Ben Bernanke, Hippie
01/03/2013 12 comentarios
We’re a few weeks away from a milestone I suspect most of Washington would like to forget: the start of the Iraq war. What I remember from that time is the utter impenetrability of elite prowar consensus. If you tried to point out Bush administration was obviously cooking up a bogus case for war, one that didn’t bear even casual scrutiny; if you pointed out that the risks and likely costs of war were huge; well, you were dismissed as ignorant and irresponsible. (Paul Krugman – NYTimes – 01/03/2013)
It didn’t seem to matter what evidence critics of the rush to war presented: Anyone who opposed the war was, by definition, foolish hippie. Remarkably, that judgment didn’t change even after everything the war’s critics predicted came true. Those who cheered on this disastrous venture continued to be regarded as “credible” on national security (why is John McCain still a fixture of Sunday talk shows?), while those who opposed it remained suspect. And, even more remarkably, a very similar story has played out over the past 3 years, this time about economic policy. Back then, all the important people decided that an unrelated war was an appropriate response to a terrorist attack; 3 years ago, they all decided fiscal austerity was appropriate response to an economic crisis caused by runaway bankers, with supposedly imminent danger from budget deficits playing the role played by Saddam’s alleged weapons of destruction.
Now, as then, this consensus has seemed impenetrable to counter-arguments, no matter how well grounded in evidence. Now, as then, leaders of the consensus continue to be regarded as credible even though they’ve been wrong about everything (why do people keep treating Mr. Alan Simpson as wise man?), while critics of the consensus are regarded as the foolish hippies even though all their predictions, about interest rates, about inflation, about the dire effects of austerity, have come true. So here’s my question: Will it make any difference that Ben Bernanke has now joined the ranks of the hippies? Earlier this week, Mr. Bernanke delivered testimony that should have made everyone in Washington sit up and take notice. True, it wasn’t really a break with what he has said in the past or, for that matter, with what other Federal Reserve officials have been saying, but the Fed chairman spoke more clearly and forcefully on fiscal policy than ever before, and what he said, translated from Fedspeak into plain English, was that the Beltway obsession with deficits is a terrible mistake. First of all, he pointed out the budget picture just isn’t very scary, even over medium run: “The federal debt held by the public (including that held by the Federal Reserve) is projected to remain roughly 75% of G.D.P. through much of the current decade.” He then argued that given state of the economy, we’re currently spending too little, not too much: “A substantial portion of recent progress in lowering deficit has been concentrated in near-term budget changes, which, taken together, could create a significant headwind for economic recovery.” Finally, he suggested that austerity in a depressed economy may well be self-defeating even in purely fiscal terms: “Besides having adverse effects on jobs+ incomes, slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.”
So the deficit is not clear and present danger, spending cuts in a depressed economy are a terrible idea and premature austerity doesn’t make sense even in budgetary terms. Regular readers may find these propositions familiar, since they’re pretty much what I and other progressive economists have been saying all along. But We’re irresponsible hippies. Is Ben Bernanke? (Well, he has a beard.) The point is not that Bernanke is an unimpeachable source of wisdom; one hopes the collapse of Alan Greenspan’s reputation has put an end to the practice of deifying Fed chairmen. Mr. Bernanke is a fine economist, but no more so than, say, Columbia’s Joseph Stiglitz, Nobel laureate and legendary economic theorist whose vocal criticism of our deficit obsession has nonetheless been ignored. No, the point is that Bernanke’s apostasy may help undermine the argument from authority, nobody who matters disagrees!, that has made elite obsession with deficits so hard to dislodge. And an end to deficit obsession can’t come a moment too soon. Right now Washington is focused on the idiocy of the sequester, but this is only the latest episode in an unprecedented run of declines in the public employment+government purchases that have crippled our economy’s recovery. Misguided elite consensus has led us into an economic quagmire, and it’s time for us to get out.