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Dealing with "Cognitive Closure": Paul Krugman vs. Allan Meltzer

Graph 10 Year Breakeven Inflation Rate FRED St Louis Fed

Live from the Roasterie: For those who missed this last fall...

Paul Krugman on Allan H. Meltzer:

Paul Krugman (September 12, 2014): The Inflation Cult: "You find the same Groundhog Day story...

...when you look at the pronouncements of seemingly reputable economists. In May 2009, Allan Meltzer, a well-known monetary economist and historian of the Federal Reserve, had an Op-Ed article published in The New York Times warning that a sharp rise in inflation was imminent unless the Fed changed course...

...Over the next five years, Mr. Meltzer’s preferred measure of prices rose at an annual rate of only 1.6 percent, and his response was published in another op-ed article, this time in The Wall Street Journal. The title? ‘How the Fed Fuels the Coming Inflation.’

So what’s going on here?... Part... is clearly political.... And anger against ‘takers’... [is] very much tied up with ethnic and cultural divisions.... This tribal interpretation of the inflation cult helps explain the sheer rage you encounter when pointing out that the promised hyperinflation is nowhere to be seen....

But what about the economists who go along with the cult? They’re all conservatives, but aren’t they also professionals who put evidence above political convenience? Apparently not...

Allan Meltzer on Paul Krugman:

Allan Meltzer (September 16, 2014): My Response to NYT Columnist Krugman: "I avoid reading Paul Krugman’s column in the New York Times...

...because he often attacks people viciously. That is not a useful way to discuss ideas. If the Times were a better paper, like the Times of the distant past, it would refuse to publish his screed. On Friday, several friends told me that Krugman had criticized my published comments on inflation.... I have admitted publicly that I made a mistake by failing to anticipate that banks would decide to hold idle $2.5 trillion of the new reserves that the Federal Reserve supplied. Nothing to that extent had ever happened. Excess bank reserves delayed the coming inflation....

If Krugman were a more astute analyst he would wait to see what happens to the $2.5 trillion of idle reserves before declaring all those who warn of inflation’s dangers unprofessional. Claiming victory at this stage can be likened to announcing the game’s result with one half still left to play. A professional would wait...

In these passages there is one statement that is clearly and grossly wrong: Allan Meltzer's claim; "Nothing to that extent had ever happened" as the pile-up of excess reserves in banks. As Meltzer knows as well as I do (or Paul does), we saw such pile-ups of excess reserves in the Great Depression and in Japan's lost decades...

Me? I remember the days when Allan Meltzer was claiming that Bob Rubin and Larry Summers should go to jail because they had acceded to Bob Dole's and Newt Gingrich's requests that they use the ESF to fund loans to Mexico rather than require Dole and Gingrich to whip their caucuses to vote the loans through the Congress.

Calling people criminals seems to me a good deal meaner than calling them cultists, but what do I know?


More from Paul Krugman on dealing with "cognitive capture" at the appropriate level:

Paul Krugman: The Uses of Ridicule - NYTimes.com: "Matt O’Brien has a lot of fun with...

...Paul Singer, a billionaire inflation truther who is sure that the books are cooked because of what he can see with his own eyes:

...check out London, Manhattan, Aspen and East Hampton real estate prices, as well as high-end art prices, to see what the leading edge of hyperinflation could look like

Hyperinflation in the Hamptons; hard to beat that for comedy, although Matt adds value with the Billionaires Price Index. But Singer will get very angry if you make fun of him; in fact, he denounces reporting that points out how wrong he and others have been as the ‘Krugmanization’ of the media.... The incredibly sensitive feelings of the superrich... hurt at any suggestion that great wealth does not also go with great wisdom and great virtue....

We must make fun of such people--and not just because, I admit, it’s one of the pleasures of life. Let me quote from a wonderful essay by Molly Ivins (read the whole thing):

Satire is a weapon, and it can be quite cruel. It has historically been the weapon of powerless people aimed at the powerful....

Making fun of billionaires who are clueless about economics, and lack the menschood to admit their mistakes, serves a couple of functions. It reminds the audience that being rich doesn’t mean that you know what you’re talking about; it also provides other rich people some incentive to think before they speak, and maybe even do some homework before preaching to the rest of us. I’m snarky for a reason...

Paul Krugman: Despicable Monetary Me: "I did want to remind readers of the column...

...that had Allan Meltzer complaining that I say vicious things that the Times shouldn’t print.... It’s pretty stiff, and no doubt had Meltzer very upset.... He has spent his life positioning himself as a wise, stern critic of the Fed.... The financial crisis should have been his big, culminating moment; instead it has turned into a vast embarrassment, in which he has been wrong again and again. But should I have tried to spare his feelings? I don’t think so. I think I owe it to readers to give a clear picture of what is going on — and yes, to make it entertaining, because an unread column does nobody any good. I’m snarky for a reason.

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