Who Are You Going to Believe?: Paul Krugman vs. Arthur Laffer
Paul Krugman:
Enter, Laffering: Sorry about blog silence. Too much stuff in Seattle.
Tomorrow is Lalaland, doing Bill Maher. Also on, Art Laffer.
This might be an occasion to revisit some of the predictions various parties made a few years back. Here’s Laffer three years ago, Get Ready for Inflation and Higher Interest Rates:
But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.
OK, it’s only three years, so I guess there’s still time for the hyperinflation — but it had better get a move on. I think my take is doing a bit better:
Let me add, for the 1.6 trillionth time, we are in a liquidity trap. And in such circumstances a rise in the monetary base does not lead to inflation.
Also, my declaration at about the same time that
our current predicament can be thought of as a global excess of desired savings — which means that fiscal deficits won’t drive up interest rates unless they also expand the economy.
Incidentally, we’re coming up on the second anniversary of my attack on the myths of austerity.
Just thought it might be worth recalling all this stuff for the record.
What gets my goat the most is not just that they were so wrong--the Laffers, Camerons, Trichets, Lucases, Cochranes, Famas, Boldrins, Boehners, Kocherlakotas, etc.--but that they have made absolutely no attempt since to mark their beliefs to market.
A zombie bank that is underwater because it has made lousy investments does not liquidate, but doubles down, hoping that luck will turn its way and carry it above water again. These are zombie economists and politicians. If they were to admit that they were so wrong and mark their beliefs to market, they would lose face, lose influence and authority, and lose their jobs. So much better in their view not to think, to double down, and hope that luck will turn their way and they can then fuzz the issue of how wrong they were back in 2008 and 2009.
