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.