Brad Delong - Berkeley economist, "Grasping Reality"

A friend had noticed that I was posting stuff from a number of economists on facebook, and asked what sorts of ideological views they have. He posted that as a comment to an item I'd posted from Brad DeLong's blog, which is titled "Grasping Reality" (and which is subtitled "The Semi-Daily Journal of Economist Brad DeLong: A Fair, Balanced, Reality-Based, and More than Two-Handed Look at the World" :)

DeLong is a macroeconomist at the University of California (Berkeley). The item I'd posted on facebook was his "Talking Points for Asia Trip" which is literally a list of bullet points--looks like something Delong typed up in about 10 minutes (typos and all), while sitting in his office in Evans Hall (great location, not-so-great building, imho).

It's worth quoting in full, for those of you too lazy to click thru; plus, for a tiny bit of "value add" (on top of merely pointing this out to you), I've inserted a couple thoughts/comments of my own:

Governance:

• America has only one president at a time.
• The genius of the British Empire was that Britain used its time as the world's hyperpower to make a world in which Britain could live comfortably after other superpowers had arisen.
• Richard Cheney and George W. Bush are not geniuses.
• Barack H. Obama and Joe Biden ate not fools.

[I had never heard that take on the genius of the British Empire. I just started reading Niall Ferguson's "Empire"; I'm curious to find out if Ferguson concludes similarly.]

International Trade:

• In the United States we--that is, my faction within the Democratic Party--have lost the argument over whether trade is good for America's middle class.
• This is very frustrating: trade is good for America's middle class.
• But the era of increasing globalization has also been an era of rapidly-increasing income inequality--and people think that there is a connection.
• So for the next decade free trade will have to be sold within the U.S. as part of broader foreign policy--free trade as a soft-power tool for security and global environmental goals.
• Nevertheless, the Obama-Biden administration is certain to be better on free trade than the Cheney-Bush administration.

[DeLong's faction within the Democratic Party is, as you can see, the free trade faction. My understanding is that this is the "Rubinomics"/Summers faction of the party, as opposed to the protectionist faction(s)--labor unions, and perhaps the economic faction that's identified with Robert Reich; but that's a breakdown I need to verify.

Interesting that he says Obama/Biden will be better on free trade on Cheney-Bush; I don't understand the reasoning behind that.]

Financial Crisis:

• Since 1844 and the Westminstet debate over the renewal of the Bank of England charter, it has been accepted doctrine that avoiding deep depression requires that central banks keep financial assets from collapsing.
• At least one price is too important to be left to the market.
• Delicate issues of moral hazard: seek also to minimize "Greenspan puts."
• Kindleberger: the lender-of-last-resort must always arrive, but its arrival must never be relied on in advance; this is a tricky business.
• Usually central banks can manage asset prices in a crisis sufficiently by managing the price of duration--buying safe but longer-term assets in exchange for cash that served as reserves and means of payment.
• Sometimes not: default, risk, information. What then?
• Keynes:
• Government spending.
• Tax cuts.
• Danger: debt accumulation can crack government's status as provider of safe assets...
• Bernanke--and Trichet, and King
• Making it up as they go.

[This is where it gets heavier. I had never heard of 1844 or the Westminster debate; here is a book that seems to cover it.)

I'm not sure what the "too important" price is; the short-term price of money? (That is to say, the short-term interest rate = the fed funds rate in our banking system.)

The Kindleberger insight is great; makes the case even stronger for getting a copy of his classic book asap.

Wish DeLong had fleshed out his latter points more. The "default, risk, information" topic is perhaps covered (in wonkier detail) in this recent essay of DeLong's:
http://www.cato-unbound.org/2008/12/08/j-bradford-delong/liquidity-default-risk/

It does certainly seem that the central bankers of the world--Bernanke, and Trichet (ECB), and King (BoE)--are making it up as they go along.]

[Finally, DeLong closes with some sobering points:]

Global Imbalances:

• All the issues of global imbalances we used to worry about remain.
• As do all the long-run global warming issues.
• As do all the long-run global aging issues.

This is why the web is brilliant--we can have nearly instantaneous access to the thinking of our best intellectuals.

I was reminded to post this b/c I saw one of my Berkely MFE buddies is going to attend a reception this Sunday for DeLong, hosted by the Berkely Club of Singapore..and thought this would be good prep for him going into the reception!