Bob Murphy is too kind, suggesting in a new post that today’s events provide vindication for my views. It’s true that I’ve been saying for some time now that the Fed should not raise rates, and that this is now becoming the conventional wisdom. It’s true that I’ve been saying that low interest rates and low inflation are the new normal of the 21st century, and the bond market is coming around to that view as well. But Bob is really being too kind, singling out a promise that was not at all difficult to fulfill. He quotes this non-prediction from 9 days ago:
I’m a bit more optimistic [about the Chinese economy], as I think the reform process will continue. They’ll avoid the middle-income trap. But they haven’t yet even reached the trap—a lot more growth is ahead. If you want to know when that day of reckoning will finally arrive in China, don’t come here looking for answers. I will miss the collapse, blinded by the EMH, just as I missed every other dramatic economic shock in my entire lifetime. My predictions are boring, and always the same:
“More of the same ahead”
My predictions are usually right, but they get no respect, and don’t deserve any.
Yes, my claim that my Chinese predictions deserve no respect has clearly been vindicated. It’s easy to claim that asset prices follow a random walk and can’t be predicted; even a kindergartner could do so. Let me return the favor with a few comments on the bubble-mongers of the world, both real and phony:
1. If you are real bubble-monger and predicted the Chinese stock market collapse and shorted the Hong Kong market and got rich, then I offer you my congratulations.
2. If (like me) you failed to predict the collapse, then I offer you my sympathy.
3. If you are a phony bubble-monger who predicted the China crash, but did not get rich shorting the Hong Kong market, then I have contempt for you.
I think that pretty much covers all the bases.
PS. Unfortunately in this day and age I must add on a “just kidding” disclaimer. (Jokes are no laughing matter.) I actually have contempt for no one and sympathy for everyone.
PPS. The views of Ben Bernanke pre-Fed were very different from the actions of the Fed under his leadership. The views of Janet Yellen pre-Fed were very different from the actions of the Fed under her leadership. I have no idea what Larry Summer’s actions would be if he were currently chair of the Fed.
PPPS. A brief comment on TIPS spreads. There is one factor that leads TIPS spreads to underestimate inflation expectations—conventional bonds have more liquidity, and this reduces their yield relative to TIPS. There are two factors that lead to the TIPS spreads overestimating inflation expectations, the fact that they are indexed to the CPI and not the Fed’s preferred PCE, and the fact that TIPS bond principal only indexes upward over the life of the bond, not downward (during deflation).
PPPPS. I have a new Econlog post.
PPPPPS. My claim about not having contempt for anyone is only true about 1% of the time, when I reach Robin Hanson/Scott Alexander/Scott Aaronson/Tyler Cowen/Bryan Caplan/Razib Khan/Miles Kimball levels of dispassionateness. The other 99% of the time I’m closer to Donald Trump, and hate almost everyone. But I was in a good mood when I wrote the first PS.