Brad DeLong’s article Department of “Huh?!”: Labor Market Demand and Supply for the Elderly Edition has some comments that are particularly relevant to my previous blog post The Return Of Depression Economics.

DeLong said:

The old Keynesian line was that nominal wage flexibility–and the union-smashing recommended by Hayekians–was a side issue. In an economy with nominal debt contracts downward-flexible nominal wages were likely to produce deeper depressions as the economy was subjected to much stronger downward shocks from the deflation, debt, and bankruptcy cattle prod. Wage inertia was thus a blessing–albeit a poorly-understood blessing–rather than a curse.

I think that everybody open-minded and nuanced is finding themselves moving rapidly toward the old Keynesian position under the pressure of events and data right now.

Compare this to the quote that I pulled out of Paul Krugman’s book The Return Of Depression Economics.

In reality prices don’t fall quickly in the face of the recession, but economists have been unable to agree about exactly why.

On August 10, I took Krugman to task for pretending that economists could not agree on the obvious cause.  I said:

 Could it be that the need for homeowners to sell their houses at above market value to be able to pay off their mortgages kept them from lowering the prices right away in the forlorn hope that they could come out of the deal financially whole?

If you translate the economics jargon, Brad DeLong is saying the same thing.

It may not have much to do with my particular point in this blog post, but I want to keep track of the following graph from DeLong’s article.