Archive for June 2016


The NBA: Swiss watches and Swiss army knives

Some people misinterpreted my recent post on the NBA.  It’s actually my favorite league (do people actually watch baseball?); I just think it would be even better without the 3 point shot.  I’d like to see less of Klay sprinting to the corner when he has an open lane to the basket on a fast break, and more of Kyrie making impossible layups over bigger defenders.

This year the NBA reached a new pinnacle, with 4 of the all-time greatest teams ever–two in the regular season and 4 in the playoffs.  Take The Spurs, which lost to OKC, which lost to the Warriors, which lost to the Cavs.  The Spurs were clearly one of the greatest teams in NBA history.  A 10.6 point differential (just below the Warriors 10.8) and 67 wins.  They actually outscored OKC by 608 to 605 in a 6 game series.  Then the Warriors came from behind to outscore OKC 750-743.  The final series was tied 3-3, with each team having 699 points with a minute to go.  The Cavs scored the last 4 points.  Four essentially equal playoff teams.  (Although arguably the playoffs were more exciting two years ago, with lots of thrilling games.)

Update:  Here is more scientific evidence of the greatness of these 4 teams.

I see the Spurs and Warriors as Swiss watches, which explains their superb regular season records.  They outclass their opponents, who are not prepared for what hit them.  OKC and the Cavs are Swiss army knives; they have enough athleticism and skill to adjust when you force them out of their comfort zone.  OKC was blown out in game one of the Spurs series, and then adjusted their defense to stop the Spurs from playing the way they wanted to play.  The Spurs have lost some flexibility through a combination of aging, and elite talent that is one dimensional (Aldridge.)  Then OKC almost did the same to the Warriors, and the Cavs succeeded.  Just as with OKC against the Spurs, the Cavs were blown out in early games, then figured out how to disrupt the Warriors offense.

Since the Cavs and OKC don’t have well-oiled machines, they have to play harder to win, and that’s tough to do over 82 games in the regular season.

There’s a good argument against my hypothesis.  Maybe the real reason that the Warriors lost is that Curry was slowed down by a nagging knee injury.  I think that’s possible (he looked slower), but I also recall that the Cavs did roughly the same thing last year, when strong defense gave the Warriors trouble against a team that was barely more than LeBron plus d-leaguers.  The Cavs lost, but showed some weaknesses in the Warriors,  Curry was also a bit sub-par in that series, despite being healthy.  Even so, the Warriors are my pre-season favorite to win it all next year.

PS.  I agree with commenter John S that LeBron is now top three of all time, and also agree with his other two choices.

PPS.  I suppose I need a “Wild Kingdom” ending to tie this into monetary policy.  Just as a flexible team can beat a well-oiled machine, NGDP futures targeting gives monetary policy the ability to adapt to a wider range of shocks than a simple Taylor Rule.

A sad day for India

Although I don’t agree with Mr Modi’s political views, I had hoped that he might reform India’s economy.  Unfortunately, right wing nationalists almost never opt for neoliberal policy reforms, it’s just not in their nature.

Today, the print addition of The Economist came out with an editorial asking the Modi government to reappoint Raghuram Rajan as head of the RBI.  Unfortunately, the government decided to go in a different direction, despite Rajan recently being named central banker of the year.  He brought Indian inflation down to more modest levels, without damaging India’s growth (which was 7.9% in the most recent quarter).  Rajan was also a powerful voice for economic reform, which may have been the problem.  The Economist editorial hinted at the opposition he faced:

Various Rajan devoted pages on Facebook have a combined fandom of over 250,000 people. Janet Yellen and Mario Draghi, his all-powerful counterparts in America and Europe respectively, cannot muster 10,000 thumbs-up between them.

Such adulation makes many suspicious. Mr Rajan has come under sometimes ugly attack from within Mr Modi’s BJP party. One member of parliament has described him as “mentally not fully Indian” on account of his international career.

I guess someone who is not satisfied with the Indian subcontinent being mired in poverty is not truly “Indian”.

An article in Quartz by Harish Menon listed some tweets lamenting the government’s decision:

Screen Shot 2016-06-18 at 5.30.21 PM

Lesson for right wingers—don’t make a pact with the devil.  If a politician is bigoted against unpopular groups like Muslims, don’t believe his promises to make the country great.  The same (non-utilitarian) mentality that leads to bigotry, also leads to the path of crony capitalism, not utilitarian neoliberalism.

A sad day for India.

Screen Shot 2016-06-18 at 5.32.36 PM

It’s Bullard

James Bullard has always been one of my favorite Fed Presidents, and that’s even more true after his recent comments on monetary policy:

The U.S. economy may only need one rate hike for as long as 2-1/2 years and the Federal Reserve is eroding its credibility by indicating otherwise, St. Louis Fed President James Bullard said on Friday in arguing for an overhaul of how the central bank views and discusses policy.

Bullard called for the Fed to discard its practice of projecting long-run values for things like economic growth and the target policy rate, acknowledge it has little certainty about the future, and state that the economy is not likely to get much worse or much better than it is now, absent some outside shock.

Bullard said he felt the appropriate federal funds rate is around 0.63 percent, roughly a quarter point above where it stands, and will likely stay there “for the foreseeable future.” For the Fed to publish projections that it will rise steadily to historic norms of three or four percent has been misleading.

The Fed’s “dot plot” of projected interest rate policy “appears to be too steep. Fed funds futures markets do not seem to believe it. They are priced for a much shallower pace of increases,” Bullard said.

“The Fed’s actual pace of rate increases has been much slower than what was mapped out by the committee in the past. This mismatch between what we are saying and what we are doing is arguably causing distortions in global financial markets, causing unnecessary confusion over future Fed policy, and eroding credibility of the (Federal Open Market Committee),” he said.


While that would seem to make the former inflation hawk now the Fed’s most dovish member, those labels would not apply as easily under Bullard’s way of thinking. Rather than see the economy on a continuum, with the interest rate used to moderate a tradeoff between unemployment and inflation, he said the Fed should instead view the economy as in a “regime.” The appropriate policy rate for that state would remain in place until a recession, productivity surge or other shock causes it to change.

This is a point I keep emphasizing.  The issue is not what the Fed does or doesn’t do at the next meeting, it’s what sort of regime do they have.  You can have monetary failures within a regime, but the overwhelmingly more likely problem is monetary failures caused by having the wrong regime (as when the Fed engaged in growth rate rather than level targeting in 2008-09.)

Monetary policy usually encompasses estimates of long-run equilibrium growth, unemployment and interest rates that the economy is expected to hover around, as a guide to how the economy might change over time. Bullard says the current situation may be much more static, an equilibrium that monetary policy has no reason to try to shift.

“On balance, real output growth, the unemployment rate, and inflation may be at or near mean values that could be sustained over the forecast horizon provided there are no major shocks to the economy,” Bullard wrote.

“Key macroeconomic variables including real output growth, the unemployment rate, and inflation appear to be at or near values that are likely to persist over the forecast horizon. Any further cyclical adjustment going forward is likely to be relatively minor.”

What sort of “major shocks” could produce a recession?  I see two possibilities:

Demand-side:  Britain votes to leave the EU.  This triggers anti-euro sentiment in southern Europe.  Fear of default leads to a crisis in PIGS debt, triggering a global decline in AD.  Investors lose confidence in central banks.  On balance, I don’t think this will happen, but it’s possible.

Supply-side:  Regulatory changes and/or dramatically higher minimum wage rates push up labor costs in the US.  I see this as somewhat more likely, but also as having a less powerful short run impact on employment and output, as compared to a demand shock.

Either shock could lead to a mild recession—in combination you could have a repeat of 1937-38.  But on balance I still don’t expect a recession within the next year.  In my view, recessions are mostly unforecastable, especially the part caused by demand-side changes.

Overall, Bullard’s statement is very good news.  I encourage readers not to dwell on exactly where Bullard thinks the fed funds target should be set in the near future, and instead focus on his much more important views on how we need to think in terms of monetary policy regimes.  With apologies to Bullard, I read him as saying something to the effect:

“Look, monetary policy is not about interest rates, it’s about hitting the dual mandate.  There is no evidence that we need to dramatically adjust interest rates going forward to hit the dual mandate, so don’t pretend there is.  The Fed should not be trying to ‘normalize’ interest rates, it should be trying to maintain high employment and 2% PCE inflation.”

PS.  Bullard is somewhat more hawkish than Narayana Kocherlakota, but I see some similarities in the way they approach monetary policy.  In both cases, it’s all about what does the Fed need to do to hit its targets—no other hidden agenda.  I’ve argued that under a sound monetary regime the terms ‘hawk’ and ‘dove’ would no longer have any meaning, and hence I’d like to direct your attention to something in the quotation above:

While that would seem to make the former inflation hawk now the Fed’s most dovish member, those labels would not apply as easily under Bullard’s way of thinking.

Or Kocherlakota’s.

HT:  Brent Buckner

Vote for the lizard, not the wizard

Here’s Wikipedia, reminding us of a time when GOP leaders denounced racists within their party:

Despite repudiation by the Republican Party,[52] Duke ran for governor of Louisiana in 1991. In the primary, Duke finished second to former governor Edwin W. Edwards in votes; thus, he faced Edwards in a runoff. In the initial round, Duke received 32 percent of the vote. Incumbent Governor Buddy Roemer, who had switched from the Democratic to Republican parties during his term, came in third with 27 percent of the vote. Duke effectively killed Roemer’s bid for re-election. While Duke had a sizable core constituency of devoted supporters, many voted for him as a “protest vote” to register dissatisfaction with Louisiana’s establishment politicians. During the campaign, Duke said he was the spokesman for the “white majority”[53] and, according to The New York Times, “equated the extermination of Jews in Nazi Germany with affirmative action programs in the United States.”[54]

The Christian Coalition of America, which exerted considerable impact on the Republican State Central Committee, was led in Louisiana by its national director and vice president, Billy McCormack, then the pastor of University Worship Center in Shreveport. The coalition was accused of having failed to investigate Duke in the early part of his political resurgence. By the time of the 1991 gubernatorial election, however, its leadership had withdrawn support from Duke.[55] Despite Duke’s status as the only Republican in the runoff, sitting Republican President George H.W. Bush opposed his candidacy and denounced him as charlatan and a racist.[54] White House Chief of Staff John H. Sununu stated that “The President is absolutely opposed to the kind of racist statements that have come out of David Duke now and in the past.”[56]

The Louisiana Coalition against Racism and Nazism rallied against the election of Duke as governor. Beth Rickey, a moderate member of the Louisiana Republican State Central Committee and a PhD student at Tulane University, began to follow Duke to record his speeches and expose what she saw as instances of racist and neo-Nazi remarks. For a time, Duke took Rickey to lunch, introduced her to his daughters, telephoned her late at night, and tried to convince her of his worldview: the Holocaust was a myth, notorious Auschwitz physician Josef Mengele was a medical genius, and that blacks and Jews were responsible for various social ills. Rickey released transcripts of their conversations to the press and also provided evidence establishing that Duke sold Nazi literature (including Mein Kampf) from his legislative office and attended neo-Nazi political gatherings while he held elective office.[57][58]

Between the primary and the runoff, called the “general election” under Louisiana election rules (in which all candidates run on one ballot, regardless of party), white supremacist organizations from around the country contributed to Duke’s campaign fund.[59][60]

Duke’s rise garnered national media attention. While he gained the backing of the quixotic former Alexandria Mayor John K. Snyder, Duke won few serious endorsements in Louisiana. Celebrities and organizations donated thousands of dollars to former Governor Edwin Edwards‘ campaign. Referencing Edwards’ long-standing problem with accusations of corruption, popular bumper stickers read: “Vote for the Crook. It’s Important”,[61][62] and “Vote for the Lizard, not the Wizard.” When a reporter asked Edwards what he needed to do to triumph over Duke, Edwards replied with a smile: “Stay alive.”

The runoff debate, held on November 6, 1991, received significant attention when journalist Norman Robinson questioned Duke. Robinson, who is African-American, told Duke that he was “scared” at the prospect of Duke winning the election because of his history of “diabolical, evil, vile” racist and antisemitic comments, some of which he read to Duke. He then pressed Duke for an apology and when Duke protested that Robinson was not being fair to him, Robinson replied that he didn’t think Duke was being honest. Jason Berry of the Los Angeles Times called it “startling TV” and the “catalyst” for the “overwhelming” turnout of black voters who helped Edwards defeat Duke.[63]

Edwards received 1,057,031 votes (61.2%), while Duke’s 671,009 votes represented 38.8% of the total. Duke nevertheless claimed victory, saying, “I won my constituency. I won 55% of the white vote,” a statistic confirmed by exit polls.

Today, things are very different:

Kasich said he couldn’t even see voting for the guy, though he was quick to add he wouldn’t vote for Hillary Clinton, either.

I asked him why he thought Republican leaders in Washington continued to profess their support for Trump, even as they denounced his comments.

“Look, I think in either political party, there’s always a tug between party loyalty, being part of the team, and your conscience,” Kasich said. “And there’s a lot of people that are really torn. And I don’t want to excuse them. But human nature being what it is, there’s always a sense of ‘what’s my obligation to the team’ and ‘how does this affect the people I work with.’

“I think that’s why, to some degree, you’re seeing people run away. They won’t even talk to the press. Because they don’t know what to say.”

What about his own party loyalty?

“I’m a Republican,” he told me. “I’m going to travel for Republicans. I’m going to help the ticket in Ohio. But I’ve learned over the course of my career that I have to live with myself and with my family.”

In fact, the only Republicans who are truly loyal to their party are those who repudiate racists in their midst, and refuse to endorse them:

We may kindly remember a John Kasich or a Jeb Bush — guys who had the sense of self-worth to stand up and say they wanted no part of this particular crusade.

The rest will answer for whatever comes of this mess, and depending on the consequences, they may answer to the ages.

PS.  Good news for Trump; a recent poll shows him tied with Hillary.  Bad news; it’s in Utah, a state that Romney carried by 48% and even Bush carried by 46% (in 2004).

Every Mormon I’ve ever met is a nice person.  That’s not Trump’s constituency:

Then Trump railed, with no notes, and for roughly the next half hour, about Japan, Iran, Saudi Arabia, Kuwait, Washington, Wall Street, politicians, economists and “nice people” of whom he had “had enough,” he said.

Trump would have really hated me back in 2008.  Before I got into blogging I was both a nice person and an economist.

Kocherlakota told you so

Dots down again.  More to come. . . .

Long term RGDP growth forecasts also down.  Fed starting to wake up to reality. But more downshifts in RGDP forecasts are coming.  All this predicted by yours truly, many times.

Goldman Sachs:  The Fed is just following the market.  Great idea!

Screen Shot 2016-06-15 at 2.27.45 PMActually the shorter term RGDP projections are down, but the longer term growth forecasts will also fall, it’s just a matter of time.  Screen Shot 2016-06-15 at 2.32.19 PMHere are the most recent dots. 

This post shows the dots last September, you can see the Kocherlakota dots far below the others.