On 8/3/06, Michael Perelman wrote:
The article was pretty good as far as it went. What a shocking is that Delong, who is a Keynesian, limited his tricks to monetary policy. Nor did he ever suggest the problems that have been building up over the years. His "long and veritable lags" again were limited only to monetary policy.
Brad deL had an article in the JOURNAL OF ECONOMIC PERSPECTIVES awhile back about the nature of Monetarism. It seems that his "new Keynesian" school is nothing but a reformed version of Monetarism. The Money supply is no longer seen as important (which was a crucial part of Monetarism), but the rest of the Monetarist model (the presumption that we're typically close to full employment, with deviations from f.e. being due to inflexible labor markets) has been accepted wholeheartedly. The shift to an emphasis on monetary policy does reflect a change in the balance of power. The end of the Bretton Woods fixed exchange rate system in the early 1970s meant an increase in power for monetary policy (which no longer had to keep the dollar at par) and a sapping of fiscal policy (which cut hurt the trade deficit if used to spur the economy). Of course this shifted power to the financial community (away from the politicians), so while the Fed chair was an obscure figure in the 1950s and 1960s, he became the Maestro in recent years. That change in relative power doesn't mean that monetary policy can actually do much at this point.
Finally, Brad never mentioned that the conservatives know what to do if a recession is on the horizon: cut taxes for the rich. Here, the bag may really be almost empty, since there aren't that many tax cuts for the rich left to do.
There's an alternative: expand war spending. -- Jim Devine / "Isn't it interesting that the same people who laugh at science fiction listen to weather forecasts and economists?" -- Kelvin Throop, III
