If Cliff Asness was going to write the passage below, has there ever been a worse week for him to write it?
I mean "it's not over! The enormous pent-up inflation from the Fed's QE programs is out there bubbling under the surface!! Short Treasuries massively now!!!" has not been a winning rhetorical strategy for quite a while, and to double down on it this week does make you look like quite an idiot...
Paul Krugman lived up to his lifelong motto of 'stay classy'... lesser lights of the Keynesian firmament have also jumped in (collectivists, of course, excel at sharing a meme). Responding to Krugman is as productive as smacking a skunk with a tennis racket.... Paul's screeds.... I'll put our collective record up against Krugman's (and the Krug-Tone back-up dancers) any day of the week and twice on days he publishes... chicanery (silly Paul, you are no Rabbit)... never-uncertain-but-usually-wrong like Paul... malpractice... honest Paul Krugman (we will use this term again below but this is something called a "counter-factual")... former economists turned partisan pundits....
Much like when the Germans bombed Pearl Harbor, nothing is over yet. The Fed has not undone its extraordinary loose monetary policy and is just now stopping its direct QE purchases...
It was perfectly normal--well, not strikingly abnormal--for Cliff Asness to have taken a look at the speed at which the monetary base was increasing in 2009 and thinking that such policies, unless reversed, were likely to lead to a burst of inflation. Wrong, but not strikingly abnormal.
It was perfectly normal--well, not strikingly abnormal--for Cliff Asness to have taken a look at the speed at which the national debt was increasing in 2009 and thinking that such policies, unless reversed, were likely to lead to high Treasury real interest rates. Wrong, but not strikingly abnormal.
In order to avoid such predictions you had to:
- have done your homework and brought yourself up to speed
- uon the analyses predictions that Krugman, Woodford, Eggertssen, Hicks, Keynes, etc. had made
- about how an economy operates in a liquidity trap, at the zero lower bound; and
- have considerable confidence that those predictions were correct; or at least
- have the wisdom to recognize that joining Bill Kristol in an attempt to joggle Ben Bernanke's elbow on an issue that Bernanke had been studying for literally all his adult life was an intellectual strategy that was likely to have a very large negative α.
For large increases in the monetary base not to make the likely future one of high inflation, and for large increases in the national debt not to make the likely future one of high Treasury real interest rates--well, something weird had to be going on.
But, as Krugman, Woodford, Eggertssen, Hicks, Keynes, etc. had noted, were warning, and were correct in warning back in 2009-2010, something weird was going on.
Because of how the economy had gotten itself wedged, the risk that extraordinary monetary easing would lead to an inflationary spiral was extremely low. Because of how the economy had gotten itself wedged, the risk that large government debt issuance would lead to exploding real interest rtes on government debt was extremely low. Only people who really did not understand what was going on would think that 2010 was a time to stress, highlight, obsess over, and freak out about INFLATION! DEBT! when the real risks to freak out about were DEPRESSION!! UNEMPLOYMENT!!!
But when something weird is going on, to get things badly wrong is normal--well, not that abnormal.
What is not normal--what is really abnormal--is to be a dead-ender.
What is not normal is to claim that your analysis back in 2010 that quantitative easing was generating major risks of inflation was dead-on.
What is not normal is to adopt the mental pose that your version of classical austerian economics cannot fail--that it can only be failed by an uncooperative and misbehaving world.
What is not normal is, after 4 1/2 years, in a week, a month, a six-month period in which market expectations of long-run future inflation continue on a downward trajectory, to refuse to mark your beliefs to market and demand that the market mark its beliefs to you. To still refuse to bring your mind into agreement with reality and demand that reality bring itself into agreement with your mind. To still refuse to say: "my intellectual adversaries back in 2010 had a definite point" and to say only: "IT'S NOT OVER YET!!!!"