Why neoliberalism is the dance that has no music:
Calculated Risk points us to a speech by Kevin Warsh that strikes me as almost the perfect illustration of the predicament we’re in, in which policy is paralyzed by fear of invisible bond vigilantes. Warsh isn’t an especially bad example — but that’s the point: this is what Serious People sound like these days.Really, this is the point. In the absence of its ideological apparatus, neoliberalism has become exactly what the first Bush called it: voodoo economics.
The bottom line of Warsh’s speech — although expressed indirectly — is that it’s time for fiscal austerity, even though the economy remains deeply depressed; and no, the Fed can’t offset the effects of fiscal contraction with more quantitative easing. In short, the responsible thing is just to accept 10 percent unemployment.
And why is this the responsible thing? On fiscal policy,
market forces are often more certain than promised fiscal spending multipliers.
Um, but those market forces are currently willing to lend money to the US government at an interest rate of 3.05 percent. But never mind:
unanticipated, nonlinear events can happen
So it’s these “unanticipated, nonlinear events” that are “more certain” than the direct effects of fiscal policy? I’m confused.
So what we’ve got here is an assertion that bad things will happen if you do certain things, without either any evidence to that effect or any explanation of why those things should happen. Yes, maybe bond markets will punish us if we don’t slash spending right now; also, maybe we’ll have bad luck if we step on cracks, or fail to turn aside when Basement Cat crosses our path. But why does this pass for judicious policy discussion?