[ExI] Deficit spending and never admitting you were wrong

John Clark johnkclark at gmail.com
Tue May 26 20:37:57 UTC 2020

Nobel Prize winner in Economics Paul Krugman's column today is about
Trump's inability to ever admit he was wrong, but Krugman notes that trait
has spread to the entire Republican party:

*"While Trump’s insistence on his own infallibility is especially lurid,
his party in general is now composed of never-wrongers, people who never
concede awkward facts. And it has been that way for a while. I’m sure there
were earlier examples but the inability of many on the right to admit error
was really driven home to me in the aftermath of the 2008 financial
crisis.For several years following the crisis, the U.S. government ran
large budget deficits, mainly because the depressed state of the economy
caused revenues to plunge and certain kinds of spending, especially
unemployment benefits, to soar. At the same time, the Federal Reserve
intervened heavily in financial markets, “printing money” — actually
crediting banks with deposits created out of thin air, but close enough —
at a rapid pace.Many economists, including yours truly, considered these
fiscal and monetary developments reasonable under the circumstances. It
was, we argued, a good thing to run deficits in a slump, with little risk
that these deficits would create any kind of crisis. It was also a good
idea to print money, with little risk that doing so would lead to
inflation.But many on the right had a different view. In May 2009, with
unemployment at 9.4 percent and still rising, The Wall Street Journal
declared that deficits would provoke an attack by the bond vigilantes.
Commentators on Fox warned about imminent hyperinflation. A who’s who of
conservatives sent an open letter to Ben Bernanke, the then Fed chairman,
warning that he was debasing the dollar.Well, events proved one side of
this debate right and the other wrong. There was no debt crisis, and
interest rates stayed low. So did inflation. So you might have expected
those who got it wrong to engage in some self-reflection about why they
were so mistaken.But they didn’t. Almost without exception, those who
predicted disaster from deficits and monetary expansion continued
thundering the same warnings year after year, never conceding that they had
been wrong. Bloomberg News actually contacted many of the signatories of
that open letter to Bernanke four years later; every single signatory who
replied insisted that the letter was right, even though the promised
inflation never came.So in this, as in many other things, Trump is just a
cruder, exaggerated version of what his whole party has become. Being a
Republican, it seems, means never having to admit that you were wrong,
about anything."*

John K Clark
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