Derp Expained

Regions of Derpistan - Paul Krugman

Josh Barro has made a very useful contribution to policy discussion by adapting the term “derp” for a certain kind of all-too-prevalent stance in economic debate, which Noah Smith somewhat euphemistically describes as “the constant, repetitive reiteration of strong priors”. In other words, people who take a position and refuse to alter that position no matter how strongly the evidence refutes it, who continue to insist that they have The Truth despite being wrong again and again.

The main locus of econoderpitude these days involves inflation, and more broadly the proposition that deficit spending and expansion of the Fed’s balance sheet will be a disaster, even in a depressed economy. Matt O’Brien documents the continuing prevalence of this form of derp, and tries to characterize the various forms it takes, and I don’t have any quarrel with his details. I wonder, however, whether it might not be useful to think of it a bit differently, using a geographical metaphor.

That is, think of all these economists and wannabe economists as inhabitants of a land we’ll call Derpistan. Everything there is derp; but it’s not undifferentiated derp. Instead, all Derpistan is divided into three parts: Inner Derpistan, Middle Derpistan, and Outer Derpistan.

Middle Derpistan is where most of the country’s inhabitants used to live.It had what looked like highly fertile intellectual soil, easy to cultivate with a few tools taken from the intro textbook: printing money causes inflation! Running deficits drives up interest rates! It’s the 1970s all over again! A lot of people settled in comfortably there circa 2009, and waited for their crops to come in.

It turned out, however, that this wasn’t such a good place to settle down after all. Some of us tried to warn them, on both the interest rate and the inflation front; things aren’t that simple in a liquidity trap. But they didn’t listen; and as inflation and soaring rates kept not coming and not coming, they found themselves like farmers on the Great Plains in the 1930s, watching their chosen ground turn into dust.

Despite this, a few oblivious types have refused to move; Michael Kinsley comes to mind. But for the most part, what we’ve seen is emigration. A few, like Larry Kudlow (!!!) have packed their belongings on top of the pickup truck and left Derpistan altogether. Most, however, have migrated only a short distance in or out.

Some have moved to Outer Derpistan, a land of utter intellectual barbarism; here we have Erick Erickson declaring never mind the facts, he has feelings, and Niall Ferguson declaring that we really do have inflation, but the feds are spiriting it away in their black helicopters and burying it in Area 51.

For the most part, however, we’ve seen a migration to Inner Derpistan — the region that borders the civilized world, also known as the reality-based community, and has picked up some of its customs. The migrants to this region — the Bank for International Settlements, Martin Feldstein, and so on — seem to be conceding, at least implicitly, that their inflation warnings didn’t pan out. Instead, they’re now all talking about financial stability. But they haven’t left Derpistan, because they’re still demanding the exact same thing — higher rates and an end to quantitative easing — despite having been wrong about everything so far.

And I have to say that these are the people who worry me. The refugees of Outer Derpistan are sad cases, but they don’t have any real influence, even if the BBC thinks they should give prestigious lectures and stuff. But the Inner Derpistanis are the barbarians at the gate; they are, I believe, already having a seriously malign effect on policy.