“..And then the crisis came – a crisis that was very much up my alley.
I got obsessed with Japan in the 1990s – and I think can fairly claim to have started the whole modern liquidity-trap literature.
I approached the Japan problem the way I approach just about all economic problems – building a stylized, minimalist model (big pdf) -
- that seemed to make sense of the available facts – and yielded strong conclusions.
But does this style of analysis work in the real world?
Well, events provided an acid test.
If you believed in the little models I and others were using, you made some very striking predictions about how the world would work post-crisis –
- predictions that were very much at odds with what other people were saying.
You predicted that trillion-dollar deficits would not drive up interest rates -
- that tripling the monetary base would not be inflationary -
- that cuts in government spending- rather than helping the economy by increasing confidence -
- would hurt by depressing demand -
- with bigger effects than in normal, non-liquidity trap times.
And the people on the other side of these issues weren’t just academics -
- they were major-league policy makers and famous investors.
And guess what: the models seem to work.
It appears that I wasn’t just a successful self-marketer -
- that I really did and do know something…”
(ed:..so..going on this piece from krugman..key/this govt is doing absolutely everything wrong..eh..?..
..they have got the wrong end of just about every stick..
..still two more years of this madness..
..two more years of going in every which wrong direction..)
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