[paganel]

> pernicious effects of deflationary feedback loops

Serious question: were those results really put to the test? Apart from looking back at the New Deal era and getting from there whatever it's politically convenient at any one point.

[em500]

Serious answer: you can't properly test anything in macro-economics. Just think about it, we can't implement rigorous (randomized controlled) experiments and we can never observe the counterfactuals. The only thing we have are observational data with tons of endogeneity problems (fiscal/monetary policy makers react to movements in the economy as much as that the economy reacts to policy). So all validation comes from comparisons with other countries (or states within the US) and/or prior historical episodes, but there is an endless and unresolvable debate on how comparable other countries or history actually are.

So I identify when people who question if (macro-)economics should be considered a science or even has anything useful to say at all. Especially when the commenter shows that they've done some grad level econ courses / understands published academic journal papers, rather than regurgitating pop-sci articles / blogs. But I also sympathize with academic and central bank/ministry of finance macro-economists, who are faced with questions of huge social impact, that are probably unresolvable at a fundemental level.

[throw0101c]

> Serious answer: you can't properly test anything in macro-economics. Just think about it, we can't implement rigorous (randomized controlled) experiments and we can never observe the counterfactuals.

Some places can raise taxes and others can lower them, and we can see what happens:

* https://en.wikipedia.org/wiki/Kansas_experiment

[dereg]

Bernanke has his fingerprints on every large central banks' response in the wake of the 2008 Global Financial Crisis. He flooded the system with liquidity to prevent what he observed in the Great Depression. Was he successful? Yes. We didn't suffer from a recession anywhere near the magnitude of the depression. Did you like how he did it and what happened as a result? I'm guessing you didn't.[1]

Part of the fun of economic and monetary history is following the umpteen competing explanations for recessions and bubbles and piecing together a mosaic of all that seems to make sense. Bystanders have the luxury of not writing those papers unlike academics, who often chain themselves to their own work/school of thought.

Every monetary theory is based on a very limited set of observations. Policies borne out of those theories are even more scarce. I don't expect anyone to be right or wrong all the time. In my opinion, the best way to understand economics is to have a base set of principles and be theoretically promiscuous.

[1] I tend to be a free market fundamentalist so I didn't like it either. That doesn't mean it didn't work.

[dmichulke]

> Was he successful? Yes. We didn't suffer from a recession anywhere near the magnitude of the depression.

So he diagnosed the problem, set the goal (avoid recession), and the time frame (no immediate recession) and judged his success (no recession so yesss!).

Sounds a bit arbitrary to me, especially as now it becomes evident even to his disciples (Yellen, Kashkari, Powell) that the thing was merely postponed and aggravated.

[AnimalMuppet]

Given that the alternative was immediate recession (or worse, immediate collapse), a recession 14 years later is a win.

And, aggravated? You think the recession now is worse than what we would have had in 2008? I'm pretty sure you don't remember 2008 very accurately. Bernanke short-circuited a hurricane then, and you're complaining that it spawned a tornado 14 years later. Yes, the tornado is damaging. No, it's nothing like the hurricane.

[throw0101c]

> Serious question: were those results really put to the test?

Bernanke was already considered one of the foremost experts on the Great Depression when he was appointed Fed chairman. From a 1993 paper he co-authored on central banks' reaction to the situation (when things were still on the gold standard):

> The initial contractions in the United States and France were largely self-inflicted wounds; no binding external constraint forced the United States to deflate in 1929, and it would certainly have been possible for the French government to grant the Bank of France the power to conduct expansionary open market operations. However, Temin (1989) argues that, once these destabilizing policy measures had been taken, little could be done to avert deflation and depression, given the commitment of central banks to maintenance of the gold standard. Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.

> For our purposes here it does not matter much to what extent central bank choices could have been other than what they were. For the positive question of what caused the Depression, we need only note that a monetary contraction began in the United States and France, and was propagated throughout the world by the international monetary standard.

* http://www.nber.org/chapters/c11482

* https://www.nber.org/system/files/chapters/c11482/c11482.pdf

Flooding the market with liquidity when US inter-bank flows seized up, as well as opening international swap lines with ECB, Bank of England, Bank of Canada, etc:

* https://www.newyorkfed.org/medialibrary/media/research/curre...

* https://www.bis.org/publ/work310.pdf

* https://www.reuters.com/article/financial-fed-swaps-idUSN295...

was a direct result of understanding what went wrong during the Great Depression (at least from a banking point of view), and what could be done to prevent that part of the problem.

In March 2020, when economies were being put on lock down, similar things were done:

* https://www.reuters.com/article/us-health-coronavirus-fed-sw...

* https://www.europarl.europa.eu/cmsdata/207608/CEPS_FINAL%20o...