I think Axel Leijonhufvud is one of my new favorite economists as one of his papers is titled, "Bubble, bubble, toil and trouble".
Besides the name, it seems in my humble opinion, Leijonhufvud has always got interesting things to say. In the article mentioned above, he states the Fed's mandate is not financial stability, but price stability, i.e. inflation targeting. Financial stability is largely regulated to policy which has been bi-partisanly thrown out the window.
After the financial crisis reminded us how (Marx)/Minksy's financial instability hypothesis worked, suddenly regulation and macroprudential policy were the new topics of the town.
However, the new, new topic of the town is secular stagnation and if we believe we are in this situation- where as Krugman would say "prudence is folly"- then where does macroprudential policy fit in, if anywhere?
The Keynesian brand "any spending is good spending" in a Lerner "topsy turvy" world seems to make sense. But somehow letting banks run wild, setting up the dominos on a tight rope again doesn't seem to make as much sense.
Although there doesn't appear to be a significant bubble like the housing bubble that contributed to the financial crisis, what's to say that this time is different?
No comments:
Post a Comment