Tuesday, March 25, 2008

Kudlow/Luskin Flip-Flop Fast On Fed&Inflation

It sure didn't take long for Larry Kudlow to again flip-flop on the Fed and inflation. After praising Bernanke's shock and awe monetary policies for months, Kudlow earlier this month flip-flopped -without acknowledging that he had changed his mind- and began to criticize the Fed for lowering the value of the dollar. He also explicitly called for Bernanke to be replaced as Fed chairman. Now he flip-flops back into a pro-Bernanke mood, calling Bernanke "my kind of guy" and even "my new best friend", while praising Bernanke's policies.

Why this change of opinion? Well, judging by the length he gives the subject, his main motive appears to be that he personally gains from lower interest rates. He also criticizes the so-called tax rebate because he will probably not gain from it. Well, Larry, I understand you want more money, but your personal financial gains aren't something which is of interest to the rest of us. Indeed, to the extent it results from government redistribution as in these cases, it is more likely an argument for others to oppose that policy.

But what about the inflationary impact he seemed to worry about just three weeks ago? No need to worry, apparently, because Donald Luskin has flip-flopped on that issue. Yeah, that's really convincing. No factual arguments, just an appeal to authority. And we're not even talking about an authority which has proven reliable. After all, Luskin has been proven wrong about basically everything except for inflation.

Now, it is not necessarily wrong to change your assessment of the economy. If the facts change, then so should your assessment. And of course, if Bernanke changed his policy from being a new Arthur Burns to being a new Paul Volcker, then I too would change my outlook on inflation. However, no such change in facts has appeared, so I suspect that this is related to Luskin's betrayal of Ron Paul and joining of the John McCain campaign. As a McCain supporter he is of course expected to fully embrace the standard Republican line of the economy being great in all aspects and the Fed doing right and so on. Luskin has always argued for a bullish view of the U.S. economy, which is why (along with his unfair and hateful personal attacks on fellow Ron Paul adviser Peter Schiff, who unlike Luskin has been consistently right about the U.S. economy, which is likely why Luskin hates him) I was somewhat suspicious of him joining the Paul campaign, but since he at least was an inflation hawk and appeared sincere in his support I was willing to give him the benefit of the doubt. But that was apparently a mistake, and now he has most likely abandoned his hawkish views in order to fit in even more consistently than in the past with the standard Republican economic world view. In line with that, he has also praised the Fed's bailout of failed Wall Street bankers.

But of course, his official reason for flip-flopping on inflation isn't that he has to adjust his views in line with the McCain campaign. His official reason is instead that the Fed chose to cut by only 75 basis points last week instead of the expected 100. This, according to Luskin changes everything. Yeah, that's right, Luskin actually claims that a move to reduce interest rates by 75 basis points represents a kind of hard money policy, never mind the fact that 75 basis point cuts is in a historical perspective unusually big and that it comes on top of a cumulative 225 basis points the previous 6 months, not to mention the fact that this comes at a time when money supply growth is very high. Does he really expect us to take this seriously? Luskin's web site is as you might know called "poorandstupid.com". What is clear is that either Luskin himself is stupid or he thinks that his readers are stupid. And what is also clear is that anyone who follows Luskin's investment advice will become poor (or at least poorer). So, the only thing right about Luskin these days seem to be how very appropriate the name of his web site is.


Blogger Wille said...

Rule no 1:
Never, ever listen to economic journalists, in particular American economic journalists.
Not only are they hacks that couldn't cut it doing anything else than parroting others, but they also are out to sensationalize everything to make it "entertaining".

1:06 PM  

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