Sunday, January 20, 2013

The next Krugman article I want to address is one in which he argues that it is possible to make a quick and strong recovery following a financial crisis; that the problem is not that it cannot be done, but that that political will to do it is lacking.  What is called for in such cases is extreme fiscal and monetary expansion; running up deficits to levels that would normally be dangerous, and mass-printing money with the deliberate intention of raising inflation.
Basically, it takes much more clarity and unity to pursue either discretionary fiscal expansion or unconventional monetary policy than it does to cut the Fed funds rate, and few countries manage to display that kind of clarity and unity. And that, in turn, is why it took a war to end the Great Depression; there’s nothing special about military spending from an economic point of view, but as a political matter Hitler managed to override the usual objections to stimulus.
 And, alas, democratic governments tend to be faint-hearted in such circumstances, and to want to be "responsible."  So it ends up being irresponsible actors of dubious democratic credentials who do what has to be done.  Challenges in Europe come from the hard left or hard right.  In Japan, it is being led by Shinzo Abe, a nationalist and WWII atrocity denier.  And then, of course, was Hitler.

But, once again, there is one exception.  That is the case of an over valued currency.  The difference there is that no steely policy resolve is called for.  One does not have to put one's shoulder to the wheel and run insane deficits or inflationary policies.  One simply has to abandon an unsustainable currency peg, and the currency will fall on its own, with no further action needed.  That is perhaps the reason that overvalued currencies are the chief exception to the rule that recovery following a financial crisis is slow.

The final Krugman post I want to comment on is an interesting look at the different way liberals and conservatives see things.  Krugman, in turn, links to an article in the Washington Monthly, which he cites, but with a different spin.  Although neither article cites him, I think both are good illustrations of Jonathan Haidt's theory of liberals' and conservatives' differing moral foundations, taken from different angles.

Consider first the Washington Monthly article.  The author explains that opposition to inflationary policies is not purely about whether they will revive the economy:
But opposition to “printing money” has never been strictly about economics or the “real world”—it has been, for eons, a moral issue to those who believe anything that makes life easier for debt and debtors must be morally ruinous to the individuals and the society that benefit. . . . This is a parallel phenomenon, of course, to the more general alignment of conservatives with the feeling that those hurt by the Great Recession were people—often those people—who didn’t adequately prepare themselves for adversity, and/or forfeited any sympathy by depending on government for mortgage assistance or other needs. 
 In other words, as Haidt puts it, liberals see justice as being utilitarian, but conservatives see it as karma.  Liberals worry about preventing people from being harmed needlessly; conservatives worry about people escaping deserved punishment.  This may, unfortunately, extend to the point of dismissing any fear about undeserved suffering on the theory that any misfortune is in and of itself evidence that the person suffering deserved it.

Krugman has a different emphasis.  To liberals, money is purely utilitarian.  If printing more of it brings about good economic results, then by all means, let us print more of it.  To conservatives, money is sacred and printing more of it is a desecration.  He scoffs at conservatives who also claim that printing money will bring about disastrous results, but why not?  If you regard money as sacred and inflation as desecration, then presumably you also believe that desecration will be punished.  As Haidt would put it, Krugman is pointing up the conservative value of reverence for the sacred and -- like any liberal -- mocking it as illegitimate.

I suppose my answer would be this.  Yes, I believe that conservatives see inflating our way out of debt as immoral, both because they see debt as sin and want sinners to be punished and because they see money as sacred and fear its desecration.  I also believe that these views resonate with a lot of less ideological people. In particular, most people fear inflation (which they see mostly as higher prices eating away at their paycheck), disapprove of debt, and want government to cut spending.  But here is the thing.  I do not believe that these abstract principle are so important to most people that they are prepared to follow them regardless of the consequences.  In the end, I believe if inflationary policies yield good economic results, Americans will be pleased, even if their moral intuitions are affronted.  And if an all-consuming focus on price stability produces bad economic results, people will be unhappy.  The question is what form that unhappiness will take.

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