"The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary...." Yes...That's why you need Narrow/Utility/Limited Banking...Anything less will leave the Moral Hazard & Gambling Incentives too high...

The optic of Debt-Deflation is one of unfamiliar terrain in which people are afraid to move/act because the consequences of their actions are too hard to judge. That's why it's important to get out of it ASAP, and return to a more familiar terrain. By letting it linger in slow motion form, we've hindered action. Reflation was and is the answer. Even the Govt will find investing an iffy endeavor w/o Reflation.

"Why? In an attempt to hide how close to the Keynesians his own monetarist-libertarian model of the business cycle was" That's the model I like. It is very close to Keynes.

If you look at my old blog & comments on blogs, you'll see that I said all of this would happen in 2008 based upon Irving Fisher's views of Debt-Deflation. We did not need to let this happen. Oddly, I hardly read his name anymore.

The last time we were worried about Deflation, this was written: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm "Conclusion Sustained deflation can be highly destructive to a modern economy and should be strongly resisted. Fortunately, for the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, in large part because of our economy's underlying strengths but also because of the determination of the Federal Reserve and other U.S. policymakers to act preemptively against deflationary pressures. Moreover, as I have discussed today, a variety of policy responses are available should deflation appear to be taking hold. Because some of these alternative policy tools are relatively less familiar, they may raise practical problems of implementation and of calibration of their likely economic effects. For this reason, as I have emphasized, prevention of deflation is preferable to cure. Nevertheless, I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound." He appears to have been correct about this: "Some recent academic literature has warned of the possibility of an "uncontrolled deflationary spiral," in which deflation feeds on itself and becomes inevitably more severe. To the best of my knowledge, none of these analyses consider feasible policies of the type that I have described today. I have argued here that these policies would eliminate the possibility of uncontrollable deflation." And then, right in References: Fisher, Irving, "The Debt-Deflation Theory of Great Depressions," Econometrica (March 1933) pp. 337-57. What am I missing here? If you're a follower of Fisher, it's hard to see why we're not doing more in the way of Reflation.

I had a problem with his UI Post as well. But, on Free Exchange, which I don't comment on any more since I never post on pages where I don't generally read the comments, I noticed a post mentioning Logic. Is it too much to ask anyone who claims Becker was using "Logic" for his views to provide a demonstration of the argument? I read this a lot. People use "Logic", and then fail to provide even a syllogism in support of their views.

I'm looking for people who have considered the views on Debt-Deflation and the need for Reflation of Irving Fisher and Henry Simons, and attempt to debunk them. All things considered, they seem the best explanation of what's been happening in this crisis. I'm a lowly autodidact, and I talked about the problem of excessive layoffs and the reemployment problem starting in Oct. of 08, based simply on what I read in Irving Fisher's classic paper. I called it a Proactivity Run, in which jobs would be shed in excess of the drop in demand, and said it would prove hard to restart employment without Reflation. Isn't that in Fisher's paper?

A very good list, most of which I agree with or find useful. I agree with Calvo about the importance of Social Safety Net Spending. I'm also reminded that Rogoff was in favor of Reflation from early on. I also agree with Glaeser about the causal inefficacy of Low Interest Rate explanations of the Housing Bubble. On Debt-Deflation and the need for Reflation, I'm wondering if it's possible that people have never read Irving Fisher or Henry Simons on the subject. Since everything I've seen for the past two years conforms to their views, I'd like to see essays that confront their views and debunk them. If they exist, let me know.

I totally agree. But doesn't it seem as if we've been saying this forever and a day?

There are a lot of great posts recently on Economics Blogs, by which I mean that I generally agree with them. Too bad that they don't seem to be doing a damn bit of good.

What exactly is John Taylor's Empirical Work? For that matter, can somebody tell me if anyone has actually gone and found people who rush out and get a job after UI Benefits run out? I don't mean fiddling around with dodgy graphs and correlations. I mean talking to real human beings.

I'm assuming that economists have read Irving Fisher and Henry Simons on a Debt-Deflationary Spiral. Here's Simons: "The Chicago Tradition, The Quantity Theory, And Friedman Don Patinkin Journal of Money, Credit and Banking, Vol. 1, No. 1. (Feb., 1969), pp. 46-70." "Once a deflation has gotten under way, in a large modern economy, there is no significant limit which the decline of prices and employment cannot exceed, if the central government fails to use its fiscal powers generously and deliberately to stop that decline. Only great government deficits can check the hoarding of lawful money and the destruction of money substitutes once a general movement has gotten under way. [Personal Income Taxation, op.cit., p. 222 ) The bottom of an uncontrolled deflation, for all practical purposes, is nonexistent-with adverse expectations causing price declines and with the actual declines aggravating expectations, etc. ["Hansen on Fiscal Policy," op. cit., p. 188)" There is no natural stopping point. It cannot be predicted in principle. If that's not scary, I don't know what is. Unless you change the perspective through Reflation, it isn't clear how to defeat even low-grade debt-deflation. That's the solution. It does mean we will face budget issues going forward, but that's just too bad. We let the worst-case scenario reach the cliff and managed to barely avoid having it fall off. Now, there's no easy route out, and none at all without reflation.

I just subscribed to Mandos because of this: "Hello. I am a Silmarillion character who has power over the fates of elves in general. In my spare time, I muse about Canadian and American politics, etc, etc." I've no idea what he believes about anything yet.

And this: http://aboutbrokerfraud.typepad.com/about_broker_fraud_blog/sophisticated_investor_doctrine/ "CAVEAT EMPTOR VERSUS FULL DISCLOSURE From a policy perspective, the sophisticated investor doctrine is nothing more than an attempt to bring back the already rejected doctrine of "caveat emptor," or "let the buyer beware." It is well established that, in the context of securities litigation, caveat emptor has been replaced by the policy of "full disclosure." Historically speaking, Congress designed the securities laws to protect investors who are not capable of protecting themselves. There can be no question that caveat emptor, in the securities context, contributed to the stock market crash of 1929 and the depression of the 1930s. Thus, the securities laws were passed in 1933, 1934 and 1940 based on several concerns, which still apply today. First, investors were being fleeced in the financial markets due to inadequate disclosures. Second, investors were receiving misrepresentations about the products being sold to them. Third, investors were being sold securities products as a result of manipulative schemes. The securities statutes were passed to repair the general loss of confidence in the capital markets and the financial system. The fundamental purpose, common to these statutes, was to substitute a philosophy of "full disclosure" for the philosophy of caveat emptor, and thus, to achieve a high standard of business ethics in the securities industry. The modern sophisticated investor doctrine marks a significant movement away from the "full disclosure" doctrine and breathes life back into the discredited doctrine of caveat emptor."

One other point: Not here, but on a number of other blogs, I've read people defending GS with caveat emptor. I wonder if they know this: "Caveat emptor is Latin for “Let the buyer beware”. Generally caveat emptor is the doctrine that controls the sale of property after the date of closing. Due Diligence is a term used for a number of concepts involving either the performance of an investigation of a business or the performance of an act with a certain standard of care. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition. The term “due diligence” first came into common use as a result of the United States’ Securities Act of 1933. The US Securities Act included a protectionist measure referred to in the Act as the “Due Diligence” defense, which could be used by broker-dealers when accused of inadequate disclosure to investors of material information with respect to the purchase of securities. So long as broker-dealers conducted a “due diligence” investigation into the company whose equity they were selling, and disclosed to the investor what they found, they would not be held liable for nondisclosure of information that was not discovered in the process of that investigation. Originally the term was limited to public offerings of equity investments, but over time it has come to be associated with investigations of private mergers and acquisitions as well. Before the decision to acquire a business is made, it is critical that the necessary steps are taken to ensure that all the relevant information about the target company are accumulated, analyzed and interpreted so that the buyer can make an educated decision regarding the acquisition of the business interest being acquired. Similarly it is important for the vendor or seller of a business to have the necessary financial and legal information available and up to date in the event the are requested by the purchaser during the due diligence process." http://taxbites.ca/newsletter/2009/09/due-dilgence-vs-caveat-emptor/

What people keep missing is that Paulson was not simply betting against a Housing Bubble. He claimed the bubble was being driven by misrepresentation. I agree and agreed with him. If you saw the story about how some of those mortgages blew up, you'd see he was right. That meant the books being put forth to investors were cooked. The question is whether or not GS agreed with this view. Apparently, Tourre did. In that case, GS should have either declined involvement or told prospective investors about their fears concerning the veracity of the books they would be viewing. I wouldn't have had anything to do with this deal. What shocks me is how many people seem to be condoning it. Maybe GS is just doing what most people would. Sad.

Thanks for the J.F. Lewis post. I've written a horror novel entitled "Eternity's Vampire". It was 190,000 words after my third draft. I am about to begin the sequel to it entitled "The Devil's Eternity". I have submitted it to a publisher and two agents. The first agent turned me down. The agent I haven't heard from yet had me cut the novel down to 80,000 words. I worked all day for 8 days in a row to do that. That was about a month ago. I still haven't fully recovered. I have also written a lewd/satirical/humorous novel entitled "Isaac's Bind". It is set in a fictional GTU graduate school. It's a lot like a Tom Sharpe book. So, yes, some people might find it offensive and lewd. I have sent this novel to an agent and two publishers. The agent turned me down. I will finish another lewd, etc., novel entitled "Tantalus Passes a Stone" in the next month. I haven't submitted that book to anybody yet. All three books are parts of ongoing series, because I love reoccurring characters. If I can't find a publisher soon, I was thinking of printing them and making them available electronically via Lulu or CreateSpace. If anybody has an opinion on these venues, I'm pretty easy to find and contact. To everyone who's in my situation, good luck to you!