Every so often I make a list of economists who recognized that money was actually rather tight last year; or at least that a more expansionary policy could have greatly reduced the severity of the recession.  Of course it is hard to draw sharp lines, as there are almost as many different views as there are economists.  For instance Tyler Cowen recently suggested that about 1/3 of the downturn was due to the drop in nominal spending.
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I was in a bad mood when I wrote my last post on Mr. Fisher.  I turned 54 that day and would have rather been spending the time with my family.  This is another foul-tempered post.  But don’t worry it’s (relatively) short, and I’ll do one soon on the thinking man’s sex symbol (Scarlett Johansson.)
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I just checked Econlog, and there are two more posts challenging my views.  One is on monetary policy, the other on utilitarianism.  Let’s start with Arnold Kling, who claimed that the Fed is not able to quickly change the inflation rate, at least with conventional policies that exclude cases such as hyperinflation.  I responded with examples like 1921 and 1933, where powerful, clearly identified monetary policies did quickly change the inflation rate, and also the NGDP growth rate, which is what I am actually interested in.  Here is his response:

Beware of proof by selective example. Some thoughts:

1. The monetary regime in 1920-21 was different than today’s regime. It could be that relative to the gold standard, prices had risen way too much in 1919, and everybody knew it. That would have made it easy to bring prices back into line.

2. As to the 1933 episode, what was the long-term impact on general wages and prices? In the short run, the wholesale price index (WPI) can be dominated by commodity prices, which are volatile. Today, in order to gauge the trend of inflation, economists use broader price indexes, and they remove changes in food and energy prices in order to focus on “core inflation.” I wonder how “core inflation” behaved during the episode in question.

3. I can do “proof by example” going in the other direction. Consider how long it took for inflationary expectations to rise from the early 1960’s to the late 1970’s. Consider how long it took for inflationary expectations to fall from 1980 to 2000, even though the “regime change” under Paul Volcker was sharp and highly publicized.
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Now I’m really angry.  Maybe it comes from studying the Great Depression, and reading all those smug Wall Street types from the 1930s who heaped scorn on the “academic scribblers” who thought deflation was caused by tight money.  The people who thought monetary policy was all about interest rates and credit channels and lending.  As if Zimbabwe wouldn’t have been able to create hyperinflation without a smoothly functioning credit system.  Of course when FDR won he ignored Wall Street and turned to an economist named George Warren, who convinced him that monetary policy wasn’t about banks, it was about determining a path for the price level, for the value of money.  Something our modern Fed has resolutely refused to do, despite a widespread consensus among the world’s best economists (including Bernanke) that we need to set an explicit target, and try to hit that target.
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I’ve already done three posts on this.  One on the EU elections, one on the Indian elections, and one on the Argentine elections.  But each time you socialists and pessimistic libertarians keep telling me I am wrong.  So I’ll just have to keep doing them until people get so sick of it they stop commenting.  As this article shows, today the conservatives won a big victory in Germany. When I discussed the sweeping victory of the right in the last EU elections, some commenters pointed out that it might represent an anti-immigrant vote, not a pro-free market vote.  OK, I’m ready this time.  Let’s take a closer look.
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Part 1:  Why is Svensson silent?

In previous posts I have struggled with trying to understand why other economists don’t speak out for easier money.  If you look at Krugman’s writings on liquidity traps it would seem that he should support a more expansionary monetary policy.  More specifically, he should support an explicit inflation target.  And perhaps he does; but he almost never chooses to talk about it.  Another example is Frederic Mishkin, his four key principles of monetary theory underlie my entire argument.  But in a May 2009 AER article he had nice things to say about recent Fed policy.  Yesterday Marcus sent me a paper by Lars Svensson which provided by far the starkest example of this phenomenon.
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Ever since I went to China I seem to have been in a perpetual struggle to keep up.  One of the things I feel most guilty about is that I haven’t had much time to follow Bill Woolsey’s new blog, entitled Monetary Freedom.  By now many of you may have already read it, but those who haven’t should take a look.  From the very beginning Bill has been my most supportive commenter.  And he has similar (though not identical) views on monetary policy errors by the Fed.
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I just got back from a very satisfying trip to GMU, where I met a lot of my favorite economists.  I’ll say more about the trip when I have time, but upon returning I found I was being bombarded on all sides.  I feel like I am in a boat that has more holes in the hull than I have fingers to plug them.  Interested readers might want to check out my ongoing debate on Cato Unbound, where I fend off several reviewers.  You’ll see all the replies in the right margin.
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Because I head to George Mason University tomorrow, this will be my last post for a while.  You might want to follow the discussion on Cato Unbound, where I will be posting replies to Hamilton, Selgin and Hummel.

Right after my last post extolling the virtues of Swiss-style democracy I read Bryan Caplan’s persuasive attack in The Myth of the Rational Voter.  He argues that voters aren’t just misinformed; rather they hold deeply ingrained biases that lead them to make poor public policy decisions.  Naturally I wondered if this refuted my argument.  I don’t think it does, but it weakens it a bit.
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Next week I go to George Mason University  (which is suddenly my favorite economics department) to present two papers.  On Tuesday I will talk about the relationship between cultural values and neoliberal reforms.  I have already discussed part of that paper on this blog, and will try to do the Switzerland chapter in a few days.  On Wednesday I present a paper on the current crisis.  I had grand ambitions to write this paper in China, but it was a struggle to even keep the blog afloat.  So now I am under pressure to get something done quickly.

I think the best solution is to present a slightly modified version of my recent Cato paper.  This paper is to be discussed by three distinguished economists over the next week; first James Hamilton (of econbrowser.com), then George Selgin, and finally Jeffrey Hummel.  Then we will have a discussion.  It should be a lot of fun, and if I am not able to fully discuss their comments at Cato Unbound (I don’t know if there are space limits) I might add a few comments here.

But then it occurred to me that I really needed to do more than talk about my view of the crisis, I also needed to discuss why almost all other economists are wrong.  (I know that sounds ridiculously arrogant.  Obviously by “wrong” I simply mean “disagree with me.” )

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Lenin’s famous question sounds a bit pompous, but this post will actually be a plea for modesty.  When I started this post I intended to produce a grand survey of morality, politics and economics, plus an in depth discussion of Switzerland.  Fortunately for you guys I don’t have my Switzerland data here with me in China, so the post will be merely overly long, not absurdly long.  I’ll do a follow-up post later on Switzerland.

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The title is a play on Paul Krugman’s recent NYT piece “How did economists get it so wrong?”  Krugman has a lot to say, but because he dances around the two key issues his essay doesn’t add up to much. 
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Despite the total lack of interest in my Chinese arts post, I continue today under the common traveler’s illusion that the folks back home are anxiously awaiting descriptions of the most trivial incidents on my trip to China.

The official populations of Shanghai, Beijing and Tianjin are about 19 million, 17 million and 12 million.   But in China the official figures are misleading, as they include a large rural hinterland.  The metro populations of these three cities are more like 17 million, 13 million, and 8 million; which is a bit less than metro NYC, LA, and Chicago, respectively.  BTW, the most absurd example of this problem is the newly created ”city” of Chongqing, which likes to brag that its official population is 30 million.  Yes, but only about 6 million actually live in the metro area; it includes a vast rural population and lots of other distant cities.
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Before answering this question, let’s first examine what has happened over the past 20 years.

1.  The world has gotten much more peaceful.  I recall reading that the last couple years were the most peaceful in all of human history (and pre-history for that matter.)  Perhaps someone can find the article.

2.  The world has gotten much more democratic.  The number of democratic countries has soared at the fastest rate in history, by far.

3.  The world has gotten much more market-oriented.  There has been a huge wave of privatization and deregulation of prices and market access.  And this trend extends far beyond the formerly communist countries.
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Shanghai is universally regarded as “the New York of China.”  So I had naturally assumed that its arts scene was more sophisticated than that of  ”the Washington DC of China.”  Just the reverse.
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