Blog Credo

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

H.L. Mencken

Thursday, October 2, 2014

Dismal Scientists

In 2010 - as the Federal Reserve pursued a "cheap money" policy to try and prop up a faltering economy that was about to be deprived of any additional fiscal stimulus from a Teahadist Congress - a group of "economists" (I mean Bill Kristol signed for Chrissake, but then of course he did) wrote a letter saying in effect:


This was in response to quantitative easing by the Fed.  The letter sent by the Hoover Institute - because who else would you turn to during a financial crisis, beside Herbert Hoover - said that:
The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment...We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

When Bloomberg News reached out to these sages, they responded with some variation of "We were right!  You just have to understand what we were right about."

Some of the claims to correctness make a small sliver of sense.  Jim Grant suggests that inflation is happening on Wall Street, which... I guess.  Certainly I do think that easy money from the Fed is expanding a stock bubble.  That's really worrisome. At some point stocks will fall, because they are ridiculously over-inflated.  Will that trickle out into the rest of the economy?  Will it be 2001 or 2008?  And while you can plausibly argue that low interest rates have led to a stock bubble - Wall Street can borrow money almost for free - it's hard to pin that blame on QE.

Stanford Professor John Taylor is less convincing when he says that this is a slow recovery.  I mean, he's correct, it has been a slow recovery.  But that's not what he was saying four years ago.  They said it wouldn't help.  Right now, US companies are thriving, as Bloomberg notes, with "low debt, big cash piles and record profits.  They're creating jobs at the fastest average pace since 2005 and unemployment has dropped to 6.1% from 9.8% when they wrote the letter."

So, you can argue that it distorted financial markets I guess, but you can't argue that quantitative easing failed to stimulate the economy.  You can't.  Or if you try, you're relying on counterfactuals and hypotheticals.  You're arguing that somehow cheap money and QE somehow retarded economic growth while simultaneously threatening inflation.  Your evidence that it did so is your beautiful, beautiful theory.

Doug Holtz-Eakin - part of the stellar Bush Fiscal Team - says that we just have to wait.  One day they'll be correct.  Frankly, his response is so absurd, it's as close as they come to admitting they were wrong.  Or I'll just let Keynes take it from here, "In the long run, we're all dead."

Amity Shlaes - whose grasp of economics is so poor she was made Chair of the Calvin Coolidge Memorial Foundation...really?  Calvin Coolidge? - says, "Inflation could come, and many of us are concerned that the nation is not prepared."  Mothra could come, too, and I, too, fear that the nation is not prepared for the possibility of Mothra.  Do we have enough Raid?  Do we have Godzilla's cell number?  Well, Obummer?  Do we?

Most of the other signatories refused to comment, which is probably the better part of wisdom.  I don't hear Don Rumsfeld or Paul Wolfowitz crowing about the freedom in Iraq.  Cheney?  Sure.  But when you have no soul to begin with, your dealing with a sunk cost when it comes to blood thirsty venality.

Or you could just read Krugzilla.

So, basically, we can now divide conservative "intellectuals" into two types: Those that run away from accountability and those who have no idea what the word means.

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