Must-Read: : Is Our Economists Learning?: “Brad DeLong has an excellent presentation on the sad history of belief in the confidence fairy…
…and its dire effects on policy. One of his themes is the bad behavior of quite a few professional economists, who invented new doctrines on the fly to justify their opposition to stimulus and desire for austerity even in the face of a depression and zero interest rates.vOne quibble: I don’t think Brad makes it clear just how bad the Lucas-type claim that government spending would crowd out private investment even at the zero lower bound really was….
Two things crossed my virtual desk today that reinforce the point about how badly some of my colleagues continue to deal with fiscal policy issues. First, Greg Mankiw has a piece that talks about Alesina-Ardagna on expansionary austerity without mentioning any of the multiple studies refuting their results. And… as @obsoletedogma (Matt O’Brien) notes, he cites a 2002 Blanchard paper skeptical about fiscal stimulus while somehow not mentioning the famous 2013 Blanchard-Leigh paper showing that multipliers are much bigger than the IMF thought.
Second, I see a note from David Folkerts-Landau of Deutsche Bank lambasting the ECB for its easy-money policies, because: “by appointing itself the eurozone’s ‘whatever it takes’ saviour of last resort, the ECB has allowed politicians to sit on their hands with regard to growth-enhancing reforms and necessary fiscal consolidation. Thereby ECB policy is threatening the European project as a whole for the sake of short-term financial stability. The longer policy prevents the necessary catharsis, the more it contributes to the growth of populist or extremist politics.” Yep. That ‘catharsis’ worked really well when Chancellor Brüning did it, didn’t it?…
[In] the 1970s… stagflation led to a dramatic revision of both macroeconomics and policy doctrine. This time far worse economic events, and predictions by freshwater economists far more at odds with experience than the mistakes of Keynesians in the past, seem to have produced no concessions whatsoever.