Brad DeLong takes an odd sort of victory lap:
On all of these issues, historically-minded economists were right. Those who said that there would be no downturn, or that recovery would be rapid, or that the economyâ€™s real problems were structural, or that supporting the economy would produce inflation (or high short-term interest rates), or that immediate fiscal austerity would be expansionary were wrong. Not just a little wrong. Completely wrong.
Of course, we historically-minded economists are not surprised that they were wrong. We are, however, surprised at how few of them have marked their beliefs to market in any sense. On the contrary, many of them, their reputations under water, have doubled down on those beliefs, apparently in the hope that events will, for once, break their way, and that people might thus be induced to forget their abysmal forecasting track record.
So the big lesson is simple: trust those who work in the tradition of Walter Bagehot, Hyman Minsky, and Charles Kindleberger. That means trusting economists like Paul Krugman, Paul Romer, Gary Gorton, Carmen Reinhart, Ken Rogoff, Raghuram Rajan, Larry Summers, Barry Eichengreen, Olivier Blanchard, and their peers. Just as they got the recent past right, so they are the ones most likely to get the distribution of possible futures right.
Which of Paul Krugman’s conflicting predictions were right? He makes a lot of predictions. How can you determine before the fact which one will be right?
My view of Dr. Krugman is that when he speaks as an economist he’s frequently, maybe generally, right but that when he speaks as a columnist and on matters of politics and policy he has a sort of reverse infallibility: he’s practically always wrong.
Dr. DeLong goes on to list some of the things that have surprised him during the downturn and its aftermath. Read the whole thing.
The single thing that has surprised me the most among economists over the period of the last five years is that they have failed to realize that bubbles don’t just inflate asset prices, they inflate wages, too. That further implies that lack of flexibility in lowering wages as the air is let out of the bubble will induce unemployment and varying inflexibility among different sectors of the economy will induce distortions.