Joe Weisenthal is wrong. He writes that the unfolding economic disaster in Europe is what everyone predicted. Not so. It’s what he predicted, it’s what I predicted, but it’s not at all what many people were predicting. And the people who got it completely wrong happen to be the people still running European economic policy.
As Jonathan Portes points out, it is now more than two years since Olli Rehn declared that
Europe’s recovery in the real economy has taken hold and is becoming self-sustaining.
Rehn is still in place at the European Commission, and is still telling us that austerity will work any day now. And he’s not alone. The economics team at the OECD that told us in May 2010 not just that Europe needed fiscal austerity, but that the Fed needed to raise rates 350 basis points by the end of the year to head off inflation is still issuing reports. And then there’s Cameron/Osborne.
Readers sometimes complain about my frequent references to the things my friends and I got right, and others got wrong. But look, it’s not ego (or anyway it’s not just ego). Predictions are how you judge between models. If the world delivers results that are very much at odds with what your framework says should have happened, you’re supposed to reconsider your framework — as I did, for example, after I was wrong about interest rates in 2003.
And the fact is that a more or less Keynesian framework — a framework that says that austerity in a depressed economy is a terrible idea — has yielded pretty good predictions through the crisis, while the anti-Keynesian stories that became the conventional wisdom in Brussels and Frankfurt have delivered an awesome record of predictive failure.
Yet European leaders seem determined to learn nothing, which makes this more than a tragedy; it’s an outrage.