Must-Read: Paul Krugman: The Not-So-Bad Economy

**Must-Read: Mark Thoma sends us to Paul Krugman on the Fed’s forthcoming likely policy mistake with respect to this month’s interest-rate liftoff. My take: there is one chance in two that in June of 2018 the Federal Reserve will be wishing it had not raised interest rates in December 2015–it is, of course, unable to effectively catch up in policy terms:

Paul Krugman: The Not-So-Bad Economy: “I believe that the Fed is making a mistake…

…But the fact that hiking rates is even halfway defensible is a sign that the U.S. economy isn’t doing too badly. So what did we do right?… The Fed and the White House have mostly worried about the right things. (Congress, not so much.) Their actions fell far short of what should have been done…. But at least they avoided taking destructive steps to fight phantoms…. Meanwhile, on the other side of the Atlantic, the European Central Bank gave in to inflation panic, raising interest rates twice in 2011–and in so doing helped push the euro area into a double-dip recession….

Unfortunately, the U.S. ended up doing a fair bit of austerity too, partly driven by conservative state governments, partly imposed by Republicans in Congress via blackmail over the federal debt ceiling. But the Obama administration at least tried to limit the damage.
The result of these not-so-bad policies is today’s not-so-bad economy…. Things could be worse.

And they may indeed get worse, which is why the Fed’s likely rate hike will be a mistake…. I’m not sure why this [asymmetric risks] argument, which a number of economists are making, isn’t getting much traction at the Fed. I suspect, however, that officials have been worn down by incessant criticism of their policies, and want to throw the critics a bone. But those critics have been wrong every step of the way. Why start taking them seriously now?