CT Blue

Much like fuzzy math, except this time it’s really fuzzy, not fake fuzzy like Bush’s.

In this morning’s Times, writing on behalf of the usually superb ProPublica, Jesse Eisenger defends the hedge fund guys that have been attacking the Fed and takes to task the economic bloggers that have been having a field day making fun of them.

Many hedge fund managers have been predicting that high inflation and fleeing creditors would send interest rates skyrocketing. Stanley Druckenmiller, Paul Singer, J. Kyle Bass and David Einhorn — all big names in the investing world — have warned against the supposedly runaway central banker. Mr. Druckenmiller said that Mr. Bernanke was “running the most inappropriate monetary policy in history.”

And they have been wrong. Those silly hedge fund managers. They don’t understand macroeconomics! As Paul Krugman (and many others) have explained, the lack of demand explains why there isn’t any inflation and why interest rates haven’t risen despite all the money-printing.

Economists and bloggers have been competing to figure out why these supposedly smart guys are so confused. In an astute post, a Berkeley economist, Brad DeLong, explained his theory: hedge fund managers thought they could muscle the Fed into caving on its big trade, much like they got JPMorgan Chase to cave on the “London Whale” trades. But they fought the Fed, and the Fed won.

(via NYTimes.com)

Lest you think Mr. Eisenger will get around to showing that the hedge fund guys are right after all, I offer the following:

The Druckenmillers of the world have been and will continue to be wrong about a coming debt crisis and runaway inflation. A dose of moderate inflation would help the economy right now. It would spur spending and investment, and ease debtors’ plight.

So, what’s the problem? Why might, as the column’s title says, the hedge fund managers be “right about the fed”. Well, this requires logic almost on a par with the folks at Politifact:

It’s impressive that the Fed and many economists have successfully predicted the path of interest rates and inflation in the wake of the worst financial crisis in a generation. But neither the central bank nor academicians managed to predict or prevent the crisis in the first place. The failure dwarfs the accomplishment.

I was actually disappointed to see that Krugman had written on this, since I had intended to do so when I read the thing this morning, but I had to work, so he beat me to it. Anyway, as Krugman points out here, the argument doesn’t wash even if you accept the factual premise. But it does seem sort of weird logic to state that since Alan Greenspan screwed the pooch, Ben Bernanke should be criticized, even when he’s doing the right thing. Sort of like saying that you should condemn Obama because Bush screwed up.

It’s also not true, as Krugman does not point out, that no one saw this coming. Some people, such as Dean Baker, clearly did. The fact that none of them had the power to do anything but warn anyone who would listen doesn’t change the fact that they saw it coming, and the fact that they had no ability to influence events is proof of failure on the part of our political system, not on their part.