JONATHAN CHAIT AUGUST 30, 2011
With David Frum moving in on my dissecting Wall Street Journal editorial territory, and now Zack Beuachamp cutting in on my patented role of pointing out Pete Wehner's hackery, it becomes all the more vital that I cling to my role of ridiculing Stephen Moore, the Journal's lead economics editorial writer and my most cherished foil.
Moore's latest column argues that President Obama's economic program has failed and that President Reagan's succeeded, ergo Keynesian economics is wrong and supply-side economics is correct. Moore begins by asserting that Keynesian economists predicted that the 1980s recovery was impossible:
The Godfather of the neo-Keynesians, Paul Samuelson, was the lead critic of the supposed follies of Reaganomics. He wrote in a 1980 Newsweek column that to slay the inflation monster would take "five to ten years of austerity," with unemployment of 8% or 9% and real output of "barely 1 or 2 percent."
Moore has repeated this quote, or versions of it -- he has occasionally described it as a Samuelson interview rather than a column, or as having occurred in 1979 rather than 1980 -- on multiple occasions. He used it in a 1993 National Review article ("Clinton's Dismal Scientists,") a 2000 American Enterprise piece ("Thank You, Ronald Reagan,") his 2008 book ("The End Of Prosperity,") an October 2009 American Spectator piece ("Not-So-Gentle Ben,") and of course the recent Journal column.
The funny thing is, having obtained the column, Samuelson does not make anything like the argument Moore has attributed to him all these times. In the column, Samuelson laid out a series of possible responses to stagflation, without advocating for one over the other. Moore quotes one possible policy option Samuelson described. But Samuelson absolutely did not say this was the only way to stop inflation. He also described another possible course of action:
The Federal Reserve and Administration authorities can abandon their gradualism, and act now to tighten credit fiscal policies severely. ... That could mean prime rates that rise briefly to 20 percent, a decline in the monetary aggregates for several months, and a drastic rein on non-defense spending this year.
That is, in fact, what happened in 1982. It worked as Samuelson predicted in the column. Now, it is true that Samuelson called for fiscal tightening when the Reagan administration instead increased the deficit. But the general picture of inducing a recession in order to crush inflation followed the pattern Samuelson laid out.
Proceeding from this false, though well-worn premise, Moore argues that the failure of Obama's recovery is an indictment of his policies, though Moore does not say which ones. (Keeping the Bush tax cuts in place is presumably not the problem Moore has in mind.) Instead, Moore ridicules the favored theory of the left:
The left has now embraced a new theory to explain why the Obama spending hasn't worked. The answer is contained in the book "This Time Is Different," by economists Carmen Reinhart and Kenneth Rogoff. Published in 2009, the book examines centuries of recessions and depressions world-wide. The authors conclude that it takes nations much longer—six years or more—to recover from financial crises and the popping of asset bubbles than from typical recessions.
In any case, what Reagan inherited was arguably a more severe financial crisis than what was dropped in Mr. Obama's lap. You don't believe it? From 1967 to 1982 stocks lost two-thirds of their value relative to inflation, according to a new report from Laffer Associates. That mass liquidation of wealth was a first-rate financial calamity. And tell me that 20% mortgage interest rates, as we saw in the 1970s, aren't indicative of a monetary-policy meltdown.
There are a couple comical details here. The notion that Reinhardt and Rogoff speak for "the left" is pretty hilarious. Anyway, their theory is that financial crises lead to much slower recoveries than other kinds of recessions. The entire premise of their argument, in other words, is that a recession caused by a financial crises is fundamentally different than other kinds of recessions.
Moore responds to this by asserting that the period leading up to 1982 was really bad. Well, yes. Recessions are bad. Moore does not explain why the Federal reserve-induced 1982 recession qualifies as a financial crisis, which is the whole definitive crux of Reinhart and Rogoff's thesis.
If you read Moore's entire column, you'll see that I'm not nibbling around the edges of his thesis. That is his entire thesis -- falsely assuming that Keynesians could not account for the 1980s recovery, and then missing the whole point of the Reinhart/Rogoff argument. This is the country's leading financial newspaper!