Cogan, Taylor, and the Confidence Fairy, by Paul Krugman: Ugh. And I say that advisedly. John Cogan and John Taylor have a piece in the WSJ (where else) arguing that the latest Ryan budget would actually be expansionary, because confidence! It’s as if all the experience of recent years, in which the confidence fairy has yet to make an appearance, hasn’t happened.
But this is fairly standard; why the ugh?
Partly because the Ryan budget is so obviously ludicrous; it’s distressing to see credentialed economists lending support to the thing.
But also because Cogan and Taylor make a basically dishonest claim about the state of research. Reading them, you’d think that anyone who believes that contractionary policy is contractionary is just a simpleton who doesn’t know about expectations...
Actually,... the notion that Keynesians don’t believe that expectations of future conditions affect decisions today is … strange. Both old Keynesian and new Keynesian models — like Mike Woodford, whom they appear never to have read — are very much about expectations.
In fact, the only interesting question here is why their results are so different from Woodford’s. ...
Anyway, sad stuff to see, and a disservice to readers.
And, in a follow-up post
Demystifying Taylor’s Confidence Fairy (Wonkish): I was wondering, but Noah Smith does the work. ...
Of course, none of this matters to most WSJ readers; this stuff confirms their prejudices, and that’s all they care about. Still, they should know that what they’re getting isn’t what “modern macroeconomics” says; it’s just what a couple of guys who are actually very much at odds with many other modern macroeconomists say.
They claim that if we restrain government spending, "the economy would start to grow right away." But we have already restrained spending considerably, and the promised growth hasn't appeared.
It reminds me of the growth we were promised after the Bush tax cuts. We're still waiting for that.