That U.S. policy since 2008 has been so much more successful than Eurozone policy even though the center of the financial crash was in the U.S., in the desert between Los Angeles and Albuquerque, should have caused the Eurozone to revise its economic policies and move them closer to the more-stimulative policies of the U.S. And it should have caused the U.S. to revise its policies and moved them further away from the hyper-austere policies of the Eurozone. But no.

Joe Stiglitz is, unsurprisingly, in despair:

Joe Stiglitz: [Europe’s Austerity Zombies:a “Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: [that] the economy is no longer collapsing…. To say that the medicine is working because the unemployment rate has decreased by a couple of percentage points, or because one can see a glimmer of meager growth, is akin to a medieval barber saying that a bloodletting is working, because the patient has not died yet…. The long recession is lowering Europe’s potential growth. Young people who should be accumulating skills are not…. Meanwhile, Germany is forcing other countries to follow policies that are weakening their economies–and their democracies…. Privatization of pensions, for example, has proved costly in those countries that have tried the experiment. America’s mostly private health-care system is the least efficient in the world…. Selling state-owned assets at low prices is not a good way to improve long-run financial strength. All of the suffering in Europe… is even more tragic for being unnecessary. Though the evidence that austerity is not working continues to mount, Germany and the other hawks have doubled down on it, betting Europe’s future on a long-discredited theory. Why provide economists with more facts to prove the point?

Graph Gross Domestic Product by Expenditure in Constant Prices Total Gross Domestic Product for the Euro Area© FRED St Louis Fed

Yet it has not happened. Policymakers in both Europe and in the United States today appear more in thrall than not to the economists who claimed:

  1. That the rapid monetary base creation and extended-period zero nominal bound interest rate policies of the Federal Reserve would rapidly produce runaway inflation.

  2. That continued high spending to fight the recession even by reserve currency-issuing sovereigns with exorbitant privilege would produce debt accumulations that would rapidly generate high interest rates and either runaway inflation or renewed and deepened depression.

  3. That the Federal Reserve’s reducing via quantitative easing the quantity of duration and other risk in the financial instruments available to be held by the private sector would somehow make the risks of future financial crisis greater and private-sector portfolios more and too risky.

Argument (1)–the Asness-Boskin-Bove-Calomiris argument–seemed at the time to the Keynesian faction to be incoherent because it failed to recognize the special circumstances that prevailed at the zero nominal lower bound. Argument (2)–the Reinhart-Rogoff argument–seemed at the time to the Keynesian faction to be wrong because it failed to recognize the special circumstances that prevail when reserve currency-issuing sovereigns seek to borrow while safe short-term nominal interest rates are at the zero lower bound. Argument (3)–the Jeremy Stein argument–I could never make sense of, for it seemed to require that the adoption of quantitative easing policies to trigger an enormous wave of private-sector risky-security creation that simply never happened.

And the most disappointing thing is that none of Asness et al., or Reinhart and Rogoff, or Stein have come forward with attempts to mark their beliefs to market–with explanations of how they have changed their views as the situation has not involved according to their expectations, or how special factors mean that they do not need to change their views even though the situation has not involved according to their expectations, or even how in spite of appearances the situation really has evolved according to their expectations. We really need to see these arguments put forward if there is going to be a dialogue, rather than simply a zombie plague.