Four years ago, as a newly elected president began his efforts to rescue
the economy and strengthen the social safety net, conservative economic
pundits — people who claimed to understand markets and know how to
satisfy them — warned of imminent financial disaster. Stocks, they
declared, would plunge, while interest rates would soar.
Even a casual trawl through the headlines of the time turns up one dire
pronouncement after another. “Obama’s radicalism is killing the Dow,”
warned an op-ed article by Michael Boskin, an economic adviser to both
Presidents Bush. “The disciplinarians of U.S. policy makers return,”
declared The Wall Street Journal, warning that the “bond vigilantes”
would soon push Treasury yields to destructive heights.
Sure enough, this week the Dow Jones industrial average has been hitting
all-time highs, while the current yield on 10-year U.S. government
bonds is roughly half what it was when The Journal published that
screed.
O.K., everyone makes a bad prediction now and then. But these
predictions have special significance, and not just because the people
who made them have had such a remarkable track record of error these
past several years.
No, the important point about these particular bad predictions is that
they came from people who constantly invoke the potential wrath of the
markets as a reason we must follow their policy advice. Don’t try to
cover America’s uninsured, they told us; if you do, you will undermine
business confidence and the stock market will tank.
