By Scott Sumner
Three years ago, the Atlanta Hawks traded Luka Doncic to Dallas in exchange for Trae Young and the right to draft Cam Reddish. Over the next three years, there was an almost universal view among NBA basketball fans that the trade was very lopsided, with Atlanta losing badly.
Last night, Atlanta was eliminated from the playoffs. Nonetheless, one TV commentator suggested that the trade now looks much more even. Young was spectacular in the playoffs before getting hurt a week ago, and while it’s too soon to fully judge Reddish, he looked very good in a couple playoff games after coming off an injury. Atlanta went much further in the playoffs than Dallas.
This example demonstrates something I’ve noticed quite often. People are far too quick to make judgments. Pundits that focus on the economy often proclaim this or that policy to be a success or failure, long before we have enough information to make an informed evaluation.
1. During the 1930s, it was widely agreed that the Great Depression demonstrated that unregulated capitalism is unstable. Only in the 1960s was it discovered that the Depression had been caused by tight money, not “the inherent instability of capitalism”.
2. During the 1960s, it was widely agreed that there was a tradeoff between inflation and unemployment, often called the Phillips Curve. Only in the 1970s did we discover that this trade-off is illusionary, at least in the long run.
3. In 1972, it was widely agreed that Nixon’s wage/price controls were an effective means of slowing inflation. A few years later we learned that price controls don’t work.
4. In the early 1990s, it looked like the former communist countries that had reformed quickly had made a mistake. A decade later, it looked like the countries that were slow to reform were the ones that had made the mistake.
5. In 2002, it was almost universally agreed that there had been a massive NASDAQ stock price bubble in 2000. Today, the NASDAQ market of 1999-2000 no longer looks overpriced. Instead, 2002 looks absurdly underpriced.
6. In 2010, it was almost universally agreed that housing prices in 2006 were a “bubble”. Today that claim is far from obvious.
7. In 2013, some Keynesians claimed that fiscal austerity was slowing the economy. By 2014 that claim looked implausible.
8. In early 2014, there were claims that terminating the extended unemployment insurance program was slowing growth. By 2015, it had become clear that employment growth sped up in 2014.
I could cite dozens of similar examples.
It is certainly possible that a year from now Trae Young’s stock will have fallen and Doncic will once again look like the far better player. It’s possible that NASDAQ circa 2000 and the house prices of 2006 will again look like bubbles. All evaluations are provisional, liable to be changed as new information comes in.
I find that evaluations based on time-tested propositions tend to hold up better than other claims. These include the idea that free market economies are best, that monetary policy drives nominal variables, and that money is neutral in the long run. The idea that price controls don’t work. The idea that asset prices tend to be efficient because it’s hard to get rich by consistently beating the market. The idea that paying people not to work tends to discourage them from working.
If you believe in these time-tested principles, don’t let yourself be bullied by pundits suggesting that you are out of date and need to get with the times. Very likely, you’ll be the one proved right in the long run.
PS. I’ve always found the criticism of Atlanta’s decision to be a bit excessive. After all, Sacramento picked Marvin Bagley over both Young and Doncic. It’s like people who complained that money was too tight in 2019, but were silent on the issue in 2008. You may be right about 2019, but where are your priorities?