J. Bradford DeLong's Blog, page 2141

In Europe: Balanced Deflation, or More Depression

Barry Eichengreen:

Europe’s Inevitable Haircut : What once could be dismissed as simply a Greek crisis, or simply a Greek and Irish crisis, is now clearly a eurozone crisis. Resolving that crisis is both easier and more difficult than is commonly supposed.... Greece has a budget problem. Ireland has a banking problem. Portugal has a private-debt problem. Spain has a combination of all three. But... all must now endure excruciatingly painful spending cuts. The standard way to buffer the effects of austerity is to marry domestic cuts to devaluation of the currency. Devaluation renders exports more competitive, thus substituting external demand for the domestic demand that is being compressed. But since none of these countries has a national currency to devalue, they must substitute internal devaluation for external devaluation. They have to cut wages, pensions, and other costs in order to achieve the same gain in competitiveness needed to substitute external demand for internal demand.

The crisis countries have, in fact, shown remarkable resolve in implementing painful cuts. But one economic variable has not adjusted with the others: public and private debt. The value of inherited government debts remains intact, and, aside from a handful of obligations to so-called junior creditors, bank debts also remain untouched. This simple fact creates a fundamental contradiction for the internal devaluation strategy: the more that countries reduce wages and costs, the heavier their inherited debt loads become.... So if internal devaluation is to work, the value of debts, where they already represent a heavy burden, must be reduced. Government debt must be restructured. Bank debts have to be converted into equity and, where banks are insolvent, written off. Mortgage debts, too, must be written down....

These are reasonable objections, but they should not be allowed to lead to unreasonable conclusions. The alternatives on offer are internal and external devaluation. European leaders must choose which one it will be. They are united in ruling out external devaluation. But internal devaluation requires debt restructuring.... This is not rocket science. It has been done before. But there are three prerequisites for success.

First, bondholders will need to be reassured that their new bonds are secure.... Second, countries must move together.... Finally, banks that take losses as a result of these restructurings will need to have their balance sheets reinforced. The banks need real stress tests, not the official confidence game carried out earlier this year....

Now we get to the hard part. All of this requires leadership. German leaders must acknowledge that their country’s banks are dangerously exposed to the debts of the eurozone periphery. They must convince their constituents that using public money to provide sweeteners for debt restructuring and to recapitalize the banks is essential to the internal devaluation strategy that they insist their neighbors follow...

Why Are U.S. Interest Rates Finally Going Up?

Ryan Avent:

American deficits: The deal, and the yields | The Economist: [Y]ields that rise because the government's solvency is in question are very different from yields that rise because the private sector is competing for the private savings government has lately gobbled up. Which kind of rise in yields are we seeing now?... Over the whole of the past week, yields have been generally flat, even as it became clear that a deal on the Bush tax cuts was likely. And most of the budget impact in the deal is attributable to the tax extensions that were expected to pass. But the "new stimulus" in the deal—the payroll tax cut and the accelerated depreciation for businesses—was close to a policy surprise. These measures were actually unanticipated by markets. And so it stands to reason that most of the jump in yields is likely due to their inclusion.

What's important to note is that these aspects account for basically all of the new stimulus... but... only add modestly to the budget impact... so it seems reasonable to conclude that most of the rise in Treasury yields is due to improved expectations for the American economy...

Coalition Maintenance 3

Paul Rosenberg:

Open Left:: Obama's time-warp: I've talked about this before, but evidently not nearly enough.  Two major points:

Obama is a raging ideologue.  He is not a pragmatist.  "Pragmatism" is his ideological rhetoric, nothing more.  It's progressives who are the real pragmatists today.  Not all of them, and not all of the time, but it's pragmatism to note that the war on terrorism is a miserable failure, and we need to try something else.  It's also pragmatism to note that (a) law & order responses to terrorism generally work a whole lot better than military responses and (b) soft power--including efforts at dialogue, understanding, humanitarian aid and the like--works a whole hell of a lot better than blowing people to bits.  It's fact-hating ideology to oppose such measures. Likewise, it's pragmatism to use cheap money (damn near free) to invest today in putting people back to work building the green tech and human infrastructure of tomorrow as a way to get out of the recession.    It's fact-hating ideology to reject this as "discredited Keynesianism". And it's scientifically-based pragmatism to get atmospheric CO2 down below 350ppm as soon as possible.  It's fact-hating ideology to reject this as "politically naive" or "extreme" or whatever, as if physics and chemistry give a damn about hominid politics. Starting to see a pattern here, are we?

But here's something more to help fill out the picture.... When Bush came in and blew a hole in the hard won balanced budget by giving tax cuts to millionaires, it was finally irrefutable to even the die-hards that it had all been a fools game and that the DLC experiment was a failure. It was clear that the Republicans had become ideologically bankrupt political terrorists and the Democrats had basically done their dirty work for them. Barack Obama, however, has never agreed with that. Indeed, Sargent is right that he primarily sells himself as a conciliator and a bipartisan deal maker who is doing the best he can in a hostile situation. But then Clinton did too. In fact, all Democrats have thought that since the 1980s. The problem for Obama is that unlike Clinton, the experiment in "pragmatic, non-ideological" politics in the age of GOP nihilism has already been tried. And it failed. (They may have had a nice party for a while, but the hangover is one for the books.) He's living in the past and liberals are trying to drag him into the present.... The exact reverse of Obama's standard Versailles-approved shtick.  Turns out that he's the one wedded to the failed policies of the past. The point here is simple: Once upon a time it was at least plausible to argue that liberals were wedded to outmoded ideas and ways of viewing things.... They needed to try new ideas.  And so we did.... We got a president impeached as the result of the 5-year witch-hunt.  We got a presidential election stolen in plain sight by the Supreme Court, while Versailles applauded. We got a balanced budget which the GOP immediately plundered to plough enormous wealth into their their rich and super-rich base.  In short, we got an epic political and policy failure.  That's what digby is reminding us of. So, after all that, one can no longer adopt the Clintonian policy position on the grounds of pragmatism.  Although it had some limited successes, that position overall has proven itself to be a spectacular failure.  Ergo, those who continue pushing it are doing so as a matter of ideology (or pure corruption, take your pick). Now, because of past history, they may adopt a rhetoric of "pragmatism" and even profess an ideology of "pragmatism" ("We're doing this to solve America's problems.")  But the clear reality is that there's nothing whatsoever actually pragmatic about what they're doing.  They're either shallow, clueless, unreflective ideologues, or else they're simply shills.

Coalition Maintenance 2

Noam Scheiber:

Barack Obama, Tax Cuts, 2012, And David Axelrod: Inside A Divided White House: By any measure, the first few weeks after the midterms were hardly encouraging. The president gave a low-energy press conference, then jetted off to Asia for ten days; the advisers he left behind seemed rootless and out of sorts.... [T]he White House settled on the contours of a plan: Obama would refocus on reforming government and transcending partisanship—something they felt voters craved. “It was back to the first principles he stood by in the campaign,” says the strategist. This was, among other things, the impetus behind embracing a ban on congressional earmarks and freezing federal pay. Both initiatives raised hackles among congressional Democrats and liberals, and stirred suspicions that Obama was bent on Dick Morris–style triangulation. But the charge is unfair. Obama has a longstanding appetite for good-government initiatives....

[T]he Obama people and even many on the Hill believe the elections have altered this dynamic. “The Republicans for the first time share some responsibility for cleaning up the mess,” says Chris Van Hollen, soon to be the ranking Democrat on the House Budget Committee. It’s one reason, adds the White House–friendly strategist, that “we’re probably in a better position now than if we’d barely held control of the House.” Nowhere is the continuity motif more evident than the president’s midcourse personnel decisions. So far, the White House has replaced its budget director, national security adviser, and Council of Economic Advisers chair with internal candidates.... Other than Larry Summers’s replacement at the National Economic Council, where the administration has hinted at a fresh face, the only real possibility for a high-profile outsider is chief of staff.... Last summer, John Podesta, the Clinton ex-chief of staff who runs the influential Center for American Progress, became alarmed at the lack of pushback against the Bush tax cuts. To goad the administration into action, he organized a debate between Treasury Secretary Timothy Geithner and Douglas Holtz-Eakin, a former adviser to John McCain. Podesta’s gambit was only a partial success. Geithner, who’d previously weighed in on the issue, joined the campaign to bury the upper-income cuts when they expire in January. But, except for one forceful speech in September, the president stayed mostly on the sidelines.

The missteps that led to the likely two-year renewal of the Bush tax cuts highlight the danger in the White House’s aversion to course corrections....

Within the administration, the split over whether to mount a tax-cut offensive broke down largely along wonk-operative lines. The wonks spent the last year mystified that the White House was ducking the fight when the substantive merits were so one-sided. The operatives brooded that the politics could abruptly turn against them, despite polling showing little public appetite for the upper-income cuts. “They view it through the class warfare stuff—Kerry in 2004, Gore in 2000,” says one administration official. “They worry that they’ll get painted as lefties, tax-raisers.” At key moments, including one internal discussion this spring, the political team declined to make a concerted push before Election Day. “The political people were like, ‘It’s a mess, let’s not deal with it now,’ ” says another official involved.... The operatives were rightly put off by the cowardice of Senate Democrats. What they didn’t grasp was the structural advantage of a White House in framing a debate. The West Wing’s reluctance to exploit this advantage was a bitter irony given that polls showed Obama to be highly effective on the tax question as a candidate. “Obama thinks there are campaigns and there’s governing, and never the twain shall meet,” laments one Democratic consultant. Indeed, in his statement on the compromise, Obama seemed to relish a return to the issue in 2012...

Coalition Maintenance 1

Oooh boy.

Barack Obama:

TRANSCRIPT of Dec 6 press conference: Well, look, I’ve got a whole bunch of lines in the sand. Not making the tax cuts for the wealthy permanent — that was a line in the sand. Making sure that the things that most impact middle-class families and low-income families, that those were preserved — that was a line in the sand. I would not have agreed to a deal, which, by the way, some in Congress were talking about, of just a two-year extension on the Bush tax cuts and one year of unemployment insurance, but meanwhile all the other provisions, the Earned Income Tax Credit or other important breaks for middle-class families like the college tax credit, that those had gone away just because they had Obama’s name attached to them instead of Bush’s name attached to them.

So this notion that somehow we are willing to compromise too much reminds me of the debate that we had during health care. This is the public option debate all over again. So I pass a signature piece of legislation where we finally get health care for all Americans, something that Democrats had been fighting for for a hundred years, but because there was a provision in there that they didn’t get that would have affected maybe a couple of million people, even though we got health insurance for 30 million people and the potential for lower premiums for 100 million people, that somehow that was a sign of weakness and compromise.

Now, if that’s the standard by which we are measuring success or core principles, then let’s face it, we will never get anything done. People will have the satisfaction of having a purist position and no victories for the American people. And we will be able to feel good about ourselves and sanctimonious about how pure our intentions are and how tough we are, and in the meantime, the American people are still seeing themselves not able to get health insurance because of preexisting conditions or not being able to pay their bills because their unemployment insurance ran out.

That can’t be the measure of how we think about our public service. That can’t be the measure of what it means to be a Democrat. This is a big, diverse country. Not everybody agrees with us. I know that shocks people. The New York Times editorial page does not permeate across all of America. Neither does The Wall Street Journal editorial page. Most Americans, they’re just trying to figure out how to go about their lives and how can we make sure that our elected officials are looking out for us. And that means because it’s a big, diverse country and people have a lot of complicated positions, it means that in order to get stuff done, we’re going to compromise. This is why FDR, when he started Social Security, it only affected widows and orphans. You did not qualify. And yet now it is something that really helps a lot of people. When Medicare was started, it was a small program. It grew.

Under the criteria that you just set out, each of those were betrayals of some abstract ideal. This country was founded on compromise. I couldn’t go through the front door at this country’s founding. And if we were really thinking about ideal positions, we wouldn’t have a union.

So my job is to make sure that we have a North Star out there. What is helping the American people live out their lives? What is giving them more opportunity? What is growing the economy? What is making us more competitive? And at any given juncture, there are going to be times where my preferred option, what I am absolutely positive is right, I can’t get done.

And so then my question is, does it make sense for me to tack a little bit this way or tack a little bit that way, because I’m keeping my eye on the long term and the long fight — not my day-to-day news cycle, but where am I going over the long term?

And I don’t think there’s a single Democrat out there, who if they looked at where we started when I came into office and look at where we are now, would say that somehow we have not moved in the direction that I promised.

Take a tally. Look at what I promised during the campaign. There’s not a single thing that I’ve said that I would do that I have not either done or tried to do. And if I haven’t gotten it done yet, I’m still trying to do it.

And so the — to my Democratic friends, what I’d suggest is, let’s make sure that we understand this is a long game. This is not a short game. And to my Republican friends, I would suggest — I think this is a good agreement, because I know that they’re swallowing some things that they don’t like as well, and I’m looking forward to seeing them on the field of competition over the next two years.

Paul Krugman comments:

The Sorrow And The Self-Pity: There is a case for the tax cut deal, as the best of a very bad situation. But Obama did not help that case yesterday by lashing out at “purists”. Leave aside the merits for a moment: what possible purpose does this kind of lashing out serve? Will activists be shamed into recovering their previous enthusiasm? Will Republicans stop their vicious attacks because Obama is lashing out to his left? It was pure self-indulgence; even if he feels aggrieved, he has to judge his words by their usefulness, not by his desire to vent. This isn’t about him. And beyond that, who are these purists? Yes, a few people on the left refused to support health reform over the lack of a public option — but not many. To the extent that Obama has had trouble selling that plan, “purists” weren’t a factor; his own lack of effective messaging was.

On taxes: there might be more forgiveness now if Obama had shown any sign of fighting before now. A new article by Noam Scheiber confirms the impression I and others had that the administration really didn’t push Congress to take up the issue:

Within the administration, the split over whether to mount a tax-cut offensive broke down largely along wonk-operative lines. The wonks spent the last year mystified that the White House was ducking the fight when the substantive merits were so one-sided. The operatives brooded that the politics could abruptly turn against them, despite polling showing little public appetite for the upper-income cuts. “They view it through the class warfare stuff—Kerry in 2004, Gore in 2000,” says one administration official. “They worry that they’ll get painted as lefties, tax-raisers.”

Let me add that Obama has never, as far as I can recall, pointed out that these horrible tax increases on the rich the GOP warns about would bring rates back to what they were under Bill Clinton — a time of enormous prosperity. But then, Obama has always had a weirdly hard time making the case that the Clinton economy refuted Reaganism. Add in the White House’s repeated validations of the right-wing position on the evils of public spending, from the spending freeze to the pay freeze, the appointment of a conservative Democrat and a paleo-conservative Republican to head the debt commission, etc. — and now Obama expects trust and praise from progressives?

What’s particularly striking is that Obama seems passionate about denouncing his progressive critics, even as he has nice words for the people who have spent two years trying to destroy him.

So look: there’s a policy issue here, and it’s a tough one; you trade off the stimulus Obama extracted now for the increased likelihood that low taxes for the rich will be made permanent, crippling policy for decades to come. But there’s also a character issue: what we really don’t need right now is a president who blames everyone but himself, and seems more concerned with self-justification than with sustaining the alliances he needs.

Department of "Huh?!?!"

Barack Obama:

TRANSCRIPT of Dec 6 press conference: Well, look, I’ve got a whole bunch of lines in the sand.... So this notion that somehow we are willing to compromise too much reminds me of the debate that we had during health care. This is the public option debate all over again. So I pass a signature piece of legislation where we finally get health care for all Americans, something that Democrats had been fighting for for a hundred years, but because there was a provision in there that they didn’t get that would have affected maybe a couple of million people...

I had thought that there were three possibilities with respect to the public option:

Only a couple of million sign up.
Only a couple of million sign up, but the existence of the public option would exert enormous competitive pressure on the rest of the exchange system.
It would turn out that Medicare-for-all would offer the best price/performance tradeoff and the public option would grow to dominate the exchanges.

And I thought that a big reason for the public option was that we had literally no idea what the probabilities of those three possibilities were.

So I do not see how anyone can claim that it was "a provision... that would have affected maybe a couple of million people..."

Department of "Huh!?!?"

Barack Obama:

TRANSCRIPT of Dec 6 press conference « FeudArt: This is why FDR, when he started Social Security, it only affected widows and orphans. You did not qualify. And yet now it is something that really helps a lot of people.

Does anybody have any idea what the frack Obama is talking about here, or why he would think something like this, or why he would say something like this?

SOCIAL SECURITY ACTP.L. 74-271\, approved August 14, 1935, 49 Stat. 620.

AN ACT

To provide for the general welfare by establishing a system of Federal old-age benefits, and by enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled...

No restriction to widows and orphans here...

How Many Economists You Know Can You Meet in Caribou Coffee on a Wednesday Morning?

So far the count is five...

DeLong Smackdown Watch: Paul Rosenberg Sings Talking Heads' "Once in a Lifetime" Department

How did we get here? Paul Rosenberg teases:

Open Left:: Same as it never was: Economics as if the 20th Century never happened.: Thanksgiving weekend I read a lot of stuff relating to economics that I wanted to write about... Brad DeLong's paper, Battered But Not and Beaten, prepared for a late October conference.  I still think it's valuable to consider as much for what it reveals as for what it's puzzled and confused by. In a later diary, this will stand in contrast to a much more lucid overview of our present confused state contained in a more recent paper presented last Wednesday at a Roosevelt Institute panel in NYC, "A World Upside Down? Deficit Fantasies in the Great Recession" by Thomas Ferguson and Robert Johnson....

DeLong's problem is deceptively easy to solve from a distance, particularly by economic laypeople such as myself: he was deeply ensconced in a reality-based discourse, and reality had absolutely nothing to do with it.... DeLong was deeply ensconsed in a fantasy of economic rationality, and the crude realtiy of capitalist unreason smashed his poor little fantasy to bits. DeLong proceeds to give a reasonably lucid account of everything we've been through.... DeLong ticks off seven different types of action that the government could have taken--either fiscally, or monetarily (via the Federal Reserve).... DeLong goes on to note that yes, Senatorial obstruction (mostly, though not entirely from Republicans) was a big part of the problem.... Originally, I was going to offer some critique of DeLong's blind spots.  But... another paper has been published which does a remarkable job of making sense of what ultimately befuddles DeLong.  It's not centered on Obama's circle, but it encompasses that circle as it illuminates a much broader shift in the dynamics of economic hegemony.  I'll discuss that paper, "A World Upside Down? Deficit Fantasies in the Great Recession" by Thomas Ferguson and Robert Johnson, in a diary later today or tomorrow.

But alas, I don't think he delivers:

Open Left:: "A World Upside Down?"--a field biology approach to economic chaos: "A World Upside Down? Deficit Fantasies in the Great Recession" by Thomas Ferguson and Robert Johnson. It was not the primary purpose of this paper to provide therapy for DeLong, merely a side-benefit.... As I understand DeLong, he was summing up his prolonged experience of struggling against the rise of unreason in economic policy-making since late 2008, when the Wall Street crash precipitated the Great Recession. He was, in effect, trying to understand the rise of unreason using the tools of reason--always a dicey proposition, at best.... Ferguson and Johnson succeed... Ferguson's Investment theory of party competition, which focuses attention on economic blocks, rather than median voters....

In... investor-driven systems, the meaning of political competition is very different from its analogue in classical democratic theory: political parties dominated by large investors try to assemble the votes they need by making very limited appeals to particular segment of the potential electorate.... [O]n all issues affecting the vital interests that major investors have in common, no party competition will take place.... Unless significant portions of it are prepared to try to become major investors in their own right, through a substantial expenditure of time and (limited) income, there is nothing any group of voters can do to offset this collective investor dominance.... [T]hey focus attention on a financial crisis brought about in the context of a financial sector recently come to a state of such complete dominance over the rest of the world's largest economy that no one else's interests really count for anything when push comes to shove....

Earlier this summer, in the midst of the greatest economic crisis since the Great Depression, economic policy turned upside down. Instead of promoting recovery and expanding employment, central banks and political elites suddenly focused on cutting budget deficits and raising interest rates. Forget the famous "conservative counterrevolution" in policymaking since the late nineteen seventies - the break with past practice is real and dramatic. Save for a handful of exceptions, like Margaret Thatcher and, far more equivocally, Ronald Reagan, from the end of World War II until a few months ago, even conservative governments threw in the towel when they saw the Invisible Hand waving goodbye....

They have no grand unified theory of everything to explain how thinking has shifted.....But the point is, from Ferguson and Johnson's perspective there is no great mystery here to be unriddled.  The desire to reimpose the disastrous austerity economics of Hoover and Mellon precedes any theoretical foundations. It grabs whatever it can. So long as the need to explain itself can be rendered "inoperative", then who really cares, anyway?  Brad DeLong?  Who is he?  Some guy with a blog?  Paul Krugman?  Isn't he always cranky about something?

There is a good deal more that might be said about this--and that I plan to say, as soon as I've sorted out the clearest way of fitting them together...

Finance is a very powerful interest group, and finance is interested in deregulation. But finance is not interested in austerity.

Back before World War I finance was interested in austerity: their assets were primarily nominal debt, and relatively safe nominal debt as well. They wanted hard money. They did not care much about capacity utilization or employment. But nowadays finance's portfolios are as diversified as anybody's, and financiers lose as much from slack capacity and low demand as anybody.

So right now we have Austerians--our Pointless Pain Caucus--without there being any politically-powerful investor group that benefits from austerity.

Econ 210a: Spring 2011: January 19, 12-1: Why We Study Economic History

Econ 210a: Spring 2011: January 19, 12-1: Why We Study Economic History:

The four required articles for "Why We Study Economic History" together make up a morality play. The hope is that you will read them and thereafter swear to pay a great deal of attention to the history of the economy and of what economists have said lest you wind up like, well, like Eugene Fama--a very smart guy trying to think important issues through over a weekend and getting them wrong.

R.G. Hawtrey's 1925 Economica article is two things. First, it is a piece of analytical backing for the British Treasury's early interwar position that expansionary fiscal policy had no role at all to play in dealing with Britain's interwar high unemployment problem. Second, it is an attempt to do the macroeconomics of nominal (and real) spending determination without thinking hard enough about what the determinants of money demand are. Hawtrey believes that spending is proportional to money-holdings without there being any systematic relationship between (a) the predictability of an organization's spending and the money holdings wanted to back £1 of annual spending flow, or (b) the short-term opportunity cost of holding money and the money holdings wanted to back £1 of annual spending flow. Hawtrey, however, we can excuse: he is one of the first people to try to think these issues through systematically.

John Hicks's 1937 Econometrica paper is there to show how Hawtrey ought to have done his analysis: Hicks does nominal spending determination in a three-good model--money, bonds, and currently-produced commodities--and does it correctly. Second,

These papers are on the reading list to set you up for Eugene Fama's 2009 weblog post, which is also two things. First, it is an attempted political intervention into the debate about the proper shape of macroeconomic policy in early 2009. Second, it is howlingly, stunningly, appallingly wrong. As best as I can see, Eugene Fama believes not just that changes in government purchases cannot alter nominal GDP, but that nothing can alter nominal GDP. There is nothing in his model that distinguishes the government from any other entity, and thus by the time he has gotten to the end of his argument he has proved to his satisfaction that the flow of nominal spending through the economy must be at all times invariant to everything.

The fascinating thing from my perspective is not that Fama is dumb: he is not dumb--far from it. But in this piece he appears to be not very... wise, not very... well-read, not very... curious about the world. It is impossible for anybody who had ever read Hawtrey and Hicks and remembered anything at all from them to ever make the basic analytical mistake that Fama makes. And it is impossible for anybody who has looked at nominal spending over any time period to advance a model in which nominal spending is invariant to everything without immediately concluding that something would be very wrong.

And these three papers then set you up for Paul Krugman's diagnosis--a controversial diagnosis--about why economists did so badly at recognizing the vulnerabilities that were going to produce our current macroeconomic downturn and then advising governments on how to deal with it.

Last on the reading list for "Why We Should Study Economic History" are the two optional articles: R.M. Solow's and D.N. McCloskey's briefs for how taking economic history seriously innoculates you against the kinds of errors exhibited by Fama and chronicled by Krugman.

Required:

R.G. Hawtrey (1925), "Public Expenditure and the Demand for Labour," Economica 13 (March), pp. 36-48 http://www.jstor.org/stable/2548008

John Hicks (1937), "Mr. Keynes and the 'Classics': A Suggested Interpretation," Econometrica 5:2 (April), pp. 147-159 http://www.jstor.org/stable/1907242

Eugene Fama (2009), "Bailouts and Stimulus Plans" (January 13) http://www.dimensional.com/famafrench/2009/01/bailouts-and-stimulus-plans.html

Paul Krugman (2009), "How Did Economists Get It So Wrong?" New York Times Magazine (September 2) http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html

Optional:

Robert Solow (1985), "Economic History and Economics," American Economic Review 75:2 (May), pp. 328-331 http://www.jstor.org/stable/1805620

D.N. McCloskey (1976), "Does the Past Have Useful Economics?" Journal of Economic Literature 14:2 (June), pp. 434-61 http://www.deirdremccloskey.org/docs/pdf/Article_92.pdf