No Soul-Searching on the Left?

Soon after China began its economic reforms a curious pattern developed.  Many of those who quickly rose to prominence in the business world had spent the 1960s and 1970s as members of the Red Guards, torturing and killing people to advance the glorious cause of socialism.  I suppose we shouldn’t be surprised; the highly ambitious and talented are not necessarily particularly ethical, and often rise to the top of any social hierarchy.  Much the same pattern can be found in other former communist or fascist countries.  A sort of convenient amnesia sets in and all crimes are forgotten.

There’s probably no reason to decry this state of affairs, no matter how unfair it may be.  The gains to China from moving past Maoist policies are so great that it would be silly to slow the progress with a lot of score-settling.  Still, it isn’t exactly pleasant to watch.

I was reminded of this phenomenon when I read a recent Washington Post story on the empty seats at the Fed:

Then there’s monetary policy, the Fed’s core function. There is now a strange situation in that the institution in charge of guiding the U.S. economy has only one PhD economist among its top officials, Chairman Ben S. Bernanke. The other three currently serving governors are not monetary policy specialists (they are Tarullo, a former law professor, Duke, a former banker, and Kevin Warsh, a financial markets expert). Two of Obama’s nominees are economists, San Francisco Fed president Janet Yellen and MIT professor Peter Diamond. This is, as it happens, a pretty terrible time for the Fed not to have as many smart economists in its upper ranks as possible; the central bank faces a massively consequential decision over the coming months of whether to undertake new steps to try to boost the economy.

Massively consequential decision?  Yeah, I guess I’d say so.  But I think we can all agree that at this late stage, nearly three years after the start of the recession, it is nowhere near as “massively consequential” as the decisions of September and October 2008, when expectations of inflation and NGDP growth were rapidly falling below the Fed’s implicit target, and just about everyone agreed the economy needed lots more aggregate demand.

I hope I’m not being impolite by bringing up a few inconvenient truths.  As far as I can recall there were virtually no articles in the leading elite newspapers (WaPo, NYT, LA Times, NYR of B, etc) talking about the urgent need for more monetary stimulus.  Yes, there might have been an occasional off-hand mention of monetary policy, acknowledging that perhaps, in theory, the Fed could do something.  But then the idea was quickly brushed off as a long shot, which shouldn’t distract us from the need for fiscal stimulus.  And all those empty Fed seats in early 2009?  Once again, I don’t recall any sense of urgency on the issue.

Of course the media must get its information from somewhere, and I assume most reporters aren’t experts on the fine points of unconventional monetary policy.  I’d guess they talk to their fellow liberal bloggers and academics.  And what were they saying in September and October 2008 about the urgent need for more monetary stimulus?  How about the first half of 2009, when we desperately needed the stimulus?  Weren’t most of the liberal bloggers saying there was nothing the Fed could do when rates were near-zero?  So here’s my question; if there’s nothing to be done when rates are near zero, then why is the Fed now facing a “massively consequential decision”?  Indeed rates were in the 1.5% to 2% range throughout September and October 2008, so not only was the need much greater at that time, but the Fed’s ability to deliver monetary stimulus was also presumably much greater.  (By ‘presumably’ I mean according to the standard model.)

Here’s Brad DeLong on Obama’s biggest mistake:

In fact, it was recess appointment time at the Fed in August 2009–if not earlier. But it is definitely recess appointment time at the Fed. This is, I think, Obama’s largest and most damaging unforced errors.

If not earlier?  How about January 21, 2009?  Obama didn’t even offer up any names until a few months ago.

Perhaps Obama’s one of those arrogant liberals who believes all right-wingers are morons.  Perhaps he never read any Milton Friedman, and never learned that monetary policy is still highly effective at the zero bound.  Maybe he just read Keynes.  Maybe he just relies on reporters who didn’t know about the “massive” importance of monetary policy in early 2009.  Maybe he relies on liberal economic advisers who didn’t understand the massive importance of monetary policy in early 2009.  So he let Fed seats sit empty, instead of immediately filling them with pro-stimulus academics when his high popularity would have allowed them to sail through the Senate.

I suppose my liberal readers are asking why I am picking on progressives.  I have several answers:

  1. I’ve already done lots of columns picking on the WSJ and conservative inflation hawks.
  2. The hawks still haven’t changed their minds, so there’s no reason for them to do soul-searching.
  3. Consider a partial list of those who understood that monetary stimulus was highly effective in late 2008 and early 2009:  David Beckworth, Bill Woolsey, Josh Hendrickson, David Glasner, Jim Hamilton, Nick Rowe, Mike Belongia, Robert Hall, Niklas Blanchard, Tim Congdon, Tyler Cowen, Bryan Caplan, Robert Hetzel, Earl Thompson, and many others whose names don’t immediately come to mind.  Do you notice there aren’t a lot of left-wingers on that list?  I’ll admit that in between his many columns denigrating the possibilities of unconventional monetary stimulus, Paul Krugman did occasionally call on the Fed to do more.  But it was obvious that he held out little hope for success.

Don’t get me wrong, I’m thrilled to see all the sudden liberal support for unconventional monetary stimulus, and I’m angry about Republican senators using delaying tactics.  But I’m also frustrated by the lack of soul-searching on this issue.  It’s clear to me that if all these liberal bloggers and liberal newspapers (and yes, to us right-wingers even the WaPo is liberal) have suddenly woken up to the fact that monetary policy can be highly effective at the zero bound, then the macro model they had in their heads in late 2008 and early 2009 was in some sense flawed.  You’d expect some sort of re-examination of how we got here.

Yes, I know there are only so many hours in the day.  It’s very time-consuming writing posts pointing out that right-wingers don’t know how to read, or are completely nuts.  But perhaps liberal bloggers could set aside just a few minutes to consider whether, like a broken clock that’s right twice a day, right-wingers might once and a while stumble over an important insight.

Why start off with the Cultural Revolution anecdote?  My hope is that monetary stimulus happens, and that it works.  But I have a nagging feeling that when and if that happens, all the liberal Keynesians will say “See, it shows the right-wingers were wrong and the left was right.  It shows the economy really did need more stimulus.”

At this point all I want is monetary stimulus, and I don’t much care who gets the credit.  But I hope future historians will keep in mind that while Obama may have made some “unforced errors,” there were plenty of assists from his fellow liberals.  And those policy errors will have caused untold hardship to the unemployed.  It’s great to have your heart in the right place, but you also need to know how the world actually works.

PS.  I had not yet discovered some of the best liberal blogs in late 2008 (Yglesias, Duy, Harless, etc.), so apologies if I’ve overlooked bloggers who were on top of this issue from the beginning.

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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