In his October 23, 2017 New York Times op-ed "Trumpal Infallibility," Paul Krugman attacks what he characterizes as Republican Party attitudes toward monetary policy. Paul fails to emphasize the many Republicans who have very sensible attitudes toward monetary policy, including my dissertation advisor Greg Mankiw and Ben Bernanke himself when Ben was still a Republican. Moreover there are many bloggers who seem fairly conservative who are very sensible on monetary policy. I am thinking here of the deeply perceptive Scott Sumner, whose party affiliation I don't know. Nevertheless, Paul is right about a key subset of Republican-Party-linked commentators on monetary policy:
... when the 2008 financial crisis struck, the Federal Reserve, led at the time by Ben Bernanke, took extraordinary action. It cut interest rates to zero and “printed money” on a huge scale — not literally, but it bought trillions of dollars’ worth of bonds by creating new bank reserves.
Many conservatives were aghast. TV pundits hyperventilated about hyperinflation, and even seemingly more respectable voices denounced the Fed’s actions. In 2010 a who’s who of conservative economists and pundits published an open letter warning that the Fed’s policies would cause inflation and “debase the dollar.”
But it never happened. In fact, the Fed’s preferred measure of inflation has consistently fallen short of its target of 2 percent a year. ...
An even bigger failure was the failure of this subset of commentators on monetary policy to admit their mistake:
Four years after that open letter to Bernanke, Bloomberg tracked down many of the signatories to ask what they had learned. None of them — not one — was even willing to admit having been wrong.
I think of Paul Krugman as someone who is below average in willingness to admit a mistake. Yet even Paul is much better at admitting mistakes than that. Here is Paul's declaration of his own willingness to admit mistakes:
Now, every economist makes bad forecasts now and then — if you don’t, you’re not taking enough risks. I’ve certainly made my share, including a bad market call on election night — which I retracted three days later, acknowledging that my political dismay had gotten the better of my analytical judgment. But I always try toface up to my mistakes and learn from them.
I hope I am someone willing to admit mistakes. I promise to try in my bio (see the link at the top of my blog) where I write of myself "Miles ... holds many strong opinions—open to revision in response to cogent arguments." Many of my more popular storified Twitter discussions that you can see here feature me admitting error, as do many of my blog posts, and even two of my Quartz columns:
- An Economist's Mea Culpa: I Relied on Reinhart and Rogoff
- Swiss Pioneers! The Swiss as the Vanguard for Negative Interest Rates
Now, apply that test of willingness to admit mistakes to John Taylor, who is being considered as Chair of the Federal Reserve Board:
Since the financial crisis, however, he has repeatedly demanded that the Fed raise interest rates in line with a policy rule he devised a quarter-century ago. Failing to follow that rule was supposed to cause inflation, which it hasn’t — but seven years of being consistently wrong hasn’t inspired any rethinking on his part.
What it has inspired is a descent into increasingly strange reasons the Fed should raise rates despite low inflation. Easy money, he declared, was part of a conspiracy to “bail out fiscal policy,” that is, an effort to help President Barack Obama. Or maybe it was like the monetary equivalent of rent control, discouraging lending the way rent control discourages building apartments — a bizarre analysis that had colleagues scratching their heads.
I like John Taylor personally very much, and have had several positive interactions with him at conferences. These positive interactions came in the years after I posted "Contra John Taylor," which Paul Krugman links to from the phrase "scratching their heads" in the passage just above. I have always wondered whether John didn't realize that I had written a post disagreeing with him so strongly, or if he did realize it but was fine with that kind of vigorous intellectual debate. If the latter, that should be counted in John Taylor's favor. The bottom line is that I haven't quite figured John Taylor out. If he does get appointed as Chair of the Federal Reserve Board, we will all learn a lot more about him and his deepest beliefs about monetary policy.
Update: Lars Christensen adds this very interesting note on my Facebook page link to this post:
Lars Christensen Krugman also forgets how silly many leftists are in regard to monetary policy. In fact most self-declared US leftist economist post-2008 said monetary easing would not work. Krugman himself said that.
And Obama appointed hawks to Fed positions and since 2015 the Democrats Yellen and Fisher have argued for tighter monetary conditions despite the Fed continuing to undershoot its inflation target.
But obviously as usual Krugman lets party political come before economic analysis.
By the way Scott Sumner neither a Republican or a Democrats. He is a moderate (small l) libertarian. I think he voted for Hillary. But yes, he is traditionally seen on the right of US politics.
But Krugman should have the decency to acknowledge that the group of economists who consistently since 2008-9 has argued for monetary easing in the US have been market monetarists. And most of us a (mostly non-partisan) classical liberal/libertarians or conservatives.
Lars's note and Brad Delong's comment in response spilled over into an interesting debate on Twitter that I have storified as "Responses to the Great Recession."