Some bad ideas just won’t die
Sábado, 28 de mayo de 2016
And I guess this is always true. Still, the economic debate since the 2008 crisis has seemed unusually cockroach-infested. Bad arguments keep coming back, no matter how many times they have been refuted by evidence.
Earlier this month, New York magazine’s Jonathan Chait found Kevin Williamson of National Review reviving in an interview, for the umpteenth time, the claim that President Obama is an economic failure – despite a record of job creation much better than that of his predecessor, or of any other major advanced country – because the American economy didn’t have a rapid, V-shaped recovery after the 2007-9 slump.
The key point here is that the sluggish recovery wasn’t a surprise. In his article Mr. Chait stresses the Reinhart-Rogoff economic analysis of the aftermath of financial crises, which was certainly influential, but a lot of people, including myself, were predicting a weak recovery in advance.
The argument was that the United States suffered from a postmodern recession. Unlike, say, the double-dip recession of 1979-82, which was brought on by interest rate hikes to fight inflation, 2007-9 was the product of private sector overreach: Interest rates weren’t very high to begin with, and even cutting them to zero wasn’t enough to offset the downdraft from the housing bust and the banking crisis. So the normal recession-fighting weapons ran out of ammunition. Sustained fiscal stimulus could have led to a better recovery, but it didn’t happen – the 2009 Recovery Act was both too small and too short-lived (again, something many of us predicted in advance).
But the larger point is that we’ve been through all of this repeatedly. The debate over the causes of sluggish recovery is part of the broader debate over economic models – one side predicted runaway inflation and soaring interest rates, while the other, using the same general approach that predicted a sluggish recovery, predicted quiescent inflation and rates.
Rarely in the history of economics have events so completely vindicated one side of a debate, and so completely discredited the other.
And yet the same old arguments keep being trotted out, with no acknowledgment that we’ve had this discussion before. Will nobody send this stuff to the roach motel where it belongs?