A Badge of Honor for John Quiggin of Oz
I Am No Longer Among the Most Pessimistic Economists in the Room...

A Failure of Technocracy: Macroeconomic Policy Watch

Paul Krugman:

Macroeconomic Folly: All of a sudden, people seem to have noticed that policy is moving in exactly the wrong direction. We’re getting headlines like this: "Debt Deal Puts U.S. on Austerity Path as Economy Falters."

I’ll need to write up my thoughts here at greater length, but let’s just say for now that what we’ve witnessed pretty much throughout the western world is a kind of inverse miracle of intellectual failure. Given a crisis that should have been relatively easy to solve — and, more than that, a crisis that anyone who knew macroeconomics 101 should have been well-prepared to deal with — what we actually got was an obsession with problems we didn’t have. We’ve obsessed over the deficit in the face of near-record low interest rates, obsessed over inflation in the face of stagnant wages, and counted on the confidence fairy to make job-destroying policies somehow job-creating.

It’s a disaster – and maybe not only an economic disaster.

A correspondent forwards a passage from Mike Allen with the note: "Banquo's Ghost?":

EXCLUSIVE -- OBAMA AND SENATE DEMS PLAN PIVOT TO JOBS: Senate Democrats hope they now have “checked the box” on debt reduction and can move to an agenda focused on job creation and economic growth, through a combination of spending and tax cuts. Dems want to change the subject fast, and polls show the need to talk more about jobs. Party officials say jobs will be their key message in August, followed by Hill action after Labor Day. Many Democrats fear the budget fights of this year have distracted from the issue that will be central to voters in the fall of 2012 – and officials want to get Paul Krugman off their backs…

It is very hard to tell what Mike Allen reports is really out there and what is simply his own brain-filter distorting the reality.

But, if accurate, this suggests that the White House staff still does not get it. The goal is not to appease Paul Krugman but to actually generate a strong recovery. To aim at the first rather than the second won't do much good--and won't even accomplish the first. Vague gestures and talking points about how you have "pivoted to job creation" only make Krugman madder.

In other news, David Frum pivots to Krugmanism:

Could it Be That Our Enemies Were Right?: "n February 1982, Susan Sontag made a fierce challenge to a left-wing audience gathered at New York’s Town Hall: "Imagine, if you will, someone who read only the Reader’s Digest between 1950 and 1970, and someone in the same period who read only The Nation or The New Statesman. Which reader would have been better informed about the realities of Communism? The answer, I think, should give us pause. Can it be that our enemies were right?"…

Think of Susan Sontag as you absorb the horrifying revised estimates of the collapse of 2008 from the Commerce Department. Two years ago, Commerce estimated the decline of the US economy at -0.5% in the third quarter of 2008 and -3.8% in the fourth quarter. It now puts the damage at -3.7% and -8.9%: Great Depression territory. Those estimates make intuitive sense as we assess the real-world effect of the crisis: the jobs lost, the homes foreclosed, the retirements shattered. When people tell me that I’ve changed my mind too much about too many things over the past four years, I can only point to the devastation wrought by this crisis and wonder: How closed must your thinking be if it isn’t affected by a disaster of such magnitude?… The ground they and I used to occupy stands increasingly empty.

If I can’t follow where most of my friends have gone, it is because I keep hearing Susan Sontag’s question in my ears. Or rather, a revised and updated version of that question:

Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? The answer, I think, should give us pause. Can it be that our enemies were right?