Discussion Questions on DeLong, "Understanding the Lesser Depression"

1. What was "the great moderation" and what explained its existence?

2. In a dozen states (California, Florida, Arizona and Nevada) inflation-adjusted house prices increased by more that 80% between 1998 and 2006. What economic reasons were there for why the prices of houses should have increased? Did these reasons make it plausible to deny that there was a housing bubble?

3. The Federal Reserve is supposed to control inflation and to maintain full employment. How is it supposed to do this? Why has it failed to maintain full employment? How did it respond to the financial crisis in 2008?

4. What is Say's Law? How does Mill criticize it? What causes recessions or depressions?

5. DeLong mocks the various "new classical" explanations of the lesser depression. How does he describe their explanations. Can any of you think of ways to defend them?

6. Why are neither Keynesianism nor monetarism very useful in understanding the cause of the lesser depression?