Evidence has a well-known liberal bias.
Stephen Moore of The Heritage Foundation is a likely nominee for the Federal Reserve Board.Tom Williams/CQ Roll Call
Evidence has a well-known liberal bias. And that, presumably, is why conservatives prefer “experts” who not only consistently get things wrong, but refuse to admit or learn from their mistakes.
There has been a lot of commentary about Stephen Moore, the man Donald Trump wants to put on the Fed’s Board of Governors. It turns out that he has a lot of personal baggage: He was held in contempt of court for failing to pay alimony and child support, and his past writings show an extraordinary degree of misogyny. He misstates facts so much that one newspaper editor vowed never to publish him again, and he has been caught outright lying about his past support for a gold standard. Oh, and he has described the cities of the U.S. heartland as “armpits of America.”
But it’s also important to put Moore in context. Until he decided that the Fed should roll those printing presses to help Trump, he was part of a fairly broad group that advocated tight money in the aftermath of the global financial crisis. This group bitterly criticized both the Fed’s low interest rates and its efforts to boost the economy by buying bonds, so-called “quantitative easing.” Its members warned that these policies would lead to runaway inflation, and seized on a rise in commodity prices in 2011-12 as the harbinger of an inflationary surge.
Meanwhile, economists at the Fed and elsewhere argued that there was no inflationary risk given the depressed state of the economy, and that “core” inflation, which excludes volatile food and energy prices, was a much better indicator of inflationary pressure than commodity prices.
We now know what happened: The Fed was right and its hard-money critics were wrong. In fact, it’s hard to think of other events in economic history in which rival doctrines received such a clear test, and in which one of them emerged so decisively as the winner.
We can summarize how events went down with two charts. Figure 1 shows two numbers, both expressed as indexes with Dec. 2007 – the start of the Great Recession – set to 100.
Figure 1Federal Reserve of St. Louis
The blue line shows the monetary base, the sum of currency in circulation and bank reserves; when we say that the Fed “prints money,” we mean that it increases the monetary base. As you can see, that base soared as the Fed fought the slump; critics warned, most famously in a 2010 open letter to Ben Bernanke, that this would lead to an inflationary explosion. But the red line shows what happened to consumer prices: basically nothing.
Figure 2 shows two more numbers. The blue line shows the rate of change in the prices of commodities – raw materials like copper and soybeans. Commodity prices surged in 2007-8, and right-wingers like Moore called for interest rate hikes to head off what they saw as looming inflation. In reality, the Great Recession was already underway. After plunging in the face of crisis, commodity prices rose again in 2010-12, and people like Paul Ryan berated Bernanke for policies that would “debase” the dollar.
Figure 2Federal Reserve of St. Louis
But the red line shows the number the Fed focused on, core inflation, which stayed low. Sure enough, the commodity price surge was a temporary blip, and runaway inflation never happened.
As I said, the Fed’s critics were decisively proved wrong. When it comes to evidence settling an economic dispute, the monetary events of 2009-2014 or so were as good as it gets.
But two funny things happened once the verdict of the evidence was in. First, aside from a vague mea culpa from Larry Kudlow, none – and I mean none – of the Fed’s critics were willing to admit that they were wrong. In 2014 Bloomberg contacted as many of the signatories of that open letter to Bernanke as it could, to ask what they thought given subdued inflation and a solid economic recovery. Not one was willing to admit that the letter’s warnings had proved incorrect.
Second, the people who got it wrong were if anything rewarded for their errors. Moore was wrong about everything during the financial crisis; he remained a fixture on the right-wing conference circuit, and in 2014 the Heritage Foundation appointed him as its chief economist. Kudlow, who dismissed those warning about the housing bubble as “bubbleheads,” and warned about looming inflation in the depths of recession, also remained a right-wing favorite – and is now the Trump administration’s chief economist.
So the attempt to install Moore at the Fed is right in character. And let’s be clear: The issue is not simply one of having made some bad forecasts. Everyone does that now and then. It’s about being consistently wrong about everything, and refusing to learn from error.
Recently Moore declared that the Fed is “filled with hundreds of economists who are worthless, who have the wrong model in their mind. They should all be, they should all be fired and they should be replaced by good economists.” Given the respective track records of the Moore and the Fed over the past decade and more, what he apparently means by the “wrong model” is a view of inflation that has repeatedly been proved right, as opposed to his own analysis, which has always been wrong.
But so far not a single Republican senator has questioned Moore’s qualifications. When it comes to right-wing economists, what we see is a clear pattern of survival of the wrongest.
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Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman