression than it has during the Great Recession. Indeed, the two paths track each other rather well.

It would appear—information that will surprise few other than perhaps Larry Summers and Tim Geithner—that all of the efforts of the Federal Reserve Board and the U.S. Treasury have had no positive effect on Main Street, leaving its purchasing power significantly lower than the same period of the Great Depression.

Probably more on this on a future rock. Comments and suggestions are rather welcome.

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Government Site to Check

Mish sends us to “Track the Money,” recovery.gov’s breakdown of where funds have been sent and spent.

He’s not happy, but I suspect he’s suffering the Jared Bernstein Problem: only looking at one side of the equation.

But—and this is the key “but”—the reason it is right to do that is that ARRA money has two-way flow. It supports jobs and production, both priming the pump and moving production forward. This works if (1) the cost is minimal and (2) the production will be saleable (avoid the “double-dip”). Which implies (1) domestic interest rates must remain near zero and either (2a) U.S. consumer demand for domestic goods must increase or (2b) the U.S. dollar must depreciate, making our goods more desired abroad.

All of the above is reasonable and conceivable, even if it does imply the stock market may be overvalued.

And if the recent reports are true, the biggest effect of the stimulus has been in stabilizing education, which reaps long-term benefits, as conservative economist Ed Glaeser noted last month.

But that’s the stimulus. The bailout money, well, that’s another question. And another post.

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Brad’s Draft Lecture

Robert Waldmann

Brad DeLong just posted a very interesting Draft Henry George lecture. It contains ideas which I haven’t found written down before by Brad or by Krugman. I strongly recommend reading it (for one thing I don’t know how to cut and paste from it). People who have read the draft lecture are invited to read my thoughts after the jump (I can’t keep people who haven’t read it out, but comments which reveal ignorance of the lecture will be mocked ruthlessly).

update: I hereby ruthlessly mock myself for failing to provide the link.
What an idiot. That’s the problem with blogger.com it enables people incapable of handling html to post on the web.

So that was a nice lecture wasn’t it ? Much of it was new to me.

1) Brad confesses the reason for his lapsed Greenspanism.

I hadn’t seen the explanation that he opposed tight regulation of finance, because he thought the purpose of structured finance was to trick people into bearing more risk that they want to bear and that this is a good thing, since people are irrationally unwilling to bear risk.

Oh my not just Greenspanian but a Straussian believer in noble welfare enhancing lies. I might have found the argument convincing in 2006, so I’m glad I didn’t read it.

2) Brad claims that fresh water economists have traction, are getting attention etc. I didn’t know that. I’d guess a lot of it is due to Paul Krugman who is arguing with them in public. Also, I mean, Nobel memorial laureates tend to get all the attention they want. However, Brad has an interesting theory. Republicans in power listen to economists who don’t sound crazy to them (and all non economists). Republicans in opposition use any rhetorical weapon to hand so any criticism of Obama however crazy it sounds to non economists is amplified by the vast right wing conspiracy. An interesting idea. Are fresh water economists really getting a hearing from non economists ? That’s a scary thought.

3) Brad notes the similarities between Herbert Hoover, Alan Greenspan and Job. Hoover and Greenspan have been very loyal to the pro market ideology. yet when trouble comes, people who should be their friends accuse them of being pinkos.
Now that is an excellent rhetorical weapon to hand.

Brad’s been writing about how Prescott has decided that the Great Depression was caused by the anti market policies of Herbert Hoover. He notes that for Prescott’s latest theory to make sense, one would have to argue that Hoover was more anti market than Roosevelt, Truman or Johnson (or any post WWII European socialist ever in power). Now to me, this is no more absurd than the average assertion by Prescott. But it seems to me much more striking to non economists. Usually Prescott uses mathematical terminology and so most people either have no clue as to what he is saying or assume that the clue they have must be misleading, because he couldn’t be claiming that (as he is). I’d say some documentation that Hoover was not a pinko is in order.

The similar claim that fresh water economists are saying that Greenspan over regulated is also interesting. I think documentation of that claim is in order. Then I’d go to Greenspan’s personal history as a disciple of Ayn Rand. I just found out that he was not just a fan from a distance but part of her tiny group. Rand was a very extreme ideologue and a very unpleasant person. Many on the right will not accept criticism of her. In a no holds barred rhetorical struggle, writing about Rand and Greenspan is likely to be an effective strategy.

Of course, I am not interested in rhetoric and think we should all seek the truth together assuming that all are sincere and well meaning, so I will have nothing to do with that. But someone less high minded and scrupulous than I would talk about Ayn Rand’s sex life as often as possible.

update: I am not suggesting that Brad is interested in using any rhetorical arm at hand. I’m sure he argues in good faith and presumes that others do as well until they prove otherwise.

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