Paul Krugman: Stimulus Derangement Syndrome


 

Miles Kimball goes after John Taylor’s latest, and in the process reminds us of an earlier Taylor episode, in which JT argued that low interest rates are actually contractionary — a conclusion he reached by confusing the Fed’s setting of an interest rate target, which is achieved by buying bonds, with a rent-control-type price ceiling enforced by simply banning above-target transactions. It was an amazing thing for a highly credentialed macroeconomist to say. But it wasn’t unique; just offhand I can think of multiple comparable flubs ever since we began monetary and fiscal stimulus to fight the Great Recession.

So, for example, we had Robert Barro arguing that multipliers are small because private spending fell during World War II (hello? Rationing? Banning of private construction?). We had “new monetarists” arguing that low interest rates cause deflation, not the other way around. We had Robert Lucas completely misunderstanding what Ricardian equivalence says about the effects of government spending. And I’m sure I’m missing other examples.

Notice that what I’m highlighting here aren’t “mistakes” as in “saying something I disagree with”; I would not, for example, put claims that our problems are mainly structural in the same category. I’m talking about much cruder mistakes, basic failures to remember history or logic — the kind of thing you really would not expect from big guns in the field.

What do these episodes tell us? First, how much people of conservative politics hate hate hate the idea of any kind of activist government policy to help the economy. Second, how weak their grip on their own intellectual principles is when it comes to arguments that seem to support that hatred.

It has been a revelation.

Stimulus Derangement Syndrome – NYTimes.com

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