I’ve got my mojo back a bit. And so I’m very eager to write three long and involved articles that need to get done today. But there is so much else to write about. Paul Krugman went on vacation from writing columns for the last week. As I result, I stopped checking his blog. I shouldn’t have. He’s an addict. He just can’t help himself. Anyway, on Friday, he wrote an amazing short post, In Praise of Art Laffer. I am no fan of Laffer. Previously, I wrote of him, “He greatly annoys me, because all he does is smile and babble.” And Krugman doesn’t have a fondness for him either.
But in a recent article in Business Insider, Laffer responded to his 2009 prediction of soaring inflation. For the record: inflation is low: too low, if you ask me or pretty much any reasonable economist. The reason Krugman is praising Laffer is that his response was honest:
This is a big deal because most economists and similar types somehow justify their predictions. One big one is that inflation actually is high and that the government is just lying about it. That, of course, is ridiculous. I go shopping every couple of days and I don’t see prices going up. In fact, I see them as being really stable. Another common excuse is that the Federal Reserve is artificially keeping inflation low by keeping interest rates low and through its quantitative easing program. That has been shown not to be true experimentally. But there are many more excuses to choose from, so it shows a decent amount of intellectual integrity on Laffer’s part to admit his error.
Krugman asks what I think is an honest question, “I do wonder exactly what model Laffer was using.” I think I have an answer for that. Laffer may have at one time been a real economist. But for decades, all he’s been has been a conservative apologist. I don’t think Laffer had any economic model that predicted that inflation was going to soar. It is just that everyone on the right knew that interest rates were going to soar. Think about all the stuff from Alberto Alesina and Reinhart-Rogoff about how economic austerity would cause growth (or at least stop stagnation). Most conservatives (even the economists) just grabbed onto a plausible sounding excuse to justify what they wanted to believe. Look at Greg Mankiw who believed in stimulus under Bush, didn’t believe in it under Obama, and was laying the groundwork to believe in it under Romney.
So I’d be shocked to find that Laffer actually had a model that predicted inflation and wasn’t just following the pack. He believed inflation would soar because Obama was president. Had McCain been elected and enacted the same policies (and as far as I can tell, he would have), Laffer never would have predicted that high inflation was just around the corner. It’s great that Laffer is admitting straight up that he was wrong. But I’m sure that his next “model” will simply be what all the other conservatives are pointing to as the reason why things always go to hell when a Democrat is in the White House.