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June 2, 2010

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"Does Washington Care About Unemployment"

Posted: 02 Jun 2010 12:36 AM PDT

Continuing the political economy discussion from yesterday, why is there so little urgency in Washington about the unemployment problem?:

Does Washington Care About Unemployment?, by Brad DeLong: We are live at The Week: ... The last time we had an oversupply of workers of this magnitude was 1983, during the Reagan-Volcker disinflation. ... The unemployment rate hit 10.5 percent. ... Washington, D.C. was in a panic. With high unemployment perceived as a genuine national emergency, the Federal Reserve embarked on a policy of massive monetary ease. The Reagan administration promised that the deficits created by its 1981 tax cuts and increased defense spending were the recipe for putting America back to work. Everybody had a plan to reduce unemployment. And every lobbyist or speculator with a scheme unrelated to jobs recast his pet project as a magic unemployment-reducing bullet.
Today, the unemployment rate is kissing 10 percent. ... Yet, unlike 1983, there is no sense of urgency in Washington. ...
The Federal Reserve has had its monetary throttle fully open for more than two years now. But it is no longer talking about further turbo-charging the engines of growth. Instead, deliberations within the Federal Open Market Committee appear preoccupied with how best to apply the brakes. A degree of panic would be more appropriate — along with a commitment to use that panic to drive job-creation. ...
The Obama administration and the Democratic majority in Congress passed a fiscal stimulus plan half the size recommended by Democratic economists fifteen months ago. Since then, they have been unable to assemble a political majority to finish the second half of the job. There seems to be no appetite for addressing ten percent unemployment.
Instead, we have the Obama administration calling for a three-year spending freeze on programs unrelated to national security. We have Democratic Congressional Campaign Committee chairman Chris van Hollen calling for deeper short-term spending cuts. We have an administration experiencing difficulty finding $23 billion to prevent additional teacher layoffs, even though maintaining — no, expanding — investment in education in a recession is the no-brainiest of no-brainers.
Why the enormous disconnect? ... I can't help but think that ... a deep and wide gulf has grown between the economic hardships of Americans and the seeming incomprehension, or indifference, of courtiers in the imperial city.
Have decades of widening wealth inequality created a chattering class of reporters, pundits and lobbyists who've lost their connection to mainstream America? Has the collapse of the union movement removed not only labor's political muscle but its beating heart from the consciousness of the powerful? Has this recession ... left the kind of people who converse with the powerful in Washington secure in their jobs and thus communicating calm while the unemployed are engulfed in panic? Are we passively watching an unrepresented underclass of the long-term unemployed created before our eyes?
I don't know. But this unseemly calm does astonish me.

Reconsidering the Rush to Reform the Financial Sector

Posted: 02 Jun 2010 12:33 AM PDT

Just posted at MoneyWatch:

Reconsidering the Rush to Reform the Financial Sector

Rethinking the timing of financial reform legislation. Were we in too much of a hurry?

"Real Utopias"

Posted: 02 Jun 2010 12:24 AM PDT

Daniel Little on the search for utopia (Will Wilkinson comments here):

Real Utopias, by Daniel Little: It is worth thinking a bit about the intellectual project of envisioning a utopia. By definition, a utopia is a vision of a social order that is profoundly different from the real historical circumstances and institutions in which we live. It would correct important flaws in the social world we currently inhabit. It is a social order that does not yet exist. And there is an implication that this better social order is not simply a marginal improvement over the current world, but rather a sweeping revamping of the institutions and practices that create the social order. To be a utopian thinker is usually to have an intellectual disposition of impatience for small, gradual change. Mill was patient and gradualist -- and not utopian; Marx was impatient and revolutionary -- and utopian.

So to think about a utopia, we need to have a set of values that specify the features that we would like to see in the social institutions that govern us. Such a system of values provides the basis for social criticism. These might include moral equality of all human beings, or the freedom of all human beings, or the intrinsic importance of community, or a preference for a world in which each individual is in a position to realize his/her full human potential. As social critics, we hold up the values, and we measure the current functioning of social relations and institutions to see how well or badly they conform to the value prescriptions. How free or equal are individuals within these institutions? How good is the sense of community that actually exists? And we criticize the actual on the grounds of its divergence from our moral ideals.

So envisioning a utopia requires that we have a basis for social criticism, grounded in a social philosophy specifying some system of important values. But it requires something else as well: a credible argument for the feasibility of a concrete and specific set of institutions that do a better job with respect to the values -- without simultaneously creating new harms that are even more terrible. This is a call for a science of the hypothetical alternative: "Here is how this complex set of institutions should be expected to work if they were established and were populated by ordinary human beings." This is one part of the story where the social sciences can help; social scientists have a lot to say about how institutions work, and how alternatives might function as well.

Here is an example.

A Chinese social critic in the 1930s might have observed tenant peasant farming in North China; he/she might have argued that the system was exploitative, unfair, and inefficient (three different social values); and he/she might have argued that the collective farm was a superior alternative, being more democratic, fair, and efficient. The collective farm might have been offered as a utopian alternative to tenant farming.

This is where careful institutional analysis is required, and the analysis needs to be rigorous and empirically and theoretically informed. What incentives would be established by the collective farm? How would authority be exercised? Who would make important decisions? And how would ordinary human behavior be conducted when it came to labor, consumption, and power relations? We might hope that this careful effort at analysis would have arrived at some important results:

"There will be a lot of 'easy riding' because of public goods problems; there will be a lot of petty tyranny because of the vacuum created by the institutions when it comes to collective decision-making; and there will be chronic over-consumption because food is a common resource."

So the collective farm is likely not to be a utopian solution to China's rural problems in 1930. And in fact, subsequent history confirms this conclusion; the Great Leap Forward famine was the consequence of many of these institutional failures.

But let's say that our institutional analysis indicates that a given system of institutions would work as advertised. The next thing we need is a theory of a feasible pathway through which these institutions could be established; a pathway of how we might get from here to there. It may be that there is a stable equilibrium of stacked dominoes embodying a certain topological structure; stable simply means that, once established, the configuration will survive small shocks. But this isn't very useful information if there isn't any way to get the dominoes into that configuration through a series of incremental steps. So to engage in "real utopian" thinking, we need to have some theories of pathways of change that are realistic when applied to real people.

So utopian thinking requires critique; envisioning of alternatives; and discovery of pathways from here to there.

How can social theory and social research help inform our thinking about "utopian alternatives"? And what is a "real utopia"? The Real Utopias project has been going for almost twenty years now (link). And some of the most interesting thinkers writing today in social philosophy and criticism have been involved -- Erik Olin Wright, Josh Cohen, Joel Rogers, John Roemer, and Archon Fung, for example. One of the most recent titles to come out of the project is Deepening Democracy: Institutional Innovations in Empowered Participatory Governance (Real Utopias Project) (v. 4), by Archon Fung and Erik Olin Wright.

Erik Olin Wright talks about the underlying rationale for the project in this fascinating interview by Valerio Bacak (link). Here is how Wright sets up the problem:

The Real Utopias Project is, in a sense, a response to a deep problem within the Marxist tradition. Here's the issue: Marxism is, above all, an emancipatory critique of capitalism. It identifies an array of oppressions and harms generated by capitalist relations and dynamics and then makes the extraordinary claim that these harms could be eliminated if capitalism was radically transformed. This kind of system-level, radical critique of the basic structures of society requires a huge leap of imagination: how is it possible that the basic institutions of society, which seem so natural to most people, could be radically changed without generating chaos and massive perverse consequences?

And here is his preferred approach:

Develop a coherent, positive social scientific theory of feasible alternative institutions without attempting a prediction of their likely emergence. The idea is to explore alternative designs of institutions in terms of three criteria: first, to what extent would the institutional design, if implemented, contribute to the realization of emancipatory values of one sort or another; second, in what ways might the institutional design generate perverse side-effects and are their plausible strategies for countering these; and third, if implemented, is the institutional design sustainable, does it generate a social dynamic that reinforces rather than systematically undermines its own conditions of possibility. I refer to this strategy as envisioning real utopias: "utopias" insofar as the agenda is anchored in vision of emancipatory social change; "real" insofar as the analysis revolves around institutional feasibility. This is a wide-open theoretical and empirical agenda. It involves explorations of theoretical proposals which have no immediate real-world exemplars as well as empirical cases in which efforts at constructing, not just envisioning, real utopias have occurred. The premise of this third strategy is that while there are real limits on the possibilities of emancipatory futures that cannot be breached simply by an act of will, those limits are not fixed independently of our beliefs about what is possible. While it is false that "where there is a will there is a way" it is nevertheless the case that without a "will" many "ways" become impossible, and envisioning real utopias is part of the process of creating a will for change.

What the Real Utopias project is aimed at validating, most fundamentally, is the idea of emancipatory agency: that it is possible for us humans to restructure our social institutions in a direction that fits our fundamental values better than the present institutions do. And it is worth underlining how important, but also how risky, this effort is: important, because it gives a basis for thinking that we can create a better world; and risky, because many of the worst historical experiences of modern memory came from "utopian" efforts to redefine society. (This is a point that James Scott makes in Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (link).)

links for 2010-06-01

Posted: 01 Jun 2010 11:04 PM PDT

Why I Changed My Mind about Tax Cuts

Posted: 01 Jun 2010 09:09 PM PDT

I posted this at MoneyWatch a few days ago:

Why I Changed My Mind about Tax Cuts, Maximum Utility: When the recession first hit, and the need for government action became apparent, a debate began over the steps the government should take to try to turn things around. One point of contention was whether tax cuts or increases in government spending would have the largest impact on the economy.

Tax cuts have an advantage over increases in government spending since they can be implemented relatively quickly. Government spending programs take more time to put into place.

But there is also a disadvantage. Unlike government spending, which has an initial impact on demand that is certain and one to one, tax cuts give households and incentive to spend more, but there's no way to ensure that the tax cuts won't be saved instead of spent. And if they are saved instead of spent, then they don't produce the desired increase in aggregate demand. However, if the tax cuts are well targeted, then the amount that is spent rather than saved will go up, but even then the impact on demand is still less certain than for government spending.

The experience from the first attempt at using tax changes to stimulate the economy, the Bush tax rebate of Spring of 2008, suggests that temporary tax cuts of this variety are largely saved. Here's an estimate of the effect of the Bush tax rebates from the Congressional Budget Office. It shows that the rebates drove income up quite a bit, but consumption hardly budged:

Rebates

The lack of impact on aggregate demand (consumption) is due to how the tax rebates were distributed. The tax rebates went to a lot of people who really didn't need them, and they chose to save the extra money.

But better targeting can fix this. Thus, I thought that the best way to do the second stimulus package, the one Obama put into place a little over a year ago, would be to have well-targeted tax cuts go into effect as fast as possible to give the economy an initial jolt. This would be followed by government spending, which takes a bit longer to put into place. As this spending came online it would sustain or even strengthen the impact on aggregate demand provided initially by the tax cuts, and, importantly, the spending would be sustained until the economy was clearly on its way to recovery.

The stimulus package that was put into place by the Obama administration to fight the recession was constructed along these lines. Though many people don't realize this, just under 40% of the total stimulus package was devoted to tax cuts.

However, though the targeting was better than for the Bush tax rebates, the tax cuts weren't as well targeted as they could have been if the goal is to maximize the impact on aggregate demand (i.e. if the goal is for the tax cuts to go to consumption, not saving), and not all of the tax cuts went into effect immediately when they were most needed.

Initially I was critical of how the tax cuts were targeted since so much ended up going to saving rather than consumption. This is the part I am rethinking.

There are different types of recessions, and this one can be termed "a balance sheet" recession. It had a big impact not just on bank balance sheets, but on household (and, for that matter firm) balance sheets as well. Households were particularly hard hit due to declines in stock prices and declines in the value of housing. These losses were large, they upset plans for things such as retirement, and households needed to refill the holes in their balance sheets that had been created (this includes paying off debt).

How do they refill their balance sheets? By saving more and consuming less (paying off debt is a form of saving). Thus, as the recession took hold, we saw a large increase in the saving rate and a corresponding fall in consumption. The tax cuts were an attempt to reverse the decline in consumption, but instead they mostly raised the amount that went into saving.

But that has a benefit. Households are not going to start consuming normally again until their balance sheets are repaired. The faster the holes in their balance sheets are refilled, and tax cuts can help with this, the faster the households can return to their normal rates of consumption -- a prerequisite for the economy to return to normal.

So the targeting of the tax cuts that was OK after all. You don't see the effects of balance sheet rebuilding in the data initially because the tax cuts are being used to fill up balance sheets, there's no immediate effect on consumption, output, employment, etc., to observe in the data. But since balance sheets are refilled faster, we will emerge from the recession sooner, and that's an important benefit of tax cuts that's often overlooked.

There's one more important aspect of this. While the balance sheet rebuilding is going on, there's very little impact on aggregate demand, and since stimulating aggregate demand is a key to recovery, that must come from somewhere else. If we move the tax cuts from, say, higher income households to lower income households that will increase aggregate demand, but it will also slow the rate of balance sheet rebuilding and hence cause the recession to last longer.

Instead, we should do both. Give tax cuts to some households knowing full well they will use them to fix balance sheet problems, and also give tax cuts to households who will spend rather than save the money (because they need the money to help to pay bills, etc.), and do so in sufficient quantity to provide the necessary stimulus to aggregate demand. Then, as outlined above, follow this up with aggressive fiscal policy action and job creation programs that sustain the impact on aggregate demand until the economy is ready to stand on its own once again.

In balance sheet recessions, tax cuts that are saved will help to end the recession sooner and hence should be part of the recovery package. The most important concern is still aggregate demand, and policies must be devoted to this problem first and foremost, but tax cuts have a role to play in the recovery process even when they are saved.

Tyler Cowen: Is There a General Glut?

Posted: 01 Jun 2010 02:07 PM PDT

Tyler Cowen argues that:

Is there a general glut?, by Tyler Cowen: ... Reading the Keynesian bloggers, one gets the feeling that it is only an inexplicable weakness, cowardice, stupidity, whatever, that stops policies to drive a more robust recovery.  The Keynesians have no good theory of why their advice isn't being followed, except perhaps that the Democrats are struck with some kind of "Republican stupidity" virus.  (This is also an awkward point for Sumner, who seems to suggest that Bernanke has forgotten his earlier writings on monetary economics.)  The thing is, that same virus seems to be sweeping the world, including a lot of parties on the Left.
Romer, Geithner, Summers, et.al. know all the same economics that Krugman and DeLong and Thoma do.  If a bigger AD stimulus would set so many things right, they'd gladly lay tons of political capital on the line to see it through and proclaim triumph at the end of the road.

Except they expect it would bring only a marginal improvement. ...

I still think they should try to do it -- through more aggressive monetary policy -- but it's a judgment call and that's why they are more or less staying put. ...

[I've been wanting to respond to this, and I don't want to wait any longer. But I'm a bit short on time, and I am not going to have a chance to edit this carefully, so please forgive typos, repetitious or unclear phrases, etc.]

I don't get the claim that since the administration's economists are not pushing for a large, new stimulus package, it means they don't think it would work. In fact, I don't even agree with the basic premise that they have been silent on this issue. For example, I recently noted an op-ed by Christina Romer that appeared in the Washington Post where she argues for more fiscal stimulus, particularly measures that prevent teacher layoffs (but she also calls for more help generally when she says "Further targeted actions to speed the recovery and reduce unemployment... are good for the economy and good for families...") This was written at a time when Congress was considering a meager amount of additional stimulus. The politics were clear, Congress was not about to increase the amount of additional stimulus, instead they were considering reducing it. Romer was trying to stop them from doing this by pointing our how harmful such reductions would be, and if she is successful, it will be far from a "marginal improvement." So, contrary to the claim Tyler makes, the administration is pushing for more stimulus -- but, understandably, only when they think there is some chance it might do some good.

The mere fact that the administration can read the writing on Congressional walls, that the administration has decided that using political capital to push forcefully for more stimulus is tossing valuable political capital down a sinkhole, does not imply that the administration's economic advisors see no large benefit from further stimulus. Beating dead horses does not get you anywhere, it simply wastes valuable time and resources. It's not that they are unwilling to "Put their reputations behind policies which might backfire or irritate Congress" as Tyler suggests as one reason they are reluctant to push for more fiscal stimulus, it's that they don't think there's any real chance of getting the votes needed to pass the legislation. Call it ignorance among members of Congress, "weakness, cowardice, stupidity, whatever," but the votes simply aren't there.

As for Tyler's (and others') call for monetary policy instead of fiscal policy, here's the problem. It relies upon changing expectations of future inflation (which changes the real interest rate). You have to get people to believe that the Fed will actually be willing to create inflation in the future when it comes time to do so. However, it's unlikely that it will be optimal for the Fed to cause inflation when the time comes. Because of that, the best policy is to promise that you'll create inflation, then renege on the promise when it comes time to follow through. Since people know that, and expect the Fed will not actually carry through, it's hard to get them to change their expectations now. All that credibility the Fed has built up and protected concerning their inflation fighting credentials works against them here.

Fiscal policy does not have these problems. Maybe monetary policy would work in spite of the time consistency problems, I'm willing to try and there are creative ways around this problem that might work (see here for how to credibly commit to irresponsibility). But I'm not willing to put all my faith in this one policy basket, particularly since I think fiscal policy is the superior tool in deep recessions (but not in normal times). Fiscal policy must be part of the mix as well, and since the economy is not expected to return to full employment for several years, there's more than enough time for further fiscal stimulus directed specifically at job creation to work.

In a subsequent post, Tyler Cowen posts an excerpt from Kevin Drum:

Kevin Drum on fiscal stimulus, by Tyler Cowen:

But despite all this, there's one pretty good reason to think that Tyler is basically right: tax cuts. Lefty economists might generally believe that increasing spending is a more efficient way of stimulating consumption than reducing taxes, but they'd almost certainly accept a big tax cut as an almost-as-good substitute. And tax cuts have two big advantages over spending. On the substantive side, they work faster. Spending takes time to work its way through the economy, but a tax cut (for example, a payroll tax holiday) boosts the economy almost immediately. And on the political side it's quite doable. Republicans would be persuadable because they love tax cuts and Democrats would be persuadable because it would help the economy. For Obama, then, it would be the best of all worlds: a fast stimulus that gets bipartisan support, something that boosts the economy while dampening the inevitable criticism he'd get for blowing up the deficit.

But he's not pushing for this. Not even quietly. And this suggests that Tyler is right: Obama's advisors might be in favor of further fiscal stimulus, but not by much. And the best explanation for this is that lefty or not, they're genuinely afraid, as Tyler says, that it would bring only marginal improvements at the cost of significant problems down the road.

The full link is here.

First, a payroll tax cut is a supply-side policy that has demand side effects (as do all supply-side tax cuts). Increasing AS when AD is too low is a bad idea, it cause deflation which raises the real interest rate and slows the recovery. So the AS effects of these policies can be troublesome -- better to use AD side policies like government spending.

Second, what evidence is leading them to conclude that temporary tax cuts have a strong impact on demand? I argued that tax cuts can be helpful here, but not because they have large AD effects, the evidence suggests they are mostly saved (see the two graphs in the post). Better targeting could improve that, and I'm not opposed to well-targeted tax cuts being part of the mix (consistent with Drum's claim), but Congress has very poor aim and it's unlikely that tax cuts will be well-targeted. Again, we have several years before employment recovers -- even if tax cuts can produce an immediate impact, there's plenty of time for fiscal policy to be used as part of the mix.

Finally, again I don't understand how making a political calculation that there is no chance Congress will sign on to a package providing significantly more help implies that "they're genuinely afraid ... that it would bring only marginal improvements," and I certainly don't see why it implies that it would come at "the cost of significant problems down the road." Where's the evidence for that? And why aren't costs balanced against benefits? Is the worry that interest rates will go up? Then solve the medical cost escalation problem driving the long-run debt, further stimulus is a drop in the bucket compared to that. A credible plan for the deficit over the long-run is the key here, but that plan has little to do with whether or not more fiscal stimulus is put into place now and everything to do with how we rein in health care costs in the future.

There are probably all sorts of policies that the administration's economic advisors believe would be beneficial to the nation, but they know there's no chance that Congress will approve them so they don't even bother to bring them up. The mere fact that the administration's economists aren't out using up Obama's political capital says very little about what they think it the correct policy at this point. They are constrained by political advisors who determine what will and won't be pursued. The economists make their impassioned pleas behind closed doors, we do not get to witness this, and then decisions are made independently of them as to what they administration will and will not push for. It is not up to the economists to determine how political capital will be spent, and more than economics goes into this decision. Maybe Tyler's right and they don't think the policies will help much, or maybe they made an impassioned plea that more is necessary that, in the end, did not persuade the political advisors. Christina Romer's recent op-ed suggests that the administration's economists do see large benefits from further stimulus, but in any case, the fact that they are not out pushing for this forcefully does not tell us much about their beliefs concerning the benefits of further stimulus.

What the administration's economists truly believe I can only speculate about. But I know what I think. The economy, the labor market in particular, needs more help and fiscal policy -- and here I mean government spending targeted at job preservation and creation first and foremost -- has an important role to play in giving the economy the boost it needs.

[See also, Brad DeLong, Nick Rowe, and Scott Sumner.]

Rogoff: The BP Oil Spill’s Lessons for Regulation

Posted: 01 Jun 2010 10:53 AM PDT

Kenneth Rogoff frets over our ability to regulate complex emerging technologies:

The BP Oil Spill's Lessons for Regulation, by Kenneth Rogoff, Commentary, Project Syndicate: As the damaged BP oil well continues to spew millions of gallons of crude..., the immediate challenge is how to mitigate an ever-magnifying environmental catastrophe. ... The disaster, however, poses a much deeper challenge to how modern societies deal with regulating complex technologies. The accelerating speed of innovation seems to be outstripping government regulators' capacity to deal with risks, much less anticipate them.
The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency (...we know only a very small fraction of what goes on at the oceans' depths.) Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures. It is a huge embarrassment for US President Barack Obama that he proposed – admittedly under pressure from the Republican opposition – to expand offshore oil drilling greatly just before the BP catastrophe struck.
The oil technology story, like the one for exotic financial instruments, was very compelling and seductive. Oil executives bragged that they could drill a couple of kilometers down, then a kilometer across, and hit their target within a few meters. Suddenly, instead of a world of "peak oil" with ever-depleting resources, technology offered the promise of extending supplies for another generation. ... Some developing countries, most notably Brazil, have discovered huge potential offshore riches.
Now all bets are off. ... Will Brazil really risk its spectacular coastline for oil, now that everyone has been reminded of what can happen? What about Nigeria, where other risks are amplified by civil strife? ...
The basic problem of complexity, technology, and regulation extends to many other areas of modern life. Nanotechnology and innovation in developing artificial organisms offer a huge potential boon to mankind, promising development of new materials, medicines, and treatment techniques. Yet, with all of these exciting technologies, it is extremely difficult to strike a balance between managing "tail risk" – a very small risk of a very large disaster – and supporting innovation.
Financial crises are almost comforting by comparison. Speculative bubbles and banking crises have been a regular feature of the economic landscape for centuries. Awful as they are, societies survive them. ... If ever there were a wake-up call for Western society to rethink its dependence on ever-accelerating technological innovation for ever-expanding fuel consumption, surely the BP oil spill should be it. ...
Economics teaches us that when there is huge uncertainty about catastrophic risks, it is dangerous to rely too much on the price mechanism to get incentives right. Unfortunately, economists know much less about how to adapt regulation over time to complex systems with constantly evolving risks, much less how to design regulatory resilient institutions. Until these problems are better understood, we may be doomed to a world of regulation that perpetually overshoots or undershoots its goals.
The finance industry already is warning that new regulation may overshoot – that is, have the unintended effect of sharply impeding growth. Now, we may soon face the same concerns over energy policy, and not just for oil. ...
The balance of technology, complexity, and regulation is without doubt one of the greatest challenges that the world must face in twenty-first century. We can ill afford to keep getting it wrong.

Just one comment. If the risks of too little regulation are very large -- catastrophic oil spills, financial crises, and the like -- much larger than the potential costs from too much regulation stifling innovative activity -- then there should be a bias toward erring on the side of too much rather than too little regulation. Thus, the fact that "new regulation may overshoot" is not worrisome, it is optimal, and it seems to be we could have used what would have appeared to be overshooting prior to the recent financial and oil spill crises.

In addition, suppose that regulation had prevented the recent meltdowns and accidents. We never would have known -- catastrophic events that don't occur are not observable -- and there would have been considerable pressure to ease the regulations that were in place. There would have been argument after argument about regulatory overshooting, and considerable pressure from the "loan, baby, loan" and "drill, baby, drill" crowds to ease off (see Obama opening up offshore areas to drilling). I can even imagine Rogoff writing a Project Syndicate piece making the argument that financial markets are unduly constrained. So I am not particularly persuaded by worries that we will overshoot. As I said, we could have used a little more of what would have been called overshooting prior to the recent crises.

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