What Has Happened to Milton Friedman`s Chicago School? (PDF

What Has Happened to Milton
Friedmanʼs Chicago School?:
Reactions to the Financial Crisis of 20072009
J. Bradford DeLong
University of California at Berkeley and NBER
[email protected]
http://delong.typepad.com
+1 925 708 0467
MTI-CSC Economics Speaker Series Lecture
Civil Service College Auditorium
31 North Buona Vista Rd.
Singapore
http://www.cscollege.gov.sg/cpe/events.html#top
January 7, 2009 6 PM
We stand here in the midst of what consensus regards as the worst episode
of financial distress since the Great Depression of the 1930s itself, and in the
midst of what current forecasts project will be either the second-worst or the
worst global economic downturn since World War II. In the United States
the fall in the civilian employment-to-population ratio in this recession is
already greater than in three of the other eight post-World War II economic
recessions, and another quarter of economic performance as bad as the
fourth quarter of 2008 will make this recession the worst as measured by the
percentage of the U.S. adult working-age population rendered jobless of the
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post-World War II era. This is a bad time to be entering the labor market or
losing your job in the United States. And this is a bad time to be entering the
labor market or losing your job outside the United States as well: as demand
in the United States falls, its role as the global economy’s importer of last
resort and safe haven for finance means that its recessions carry the global
economy as a whole down with it.
Unlike most post-World War II recessions—the red arrows in the figure
above—the current recession was not caused or courted or triggered by
central banks that have shifted state and decided that fulfilling their mission
as guarantors of rough price stability is job number one. The current
recession has come about because of (a) unexpected losses and defaults in
the housing market produced by unwise loans made during a period of
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irrational exuberance, and (b) a collapse in the risk tolerance of the private
sector. These have pushed asset values down, and it is falling asset values
that have triggered this global recession.
There are four factors that can drive the prices of financial assets down:
default, duration, risk, and information. Asset prices can fall if projected
defaults rise—if people believe that the counterparties that have promised to
pay them money in the future simply will not be there when the time to pay
comes, and so the expected future cash payment associated with the asset is
lower. Asset prices can fall if the price of duration—the safe real interest
rate—rises so that even safe and certain cash to be paid sometime down the
road is worth less in terms of cash in hand today. Asset prices can fall, even
if expected values remain unchanged, because of risk—because something
happens to make your marginal utility of wealth lower in those states of the
future world in which the asset’s payoff is high and higher in those states of
the future world in which the asset’s payoff is low. Fourth and last, asset
prices can fall because you no longer trust the market to convey accurate
information: because buyers become suspicious that the fact that sellers
want to sell assets means that there is something wrong with the asset that
the seller knows and the buyer does not.
A few very rough numbers: A year and a half ago, the world had some
US$80 trillion of global marketable financial assets. Today the world has
only US60 trillion. Of this US$20 trillion in losses, roughly US$1 trillion
comes from expected housing-related defaults. Another roughly US$3
trillion comes from other non-housing defaults to be triggered by the
recession—but these would not be there were we not in a recession. These
are counterbalanced by a US$-3 trillion term, a US$3 trillion fall in duration
discounts as central banks have flooded the world with liquidity over the
past fifteen months and flattened the safe intertemporal price structure. So
we have roughly US$19 trillion in losses to be accounted for by rises in the
risk and information discounts—by the facts that the risk tolerance of the
private sector has collapsed and the confidence necessary for liquid markets
that the assets on offer are not heavily adversely selected has collapsed as
well. This means that a focus on housing is misplaced. Housing finance is
5% of the problem. It is the collapse of risk tolerance and the impaction of
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information that are 95% of the problem in financial markets that has
triggered our current global recession.
The collapse in asset values brings on recession because the businesses that
currently ought to be growing have to compete for financing against assets
issued in the past. When financial asset prices are low, firms that ought to
expand must underbid them in order to raise capital, and that makes it
impossible for them to raise capital on terms that make expansion profitable:
Hence they are not expanding. But the businesses that should be shrinking
are still shrinking—and shrinking rapidly. Hence recession: falling
production, falling employment, rising unemployment, losses, and
bankruptcies. And this recession which threatens to become a depression has
no fundamental cause: collectively, the 6.2 billion of us on the globe are no
less skilled and no less productive than we were two years ago; the
commodities we make are no less useful than they were two years ago; our
utility functions have not become more steeply curved to make us more
averse to systematic risk than we were two years ago; and the world has not
become a much riskier place than it was two years ago.
This kind of a financial crisis—unexpected losses feeding into a collapse in
risk tolerance which sends asset prices down and cuts firm expansion off at
the knees—has happened irregularly for at least 180 years since the world’s
transformation from a mercantile-commercial to an industrial-technological
economy. And for at least 165 of those years—ever since the 1844 debate in
the Palace of Westminster on the renewal of the charter of the Bank of
England—central banks and governments have had a standard response to
this: prop up asset prices, head off mass bankruptcies, guarantee liquidity,
and so try to keep the economy within hailing distance of full employment
because there are some market prices that are too important to the people’s
livelihood to be left to the play of free market forces when free market
forces say that they must collapse rapidly. This is to a great extent a
profoundly conservative policy in a Burkean sense: it has evolved gradually
and it seems to work less badly than alternative policies we can reliably
envision and forecast—certainly the one big episode in which the world’s
economic policymakers did not attempt to support asset prices in a financial
clash is now called the Great Depression.
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This is the policy road that we have been walking down for the past eighteen
months now. The high politicians of the globe have been taking the advice
of their economic advisers—the Bernankes and the Paulsons and the
Trichets and the Kings and now the Summerses and the Geithners and the
Romers and all the rest—that this is indeed one of those times when the
prices of financial assets are prices too important for the people’s livelihood
to be left right now to the play of free-market forces. Since the late summer
of 2007 the assembled central banks and governments of the globe have
been attempting to keep the global economy near full employment and avoid
the collapse of asset prices without forcing the globe’s taxpayers to pay for
the losses and enlarge the fortunes of financiers who ought to have known
more and better about the risks that they were bearing and assuming in the
mid-2000s. The task is, to repeat what Charlie Kindleberger said, one that is:
riddled with... ambiguity, verging on duplicity. One must
promise not to rescue banks and merchant houses that get
into trouble, in order to force them to take responsibility for
their behavior, and then rescue them when, and if, they do
get into trouble for otherwise trouble might spread...
The task is to undertake the minimal intervention that will keep the globe
near full employment—for a larger than necessary intervention enriches
those who ought not to be enriched, assures those who will participate in the
next wave of speculation that they too will be made whole by global
governments, and creates the possibility of another inflationary episode that
will in turn have to be curbed by another global recession as painful as 1982.
But in the end the financial rescues and the market support ought—or
must—be undertaken, for the worries about “moral hazard” and “unjust
enrichment” are only a very small part of what has been going on since the
collapse of the risk tolerance of the financial sector.
This advice that the globe’s economic policymakers are taking has a long
heritage: it was the conclusion of Sir Robert Peel who as First Lord of the
Treasury managed the renewal of the Bank of England’s charter in 1844; it
was the conclusion of John Maynard Keynes who ranted in the 1930s
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against those who believed the Great Depression had to be suffered when it
could be cured as easily as you can cure a dead battery in your car some
morning; it was the conclusion of Milton Friedman whose big book on
monetary history in the 1960s argued that the Great Depression could have
been cured with even smaller interventions in prices than those advocated by
Keynes—that all that would have had to happen would have been proper
support of asset prices via much larger open market operations by the
Federal Reserve and bank creditor guarantees to prevent the collapse of the
money multiplier and the hoarding of cash in the 1930s. If you had asked me
two or years ago what economists would have advised in big financial crisis
like the current one, I would have said that of course economists would
converge on a consensus that now was a time to follow the line of the PeelKeynes-Bernanke axis—that these issues had been settled as a matter of
practice if still debated as matters of theory since 1844; that all agreed that
this was one of the times when Say’s Law was not true in theory and thus it
was the business of the central banks and the governments to make it true in
practice.
And I would have been wrong. For right now there are a substantial number
of economists—most but not all of them associated with Milton Friedman’s
University of Chicago and his Chicago School—who are deviating from
what I call the Peel-Keynes-Friedman axis and saying that the world’s
central banks and governments should not be taking action to support global
asset prices right now and should not be worried about heading off or
reducing the current rise in global unemployment. I think that these
economists are wrong—Martin Wolf of the Financial Times put the case
against them best and shortest just before Christmas, writing:
Austrians… argued [in the Great Depression] that a purging
of… [speculative] excesses… was required. Socialists
argued that socialism needed to replace failed capitalism…
This same moralistic debate is with us, once again.
Contemporary “liquidationists” insist that a collapse would
lead to rebirth of a purified economy. Their leftwing
opponents argue that the era of markets is over. And even I
wish to see the punishment of financial alchemists…
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Dismissing the advocates of sitting-on-our-collective-hands as engaged in
the wrong project:
Keynes’s genius—a very English one—was to insist we
should approach an economic system not as a morality play
but as a technical challenge…. Keynes would have insisted
that such approaches are foolish…
And summing up:
[O]ne should not treat the economy as a morality tale….
Markets are neither infallible nor dispensable. They are
indeed the underpinnings of a productive economy and
individual freedom. But they can also go seriously awry
and so must be managed with care…
Let me give some examples of economists who think that governments
should do nothing or perhaps nothing further about the crisis—that the
recession is more to be welcomed than fought—who are opposed to the
Peel-Keynes-Friedman axis and instead allies of what I will call the MarxHoover-Hayek axis:
The first example is John Cochrane of the University of Chicago, who is a
very smart man—the author of what I think are the best papers on the topic
that is called either mean reversion in stock prices or time-varying expected
returns. Yet John Lippert of Bloomberg News reports that John Cochrane
and his colleagues at the University of Chicago could not see any logic in
the U.S. Treasury’s financial-support policies:
John Cochrane was steaming as word of U.S. Treasury
Secretary Henry Paulson’s plan to buy $700 billion in
troubled mortgage assets rippled across the University of
Chicago in September…. “We all wandered the hallway
thinking, How could this possibly make sense?” says
Cochrane, 51, recalling his incredulity at Paulson’s attempt
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to prop up the mortgage industry and the banks that had
precipitated the housing market’s boom and bust…
The response, of course, is that the logic is the same Burkean logic that
underpins the policy recommendations of the Peel-Keynes-Friedman axis.
Times of falling asset prices (relative to consumer-good prices) are followed
by times of high unemployment and low incomes. Workers are thrown out
of capital goods-producing industries and have no alternative opportunities
for employment—and then their cutback of their own spending magnifies
the problem. By contrast, times of falling consumer-good prices (relative to
asset prices) are not followed by periods of high unemployment and low
incomes. Workers are not pushed out of consumer goods production into
unemployment, but are pulled out of consumer goods production into
capital-producing industries. This asymmetry means that all of us care much
more about falling than about rising asset prices—and creates a strong case
for global governments and central banks to do something to keep asset
prices from collapsing and unemployment from rising. That was what was
settled by First Lord of the Treasury Sir Robert Peel back in 1844.
V.V. Chari, Larry Christiano, and Pat Kehoe—also of the Chicago
School—wrote a Minneapolis Federal Reserve working paper in which they
challenged the belief that the financial crisis was going to lead to significant
falls in unemployment and output because they did not believe that falling
financial asset prices made it difficult for firms that ought to expand to
acquire funding. They wrote:
One view of the current situation that might justify
[government] intervention is that projects that are well
understood not to be risky cannot get funding… because
the weak balance sheets of the bank force them to pass on
what otherwise would be very profitable loans….
[D]ocumenting this view will be an uphill battle because
many versions of this view would imply large profit
opportunities for the subset of banks with relatively healthy
balance sheets…
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With a fourth quarter of 2008 that looks as though it is coming in with
output falling at a 5.5% annual rate and a 3.5% forecast annual rate of
output decline for the first quarter of 2009, it looks as though output this
quarter in the U.S. will be 2.25% lower than it was last fall—and thus we no
longer have to deal with the argument that financial distress is a ripple in the
veil that will not affect real resource allocation and employment.
A third example is Casey Mulligan, also from the University of Chicago,
also a very intelligent man, who argues that the rise in unemployment
should not be a matter of concern because it is what workers want to do: this
year some workers who wanted to work two years ago are unwilling to do
so. In a New York Times article titled, “Are Employers Unwilling to Hire, or
Are Some Workers Unwilling to Work?” he writes that:
Employment has been falling over the past year.... [Today
s]ome employees face financial incentives that encourage
them not to work.... [T]he decreased employment is
explained more by reductions in the supply of labor (the
willingness of people to work) and less by the demand for
labor (the number of workers that employers need to hire)...
He does not say why workers are all of a sudden unwilling to work when
there has been no significant change in taxes, technologies, or resource
constraints, or why this outbreak of work aversion just happens to come at
the same time as an unconnected financial crisis. But he is joined in his
belief that governments should welcome rather than try to head off rising
unemployment, by John Cochrane, who says:
We should have a recession. People who spend their lives
pounding nails in Nevada need something else to do.
He doesn’t explain why the process of moving them out of construction in
Nevada into other industries in other places requires that they be rendered
unemployed for months or years when the process of moving them into
construction in Nevada from other industries in other places did not so
require.
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All of these people are very clever. All of these people regard themselves as
true believers in the Chicago School. And if Chicago School founder Milton
Friedman were alive today Friedman would be spinning in his grave. Milton
Friedman did not believe that unemployment after a boom had to be high as
part of the process of transferring resources out of capital goods
production—Friedrich Hayek, who did think so, “was a great man, a great
moral philosopher, and a great economist,” Friedman liked to say, “but not
for his contributions to business cycle theory.” Milton Friedman did not
believe that high unemployment after a financial crisis was a benign
phenomenon driven by changes in workers’ preferences: the condemnation
of Depression-era monetary policy in Friedman and Schwartz’s Monetary
History of the United States for the unemployment it caused is one of the
most severe judgments ever made by an economist on economic
policymakers. Milton Friedman did not believe that the monetary economy
was a veil whose ripples should be presumed to be decoupled from
fluctuations in output, employment, and prices. And Milton Friedman did
not believe did believe that there were some prices that were too important
to be left to the play of free market forces—that when the money stock and
the flow of aggregate demand started down, it was the business of the
government to boost asset prices via open market operations and bank
rescues until they were once again stable. Friedman’s disagreements with
Peel and Keynes were, I think, technical ones: which asset prices to
intervene to boost, how much, under what conditions, and how cautious one
needed to be in extending its powers given the long and variable lags
between government policy moves and their effects on employment, output,
and prices.
And now I have finally arrived at my three questions for the evening:
•
Why aren’t the members of the Chicago School today—Kehoe,
Chari, Christiano, Cochrane, Mulligan, and many many others—the
disciples of Milton Friedman as far as stabilization policy is
concerned?
•
Whose disciples are they, instead?
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•
And why?
Let me see if I can come up with some tentative answers.
The intellectual issue is important because those who want governments to
sit on their hands have influence, and may block or delay the actions that
economists from the Peel-Keynes-Friedman axis are recommending to try to
keep the global economy near full employment. I believe that this crisis is
almost surely going to be resolved without a full depression. The “surely” is
because we do not face any insurmountable technocratic problems of policy
design—we know how to conduct monetary policy to reduce safe interest
rates and to banish any fear of large-scale deflation; we know how to
nationalize and then reprivatize banking systems; we know how to use
temporary albeit large-scale government spending programs to put people to
work and boost demand. But the “almost” is because we do face political
and intellectual problems of goodwill and of comprehension of our
economic situation instead. Without intellectual support, however, the
political problems would be minor. Without political allies, the intellectual
and ideological difficulties would be a mere curiosity. As it is they are more.
The political problems come from the government of Germany—unwilling
to tolerate any increase in the total governmental debt of the European
Union, even an increase that is highly beneficial to the economy as a
whole—and the Republican Party in the United States—unwilling to do
anything other than to try to block the Obama-Biden administration in
whatever it attempts. In Germany, the historical memory of the budget
deficits of the early 1920s and their end in hyperinflation is still remarkably
strong. In the United States, the Republicans remember that blocking the
initiatives of the last Democratic President, Clinton, in 1993 and 1994 led to
a drumbeat of press stories claiming that Clinton’s presidency was a failure
in 1994—and to massive Republican election victories at the end of 1994.
But without intellectual and ideological backing the German Christian
Democratic and American Republican parties would be silent, for they
would focus on how blocking the macroeconomic stabilization policies of
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governments as the world economy edges closer to depression is to accept
blame for whatever increases in unemployment do occur.
The principle that there are some prices that are too important to be left to
the free play of market forces was challenged in the 1930s, when Britain’s
economy had become too small for the Bank of England to be the central
bank for Europe and when the administration of U.S. President Herbert
Hoover was bespelled by his Treasury Secretary, Andrew Mellon, who had
a moral objection to market intervention and thought that “even a panic
would be not altogether a bad thing.”1 Friedrich Hayek and Joseph
Schumpeter led those “Austrian” economists who tried to build theories in
which government attempts to cure recession caused more harm than good.
Behind Hoover and Hayek stands the figure of Karl Marx, who critiqued the
coming of modern central banking at its origin in the 1840s and thus stands
at the head of the Marx-Hoover-Hayek axis.
The policies recommended did not turn out well. We can dispute what
should have been done in the Great Depression, but hands-off was the
wrong policy. This lesson of the Great Depression was reinforced by the
experience of Japan in the 1990s, where governmental hesitancy in taking
action in the hope that the market system would soon cure its own diseases
was not rewarded.
The Marx-Hoover-Hayek Axis
1
J. Bradford DeLong (1990), “’Liquidation’ Cycles: Old-Fashioned Real
Business Cycle Theory and the Great Depression” (Cambridge, MA:
Harvard University Department of Economics)
http://tinyurl.com/dl20090105.
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Nevertheless the Marx-Hoover-Hayek axis has adherents today: Kehoe,
Chari, Christiano, Cochrane, Mulligan , to name five. And I think that the
best way to understand what they do think is to go back in history, back to
the 1844 founding of central banking. Marx’s critique back in 1844 at the
founding of central banking was that it was fruitless to seek through
financial manipulation to cure the disease because it was not a financial
malady in the first place. As Marx wrote,2 financial crises were: “the great
storms of the world market in which the conflict of all the elements of the
capitalist process of production discharge themselves” and yet for Peel and
his allies the “origin and remedy were sought in the most superficial and
abstract sphere of this process, the sphere of money-circulation.” That, Marx
thought, could not have been right—and Peel was a fraud: “Peel himself has
been apotheosized in the most exaggerated fashion... his speeches consist of
a massive accumulation of commonplaces, skillfully interspersed with a
large amount of statistical data…”
The critique in the 1930s from Herbert Hoover and Friedrich Hayek was
once again that the malady was not a financial one. The fundamental
problem was overinvestment. Something—irrational exuberance or
fractional reserve banking or loose monetary policy—had pushed the
market’s tolerance for risk above “sustainable” levels, the economy had
responded by “overinvesting” in capital, and no cure was possible that did
not involve a recognition that capital had been overinvested and wasted and
that the economy’s capital stock needed to shrink. It was Herbert Hoover’s
Treasury Secretary Andrew Mellon who argued most vociferously that
government must keep its hands off and let the slump liquidate itself. In
Hoover’s words:
“Liquidate labor, liquidate stocks, liquidate the farmers,
liquidate real estate”… Even a panic was not altogether a bad
thing. [Mellon] said: “It will purge the rottenness out of the
system. High costs of living and high living will come down.
2
Karl Marx (1894), Capital vol. 3 http://tinyurl.com/dl20090105f.
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People will work harder, live a more moral life. Values will
be adjusted, and enterprising people will pick up the wrecks
from less competent people”…
Marx’s solution was full communism: the overthrow of the capitalist mode
of production, the abolition of private property, and the replacement of our
current social system with a utopian free society of associated producers.
Hoover’s and Hayeks solution was that we had to wait it out; the capital
stock of the global economy has to fall, and anything that interferes with
that fall simply makes matters worse--worse in the long run, if not in the
short run.
The underlying logic being adopted by the Marx-Hoover-Hayek axis is
relatively simple. It is:
•
The market’s price signals are right.
•
The market’s price signals are saying that the economy has “too
much” capital.
•
Something must have gone wrong in the past to create this “too
much” capital.
For Marx the “something” is increasing returns to scale as the fact that
the biggest producers are the most efficient leads all businesses to
expand even though demand will then allow only a few to survive; for
Hayek it is usually fractional-reserve banking and the government’s
printing press backed up by the legal restrictions that support fiat money
that creates excessive credit and the fiction that the economy can have a
larger-than-sustainable capital stock; for Hoover and Mellon it is the sins
of feckless and un-Calvinist speculators who want to get something for
nothing. For all there is nothing—within the current mode of production
at least—that can be done except to suffer until the economy’s capital
stock has once again fallen back to its sustainable value.
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As a matter of empirical reality, this story is false as applied to our financial
crisis today. Losses due to “overinvestment” are a very small fraction of the
global financial losses. Had we suffered three times as much in real housing
overinvestment and mortgage security losses but had these losses been
broadly distributed rather than concentrated in those who sought to make
money by wittingly or unwittingly bearing tail risk, we would not now have
a serious global crisis. We can see this by looking back eight years: in 2001
we did have three times the losses in proportion to the financial economy in
the computer and the telecom sectors, but nobody in 2001 was worried
about depression or speaking of the worst financial crisis in seventy-five
years.
So why then are people attracted to it? The American Republican and
German Christian Democratic parties are attracted to it because it gives
them an intellectual and ideological excuse to be in opposition to the
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Obama-Biden administration and to the French-led European nearconsensus, but why on an intellectual and ideological level are people
attracted to these doctrines? Here I am out of my depth. But I do have two
ideas, which I put forward tentatively and cautiously—two sets of factors to
blame.
The first factor I want to blame is the late Milton Friedman. As I read him,
Friedman was a leader of the Peel-Keynes-Friedman axis—a believer that
Say’s Law was not true in theory but that through limited and tactical
interventions government could make it true in practice. Milton Friedman
was a great economist, but also a great debater and a great rhetorician. And
he did not especially like being a member in good standing of the PeelKeynes-Friedman axis. You see, he believed that almost all government
interventions in the economy were doomed to be destructive: only those
interventions in the banking sector needed to keep the economy’s stock of
liquidity and flow of aggregate demand on an even keel were on average
welfare-improving. But asserting those beliefs was rhetorically difficult: can
you say that laissez-faire is the general rule but that there is one industry in
which the government must be constantly intervening and one product—the
economy’s supply of liquidity, the output of the retail banking
sector—where the government must be acting so as to make sure that the
right quantity is supplied whether the free market wants to or not? To try to
make that argument is to expose that it is rhetorically weak, even if it is true.
Better, Friedman thought, to take a different rhetorical tack: to say that
laissez-faire is the rule, and that as far as the banking industry is concerned
the laissez-faire policy is the one that makes the money stock of currency
plus checking account deposits grow at a constant nominal rate of k% per
year. But, of course, this really isn’t a laissez-faire policy if there are shocks
to the risk tolerance and liquidity preference of the private financial market,
and I think that the past eighteen months show us that there are.
So I think that a big part of the problem is that Milton Friedman did not
teach his disciples—that they repeat the mantra that the right monetary
policy is a free-market laissez-faire monetary policy by which the central
bank sets the growth rate of the nominal money stock at k% per year and
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they never did inquire as to what that really meant or how it was to be
accomplished in the world in which we live.
The second factor that I want to blame is the second-century A.D. John of
Patmos, author of the last book of the Christian Bible, the Revelation of
Saint John the Divine. That book deeply inscribed in western culture the
beliefs that transgression is sin, that sin is judged, that the outcome of
judgment is punishment, and that punishment is inescapable—that the order
of the universe is such that those who transgress cannot escape the due
consequences of their transgression. Those who thought that financial
engineering had allowed them to successfully lay off risk or that house
prices would rise forever transgressed, and the rest of us transgressed with
them and must suffer punishment with them. This is, as Martin Wolf says,
the wrong mode with which to approach the problem:
Austrians… argued [in the Great Depression] that a purging
of… [speculative] excesses… was required. Socialists
argued that socialism needed to replace failed capitalism…
both views… [are] grounded in alternative secular
religions…. [E]ven I wish to see the punishment of
financial alchemists…. [But] we should approach an
economic system not as a morality play but as a technical
challenge…. [O]ne should not treat the economy as a
morality tale…. Markets are neither infallible nor
dispensable. They are indeed the underpinnings of a
productive economy and individual freedom. But they can
also go seriously awry and so must be managed with care…
I think Martin Wolf is right. From my vantage point, at least, the causes of
potential cures of our current financial malady are clear, And the
consequences of failing to take the appropriate action are also clear. But
there is no reason for us as a globe to fail—if we do fail, it will only be
because we have ourselves forgotten things about the limits of the market
system that the rulers of the British empire understood very well 164 years
ago. Economic policy knowledge will have to have gone that far
17
backwards—and economics will have to have become a branch not of moral
philosophy but of moral theology.
References
J. Bradford DeLong (1990), “’Liquidation’ Cycles: Old-Fashioned Real
Business Cycle Theory and the Great Depression” (Cambridge, MA:
Harvard University Department of Economics)
http://tinyurl.com/dl20090105.
Economagic Data Website http://economagic.com/.
Charles Kindleberger (1978), Manias, Panics, and Crashes: A History of
Financial Crises (New York: Basic Books: 0471467146).
Charles P. Kindleberger (1984), A Financial History of Western Europe
(London: Allen and Unwin: 0195077385).
Paul Krugman (2008), The Return of Depression Economics and the Crisis
of 2008 (New York: W.W. Norton: 0393071014).
Steven Levitt (2008), “The Financial Crisis and the ‘Chicago School’,”
Freakonomics (December 26) http://tinyurl.com/dl20090105d.
N. Gregory Mankiw (2007), “How to Avoid Recession? Let the Fed Work,”
New York Times (December 23) http://tinyurl.com/dl200890103.
Karl Marx (1894), Capital vol. 3 http://tinyurl.com/dl20090105f.
Robert Peel (1847), “Letter on Suspension,” British Parliamentary Papers
2, p. xxix.
18
Christina D. Romer and David Romer (2004), “A New Measure of
Monetary Shocks: Derivation and Implications,” American Econmic Review
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