If one wanted to make nearly everybody angry at the same time, but also perhaps to draw useful lessons, one could compare and contrast the post hoc search for theories to justify FDR's policies with the contemporary efforts of people like Peter Navarro to come up with post hoc justifications for Trump's policies.
After MR's Tyler & Alex notes on Nobel winning Bernanke, this was a great alternative view.
He was wrong to bail out the banks instead of letting them go bankrupt and rapidly helping the more prudent banks buy and handle the assets, so that the overpaid, over-credentialed H-Y-P-S grad finance banksters get the appropriate market reward/ discipline, being fired, for their over-confident bad to terrible investment decisions.
Paying interest on reserves is obviously wrong as an incentive for more bank lending and expansion - tho it does help less competent banks avoid losses after multiple prior lousy investments.
"since 2008 most macroeconomic research has been written to try to build theories under which Bernanke’s policies were a salve to the economy as a whole, not just the big banks. " This is because only such researchers are being published and rewarded with good jobs. Other economists, like the (hated) Libertarians, are quietly cancelled by being ignored.
John Alcorn points out the huge, and popular, "do something" bias. His "make a difference" bias is related to NOT being ignored.
Re: "The technocratic road that most economists now take arose from their desire to explain, justify, and standardize the interventionist approach that was characteristic of a charming, improvisational leader."
Arnold's explanation of the rise of interventionist economics in the USA after FDR/WW2 is fresh and persuasive.
But why does the interventionist approach persist decades later, in the absence of charismatic leaders? When Nixon stated, after exiting the Bretton Woods system, "We are all Keynesians now," he was hardly considered a charismatic leader. It looks like a separate explanation is necessary to explain the long-term entrenchment of the interventionist approach in the USA.
And why did the interventionist approach achieve international consensus? Were economists in other countries, too, captivated by FDR's charisma? Did European countries have charismatic leaders who improvised in ways similar to FDR?
My intuition is that Arnold has identified a key mechanism, but that historians need to identify additional mechanisms to explain the persistence and international scope of interventionist economics.
I would not underestimate (a) "do something" bias, and (b) the desire of economists to "make a difference" in the public policy.
This is actually quite interesting! Kind of relates to what Taleb says about our ability to explain events better than our ability to understand it. Maybe Econ is fundamentally a downstream of politics and ideology after all.
Keynes said "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. "
But there is a real inverse of that with economists justifying the policies of politicians they like. As Keynes arguably did when writing the General Theory, after some large interventions by governments in the economy.
There is a very interesting book called "Three New Deals" by Wolfgang Schivelbusch that compares the Hjalmar Schacht's ad hoc interventions, Mussolini's Italy and the New Deal.
It's also surely true that 'popular political Keynesianism' is now just we can run deficits because next year we will be chaste...
Would you agree with a modification that says, instead of following a "charming" leader, the movement is built to provide justification to a "powerful" leader? FDR gained immense power over American society and he had policies that he wanted to execute. In order to do so, he set up institutions which supported those policies. In the times that followed, status-seeking intellectuals noticed that findings which supported large government interventions in the economy, but not Communism, were rewarded by the institutions FDR established, whereas other findings were ignored. So the intellectuals spent their efforts developing the theory to support those institutions in order to get recognition, money, etc.
It wasn't that FDR was "charming" and people wanted to associate with him. It was that he was powerful and used that power to install his viewpoints in societal institutions, which resulted in those viewpoints prospering. Intellectual evolution - those viewpoints were more successful at replicating because they had the power of the state behind them.
Is your (meta) point that we should be suspicious of theory because 1) it’s purpose is to justify the acts of preferred actors, and 2) given 1, is not a useful tool for the future? Or is there a particular species of theory (the “charm-induced theory”, let’s say) that is more suspect than other species of theory?
But what explains mis-intervention? An EPA based on command and control rather than taxation, for example? Restrictions on highly skilled immigrants? The movement even farther from free trade? It looks more to me like economists being ignored than giving bad advice?
My question is why the Fed DIDNT just buy something else when inflation AND employment were below target? Isn't that what Bernanke's own research suggested should be done?
And I did not get the idea that QE ever became mainstream. To this day you hear folks talking abut the need at the time for fiscal "stimulus."
If one wanted to make nearly everybody angry at the same time, but also perhaps to draw useful lessons, one could compare and contrast the post hoc search for theories to justify FDR's policies with the contemporary efforts of people like Peter Navarro to come up with post hoc justifications for Trump's policies.
(ducks)
After MR's Tyler & Alex notes on Nobel winning Bernanke, this was a great alternative view.
He was wrong to bail out the banks instead of letting them go bankrupt and rapidly helping the more prudent banks buy and handle the assets, so that the overpaid, over-credentialed H-Y-P-S grad finance banksters get the appropriate market reward/ discipline, being fired, for their over-confident bad to terrible investment decisions.
Paying interest on reserves is obviously wrong as an incentive for more bank lending and expansion - tho it does help less competent banks avoid losses after multiple prior lousy investments.
"since 2008 most macroeconomic research has been written to try to build theories under which Bernanke’s policies were a salve to the economy as a whole, not just the big banks. " This is because only such researchers are being published and rewarded with good jobs. Other economists, like the (hated) Libertarians, are quietly cancelled by being ignored.
John Alcorn points out the huge, and popular, "do something" bias. His "make a difference" bias is related to NOT being ignored.
Re: "The technocratic road that most economists now take arose from their desire to explain, justify, and standardize the interventionist approach that was characteristic of a charming, improvisational leader."
Arnold's explanation of the rise of interventionist economics in the USA after FDR/WW2 is fresh and persuasive.
But why does the interventionist approach persist decades later, in the absence of charismatic leaders? When Nixon stated, after exiting the Bretton Woods system, "We are all Keynesians now," he was hardly considered a charismatic leader. It looks like a separate explanation is necessary to explain the long-term entrenchment of the interventionist approach in the USA.
And why did the interventionist approach achieve international consensus? Were economists in other countries, too, captivated by FDR's charisma? Did European countries have charismatic leaders who improvised in ways similar to FDR?
My intuition is that Arnold has identified a key mechanism, but that historians need to identify additional mechanisms to explain the persistence and international scope of interventionist economics.
I would not underestimate (a) "do something" bias, and (b) the desire of economists to "make a difference" in the public policy.
This is actually quite interesting! Kind of relates to what Taleb says about our ability to explain events better than our ability to understand it. Maybe Econ is fundamentally a downstream of politics and ideology after all.
This is such an excellent post.
Keynes said "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. "
But there is a real inverse of that with economists justifying the policies of politicians they like. As Keynes arguably did when writing the General Theory, after some large interventions by governments in the economy.
There is a very interesting book called "Three New Deals" by Wolfgang Schivelbusch that compares the Hjalmar Schacht's ad hoc interventions, Mussolini's Italy and the New Deal.
It's also surely true that 'popular political Keynesianism' is now just we can run deficits because next year we will be chaste...
Would you agree with a modification that says, instead of following a "charming" leader, the movement is built to provide justification to a "powerful" leader? FDR gained immense power over American society and he had policies that he wanted to execute. In order to do so, he set up institutions which supported those policies. In the times that followed, status-seeking intellectuals noticed that findings which supported large government interventions in the economy, but not Communism, were rewarded by the institutions FDR established, whereas other findings were ignored. So the intellectuals spent their efforts developing the theory to support those institutions in order to get recognition, money, etc.
It wasn't that FDR was "charming" and people wanted to associate with him. It was that he was powerful and used that power to install his viewpoints in societal institutions, which resulted in those viewpoints prospering. Intellectual evolution - those viewpoints were more successful at replicating because they had the power of the state behind them.
Brilliant. The video was quite an intermission.
Is your (meta) point that we should be suspicious of theory because 1) it’s purpose is to justify the acts of preferred actors, and 2) given 1, is not a useful tool for the future? Or is there a particular species of theory (the “charm-induced theory”, let’s say) that is more suspect than other species of theory?
But what explains mis-intervention? An EPA based on command and control rather than taxation, for example? Restrictions on highly skilled immigrants? The movement even farther from free trade? It looks more to me like economists being ignored than giving bad advice?
My question is why the Fed DIDNT just buy something else when inflation AND employment were below target? Isn't that what Bernanke's own research suggested should be done?
And I did not get the idea that QE ever became mainstream. To this day you hear folks talking abut the need at the time for fiscal "stimulus."