July 09, 2003
More on Hayek...

The thoughtful and highly knowledgeable Greg Ransom protests that I have misread Friedrich Hayek: PrestoPundit.com: Brad De Long is reading Hayek -- but none too closely. Hayek distinguishes between liberal democracy bounded by the rule of law -- and unlimited democracy bounded by nothing. De Long completely ignores a distinction which is fairly easy to understand... I agree that Hayek approves of democracy bounded by the "rule of law" and disapproves of "unlimited democracy." But be careful: Hayek's ideas of what a democracy "bounded by the rule of law" are very different from my ideas. Gentle Reader beware: for Hayek, Britain in the mid-1950s had a government that was not bound by the rule of law. From the Road to Serfdom: 1956 Preface: ...Of course, six years of socialist government in England have not produced anything resembling a totalitarian state. But those who argue that this has disproved the thesis of The Road to Serfdom have really missed one of its main points: that "the most important change which extensive government control produces is a psychological change, an alteration in the character of the people." This is necessarily a slow affair... attitude[s] toward authority are as much the effect as...

Posted by DeLong at 05:18 PM

July 08, 2003
Notes: Hayek and Democracy

I have long been of the opinion that Friedrich Hayek saw more deeply into why the market economy is so productive--the use of knowledge in society, competition as a discovery procedure, et cetera--than neoclassical economics, with its Welfare Theorems that under appropriate conditions the competitive market equilibrium (a) is Pareto-Optimal or (b) maximizes a social welfare function that is the sum of individual utilities in which each individual's weight is the inverse of their marginal utility of income. I have also long been of the opinion that Karl Polanyi saw more deeply than Hayek into what the necessary foundations for a well-functioning and durable market economy--and good society--were. But last night I ran into a passage that makes me wonder whether Hayek in his inner core believed that democracy had any value--even any institutional value--at all. It came on pp. 171-2 of Friedrich Hayek (1979), Law, Legislation and Liberty: The Political Order of a Free People vol. III (Chicago, Il.: University of Chicago Press: 0226320901): Egalitarianism is of course not a majority view but a product of the necessity under unlimited democracy to solicit the support even of the worst. It is by the slogan that 'it is not your...

Posted by DeLong at 11:54 AM

June 26, 2003
More on the Naivete of Milton Friedman

Senor Edward Hugh of Barcelona joins those arguing for the "naivete" of Milton Friedman, playing Aramis to Paul Krugman's Athos and Daniel Davies's Porthos. I'm beginning to feel a little like M. Jussac... His point is a definite "touche": Milton Friedman's and Anna Schwartz's belief that Fed policy greatly expanding the monetary base would have stopped the Great Depression in its tracks in 1930 and 1931 hinges on a belief that the Fed's throwing more high-powered money at the economy would not have induced countervailing contractions in the money multiplier or in the velocity of money itself. In Hugh's view, they don't even ask the right question because their framework, naively, "...take[s] virtually no account of the asset side of the bank's balance sheets. Indeed it seems to be the case that their conceptual framework leaves little place for a consideration of the role of the banks as financial intermediaries between two types of client: depositors and borrowers. Nor do they seem to put great store by the fact that the banks as intermediaries operate in a world of uncertainty, that banks assessment of their clients' creditworthiness varies, and that in the short trem their lending determines the size of...

Posted by DeLong at 11:56 AM

June 24, 2003
More on Naivete...

Daniel Davies (typically) has some intelligent points to make in defense of Paul Krugman's assessment of the naivete of Milton Friedman: Semi-Daily Journal: Comment on Is Uncle Milton Really Naive?: I am inclined to say that Krugman has a point, for the following reasons: 1) It was not Krugman, Skidelsky or anyone else except Milton Friedman who decided to tie Friedman's reputation to monetary base [should, I think, be "aggregate] targeting. He certainly did make other major contributions, but he also went out into the world, like Keynes, and said to governments "here, do it this way", like Keynes, and it didn't work, unlike Keynes. A certain amount of censure is appropriate here... 2) Friedman was a colleague and contemporary of Modigliani, and therefore ought to have been aware of Modigliani's work on near-money and substitutability of money-like assets. It was therefore naive of him to believe that the velocity of circulation of money was a constant, or that something like Goodhart's Law would not apply. Particularly, someone who had read Hayek and Menger had no business in putting forward a theory in which state-sanctioned money had a very special role indeed, along the lines of Silvio Gesell. He ought...

Posted by DeLong at 09:32 AM

June 23, 2003
Is Uncle Milton Really Naive?

Paul Krugman points out that--no matter what Ben Stein may say--Milton Friedman now agrees with Paul that targeting the growth rate of the money stock has not been a smashing success: FROM THE HORSE'S MOUTH (6/10/03) Readers of the  Unofficial Site may recall that Ben Stein launched a frantic  attack  on me after my quite innocuous column   Missing James Tobin . Among the things that drove him wild was my statement that Milton Friedman's monetarism was a rather "naive" doctrine that has not stood the test of time. But guess who now   concedes   the point? By the way: Friedman did two great things: the permanent income theory of consumption, and the natural rate hypothesis. These do not make him a figure on a level with Keynes, who transformed the way we see the world, and may have saved the market economy. But they're pretty important. Monetarism, on the other hand, was a misguided doctrine. Friedman was looking for a magic way to exclude judgement and discretion from economic policy; he didn't find it. And my own work on the liquidity trap has convinced me that his biggest case for monetarism - the attribution of the Great Depression to monetary contraction...

Posted by DeLong at 10:52 AM

April 17, 2003
Uncle Milton

Just spent an hour and a half being interviewed for a documentary about Milton Friedman to air (hopefully) sometime in 2004... Some after-the-fact notes: Friedman... how great an influence on my thought? Let me think who has had more... Smith, Keynes, Summers, Shleifer... I would put Friedman fifth: only four other economist have had a greater influence on how I think... I'm not atypical at Berkeley in finding myself moving under the influence of the intellectual field generated by Milton Friedman--at least, I don't think I am... Friedman as a pragmatic libertarian, perhaps: believing that market failures are atypical, tending to generate profit opportunities and creating institutions to route around them, and that government failure is pervasive--that any expansion of government beyond the classical liberal state is likely to cause more troubles than it solves... Thus a big difference with Arrow, Samuelson, Akerlof, and company: who see market failure as much more common and hard to route around, and democratic governments as much more competent... One problem for us American liberals is certainly that Republican administrations tend to provide excellent demonstrations of Friedman's claim of governmental incompetence/capture/counterproductive behavior--massive government failure that outweighs probable estimates of market failure and creates a...

Posted by DeLong at 12:59 PM

February 20, 2003
Thinking About Aristotle of Stagira and Moses Finley

I'm never sure whether I should begin my economic history survey courses with Aristotle or not. As Moses Finley powerfully argues, Aristotle does not care about the economy. The fragments in his Ethics and Politics that economists like Joseph Schumpeter point to are, mostly, concerned with other things than economic analysis. Karl Polanyi thought that Aristotle's naivete was the result of the fact that a mercantile, market, commercial economy was something very new. He was surely wrong: it was not something new, but rather something that Aristotle as a Hellenic aristocrat would have been embarrassed to be caught thinking seriously about. Still, I now wish I'd started this semester's history course with more on Aristotle. His perspective is so different from ours that it provides a useful mental shock: On Aristotle: Consider, first, that Aristotle of Stagira was not an idiot (even if he did believe that women had fewer teeth than men). For two thousand years people--pagan Hellenes, Christian Europeans, and Islamic Arabs, Egyptians, Mesopotamians,and Iranians--called Aristotle of Stagira "the philosopher", as if there could be only one. Think of the way seventeenth, eighteenth, and nineteenth century Britons regarded Newton (or the way we regard Einstein). So we need...

Posted by DeLong at 08:57 PM

July 12, 2002
How Should I Go About Teaching Graduate Macro?

Econ 236a, Spring 2003: Macroeconomists: Interesting Topics: Research Strategies: Findings: This course is supposed to prepare graduate students to take the field exam in macroeconomics, and to prepare them to write dissertations in macroeconomics, by providing a survey of the current active research frontier. I am not sure how to do this: I've never taught this course before. So I'm thinking about using my students as guinea pigs. I'm thinking about organizing this course not around topics but around people--macroeconomists--their research strategies, their findings, their way of choosing topics that others find interesting... So let me pick sixteen macroeconomists more or less at random (with apologies to those not picked): What papers or book chapters (most by them, some by predecessors that they are extending or reacting against, some by others who extend their results), a week's worth of readings for each, would teach graduate students most about these macroeconomists, and best prepare them to write dissertations in macroeconomics? Robert Lucas: Robert Barro: Ed Prescott: Thomas Sargent: Robert Hall: Olivier Blanchard: John Taylor: Greg Mankiw: Robert Shiller: George Akerlof: Chris Carroll: Andrei Shleifer: Robert Gordon: Dan Sichel: John Maynard Keynes:...

Posted by DeLong at 12:07 PM

July 08, 2002
Brink Lindsey Says: The Human Race Has Been Dealt a Winning (and Invisible) Hand

"I think you're wrong," said one of the barons of the center-left Washington, DC thinktanks. "Cato's biggest problem isn't that its day-to-day stuff is too carefully crafted to be politically useful to those factions of the Republican Party that it approves of. Cato's biggest problem is that it doesn't have a deep enough analytical bench. In fact, it has only one young full-time truly-heavy intellectual hitter."* "Brink?" "Yes, Brink Lindsey. Very smart. Very knowledgable. Very thoughtful. And--which is very unusual--very willing to entertain the possibility that he might be wrong." Now Brink Lindsey has written a book: Brink Lindsey (2002), Against the Dead Hand: The Uncertain Struggle for Global Capitalism (New York: John Wiley: 0471442771). The purpose of the book is to celebrate the end of one of what Lindsey sees as one of the great obstacles to human progress. The obstacle is "the dream of centralized, top-down control over the course of economic development" (p. 2). In Lindsey's mind, whether the policies were the bloody collectivization of agriculture by Stalin, Mao's command that peasants smelt steel in their backyards, French bureaucrats providing indicative guidance to enterprises for capacity expansion, the UK Labour Party nationalizing the "commanding heights" of...

Posted by DeLong at 06:34 PM

June 23, 2002
Things That Make Me Go, "Huh?!?"

I am reading more and more things these days in which the last paragraph or the next to last paragraph subverts the argument completely--demonstrates convincingly that the author knew all along that his main thesis was wrong, or at least radically incomplete. For example, I was reading a piece by Lawrence Kudlow in National Review Online. It rang the changes on Kudlow's standard notes: (1) That those who worry about demand being insufficient are fools. (2) Praise of the early nineteenth-century French economist Jean-Baptiste Say. (3) What nonsense it is to say that aggregate demand can be lower than aggregate supply because ""business creates production, production creates jobs, and wages for jobs create income. And when producers take time off to become consumers, they use their incomes to spend on goods and services." (4) Praise of Ronald Reagan for worrying not about demand but supply (with, somehow, not a mention of how the Reagan deficits reduced investment and proved, over a decade and a half, a much bigger drag on the growth of America's productive potential than high tax rates had been). (5) How Jean-Baptiste Say would "laugh at demand-side economists" who fear that uncertain consumer confidence may lead to...

Posted by DeLong at 05:31 PM

June 22, 2002
Half a Year's Worth of Interesting Graphs and Pictures

Last summer it struck me that I should spend some time preparing some handouts and graphs related to important issues of economic policy and economic analysis. While teaching, it had often struck me that I could improve my lecture a lot "if only I had a good handout to use here." And it seemed to me that if I worked on things slowly and gradually, I would soon have a large library of stuff to draw on. I failed to realize that I was going to fall into one of the two traps of information retrieval. The first is, "How do you find something you remember exists?" The second is, "How do you figure out and remember what kinds of things exist, so you know what kinds of things you should look for?" I clearly need--this summer--to develop a categorization scheme so that I can take my handouts and my graphs and my pictures and have a chance of finding the right one when I want to use it in lecture. This is going to be hard. Some of the raw material I now have to classify is listed below... 2002-06-15: Price-Earnings Ratios. Even today, the stock market's valuation is...

Posted by DeLong at 08:33 PM

November 09, 2001
Starting to Build Websites Useful for Teachers...

Useful Materials for Teaching Maco...

Posted by DeLong at 09:19 PM

October 27, 2001
Digging Out Old Teaching Materials From Years Ago

Simple Animations Library The more time I spend on the web, the more impressed I am with the value of lowest-common denominator material: so much high-end or sophisticated stuff simply breaks, in one way or another. So I have put together this library of simple visual animated economics demonstrations using the simplest possible technology: animated .gif files, which can be read by practically any browser....

Posted by DeLong at 09:22 PM

May 03, 2001
Groping Toward a Way of Thinking About the Information-Age Economy

Speculative Microeconomics for Tomorrow's Economy by Michael Froomkin and Brad DeLong Two and a quarter centuries ago the Scottish moral philosopher Adam Smith used a particular metaphor to describe the competitive market system, a metaphor which still resonates today. He saw the competitive market as a system in which: "...every individual... endeavours as much as he can... to direct... industry so that its produce may be of the greatest value.... neither intend[ing] to promote the public interest, nor know[ing] how much he is promoting it.... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end that was no part of his intention.... By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it..." Adam Smith's claim back in 1776 that the market system promoted the general good was new. Today it is one of the most frequently-heard commonplaces. For Adam Smith's praise of the market as a social mechanism for regulating the economy was the opening shot of a grand campaign to reform how politicians and governments looked at the economy. The campaign waged by...

Posted by DeLong at 04:22 PM

February 04, 2000
William Poundstone's "Prisoner's Dilemma"

An extended passage from William Poundstone's (1992) marvelousbook Prisoners Dilemma (New York: Doubleday: 038541580X). Economists will find this hilarious and thought-provoking. Others will probably find it bizarre and weird. It comes from pp.106-118....

Posted by DeLong at 04:30 PM

November 10, 1999
How We Might Be Able to Do a Better Job of Teaching Macroeconomics

Macroeconomics Textbook Manifesto There is an apocryphal rule about new textbooks: they can only have 15% new material. A successful new textbook must be different enough from the old standards to give professors an incentive to switch, but must to similar enough to the old standards to keep the process of switching from requiring professors to throw away all their old lecture notes and completely redesign their courses. This is a neat trick. It makes intellectual progress--at least intellectual progress in undergraduate instruction--nearly impossible. Nevertheless, I believe that I can accomplish it. I think that I can greatly slim down "legacy" topics that are now included largely for intellectual-historical reasons (and that cause difficulty and confusion in teaching). I also think that I can make significant expositional improvements in several areas. Thus I think I can wind up with a shorter book that teaches students more material of interest and remains similar enough to past macroeconomics textbooks to be generally acceptable......

Posted by DeLong at 03:56 PM

January 01, 1990
J. Bradford DeLong (1990), "In Defense of Henry Simons' Credentials as a Classical Liberal," Cato Journal 9: 1 (Winter), pp. 105-122.

J. Bradford DeLong (1990), "In Defense of Henry Simons' Credentials as a Classical Liberal," Cato Journal 9: 1 (Winter), pp. 105-122....

Posted by DeLong at 03:07 PM

July 01, 1989
J. Bradford DeLong (1989), "Nassau Senior's `Last Hour' and the `Advances' Conception of Capital Revisited," History of Political Economy 21: 2 (Summer), pp. 309-310.

J. Bradford DeLong (1989), "Nassau Senior's `Last Hour' and the `Advances' Conception of Capital Revisited," History of Political Economy 21: 2 (Summer), pp. 309-310....

Posted by DeLong at 01:46 PM

August 01, 1986
J. Bradford DeLong (1986), "Senior's `Last Hour': A Suggested Resolution of a Famous Blunder," History of Political Economy 18: 2 (Summer), pp. 325-333.

J. Bradford DeLong (1986), "Senior's `Last Hour': A Suggested Resolution of a Famous Blunder," History of Political Economy 18: 2 (Summer), pp. 325-333....

Posted by DeLong at 08:14 AM