I think “respond” is an appropriate characterization.

Like in 2008, during 1929-1930 there was a tightening of money that had nothing whatsoever to do with fed actions, but was due to a collapse in velocity when the market saw too much risk. A more responsive fed might have dramatically alleviated the situation, but there was no positive action to tighten the money supply. Interest rates were not raised, and they were already low. Base money actually grew until we hit the breaking point where we’d have had to go off the gold standard to continue, but we nonetheless saw stunning deflation as banks failed, everyone deleveraged, and anyone who could, hoarded base money rather than loaning it out. Consumers put money in mattresses rather than send it to banks, banks kept greater reserves, etc., etc. All this tightened money without the fed doing anything.

In order to easy money any more than they already did, they would have had to abandon the gold standard or adopt highly unconventional policies that could easily have backfired either economically or politically. In retrospect it seems very clear that they should have abandoned the gold standard earlier, but in the moment, as many people were worried about money being too easy as too tight.

Which is exactly what happened in the late summer of 2008. Money was getting tighter and tighter due to deleveraging and concern about systemic risk, but most of the pundits looked at the low interest rate numbers and concluded the opposite. But the TIPS spreads tell the tale. In this thread, of course, we view the EMH with a great deal of skepticism, but that doesn’t mean markets contain no information at all. The TIPS spread (a reasonable measure of market expectations of inflation in the US) was going lower and lower as Q32008 came to a close, and by the time we saw the Lehman bankruptcy and the US stock market crash, it was already near zero.

The point is that monetary policy cannot be judged so simplistically as to look at the fed’s discount rate. It’s all about the relationship to the money markets and the overall economy. The interest rate was low in 1930, just like it’s low now. That doesn’t mean money wasn’t tight.

” What was the per-capita consumption of oil in those economies in 1934 and then in 1964? Oil is an incredibly useful and energy-dense substance, but I suspect that injecting a lot more of it into an industrial economy (there was still a lot of horse transport in Germany prior to WWII; virtually none afterwards) puts a smokescreen in front of a lot of other issues.”

To me, that’s the overall thing – I have seen the classical end of the post-WWII boom almost always put ~1973. This was the end of a ~25-year long period of low and declining oil prices.

it is free and fairly self-explanatory technically and ideally suited to your present purpose

What was the per-capita consumption of oil in those economies in 1934 and then in 1964? Oil is an incredibly useful and energy-dense substance, but I suspect that injecting a lot more of it into an industrial economy (there was still a lot of horse transport in Germany prior to WWII; virtually none afterwards) puts a smokescreen in front of a lot of other issues.

Cranky

Thorfinn, I’ve seen this point before (from you?), but I don’t buy it. The “shocks” aren’t external to the system but generated by it, so the fact that, with radical responses, the impact can be contained doesn’t support the view of a moderating economy.

To be fair, it’s a bit more convincing if you regard the Great Moderation as being driven by technology, so that the financial system can be regarded as a source of external shocks – I’ll take a look at your link.

The whole section gets the message across I think. And I also think that the more successful parts are the more detailed, lengthy bits. Maybe then the whole thing could do with being a lot longer and more detailed. And perhaps you could reorder it a bit – especially the historical progression stuff.

Am trying to be constructive (although I started with a negative), and I hope my comment helps.

For most developed countries, the years from the end of World War II until the early 1970s represented a period of full employment and strong economic growth unparalleled before or since. Referred to as the ‘Golden Age’ or ‘Long boom’ in English, ‘Les Trente Glorieuses’ in French, and the ‘Wirtschaftswunder’ in German, this period saw income per person in most developed countries more than double.

This implies that this is just the German translation of the English term describing a worldwide economic phenomenon. But it seems to me that “Wirtschaftswunder” is used by the Germans to refer to their own remarkable post-War recovery, i.e., the amazing story of how a literally devestated country transformed itself into the economic powerhouse of Europe. While it could certainly be seen as one manifestation of a worldwide post-War economic boom, the term itself is intimately associated with the specifics of Germany’s particularly unusual rebound and the way that passage is written seems to me to misrepresent the normal usage of the term.
—David W. Fenton
http://dfenton.com/NoComment/

Also, if anybody would ask me how to translate into non-verbal language the term ‘clueless’ – I’d probably counsel them to go type “Bernanke” into YouTube.

John, I think you give your adversary too much credit (pun unintended but hope you like it), as if it was all their great plan whereas, obviously, it was just a major disaster. I believe the only case for intent is the implicit preference for establishment-favoring policies.

Yes, please

but I suspect people prefer the atmosphere of a comments thread.

Depending on time/energy constraints on your end, of course, it’d be nice to have both: I’m way behind on my reading/thinking/note-jotting and the comments sections for where I am are closed, now

Real median wages went flat sometime in the 1970’s, and stayed pretty much flat, declining (at best, with growth below the growth in overall productivity) throughout most of the Chicago-School era. With the exception of ~3 years in the late 90’s. Therefore, the 90’s were not a ‘boom’ for most Americans, save by Chicago-School era standards.

This leads to an alternate explanation, or partial explanation, of the Great Moderation – the middle, working and lower classes were quite deliberately screwed over. Previously, in the late 40’s – early 70’s, the idea was that the swings would be moderated for them, and that they’d share in overall productivity growth. During the Chicago-School era, the idea was that they’d eat as much of the swings as possible, to make life for the ‘uppers’ better (of course, the proportion of the USA polulation which were ‘uppers’ seemed to decline during these three decades – first the blue collars, then the white collars were targeted). Also, they stopped sharing in overall productivity growth.

I’m surprised you don’t mention the just-in-time supply side innovations, particularly in the durable good sector. My understanding was that these, rather than any supposed policy innovations, explained the Great Moderation:
http://www.google.com/url?sa=t&source=web&ct=res&cd=1&url=http%3A%2F%2Ffaculty.chicagobooth.edu%2Fsteven.davis%2Fresearch%2FInterpreting_the_Great_Moderation%2C_NBER_version.pdf&ei=WluNSvOmJMfBlAf5ofCwDA&usg=AFQjCNHA6WT9uWrNVCaR8D3Ip7fepac8DA&sig2=fl-1QhJn2HE85TepPVFFyg

Also, re the next few paragraphs – if you are going to describe the rise of Keynesian economic policy and the “Golden Age”, it might be helpful to explain what Keynes actually said.