Grasping Reality on TypePad, by Brad DeLong

This morning I wrote a post about the rumblings I hear from Washington about its policy reaction to the eurocrisis crisis, and how those rumblings seem to me to be wrong--how it looks as though they will not support but rather put downward pressure on global aggregate demand:

Eurocrisis: Financial-Prudence-Is-Contractionary Watch: [W]hen Wall Street banks shed their eurorisk that the net risk-bearing capacity of the private market is diminished, and that in the current situation a reduction in the market's risk-bearing capacity widens spreads and is contractionary. What Washington should be doing right now is saying: We will bear some of the eurorisk, and we--as your regulators--require that you raise more capital so that you can cope with and bear the rest. Right now fiscal austerity is contractionary, monetary austerity is contractionary, and banking austerity--requiring finance to cut back on leverage by shrinking assets rather than raising capital--is contractionary as well...

This was a follow-up do an earlier post in which I had thank God that there was a policy reaction to being contemplated--I had not been sure there was, and my conversations with people in Washington over the past week had given me the vibe that the view in DC was that the eurocrisis was something "to be left to stock analysts" to analyze. And that was a follow-up to an even earlier post giving my thumbnail view of what the proper policy reaction should be.

My post this morning took the form that it did for a number of reasons [1]:

• I have been arguing for four years now that in this crisis we need not just to make sure the economy stays liquid and not just to rebuild balance sheets but also that we need to shift the balance of private portfolios away from risky and toward safe assets as we also boost the private sector's risk tolerance.

• The "paradox of prudence" underlying today's post is one of a number of like "paradoxes" produced by macroeconomic externalities--the "paradox of thrift", the "paradox of toil", etc.

• Greg Ip had complained about my "at least they are thinking of doing something" post..

Greg had tweeted:

greg_ip Greg Ip @delong Wrong kinda foam: "regulators make sure [big U.S. financial institutions] scaling back exposure to Europe"

(And, also, in my comments I have TJ: "So they're foaming the runways for U.S. banks and shooting Stingers at the European banks?")

Now sooner or later--probably sooner--I would have written my "paradox of prudence" banking-austerity-is-contractionary post even had Greg Ip not tweeted his annoyance.

But I would not have written it just then.

And I would not have written it in the exact form it took.

And my post contains no hint that Greg's tweet was one of its impelling forces. It contains no citation to Greg Ip. You would have to cross-reference my weblog with the @delong twitterstream, look closely at time stamps, and do some fairly sophisticated modeling of my internal mental processes before you could reach not an airtight judgment but rather a presumption that when I wrote I was thinking about an in a way responsive to Greg Ip.

On the one hand this is unfair:

• I have a duty to myself to acknowledge my sources and influences.

• I have a duty to my readers to inform them of what other writers I find interesting and worth reading so they can improve their knowledge.

• I have a duty to Greg Ip to acknowledge his influence on my thought, so that when the editors of the Economist come to him and say "why are you wasting so much of the time we are buying on twitter?" he can say: "But it's good for the Economist for me to waste time on twitter! I influence thought leaders! Look at this!" And thus he can get more highly paid, and someday buy me lunch at Daniel.

On the other hand, we cannot make ourselves crazy, can we? I mean, surely the discussion of Jim Romenesko's firing from Romanesko by Poynter for "overaggregation" is relevant to this post, but I'm not going to spend time running down a link. I have a life to lead, and a day job too.

One thing I can do is to resolve, hereafter, that every post I write will begin not by me clicking the "New Post" menu item in something like MarsEdit but rather with me clicking the "Post on MarsEdit" bookmark item in Safari. Maybe that will help...

[1] And then there are the private not-for-attribution emails from people whose jobs do not allow them to have public weblogs of their own, like:

Just as a technical matter… if you have an exogenous shift in the private sector's ability to supply liquidity (as the European banking sector does, because it needs to make higher capital requirements), the central bank needs to accommodate this. To fail to do so is, effectively, "quantitative tightening". The ECB is carrying out exactly this quantitative tightening, as far as I can see basically because of amour propre…