Krugman’s blog, 10/13/15

There were two posts yesterday.  The first was “Everett Dirksen Doesn’t Live Here Any More:”

I see that David Brooks is lamenting the decline of conservatism as he defines it:

By traditional definitions, conservatism stands for intellectual humility, a belief in steady, incremental change, a preference for reform rather than revolution, a respect for hierarchy, precedence, balance and order, and a tone of voice that is prudent, measured and responsible. Conservatives of this disposition can be dull, but they know how to nurture and run institutions.

OK, I guess, although Corey Robin would say that conservatism was never about that — that it was always about preserving power relations. But in any case, that kind of conservatism left the Republican Party a very long time ago. Remember, Ronald Reagan embraced supply-side economics, which was not only a radical doctrine but one rejected by virtually the entire economics profession; was that “intellectual humility”? And remember that Newt Gingrich tried to undermine the constitutional separation of powers with a government shutdown more than 20 years ago.

And on the other hand, by David’s definition Barack Obama is pretty conservative: the Affordable Care Act is a classic example of incremental change, building on the existing system rather than trying a complete overhaul.

My point is that if what you want is traditional conservatism, the only people with real influence with anything like that mindset are Democrats. Actually existing conservatism is a radical doctrine.

Yesterday’s second post was “Global Dovishness:”

Tim Duy points us to a striking speech by Lael Brainard, who recently joined the Fed Board of Governors, which takes a notably more dovish line than we’ve been hearing from Yellen and Fischer. Basically, Brainard comes down on the Summers/DeLong/Krugman precautionary principle side of the debate, arguing that given uncertainty about the path of the natural rate of interest, and great asymmetry in the consequences of moving too soon versus too late, rate hikes should be put on hold until you see the whites of inflation’s eyes.

Why does she sound so different from Fischer and Yellen? Duy argues that it is in part a generational thing:

I think these three players are all products of their experience. Yellen received her Ph.D in 1971. Fischer in 1969. Both experienced the Great Inflation first hand. Brainard earned her Ph.D in 1989. Her professional experience is dominated by the Great Moderation.

Maybe, but it’s also worth noting the difference in perspective that comes from having your original intellectual home in international versus domestic macroeconomics. I would say that Brainard’s experience is dominated not so much by the Great Moderation as by the Asian financial crisis and Japan’s stagnation; internationally oriented macro types were aware earlier than most that Depression-type issues never went away. And if you read Brainard’s argument carefully, she devotes a lot of it to the drag America may be facing from weakness abroad and the stronger dollar, which acts as de facto monetary tightening:

There is a risk that the intensification of international cross currents could weigh more heavily on U.S. demand directly, or that the anticipation of a sharper divergence in U.S. policy could impose restraint through additional tightening of financial conditions. For these reasons, I view the risks to the economic outlook as tilted to the downside. The downside risks make a strong case for continuing to carefully nurture the U.S. recovery–and argue against prematurely taking away the support that has been so critical to its vitality.

So does her speech matter? She is, as I indicated, pretty much saying what some of us on the outside have been saying, although she does it very clearly and well; but does it make a difference that someone on the inside is laying down a marker warning that raising rates could be a big mistake? I guess we’ll see.



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