From Regulation to Deregulation and (Perhaps) Back (Talk in Portuguese)

My talk at the Federal University of Rio de Janeiro yesterday, on the rise, fall, and perhaps rise again of the regulatory state in the US, and its relation to ideas, particularly institutionalist, and Chicago School views, as expressed by John R. Commons and George Stigler. In Portuguese, of course.

World War II, not the New Deal, is the model for COVID-19 macroeconomic policies

Central planning (Socialism?) in democratic societies

There is a lot being written on the causes and cures for the economic consequences of the Coronavirus (COVID-19). The predictable distinction is among those that think that this is essentially a demand shock, mostly to services, and those that are concerned with the disruption to supply chains. And to some extent both are correct. But that is not the more relevant problem here, which is whether we need just more government or a change in the nature of the governmental interventions.

Neil Irwin, from the New York Times, provides a suitable and simple explanation of the demand shock story. Note that a demand shock often goes together with significant financial implications, as agents with reduced revenue tend to default on loans or payment streams to any liabilities. The Economist noted the risk associated with excessive corporate debt, and the possibility that the virus might trigger a debt-deflation type crisis in financial markets. On the fragility of corporate balance sheets see also this insightful piece by Michalis Nikiforos. Many economists have talked in favor of this interpretation, and certainly there is a lot to be said about this view, which I tend to agree with, by the way.

The fiscal expansion plans put forward by the administration have been mostly seen through the lens of a regular demand shock version of the recession. They include things like a bailout of certain sectors hit hard by the sudden decline in demand, like the airlines, and checks to those that have lost their jobs, besides the Fed injecting liquidity to reduce the financial effects of the demand shock. In that sense, not very different from the fiscal package and financial rescue of the 2008 crisis.

Of course, macroeconomic policies in 2008, even though they did preclude a fall in unemployment of the magnitude that had occurred in the 1930s during the Great Depression, were flawed in many ways. They did rescue banks, but left many to lose their houses for one (and Obama's Justice Department did not prosecute in any significant way the many financial excesses of Wall St); it was also probably on the smaller side, leading to a prolonged, but very slow, recovery, in which labor market conditions remained relatively poor for many workers, even with low levels of unemployment by the end. All things that increased the problems at the bottom of the income distribution and helped explain Trump's political victory in 2016. Hence, there is reasonable fear that these policies might not work well this time around again. Besides, there is a case to be made that this crisis is not fundamentally a demand shock.

A prominent defender of the latter is Dean Baker. He says: "Our problem is not creating demand in the economy, the problem is keeping people more or less whole for a possibly extended period in which much of the economy is shut down." And as he notes, sending checks to people directly will fall short of a solution. Checks will be irrelevant for many, that have secure jobs, and insufficient for many, since it will be too little, or because some people might be directly excluded from such programs, like undocumented immigrants with US born children. Dean's alternative is to send money directly to companies that would keep workers employed and inactive, helping in the recovery too. Of course this solution deals fundamentally with those in the labor market, and not with those in more precarious situations.

I see the problem as being essentially a demand shock, note that the increase in unemployment insurance applications was marked last week, to a great extent associated to Coronavirus layoffs. Obviously nobody would deny the supply side effects of the crisis, even though these are less disruptive in the short run, in my view. Nobody is being laid off because the company is unable to obtain intermediary goods for production, or at least not on significant numbers. It is the sudden collapse of demand that matters. But that misses the point of the kind of demand and supply shocks that have hit the economy. These are localized, uneven shocks and an efficient policy reaction requires targeted interventions. The kind of intervention we need is one that one the demand side tries to maintain the ability of families with cash flows problems (the ones laid off and those that were already outside the formal job market), and on the supply side that redirects production to the sectors that would experiment a surge in demand.

The most typical analogy in times of macroeconomic crises is the Great Depression, and progressives, not incorrectly go searching for ideas in the New Deal tool box. However, the New Deal was mostly about regulation, in its first phase, and about spending, in particular after the Roosevelt Recession. The kind of intervention we need is more akin to World War II, one in which government agencies have ample powers to requisite, produce or fund private corporations to produce what is needed as vital effort for survival, as alluded by Jamie Galbraith in his recent piece on the virus. For example, we need to reconvert the economy to produce more ventilators, which are in short supply, and also to ration the ability of families to hoard certain key central consumer goods, to preclude localized scarcity of essential items like hand sanitizer. We need planning, not just more government spending. And, yes, that means Socialism (or Social Democracy). This was something that no US citizen would have been surprised about, in particular after the incredible collapse of the market economy in the early 1930s, and it should not be a surprise that Socialism is somewhat more popular now. COVID-19 makes it clear why markets cannot cope with global crisis like a pandemic.

Another central element of the World War II effort was the generous and strategic concern with the global impact of US policies. Lend-lease, even before the US entry in the war, was central for allowing the UK resist the Nazi onslaught, and the subsequent program with the Soviet Union was crucial for them to be able to resist, and eventually win the war in the European front. In order to defeat Nazism, the US authorities were willing to cooperate with a Communist government, and provide significant resources. A similar approach should be used to deal with nations that are not seen as allied (like the Soviets then), but that in a particular context should be helped, like Iran, and Venezuela, which are and will be under extreme duress during the pandemic. The negative effects on the US image associated to the tightening of the sanctions, and the impediments to IMF loans under these circumstances, will be hard to reverse.

Finally, some think that this would be a short lived V-shaped recession. Meaning that once the main social distancing policies are lifted, the economy will recover swiftly. Note, however, that the duration of the measures is contingent on its own success. The more successful we are at flattening the curve, meaning reducing the contagion rate, to avoid overwhelming the health system, the longer the economic disruption will be, and the more we would need a planned economy.

PS: Portuguese translation here.

Bernie Sanders: Nothing to Fear Except Fear Itself

By Thomas Palley

“The only thing we have to fear is fear itself.” Eighty-seven years ago those were the words of Franklin Delano Roosevelt in his 1933 inaugural speech. Today, they resonate with Senator Bernie Sanders’ presidential campaign, which confronts a barrage of attack aimed at frightening away voters.

Fear is the enemy of change and the friend of hate. That is why both sides of the political establishment are now running a full-blown campaign of fear-mongering against Sanders.

The Democratic Party establishment likes the economy the way it is and wants to prevent change. Donald Trump and the Republicans have made themselves the party of hate. Both therefore have an interest in promoting fear, which explains the strange overlap in their attacks on Sanders.

Read rest here.

How Keynesianism became a dirty word: not Hayek, the New Deal is the real cause

Noah Smith, now writing regularly for Bloomberg, had a piece on this subject. There are a few good points on how New Keynesians are really followers of Friedman, something Mankiw admitted long ago, and how everybody including conservative economists (meaning GOP economists like John Taylor and Ben Bernanke) are New Keynesians (these would be the potty trained GOP economists, not your supply-side fringe economists like Arthur Laffer). Note that this is essentially correct as pointed out here before, since New Keynesians accept fully Friedman's notion of a natural rate of unemployment, while Keynes explicitly said he wanted to reject the twin concept of a natural rate of interest.

Noah also suggests that Keynes only wanted stabilization policies, and no redistributive policies, which is more open to debate. Keynes was certainly a moderate reformer trying to save capitalism from itself, and was no fan of the Soviet experiment. On the other hand, he was an Asquith liberal, meaning concerned with the expansion of the welfare system, and knew that laissez-faire, if it had advantages in the past, was essentially dead.

In the General Theory (GT) he famously starts chapter 24, on his social philosophy, with the idea that: "the outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes." That is, income distribution is squarely in the middle of his preoccupations, and the socialization of investment at the center of his solution (let alone the euthanasia of the rentier). Using public investment, and one would imagine taxes, to deal with employment and income distribution, plus compressing the remuneration of rentiers, and keeping low rates of interest to expand the safety net, are not simply stabilization policies.

On the main topic of his piece, however, Noah is simply wrong. He argues that the reason why: "people think Keynesianism is socialism-lite [is] the fault of Keynes’s main intellectual opponent, Friedrich Hayek." First, while it's true that Keynes and Hayek had a few debates in the 1930s (but the key Keynesian author in these debates was actually Sraffa, not Keynes), prompted by Lionel Robbins plan to make the London School of Economics (LSE) an alternative to Cambridge, it is preposterous to say that Hayek was the main intellectual opponent of Keynes. In the GT, it was his own teacher Pigou, and the Marshallian tradition in Cambridge that Keynes was battling. In his personal debates Robertson was certainly more relevant than almost any other conventional (Marshallian) economist. Hayek was irrelevant.

Second, Hayek basically vanished, literally, after the 1940s only to reaper in the 1970s as a result of his dubious "Nobel"/Bank of Sweden's prize (see Sissela Bok's, Myrdal's daughter, story on that topic). By that time Keynes and Keynesianism were already dirty words. Early on Keynesian ideas were associated, fairly or not, with Roosevelt and the New Deal in the US, and then to the war coalition government in the UK, the Beveridge Report and the post-war Labour reforms. Keynesian economists were in many cases persecuted, like Lauchlin Currie, the first economist to work inside the White House, and one of the early Keynesians. But by the 1950s and 1960s (particularly after the Kennedy administration) one kind of Keynesianism was dominant anyway (the Kennedy tax cut and the economists working for his administration are the symbol of the dominance of Keynesian ideas).

So you ask why indeed did Keynesianism become a dirty word? Simply because even if Keynes had differences with Roosevelt (FDR was actually a sound finance guy) and with Labour, his ideas did provide the intellectual basis for New Deal policies, particularly after the 1937-38 recession, and for the expansion of the Welfare State in general. The economists that where against these policies by the 1940s were in the minority. Mont Pelerin is, if anything, prove of their sheer irrelevance. Friedman years later would complain about how ostracized he was (but less than Hayek, since he accepted the ISLM/Phillips curve apparatus of the Neoclassical Synthesis Keynesians; and that's why New Keynesians, who are really followers of Friedman, can say they are Keynesian, by the way). Liberalism, in the US sense of the word, was at its height. But the rise of conservatism (Goldwater was a joke back then) eventually transformed liberalism into a dirty word (that's why we use progressive now rather than liberal).

Hayek was resuscitated very much like conservative ideas. By the big bucks of business leaders and their think tanks that were against the New Deal. The rise of Hayek or of his renewed respectability results from the same forces that explain why Keynesianism and the New Deal kind of welfare policies fell in disrepute, to the point that Niall Ferguson could say that Keynesianism was flawed because Keynes was childless and gay. Oh well.

PS: In fact, the title of this blog is related to the view that Keynesianism is a dirty word, and that some people (Galbraith) unashamedly teach naked Keynesianism to innocent college kids. For more see here.

Radical and Heterodox Economics

Radical economics, the term as much as the theories behind it, is fundamentally a phenomenon of the 1960s and the academia in the United States, intrinsically tied to the upheavals of that transformative decade, in particular the Civil Rights movement and the war in Vietnam. The Union for Radical Political Economics (URPE) was the result of that boom in interest for alternative approaches to the mainstream. I don’t intend to write a history of URPE, in this brief post, but I want to contrast Radical Economics with the term Heterodox Economics, which has gained traction more recently (see Ngram viewer figure).

Read rest here.

PS: I started blogging at the URPE blog too. Check it out here.

On why the Golden Age of Capitalism was better than this revived Gilded Age

No need for a lot of discussion. The Golden Age of Capitalism (in the graph 1947-79)--the world that resulted from the reforms to deal with the Great Depression (the New Deal) and the reorganization of the world after the victory against Fascism, with strong unions, high taxes for the rich, and a string of social programs for the poor and minorities--was a better world.

The use of history for political purposes: on the New Deal and the last recession

It is increasingly common to hear stories of how government intervention led the economy astray during the Great Depression, and how FDR’s New Deal actually delayed a recovery that was on its way, e.g. the popular book my Amity Shlaes The Forgotten Man. This view is at odds with the conventional notion in the accepted historiography of the period and with old Keynesian views as exposed by Galbraith (1954), but not with the mainstream of the economic profession. It is important to note that not only old Monetarists like Friedman and Schwartz (1963) or Meltzer (2003), but also New Keynesians like Romer (1992) suggest that the recovery was essentially caused by monetary policy and that the fiscal policies associated with the New Deal were essentially of secondary importance for the recovery.

Read the post here.

Galbraith on Piketty's Capital

I'm still reading the book, so I will not say much at this point. The history of ideas at the beginning of the book is just embarrassingly bad, and suggests that mainstream economists do not have the faintest idea about the history of their own discipline. Just a short example would suffice to show what I mean. Piketty says: “Marx totally neglected the possibility of durable technological progress and steadily increasing productivity.” Note that the book is named Capital, and Piketty is quite critical of Marx. So you would expect some reasonable understanding of what is in the other Capital. If you open chapter XV of Marx's Capital, on Machinery and Modern Industry he tells you:

"Like every other increase in the productiveness of labour, machinery is intended to cheapen commodities, and, by shortening that portion of the working day, in which the labourer works for himself, to lengthen the other portion that he gives, without an equivalent, to the capitalist. In short, it is a means for producing surplus value."

So machinery and increasing productivity are essential for the production of surplus value and the explanation of profits. It is evident that if Piketty read Marx, he didn't understand much. And that is true of almost any citation that involves history of economic ideas (so Roncaglia, previous post, is right, Piketty should take a course in the history of economic thought).

Also, Piketty is in many passages clearly contradictory, taking positions that are not compatible with other assumptions made just before. These contradictions derive basically from his adherence to neoclassical theory, and his desire to transcend it, and say something relevant about inequality. In neoclassical theory inequality results from technical change, and different levels of skills, since workers and capital receive according to their productivity. Political factors should NOT play an important role. Other than the data on inequality, in the collecting of which he has been central together Emmanuel Saez, even if it is far from true that he is the only follower of Kuznets, there is little merit in this book it seems.

Jamie Galbraith provided a good review in Dissent (see here). An important point that Jamie makes is that Piketty botches the argument on the capital debates (again, given the title of the book, it is a bit ironic). Jamie notes: "Piketty devotes just three pages to the 'Cambridge-Cambridge' controversies, but they are important because they are wildly misleading..." and Piketty doesn't get that: "as the rate of interest falls, there is no systematic tendency to adopt a more 'capital-intensive' technology, as the neoclassical model supposed." The implications of the capital debates (for more on that go here) for understanding inequality are associated that once intensity and remuneration are not connected in the way neoclassical theory suggests the bare bones of the social conflicts that are behind income and wealth inequality are exposed.

An appreciation of the limitations of the neoclassical view of capital would lead, according to Galbraith, to a broader understanding of the policies needed to overcome inequality, beyond the tax on wealth proposed by Piketty, and a better understanding of how in a previous era -- of the New Deal and the Welfare State -- it was possible to reduce equally staggering inequities.

Government employment

If you had any doubts, with the exception of the Census in 2010, government employment has gone down significantly since the 2007-8 recession, as shown below.

The most obvious solution is to revive employment programs, like those of the New Deal, the Works Progress Administration (WPA) headed by Harry Hopkins, and the Public Works Administration (PWA) led by Harold Ickes. But in all fairness chances of that happening are slim to none.

Ronald Reagan, the Tea Party, and the Reasons for Recurrent Crises

A follow up on the last post. If FDR and his promise of the Economic Bill of Rights would have implied a completion of the New Deal, it is quite obvious that Reagan was the undoing of it. But that's often not recognized. Bill Maher's new rules last Friday got it right.

Yes Reagan was the original tea bagger, and income inequality, lower growth and more financial instability are the result of his administration. Dean Baker has said that, in a more technical way if you will, in his book The United States Since 1980.

The unfinished project of the New Deal

Saw today (again, but this time with my son) Capitalism a Love Story. At the end there it was Roosevelt's Second Bill of Rights as a reminder of unfinished business. Below the most important part from the State of the Union address.

The whole speech can be read here. In the essential the Bill of (Economic) Rights asked for:

"In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed. 

Among these are: 

The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation; 

The right to earn enough to provide adequate food and clothing and recreation; 

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living; 

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad; 

The right of every family to a decent home; 

The right to adequate medical care and the opportunity to achieve and enjoy good health; 

The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment; 

The right to a good education. 

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being."

And we are still waiting for implementation.

Galbraith on the Great Depression and the 'Great Recession'

A new interview with Jamie Galbraith (and also Leo Panitch), on the possibilities of a New 'New Deal' (part II here). Not much of chance, by the way. Part of the story is that the New Deal was fundamental in institution building, and these very institutions saved us from a crisis similar to the Depression, creating less of a perceived need for continuous reform.

In Jamie's words:

"So an entire system was built that had never previously existed and gave us an economy with a very strong presence of the federal government. And ultimately, as the New Deal progressed, that was extended to very large social insurance programs, which also had never previously existed, Social Security on a continental scale being the lead thing in the 1930s. And then added to that in the 1960s we had the work of the New Frontier, and especially of the Great Society, which extended this especially into health care, where we got Medicare, we got Medicaid, we got a major public presence in what became an increasingly important part of the economy, particularly as the older population grew relative to the rest. So that was the situation that we faced in 2008--a very different climate of expectations and a much stronger frame of public institutions to deal with the problems, and capable of dealing with them often in ways which were practically automatic, in the sense that tax revenues dropped, public spending went up, and people's incomes were not going to collapse the way they did in between 1930 and 1933. So all of that was very much to the benefit of the world in which we live today.

The problem that we have, I think, is that it also deprived us of a sense of urgency and a sense of the possibility of need for major reforms. So we in effect fooled ourselves into believing that the economy would recover in full, returning us to the pre-2008 levels of prosperity, even pre-2000 levels of prosperity, without or with very minor or temporary interventions. We did in fact face a system-threatening--in many ways system-destroying crisis, but we faced it without the sense that it was such. And so we did much less, and what we did in the last five years was designed to be temporary. It was in anticipation of a return to normal which hasn't occurred. And so we have many people who are now becoming to realize a bit late that their expectations are going to be very badly disappointed.

And now we have a rather difficult moment in which we, I think, recognize that we didn't do what we should have done, and yet we obviously do not have the political--we're not in a moment where the political mobilization exists or the climate of crisis exists that permits us actually to move in the right direction--quite the contrary, where it looks as though we're moving distinctly in the wrong direction and will continue to do so for the indefinite future."

In other words, we can expect the slow recovery to continue, and even if we avoid the worst in terms of dismantling of the New Deal institutions (something the GOP continues to push), there is very little, if any, chance of a New New Deal.

Unemployment during the Great Depression

Unemployment remained above normal for a long period after the recovery from the Depression started in 1933. So much so that Galbraith père dictum became famous:  “Hitler, having ended unemployment in Germany, had gone to end it for its enemies.” That is, even if the New Deal was successful it was unable to completely eliminate unemployment, something that only World War II did. The graph below shows two different series for unemployment, one that follows closely the official BLS level by Lebergott, and one by Darby.

The main difference is that Darby includes the workers in the emergency government labor force as employed – the most important being the Civil Works Administration (CWA) and the Works Progress Administration, later renamed Work Projects Administration (WPA). Once the workfare programs are accounted for, the level of unemployment fell from 22.9% in 1932 to 9.1% in 1937, a reduction of 13.8%, which can hardly be seen as a failure, even if the 1937 level is certainly not full employment.

Also, the increase in unemployment with the 1937-38 recession was of only 3.4%, with Darby’s data, and by 1940 it was already at 9.5% falling precipitously with the onset of the war. Mind you, Darby was a traditional Monetarist, at that point at least, having studied in Chicago, and he argued that the reduction in unemployment, once corrected to include the New Deal programs reveals: "a strong movement toward the natural unemployment rate after 1933 [sic]."

The notion that 9.1% unemployment, much lower as a result of direct employment programs, is natural, in any sense is peculiar, to say the least. From my perspective it shows that the New Deal was actually quite more successful than normally presumed. But that's me. By the way, due to other activities I'll be blogging slightly less these following days.

PS: For more go to this paper.

Income Inequality in the US (1917-2010)

Atkinson, Piketty and Saez have a new website on income inequality that provides free access to a lot of data. Below a taste, showing the ratio of average income of the bottom 90% to the average income of the top 10% in the US from 1917 to 2010.

It is clear that the war, and the policies enacted during the 1930s, allowed a significant compression of the income of the top, which has been basically reverted in the last 3 decades, after Reagan and the rise of the Conservative movement. Nothing new, but good to see it this clearly.

La vie en foreclose

That's right, not through pink glasses (i.e. rose). Randy Wray, Charles Whalen and Stephen Roach, all in the same page, asking for debt relief as essential for recovery, since most consumers are still de-leveraging from the housing bubble.

Both Keynes and Irving Fisher suggested that debt-deflation was at the heart of the Great Depression, and in that case debt relief for households should be at the center of the recovery. In the 1930s, the New Deal did provide a lot of debt relief for farmers, on top of trying to raise the prices of agricultural commodities (in order to help famers). Now more is needed in the housing front. The figure below shows how much the debt of the non-financial sector has fallen since the beginning of the crisis.

From the peak in 2008, it has fallen around US$ 700 billions. It's likely to continue. The problem is that consumer spending was tied to the ability to obtain credit, i.e. of getting indebted. And mortgages were central for consumers.

The end of the New Deal as we know it?

So it seems that Obama is willing to play ball with Republicans on the debt-ceiling issue.  Meaning cut Medicare and Social Security in exchange of an increase in the debt limit, increasing planned cuts for the next ten years from somewhere around two to closer to four trillion dollars.  This was reported by the Washington Post, and seems to be in accordance with, not just Obama’s politics, but of the mainstream democrats since Carter and including Clinton, who notoriously ended welfare as we knew it.

It’s incredible that Obama would cave without putting a fight (he says that the WaPo story is overhyped apparently, but suggests that Social Security should be a means tested program!).  This basically implies that the long fight that started with Reagan’s presidency to dismantle the basic achievements of the New Deal will finally succeed under a democratic presidency.  But, on the other hand, it is part of the democratic move to the right, at least on economic issues, since Carter.

The graph shows the rate of growth of median income since 1948.  The average rate of growth until 1979, before the Volcker shock, was 2.4 per cent.  Since the Reagan administration it has been 0.5 per cent.  That is the miracle of trickle down economics.  And it is because the economic performance is so poor that fiscal problems have taken place.  It is ironic that conservatives managed to sell the failure of their policies as the reason why those very same policies should be pursued.

Lucas and Intelligent Design

A friend send me Lucas' Milliman Lecture at the University of Washington (Krugman commented here).  Lucas argues that this crisis was like the depression the result of a significant monetary contraction (he believes in Real Business Cycles, RBC, but only when it is convenient apparently), and suggests that Friedman and Schwartz Great Contraction interpretation of the Depression is correct.  For him recovery was slow (in spite of unemployment falling from almost 25% to around 9% from 1933 to 1936!) because the government intervened and demonized businessmen.  This is basically the same piece of ideological propaganda that Amity Shlaes in her book The Forgotten Man (terrible book, by the way) has been pushing around.

Certain things have to be said again and again because some people keep repeating lies until they become credible.  The New Deal did work (see here)!  Unemployment did fall significantly, and when they tried fiscal adjustment in 1937 (fall in expenses associated with pensions for WWI veterans, and new taxes associated to the Social Security Act) the economy contracted.  There is a reason why everybody in the profession became a Keynesian in the 1940s; because it worked, and the war economy was the ultimate proof of it.

In Lucas' view, recovery depends on the confidence of businessmen.  The question that people that believe in what Krugman aptly calls as the Confidence Fairy have to reply is why would businessmen invest if the economy is in the dumpster, and there is no demand for their goods, let alone to create new capacity by buying machines!  And should I also add that the evidence for investment is that it follows output?!  Logic and evidence have no relation with the sort of stuff Lucas believes, and he should not be taken seriously.

I'll quote again Marriner Eccles, the chairman of the Fed during the Depression, and a Republican from Utah, on the subject of confidence.  He said:

"Confidence itself is not a cause. It is the effect of things already in motion. (...) What passed as a 'lack of confidence' crisis was really nothing more than an investor's recognition of the fact that new plant facilities were not needed at the time."

And Eccles actually knew a thing or two about running real businesses.  Put clearly, lack of confidence is the result of lack of demand.  We need more stimulus, and confidence will return.

Lucas had a poisonous effect on the profession, leading it back to the dark ages of macroeconomics. He wants now to push the same sort of inane idiocy in the policy arena.  He suggests that the slow recovery results from Obama's European style social democratic programs!  Next thing he'll say that Obama is Kenyan.  Lucas and the New Classical Rational Expectations (and RBC) School are the intelligent design of economics.  They should have the same status in the scientific community.