My growing sense is that the core intellectual struggles surrounding the Great Recession have been practically resolved.

There were three core things that needed to be understood.

1) That the near term future of capitalism could only be secured by hurling huge sums of money at the US banking system in 2008-2009. That was done.

2) That a perhaps not cataclysmic but nonetheless horrific second global financial crisis could only be secured against by hurling huge sums of money at the European banking system in 2011. That was done.

3) That the global downturn is a phenomenon of Aggregate Demand in general and liquidity/collateral constraints in particular. As such it would be alleviated by the easing of credit and the transferring of liabilities from the liquidity constrained to the liquidity free.

Though too little was done in time, this point has more or less been ceded by a critical mass of the intelligentsia. Furthermore, in the US, per-capita depreciation is proceeding at such a rate that the liquidity free would be induced – against their individual risk tolerance and rate of time preference – to procure large quantities of capital.

The attempt to do this will transfer purchasing power to the liquidity constrained and will thus alleviate the crisis.

And, there are enough people with strong enough voices who understand and are communicating this to keep efforts at stopping at bay.

More could be done policy wise, but I do not think at this point more is likely to be forth coming simply because we talk about it. Too much is riding on the opinions of people who are not interested in the conversation.

So, as a practical intellectual matter the Great Recession is done.

It is time to move to other things.

Here are three that I think are important to get to next.

Reason and Economic Policy

I used to believe that the disagreements in the economics/policy/elite journalism world were founded on attempts to seize the zeitgeist through intellectual intimidation. That is people pretended to be arguing over policy issues but instead were try to push the political culture towards their preferred answers to meta-questions of policy.

For example, is providing lots of assistance to the poor something society should embrace. Is letting people keep what they earn something society should embrace.

Everything else, I thought, was window dressing.

Yet, watching the blogosphere I have come to doubt this. For example, there were strong pushes to adopt policies which would make almost everyone poorer and the poor relatively poorer. Who supports this outcome?

For sure, there is disagreement on values but I don’t think in translates into that much disagreement on policy. There is also bullshit, properly defined, but I think it is of a derivative order. The bullshitters are attempting to prop a policy view that has genuine support.

So, I think “being genuinely wrong” is a more important problem than I originally realized.

The thing is, everyone is looking at roughly the same evidence. So the problems here have to be problems with reason and interpretation.

Listening to people debate I think the biggest problem is reason. In some cases one could replace the words “progressivity” with “jam” or “growth” with “blueberry muffins” and the arguments would be no more or less sensible. That is to say, the disagreement is not even semantic.

This is one reason why I encourage my colleagues to be gentle rather than mean. Another – so that we my be honest – is that I am, obviously, viscerally uncomfortable with meanness.

Nonetheless, if people are making errors of reason yelling at them is not likely to help them because being yelled at makes it more difficult for people to focus. It is also not likely to put readers in a mode where they are more open to reason. Instead they are likely to view this as a sporting match and try to determine who is and is not on their team.

GDP is Dead

I wanted to make my first mention of this funnier, but its better just to get something down.

Its understandable that before the internet, fast search and laptops capable of handling huge data files folks would want the best summary statics of the economy they could get.

The concept of GDP is a good attempt at a consistent representation of the total economic output of a region.

However, in the modern era we don’t really need it for most purposes. Maybe some sort of historical and cross country record keeping where the data is incompatible.

In the US, however, we have much more direct measures of the variables of interest. Indeed, we have access to many of the addends which are used to create GDP in the first place and there is no reason I know of that we couldn’t lobby to make all of them available.

Given that, why still focus so much on GDP?

In order to make it consistent and add up correctly we have to make lots of compromises which obscure our understanding of the economy. Why not brush GDP aside and focus on the disaggregated data that we care about.

Indeed, given the way he talks about the issue I wonder if Scott Sumner might be happier with nominal compensation of employees as his stabilization target:

FRED Graph

Here is the trend by the way

FRED Graph

Notice the different dynamics of the two “bubble” recessions.


As I have been talking around for a while there is – what look to me – to be poor intuition concerning physical capital and investment. This is unfortunate because unlike a lot of concepts in economics physical capital is tangible. We can actually go visit the capital.

To make this more clear, here is the simple data


This is important because the blue category is the stuff of everyday life. The red are things we might not interact with everyday but deeply get on a non-macro economic level.

Our daily experience can influence how we think about the capital stock. More importantly, we can relate our daily feelings with our feelings about growth and the US.

For example, when you say this capital gains tax increase will reduce investment and hence growth what you mean is that some developer will decide to build a smaller shopping center. I don’t mean this derisively. One of my biggest complaints is that Cameron Village needs to be expanded and that there is neither a Ross nor a Marshalls Inside-the-Beltline.

Yet, these are the complaints of investment and capital accumulation and we should understand that.

You can also think about how the type of things we debate on a macro level weigh against concerns like: local zoning restrictions or enterprise-ready open source software.


I forgot to note that I included manufacturing facilities in the “Everything Else” category even though they are buildings because most folks don’t regularly interact with a manufacturing plant.