David Stockman Debunks More Keynesian Rubbish From Europe's Jon Hilsenrath

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Submitted by David Stockman via Contra Corner blog,

Once upon a time Wall Street Journal reporters were economically literate. Now, apparently, when they muster-in for the job they get a Keynesian chip implant while signing their HR forms.

Otherwise, how can you explain the bolded sentence penned this AM by Brian Blackstone on the EU’s “disappointing” Q1 GDP report. He didn’t say Keynesian economists say you need more inflation to get jobs and growth. He just declared it!

The current bout of low inflation... appears to be weighing on the bloc’s more fragile countries such as Italy and Portugal. When consumer prices grow too slowly, or fall outright, it makes it harder to service debts and may weaken spending and profits.

Given this reflexive Keynesian axiom, it is not surprising that the Wall Street Journal is incapable of reporting anything about the ECB up-coming leap into the lunacy of negative deposit rates except to blather on with the party line. Yes, its all being done because there is not enough inflation in Euroland to hit the magical marker at 2% CPI.

ECB President Mario Draghi put financial markets on notice last week that new stimulus measures are likely next month, an expectation supported by the GDP figures, which analysts said are far from what is needed to bring annual inflation, which was 0.7% in April, closer to the ECB’s target of just below 2%.

Here was see yet another perversion of monetary central planning. Mr. Blackstone is an access journalist drop box and therefore dare not displease his sources inside the ECB—sources which leaked a story to him earlier this week on exactly the amount of sub-trend CPI the ECB staff needs to project for year-end 2016 in order for the Bundesbank to go along with more oomph at the printing press.

The truth of the matter is that other than the last few months Europe has had no want of inflation—even if depreciating money was some kind of growth elixir, which history proves rather decisively it is not. In any event, below is Europe’s CPI path during the era of the modern ECB.

Yes, in the last 12 months the CPI has clocked in a 0.6%, but in the year before that it was 1.7% and in each of the prior two years it was 2.7%. So in the 48 months ending in March 2014, Europe’s CPI came in at a compound annual rate of 1.9%. And if you want to dial back further, the CPI came in a 1.8% CAGR during the seven years since the pre-crisis peak.

Can you really get any closer to 2% than that?  Does an ultra short-term dip in the trend CPI really prove that Europe has some kind of calamitous “low-flation” problem? Even if inflation were a good thing, which it most definitely is not, isn’t it a bit early to declare a crisis given the trend path shown below?

And can it be that the dip in inflation may actually be having salutatory impacts on wage earners in the peripheral countries who had previously priced themselves out of the world market, and now find their nominal wages are stagnant or even being sharply pared back? “Low-flation” at least means that their purchasing power is being stretched further.

In other words, do Wall Street Journal reporters do anything other than post the official propaganda deposited in their drop boxes?  Most evidently, the don’t but in that modality of laziness and mendacity they can take one measure of comfort: The Reuters “reporters” are far worse.

Compare the above to the days of yore when Wall Street Journal reporters scoured the free market for actual economic information—knowing that there were unlimited news sources and that none needed to be placated at all costs in order to stay on the beat. Heck, there were even independent Wall Street economists back then like Henry Kaufman who cared not a wit about the Fed’s party line. Kaufman actually read and interpreted the economic and financial data because in those days that’s what economists did to earn their pay; there was no post-meeting statement to gum about.

To be sure, even in the pre-Greenspan era the WSJ editorial page and news page went their own ways. But during the regime of Robert Bartley, reporters might have at least noticed there were economic vantage points on the world other than the Keynesian catechism; and learned the reasons why the Great Inflation of the 1970s had been a thundering demonstration that the Phillips Curve and Full-Employment GDP were drastic errors.

Bartley would undoubtedly be rolling in his grave upon encountering the front page Keynesian gibberish that is the stock and trade of the Blackstone’s and Hilsenrath’s. Nor could he have much confidence that the editorial page might occasional rub-off on the news page drop boxes. The former is so busy promoting wars and denouncing taxes that a coherent non-Keynesian view of the world seems to have gotten lost amidst the bombast.