Archive for December 2016


Focus on the ratio of private sector and Fed inflation forecasts

There’s intense interest right now in whether the Fed will offset fiscal stimulus.  You want to look at the Fed inflation forecasts, and how they compare to private sector forecasts.  In recent years they have been similar.  The Fed’s new statement predicts 1.9% inflation next year, and 2.0% thereafter.  That’s unchanged from the previous statement.  And that’s about what the private sector consensus shows (actually 1.9%), although I don’t know if the private sector incorporates the Trump effect.  If they stay close over the next few months, and both stay close to 2.0%, then that implies 100% monetary offset.

The Fed may be lying, but the private sector consensus is not.  It may be wrong, but it’s not lying.

New blog intro

I have a new “About this blog” in the right column, which had not been updated since I first started blogging.  Check it out.

Regarding my previous post, I should add that my Trump posts are written in a totally different style at Econlog (indeed the style most of you would prefer.)  Most of my good macro posts are over at Econlog.  So it’s all there if you guys want it; I guess some of you are masochists.  The two totally different styles imply that if my writing style does reflect my mood, as some of you seem to believe, I must be a complete schizophrenic.

Or maybe I know how to play a role.

PS. I recall some Trump supporters were upset when Trump interviewed Romney. They didn’t seem to understand that Trump was just toying with Romney, publicly humiliating him for his earlier harsh criticism of Trump. The same thing Putin does with his billionaire associates.  I know it’s hard to believe, but there are people that naive, who fail to see what’s really going on.  And some are in my comment sections.  They take everything literally.

Under blogger eyes

I’m noticing that a lot of people don’t understand what I’m trying to do with this blog (Econlog they get).  Generally, I don’t like to analyze my own behavior, but in this case I’m going to have to make an exception.

The first thing you need to understand is that I’m superstitious about one thing.  I feel like horrible things won’t happen if everyone expects them to happen.  In late 2008, I was very frustrated over the fact that almost no one was talking about monetary policy, whereas I thought monetary policy was both far off course, and also the key to the Great Recession.  Even worse, I felt like I was mute—I had no voice in the conversation.

Eventually I started a blog, and wrote hundreds of histrionic over-the-top posts about how utterly brain dead Fed policy was in late 2008.  I mocked the September 2008 meeting, where they refused to cut interest rates.  I mocked the October 2008 decision to institute IOR.  I mocked Fed people who suggested that fiscal stimulus would help, at a time the Fed was not doing all it could.  And most of all, I relentless mocked the utter stupidity of allowing NGDP growth to plunge from positive 5% to negative 3%.  I became a proud member of a group known as “monetary cranks.”

My superstitious mind led me to believe that if everyone began paying attention to monetary policy, and particularly if everyone started paying attention to NGDP growth, then we would not repeat the mistake of 2008.  And it worked in the US—so far.  Now of course that doesn’t mean I had anything to do with it; I suspect if I had never been born things would have played out roughly the same way.  After all, lots of other market monetarists and even NKs were making some of the very same arguments.  But maybe I had a tiny role in reviving interest in the importance of monetary policy, and NGDP more specifically.  And that’s good enough for me. (And they did make the same mistake again in Europe (in 2011), where MM and NK ideas are less often discussed.)

I have the same sort of superstition about Trump.  I feel like if I write one absurd over-the-top post after another pointing out how utterly insane his views are on everything from the trade deficit to our One China policy, I can play a small role in making certain ideas seem disreputable.  I want to make it so that people are embarrassed, or feel a sense of shame, when they claim that trade deficits reduce GDP.  Or when they claim we should not lift a finger to prevent Russia from invading a foreign country, but should risk WWIII to prevent China from invading China.

Sometimes commenters ask me if I’m willing to bet on my predictions, or they ask why I am being so over the top in my criticism.  That misses the point entirely.  I’m doing these posts precisely in the hope that I’m wrong.  In fact (and here’s the superstitious part) I’m doing these posts in the hope that they cause the predictions to be wrong.  (Of course I mean these posts, and similar pieces by 100s of other pundits.)

They say that a watched pot never boils.  I feel like if the entire world of punditry were to focus like a laser on the utter stupidity of people like Ross and Navarro, then it would make their jobs a bit harder.  That spotlight might chasten them slightly.  Maybe a reporter will ask Ross if “He really believes EC101 teaches us that trade deficits reduce growth, because ya know, all the authors of those textbooks say it teaches exactly the opposite.”  Or “What grade did you get in your EC101 course, and how long ago was it.”  I want the idea that trade deficits reduce GDP to become as toxic, as laughable, as disreputable, as the idea that the Fed should stand idly by as NGDP falls by 3%.

This is all superstition, so I don’t expect anyone to see things the way I do.  All I can do is tell you that I find that when society as a whole focuses really hard on the utter stupidity of doing something, we actually almost never do that specific stupid thing.  We do lots of other stupid things, which we never saw coming, but not the one we obsessed about.  Or at least that’s how it seems to me.  (It also seems like I’m always in the slowest line at grocery stores.)

That doesn’t mean this is all an act on my part, I really believe that the views of Trump and his henchmen are borderline insane.  But I have no idea what Trump will actually do, because over the course of my life I rarely observe governments doing things that are widely viewed as obviously insane.  What about late 2008? Yes, I viewed that period as obviously insane, but the profession as a whole certainly did not–so that doesn’t violate my generalization.

Every time a respected economist says, “Maybe the anti–globalization people have a point” or “Maybe China trade really did decimate our working class”, it makes a Trump disaster more likely.  It weakens the intellectual wall of resistance to insane protectionist policies, by making them seem slightly less insane.  “Well even economists don’t agree . . . “.  We need a wall of strong opposition to the Trump program, or we risk a repeat of late 2008, with a global trade war replacing a global monetary policy failure.  That’s not my prediction of what will happen, but rather my prediction of what will happen if we fail to create the right zeitgeist.

I appreciate those who worry about my sanity, but my writing style actually has nothing to do with my mood.  I’m not like Paul Krugman; I don’t lose sleep over Hillary not winning.  Indeed I would have found a Hillary presidency to be dismal. This is a freak show, but a damn entertaining one.  Most of my real passion is focused on my book project, or the film I saw last night (2 episodes of a Polish TV show from 1988, called Dekalog—magnificent) or how Giannis Antetokounmpo and Russell Westbrook are doing. That’s “real life” for me, not politics.  I really do think the Trump phenomenon is an appalling freak show; but deep down I don’t think any of it will really happen—again, a watched pot never boils.

Of course there’s Germany in 1933 . . . no don’t go there. . . .

So the hysterical posts will continue until the morale in the comment section improves.

PS.  You may wonder about my earlier snobby claims that I don’t watch TV.  I saw the 1988 Polish TV show at the movie theatre.

PPS.  Some of you people who are attempting to be trolls—you are so far behind where the discussion is, you really ought to do something else with your time. There’s no shame in not being smart enough to follow the discussion.  But if you do insist on continuing to click on this blog, I’m going to keep cashing the advertising checks.

PPPS.  I probably won’t respond to any comments here, as I’m smart enough to know that my superstition is not intellectually defensible—so why bother trying to defend it?

PPPPS.  One commenter asked why I don’t leave the country.  What other country allows me to watch Polish TV shows one night, and NBA League pass games the next?  America will be fine; presidents have very little power.  R.E.M. put it best.

PPPPPS.  Off topic, but have you noticed that the moment we get a Republican president the pundits are full of discussion of “monetary offset”?  I may have lots of faults, but I do the exact same analysis regardless of who’s in office.

Please don’t blame EC101 for this fiasco

I warned people that Trump was not even smart enough to pick competent advisors.  Fortunately, Trump’s rather lazy and thus doesn’t have time to find 4000 people as foolish as he is; he needs to farm out some of the White House staffing choices to people like Pence. So a few good ones will slip through. But where Trump does get involved he has awful instincts. John Bolton was just named the number two guy at the State Department, as Trump continues to flesh out his Dr. Strangelove foreign policy team.

Consider Trump’s choice of Wilbur Ross to head Commerce (and also lead Trump’s trade policy).  Here’s what Ross said back in August, in a letter to the WSJ:

Your editorial “Trump on the Economy” (Aug. 9) suggests that Donald Trump is wrong to be worried about imports because such increases are associated with a strong economy. It’s Econ 101 that GDP equals the sum of domestic economic activity plus “net exports,” i.e., exports minus imports. Therefore, when we run massive and chronic trade deficits, it weakens our economy.

I’m almost willing to cut him some slack on the claim that trade deficits weaken the economy.  That’s obviously wrong, but I suppose lots of non-economists believe that to be true.  But it’s far worse than that.  He also claims this is true because of the national income accounting identity, and then even more ridiculously that “EC101” teaches this to be true.  Even most “practical men” who have contempt for the views of economists on trade at least know what those views are.  What’s the point of even having public universities if our top policymakers are this ignorant of the most basic ideas being taught to freshman?  Especially if they claim freshman economics provides support for their ignorant views.

Trump’s policy mix has often been compared to Reagan’s, as both involved a bigger budget deficit and a stronger dollar.  Reagan also had quotas on autos and steel. The Trump people don’t seem to understand that this mix also results in a larger trade deficit.  God knows what they’ll do when they find this out.  Will they lash out at foreign countries?

We have a president of almost breathtaking stupidity.  A day after he tells us that he knows far more than the CIA about Russian cyber-warfare, we are informed that he plans to dispense with the traditional daily intelligence briefings that all presidents get. His explanation is that he is “smart” and doesn’t need any briefing from experts.  Perhaps he is afraid they might disturb his carefully cultivated view that the world is full of conspiracies against Donald Trump and his friend Vladimir Putin.  It looks like we’ve elected as President someone who combines:

1.  Complete ignorance on policy issues

2.  Supreme confidence that he so smart he doesn’t need good advice

What could go wrong?


PS.  Here’s what Greg Mankiw had to say:

Their analysis of trade deficits, starting on page 18, boils down to the following: We know that GDP=C+I+G+NX.  NX is negative (the trade deficit).  Therefore, if we somehow renegotiate trade deals and make NX rise to zero, GDP goes up!  They calculate this will bring in $1.74 trillion in tax revenue over a decade.

But of course you can’t model an economy just using the national income accounts identity. Even a freshman at the end of ec 10 knows that trade deficits go hand in hand with capital inflows.

Mankiw is referring to a paper by Peter Navarro and Wilbur Ross, which makes one absurd claim after another.  Paul Krugman also trashes their work, so this is not one of those left/right splits within economics.  For people not well versed in economics, Trump’s choice at Commerce would be like putting a believer in the Ptolemaic planetary system in charge of NASA.

HT:  Ramesh Punnuru

Truth and Consequences

Trump is not like normal people.  His statements about the world are not aimed at being true or false, but rather useful in advancing his interests, or not useful.

In recent decades a cornerstone of world peace has been the globally accepted proposition that there is one China, not two.  This is accepted by almost all governments, and indeed is a part of Taiwan’s constitution.  The issue was completely settled, until now:

In his remarks on Sunday, however, Mr Trump suggested the One China policy could in fact be treated as a bargaining chip, rather than as the bedrock of relations between the world’s two largest economies. “I don’t know why we have to be bound by the One China policy unless we make a deal with China on other things,” the president-elect said.

Interestingly, my commenters often wrongly accuse Richard Rorty as having this sort of relationship with the truth.  But Trump really does seem to think truth is whatever he wants it to be.  His statement increases the probability of war between the mainland and Taiwan (albeit in absolute terms the probability is still quite low.) It also puts to rest any ideas that Trump would stop being a reckless buffoon after being elected, and would “get serious”.  Sorry Trumpistas, Trump acted like an idiot during the campaign and he’ll act like an idiot as president.

Just recently, Trump ridiculed CIA claims that the Russians tried to influence the election with leaks aimed at Hillary:

President-elect Donald Trump trashed the reported assessment by the Central Intelligence Agency that Russia interfered in the U.S. presidential election in an effort to help him win the White House, calling it “just another excuse” pushed by the Democrats to undercut his stunning victory.