Airbrushing Austerity: Ken Rogoff weighs in on the secular stagnation debate, arguing basically that it’s Minsky, not Hansen — that we’re suffering from a painful but temporary era of deleveraging, and that normal policy will resume in a few years.
As far as I can tell, however, Rogoff doesn’t address the key point that Larry Summers and others, myself included, have made — that even during the era of rapid credit expansion, the economy wasn’t in an inflationary boom and real interest rates were low and trending downward — suggesting that we’re turning into an economy that “needs” bubbles to achieve anything like full employment.
But what I really want to do right now is note something else, which is visible in the Rogoff piece and in many other things one reads lately — a backward-looking view of the austerity fever that swept policymaking circles in 2010 and airbrushes out the reality of intellectual folly. You see this sort of thing when people who predicted soaring interest rates from crowding out right away now claim that they were only talking about long-term solvency; when people who issued dire warnings about runaway inflation say that they were only suggesting a risk, or maybe talking about financial stability; and so on down the line.
So, in Rogoff’s version of austerity fever all that was really going on was that policymakers were excessively optimistic, counting on a V-shaped recovery; all would have been well if they had read their Reinhart-Rogoff on slow recoveries following financial crises.
Sorry, but no — that’s not how it happened. ...