Paul Krugman finds a gem in the OECD Economic outlook, which argues that the Fed should start increasing interest rates by the end of 2010. This, he notes, is in spite of the OECD’s own outlook for low inflation and high unemployment through 2011. Krugman writes,
The only explanation seems to be at the beginning of that passage: some people, the report claims, are starting to think there might be inflation, so even though they’re wrong according to our forecasts, see, we need to head off this phantom threat and slow the economy’s recovery … what?
What’s so scary about this is that the OECD virtually defines conventional wisdom; it’s a numbered-paragraph sort of place, where a committee has to sign off on everything, policing the nuances as they say. So what we get from this is that among sensible people the idea that you should undermine recovery to appease those who think there might be inflation even though actually there isn’t has become conventional wisdom — so conventional that it’s treated as self-evident.
This is really, really bad.
The same conventional wisdom predominates with deficit hawkery, and of course, even a liberal like Obama feels compelled to buy in to this rhetoric and make salutary cuts. Beliefs from the 70s are now so firmly entrenched that all must pay homage to them or be discredited. We desperately need more folks of Jamie Galbraith’s stature to become much more strident in their deficit falconry- not just arguing, as Krugman and many in the mainstream have, that deficits are okay now. They must also argue that the deficits, at least as we’re used to them, are never harmful absent full employment (assuming fiscal and monetary sovereignty et al.).
Update (2:30 PM): Either I read Krugman’s mind or he read mine…he just put up a new post pointing out the stupidity of 90% debt/GDP as some big red line:
So what’s happening is that the idea that Really Bad Things happen when debt crosses 90 percent of GDP is being treated as a solid fact, when it’s nothing of the sort. And if the Obama commission feeds that false perception, right there it’s doing a lot of harm.
See Warren Mosler’s post and the comments thread:
M3 Falling Works For Me
I saw that story…what a joke.
Good Lord, I’ve been fighting this battle for over 15 years. Finally, more people actually are starting to get it. Will I live long enough to see it happen??
Anyway Nick, I would change “deficits . . .are never harmful” to “increasing deficits are necessary.”
As for the OECD, these are the folks who have brought us an average of one recession every five years. For them, failure is a form of credibility.
Rodger Malcolm Mitchell
Rodger, I think there is beginning to be some hope. I have a few Google alerts on, and there are more and more hits coming up. This is starting to get a play. Not always with attribution, but the sources are pretty clear when you are familiar with them.
But whether it will come in time remains to be seen. Given the present direction, I’m still rather pessimistic.
BTW, Warren added Marshall Auerback’s rebuttal of Evans-Pirchard to the original post later, if you didn’t see it when you read it. Marshal gives the actual numbers. (link above)
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