Macroeconomic Chutzpah, by Paul Krugman, in NY Times: Chutzpah, according to the old definition, is when you murder your parents, then plead for mercy because you’re an orphan. I found myself thinking of that definition when reading Justin Fox’s description of recent remarks by Jean-Claude Trichet. (Via Mark Thoma).
Trichet laments what he says was the failure of macroeconomics to yield useful guidance in the crisis. On the whole, I’m sympathetic to that view — a lot of modern macro proved not just useless but actually harmful, because it undermined the workable macro consensus we used to have, a consensus that could and should have led to a better response.
But from Trichet? After all, his hallmark during the crisis was his willingness, even compulsion, to throw the things we actually do know out the window. He tossed everything we know about aggregate demand out in favor of the fundamentally implausible (and now failed) doctrine of expansionary austerity. He ignored what we know about inflation and the difference between transitory shocks to raise interest rates in the face of an obviously temporary blip.
And now, having willfully rejected and ignored what macroeconomics had to say, he complains that macroeconomics doesn’t offer useful policy guidance. Awesome.