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03/11/2016

Comments

Caleigh Wells

Professor DeLong's take on why this will be called the "Longest Depression" is especially interesting. So often, people claim that the economy is self-regulating, and in introductory economics courses when we are taught to understand basic theoretical models, that same concept is repeated. In the context of our macroeconomics course, it is interesting to see what happens when policy makers are less proactive about turning around a recession, as well as why that might have happened this time around.

After reading this article I researched and found the history of American recessions, depressions, and panics. Leading up to the Great Depression of the 1930s, it was interesting that these economic events would happen every 15-20 years, almost like clockwork. After World War II, with the exception of a small "stagflation" event in the mid 1970s, we did not experience another one of these until 2007. DeLong blames the fact that we did not apply what we learned in the Great Depression to our current Recession. He also claimed that the economic stability lasted for so long that citizens grew complacent, and eventually, careless.

The idea that the longest period of sustained economic growth would lead to our country's longest depression makes a lot of sense. The Great Depression was historic by the time the Recession hit, and it was something current workers were connected to only through their grandparents. It was far enough removed that theories like a long-run, self-regulating economy looked like a more viable option in reality, which led to what DeLong is observing today.

Danielle Spickard

In Brad Delong’s article, he argues that while this might not be the “Greatest Depression,” it is highly probable that it will be remembered as the “Longest Depression,” for according to economist Joe Stiglitz, “we didn’t do what was needed, and we have ended up precisely where [he] feared we would.” Our economy is self-correcting, and many people believed that it would rebound quickly after 2008. However, while economy might be self-correcting, it can take a very long time. This is when the government should intervene. After the recession began in 2008, Professor Goldsmith mentioned how the government implemented the Troubled Asset Relief Program. Essentially, the government bought the non-performing loans held by Wall Street firms in the hope that it would increase loanable funds and decrease interest rates. However, the cash ended up sitting due to the fear of making loans during a recession. Another reason this was perhaps not the best decision to boost the economy is because when money is given directly to the people or to firms, the aggregate demand curve shifts by less than an equal sized spending on government purchases (such as on infrastructure). This is because when the government makes purchases, all of that money is directly placed into the economy. Contrarily, when money is given to firms or individuals, they will save some of it, reducing the amount of consumption in the economy, and thus having a smaller effect on the real GDP. However, even with the Stimulus Program that followed, the government did not invest a substantial amount of money into the economy so the effects were negligible—another reason it has taken us so long to get out of the recession. Delong believes that our first task is to educate the people and have everyone understand that we need “debt relief and much tighter financial regulation.” Our second task is to become politically organized and to remove the ideological and political blockages so that we can return to the economic state prior to 2008.

Yo Han(John) Ahn

Brad DeLong, professor of economics recalls the grim and strikingly accurate prediction of economist Joe Stiglitz. The forecast Stiglitz made was that there would be a deficiency of aggregate demand which was the result of growing inequality and negligent fiscal austerity. However, he believes that the solution of increasing aggregate is rooted in reforming politics and ideology. DeLong describes how he taught the concept of a self-regulating economy and believed that long-run trend of economic growth was hardly affected by short-run periods. This model which displays the magic of supply and demand has been learned within the course. Yet, after 2008, the anticipated equilibrium-restoring logic did not come into effect but hardly improved the economy. The harmful effects have seemed to reach even global economic policy and can be manifested in the stunted growth of China's economy – a primary example of how one model may not accurately reflect a particular story. Stiglitz wisely determined the economy would never return to its previous state without aggressive and sustained policies to rebalance the economy. I was curious as to how Stiglitz may have arrived or formed such a prediction which essentially defied core macroeconomic concepts. DeLong advocates that everyone must first be knowledgeable of the current economic condition the U.S. and many other countries are in. He then suggests that debt relief as well as tighter financial regulation will prevent further frailties. But even before reforming economic policies, DeLong argues that politicians and bankers must understand and be aware of the insights of economists like Stiglitz – who embraced the assumption, "it depends," and formed a story beyond the business cycle.

Jane Chiavelli

In this article, Brad DeLong argues that this period will be referred to as the "longest depression" in the coming years due to the economy's slow recovery since 2008. He agrees with economist Joe Stiglitz who argues that the only cure to our economy is an increase in aggregate demand through government intervention and a change in political and ideological theory.

This political and ideological theory he points to involves the notion that the economy is self-correcting in the long and that government intervention can do more harm than good. While this approach made famous by Adam Smith might be true, the long run could be indefinite. As John Keynes famously said, "in the long run, we are all dead." DeLong and Stiglitz take a more Keynesian approach arguing that government intervention through fiscal and monetary policy can help stabilize the economy and reduce the effects of a recession.

To under the economy has a whole, it is important to remember the components of GDP: consumer spending, investment spending, government expenditures, and net exports. Fiscal and monetary policy have effects on the components of GDP. For example, fiscal policy has a direct effect on government spending. As the government increases its spending (or cuts taxes), GDP increases, causing aggregate demand to increase. DeLong is right to argue that increased government spending will have a positive impact on aggregate demand.

Monetary policy, on the other hand, has an indirect effect on aggregate demand through changes in the interest rate. As the government increases the quantity of money, consumer spending increases, causing aggregate demand to increase. As consumers are spending more money, interest rates decrease as the bank has less money holdings. DeLong is critical of the Federal Reserve for its fear of low interest rates because it discourages banks to loan and consumers to borrow.

Lastly, DeLong and Stiglitz are right to argue that an increase in aggregate demand is the solution. If you look at the AD-AS model, an increase in aggregate demand will increase aggregate price level and aggregate output. This causes unemployment to decrease in our to produce more output. While this causes an inflationary gap in the long run, which the Federal Reserve fears, in the long run, nominal wages will rise in response to low unemployment, which reduces short-run aggregate supply and moves the economy to long-run aggregate supply, moving the economy to potential output.

All in all, while the economy may be self-correcting, it takes a long time. In order to push the economy to the point of self-correction, some stabilization policy through fiscal and monetary policy is needed in the short run.

Ian Gipson

In my opinion, it is interesting to see people continuing to analyze and examine the continuing aftermath of the 'Great Recession.' It is also exceptional to examine the concepts and ideas presented here in context of other countries' recently employed policies as places like Europe and Japan struggle with their domestic economies. Primarily examining the comments on interest rates and inflation, there exists a great deal of relevance to what we've discussed in class over the last few weeks. I actually find it most important to mention that the attitude of policy makers and economists is ironically irrelevant. As we can see in today's world, people have a great deal of uncertainty and fear inspired by a turbulent past and unsure future. Economic policy on any level is dependent upon a rational and measured approach by the actors in said economy. Currently, a majority of people are showing that they are uninterested in following the strategies of those in power. For example, the negative effect negative interest rates have had in countries like Japan. The Japanese people and banks have virtually entirely rejected the concept of negative interest rates, and this has likely caused a great deal of money to flee the Japanese economy altogether as savers look for stability.
While not arguing for negative interest rates, DeLong is using the same train of thought that by lowering interest rates and providing debt relief we will be able to manufacture a hike in aggregate demand. However, as we are seeing in Japan, what if people don't want to invest or consume in a way expected with low interest rates? In fact, companies like Google and Apple are demonstrating that not only do individuals not want to take advantage of the low interest rates for investment but corporations are staying away as well. Currently, people are looking for the most stable and safest option for their money, and in my opinion, adopting DeLong's discussed policy would dramatically upset current stability. While it makes logical sense for people and corporations to take advantage of such low interest rates, it is likely not what people or corporations will do.
In theory, perhaps DeLong's ideas could prove successful, but as all economic policy is, it relies on logical actions of the people. Something extremely unlikely in the current economic setting and aftermath of the 'Great Recession.'

Mary Hampton McNeal

In “Future Economists Will Probably Call This Decade the ‘Longest Depression,’” Brad Delong describes how economist Joe Stiglitz was correct in asserting that insufficient fiscal policy and chronically depressed aggregate demand would prolong the Great Recession. Stiglitz correctly predicted that aggregate demand would not recover to the level it was at prior to 2008 because the policies used to stimulate it were not aggressive enough. DeLong describes the various ways in which the economy has not recovered to its pre-crash equilibrium, such as unemployment.

DeLong believes that one of the reasons we are stuck in a “Great Malaise” is that many people believed the idea that the market would be self correcting in this case. DeLong himself even believed this. As we modeled in class Tuesday and Thursday, the economy will ultimately correct to long run equilibrium. However, allowing unemployment to remain high while the market to adjust itself causes human suffering, a point that we touched upon in class Tuesday. Essentially, DeLong believes that we remembered just enough about the Great Depression to know that post-crash government intervention in the form of fiscal policy was necessary, but not enough to know just how aggressive that fiscal policy had to be.

A final point that stuck out to me was DeLong’s proposal for tighter financial regulation. Professor Goldsmith noted several times in his lecture about the real estate bubble that better regulations could have prevented the sale of subprime mortgage trenches. DeLong finds that tighter regulations are necessary in order to not repeat the mistakes of the past, and I am inclined to agree.

Caroline Birdrow

“Future Economists Will Probably Call This Decade the ‘Longest Depression’” was an extremely relevant article in terms of what we discussed in class last week and, thus, was a helpful application of some of the concepts we reviewed. Professor DeLong draws upon several now familiar topics: monetary policy, fiscal policy, the balance between unemployment and inflation, NAIRU, the lack of models’ complete accuracy, and the supposed self-correcting nature of the economy.

What I found most interesting was DeLong’s call for increased financial regulation and government spending, which typically is a very non-conservative concept, from what I understand. Additionally, DeLong goes as far as implying that those who typically discuss such matters should educate themselves further before making any more recommendations. I think we all can agree that, even in the current presidential race, it is true that politicians speak about economic policies from the perspectives of their parties, without any true understanding of the deeper implications. DeLong claims that “it is only after those ideological and political blockages have been removed that the tasks of economic policy … can be seriously begun.” This makes me want to learn more about the origins of the ideals of each political party and about how these ideals have come to separate themselves from the true facts of economics.

Davis Alliger

The article begins by discussing Joe Stiglitz's prediction in 2010 that the recession in 2008 would remain in the United States if there was not an increase in spending and reduction in interest rates. This would increase consumer spending and spur the economy.
Joe Stiglitz was absolutely correct that without an increase in spending it would be tough for consumer spending to be boosted. After the crash of 2000 led to a severe drop in the interest rate and an increase in consumer spending. This increase in consumer spending was mostly in the form housing, which led to a housing bubble which burst in 2008. This led to even lower interest rates which have been slowly rising as the economy moves along.
Much of the fear expressed by economists is that even small increases in the interest rate at this point could severely contract the economy. Another issue is the growing debt crisis in the United States, but Stiglitz cites countries like Greece and Spain saying that their austerity efforts have been economic suicide.
One of the other provisions the author makes is the need for tighter financial constraints and more political organisation. Brad DeLong argues that without an organized political system many of the proper economic decisions that the government should make, can not be made.
Once the political system can become organized and decide to spend, regardless of current debt, in order to increase consumer spending. This will spur the economy forward and allow for fiscal restraint in the future once the economy has recovered.

Ryan McDonnell

I am surprised that professor DeLong and Stigliz believe that we are in an economic malaise. All of the news about unemployment numbers and the general economy over the past couple years have been positive, besides China recently. I would like to know exactly what Larry Summers meant in his comments about why the FED should raises interest rates, as his first point, in particular, seemed confusing. I would also like to know the specifics of Stiglitz’s point about inequality being an issue – is he talking about inequality in job opportunities? About income inequality? It is interesting that inflation responsiveness to changes in unemployment has decreased by 3/4, as it shows that the inflation rate is more dependent on other factors in the economy like economic growth.

plus.google.com/112908212571325157694

It’s interesting to see how in the model that we made in class that in the long run the total output would not be changed despite effects in the short run. Yet in historical trends, a self regulating economy takes a very long time to self correct in the long run, which is the opposite of what was first believed in the article. As stated by DeLong, many economists believed that the economy had the ability to regulate itself and to fix short run problems. After events in 2008, DeLong admits that this theory was in fact wrong and that long term equilibrium is much more long term than he had expected. Thus DeLong suggests fiscal policy to be used to fix the “Longest Depression”. In the article he comments that in order to get rid of unemployment the government has to increase spending so as to increase aggregate demand. In theory this will bring the aggregate demand curve back up, ending the recessionary gap, and reducing unemployment. But at the same time, increasing government spending has plenty of its own problems. It is very difficult to determine exactly what to spend money on, and this is usually aggressively debated in politics. And by the time politicians make their decision, the economy could actually be heading back toward equilibrium. And if it takes long enough to decide where and how to apply government spending, the economy could have actually transitioned into an inflationary gap, in which case government spending would make the economy worse off. So yes, in theory it would be correct to increase government spending in order to get rid of a recessionary gap, but at the same time the government must be diligent so that it does not apply its fiscal policies at inappropriate times.

Jack Miller

James Brady

Professor DeLong begins his article by reassuring Joe Stiglitz’s claim about how the world on a macro-scale is slipping into an elongated depression brought about by a deficiency in aggregate demand. I agree with Stiglitz on his claims stating that the world has been shifting into a “Great Malaise” since 2010 but I do not agree with him entirely when he states his ideas in order to cure the recession. Stiglitz says that our economy relies on “an increase in aggregate demand, far-reaching redistribution of income and a deep reform of our financial system” but then goes on to say that the obstacles to a growth in the global economy “are not rooted in economics but in politics and ideology.” In my limited and unprofessional opinion, I see a contradiction in these statements. The apparent “longest depreciation” that is upon us is heavily rooted in economic policy, I believe. In order to apply economic policy, we must understand it in order to apply policies to correct the recession. DeLong writes that “we will be unable to reliably adopt good policies and be unable to sustain them unless we understand our situation.” Politics and ideology are key in order to correct our ailing economy and the stifling economies of other world powers like Japan and China, but in order to apply these fiscal and monetary policies we must understand economics.

Economics tells is that if there is a fall in the aggregate demand it can be corrected and brought back to equilibrium through government intervention. We have learned that when the economy strays from equilibrium it will correct itself in the long run. But according to Keynes in the long run “we are all dead” and the time it takes in order for this shift back to equilibrium to occur depends on many variables, as many occurrences do in macroeconomics. Therefore, there is a time where government intervention is necessary in order to boost the aggregate demand and relieve the economy from the depression. If unemployment is rising, there is deflation, and GDP is falling the government can increase spending and reduce taxes in order to increase aggregate demand. Looking back to Lynn and Boone’s article in the Cornell Chronicle changes in the minimum wage also has positive affects on the economy and aggregate demand. Lynn and Boone argue that if the government mandated a slight increase in minimum wages that it could lead to a higher GDP and aggregate demand. If unskilled workers make more money it improves their state of mind and increases their marginal product of labor therefore increasing output. Also if they are paid more it enables them to pay for an education in order to learn a trade to further increase GDP. An increase in education leads to an increase in income which leads to an increase in consumer spending and investing which is key for long run economic growth and the correction of our ongoing recession.

The “Longest Depression” is an inevitable problem that is affecting our global economy. Government intervention is sometimes necessary to adjust the aggregate demand back to equilibrium. This intervention is rooted in macroeconomics and an understanding is required in order to apply policy and correct the economy.

Tony Du

In the article, Brad DeLong looks back at his previous comments on the economic recovery from the Great Recession. DeLong believed that the recession would be overcome by the natural business cycle, with a 40 percent recovery each year. However, he notes that he was wrong, and Joe Stiglitz was right- without extreme intervention, the economy would never recover to pre-recession standards.Even though it appears as though the economy is doing well, employment of prime-age adults has recovered less than halfway to before the recession.

In class we discussed the relationship between unemployment and price level in the short run. When unemployment rises, there is greater competition among workers, driving wages and the price level down. When unemployment is low, wages increase and the price level rises, leading to inflation. After the recession, the Federal Reserve decided to tighten up on monetary spending for fear of stagflation. However, DeLong and other eceonomists like Summers and Stiglitz believe the market is in no such threat of inflation and that increased spending is the correct approach. DeLong argues that debt relief and financial regulation are the most important things that need to be addressed. The government must be willing to spend and invest until unemployment falls.

Katherine Dau

Economist Brad DeLong makes the claim that we have not yet recovered from the 2008 Recession in “Future Economists Will Probably Call This Decade ‘The Longest Depression’.” In his article, he admits his the fact that he has changed his mind on the self-correcting economy since the Great Recession. Previously, he believed that when the Aggregate Demand Curve shifts left, the SRAS curve will eventually also shift to the left. Thus, the curves will return to the equilibrium at potential output and the only thing effected will be the price level. However, studies have shown that we have still not returned to pre-recession levels. DeLong argues that Joe Stigletz was and continues to be right: the way to return to the pre-2008 aggregate demand curve is through massive government expenditure. This will shift the aggregate demand curve back out, and in turn shift the short run aggregate supply out. Furthermore, he argues that education will be the biggest shifter. Education, preschool education in particular, can shift the long run aggregate supply curve out, increasing our overall productive capacity. I agree with DeLong: in the future, we will not be able to return to our previous aggregate demand curve without a large government spending plan now.

Abigail Summerville

In his article, Brad DeLong argues that the US economy has not fully recovered from the Great Recession of 2008. Before 2008, he thought that the economy would self-correct after a few years, however, now he realizes that the economy takes a long time to self-correct. He most likely now agrees with Keynes statement, "In the long run we're all dead." The government needs to interfere to help the economy correct itself faster. However, most citizens, and politicians, have the ideology that government should not interfere with the economy, especially by borrowing and creating a deficit. However, someone or something needs to jumpstart economic growth, and the government can do just that by borrowing money to make investments. One such investment that DeLong mentioned was investing in education, because if you invest in a person's education, the country benefits by their future contributions with their human capital. I wonder how many citizens, and especially politicians, would agree with DeLong and advocate for increased government borrowing.

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