Mark Thoma:
Economist's View: The Science of New Monetarist Economics: It's been interesting to watch people like Steven Williamson turn on Narayana Kocherlakota… resort to the oh so scientific technique of name-calling, e.g. "goofy," "flimsy-excuse guy," e.g. see Williamson's latest (interesting that he chose to emphasize the name-calling rather than the economics in his title for the post)…. Kocherlakota's change of heart… that's how science should proceed….
[T]he most interesting thing to me begins with statements such as this from Williamson two years ago:
the fact is that reserves are leaving banks in the form of currency… at a more rapid rate. It's possible that we would get more inflation even without QE2.
Or, around the same time:
I think it is quite possible that we will look back on QE2 as a severe error… a very large-scale asset purchase for the Fed, on top of a previous very large purchase…. One possibility is that… inflation builds up a head of steam. The Fed may find this difficult to control, or may be unwilling to do so… if the inflation rate is at 6% and the unemployment rate is still close to 10%, he will not have the stomach to fight the inflation…. Once inflation gets going, we know it is painful to stop it, and we don't need another problem to deal with.
He was worried that economic growth would pick up soon (it didn't -- his model misled him, or he didn't use a model…) and inflation would become a problem… he also said inflation could be aproblem even if economic growth didn't pick up.
Well, it didn't happen….
[W]hatever model was being used to worry about growth and inflation was wrong. Very wrong…. Now, he says more aggressive policy has no real effects so it's useless anyway…. And this is just funny:
So the Kocherlakota of 2 1/2 years ago had some worries about the potential for inflation. Maybe he changed his mind for good reason? I don't think so….
Williamson's complaint appears to be that Kocherlakota predicted something two and a half years ago, it didn't happen, and he has the gall to use the fact that his prediction failed to change his mind? He changed his mind based upon evidence? He looked at evidence and did science??? How goofy is that?…
Look, I'm all for science, but that has to include changing your mind when your model is wrong. After two years of running around telling everyone the sky is about to fall, perhaps Williamson will understand why people are more likely to listen to the evidence based views of Narayana and others than to him.
