... After learning something about the now-resigned Chas Freeman, I came to disagree with, and think tendentious, Jon Chait's opening salvo against Freeman in the Washington Post. And I have received enough pro-Freeman letters from his working associates in the last two days to make we wonder: is there anyone who actually dealt with the man who considered him a crackpot, an anti-Semite, a menace -- terms thrown around by his critics? Obviously Dennis Blair -- Naval Academy graduate, Rhodes scholar, former CINCPAC, Asia/China expert, no one's idea of a nut -- thought Freeman's irreverent perspective so valuable that he sought it out. Personal knowledge isn't everything, but it is dramatic to me that people who have known Freeman seem so solid in support for him, in contrast to those who don't. It's all moot now.
Still, in fairness: Chait's take-down of the absurd Amity Shlaes interpretation of the Great Depression and the New Deal is both important in its own right and a model of the systematic demolition of a flawed though alluring argument. Among the admirable aspects of this essay is that it it painlessly conveys some of the Ec 101 principles that somehow have been assumed out of existence in day by day political discussion.* This is very well done; worth reading; and worth learning from. I look forward to more from Chait in this area.
* Eg that critics of a stimulus bill can denounce it because it means "more spending" suggests that they don't understand anything that has been written about economics in the last 70+ years. The point of a stimulus bill is to spend extra money and therefore bring total economic output to a higher level than it would otherwise attain. Even having to mention this point is like having to explain the connection between caloric intake and body weight, or the role of gravity. But Chait nicely and non-condescendingly lays it out in his article:
Prior to Keynes, the economy was held to be self-correcting. The only cure for a recession was to let wages and prices fall to their natural level. The prevailing attitude, as Paul Krugman writes in his recently re-issued book The Return of Depression Economics, was "a sort of moralistic fatalism." Keynes upended the orthodoxy in a way that was every bit as dramatic as Galileo challenging geocentrism. He insisted that recessions are not a natural process, or the invisible hand's righteous judgment against our sins, but a simple failure of consumer demand.
When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon "the paradox of thrift": what makes sense for individuals turns into a disaster for society as a whole. The recession was therefore a failure of collective action that required government action. Government needed to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits.
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