Throwing good money after bad

UPDATE: The Emperor Nero, more below***. Caroline Baum, Bloomberg:

Historical evidence suggests that “bad government policies are responsible for causing great depressions,” write Timothy J. Kehoe, professor of economics at the University of Minnesota, and Gonzalo Fernandez de Cordoba, professor of economics at Universidad de Salamanca in Salamanca, Spain, in “The Current Financial Crisis: What Should We Learn from the Great Depressions of the Twentieth Century?”

Future Shock

It turns out the source of the shock, be it internal or external, that triggers a depression “is less important than the reaction to the shock by the economy and, in particular, the government,” the economists write.

Before you dismiss Kehoe’s views as those of a card- carrying libertarian, consider that he was trained as a Keynesian, is a “lifelong Democrat, voted for Obama,” and believes in universal health care, he tells me in a telephone interview.

That said, he’s opposed to rewarding people who made bad investments. “The TARP money disappeared; it was scandalous,” Kehoe says, referring to the Treasury’s Troubled Asset Relief Program. “It went to people who made bad investments to try to pull them out.”

I'm getting exhausted, how about you?

They differentiate good outcomes to financial crises (Chile, Finland) from bad outcomes (Mexico, Japan) and find productivity plays an important role.

“All these depressions are associated with bad policies that depress the efficiency of production,” Prescott says in a phone interview. “The focus should be on productivity. History provides no support for stimulus.”

I see our president is using a teleprompter to introduce his latest HHS Secretary. Kind of dependent on that. Fiddling while Rome burns.