One reason they are losing the debate is that they are not fully engaged in it. There appears to be a sense in Treasury and the Fed that they needed to convince Congress, which could be done behind closed doors, and that there was no need to address the legions of economics professors out there. Maybe they were right as a short-term political tactic. But as a longer-term strategy, the case for this new Washington consensus needs to be made. The general public is largely opposed to recent moves to rescue the financial system. If Washington crowd cannot bring along the intellectual elite as a first step toward convincing a broader audience, they will end up pretty much alone, which does not seem sustainable. As of now, it seems as if they have not even bothered to try.
Sunday, October 5, 2008
Mankiw, in this post, explains how Bernanke is losing the economic debate among the ones who may really matter in the long term: