Thursday, December 8, 2011

Brad DeLong on Carmen Reinhart

Great post by Brad DeLong, about misplaced fatalism. His comments are based on a video (you can see the whole thing in his post) debate between Krugman and Reinhart. He says:
"A word about the content: I continue to find Carmen Reinhart’s fatalist view puzzling. She agrees with me that we’re facing a demand-side problem — but insists that this problem can’t be solved quickly, that we need to go through many years of painful deleveraging that leave millions of potentially productive workers idle. I agree that this is probably what will happen, given the political realities. But surely this is a huge failure of policy, not something we should accept as inevitable. It’s truly bizarre, if you ask me, to say that our economy suffers from too little spending, and that nothing can or should be done to increase that spending."
He then uses a variation of an ISLM to explain his and Reinhart's views. Translating, political fatalism seems appropriate in the US, but theoretical fatalism is out of place. Agreed!

PS: Also worth reading is Cassidy's take on Obama's speech. An antidote to the fatalism above.

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