Grasping Reality on TypePad, by Brad DeLong

Heathers: They're Gonna Get Mean, and They're Gonna Get Ugly Somehow, and There's Gonna Be a Million More of Them...: Paul Krugman and Clive Crook congratulate America for becoming its best self. I am not so sure. Here's one of the mean ones: Robin Givhan of (surprise!) the Washington Post: "Hillary Clinton celebrated her tenacity... dressed all in cobalt blue.... The only people who dress from head to toe in bright blue are more than likely telling you to put your seat tray in the upright and locked position. What would possess a woman seeking the highest office to dress in a manner that only Veruca Salt could love?..." And here's one of the ugly ones: Tom Sowell of the (surprise!) Hoover Institution in the Orville Faubus role: "You cannot lose a nuclear war for three years and then come back.... Our one window of opportunity to prevent this will occur within the term of whoever becomes President of the United States next January.... We do not have the luxury of waiting for our ideal candidate or of indulging our emotions by voting for some third party candidate to show our displeasure—at the cost of putting someone in the White House who is not up to the job. John McCain has been criticized in this column many times. But, when all is said and done, McCain has not spent decades aiding and abetting people who hate America..." To quote the immortal Guy Fleegman: "I don't like this. I don't like this at all.... [I]n a second they're gonna get mean, and they're gonna get ugly somehow, and there's gonna be a million more of them..."

Thoma vs. Mankiw on Opt-Out Financial Regulation: I score this one for Mark Thoma. Mark Thoma is... puzzled, I think is the word... by Greg Mankiw's claim that there is something intellectually wrong with Austan Goolsbee's endorsement of the idea that there should be "enhanced regulation of any financial institution that has access to the Fed's discount window.... Mr. Goolsbee said that an Obama presidency would ensure that investment banks are regulated as closely as commercial banks." Mankiw writes: "George Stigler rolls over in his grave: Remember when the University of Chicago used to be the intellectual center of the deregulation movement? No more.... This story seems to confirm the fears of Vince Reinhart [that the Fed's actions in Bear Stearns will be used to argue for more spending and more regulation...]" Mankiw is wrong here on a bunch of levels. irst, George Stigler is not rolling over in his grave. On matters of financial regulation, George Stigler showed great deference to Milton Friedman, and Milton was in favor of extremely tight regulation of any financial institution whose liabilities served as part of the economy's stock of liquid assets--as those of us who did the reading that Tom Sargent assigned and read Friedman's Program for Monetary Stability know...

Financial Regulation in the Twenty-First Century: Yesterday I felt obliged to strongly dissent from Greg Mankiw's claim that Austan Goolsbee, in endorsing his boss Barack Obama's position on the regulation of investment banks, had sold his share of the grand Chicago intellectual tradition for a mess of political pottage. Mankiw... seemed to me to be (i) simply wrong in its understanding of the Chicago tradition on financial regulation, as I argued yesterday, (ii) wrong in its analysis of why the Federal Reserve believes it needs authority to both lend to and regulate non-bank banks, as Mark Thoma argued yesterday, and (iii) wrong in its misidentification of the source of the push for enhanced regulatory authority—which comes not out of Barack Obama and the Democratic Party as a partisan issue but out of the Federal Reserve as a technocratic issue. This last is, I think, especially important: getting financial regulation right to deal with financial crises is not properly a partisan or ideological issue, and nobody should try to make it one. And lo and behold, in this morning's Financial Times we have New York Fed President Tim Geithner explaining what he believes needs to be done: enhanced regulation of any financial institution that has access to the Fed's discount window--with which institutions have access something determined by the regulators in the interest of system stability...