Back on June 29, Krugman had a post called “The Always-Wrong Club,” which covered familiar ground for our hero:
Aha. Floyd Norris reminds us of the 23-economist letter from 2010, warning of dire consequences — “currency debasement and inflation” — from quantitative easing. The signatories are kind of a who’s who of wrongness, ranging from Niall Ferguson to Amity Shlaes to John Taylor. And they were wrong again.
But that won’t diminish their reputations on the right, even a bit.
This is ironic, since Krugman also made a totally-wrong call about inflation in 2010, which soon enough blew up in his face.
But don’t take my word for it. On July 5 Krugman admitted with not a trace of embarrassment:
First of all, I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation — and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates. We can probably have high unemployment and stable prices in Europe and America for a very long time — and all the wise heads will insist that it’s all structural, and nothing can be done until the public accepts drastic cuts in the safety net. [Bold added.]
So, if I understand things correctly:
==> When Allan Meltzer explains away the failure of his accelerating inflation prediction, without changing his overall policy recommendations, Krugman says that “[t]his has long since stopped being merely an analytical issue; it has become a moral issue, a test of character. And almost everyone on that side of the debate has failed.”
==> When Krugman explains away the failure of his accelerating deflation prediction, without changing his overall policy recommendation, it proves how IS-LM analysis has come through this crisis with flying colors, and is proof that people should be listening to Krugman’s spot-on advice.