There were two posts on Monday and one yesterday. Monday’s first post was “Structural Humbug Revisited:”
Bryan Caplan reports that he has just won a bet with Tyler Cowen over whether unemployment would ever drop below 5 percent. It might be worth remembering the context.
You see, when the Great Recession struck — a demand-side shock if ever there was one — it took no time at all for a strange consensus to develop in elite opinion, to the effect that a large part of the rise in unemployment was “structural,” and could not be reversed simply by a recovery in demand. Workers just didn’t have the right skills, you see. Many of us argued at length that this was foolish. If skills were the problem, where were the occupations with rapidly rising wages? I pointed out that people said the same thing during the Great Depression, only to see it disproved when we finally got a big fiscal stimulus called World War II.
But the doctrine somehow just got stronger and stronger in elite circles, because it sounded serious and judicious, unlike the seemingly flighty proposition that all we needed was more spending. In fact, the notion that our unemployment problem was mainly structural began to be presented as a simple fact rather than as a hypothesis most professional economists rejected.
And here we are.
Monday’s second post was “Hard Money Men:”
So what will happen in NH tomorrow? I have no idea. We must dispel with this notion that anyone has the slightest idea what they are doing. However, there seems to be a real possibility for one thing that seemed unlikely before the RubiOS bug manifested itself: that John Kasich will come in second on the Republican side.
If he does, there will be an outpouring of praise from self-proclaimed centrists, who will declare Kasich the sensible, responsible Republican of their dreams. So let me attempt what will surely be a futile preemptive strike, and note that on economic policy — which sort of matters — Kasich is terrible, arguably worse than the rest of the GOP field.
It’s not just his balanced-budget fetishism, which would be disastrous in an economic crisis. He’s also a hard-money man.
Ted Cruz has gotten some scrutiny, although not enough, for hisgoldbuggism. But Kasich, when asked why wages have stagnated,gave as his number one reason “because the Federal Reserve kept interest rates so low” — because this diverted investment into stocks, or something. No, it doesn’t make any sense — but it tells you that he is viscerally opposed to monetary as well as fiscal stimulus in the face of high unemployment.
So no, Kasich isn’t sensible. He’s just off the wall in ways that differ in some ways from the GOP mainstream. If he’d been president in 2009-10, we’d have had a full replay of the Great Depression.
Yesterday’s post was “Bonds on the Run:”
While we obsess over domestic politics — not that there’s anything wrong with that, since a lot depends on whether the next leader of the world’s most powerful nation is a racist xenophobe, a sinister theocrat, an empty suit, or all of the above — something scary is going on in financial markets, where bond prices in particular are indicating near-panic.
I know, Paul Samuelson famously quipped that the stock market had predicted nine of the last five recessions; the wisdom of crowds is often overrated. Still, bond markets are a bit less flighty than stocks, and also more closely tied to the economic outlook. (A weak economy has mixed effects on stocks — low profits but also low interest rates — while it has an unambiguous effect on bonds.) What plunging rates tell us is that markets are expecting very weak economies and possibly deflation for years to come, if not full-blown crisis.
Among other things, such a world would be a very bad place into which to elect a member of a party that has spent the past 7 years inveighing against both fiscal and monetary stimulus, and has learned nothing from the utter failure of its predictions to come true.