Friday, September 26, 2008
I've always thought Brad Delong was a pretty smart fellow, for an economist, that is, where it should be clear by now that the bar is set rather low.
He seems to have gotten even smarter recently.
Evidence of such was provided yesterday in an item appearing at his blog "Grasping Reality with Both Hands" in which the Harvard trained professor of economics at the University of California at Berkeley, formerly a deputy assistant secretary of the U.S. Treasury and currently a visiting scholar at the Federal Reserve Bank of San Francisco, unceremoniously threw former Fed chairman Alan Greenspan under the bus.
DeLong Smackdown Watch (Special Self-Smackdown Edition): Greenspanism and Its DiscontentsThere's much more about Alan Greenspan and Michael Mussa over at GRWBH.
For a decade now, I have been a follower of Greenspanism--the doctrine that I name after former Fed Chair Alan Greenspan that the constraint on expansionary monetary policy is inflation and inflation alone. The idea is that the first priority of the central bank is to maintain low consumer price inflation, and that the second priority is--given low current and forecast consumer price inflation--to maintain maximum employment and purchasing power--and the third priority of the central bank is that there is no other third priority.
Opposing Greenspanism is what I call Mussaism. Mussaism--the doctrine I name after former IMF Chief Economist Michael Mussa--holds that there are two constraints on central bank activity. The central bank must insure:
(1) No large asset bubbles.
(2) Consumer price stability.
Only after it has successfully achieved these two higher priorities can it then even begin to worry about:
(3) Maximum employment and purchasing power.
The Greenspanist retort to the Mussaites--a retort I would have said I believed 100% a year and a half ago, 90% a year ago, and 60% last March--is that creating unemployment and idle factories because you are scared of what might happen when irrational exuberance dies away and asset prices collapse is a crime; that modern central banks are powerful; that they can successfully manage whatever crisis is provoked when it happens; and that it is easier to sweep after the elephants have gone through than to try to stop them--especially when stopping them requires the destruction of millions of jobs.
I don't see how I can maintain my belief in Greenspanism today.
Therefore I abjure, I recant, and I do penance. I transfer my allegiance and fealty to Michael Mussa, who is my new guru.
If this item from January is to be believed, Brad is at least an occasional TMTGM reader, and yours truly gets partial credit for keeping his "brain pleasantly marinated".