Re: [Pen-l] Brad deLong on the sudden shrinkage of global capital

["Jim Devine" <jdevine03@xxxxxxxxx>]

Julio Huato wrote:
> http://www.cato-unbound.org/2008/12/08/j-bradford-delong/liquidity-default-risk/
>
> I'd think this is an interesting way to frame the questions.
>
> Why oh why can't we have better theories of the crisis?

Brad's paper is, as usual, quite intelligent. (I haven't read enough
to agree or disagree with the total package, but I do agree with his
opposition to the "Austrian" school.) But I don't get the assertion
that "we" don't have better theories of crisis.

FWIW, "my" theory of the crisis does not contradict the basic ideas of
Keynesian ones of the sort that Brad uses. My view says that the
current crisis is a result of the housing bubble and the excessive
expansion of credit that went along with it, where the latter is
partly the result of financial deregulation (pace Gramm, Rubin, etc.)
In addition, likely going beyond Keynesian bounds, I argue that given
the current political economy (with its "underconsumption undertow"),
the only way the US economy would have gotten the last two
business-cycle upswings is via either (1) bubbles or (2) government
deficit spending. The latter didn't happen during the Clinton bubble
and didn't happen in a big way during the Bush bubble.
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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