While I don’t agree with Melzer’s historical prescription – just have a look at Japan’s total credit market debt to figure out why – Jonah Goldberg brings our attention to a legitimate “appeal to my own authority” slap-down of an economist who likes nothing better than to do the same:
After I published a piece in the New York Times op-ed page warning of future inflation (see: “Inflation Nation“), Paul Krugman claimed to offer me a “history lesson” on his Times blog (see his post: “A History Lesson for Alan [sic] Meltzer“).
In the piece I argued that no country with rapid money growth, a large budget deficit, and an expected depreciation of the exchange rate has ever experienced deflation, always inflation. He claims Japan’s “lost decade” as a counterexample. It is not. I am very familiar with Japan during this period—I served as honorary adviser to the Bank of Japan and met often with the then Governor Hayami. He opposed using monetary expansion, and I did not convince him that he was making a mistake. In the midst of the deflation, he raised the interest rate to avoid “sloppy” money markets. That was the wrong thing to do as several of us told the Bank of Japan at the time.
When Governor Fukui replaced Governor Hayami, he carried out the policy that I had urged Governor Hayami to follow. He bought long-term bonds. The deflation ended, contrary to the advice of Professor Krugman, who claimed at the time that monetary policy was in a “liquidity trap” and useless.
The amusing thing about Paul Krugman isn’t that he’s so reliably wrong. It’s that he so readily forgets how reliably wrong he was.