Awful Krugman Post

Paul Krugman posts today on Japan, and it was not up to his usual high standards. He says the lessons from Japan's 17 years of deflation are:

1. Deflationary traps are real, because fighting deflation is really hard — just printing money doesn’t do it.

2. In the face of deflation, central bankers are remarkably creative at finding reasons to tighten. That doesn’t mean that they actually prefer deflation.

But we cannot really say that we learned that "just printing money doesn't do it" b/c Japan only printed $300 billion, and when they did, their economy briefly got better, at which point they foolishly reversed the policy, at which they fell back into recession. Maybe printing money doesn't help get rid of deflation (I don't see how this can possibly be the case, however...), but there's nothing in the Japan case which shows this. The raw correlation says precisely the opposite -- that printing even small amounts of money, such as $300 billion, has large effects, as during Japan's QE stage, deflation went from 1% to 0%, although of course that's just correlation...

#2 is spot on. The utter stupidity of our Fed is really something to behold... Nevertheless, it pales in comparison to the utter stupidity which has gone on in Japan for the past 17 years, or in Europe. The economics profession is a failed enterprise.