Here’s the thing about Allan Meltzer: he knows. Or at least he should know. It’s tough to remember that he knows when he writes editorials like his latest, “When Inflation Doves Cry.” This is a mess of an editorial, a confused argument about why huge inflation is around the corner. “Instead of continuing along this futile path, the Fed should end its open-ended QE3 now… Those who believe that inflation will remain low should look more thoroughly and think more clearly. ”
But he knows. Because here’s Meltzer in 1999 with “A Policy for Japanese Recovery“: “Monetary expansion and devaluation is a much better solution. An announcement by the Bank of Japan and the government that the aim of policy is to prevent deflation and restore growth by providing enough money to raise asset prices would change beliefs and anticipations.”
He knows that there’s an actual debate, with people who are “thinking clearly,” about monetary policy at the zero lower bound as a result of Japan. He participated in it. So he must have been aware of Ben Bernanke, Paul Krugman, Milton Friedman, Michael Woodford, and Lars Svensson all also debating it at the same time. But now he’s forgotten it. In fact, his arguments for Japan are the exact opposite of what they are now for the United States.
This is why I think the Smithian “Derp” concept needs fleshing out as a diagnosis of our current situation. (I’m not a fan of the word either, but I’ll use it for this post.) For those not familiar with the term, Noah Smith argues that a major problem in our policy discussions is “the constant, repetitive reiteration of strong priors.” But if that was the only issue, Meltzer would support more expansion like he did for Japan!
Simply blaming reiteration of priors is missing something. The problem here isn’t that Meltzer may have changed his mind on his advice for Japan. If that’s the case, I’d love to read about what led to that change. The problem is one of denialism, where the person refuses to acknowledge the actually existing debate, and instead pantomimes a debate with a shadow. It involves the idea of a straw man, but sometimes it’s simply not engaging at all. For Meltzer, the extensive debate about monetary policy at the zero lower bound is simply excised from the conversation, and people who only read him will have no clue that it was ever there.
There’s also another dimension that I think is even more important, which is whether or not the argument, conclusions, or suggestions are in good faith. Eventually, this transcends the “reiteration of strong priors” and becomes an updating of the case but a reiteration of the conclusion. Throughout 2010 and 2011, an endless series of arguments about how a long-term fiscal deal would help with the current recession were made, without any credible evidence that this would help our short-term economy. But that’s what people want to do, and so they acknowledge the fresh problem but simply plug in their wrong solutions. The same was true with Mitt Romney’s plan for the economy, which wasn’t specific to 2012 in any way.
Bad faith solutions don’t have to be about things you wanted to do anyway. Phillip Mirowski’s new book makes a fascinating observation about conservative think tanks when it comes to global warming. On the one hand, they have an active project arguing global warming isn’t happening. But on the other hand, they also have an active project arguing global warming can be solved through geoengineering the atmosphere. (For an example, here’s AEI arguing worries over climate change are overblown, but also separately hosting a panel on geoengineering.)
So global warming isn’t real, but if it is, heroic atmospheric entrepreneurs will come in at the last minute and save the day. Thus, you can have denialism and bad-faith solutions in play at the same time.
The fact that we can get to the denial and bad-faith corner makes me think this can be made generalizable and charted on a grid, but I still feel it’s missing some dimensions. What Smith identifies is real, but I’m not sure how to place it on these axes. What do you make of it?