Fast FT tells it like it is.

But it does tell you something about the difficulty of making use of good economics and good economists. The Riksbank takes on as deputy governor one of the world’s leading experts on precisely the monetary conditions the world now faces; what’s more, he and those of similar views have seen many of those views — views that many people found implausible — vindicated by events since the financial crisis, in what amounts to a remarkable success for economic analysis. And yet the rest of the Riksbank brushes aside everything he says, going instead for gut feelings and sadomonetarist cliches.

And of course Lars was completely right — but the damage may be irreversible.

I’m going to Japan soon, and have been putting some numbers and thoughts together, both about Abenomics and the longer-term lessons from the Japanese experience. Here are some notes on the way.

First, can we stop writing articles wondering whether Europe or the United States might have a Japanese-type lost decade? At this point the question should be whether there is any realistic possibility that we won’t. Both the US and Europe are approaching the 7th anniversary of the start of their respective Great Recessions; the US is far from fully recovered, and Europe not recovered at all. Japan is no longer a cautionary tale; in fact, in terms of human welfare it’s closer to a role model, having avoided much of the suffering the West has imposed on its citizens.

Part of the impression that Japan has been a bigger disaster comes, of course, from Japanese demography: if you look at total GDP, or even GDP per capita, you miss the fact that Japan’s working-age population has been declining since 1997. I’ve tried to update the numbers on real GDP per working-age adult, defined as 15-64; I start in 1993 because of annoying data problems, but it would look similar if I took it back a few more years. Here’s a comparison of the euro area, the US, and Japan:

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So even in growth terms Japan doesn’t look much worse than the US at this point, and is actually slightly ahead of the euro area. That doesn’t mean Japan did OK; it just means that we’ve done terribly.

What about Abenomics? The decision to go ahead with the consumption tax increase — which some of us pleaded with them not to do — dealt a serious blow to the plan’s momentum. There has been some recovery in growth:

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But losing momentum is a really bad thing here, since the whole point is to break deflationary expectations and get self-sustaining expectations of moderate inflation instead. For what it’s worth, the indicator of expected inflation I suggested, using US TIPS, interest differentials, and reversion to long-run purchasing power parity, is holding up:

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But I still worry that Japan may fall into the timidity trap.

The whole business with the consumption tax drives home a point a number of people have made: the conventional view that short-term stimulus must be coupled with action to produce medium-term fiscal stability sounds prudent, but has proved disastrous in practice. In the US context it means that any effort to help the economy now gets tied up in the underlying battle over the future of the welfare state, which means that nothing happens. But even where that isn’t true, talking about fiscal sustainability when deflationary pressure is the clear and present danger distracts policy from immediate needs, and can all too easily lead to counterproductive moves — as just happened in Japan. When I see, say, the IMF inserting into its latest Japan survey (pdf) a section titled “Maintaining focus on fiscal sustainability” my heart sinks (and so, maybe, does Abenomics); it’s hard to argue against sustainability, but under current conditions it means taking your eye off the ball, and Japan really, really can’t afford to do that.

More notes as my cramming for the coming quiz continues.

My friend and old classmate Irwin Collier, of the Free University of Berlin, sends me to an open letter to monetary officials warning of the dangers of printing money and debasing the dollar, claiming that these policies will undermine confidence and threaten to create a renewed financial crisis. But it’s not the famous 2010 letter to Ben Bernanke, whose signatories refuse to admit that they were wrong; it’s a letter sent by Columbia economists in 1933 (pdf):

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It’s all there: decrying inflation amid deflation, invocation of “confidence”, a chin-stroking pose of being responsible while urging policies that would perpetuate depression. Those who refuse to learn from the past are condemned to repeat it.

The Times has a very nice survey of the results to date of the Affordable Care Act, aka Obamacare, aka death panels and the moral equivalent of slavery.

The verdict: It’s going well. A big expansion in coverage, which is affordable for a large majority; the main exceptions seem to be people who went for the minimum coverage allowed, keeping premiums down but leaving large co-payments. None of the predictions of disaster has come even slightly true.

OK, an admission: Sometimes it seems to me as if economists and policymakers have spent much of the past six years slowly, stumblingly figuring out stuff they would already have known if they had read my 1998 Brookings Paper (pdf) on Japan’s liquidity trap. For example, there’s been huge confusion about whether Ricardian equivalence makes fiscal policy ineffective, vast amazement that increases in the monetary base haven’t led to big increases in the broader money supply or inflation; yet that was all clear 16 years ago, once you thought hard about the Japanese trap.

And now here we go with another: the role of troubled banks. Europe has done its stress tests, which aren’t too bad; but now we’re getting worried commentary that maybe, just maybe, a clean bill of banking health won’t stop the slide into deflation.

Folks, we’ve been there; in the 90s it was conventional wisdom that Japan’s zombie banks were the problem, and that once they were fixed all would be well. But I took a hard look at the logic and evidence for that proposition (pp. 174-177), and it just didn’t hold up.

I know, I know — blowing my own horn, and all that. But if I am not for myself, who will be for me? And in any case, it has been really frustrating to watch so many people reinvent fallacies that were thoroughly refuted long ago.

Oh, and if people had read my old stuff they might have managed to avoid embarrassing themselves so much in open letters to Bernanke and suchlike.

Et tu, Gavyn? In the course of an interesting piece suggesting that there has been a sustained slowdown in the trend rate of growth, Gavyn Davies declares that

Some version of secular stagnation does seem to be taking hold.

He later acknowledges that there are different meanings assigned to the term; but it’s really important not to feed the confusion. To the extent that secular stagnation is an important and perhaps shocking concept, it really has to be distinguished from the proposition that potential growth is slowing down. What I wrote:

For those new to or confused by the term, secular stagnation is the claim that underlying changes in the economy, such as slowing growth in the working-age population, have made episodes like the past five years in Europe and the US, and the last 20 years in Japan, likely to happen often. That is, we will often find ourselves facing persistent shortfalls of demand, which can’t be overcome even with near-zero interest rates.

Secular stagnation is not the same thing as the argument, associated in particular with Bob Gordon (who’s also in the book), that the growth of economic potential is slowing, although slowing potential might contribute to secular stagnation by reducing investment demand. It’s a demand-side, not a supply-side concept. And it has some seriously unconventional implications for policy.

This is a really important distinction, because secular stagnation and a supply-side growth slowdown have completely different policy implications. In fact, in some ways the morals are almost opposite.

If labor force growth and productivity growth are falling, the indicated response is (a) see if there are ways to increase efficiency and (b) if there aren’t, live within your reduced means. A growth slowdown from the supply side is, roughly speaking, a reason to look favorably on structural reform and austerity.

But if we have a persistent shortfall in demand, what we need is measures to boost spending — higher inflation, maybe sustained spending on public works (and less concern about debt because interest rates will be low for a long time).

So please, let’s not confuse these issues. This isn’t some academic quibble; we’re trying to understand what ails us, and saying that high blood pressure and low blood pressure are more or less the same thing is not at all helpful.

I’ve received some angry mail over this William Cohan piece attacking Janet Yellen for supposedly feeding inequality through quantitative easing; Cohan and my correspondents take this inequality-easy money story as an established fact, and accuse anyone who supports the Fed’s policy while also decrying inequality as a hypocrite if not a lackey of Wall Street.

All this presumes, however, that Cohan knows whereof he speaks. Actually, his biggest complaint about easy money is mostly a red herring, and the overall story about QE and inequality is not at all clear.

Let’s start with the complaint that forms the heart of many attacks on QE: the harm done to people trying to live off the interest income on their savings. There’s no question that such people exist, and that in general low interest rates on deposits hurt people who don’t own other financial assets. But how big a story is it?

Let’s turn to the Survey of Consumer Finances (pdf), which has information on dividend and interest income by wealth class:

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The bottom three-quarters of the wealth distribution basically has no investment income. The people in the 75-90 range do have some. But even in 2007, when interest rates were relatively high, it was only 1.9 percent of their total income. By 2010, with rates much lower, this was down to 1.6 percent; maybe it fell a bit more after QE, although QE didn’t have much impact on deposit rates. The point, however, is that the overall impact on the income of middle-income Americans was, necessarily, small; you can’t lose a lot of interest income if there wasn’t much to begin with. If you want to point to individual cases, fine — but the claim that the hit to interest was a major factor depressing incomes at the bottom is just false.

There’s a somewhat different issue involving pensions: as the Bank of England pointed out in a study (pdf) that a lot of Fed-haters have cited but fewer, I suspect, have actually read, easy money has offsetting effects on pension funds: it raise the value of their assets, but reduces the rate of return looking forward. These effects should be roughly a wash if a pension scheme is fully funded, but do hurt if it’s currently underfunded, which many are. So the BoE concludes that easy money has somewhat hurt pensions — but also suggests that the effect is modest.

OK, this is weird. I posted Friday Night Music last night, or at least thought I did, and it’s gone — no post, not even a draft. I may try to reconstruct it later.

I caught a bit of CNBC in the locker room this morning, and they were talking about stock buybacks. Oddly — or maybe not that oddly, given my own experiences with the show — nobody brought up what I would have thought was the obvious question. Profits are very high, so why are companies concluding that they should return cash to stockholders rather than use it to expand their businesses?

After all, we normally think of high profits as a signal: a profitable business is one people should be trying to get into. But right now we see a combination of high profits and sluggish investment :

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What’s going on? One possibility, I guess, is that business are holding back because Obama is looking at them funny. But more seriously, this kind of divergence — in which high profits don’t signal high returns to investment — is what you’d expect if a lot of those profits reflect monopoly power rather than returns on capital.

More on this in a while.

I actually agree with a lot of what David Brooks says today. But — you know there has to be a “but” — so does a guy named Barack Obama. Which brings me to one of the enduringly weird aspects of our current pundit discourse: constant calls for a moderate, sensible path that supposedly lies between the extremes of the two parties, but is in fact exactly what Obama has been proposing.

So, David says that

The federal government should borrow money at current interest rates to build infrastructure, including better bus networks so workers can get to distant jobs. The fact that the federal government has not passed major infrastructure legislation is mind-boggling, considering how much support there is from both parties.

Well, the Obama administration would love to spend more on infrastructure; the problem is that a major spending bill has no chance of passing the House. And that’s not a problem of “both parties” — it’s the GOP blocking it. Exactly how many Republicans would be willing to engage in deficit spending to expand bus networks? (Remember, these are the people who consider making rental bicycles available an example of “totalitarian” rule.)

Also, there’s this:

the government should reduce its generosity to people who are not working but increase its support for people who are. That means reducing health benefits for the affluent elderly …

Hmm. The Affordable Care Act subsidizes insurance premiums for lower-income workers, and pays for those subsidies in part by eliminating overpayments for Medicare Advantage. So conservatives are celebrating both ends of that deal, right? Oh, wait, death panels.

It’s an amazing thing: Obama is essentially what we used to call a liberal Republican, who faces implacable opposition from a very hard right. But Obama’s moderation is hidden in plain sight, apparently invisible to the commentariat.

Last night Atif Mian and I flew up to Boston for a conference — and as I slid into my seat, who should I see staring at me but Ron Paul. It turned out that all of the seatback screens in the plane were showing Newsmax TV — who knew there was such a thing? Is it there to serve people who find Fox News too liberal? — and as best I could tell from the visual context (the sound was blessedly off), the elder Paul was lecturing us about monetary policy.

This sort of thing is obviously an important part of the reason we’re living in an age of derp. Events and data may have made nonsense of claims that the Fed’s policies would inevitably produce runaway inflation, and made those insisting on such claims look like fools; but there’s a large audience of people who, pulled in by affinity fraud, live in a bubble where they never hear about such evidence.

Truly, we live in a world in which people feel entitled not just to their own opinions but their own facts.

I gather that some readers were puzzled by my use of the term “derp” with regard to peddlers of inflation paranoia, even though I’ve used it quite a lot. So maybe it’s time to revisit the concept; among other things, once you understand the problem of derpitude, you understand why I write the way I do (and why the Asnesses of this world whine so much.)

Josh Barro brought derp into economic discussion, and many of us immediately realized that this was a term we’d been needing all along. As Noah Smith explained, what it means — at least in this context — is a determined belief in some economic doctrine that is completely unmovable by evidence. And there’s a lot of that going around.

The inflation controversy is a prime example. If you came into the global financial crisis believing that a large expansion of the Federal Reserve’s balance sheet must lead to terrible inflation, what you have in fact encountered is this:

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I’ve indicated the date of the debasement letter for reference.

So how do you respond? We all get things wrong, and if we’re not engaged in derp, we learn from the experience. But if you’re doing derp, you insist that you were right, and continue to fulminate against money-printing exactly as you did before.

The same thing happens when we try to discuss the effects of tax cuts — belief in their magical efficacy is utterly insensitive to evidence and experience.

Now, not every wrong idea — or claim that I disagree with — is derp. I was pretty unhappy with the claim that doom looms whenever debt crosses 90 percent of GDP, and not too happy with the later claims that the relevant economists never said such a thing; that’s what everyone from Paul Ryan to Olli Rehn heard, and they were not warned off. But there has not, thankfully, been a movement insisting that growth does too fall off a cliff at 90 percent, so this is not a derp thing.

But there is, as I said, a lot of derp out there. And what that means, in turn, is that you shouldn’t pretend that we’re having a real discussion when we aren’t. In fact, it’s intellectually dishonest and a public disservice to pretend that such a discussion is taking place. We can and indeed are having a serious discussion about the effects of quantitative easing, but people like Paul Ryan and Cliff Asness are not part of that discussion, because no evidence could ever change their view. It’s not economics, it’s just derp.

Now, saying this brings howls of rage, accusations of rudeness and being nasty. But what else can one do?

Last week I highlighted the Sarah Jarosz/Milk Carton Kids matchup; just saw them live, and it was better than I could have imagined — the chemistry among the musicians was amazing, and they’re lovely people too. So catch them if you can …

David Wessel has a very nice explainer in the WSJ — although I wonder how the editor allowed his citation of a particular expert under point #2 to slip through. One thing he doesn’t do, however, is make it clear that zero is not a magic red line here — as even the IMF has made a point of emphasizing, too-low inflation has all the adverse effects of outright deflation, just to a lesser degree.

Most notably, the euro area currently has 0.8 percent core inflation, far below its 2 percent target, which is itself too low. This means that Europe is already in a lowflationary trap, qualitatively the same as a deflationary trap.