Krugman’s blog, 1/26/16

There were three posts yesterday.  The first was “Fed Fumble:”

US growth seems to have slowed sharply. Fed Kremlinologists are already wondering how the FOMC will word its next statement, so as to acknowledge the reality without sounding too panicky. But panic may be warranted; given the combination of slowing growth and a big deterioration of financial conditions, there’s growing talk that the Fed made an error in hiking rates.

Oh, and market compensation for future inflation, which may not be a good indicator of expectations but surely contains some information, has plunged.

It might still turn out OK. But it might not, and surely everyone would be feeling more comfortable if the Fed had waited, and probably decided not to hike for a while.

Still, who could have seen this coming? Um, Larry Summers; me; Brad DeLong; basically everyone who thought about the asymmetry of risks. We didn’t know that the data would come in weaker than expected, but we knew that they might, and that it would be much harder to respond to a downside shock than positive news.

So why didn’t the Fed see it that way? I have never gotten a clear answer, and I do talk to Fed officials now and then. It really seems as if management somehow got set on the notion that it was time to raise rates — I think because, consciously or not, they wanted to throw Wall Street and the GOP a bone — and got into a loop of incestuous amplification in which the clear precautionary case against a hike got excluded from the room.

Yesterday’s second post was “Potemkin Ideologies:”

As I keep saying, the Republican and Democratic parties, as revealed by their primaries, are not at all symmetric.

On the Democratic side, the argument is about a theory of change: voters really do care about progressive priorities, and are torn between two candidates who broadly have similar ideologies but have different visions of the politically possible.

What we’re seeing on the Republican side, by contrast, is that almost nobody except a handful of pundits and think-tank hired guns cares at all about the official party ideology.

Remember when Bill Kristol predicted that Trump’s support would collapse because he declared that he would protect Social Security and Medicare? Surprise: there are virtually no sincere small-government types out there in the real world. Wealthy donors want tax cuts, and this may indirectly lead them to support cuts in social insurance programs to free up the funds. But people who actually care about the government spending too much in general (as opposed to spending too much on Those People)? No such constituency.

And what about moral values and personal responsibility? Today Jerry Falwell Jr. endorsed the multiply married, philandering, not visibly God-fearing Donald Trump. How is that possible? Greg Sargent says that evangelicals are driven by fear of the collapse of society as they know it. And that’s certainly consistent with what we’re seeing.

But I’d push it a bit further, and harsher. What’s really going on, I’d argue, is (justified) fear over the erosion of white patriarchy. (That’s what the attack on Planned Parenthood is really about too.) That is, it’s about authority, not virtue.

And so Trump’s lifestyle, his personal New York values, don’t matter, as long as he’s seen as someone who will keep Others in their place.

What used to happen was that the conservative movement could basically serve the plutocracy, while mobilizing voters with racial/gender anxiety, all the while maintaining a facade of serious-minded libertarian philosophy. But now it’s broken down, and the real motives are out in the open.

The last post yesterday was “The Anti-Fiscal Bubble:”

Jonathan Chait has been having some fun with the GOP orthodoxy that the Obama stimulus was a complete failure; as he notes, the overwhelming majority of economists, both in universities and in the private sector, disagree — but Republicans apparently know nothing about this.

I’d like to add two points.

First, it’s not just the Obama stimulus: the experience of austerity policies, which constitute an imperfect but still useful natural experiment, has convinced many economists — almost surely the large majority — that changes in fiscal policy have a Keynesian-type effect in the short run, especially when interest rates are near zero and can’t be cut. This view could be wrong, I guess; but if you want to argue that it is, you have to acknowledge that you’re in opposition not just to a broad consensus but to a consensus that is deeply grounded in recent data and experience.

And second, which gets to Chait’s point: it’s clear that nobody on the Republican side is even aware that they’re taking a heterodox, problematic position. They’re living in a bubble in which the only “experts” who get heard are people who predicted runaway inflation from quantitative easing and massive job losses from Obamacare — and are never challenged about why they got it wrong.


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