Brad DeLong’s Reply to Luigi Zingales
Brad DeLong’s entries (one, two) in a debate with Luigi Zingales are both worth reading. The most important part, however, is this section dealing with the contention that since our economic problems are caused by banking problems, we shouldn’t be wasting time with stimulus we need to just focus on the banks:
But we can limit the damage that 1-5 do to the rest of the economy by attempting to head off (6). There is no reason why we cannot put the jobless to work doing useful and productive things while we sort out the
banks. There is no reason why millions in America–tens of millions around the globe–need to be without work and income over the next two years. The problem creating (6) is that the banks cannot and will not lend
money to businesses that ought to be expanding in order to put more people to work. But everyone is incredibly eager to lend money to the U.S. government. So let people do so–let the U.S. government soak up the bank lending that is not being made to companies, and use that purchasing power to put people to work.
And I would add—not just putting people to work, but creating some public goods. After the past 15 years worth of shopping spree, it’s difficult to argue that the United States of America as a whole is suffering from some aggregate shortfall in consumer goods. Rather, a large minority of the population is suffering from intense distress associated with unemployment. But as a whole, we Americans have more stuff than any other people on the planet throughout human history. But compared to various other countries we have worse public services. Given that quality gap in public services and the world’s enormous willingness to lend money to the U.S. government, the natural course of action is to take the loans and spend them on improving our public services.
30 Responses to “Brad DeLong’s Reply to Luigi Zingales”
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March 9th, 2009 at 11:06 am
not just putting people to work, but creating some public goods
Michael Lind at Salon
March 9th, 2009 at 11:12 am
Critics who claim the administration is “taking its eye off the ball” when it comes to the economy and the financial crisis (i’m looking at you jackson diehl) don’t understand that we need to create a basis for real, sustained growth. the government is oftentimes the only entity that can make these investments.
the GI Bill, R&D in the Pentagon and NASA set the stage for a half century of widely shared wealth. so the obama administration trying to create economy where we can have real growth once the financial system gets unclogged is entirely appropriate. geithner deserves the heat he is currently getting, but it’s entirely possible that roubini is correct, and geithner is simply waiting till its apparent all of the major banks are insolvent.
March 9th, 2009 at 11:13 am
There is so much the government could spend money on that would really be needed and productive. Improving facilities for wounded veterans (e.g., Walter Reed), modernizing the energy grid so wind power from the Mohave Desert can actually be transported to cities and towns, even widening highways (fewer traffic jams mean less automobile engine idling, which means less usage of gasoline).
March 9th, 2009 at 11:18 am
from: Not an economist.
The phrase that Paul Krugman generally uses is “under capacity”. The worst thing for an economy is to run way under capacity. Since labor is the principal resource, unemployment of potentially productive labor is almost a crime. That is why the most important thing is to get people working. The benefits are: 1. what they produce; 2. income in their hands, and 3. decreased load on social services.
I agree with Matt in that “what they produce” is important. We don’t have a shortfall in consumer goods. Not only are store shelves supplied, but most of the stuff they sell is of little social or personal value. Much is just pollution. The spending targeted in the stimulus bill is virtually all needed and useful.
March 9th, 2009 at 11:32 am
I guess I’m a little concerned that the mortgage crisis was caused by lenders giving money they shouldn’t, to people who shouldn’t accept it…
Are international loans to the U.S. a smart idea for other countries? Is it really such a smart idea for the U.S. to take them, just because they are being offered?
Or by taking huge sums of money are we just waltzing (with pens in hand) into a new, broader version of the mortgage crisis?
March 9th, 2009 at 1:00 pm
Re Matthew’s comment “we Americans have more stuff than any other people on the planet throughout human history.”
—————-
Speak for yourself, Trustfund Scumbag. I still haven’t received my $40 Digital TV Converter rebate. When are you and Podesta going to get off the stick?
March 9th, 2009 at 1:06 pm
Re DTM’s comment “For that analogy to be accurate, there would have to be a substantial chance that we would be unable to service these debts. And that simply isn’t a realistic possibility.”
———————
1) So says a citizen of a country which
a) Has $5 Trillion in Treasury debt held by private investors in the form of very short term notes — kinda like a $5 Trillion ARM which can be reset every 6 months or so.
b) Another $5 Trillion in debt, much of it in the Social Security and Medicare Trust Funds. Representing $Trillions of payroll taxes stolen and spent by Bush, with only IOUS remaining. IOUS which say WE –not Bush — are on the hook to pay the money back.
c) And a huge baby boomer cohort retiring just as we have a $8 Trillion shortfall in Social Security and a $32 Trillion in Medicare.
2) Yep, we’re in great shape. Still have some seed corn to eat.
March 9th, 2009 at 1:09 pm
Oh yes — I forgot. We also have an economy based on cheap oil –just as we hit Hubbert’s Peak Oil — and an economy with an extensive international supply chain protected by $1 Trillion PER YEAR in military spending. This as two countries with over 1 billion people and nuclear weapons arise to challenge both our military and our economic hegemony.
Did I forget to mention nuclear proliferation? Avian flu?
March 9th, 2009 at 1:14 pm
I do hope that those exhorting massive stimuli (that are accessory, and not central, to rescue of the financial system) is just going to make the debt situation, and consequently inflation and currency depreciation, worse.
Way to go to make $2000 gold a self-fulfilling prophecy. Every time liberals go on a binge, gold spikes. When Bill Clinton exercised fiscal sanity, gold fell. Yet lessons remain unlearned.
March 9th, 2009 at 2:07 pm
Myles, it’s better to shut up and let people suspect you don’t know WTF you’re blabbering about, then to open your mouth and remove all doubt.
March 9th, 2009 at 2:28 pm
Matt makes the rookie econ mistake of actually describing material conditions. Everybody knows you’re supposed to only talk in abstractions: Capital! Pareto! Isoquants!
Come on!
March 9th, 2009 at 11:03 pm
What I keep on saying though, is that the housing crisis is just another symptom. It did not cause the problems, rather, it is the canary in the coal mine, the early indicator.
The problem is that we have had no income growth for approx 10 years. And US businesses have pulled as many decent paying jobs as they can from the system. It looked good for a while, shopping at Wal-mart, but eventually even cheap products have to be paid for.
To make up for the lack of income, people sold their assets, hoped to capitalize on assets or just leveraged like crazy. Money was cheap and easy. The economy was floated for several years by this combination of extracted money on one side and people benefiting from the money on the other side including financial and building sectors. Now that money is at zero, what’s left.
It’s the economy.
March 9th, 2009 at 11:41 pm
Even that old reactionary Henry Ford was smarter than our business class today. How sad is that?
March 10th, 2009 at 4:06 am
What’s with the police dog? Are we going to use the stimulus to turn the unemployed into sniffer dogs?
March 11th, 2009 at 4:20 am
Hey, is there a section just for latest news
March 11th, 2009 at 11:22 am
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March 16th, 2009 at 10:55 pm
sry i just know how to write my name in arabic
) anyway however my english not that good but i think i get the point. thanks
March 16th, 2009 at 10:56 pm
sry i just know how to write my name in arabic
) anyway however my english not that good but i think i get the point. thanks
March 22nd, 2009 at 9:46 pm
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March 22nd, 2009 at 9:47 pm
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March 22nd, 2009 at 9:50 pm
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March 30th, 2009 at 6:42 pm
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April 1st, 2009 at 6:11 am
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April 2nd, 2009 at 10:52 am
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April 8th, 2009 at 10:34 pm
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April 15th, 2009 at 7:38 am
The style of writing is very familiar . Did you write guest posts for other blogs?
April 19th, 2009 at 3:01 pm
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