Warren Harding and the Emperor Diocletian


Paul Krugman is an Op-Ed columnist for The New York Times.

Six years and counting since we hit the zero lower bound, Keynesian macroeconomics has been quite successful. It predicted low inflation despite huge increases in the monetary base, low interest rates despite big budget deficits, severe negative output effects from fiscal austerity; and if you don’t think these predictions mean anything, go back and look at the ridicule heaped on those of us making them at the time. But anti-Keynesians won’t take yes for an answer. Partly this involves claiming that Keynesians said things they never did

But it also involves invoking Warren Harding. Seriously.

Two things to say about the bizarre citation of the 1921 economic recovery as somehow refuting everything we’ve learned about macroeconomics since then. First, we’ve already been over this, here and here. The 1921 thing is of no use precisely because it looks like the kinds of recession where the Fed creates a slump with tight money, then relents; the whole point about 2007 onwards — predicted in advance — is that it was a postmodern recessioncaused by private-sector overreach, and therefore much harder to end. Anyone trotting out 1921 at this late date, with no reference to the discussion we’ve already had on the subject, is just lazy.

Second, there is a familiar phenomenon here, in which a certain kind of would-be economic expert loves to cite the supposed lessons of economic experiences that are in the distant past, and where we actually have only a faint grasp of what really happened. Harding 1921 “works” only because people don’t know much about it; you have to navigate through some fairly obscure sources to figure out that it’s a tight-money recession that ended when the Fed reversed course. And the same goes even more strongly — let’s say, XII times as strongly — when, say, Ron Paul starts telling us about the Emperor Diocletian. The point is that the vagueness of the information, and even more so what most people know about it, lets such people project their prejudices onto the past and then claim that they’re discussing the lessons of experience.

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