“It didn’t encourage those with money under their mattress to spend it – in fact the reverse.”
I don’t believe I say that spending was a requirement?

“Why should I not regard you as a crank?”
By all means go ahead. Being regarded as a crank by someone with such poor reading and logical skills is not a negative.

?????

This time was not worse. And a probability of losing your money, is not the same thing as a certainty of losing your money. In the depression the failure of banks encouraged depositors to withdraw their money – which is a beggar thy neighbour strategy because it ensures others WILL lose their money. It didn’t encourage those with money under their mattress to spend it – in fact the reverse.

Why should I not regard you as a crank?

Real interest rates can be, of course. But even nominal interest rates can effectively be negative, if one takes into account the principal not being paid back.

To be simplistic about it, if 25% of a country’s banks go bust in a given year, then a nominal interest rate of 0% is an effective negative interest rate of -25%. In the US the bottom of the depression was in 1932-3, when the most banks went bust – when the effective interest rate was most negative. After, things got better. IMHO, not a coincidence. The error this time around wasn’t a lack of stimulus but interest rates which stayed non-negative, because no government let banks go under and depositors to lose their money.

I have a simpler way of looking at this.

JVB’s law:
It is not supportive of economic stability to encourage private actors to take on more debt.

2) Broader participation in equities through 401K and such vehicles replacing defined-benefit pensions.
3) Less progressive taxation and lower capital gains taxes increasing returns to capitla.
4) Financial deregulation.

Among others. Not is the least coincidentally, these are also many of the same policies that caused so much disruption in the lives of individuals. So “ceteris parabis” comparisons are absurd, as the putative stability you endorse has the same causes as the instability you seek to rule out of the discussion. Further, the Great Moderation is a claim about recessions as measured by GDP growth. You leaped straight from that to the pain of unemployment. But the Great Moderation did not provide greater stability measured by that variable, as the chart Ponce linked illustrated.

The Great Moderation refers to set of claims about the nature of a certain period of recent history and the claimed causes of same. Specifically, it is the claim that the shallowness of brevity of recessions from roughly 1980-2008 was due to various policies taken during that time. These include:

1) Fed tolerance of higher unemployment for the sake of combating inflation.
2) Broader participation in eq

As regards useful stuff between 1937 and 1958, there was a large body of work on the consumption function (mostly displaced, unfortunately in my view, by life-cycle optimization models) , the development of national accounts, the treatment of the open economy case by Salter & Swan, and the development of macroeconometrics.

That’s not exhaustive – I’m sure I could think of more. The main point is that the Keynesian model (in the Hicks IS-LM interpretation) was developed, improved and qualified in a lot of different ways. A lot of that continued after 1958, but it was overshadowed by the larger swings from Phillips curve fine tuning to monetarism to rational expectations to New Keynesianism and then into the morass of DSGE macro.

First I don’t think that the accusation “notably including Samuelson and Solow” is supported by evidence you present here or anywhere. I assume that when you write “these qualifications were downplayed in policy discussions,” you mean “these qualifications were downplayed in [their] policy discussions,” but you really should support that claim with links. Samuelson wrote a weekly column in the recently banished to cyberspace magazine Newsweek so this could be difficult. More generally 60s era Keynesianism can’t be refuted by finding some people who considered themselves Keynesian and said silly things — schools of thought are judged based on the work of their best proponents and not based on nut picking.

I first read about the Phillips curve (in Newsweek by the way) in an article published in 74 or 75 noting that it had ceased to fit the data, so I don’t know anything relevant.

Samuelson and Solow also discussed hysteresis which they called cyclical employment becoming structural. Friedman 1968 is strictly inferior intellectually to Samuelson and Solow 1960 . I’ll just mention here that Blanchard was a very leading New Keynesian advocate of the Keynes in the short run, RBC in the long run compromise. He seems to have decided to ignore his hysteresis paper within two years (Blanchard and Quah identified supply and demand shocks using, among other things, the assumption that unemployment is stationary).

Also, don’t think belief in a Phillips curve caused the increase in US inflation (I stress that my ignorance concerning other countries is even more complete). Arthur Burns, who would know (but might attempt to avoid blame he deserved) said the issue was that Nixon demanded loose monetary policy in 72 to fend off McGovern. I stress again my ignorance, but note that I know of no evidence supporting any claims about Keynesians made by Friedman or Lucas. I am quite sure that they were skilled and unscrupulous polemicists (note the past tense — I think Lucas has lost that skill).

You seem to think something useful was done after “Keynes and the Classics” and before 1958. What do you have in mind (again I stress my ignorance).

“f we’re going to talk about stability in the life of the average person, we have to acknowledge that the Great Moderation was a period where…” followed by a list of things that disrupted peoples’ lives during that period.

“The notion that the period from the 80s to the present feature greater economic stability is the life of the average person than the late 40s, 50s, and 60s is absurd.”

I did not make such a claim. My comment was simply about aggregate stability vs higher growth ceteris paribus. While not perhaps mathematically inevitable, I do think that in fact higher aggregate instability will usually result in greater average instability in the lives of individuals. The list of factors other than aggregate instability that could and did disrupt people’s lives is largely correct but irrelevant.

In other words, gross aggregate fluctuations during the actual Great Moderation would have made the disruptions in the lives of ordinary people even worse than the noted factors actually did make them.

Inflation-phobia and government intervention-phobia do not seem to have the best track record on net.

lupita @54: “Why do workers, particularly in developed countries where they can lead a dignified life, have to earn more year after year? Neither do I understand the argument that Americans had to go into debt because they always have to consume more even when wages are not going up.”

My point was that the situation changed. And as pointed out by Gordon, those gains were being realized, but retained by capital.

Me: ” 3) The fact that economic growth (in the USA, at least), stank in the Great Moderation, compared to the 50′s, 60′s and 70′s.”

lupita @54: ” More than stinky, I view it as natural since population growth is decelerating and the population is growing older.”

At the time, ‘population is growing older.” meant that the distribution was shifting to workers with far more education, and moving into the peak production and earning years of their lives.