The 'Worst Fears' of Advocates of Expansionist Monetary Policy

Dean Baker complains about Ryan Lizza:

New Yorker Rewrites Economic History: We get no mention of the stock bubble when the piece extols the wonders of the economy in the Clinton years. Nor do we get any mention of the over-valued dollar, a direct outcome of the Rubin-Summers management of the East Asian financial crisis. The collapse of the stock bubble in 2000-2002, coupled with the over-valuation of the dollar, created the serious downturn from which the housing bubble arose. Summers role in ignoring financial bubbles and touting financial deregulation gives him a good share of the credit for the current crisis.

Finally, we are told in conclusion that: "So far, none of the worst fears of those who believed that the stimulus was too small or that nationalization was the only option or that taking over car companies would destroy the fabric of capitalism have materialized." Sorry, but this is wrong, big time. The worst fears of some of us who said that the stimulus was too small were that we would be sitting around with 10 percent unemployment for a long period of time and that stimulus would be discredited. That pretty well describes the world we live in, even that may not be the case in New Yorker land...

Now, now, Dean. Expansionary is not discredited -- in large part because we have been loudly yelling for nine months now that it looked too small to do the job properly.

And Ryan Lizza is careful: He does not say "none of the fears of those who believed that the stimulus was too small have materialized"; he says "none of the worst fears of those who believed that the stimulus was too small... have materialized." Our worst fears were that right now the unemployment rate would be screaming upwards toward fifteen percent. And it hasn't even breached twelve yet.

Comments

[Gary A:]

I wonder if Lizza comprehends that unemployment is now a leading indicator, as Pimco says. I wonder if he grasps that jobs are gone forever, and those who have jobs are overleveraged. Yet the US consumer is supposed to carry the world.

These people who believe the adminstration and Summers are looking at unemployment as being a lagging indicator. I think they are wrong. This is not a regular garden variety recession. This is a deflationary recession. Or maybe a recessionary depression!

Oct 07 02:33 PM