My comment section has recently gone quiet, and I’m loving it. Before explaining why, let’s consider this comment from Ryan Avent:
This misreading begins with its assessment of the stance of monetary policy; in the BIS’s view low interest rates are indicative of loose monetary policy. My colleague seconds this view, writing that central banks are determined to “keep monetary policy as loose as possible for as long as possible”. But this doesn’t add up. It suggests, for one thing, that monetary policy was remarkably loose during the Depression and extremely tight during the inflations of the 1970s, which we know is not true. It ignores, for another, that central banks have not remotely used all the tools at their disposal.
Remember the old Mad magazine “Spy vs. Spy?” Reading Free Exchange sometimes makes me think “The Economist vs. The Economist.” Obviously I agree with Ryan the Economist, but what’s more interesting to me is that I can’t get the conventional wisdom to change its mind on this issue, even though I’ve won every argument. On other issues I can force a debate. Take monetary offset. I’ve had lots of debates on this issue, and people have presented me with very good arguments against my point of view. Arguments that I find hard to refute. It’s an open question. In contrast, the conventional wisdom continues to plod ahead with the view that money has been easy over the past 6 years, despite the fact that when I challenge anyone on this issue their arguments collapse almost immediately. No one has ever put even the slightest resistance to my demolition of the “low interest rates implies easy money” argument. And I’ve debated dozens of economists. But I can’t budge the conventional wisdom by one inch. It’s rock solid.
One response is that it doesn’t matter what we call it, it’s just a question of semantics. But it does matter, as the people who insisted that money was easy have been wrong about the effects of monetary policy. Many of them argued we needed tighter money to help savers. They applauded the fact that the sensible Germans stopped the ECB from going headlong into “easy money” like the British and Americans. They applauded the eurozone interest rate increases of 2011, even though we explained that tight money leads to LOWER interest rates in the long run. Well now the long run is here, and the German dominated ECB has just driven interest rates into negative territory. How’s that hawkish German policy working for those thrifty housewives in Stuttgart?
Of course being wrong about everything doesn’t stop them from making the same claims over and over again. Here’s Ryan, sensibly directing his frustration against the BIS so that things can remain civil at The Economist:
Of course, it is grimly amusing to recall that the BIS wanted tighter policy in 2011 to fend off inflation. Had it pushed for more expansionary policy then in order to get a faster recovery despite—or even because of—the risk of inflationary pressures, then the case for higher rates now would be open and shut (assuming rates had not already begun rising). Though it wishes to cast itself as rising above short-termism in macroeconomic policy, it is strangely blind to the risk that excessively tight policy in the short run might lead to interest rates that are lower for longer than would otherwise be the case.
Now about that quiet comment section. A few years ago I had near constant debates on two fronts. Exhausting debates. On the left I faced one commenter after another ridiculing the idea that monetary policy could be stimulative at zero rates. Ridiculing the notion that the “expectations fairy” could help the Japanese economy. When the 2% inflation target fairy sent the yen sharply lower, and Japanese stocks sharply higher, and NGDP higher, and RGDP higher, and inflation higher, and unemployment to the lowest level in 16 years, it became a lot harder to ridicule my views. Even fanatics don’t like to appear absurd, and making liquidity trap arguments in 2014 looks absurd. The monetary offset criticism has also died down, although it’s still a bit more of an open question than the liquidity trap nonsense. But the failure of Krugman’s 2013 “test” certainly helped our cause.
On the right I was hammered by people who claimed my policies were hurting savers. I tried to patiently explain that in the long run monetary stimulus was the best way to help savers, the best way to boost nominal and real interest rates. I pointed out that tighter money would simply cause a double dip recession, as in the US in 1937 and Japan in 2001, and that it would lead to lower rates in the lower run. The ECB ignored this advice in 2011, had their double dip recession, and German savers are now paying the price.
So there’s really nothing much left to debate. My comment section has become a snoozefest. Maybe I should be like Krugman, and shift over to the inequality issue. Like me, he was also proved right about everything, or at least that’s what we both claim. :)
PS. Speaking of The Economist, this is a fascinating article. If we must have governments, why can’t they all be like the Estonian government? As my commenter Lorenzo says, small is beautiful.