Instead, he [Larry Summers] (and I) were trapped by belief in what I might as well call "Greenspanism."...Wow! I feel I have accidentally overheard the confession at St. Patrick's Cathedral of a dying man.
Let me talk about me. After all, my mind is what I know best. And it is the case that the most powerful lobe of my brain is the one that is always running an instantiation of the Larry Summers thought emulation module on top of its native wetware code:
What we did believe? We believed that the Federal Reserve could handle whatever financial crisis the markets could throw at it. We believed that the Federal Reserve had the policy tools, the risk management skills, and the incentives to firewall the real economy from financial dislocations, and to clean up whatever financial messes were left behind. There were solid reasons for these beliefs: they were called 1987, 1991, 1997, 1998, and 2001. In all of those episodes--some of them involving financial losses much greater than those of the initial subprime mortgage crisis--the Federal Reserve had successfully firewalled the real economy off from financial turmoil.
Once we had concluded that the Federal Reserve had the tools and the competence to absorb financial shocks, the jaws of the trap snap shut...
But "captured" is the wrong word. "Trapped" is much better. And not trapped by the efficient market hypothesis. Trapped, instead, by confidence in modern central banking.
And while these intellectual commitments are certainly fueled by too-close attention to and admiration for central bankers, they are not especially closely tied to contacts with or worship of the princes of Wall Street.
Since I spend a lot of time in Washington D.C., I meet a lot of economists who might be called what DeLong calls "trapped." It is not that they are not bright, most of them are. It is as DeLong points out that they are "fueled by too-close attention to and admiration for central bankers." I would add that the admiration goes beyond that for central bankers. It goes on to include admiration for anyone who may have a pass to the west wing of the White House (or admiration for anyone who may know someone who may have a pass to the west wing.)
This type of admiration, Greenspanism, if you will, blocks the mind and shrinks the balls. I have never before seen anyone who has suffered from it openly confess to the affliction, or admit that such an affliction even exists.
It should give every Washington D.C. economist, and beyond, pause to think and reflect on whether their support for some institutionalized way of thinking may be some form of Greenspanism.
DeLong's soul-searching confession makes me want to call for a statue of DeLong to be placed near the entrance to the west wing of the White House, so that any economist entering through that gate is reminded of this disease, Greenspanism, that is ever so dangerous, yet very easy to contract so close to the halls of coercion.