Benn Steil, Also Headlining the APP Goldbug-Grifter Conference Down-Valley, Is Not a Liar. But He Is a Maroon


Live from Jackson Hole 2015 Weblogging: We of What Recovery? and all of our friends at the Federal Reserve Bank of Kansas City Economic Policy Conference and Drinking Party are not the only people up in Jackson Hole this week. There is the American Principles Project down-valley somewhere--a conference of grifters and goldbugs, charging their attendees a healthy sum, because, they say, current Federal Reserve policies are dangerously inflationary, and so they need to "bring sanity back to U.S. monetary policy". Their top five headlined speakers: George Gilder--Chairman, George Gilder Fund and former Reagan advisor. Steve Moore--Distinguished Visiting Fellow, Heritage Foundation. Benn Steil, PhD--Senior Fellow & Director of International Economics, Council on Foreign Relations. Peter Schiff--Financial Analyst. Jim DeMint--President, Heritage Foundation.

I have already dealt with George Gilder, Stephen Moore, and the conference organizer Steven Lonegan. Now we come to headliner number 3, Benn Steil. Unlike Lonegan, Gilder, and Moore, Benn Steil is not a liar: he does not knowingly state things that he knows to be false.

He is, however, what Bugs Bunny would call: "a maroon".

Here are five examples:

(1) Benn Steil does not understand the constraints facing countries that do not issue the principal reserve currency: He writes that if the U.S. were to lose its dominant reserve-currency status:

The Federal Reserve would now be forced to operate under external constraints comparable with those imposed by the classical gold standard, under which the US needed more gold to create more dollars.... [T]he US would no longer be able to cover its current account deficits just by conjuring dollars, it would also have to issue debt in euros...

But the Eurozone, Britain, Australia, Canada, Switzerland, and many other countries are all very able to issue their own debt in their own currencies. They are able to cover their current account deficits by conjuring euros, pounds, Australian dollars, Canadian dollars, Swiss francs, and a host of others. They do not have to issue their debt in dollars. They are in no wise "forced to operate under external constraints comparable with those imposed by the classical gold standard." Not at all.


And I want to sharply criticize the usually-reliable Financial Times for publishing this bilgewater.

(2) Benn Steil cannot read the Wall Street Journal: While Benn Steil claims that Robert Barro's January 22, 2009 op-ed "provides logic and offers evidence" to support Steil's claim that the fiscal multiplier is 0:

[Is it true that the government,] by outbidding the banks and corporate securities markets for funds, and then spending such funds... increases velocity and stimulates private consumption or investment more than it reduces it by withdrawing the funds from the market.... Harvard’s Robert Barro, writing in the Wall Street Journal on January 22, provides logic and offers evidence supporting the case that it is not true...

In fact, Barro writes:

[In] World War II... the multiplier was 0.8 (430/540).... Consider[ing]... World War I, the Korean War, and the Vietnam War... [and] combining the evidence... yields an overall estimate of the multiplier of 0.8--the same value as before...

0.8 ≠ 0. (Plus there are, of course, a bunch of reasons why a WWII-dominated estimate of the multiplier would be lower than the multiplier over 2009-2012.)


And once again: Financial Times: Publishing this was a bad move.

(3) Benn Steil claims that Russian spies tricked the U.S. into entering World War II: Let me just outsource this to the very sharp and evidence-based Eric Rauchway:

On Harry Dexter White and Pearl Harbor: Steil thinks [Harry Dexter] White... caused US intervention in World War II to benefit the USSR.... White did, in mid-1941, write a memorandum about US relations with Japan.... Steil’s argument is that the concessions which White’s memo asked of Japan “were unrealistic; the Japanese would never accept them. This, at least, was what Soviet intelligence was counting on.” Thus, if the White memo were presented to Japan it would ensure a war.... Steil says that “That White was the author of the key ultimatum demands [to Japan, i.e., those of November 26] is beyond dispute.” Clearly this statement is untrue; historians do not generally believe that White was the author of this document. Moreover, it is not “beyond dispute” either that this document was “the key” document, or even an “ultimatum” in the run-up to Pearl Harbor. As Roberta Wohlstetter writes:

the documents of these critical days in November make clear that history has many candidates for the “initial incident” in the last moments of tension before war, and what finally sparks the explosion is largely a matter of accident. When Secretary Hull presented his Ten Point Note, the Pearl Harbor task force had been under way for 24 hours.

So, contrary to Steil, I do not know of any reading of the scholarship, however charitable, that can justify Steil’s use of the phrase “beyond dispute”.... The tale that White played an instrumental role in causing the Pearl Harbor attacks is so far from “beyond dispute” that cursory attention to scholarship would have tempered any such declaration.... These stories about White originate with [Anthony Kubek and others] who thought US involvement in World War II was a terrible idea:

The war against Japan upset the whole structure of the international balance of power in Asia. The United States destroyed the one power that was able to check the flow of that Red tide in the Far East.… With the fall of Japan the last barrier to Russian domination of the Far East was removed.... The present Soviet military might, which threatens our national security, is the direct product of billions of lend-lease aid, coddling of Communists in high places in the American Government and failure to understand the basic drives of world Communism...

Yes. Benn Steil is a maroon.

(4) Benn Steil does not know the first thing about how the monetary system works: Benn Steil:

When Mr Krugman buys his stimulus bonds, I am curious where the “idle” money will come from. Will he sell stocks? Bonds? Withdraw funds from the banking system? If it is not to come from a cash box, it is not idle, and Mr Krugman can only fall back on the hope that the government will use his funds more productively than businesses can...

As anybody who has stayed awake through the "how banks create money" lecture in Econ 1 knows, Paul Krugman does not have to shrink another of his spending flows or to take money out of his cash box in order to buy government bonds. He can simply go to his bank, pledge his house to incur a debt, and voila!, the bank has credited the money he is going to spend to his checking account. Paul has very good credit, so there is no likelihood that the bank will refuse to make the loan. Maybe Steil has not noticed that banks right now are carrying a huge amount of excess reserves, and are not cutting off borrowers out of a fear of being dinged by violating reserve requirements.


And, Financial Times, take what I have to say as read. Do better in the future. Minimal quality control. Please?

(5) Benn Steil predicts in 2009 that 2010 will see (a) rapidly-rising inflationary pressures, (b) a spike in U.S. Treasury interest rates, and (c) a double-dip recession: As I wrote back then: Could the Council on Foreign Relations please, please, please get someone to head up its international economics program who knows how many governors and bank presidents the Federal Reserve has? And someone who is not a crank?And who is now claiming that the U.S. is on the verge of a Latin American-style inflationary recession crisis? Is that too much to ask? I am begging here.

Alan Blinder, Marty Feldstein, Jacob Frenkel, I am talking to you: get some real economists onto the staff of the CFR. This is not doing anybody any good at all. This week, Benn Steil of the Council on Foreign Relations predicts that 2010 will see (a) rapidly-rising inflationary pressures, (b) a spike in U.S. Treasury interest rates, and (c) a double-dip recession:

December 28, 2009: In 2008... the Bush administration decided against proposals to sweep out the bad debts from the banking system.... We will pay the price for this decision in 2010.... [T]he Obama administration and the Federal Reserve are plowing forward with Plan B: Nationalize credit creation and "stimulate" the private sector by spending in its stead. Richard Nixon's famous line, "We're all Keynesians now" never seemed more apropos. With the budget deficit at an eye-popping $1.4 trillion, and on track to stay above $1 trillion indefinitely, Berkeley economist Brad DeLong writes breezily in his Nov. 30 blog that "anything that boosts the government's deficit over the next two years passes the benefit-cost test—anything at all." On the monetary side, the fireworks have been even more spectacular... the Fed has flooded the globe with newly conjured dollars in an unprecedented no-holds-barred effort to prod private credit expansion. Watching the booms in the markets... one might be forgiven for concluding that the Fed had succeeded well beyond its expectations, and that the market's flight to safety had given way to a flight to Vegas.... [T]he massive fiscal and monetary bailouts of the banks have served to worsen the credit misallocation that led to the general economic collapse in 2008.... [W]hat we're left with is the type of government-sponsored orgy of spending and money creation that Washington used to condemn with all-knowing righteousness when undertaken south of the border.... As we move into 2010, no doubt the horns will be blowing for the long-awaited U-shaped recovery. I suspect it won't be long before we realize we've drunk too much, and that the second dip of a W-shaped recession awaits us...

When you have a "government-sponsored orgy of spending and money creation" that is going to lead to a Latin American-style populist economic crash, you see it in advance: you see it in high and rising interest rates on long-term government bonds, and in a low and rapidly falling value of the currency to create the export surplus that is the obverse side of capital flight. We don't see any of that right now. But Benn Steil... doesn't see what we don't see. Let me predict [I wrote back at the very start of 2010] that if we see a double-dip recession in 2010, it won't be accompanied by rising inflationary pressures produced by over-stimulative fiscal and monetary policy. It's not that Benn Steil's inability to see what is under his nose is any surprise. Ten minutes of hasty googling tells me that he has gone zero-for-five in predictions he has made over the past three years...

That is what I said then. And now I say: Maroon!

Are more examples needed here?

Needless to say, Benn Steil is not coming to Jackson Hole to apologize for having gotten it wrong, and to rethink his attachment to austerity and that under-recognized economic genius Jacques Reuff. He is coming to double down.

But it doesn't seem to me that Benn Steil is like the likes of Lonegan, Gilder, and Moore in being genuinely mendacious or genuinely evil (except, perhaps, when he begins relying on those of his sources who think that the U.S. fought on the wrong side during World War II).

He's just a maroon.