Quote of the Day

“I am prepared to offer pushback against the Sumner-Hetzel viewpoint. However, it really deserves the status of the “null hypothesis.” In a more reasonable world, everyone would be starting from the presumption that Sumner and Hetzel are correct. Those of us arguing folk-Minskyism and telling the Recalculation Story should be the ones fighting an uphill battle to bring our ideas into the policy debates. That this is not the case, and that SC is now on the fringe, is one of the most remarkable stories of this whole macroeconomic episode.”

— Arnold Kling

Quote of the Day

“The downturn phase of an Austrian cycle is often misunderstood — even by some of its proponents — as necessarily involving a reduced rate of monetary expansion. In fact it comes about as the result of the return of real interest rates to their “natural” levels, which is inevitable no matter how rapidly nominal money and credit grow. The return is a result of credit demand catching up to supply in consequences of rising prices, of goods generally perhaps but especially of factors of production. It follows that you don’t have to have a gold standard or other nominally-constrained monetary regime to have an Austrian cycle: resort to fiat money doesn’t suffice to allow authorities to keep a boom going forever. Indeed, I think that in some respects the Austrian theory fits 2001-2009 better than it fits 1924-1933. (I hasten to add that in both cases tight money made the downturns far worse than the Austrian payback story alone could account for.)”

— George Selgin, in the comments on Scott Sumner’s blog. (I have tried to make this case to Austrians for months without success.)

Taylor

Why didn’t anyone tell me that John Taylor is blogging?

In any event, Taylor does some of the best work in the profession — thoughtful, careful, and persuasive. Definitely check out the blog.

Dow 10,000!

Again.

Graph of the Day

David Beckworth revives his excellent summary of the Depression debate — in graphical form.

Graph of the Day

Isn’t it time for the Fed to consider eliminating interest payments on excess reserves?

Jimmy P Has Moved

Our friend James Pethokoukis has moved. He is now blogging for Reuters. Update your bookmarks.

Money and Banking Text

Greg Mankiw recommends the latest edition of Lawrence Ball’s Money and Banking textbook. I actually received a review copy of the latest edition about a week or so ago and I must say that I am impressed. I currently use Mishkin’s text, which is also very good, along with some supplemental material (here and here). I understand that Mishkin’s text has undergone a significant revision and will be released soon. I eagerly anticipate seeing the revisions that have been made.

I would recommend either text for use in a Money and Banking course (although I realize that I have substantially less sway that Mankiw).

Multimedia

• I highly recommend Tom Keene’s interview with Marvin Goodfriend. Keene, as always, asks the right questions.
• You can see Robert Skidelsky’s speech to the Manhattan Institute on Keynes and Hayek this weekend on C-SPAN’s Book TV. I haven’t yet seen the speech, but Skidelsky is always fun to listen to.

Macroeconomic Theory, Policy, and the Crisis

I have written a piece over at TCS Daily that discusses macroeconomic theory, policy, and the financial crisis. Here is a tease:

The conventional wisdom on the current financial crisis is that macroeconomic theory has little to say. I am not sure where this idea originated, but there is much that can be explained from existing theory especially in regards to policy. The work of Robert Barro, Charles Plosser and John Long as well as Nobel laureates such as Milton Friedman, Franco Modigliani, Finn Kydland, and Ed Prescott have much to say about the impact of macroeconomic policy.

Unfortunately, with a few notable exceptions, the work of these economists has received scant attention during the current crisis. Nonetheless, their work remains important in explaining the futility of much of the current policy prescriptions. Equally disturbing is the return of self-professed Keynesians with policy prescriptions that are wholly inconsistent with both Keynes and modern macroeconomic theory.

Read the whole thing.