As regards the difficulty of proving causation, I agree, but the same applies (or applied while it lasted) to the Great Moderation.

This seems more the projection of a word view than a statement grounded in fact. I think that making the terms performance and the actual policies corresponding to market liberalism and keynesian social democracy. To state that keynesian policies are responsible for the future or past (post-WW2) growth seems also very hard to prove.

As for the internal fluctuations, there is a great role for regulation. But when you do that you are operating on the usual economic tradeoff of risk vs. return. You can get a more stable system but the cost is one where growth might be a little less and profit opportunities smaller. This is particularly true in the financial sector where the opportunity to cart off excess profits and shelter them in personal accounts is never ever passed up. But at the same time the rest of us shouldnt be too impressed with these profit opportunities because they do nothing for most of us. Hence a good public policy tradeoff is to trade some of the profit opportunities in the financial sector for more stability – and doing it through regulation would be a fine idea.

Not to challenge the point, but do we have any examples of larger industrial economies that did not engage in large scale monetary expansion and fiscal stimulus and thus are still collapsed?

First, radical increases of the price of a basic commodity on which the world runs would be expected to hammer economic growth in most sectors.

Second, this would be expected to lead to a period of wild instability, until the world figured out how to handle it.

Third, that chunk of ~25 years of investment which were based on low oil prices would be ex poste far from optimal, and not in a good way.

If you were evaluating a sim which was expected to teach students about economics, and set the price of a major resouce to 3x the previous price, wouldn’t you expect a lot of stuff like we saw in 1973-82?

This seems fairly weak – seeing as there isn’t any evidence here to suggest this is a particularly viable interpretation, couldn’t you equally have highlighted other interpretations such as that the Great Moderation could have continued if mistakes had not been made and stronger social institutions were in place? Why this pick this particular alternative interpretation to highlight?

I heard Greenspan just said on the BBC that he always said it was a bubble & that it would burst. And, to be safe, he says it will burst again. Meaning, I guess, “As you were! Carry On!” ;-(

Some cycles will be endemic, surely, any dynamic system displays sinusoidal movements. This idea of ‘controlling’ the system to be utterly well- behaved is imho nonsense. The question is, as you point out, whether our policies dampen or heighten the amplitudes and frequencies of such waves (and of course, ultimately whether they increase on the long term fairness of the whole – which includes at least in part the avoidance of heavy/fast waves and the avoidance of risks that are associated to these waves being pinpointed on the weak).

That sentence sounds to me like you’re saying that the postwar boom was a failure. I assume that “that of the postwar boom” is supposed to mean “the end of the postwar boom”, but it sounds to me on first reading like “the failure of the postwar boom”.

On the other hand, in the presence of active policy, the proximate cause of booms and slumps is generally policy failure of some kind.

The last decade has showed both factors at work, and interacting. A financial sector bubble and bust in the dotcom era, bailed out by expansionary monetary policy which allowed an even bigger bubble and bust requiring an even bigger bailout. It remains to be seen whether this will go on to a third act, or whether the finance sector will be brought under more effective control.

http://www.federalreserve.gov/pubs/ifdp/2004/804/ifdp804.htm

And note that one of the authors has since gone on to be on the board of the ECB via Cyprus. Anyway, the paper can be read both as a justification for why Keynesian economics went wrong (bad data) but also an explanation for the Great Moderation (control of inflation expectations). Of course as we now know, the Great Moderation went off the rails without any obvious inflation problem (notwithstanding the 1970s style surge in oil prices, playing out on a slower time scale). But I suppose the question coming from this is: Knowing what now know, is 1960s Keynesian economics essentially intact?