Brad DeLong unleashes hell on me at his blog for my (price) inflation bet with David R. Henderson. Especially in light of my Les Mis post yesterday, I had thought about either ignoring this or just linking to it in a Potpourri with no comment. However, at the risk of seeming petty, I think there really is a major issue here that none of the Austrians have brought up (in the comments of my Facebook post, for example, when I linked to DeLong with only the wisealeck comment that I have never before been attacked with so many adverbs). So here are my quick reactions:
==> I screwed up. I obviously wish I had never made that bet with David, since (a) it looks like I’ll be out $500 and (b) what is worse, my error gives ammunition to people like DeLong who want to challenge my policy conclusions and Austrian economics more generally.
==> DeLong accompanies his post with a chart of year/year percentage changes in core CPI. Well, that’s stacking the deck. The bet was about headline CPI, which almost hit 4%. Nowhere near what I needed, of course, but much better than DeLong’s chart would indicate.
==> The comments section is funny. You would think amidst everyone’s psychoanalysis of me, they could acknowledge my presence. I think they ignored me though because that makes it harder to speculate on what an idiot and a liar I am. (I’m being serious, that comment section is odd right now.)
==> Speaking of the above, to the extent that my preferences matter to you guys, please don’t bash the heck out of DeLong in the comments here. Makes it harder to play the victim card.
==> Finally my substantive point: I have never seen any of these guys explain why price inflation (and interest rates) are the decisive criteria for whose model and hence policy recommendations are right. Consider, for example, the infamous Christina Romer unemployment graph, showing what would happen with and without the Obama stimulus package. As far as I know, DeLong didn’t ask Romer to announce to the world that she had been wrong about everything and to spend years at the feet of Joe Salerno. No, Daniel Kuehn for example thought that anyone who wanted to use the Romer forecast as a test of the efficacy of her model was putting out “complete horsesh*t.”
So I’m not saying the following–like I said, I screwed up in a way that is relevant for economists talking to the general public. But since the following is exactly analogous to how Keynesians deal with the unfortunate Romer situation, I’m curious why they think Austrians who warned of large price inflation can’t say the following:
Hey, it’s true, we threw out some predictions of how much prices would rise, and we were off. But our basic model wasn’t wrong, it was just the underlying forecast of the baseline. Bernanke really did create a bunch of price inflation, it’s just that in the absence of Fed action, the drop would have been bigger than we expected, so on net we didn’t see as large of an increase in absolute terms. Indeed, Krugman et al. agree with the economic model involved: they all congratulate Bernanke for having staved off massive price deflation. So what’s the argument here? We’re arguing about the counterfactual of price movements in the absence of Fed monetary inflation.
Seriously, how is the above any different from how Keynesians defended Christina Romer, to the point of saying anybody who thought her prediction should be used against her was intellectually dishonest?
UPDATE: In case someone is tempted to say, “Oh sure Bob, Romer screwed up the unemployment forecast, but Krugman and some other Keynesians nailed it, showing that the Keynesian model is OK…” Fine, I’ll point to Mish, a super-free-market guy (not sure if he formally embraces Austrian economics per se) who has been calling for deflation since the crisis set in. So why doesn’t the example of Mish (and there are others) rescue free-market critiques of Big Government?
For that matter, David R. Henderson isn’t a Keynesian, and he was the one who took the other side of the bet. (Bryan Caplan even went further and gave me a longer time frame.) David and Bryan don’t call themselves Austrians, but they’re not Keynesians either. Doesn’t anyone see how absurd this is? It would be like pointing to Krugman’s critique of the stimulus as being inadequate, and saying it proves our recession is a supply-side problem.