Allan H. Meltzer Stops Being an Economist and Becomes a... I Am Not Sure What...

And becomes a... what? I am not sure. Economics calls for setting prices equal to marginal social values via property rights, subsidies, and taxes. Economics calls for providing a stable framework via a smooth growth path of nominal demand within which private-sector agents can plan production and consumption.

I don't know what discipline Meltzer wants to join, but if he rejects those two goals he is certoinly nothing that I can recognize.

It starts badly, with what I can only call disingenuity:

Allan H. Meltzer: What Happened to the ‘Depression’?: Day after day, economists, politicians and journalists repeat the trope that the current recession is the worst since the Great Depression. Repetition may reinforce belief, but the comparison is greatly overstated and highly misleading. Anyone who knows even a bit about the Great Depression knows that this is false...

I haven't heard anybody say that this recession is as bad as the Great Depression. And this recession is the worst since the Great Depression. So I am at sea here--an at-seaness reinforced by Meltzer's refusal to name a single name among the "opinion leaders":

So why do many opinion makers insist on inaccurate and frightening analogies that overstate the severity of present conditions?... First, there is a strong political motivation to make this recession out to be worse than it actually is. The Obama administration wanted to make it appear as though it saved us from an incipient disaster.... Many others repeated the administration's hyperbolic claims.... Then there are economists who would like to see government take a larger role in the economy. They've chosen to use the recession as a pretext for arguing for this change.

Finally in paragraph 8 names emerge: Paul Krugman and IMF Chief Economist Olivier Blanchard are attacked for advocating "more government spending" even though "the recession... [will] end before much of the... spending takes hold." Now Allan Meltzer knows, and I know, and I know that Alan Meltzer knows that fiscal and monetary measures to boost and stabilize nominal demand back to its normal growth path is appropriate not just before the recession ends but as long as unemployment is elevated. I can only read this as an attempt to, as Cicero boasted, throw dust in the audience's eyes:

New York Times columnist Paul Krugman and the International Monetary Fund repeatedly proclaimed that more government spending was a necessity. Most economists now believe that the recession is expected to end before much of the government spending takes hold...

Then the list of villains grows to include:

Keynesian economists... [who] fail to recognize the powerful regenerative forces of the market... [t]he financial press... [t]he Federal Reserve['s]... Keynesian viewpoint... unprecedented monetary stimulus...

Since a "Keynesian viewpoint" is, in Meltzer's universe bad, I take him to be opposed to Federal Reserve monetary stimulus as well as to Obama administration fiscal stimulus.

This is the full Herbert Hoover we have here.

Yet Meltzer's opposition to fiscal and monetary stabilization measures does not spring from his expectation that the economy to rapidly recover to normal. In spite of the powerful regenerative foreces of the market:

My best guess is that the recovery will be a bumpy ride along a low-growth path. Recovery will be helped by lots of monetary stimulus and low inventories. Some calendar quarters will see healthy growth, but trend growth will be low...

Which would seem to indicate that the regenerative forces are not all that powerful, and that we need more measures--either fiscal or monetary--to stabilize nominal demand back on its proper track, no? But Meltzer says no:

Many pundits argue that we need another stimulus package. I disagree. The proper response now is to repeal what remains of the misguided stimulus and avoid the cap-and-trade program...

So we should not only follow the full Herbert Hoover and not use government policy levers to stabilize the path of nominal demand, we should also let environmental externalities go uncompensated for? This makes no sense. Economics calls for setting prices equal to marginal social values via property rights, subsidies, and taxes. Economics calls for providing a stable framework via a smooth growth path of nominal demand within which private-sector agents can plan production and consumption.

I am sorry, but this is not economics. I don't know what it is. I would welcome suggestions...