Deficit hawks steered economic policy, but the doves have been proved right

[BurtWorm]

Hawks = Larry Summers/Rahm Emmanuel/Blue dogs/Chamber of Commerce/bag-thingies

Doves = Krugman and more and more, Bernanke (the latter forced to be by reality)

http://www.nytimes.com/2010/11/04/business/04leonhardt.html?_r=1&hp=&adxnnl=1&adxnnlx=1288868596-K6MXsg8APcNboMDvgb4wAg


What’s striking about the last six months, however, is how much more accurate the doves’ diagnosis of the economy has looked than the hawks’.

Early this year, for example, Thomas Hoenig, president of the Kansas City Fed and probably the most prominent hawk, gave a speech in Washington warning about the risks of an overheated economy and inflation. Mr. Hoenig suggested that the kind of severe inflation that the United States experienced in the 1970s or even that Germany did in the 1920s was a real possibility.

When he gave the speech, annual inflation was 2.7 percent. Today, it’s 1.1 percent.

The doves, on the other hand, pointed out that recoveries from financial crises tended to be weak because consumers and businesses were slow to resume spending. Around the world over the last century, the typical crisis caused the jobless rate to rise for almost five years, according to research by the economists Carmen Reinhart and Kenneth Rogoff. By that timetable, the unemployment rate would rise for a year and a half more.

…

All the while, global investors have continued to show no signs of panicking. If anything, as the economy weakened over the summer, investors became more willing to lend money to the United States, viewing its economy as a safer bet than most others.

[BurtWorm]

1. kick