In the storied tradition of combining celebrity names, Arnold Kling has coined "Prad Krulong" - a combination of Brad DeLong and Paul Krugman - in a (rather unsatisfying) discussion of some recent thoughts from the two luminaries on macroeconomics. I really think that what they're getting at is much bigger than macroeconomics, though - it is Keynesian political economy: not just the economics of the current downturn, but the political economy of why the response has been so tepid:
- At Project Syndicate, Brad DeLong starts by writing about the retreat of macroeconomic policy. What he presents is really what I would call Keynesian political economy or Keynesian public choice theory - he explains why we let economic disasters happen when we should know better. This has been a theme for DeLong for a long time, and he says it quite explicitly here.
- That column got the juices going for Paul Krugman who responded with a piece on the "instability of moderation". He goes through three types of instability: "intellectual instability", whereby good ideas don't survive in the academy, "political instability", whereby political institutions can never be depended on to properly implement what we know to be true, and "financial instability" of the typical Minsky variety.
- Brad DeLong comes back with a post at Foreign Policy called The Four Horsemen of the Teapocalypse, straining to tie together Hayek, Schumpeter, Mellon, and Nietzsche (yes, Nietzsche) to explain the political revolt against Keynesianism. I wouldn't fully embrace this piece for the same reasons that I've noted in the past that I don't entirely agree with Krugman and DeLong's position on Hayek and the depression. Despite the fact that I don't entirely agree with them, I do have to press flustered Austrians on the point a little bit. Krugman and DeLong certainly overstate the peace that Hayek made with the depression. But how exactly would you characterize Hayek's reaction? Did he not think it was "necessary"? Did he not think it was "functional"? The fact is he did. Krugman and DeLong probably hurt their own argument by overstating Hayek's position, but I don't think they should back down from the fact that Hayek's was a fundamentally myopic perspective. I was tempted to add "unsympathizing", but honestly I can't know the man's heart. But there should be no arguing over the fact that he thought depressionary unemployment was functional and provided a (in my opinion, inadequate) theoretical justification for that position, while Keynes thought depressionary unemployment was dysfunctional and provided a (in my opinion, much better) theoretical justification for his position (you an argue over my parentheticals, but not the primary point).
You seem to see daylight between Hayek on the one hand and Schumpeter and Mellon on the other with respect to the Great Depression. I have a hard time seeing where that daylight is--and Milton Friedman said that he did not see any daylight either...
ReplyDeleteBrad - I mention Hayek specifically because I am more familiar with Hayek than either of the others. I have some thoughts on differences between them, but I agree with you - they aren't significant.
ReplyDeleteMy point was only that I don't think they looked at unemployment with quite the sanguinity you (is this Brad DeLong?) attibute to them. Practically speaking I think the difference between you and I is minimal. That's why I challenged my Austrian readers to face up to the fact that even though Hayek thought unemployment may have been preventable during the boom phase, he clearly thought it was functional and palatable in a way Keynesians simply don't. For Keynesians there is simply no function to unemployment during a depression - indeed the unemployment itself makes things worse. This was not the case at all for Hayek.