Brad DeLong is making a lot of confessions these days.
First, he confessed that experimenting with financial deregulation, which he pioneered while at the U.S. Treasury Department, was not such a good idea. Then, he confessed that dismissing the possibility of a liquidity trap was a mistake.
I had read Hicks. I even knew Hicks. But I thought that his era, the Great Depression, had passed. Sitting in my first graduate economics class in 1980, I listened to Marty Feldstein and Olivier Blanchard — two of the smartest humans I am ever likely to see — assure me that Hicks’s liquidity trap was a very special case, into which the economy was unlikely to wedge itself again. Yet it did.
DeLong is certainly not the only economic hit man out there. Far from it. The fact is, he was backed by all his mainstream economics colleagues in calling for financial deregulation and dismissing the possibility of a third great depression.
And, as with the actions of the original Economic Hit Man, the rich and powerful benefit and the rest of the world suffer as a result.