1) The WSJ editorial page is wrong about everything. 2) If you think the WSJ editorial page is right about something, see rule #1.
Modified goldbugism at the WSJ: So I was peacefully drinking my coffee this morning, and was accosted by someone waving the latest WSJ editorial on the dollar in my face, demanding my reaction. Um, this is not cool. Also, with apologies to Brad DeLong, when reading WSJ editorials you need to bear two things in mind:
- The WSJ editorial page is wrong about everything.
- If you think the WSJ editorial page is right about something, see rule #1.
After all, here’s what you would have believed if you listened to that page over the years: Clinton’s tax hike will destroy the economy, you really should check out those people suggesting that Clinton was a drug smuggler, Dow 36000, the Bush tax cuts will bring surging prosperity, Saddam is backing Al Qaeda and has WMD, there isn’t any housing bubble, US households have a high savings rate if you measure it right. I’m sure I missed another couple of dozen high points.
Today’s editorial was in the grand tradition. A few months ago falling stock prices showed Obama’s failure — never mind, we meant the falling dollar. And just to provide extra spice, the editorial cited David Malpass as the wise expert on all this. But more specifically, you need to see the Journal’s fear of a weak dollar in terms of its long-term gold-bug position. The Journal has always maintained that changes in exchange rates play no useful role, that stable exchange rates — preferably enforced by some barbarous relic like the gold standard — are the essence of sound policy. I explained why this is all wrong a long time ago. But it’s especially important to understand the wrongness of this view right now. If there’s one overwhelming lesson from the Great Depression, it is that putting a higher priority on stabilizing your currency than on domestic recovery is utterly disastrous. Barry Eichengreen pointed out years ago that major economies went off gold in the following order: Japan, Germany, Britain, US, France.... The WSJ may not realize it, but it wants us to be France in the 1930s. Let’s not.