Brad DeLong explains how it’s not easy being in a club of Cassandras:
Back in the middle of 2011, in the circles in which I traveled–policy-oriented macroeconomists who actually knew something about the world and about financial history–there was a rough consensus that we all ought to make one last charge for more aggressive policies to boost growth and reduce unemployment. We did not think there was much chance that we would actually influence policy: it was more to lay down a marker for the future…
We had, after all, worried in 2005 that the housing bubble might collapse and create a sticky macroeconomic situation. And we had been ignored. We had, after all, worried in 2007 that the major banks risk management structures were inadequate to the situation. And we had been ignored. We had, after all worried in 2008 that the Treasury and the Federal Reserve’s focus On not enabling moral hazard meant that they were running enormous risks that they did not understand. And we had been ignored….
Thus in the summer of 2011 we expected to be ignored again.
We expected to hear about the limited efficacy of quantitative easing and the substantial risks associated with the expansion of the Federal Reserve balance sheet; about the importance of confidence and the necessity of the near-term down payment on long-run deficit reduction; and about how it all costs the US must not become Greece and was in some danger of doing so. [Bold added.]
That part I’ve put in bold is now a running theme at DeLong’s blog. He is dismayed at the poor arguments put forth by people viewing further Fed action as somehow “risky” and demands to know just what these fools have in mind by such talk.
Given that DeLong and his merry band of truth-seekers have been fighting the good fight against these liars and fools for at least 8 years now, it’s funny that back in January 2009, when Gary Becker wondered why so many economists were suddenly in favor of government fiscal stimulus, DeLong he blogged this in response:
Ummm… Gary… Please phone Reality on the white courtesy phone.
The difference between now and 1982 was that back in 1982 the interest rate on Treasury bills was 13.68%–there was a lot of room for the Federal Reserve to cut interest rates and so reduce unemployment via monetary policy. Today the interest rate on Treasury bills is 0.03%–there is no room for the Federal Reserve to cut interest rates, and so monetary policy is reduced to untried “quantitative easing” experiments.
The fact that monetary policy has shot its bolt and has no more room for action is what has driven a lot of people like me who think that monetary policy is a much better stabilization policy tool to endorse the Obama fiscal boost plan.
The fact that Gary Becker does not know that monetary policy has shot its bolt makes me think that the state of economics at the University of Chicago is worse than I expected–but I already knew that, or rather I had thought I already knew that.