I believe there’s a popular line in Hollywood that “nobody knows anything,” meaning that it’s really hard to predict which films will do well.
When I started blogging I felt the same way about monetary economics. It seemed like almost everything I read was not just wrong, but nearly 180 degrees from the truth.
And I’m afraid to say that things really aren’t much better today. Here’s Matt Yglesias:
If you read a lot of economics coverage on the Internet, you’ll be struck by the amazing success of “dovish” monetary policy views. I’ve been pushing them here at Slate, Ryan Avent pushes them at the Economist, Matt O’Brien pushes them at The Atlantic, Tim Fernholz and Miles Kimball push them at Quartz, Josh Barro and the Stevenson/Wolfers team push them at Bloomberg, Ramesh Ponnuru pushes them at National Review, Ezra Klein pushes them on Wonkblog, Paul Krugman and Tyler Cowen have both pushed them in the New York Times, etc. It’s not like an overwhelming consensus or anything, but normally a political stance with this much representation in the media could find at least one significant politician to stand up for it. But while we have Obama’s former Council of Economic Advisors Chair and the chief economist at Goldman Sachs on our side, we seem to have zero members of congress.
It’s even worse. There are people at the Fed who want to do more. Indeed there are people at the most conservative part of the Fed (the regional banks) who want to do more. But still no outside pressure.
When I started blogging in early 2009 almost no one realized that the Fed was running a tight money policy, that they could do much more, and that the recession would be much milder if they did much more. And that’s still true today.
Yes, the list Yglesias provides looks impressive, but the real tragedy is that it’s damn near comprehensive. In contrast, the list of people not on Yglesias’s list (over 7,000,000,000 people) is far more impressive. Go on any political or financial news show and talk about how the recovery is slow because money’s too tight and they will look at you like you are a lunatic.
Things have changed since 2009, but only among the tiny number of people who pay attention to the monetary policy debate in the blogosphere. And by the way, that excludes the economics profession. Polls show they are just as clueless as the general public. The percentage who say money’s too tight is close to zero. (Memo to my conservative friends: Not that hawkishness makes you clueless–but if there was general awareness of monetary economics out there then at least the liberals would support more stimulus.)
What’s interesting to me is just how influential the blogosphere is. Even though Obama knows nothing about monetary policy, even though Congress knows nothing, even though most of the media know nothing, even though most economists know nothing, the tiny list identified by Yglesias (and perhaps market monetarists as well?) have succeeded in changing the debate where it really matters. There is a sudden groundswell of talk about radical monetary initiatives everywhere from Japan to Britain. The Fed is gradually changing its communication strategy.
Monetary policy is an issue unlike any other. It’s an important issue where ideas matter. And yet unlike virtually all other political issues there is no sizable bloc of political operatives on either side of the debate who understand the issue at all. Even a tiny bit. We might as well be debating the Copenhagen Interpretation vs. the Many Worlds Theory, for all Congress and the media know.
No wonder Krugman was inspired by Hari Seldon.
PS. I’m falling way behind on stuff people send me. Peter Laan sent me an article quoting the BoE’s Paul Tucker suggesting negative IOR.
Here’s another great Matt Yglesias post, pointing out that NGDP targeting is the best way to pressure countries to adopt sound pro-growth economic policies—including “economic reforms that promote competition and labor supply expansion” (aka the Nordic neoliberal model.)
Today Grillo ruled that out, meaning the only workable coalition would be a “grand coalition” between the Democrats and Silvio Berlusconi’s party.
That seems exceedingly unlikely, as the basic state of Italian politics is that the Democrats view Berlusconi as a criminal.
Meanwhile, Peer Steinbrueck, who leads Germany’s opposition Social Democrats, declared himself “appalled that two clowns have won” the election . . . —referring to Berlusconi and Grillo.* That’s a reminder that though Italy is certainly still a democratic republic whose voters can elect whomever they want, the only choices actually acceptable to Germany are the left-wing-but-committed-to-austerity Democrats and Mario Monti.
I wouldn’t say the Democrats “view” him as a criminal, but rather they “are aware that” Berlusconi is a criminal. And the interesting thing about the Steinbrueck comment is not what it says about Germany’s attitude toward Italy, but that it doesn’t involve any hyperbole at all. Indeed it’s a slight at the clown community. Obviously Italy (one of my favorite countries by the way–perhaps the best country in the world) has had a dysfunctional political system for years. But one has to wonder if the structure of the EU, and especially the eurozone, are making it even more dysfunctional. Responsibility without power breeds cynicism. The fascist and communist parties in Greece are also polling quite well.
PPS. Has anyone ever done a sociological study explaining why there is almost no interest in classical liberal ideas in the Mediterranean countries (including France–which gave us the term “laissez-faire”?) I understand they have traditionally had a powerful left wing party. What interests me more is the complete lack of any party promoting small government ideas on either the left or the right. Why?
PPPS. I don’t know if Greece has a party that calls itself communist—so call it the “party far to the left of the socialists” if you prefer.