"This House Believes We Are All Keynesians Now"

Brad DeLong and Luigi Zingales debate it at Economist.com

DeLong’s opening statement too effectively arrays a huge amount of intellectual firepower against him. If he could persuasively cut this team of giants down to size, it would be a killer opening. But his response to the challenge he erects seems to amount to the contention that this squad of bona fide geniuses are really benighted halfwits guilty of an elementary error. That’s pretty hard to swallow. Meanwhile, Zingales handily hops over the bar he sets for himself. I liked Zingales’ analogy:

[E]ven the third interpretation of the house statement—that we should follow Keynesian prescriptions to combat the current economic crisis [the interpretation DeLong wants to defend]—is false. I am not disputing the idea that some government intervention can alleviate the current economic conditions, I am disputing that a Keynesian economic policy can do it. With a current-account deficit that in 2008 was $614 billion, a budget deficit that was $455 billion and military expenditures of $731 billion, it is hard to argue that the government is not stimulating demand sufficiently. The current crisis is not a demand crisis, it is a trust crisis. Bad corporate governance coupled with bad government policies has destroyed the financial sector, scaring investors and freezing lending. It is as if a nuclear bomb had destroyed all roads in America and we claimed that to alleviate the economic impact of such an event we should invest in banks. It is possible that eventually the effect will trickle down. But if the problem is the roads, you want to rebuild roads, not subsidise the financial sector. And if the problem is the financial sector, you want to fix this and not build roads.

So far, DeLong is getting crushed in the voting, though he’s working the audience hard in the reader comments. Is that allowed? 

Also, here is Brad debating Michele Boldrin. I haven’t listened yet.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center