Fancy Theorists of the World Unite, by Paul Krugman, in NY Times: A number of people have pointed me to this remarkable editorial by Stephen Moore in the WSJ. What’s remarkable isn’t the views; it’s the all-out embrace of anti-intellectualism. It actually denounces “fancy theories” and rejects them because they “defy common sense”.
Gosh, if that’s the way the right is going, the next thing you know they’ll reject the theory of evolution. Oh, wait.
There’s a lot to critique here, if you have the stomach — among other things the question of what constitutes common sense. Some people find it commonsensical that if the government puts people to work, that adds to employment; it takes fancy arguments from the likes of the WSJ to convince them otherwise.
But the main thing I’d like to point out is that the past three years have in fact been a stunning confirmation of one fancy theory — namely, the theory of the liquidity trap, which is part of the broader construct of Keynesian economics.
I mean, common sense — or at least common sense as the WSJ sees it — would tell you that massive government borrowing would send interest rates soaring. And that’s certainly what the WSJ editorial page told its readers would happen. Only us fancy-schmancy Keynesians said otherwise; and here’s what actually happened:
Similarly, common sense as defined by the WSJ said that a tripling of the monetary base would lead to a huge increase in prices; clearly, one should disregard those fancy-schmancy types who said that the money would basically just sit there. Hmmm:
OK, someone is going to point out that inflation has run somewhat higher than I predicted; yes, it has. But I think the figure above shows that the outcome has nonetheless been a lot closer to what people like me said would happen than to what you would have expected from reading the WSJ.
But the stimulus failed! Well, I told you in advance — based on the same model — that it was much too small. So that’s not evidence against fancy theories.
The truth is that recent events have been a stunning confirmation of the usefulness of hard thinking in general, and the Keynes-Hicks model in particular. And the WSJ has been wrong every step of the way.
So now they’re tuning to anti-intellectualism. Well, of course they are; it’s all they have left.