mommy-daddy wars (Malcolm and Martin) continued

From this post.

It would be nice if DeLong could have "shown his work" on how they came up with the counterfactuals.

Andy Harless comments:

Empirically I have to call this for Dean. Take the real 10-year yield at the end of the last quarter before the election, using the Philadelphia Fed Survey of Professional Forecasters 10-year expected inflation rate. In 1992, the real yield was 2.6% (6.4-3.8). In 2000, it was 3.3% (5.8-2.5). Obviously, you could choose the dates differently and get a different answer, but it's hard to imagine that there's strong evidence of declining real yields when my first cut shows them increasing. And I don't think you can use projections if those projections are based on models in which crowding out has large effects on interest rates. 

However, (1) everyone should realize that interest rates are endogenous, and I'm not sure the long run elasticity of investment demand with respect to the interest rate is very large, (2) it's obvious if you remember the late 1990's that there is dynamic, multiple equilibrium kind of stuff going on here, and I think interest rate comparisons are missing the important part of the story.

and

...or rather, I should say, "I think the long run elasticity of investment demand with respect to the interest rate MAY BE quite large" (not the opposite). But "long run elasticity" is really an attempt to shoehorn my subsequent point into a simple comparative static context. You don't ultimately need to "bring down interest rates" in order to "make it easier for the private sector to invest and grow," you just need to make the resources available. The interest rate would be the signal through which this process is transmitted, but given the weird dynamics and multiple equilibria, it's not clear to me that the interest rate should end up much lower than where it started.

Really this is a discussion of the bond vigilantes who the rightwing argues will punish Obama for turning us into Greece. Or is the "confidence fairy" with the discussion of prodding the private sector to invest and grow?