Conservatives for Pele
Many cultures throughout human history, baffled by the origins and causes of natural phenomena, have come to devise bizarre and exotic explanations for them. Lacking a thoroughgoing understanding of planetary formation, plate tectonics and fluid dynamics, even cultures as advanced as the Romans had Vulcan, god of fire, from which the English word volcano is derived. And while tossing virgins into craters is largely a Hollywood invention, many cultures have practiced low-impact sacrifices, including Hawaiians to Pele and Indonesians to Mount Bromo.
In the West, several centuries of scientific tradition have eliminated most such practices. A few persist, however – among the most remarkable is conservatives’ belief that, during recessions, natives should sacrifice government services and jobs to appease mighty Inflation, a modern-day analog to Pele.
Science progresses in a similar fashion across most disciplines. Data are collected; theories are offered to explain the data. Those theories are then used to generate new predictions. New data are collected, and if it squares with prediction, then the theory is said to have been substantiated, and is strengthened. But if the it goes off in some other direction, the theory must be retooled, if not discarded.
The problem with conservative macroeconomists is that, as their models have been contradicted again and again by newly arriving data, they hold fast to their theories – a practice more akin to religion than science; as their theories become more and more like religious beliefs. Philadelphia Fed President Charles Plosser is the poster child for scientists-turned-theologians. He began worrying publicly about “imminent” inflation back in April 2008. Six and a half years later, while US inflation has averaged 2% annually, Plosser is still worrying, unfazed that his one-time theories – now, more aptly described as dogmas – have fallen and cannot get up.
Martin Feldstein, Reagan’s first chief economic adviser, has a similar record. Feldstein, who left the Reagan Administration because they werent sufficiently conservative, started worrying about inflation in 2009, and is still beating the drum. The repeated failure of his economic models to predict the low inflation that the US has seen over that period has not motivated him to find a model that actually works.
Theories exist to explain the data we have, and to predict the data we hope to gather. That’s it. A theory that fails in both respects should not be kept around to stink up the house like some beloved-but-incontinent family dog. Bad theories need to be euthanized to let the discipline move forward. Clinging to old, failed theories can have terrible consequences. The practice literally killed George Washington, whose doctors bled him to death to “treat” his cold. Doctors bled patients for centuries, until sound scientific methods demonstrated the procedure’s destructiveness.
Some commentators have mockingly dubbed the policies of inflation-phobic economists as “sado-monterism.” It’s expressed as a preference for high interest rates and budget cuts in the face of a weak economy, in the absence of inflation or even its threat. It is in fact very much like bleeding a sick patient, in that it strikes at the economy’s very ability to correct itself, by making capital scarce and spending weak when both are needed most.
Belief in gods of volcanoes and inflation survive via the same process: shoddy reasoning. Economists like Plosser and Feldstein, and the entire governing council of the European Central Bank, are probably no more or less dishonest or well-intentioned than the people who worshiped Pele. Like 18th century Hawaiians, they’re just exceptionally poor scientists.
Plosser 2008: http://blogs.wsj.com/economics/2008/04/18/fedspeak-highlights-plosser-on-inflation-and-fed-actions/
Plosser 2013: http://www.marketwatch.com/story/plosser-inflation-risks-unless-fed-tightens-2013-01-11
Plosser 2014: http://www.cnbc.com/id/101938255
Feldstein 2009: http://www.ft.com/cms/s/ae436dbc-2d09-11de-8710-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fae436dbc-2d09-11de-8710-00144feabdc0.html%3Fsiteedition%3Duk&siteedition=uk&_i_referer=#axzz3DyoytYZ9
Feldstein 2014: http://online.wsj.com/news/articles/SB10001424052702303978304579471472849459860
This post’s title is a tribute to Boys for Pele, among the greatest pop albums ever recorded.