March 18, 2015

Brad DeLong is wrong... a very interesting way.

I am happy to say what I have gotten wrong since 2005:
  • Believing that central banks would make stabilizing the path of nominal GDP around its previous long-term trend their first and overwhelming priority, and would not rest until they had done so.
  • Believing that all parties in governments would support them, understanding that a strong economy is the easiest road to reelection, that prosperity is a virtue, and that structural adjustment is much easier to accomplish in a high-pressure than in a low-pressure economy.
  • Believing that governments understood both parts of the Bagehot Rule–that you lend freely at a penalty rate, which means that if you are propping up institutions of doubtful solvency you take their equity. (Yet you weren’t listening were you, Mr. Geithner, Mr. Obama?)
  • Believing that governments understood that it was important to get whatever our new framework of housing finance is operational quickly so that the single-family housing credit channel would no longer be blocked. (Yet you weren’t listening were you, Mr. DeMarco, Mr. Watt, Mr. Geithner, Mr. Lew, Mr. Obama?)
  • Believing that we were very unlikely to find ourselves in a situation in which monetary policy would have little expansionary traction.  
Revising my beliefs about how the world works in the wake of those five major ex post analytical mistakes has been an important part of what I have been and am trying to do. But when I look around at the economists who forecast inflation and the benefits of expansionary fiscal austerity, I find myself rather… lonely…



Post a Comment

<< Home