Monday DeLong Smackdown Watch: Robert Waldmann

Robert Waldmann: In Which Paul Krugman Notices How Very Few Students Milton Friedman Has...: "I think that 'German (and French) economists grew up and lived in a world where somebody else...

...the benevolent Kindlebergian hegemon of the United States--took on the task of maintaining a stable level of aggregate demand in the North Atlantic as a whole...

is both patronizing and too kind. First, most US economists have never worked at the Fed or the Treasury--they are spectators just like Germans and Frenchmen. But more importantly, there was a massive prolonged European demand shortfall from the late 70s through the early 90s. Enormous unemployment rates are not new.

The focus on "the structural" is free-floating ideology, not a superstructure carried on the patient back of any hegemon.

In 1985-6, the UK was the prime example of Euroschlerosis in 'Hysteresis and the European Unemployment Problem' Blanchard & Summers (1986). Then the stock market crashed in 1987, and the lady who was not for turning turned to monetary stimulus. This caused increased inflation and an actual shortage of skilled labour (I type the u as it was in the UK--I read papers about how firms couldn't fill vacancies).

Then the border of the stagnating swamp of structural stupidity shifted from the Atlantic to the English channel. The good tough rigorous market-based structure became anglophone, not American. The case of an inadvertent shift to excess aggregate demand, and the long-lasting consequences thereof, had no effect on the conviction that continental Europe's problems were "structural".

French and German technocrats can ignore aggregate demand because they have learned to ignore double-digit unemployment, not because the USA benevolently hegemonically prevented it.