It’s kind of annoying when people claim that I said the stimulus would work; how much noisier could I have been in warning both that it was grossly inadequate, and that by claiming that a far-too-small stimulus was just right, Obama would discredit the whole idea?
Of course, the WSJ also said that the stimulus wouldn’t work. The difference was in how it was supposed to fail.
The WSJ view was that federal borrowing would crowd out private spending by driving interest rates sky-high, that the bond vigilantes would destroy the economy. Note that when the linked editorial was published, the 10-year rate was at 3.7%, with the Journal in effect predicting that it would go much higher.
My view was that government borrowing in a liquidity trap does not drive up rates, and indeed that rates would stay low as long as the economy stayed depressed.
That’s a pretty clear test; among other things, you would have lost a lot of money if you believed the WSJ view.
Inflation is another issue; the WSJ kept telling readers that a big inflationary surge was coming. Commodity prices have muddied this issue to some extent, but even so actual developments on the inflation front have been a lot closer to what Keynesians were predicting than to the right-wing line.
Of course, I would much rather have actually had adequate policy than be vindicated by the form of our economic failure.
Aug 26 2011