There were three posts yesterday. The first was “Very Sensitive People:”
When it comes to inflicting pain on the citizens of debtor nations, austerians are all steely determination – hey, it’s a tough world, and hard choices have to be made. But when they or their friends come under criticism, suddenly it’s all empathy and hurt feelings.
We saw that in the case of Olli Rehn, whose friends at the European Commission were outraged, outraged when I pointed out, using slightly colorful language, that he was repeating an often-debunked claim about economic history. And today we see it in Anders Aslund’s defense of Reinhart and Rogoff against what he calls a “vicious” critique by Herndon et al.
Aslund praises R-R for providing
an important corrective to the view that fiscal stimulus is always right – a position that is common across the Anglo-American economic commentariat, led by Paul Krugman in the New York Times.
This is a curious thing for him to say, because it’s an outright lie; as anyone who has been reading me, Martin Wolf, Brad DeLong, Simon Wren-Lewis, etc. knows, our case has always been that fiscal stimulus is justified only when you’re up against the zero lower bound on interest rates. I can’t believe that Aslund doesn’t know this; why, then, would he discredit himself by repeating an easily refuted falsehood?
But then, why would he describe Herndon et al as “vicious”? Their paper was a calm, reasoned analysis of how R-R came up with the famous 90 percent threshold; it came as a body blow only because of the contrast between the acclaim R-R received and the indefensible nature of their analysis.
What I think is happening is that austerians have put themselves in a box. They threw themselves – and their personal reputations – completely behind the various elements of anti-Keynesian doctrine: expansionary austerity, critical debt thresholds, and so on. And as Wolfgang Munchau says, the terrible thing was that their policy ideas were actually implemented, with disastrous results; on top of which their intellectual heroes have turned out to have feet of clay, or maybe Silly Putty.
As I see it, the sheer enormity of their error makes it impossible for them to respond to criticism in any reasonable way. They have to lash out any way they can, whether it’s ad hominem attacks on the critics or bitter complaints about bad manners.
And by such pettiness the world is governed.
The second post of the day was “Understanding the NBER:”
Just a quick note. I’ve noticed some people latching on to the fact that Reinhart-Rogoff initially released their once famous, now infamous piece as a National Bureau of Economic Research working paper, and wondering about the NBER’s role. I’ve even seen the Bureau described as a right-wing think tank, in thrall to Pete Peterson.
Actually, the truth is more prosaic.
The NBER is best described, I’d say, as the old-boy network of economics made flesh. There are a couple of NBER offices, but they’re small; what the organization mainly consists of is its associates and what they do. In many sub-fields of economics, just about anyone well-known in the profession is an NBER research associate (yes, me too); it’s normal for these associates to release new research as NBER working papers.
The function of these papers, in turn, is to get research out quickly so other economists can discuss it (which includes criticizing it). For working economists, the NBER WP series provides what amounts to one-stop shopping for new developments in their field.
Now, these working papers have long since become more than working papers used to be in the days of yore, largely because publication takes so long. For decades, the journals have basically been tombstones — places that validate your work, that you can cite when seeking tenure, but not where people keep up with what’s happening now. Working papers have long been where the active discussion takes place. A case in point: I released this paper in working paper form in 1988; by the time it was formally published in 1991, there was already a huge derivative literature, which I ended up citing in the published version.
The NBER also organizes conferences, and its summer institute is a major gathering ground.
You can criticize the role the NBER plays, mainly because it privileges insiders. If you’re associated with the Bureau, you can get research out quickly in a place everyone will see, whereas if you aren’t in the magic circle, getting noticed can be much harder. I would say that economics blogs are starting to remedy this disparity, but there will never be a truly level playing field.
But any notion that the NBER is somehow an active player in this mess is wrong. It was just a more or less neutral transmission channel.
The last post yesterday was “Building a Mystery:”
Jared Bernstein shakes his head at what he calls “weirdness” at the Washington Post, citing an editorial and a commentary by Robert Samuelson. I second his views, but I’d like to point out something else about Samuelson’s piece.
What Samuelson does is to throw up his hands and declare that we just don’t understand what’s going on in the macroeconomy. How does he know this? He talks to several people who declare themselves deeply puzzled by events — notably, Lorenzo Bini Smaghi and Allan Meltzer.
But it’s no mystery why Bini Smaghi and Meltzer would find it all very puzzling — they personally got everything wrong. Bini Smaghi spent years sneering at anyone suggesting that Greece might need to write off some of its debts. Meltzer has been predicting runaway inflation for four years.
Some of us don’t find the macro developments puzzling at all; we applied basic IS-LM macro, understood from the beginning that monetary policy would have little traction, warned that austerity policies would have major negative effects. Basic textbook macro has in fact worked fine. And so you might think that Samuelson would ask the people who got it wrong why they got it wrong, and whether it might not be because they had the wrong framework while the Keynesians were closer to the truth.
But no; he acts as if these people are the authorities, and their personal predictive failures demonstrate that nobody can get it right.
Oh, and it goes without saying that these “experts” have not reconsidered their views at all.