Beliefs, Facts and Money, by Paul Krugman, Commentary, NY Times: ...On the eve of the Great Recession, many conservative pundits and commentators — and quite a few economists — had a worldview that combined faith in free markets with disdain for government. Such people were briefly rocked back on their heels by the revelation that the “bubbleheads” who warned about housing were right, and the further revelation that unregulated financial markets are dangerously unstable. ...
Above all, there were many dire warnings about the evils of “printing money.” ... Reality, however, declined to cooperate. Although the Fed continued on its expansionary course ... inflation stayed low...which was exactly what economists on the other side of the divide had predicted would happen. ...
So those who got it wrong went back to the drawing board, right? Hahahahaha.
In fact, hardly any of the people who predicted runaway inflation have acknowledged that they were wrong... Some have offered lame excuses; some, following in the footsteps of climate-change deniers, have gone down the conspiracy-theory rabbit hole, claiming that we really do have soaring inflation, but the government is lying about the numbers (and by the way, we’re not talking about random bloggers or something; we’re talking about famous Harvard professors.) Mainly, though, the currency-debasement crowd just keeps repeating the same lines, ignoring its utter failure in prognostication.
You might wonder why monetary theory gets treated like evolution or climate change. Isn’t the question of how to manage the money supply a technical issue, not a matter of theological doctrine?
Well, it turns out that money is indeed a kind of theological issue. Many on the right are hostile to any kind of government activism... — if you concede that the Fed can sometimes help the economy by creating “fiat money,” the next thing you know liberals will confiscate your wealth and give it to the 47 percent. Also, let’s not forget that quite a few influential conservatives, including Mr. Ryan, draw their inspiration from Ayn Rand novels in which the gold standard takes on essentially sacred status.
And if you look at the internal dynamics of the Republican Party, it’s obvious that the currency-debasement, return-to-gold faction has been gaining strength even as its predictions keep failing.
Can anything reverse this descent into dogma? A few conservative intellectuals have been trying to persuade their movement to embrace monetary activism, but they’re ever more marginalized. ... When faith — including faith-based economics — meets evidence, evidence doesn’t stand a chance.