Brad DeLong on Bagehot
April 16, 2012
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This paper by Brad DeLong – This time, it is not different – argues that Bagehot’s book on Lombard Street is still relevant for understanding the current crisis, and that mainstream economics for years have failed to pick up the interesting research topics that Bagehot discussed back in the 1870.
Whereas I agree with deLong’s view that Bagehot is still relevant (for my take on the story, see this paper on “Terms and conditions of central bank liquidity support”, http://works.bepress.com/thorvaldgrung_moe/ ), I think DeLong dismisses a long and relevant theory tradition rather summarily when he in the beginning of his paper dismisses Minsky’s book and articles as irrelevant. This is unfortunate, as Minsky and Keynes (and all the others on which they built, including Henry Simons, Minsky’s teacher at Chicago University) had a pretty good grip on the theory of financial crises.
For more on this and the need for a new understanding of banking in macroeconomics, see my working paper on “Shadow banking and the limits to central bank liquidity support“, where I discuss many of the same issues that DeLong raises.