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“The Inflation Cult”: The Broad Appeal Of Prophets Whose Prophecies Keep Failing

Wish I’d said that! Earlier this week, Jesse Eisinger of ProPublica, writing on The Times’s DealBook blog, compared people who keep predicting runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.” Indeed.

Economic forecasters are often wrong. Me, too! If an economist never makes an incorrect prediction, he or she isn’t taking enough risks. But it’s less common for supposed experts to keep making the same wrong prediction year after year, never admitting or trying to explain their past errors. And the remarkable thing is that these always-wrong, never-in-doubt pundits continue to have large public and political influence.

There’s something happening here. What it is ain’t exactly clear. But as regular readers know, I’ve been trying to figure it out, because I think it’s important to understand the persistence and power of the inflation cult.

Whom are we talking about? Not just the shouting heads on CNBC, although they’re certainly part of it. Rick Santelli, famous for his 2009 Tea Party rant, also spent much of that year yelling that runaway inflation was coming. It wasn’t, but his line never changed. Just two months ago, he told viewers that the Federal Reserve is “preparing for hyperinflation.”

You might dismiss the likes of Mr. Santelli, saying that they’re basically in the entertainment business. But many investors didn’t get that memo. I’ve had money managers — that is, professional investors — tell me that the quiescence of inflation surprised them, because “all the experts” predicted that it would surge.

And it’s not as easy to dismiss the phenomenon of obsessive attachment to a failed economic doctrine when you see it in major political figures. In 2009, Representative Paul Ryan warned about “inflation’s looming shadow.” Did he reconsider when inflation stayed low? No, he kept warning, year after year, about the coming “debasement” of the dollar.

Wait, there’s more: You find the same Groundhog Day story when you look at the pronouncements of seemingly reputable economists. In May 2009, Allan Meltzer, a well-known monetary economist and historian of the Federal Reserve, had an Op-Ed article published in The Times warning that a sharp rise in inflation was imminent unless the Fed changed course. Over the next five years, Mr. Meltzer’s preferred measure of prices rose at an annual rate of only 1.6 percent, and his response was published in another op-ed article, this time in The Wall Street Journal. The title? “How the Fed Fuels the Coming Inflation.”

So what’s going on here?

I’ve written before about how the wealthy tend to oppose easy money, perceiving it as being against their interests. But that doesn’t explain the broad appeal of prophets whose prophecies keep failing.

Part of that appeal is clearly political; there’s a reason why Mr. Santelli yells about both inflation and how President Obama is giving money away to “losers,” why Mr. Ryan warns about both a debased currency and a government that redistributes from “makers” to “takers.” Inflation cultists almost always link the Fed’s policies to complaints about government spending. They’re completely wrong about the details — no, the Fed isn’t printing money to cover the budget deficit — but it’s true that governments whose debt is denominated in a currency they can issue have more fiscal flexibility, and hence more ability to maintain aid to those in need, than governments that don’t.

And anger against “takers” — anger that is very much tied up with ethnic and cultural divisions — runs deep. Many people, therefore, feel an affinity with those who rant about looming inflation; Mr. Santelli is their kind of guy. In an important sense, I’d argue, the persistence of the inflation cult is an example of the “affinity fraud” crucial to many swindles, in which investors trust a con man because he seems to be part of their tribe. In this case, the con men may be conning themselves as well as their followers, but that hardly matters.

This tribal interpretation of the inflation cult helps explain the sheer rage you encounter when pointing out that the promised hyperinflation is nowhere to be seen. It’s comparable to the reaction you get when pointing out that Obamacare seems to be working, and probably has the same roots.

But what about the economists who go along with the cult? They’re all conservatives, but aren’t they also professionals who put evidence above political convenience? Apparently not.

The persistence of the inflation cult is, therefore, an indicator of just how polarized our society has become, of how everything is political, even among those who are supposed to rise above such things. And that reality, unlike the supposed risk of runaway inflation, is something that should scare you.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, September 12, 2014

September 15, 2014 Posted by | Economic Policy, Federal Reserve, Inflation | , , , , , | Leave a comment

“When Tribalism Takes Over”: Republicans Are Being Driven To Identify In All Ways With Their Tribe

Pollsters have found that in the Obama era, the number of self-identified Republican voters who believe in evolution has dropped sharply. Similarly, in recent years, GOP voters routinely tell pollsters that the federal budget deficit has gone up, even as it drops quickly.

What drives results like these? It’s probably the result of the same phenomenon that drives attitudes like these, as reported by Greg Sargent yesterday, about the Affordable Care Act.

My Post colleague Sean Sullivan … points to a Gallup poll this week finding that only 19 percent of Americans say the law has hurt them or their family, while 64 percent say it has had no effect, and another 13 percent say it has helped.

But who are those 19 percent? It turns out those telling Gallup the law has hurt them or their family are very disproportionately Republican and conservative.

Of course they are. Greg got in touch with Gallup, which offered him a closer look at the details of the poll results. In all, a small percentage of Democrats and independents said the health care law has hurt them or their family directly, while 60% of Republicans or Republican-leaning independents said the ACA is doing them direct harm.

Similar results were seen along ideological lines: most conservatives said “Obamacare” is hurting them or their family, most moderates and liberals said the opposite.

Now, I suppose it’s possible that an extraordinary coincidence is unfolding on a national scale. By sheer chance, the very people who oppose the law just so happen to be the exact same people who are adversely affected by it. What a truly remarkable fluke! Who could have guessed?

Or maybe, as Greg put it, “some who already dislike Obamacare are more likely to tell pollsters they’ve been negatively impacted by it.”

It’s amazing what tribalism can do to public perceptions.

Are Republican voters really turning against modern biology in greater numbers? Probably not. Do GOP voters actually believe the deficit has gotten bigger during the Obama era? Maybe, but I rather doubt it.

Do these same partisans and ideologues genuinely believe the Affordable Care Act has hurt them or their families? Maybe some had to change plans or see a new doctor, but odds are, most of these folks are giving the pollsters an ideologically satisfying answer.

It’s not about dishonesty or ignorance; it’s about political tribalism in a period of stark polarization.

When the Pew report came out last month showing Republicans rejecting evolution in large numbers, Paul Krugman had a good piece on the broader dynamic.

The point … is that Republicans are being driven to identify in all ways with their tribe – and the tribal belief system is dominated by anti-science fundamentalists. For some time now it has been impossible to be a good Republicans while believing in the reality of climate change; now it’s impossible to be a good Republican while believing in evolution.

And of course the same thing is happening in economics. As recently as 2004, the Economic Report of the President (pdf) of a Republican administration could espouse a strongly Keynesian view, declaring the virtues of “aggressive monetary policy” to fight recessions, and making the case for discretionary fiscal policy too. […]

Given that intellectual framework, the reemergence of a 30s-type economic situation, with prolonged shortfalls in aggregate demand, low inflation, and zero interest rates should have made many Republicans more Keynesian than before. Instead, at just the moment that demand-side economics became obviously critical, we saw Republicans – the rank and file, of course, but economists as well – declare their fealty to various forms of supply-side economics, whether Austrian or Lafferian or both. Compare that ERP chapter with the currency-debasement letter and you see a remarkable case of intellectual retrogression.

In all likelihood, many on the right are choosing to stick with their “team” and answer pollsters’ questions accordingly. It’s probably best to look at all of these polls accordingly.

 

By: Steve Benen, The Maddow Blog, February 7, 2014

February 8, 2014 Posted by | Evolution, Republicans | , , , , , , , | 1 Comment

“Morning Joe’s Accuracy Deficit”: If It’s Way Too Early, It’s Just Flat Out Wrong

We’ve all played the game “telephone,” where a message gets distorted in the retelling, often so much so that the original sender has a hard time recognizing it when it comes back. Nowadays, “telephone” is played in the blogosphere, and that’s how I felt when I first learned that my views on reducing the federal budget deficit were portrayed as in sharp contrast to those of my famous Princeton colleague, Paul Krugman.

The story began when Krugman appeared as a guest on “Morning Joe” on January 28th. He locked horns with host Joe Scarborough and others over how urgent it is to reduce the deficit, with Krugman arguing that we have lots of time and Scarborough (and others) arguing that we need to act post haste. Krugman did not dispute the notion that we must eventually get ourselves off the explosive debt path on which we now find ourselves. But he insisted that, with the economy so weak and the markets so welcoming of U.S. Treasury debt, we can and should go slowly.

Scarborough, though cordial to his guest, was incredulous and even amused. He subsequently argued in POLITICO that Krugman’s view is extreme, dangerous, and — most germane to this note — shared by almost no one else. It certainly wasn’t the consensus view on “Morning Joe” that day.

When Scarborough speaks, people listen. So controversy quickly erupted in the blogosphere. In POLITICO on February 15th, Scarborough invoked me as being on his side of the debate — which was news to me. While there are nuances of difference between my views on the budget issue and Krugman’s, and notable differences in rhetorical style, our positions are broadly similar. I’m probably a tad more hawkish than my colleague, but there’s not much distance showing between us.

So why had Scarborough declared me a deficit hawk?, I wondered when someone informed me of the alleged schism within the Princeton economics department. Here’s the answer.

In my new book, “After the Music Stopped” (Penguin Press, 2013), which was published a few days before the Scarborough-Krugman debate, I argued that there is not just one, but actually three distinct deficit problems, each with its own solution.

PROBLEM 1: In the very short run, meaning right now, we probably have too much deficit reduction. The U.S. economy could actually use some fiscal stimulus (to wit, larger deficits) today, rather than more fiscal contraction, because unemployment is still so high. Doesn’t that sound like Krugman?

PROBLEM 2: Over the coming decade, however — which is the focus of Simpson-Bowles, the so-called grand bargain, and most other plans — we do need to bring the deficit down, I argued. And, indeed, Problems 1 and 2 should be linked: by joining together some modest stimulus now with perhaps ten times as much deficit reduction over the ten-year budget window. In Washington-speak, we would thus “pay for” the stimulus ten times over. Furthermore, I argued, we could accomplish that without undue pain and suffering.

PROBLEM 3: The real budget crunch comes well down the line — a decade or two or three from now. The problem is simple to diagnose — healthcare costs are projected to soar — and it looks massive. By the way, that doesn’t mean we shouldn’t start addressing the healthcare cost problem now.

An excerpt from my book, making these points, was published in The Atlantic on January 25th — three days before the “Morning Joe” show. Interestingly, The Atlantic entitled the excerpt: “How to Worry About the Deficit: (1) Don’t; (2) Wait a Few Years; (3) Then Worry About Healthcare Costs.” A bit long as headlines go, and maybe a bit misleading, but it did capture the three separate deficit issues.

Apparently the article caught Scarborough’s eye. In that POLITICO article, he cited me as among the anti-Krugmans, claiming I was “particularly supportive of the “Morning Joe” panel’s view.” Why? Because I had warned of “truly horrific problems” ahead and “even shared [the] conclusion that the coming Medicare crisis will be so great that Democrats won’t be able to tax their way out of it.”

Well, I did say those things, but they referred to Problem 3, the long-run explosion of healthcare costs, not to Problem 2, the ten-year budget. Here’s the actual quotation about taxing our way out of the exploding healthcare costs (from “After the Music Stopped,” p. 404):

“The government can cover no more than a small fraction of the projected deficits by raising taxes. Sorry, Democrats, but the Republicans are right on this one. Americans are used to federal taxes running about 18.5 percent of GDP; they will not allow them to rise to 32 percent of GDP. Never mind that a number of European countries do so; we won’t.”

Krugman subsequently noted in his blog (on February 16) that his position is “not so different” from mine.

I don’t blog, so the purpose of this missive is simple: Can we please end the mini-debate right here? While there may be some small differences between Krugman’s position on reducing the deficit and my own, they are pretty small. Had I been on “Morning Joe” that day, the debate surely would have been two against four, not one against four. Furthermore, Krugman and I are not occupying some obscure corner of the policy debate, where only weirdos live. A large number of economists are on our side. Others, of course, are closer to the Scarborough camp.

The more important question is the substantive issue of the day: Should we be going for more fiscal austerity right now, or not? Those of us who say “not” urge you to consider some pertinent facts: the unemployment rate remains sky high; fiscal austerity has failed in Europe, where it is harming growth; the U.S. Treasury can still borrow at super-low interest rates; and we have already made serious progress on the ten-year budget problem. Now make up your own minds.

 

By: Alan S. Blinder, Opinion Contributor; Professor of Economics and Public Affairs, Princeton; Former Vice Chairman of the Federal Reserve, Politico, March 4, 2013

March 5, 2013 Posted by | Deficits, Sequester | , , , , , , , | 1 Comment

Non-Equivalence: The Continuing Curse Of “On The One-Handism”

In Time magazine’s recent profile of Herman Cain, author Michael Crowley writes of Cain’s now famous “9-9-9” plan, “Conservative economists applaud the idea, but many others say it dramatically favors the rich and would actually raise taxes on the poor and require huge spending cuts.”

Sentences like these in magazines like this one tell us a great deal about what’s wrong with political coverage in the United States. In the first place, the sentence treats America as if it is made up of only two groups of people: “the rich” and “the poor.” It does not even allow for the existence of the vast majority of Americans who exist somewhere in-between (generally referred to—and exalted as—“the middle class”). Most egregious of all, however, is the implied equivalence between the alleged approval by “conservative economists” on the one hand and what “others” say on the other.

Now, a few questions. Who are these “others?” Are they also economists or are they, say, garbage men? And do these unnamed conservative economists applaud the idea because it “would actually raise taxes on the poor and require huge spending cuts” or in spite of it? And finally, what, Mr. Time Magazine, would the plan actually do? What is the point, Time, if not to offer readers some guidance on competing claims by “conservative economists” and “others” when it comes to the proposals of leading presidential candidates?

It’s not like it would have been so hard. The Tax Policy Center broke down the numbers behind Cain’s 9-9-9 tax plan, and Neil Klopfenstein even offered a visualization of the plan based on the Tax Policy Center’s analysis.

What we have here is a prime example of what I have called “on the one-handism,” what Paul Krugman calls “the cult of balance” and what James Fallows calls the problem of “false equivalence.” The phenomenon derives from a multiplicity of causes but rests on two essential insights.

First, conservatives have figured out that even the most high-minded members of the media will publish their claims without prejudice, even if they lack any credible supporting evidence. They will do this because they consider it both “unfair” and nonobjective to take a position between the two parties even when it involves passing along a falsehood.

Second, because of the relentless effectiveness of the right’s effort to “work the refs,” reporters and editors are particularly reluctant to invite the hassles and angry accusations certain to arrive whenever anyone prints an unfavorable truth about anyone associated with the right. Conservatives have gotten so good at this, as a matter of fact, that they even get reporters to thank them for it—as well as to misidentify their complaints with those of average everyday American citizens.

Just one case in point: In his profile of Jill Abramson, the recently named New York Times executive editor, Ken Auletta quotes her discussing her time as the paper’s Washington bureau chief, confusing the two: “All my years in Washington, and in some ways being attacked by conservatives, made me more conscious of how a story might be seen in the rest of America,” Abramson explained.

Fallows has done the world a favor in this respect by risking his reputation for moderation and overall reasonableness by getting a metaphorical bit in his mouth on the  topic of false equivalence. In doing so, he demonstrates one of the blogosphere’s key blessings: the ability to return to a topic over and over for the purposes of clarification and intensification. In his discussion of a story by The Washington Post’s Aaron Blake entitled “Democrats thwart Obama’s bipartisan goals again,” Fallows notes that the story in question “manages not to use the word “filibuster” while describing why the administration’s programs have not gotten through a Senate that the Democrats ‘control.’”

This is a shame. For as I noted in Kabuki Democracy, “Accurate numbers can be difficult to discern because in most cases the mere threat is enough to win the battle at hand.” But if we examine a close corollary—cloture votes—these rose from fewer than 10 per two-year congressional session during the 1970s to more than 100 in both the 2006–2008 and 2009–2010 sessions. Political scientist Barbara Sinclair estimates that these threats have affected 70 percent of all Senate bills since 2000, nearly 10 times the average in the previous century.

The same numbers suggest that Democrats, who were no paragons of virtue on cloture votes when they were in the minority under President George W. Bush, are still no match for their opponents when it comes to using and deploying the body’s tactical weaponry of obstruction. Since the Democratic takeover of both houses of Congress in 2006, Republicans have more than doubled the 130 cloture motions Democrats had managed to force during the four previous years under George W. Bush.

Fallows reprints one of journalist Ezra Klein’s charts demonstrating the degree to which Senate Republicans have abused the filibuster relative to its use in the past. As Fallows notes, the “blue line shows just some of the filibuster threats that McConnell’s minority has used to block consideration of even routine legislation and appointments.”

Fallows also notes, “[The Post story] reflects so thorough an absorption of the idea that the filibuster-threat is normal business that it describes the latest cloture vote as a vote on the bill itself … [and] Republicans end up voting against the bill, because that is the Republican strategy.” Fallows devotes most of his attention to The Post’s coverage but he actually began with a dissection of a Times version of the same story, demonstrating how widespread the problem is at the highest reaches of mainstream media.

Of course the issue goes well beyond mere politics. Because so much mainstream media misinformation is perpetuated based on the manipulation of data by conservatives unconcerned with evidence—and often even with reality—in the service of both ideology as well as their funders’ fortunes, Americans are actually worse informed about the reality of global warming than they were years ago, and hence the threat is going unmet.

Global warming misinformation is perhaps the most dramatic case, but almost everywhere, the refusal of so many in the media to even bother with the question of truth and falsehood is at the root of the problem. Boring as it may be to hear and see and read over and over, it bears repeating until it stops.

 

By; Eric Alterman, Senior Fellow, Center for American Progress, October 20, 2011

October 25, 2011 Posted by | Class Warfare, Congress, Democrats, Economic Recovery, Economy, Elections, Environment, GOP, Ideologues, Press, Public, Republicans, Voters | , , , , , , , , , | Leave a comment

John Boehner’s Unreality Check On The Deficit

The news out of House Speaker John Boehner’s speech to the New York Economic Club was his demand for “cuts of trillions, not just billions” before the debt ceiling can be raised. Not just broad deficit-reduction targets, the Ohio Republican insisted, but “actual cuts and program reforms.”

That’s alarming enough. It is all but impossible to get this done in the available time. It certainly can’t be accomplished on Boehner’s unbending, no-new-taxes terms. And if the speaker truly believes that it would be “more irresponsible” to raise the debt ceiling without instituting deficit-reduction measures than not to raise it at all, we’re in a heap of trouble.

Even more alarming, because it has consequences beyond the debt-ceiling debate, is the incoherent, impervious-to-facts economic philosophy undergirding Boehner’s remarks.

Reporters naturally tend to ignore this boilerplate. Journalistically, that makes sense. Boehner’s economic comments were nothing particularly new. Indeed, they reflect what has become the mainstream thinking of the Republican Party. But that’s exactly the point. We become so inured to hearing this thinking that we neglect to point out how wrong it is.

My argument with Boehner is not that he believes in a more limited role for government than I do, not that he is more skeptical of government intervention and regulation, and not that he is more worried about the economically stifling implications of tax increases. Those are legitimate ideological differences. American politics is better off for them.

I’m talking about statements that are simply false.

“The recent stimulus spending binge hurt our economy and hampered private-sector job creation in America.”

Reasonable economists can disagree about the effectiveness of the stimulus spending and whether it was worth the drag of the additional debt, but no reasonable economist argues that it hurt the economy in the short term.

The Congressional Budget Office estimates the stimulus added, on average, about one percentage point annually to economic growth and reduced the unemployment rate by half a point between 2009 and 2011. And that’s the low-end estimate. The high-end numbers show the stimulus spending adding more than 2 percentage points annually to economic growth and cutting the unemployment rate by more than 1 percentage point.

The CBO is not alone. Economists Alan Blinder and Mark Zandi estimated in a July 2010 paper that without the stimulus spending, the unemployment rate would be 1.5 percentage points higher.

“The massive borrowing and spending by the Treasury Department crowded out private investment by American businesses of all sizes.”

Crowding out occurs when government spending drives up interest rates and makes borrowing unattractive to the private sector. As economist Joseph Minarik of the Committee for Economic Development explains, “When interest rates are on the floor, you can’t say federal government borrowing is crowding out business investment.” The lackluster investment climate reflects low consumer demand and underutilized capacity. You can’t be crowded out of a room you’re not trying to enter.

“The truth is we will never balance the budget and rid our children of debt unless we cut spending and have real economic growth. And we will never have real economic growth if we raise taxes on those in America who create jobs.”

Never? Under President Clinton, taxes were raised, primarily on the wealthy. During the eight years of his administration, the economy grew by an average of close to 4 percent.

“I ran for Congress in 1990, the year our nation’s leaders struck a so-called bargain that raised taxes as part of a bipartisan plan to balance the budget. The result of that so-called bargain was the recession of the early 1990s. It wasn’t until the economy picked back up toward the end of that decade that we achieved a balanced budget.”

Boehner blames the budget deal for tanking the economy, but the recession actually started in July 1990, two months before the agreement was reached. And that revived economy? It came despite the supposed dead weight of the Clinton tax increase.

“A tax hike would wreak havoc not only on our economy’s ability to create private-sector jobs, but also on our ability to tackle the national debt.”

During the early 1980s, taxes were cut and public debt ballooned, from 26 percent of GDP in 1980 to 40 percent by 1986. In 1993, taxes were increased (and spending cut); debt as a share of the economy fell, from 49 percent to 33 percent. In 2001 and 2003, taxes were cut. By the time President Obama took office, debt had climbed to 40 percent of GDP.

Listening to Boehner, I began to think the country suffers from two deficits: the gap between spending and revenue, and the one between reality and ideology. The first cannot be solved unless we find some way of at least narrowing the second.

By: Ruth Marcus, Opinion Writer, The Washington Post, May 10, 2011

May 15, 2011 Posted by | Budget, Class Warfare, Congress, Conservatives, Debt Ceiling, Debt Crisis, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Income Gap, Journalists, Lawmakers, Media, Middle Class, Politics, President Obama, Press, Regulations, Republicans, Right Wing, Tax Increases, Taxes, Unemployment, Wealthy | , , , , , , , , | Leave a comment

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