Should we take this guy a little more seriously?
Krugman’s blog should be required reading for everyone, even (or perhaps especially) those who so violently disagree with him. There is usually little room between the data and the conclusions. Today:
Just a reminder: back in the spring of last year conventional wisdom in Europe, although fortunately not at the Fed, was that it was time to start raising interest rates, with the OECD calling, I think, for 350 basis points by the end of 2010.
And these same people will continue to pronounce solemnly, with an air of great wisdom, on future policy.
Meanwhile, long-term rates are now down close to the lows they hit during the worst days of the Oh-God-we’re-all-gonna-die period after Lehman’s fall.
Bear in mind that the austerity guys have been warning since early 2009 that rates were going to soar any day now, while those of us who understood our Keynes/Hicks model said that rates would stay low as long as the economy stayed depressed. That’s a pretty spectacular vindication of one point of view, rejection of another — which will, of course, not stop Very Serious People from listening mainly to those who got it completely wrong.
Are we worrying about the wrong things:
- People have been warning since early 2009 that large budget deficits would lead to soaring interest rates and crowd out private spending. Rates have, if anything, gone even lower
- People have been warning that all that “money printing” by the FED would lead to hyperinflation, while inflation is very low
- People have been arguing that austerity would stimulate the economy, by some magic, it would restore confidence and lead businesses to invest despite the lack of customers and excess capacity and ample examples where austerity depressed the economy
- People were arguing for central banks to raise interest rates (the ECB actually did comply) despite the economy being deeply depressed
- People worry about the solvency of countries that have their own currency and cannot go bankrupt in the face of near record low bond yields
- We couldn’t do a $2T stimulus although even according to S&P $2T doesn’t matter much for the long-term fiscal prospects of the US.
The thing we marvel at is that people have been saying these things despite economic data, and more in particular, markets pointing in a very different direction. Do we actually learn from our mistakes? Evidence seems to matter so little in the present climate..