Krugman on motivated reasoning in economics

He's right about this, and the pattern extends well beyond positions on inflation. Consider the employment effects of the minimum wage, or the wage effects of immigration. Economists who study these issues tend to be on one team or the other, and their careful and "objective" empirical analysis will more often than not support their team's views. A challenge for anyone who wants to believe in technocracy.

This says something uncomfortable about the economics profession: We’re supposed to be doing dispassionate analysis, but the fact that most economists are consistently either inflation optimists or inflation pessimists whatever the circumstances suggests that somebody is suffering from motivated reasoning. (But not me. I, of course, am totally objective. OK, I do sometimes catch myself engaging in motivated reasoning. But I try to fight it.)

Economic malaise and blame

This post from Paul Romer sums up my own impression of current macroeconomic conditions in the United States, which are not all that bad but widely perceived to be so, and for which it is predicted that Biden will be blamed by the voters even though little of it is his fault or under his control. The Fed appears to be planning to make matters worse. Grrr.

Whither inflation?

Today's New York Times headline and graph bugged me– nothing new there. The headline inflation number for December is 7.1%, which is calculated comparing prices (CPI) to December a year ago. Given the volatility of monthly inflation rates, smoothing by cumulating over 12 months of changes is not necessarily a bad idea, but it can give a very misleading idea of what inflation is doing right now. For example, if inflation had come to a screeching halt, and between November and December prices had not increased at all, the headline number compared to a year ago would still be about 6.5%, which looks pretty bad compared to the recent past. In fact, inflation for the month of December was still significant and concerning, running at over 5% annually, but it shows some evidence of having peaked. Kevin Drum has a nice graph illustrating this, which I reproduce below (see the blue line for monthly changes). I don't have a strong opinion about what will happen with inflation in the coming months, but the way the Times frames the numbers is alarmist and feeds a gloomy narrative that is not needed or warranted right now. [Addendum: More detail from Menzie Chinn]