Today's rant about Matthew Yglesias and Ben Bernanke is indirect.
Kevin Drum decided to quote Matthew Yglesias, so I left my usual tirade in his comments section.
Here it is
I tend to freak out when Matt Yglesias writes that stuff. He is unwilling to distinguish Greenspan and Bernanke. He assumes that all Republicans are just the same. This is definitely his methodology and it is utterly insane. Greenspan is an acolyte of Ayn Rand (part of her tiny inner circle) Bernanke is a brilliant moderate. The unquestioned assumptino that they are just the same is insane nonsense.
Much much worse, Yglesias simply assumes that a "more expansionary" monetary policy would have lead to lower unemployment. Now he is debating Paul Krugman who claims that such a policy is not feasible (it would require the ability to precommit to making inflation high when unemployment is low and there is no way anyone can convince anyone that he will do that).
In fact during the long period in which Yglesias has been criticizing Bernanke, the Fed instituted QE2. This is not a huge intervention compared to other interventions by the Fed under Bernanke, but it is a much huger expansion of high powered money than any ever under any previous chairman. It had no measurable effect on anything.
Yglesias just refuses to consider the possibility that monetary policy might be less effective when the Federal funds rate is essentially zero than when it is over 10%. He doesn't argue that there is something more which would have worked (more than $ 500,000,000,000 created by fiat as no one ever had done before Bernanke). He just assumes that he understands monetary policy better than Paul Krugman. Now I am no expert, but I can tell that Yglesias is much less an expert than I am. His belief that current Fed policy is not extremely radically expansionary by the standards of all central bankers post Rudolf Havenstein shows that.
I notice two very different assertions : That since the 70s the Fed has placed more emphasis on low inflation than low unemployment and that since 1987 the chairman of the Fed has been a Republican. Notice the difference. Just as Bernanke has been the most radical stimulator in the Fed ever, Paul Volker was the most ruthless inflation fighter. The shift from aiming for full employment to ignoring unemployment and considering only inflation occured on the day when registered Republican G. William Miller was replaced by Volker. Inflation phobia does not correlate with party affiliation among economists. Fed policy now is of different importance than Fed policy in 2008-9 (when Bernanke and Paulson saved the world economy and it was very very critical) and from normal times when the Fed isn't pedal to the metal.
I generally admire Yglesias, but on this topic he reminds me of a supply sider. They said tax cuts would cause wonderful things. They got the tax cuts and nothing wonderful happened. This didn't boether them at all. Yglesias calls for expansionary monetary policy. There was more expansion that ever under any fed chair before Bernanke. Nothing wonderful happened. Yglesias is not disturbed in the slightest.
What could possibly convince you guys ? I ask for information. I just can't see how your statements about montary policy now can possibly be influenced by evidence given your apparent indifference to the data.
Look at real interest rates. When did QE2 occur ? 500,000,000,000 in fiat money is a LOT. Total liabilities of the Fed were only 800,000,000,000 when Bernanke took over. So far he has tripled them. You conclude that he is a class enemy who only cares about inflation and doesn't care about unemployment.
End of comment over there.
Now I realize one of the reasons that the Drum/Yglesias view seems so odd to me. Economists tend to agree that monetary policy can't affect the unemployment rate averaged over a long period of time. There are new classicals who now assert that monetary policy has no effect and new Keynesians who think it can affect the spread of unemployment around its long run average. The belief that there isn't a long run unemployment inflation tradeoff is very very strong. This is what would be needed for the Drum/Yglesias hypothesis to be valid.
Also when Greenspan was Fed chairman we had very low unemployment and very rapid employment growth for a while. It was widely argued that inflation was about to increase so the Fed should tighten. Grennspan didn't tighten. He was wetter, more expansionary and better for workers than the average registered democrat macroeconomist.
The story of progressives passively accepting tight monetary policy just doesn't fit the facts. Monetary policy was perceived to be very loose by everyone who had an informed opinion on the subject (as it is currently perceived to be about as loose as it can possibly be).
Totally aside from the claims about Bernanke (which seem totally insane to me) the claims about Greenspan don't fit the facts as perceived by anyone who was paying attention at the time.
I think very very highly of both Drum and of Yglesias and I am totally befuddled.