I stumbled across a December 2011 article by Joseph Stiglitz that showed just how committed PhD macroeconomists are to pursuing flawed policies.  They do so in the face of both factual evidence the policies don’t work and having someone with stature in the world of PhD macroeconomists point it out.

In October 2008, Anna Schwartz, a highly regarded PhD macroeconomist and Great Depression scholar, observed that fiscal stimulus and monetary accommodation were not the right policies for addressing an opacity problem in the financial system.  She then went on to say

If I regret one thing, it’s that Milton Friedman isn’t alive to see what’s happening today. It’s like the only lesson the Federal Reserve took from the Great Depression was to flood the market with liquidity. Well, it isn’t working. Professor Friedman would have enough stature to get them to listen.

She was right that she didn’t have the necessary stature to get the PhD macroeconomists at the Fed to listen.  They plunged ahead with their misguided policies.

Perhaps the PhD macroeconomists didn’t listen because Ms. Schwartz was an old lady.

If true, then surely these PhD macroeconomists would have stopped pursuing flawed policies if it were pointed out by a male PhD macroeconomist who was a Noble Prize winner.

Enter Professor Stiglitz and his observation

Monetary policy is not going to help us out of this mess. Ben Bernanke has, belatedly, admitted as much. The Fed played an important role in creating the current conditions—by encouraging the bubble that led to unsustainable consumption—but there is now little it can do to mitigate the consequences. I can understand that its members may feel some degree of guilt. But anyone who believes that monetary policy is going to resuscitate the economy will be sorely disappointed. That idea is a distraction, and a dangerous one.

Please reread this paragraph from 2011 bearing in mind central banks have continued to try to resuscitate the economy.  Even knowing their policies were not working, the PhD macroeconomists didn’t stop pursuing these policies.

So much for the notion that it is possible to have enough stature to get PhD macroeconomists to stop pursuing flawed policies.

The PhD macroeconomists also paid no attention to Professor Stiglitz warning trying to resuscitate the economy with monetary policy was dangerous.

How dangerous?

We now have over $17 Trillion in negative yielding bonds.  Buying these bonds today means the buyer is guaranteed to lose money if they hold the bonds to maturity.  The existence of negative yielding bonds also means the PhD macroeconomists are breaking global finance.

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Professor Stiglitz went on to make the case for fiscal stimulus.

What we need to do instead is embark on a massive investment program—as we did, virtually by accident, 80 years ago—that will increase our productivity for years to come, and will also increase employment now. This public investment, and the resultant restoration in G.D.P., increases the returns to private investment. Public investments could be directed at improving the quality of life and real productivity—unlike the private-sector investments in financial innovations, which turned out to be more akin to financial weapons of mass destruction.

Can we actually bring ourselves to do this, in the absence of mobilization for global war? Maybe not. …

The private sector by itself won’t, and can’t, undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality.

Sounds a lot like what the promoters of Modern Monetary Theory have been saying.

While I support this massive investment program, there is no reason to think it will end the opacity problem that is preventing the restoration of a self-sustaining economic recovery.  As Anna Schwartz pointed out, fiscal stimulus doesn’t address an opacity problem.