Monday Smackdown/Hoisted from the Archives: Four Huge Mistakes in One Short Piece by John Taylor
Hoisted from the Archives: Four huge mistakes in this here by John Taylor:
That the low-interest rate economy of 2004-2007 was in an inflationary boom, rather than an economy that barely managed to reach any definition of "full employment" even though supercharged boy three things—low interest rates, expansionary fiscal policy, plus a huge irrationally-exuberant asset-price bubble.
That low interest rates since 2007 represent a discretionary choice by central banks, rather than reflecting the fact that any central bank wanting to avoid permanent depression must accommodate itself to the low level fo the Wicksellian neutral interest rate.
That as of 2017 interest rates were about to normalize.
$. That the Republican policy package of regulatory rollback and tax cuts for the rich would provide a large boost to investment spending and, through that channel, productivity growth.
None of those have panned out as intellectual bets.
Yet John Taylor today exhibits no visible curiosity as to why they did not.
This strongly suggests to me that none of them were meant seriously in the first place—that it was always disinformation, and never an analytical judgment, and thus subject to revision as knowledge advanced:
John Taylor (March 2017): Sluggish Future: Policy Is The Problem: "Secular stagnation... raises inconsistencies and doubts. Low policy interest rates set by monetary authorities... before the financial crisis were associated with a boom characterized by rising inflation and declining unemployment—not by the slack economic conditions and high unemployment of secular stagnation. The evidence runs contrary to the view that the equilibrium real interest rate—that is, the real rate of return required to keep the economy’s output equal to potential output—was low prior to the crisis. And the fact that central banks have chosen low policy rates since the crisis casts doubt on the notion that the equilibrium real interest rate just happened to be low. Indeed, in recent months, long-term interest rates have increased with expectations of normalization of monetary policy.... The United States needs another dose of structural reform—including regulatory, tax, budget, and monetary—to provide incentives to increase capital investment and bring new ideas into practice.... There is hope for yet another convincing swing in the policy-performance cycle to add to the empirical database...
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