Archive for January 2019


Films of 2018

Overall, a disappointing year.  I didn’t see a single new film that I’d call “great”.  (I somehow missed Ash is the Purest White.)  I saw more films than usual this year, due to the purchase of a 77-inch OLED TV (which is great for movies in 4k).  I’ll start with films made in the last few years, and then older ones:

Recent Films:

Shoplifters (Japan) 3.7 This Koreeda film won the Palme d’Or at Cannes. I wasn’t as impressed as I expected, and still prefer Nobody Knows.  There are some subtle, brilliantly developed scenes late in the film.

The Ballad of Buster Scruggs (US) 3.7 I’ll need to see this again to form a firm opinion as to how good it is. I missed some of the dialogue, but what I heard was excellent. The craftsmanship by the Coen brothers was superb. They seem to really care about getting the look of the film just right. The final four episodes were the film equivalent of first rate short stories.

Burning (Korea) 3.7 Fascinating Korean mystery involving two men who are interested in the same women. (Based on a Murakami story.) The film has some fine performances that went beyond the typical clichés. Even after the film was over, I was still trying to put the pieces together. My only reservation is that the director tried to do a bit too much mixing of the political and the metaphysical. The political seems to win in the end, whereas it might have been better to end with the metaphysical. Still, there is one scene in the film that stands out above anything else I saw this year.

The Salesman (Iran, 2016) 3.7 I’ve now seen three films by Farhadi, and all have been excellent. His films aren’t particularly innovative, just extremely well crafted and true to life. The political/social repression in Iran allows for plots that would be considered implausible in America or Europe.

They’ll Love Me When I’m Dead (US) 3.7. Extremely entertaining film about the making of The Other Side of the Wind, very skillfully made. Orson Welles is one of the two great artists from my home state of Wisconsin, along with the equally colorful Frank Lloyd Wright. Like Bob Dylan (another upper Midwest guy), he had enormous accomplishments by age 26.

The Other Side of the Wind (US, 1975-2018) 3.6 It’s likely that I’ll enjoy this unfinished Welles film better on second viewing. Despite my rating it lower than the accompanying documentary, it’s the more important film.

Filmworker (US, 2017) 3.6 Fascinating documentary about Leon Vitali, who was Kubrick’s right hand man. (He also had a major role in Barry Lyndon.) The documentary is not particularly well directed, but it’s a very interesting story.

Isle of Dogs (US) 3.6 Wes Anderson films are delightful. He’s one of the few American directors that you can recognize from just a 10-second segment of his films.

The Third Murder (Japan) 3.6 A murder mystery by Koreeda. Here the puzzle is not so much the logistics of the crime, rather the mystery is the motivation.

Roma (Mexico) 3.6 Brought back memories of my time in Mexico during the early 1970s. I expected a bit more after the rave reviews.

Babylon Berlin (Germany) 3.5 I don’t usually watch TV, so I didn’t realize until well until the series that you can watch it on Netflix without dubbing. Definitely opt for the subtitles; the dubbing is horrible. My favorite parts are the opening and closing credits. The final episode is excellent, actually cinematic at times. Bryan Ferry did a great job with the music.

Maria By Callas (US) 3.5 Very engrossing documentary. It gave me entry into a subject that I know little about—opera. I’d guess they sugar-coated her life somewhat.

Kusama: Infinity (US) 3.5 Documentary about a Japanese artist who had a very interesting life.

The Farthest (US, 2017) 3.4 A documentary on the Voyager spacecraft mission, which explored the outer planets from 1977 to 1989 (and recently left the Solar System.) Gets my vote for the most interesting science project in human history.

Phantom Thread (US/Britain) 3.4 Daniel Day Lewis is the reason to watch this film.

Crazy Rich Asians (US) 3.4 Economics professors are so romantic. Unfortunately, my daughter informed me that game theory is way cooler than monetary economics.

Bombshell: The Hedy Lamarr Story (US) 3.3 This is one of those stories that would have been considered absurdly implausible if included in a work of fiction. But this is a documentary. The film suggests that she was the co-inventor of “frequency hopping”, the technology behind Bluetooth and several other high tech applications. Don’t know if it is true, but it seems clear she did have an interest in science and technology that went far beyond the typical Hollywood bombshell.

Three Identical Strangers (US) 3.3 This is a very engrossing documentary, with one big flaw. One can defend their decision to not mention the Minnesota twins study, but it is hard to defend the decision of the filmmakers to imply that this study never occurred. Or to imply that this particular case tells us something important about the “nature/nurture debate”. Or to suggest it tells us something about “free will”. It doesn’t.

Us and Them (China) 3.3 Two young people trying to make it in Beijing during 2007-17. A bit too conventional, but not a bad drama. The cinematography of Mark Lee makes it watchable.

Zama (Argentina) 3.3 I read the book a few months earlier, and this film allowed me to see the book in a slightly different way. It was clear the book featured an unreliable narrator, but the film makes him seem even more unreliable. Paraguay in the late 1700s seems like one of the saddest places on earth.

Egon Schiele: Death and the Maiden (Austria/Luxembourg) 3.2 Standard biopic of one of Austria’s greatest artists, who died at age 28.

Oh Lucy! (Japan) 3.2 It’s always interesting to see your home country through the eyes of a foreigner.

Shirkers (Singapore) 3.2 A mildly interesting documentary about a punkish group of Singaporean teenage girls who worked with an American film teacher on a feature film, only to see the teacher disappear with their film. It resurfaced 20 years later, after he died.

Red Sparrow (US) 3.1 A standard US/Russian spy thriller, starring Jennifer Lawrence.

The Spy Gone North (Korea) 3.1 Fairly engrossing spy thriller, but marred by an increasingly far-fetched plot. Memo to the movie reviewer at The Guardian (among others)—although the film claims to be based on a “true story”, it’s about as true to life as the average James Bond film.

Mission Impossible (US) 3.0   Lots of spectacular set-pieces, but as usual the special effects overwhelm the narrative. Tom Cruise is now too old for this; he’s lost that edge he had when he was younger.

Can You Ever Forgive Me (US) 3.0 Somewhat predictable film about a literary forger. The one saving grace was the actor who played Jack Hock, who brought some style to his role.

Nelly (French Canadian) 2.8 I never realized this was based on a true story, until the final credits.

Last First Man (US) 2.8 This film has lots of flaws, such as ridiculously hyperactive camerawork that will make you seasick. But it is sort of redeemed by Ryan Gosling’s performance. He refuses to pointlessly emote in the way that is so typical of Hollywood films. Disappointing special effects, especially on the moon. I’ve seen better images in documentaries of the space program.

Searching for Bergman (German) 2.5 A disappointing documentary about the great Swedish director.

Resistance Banker (Dutch) 2.5 Finally, a hero for neoliberals! Dutch bankers work to aid the resistance to the Nazis.

Sorry to Bother You (US) 1.8 Intriguing for a few minutes, then it degenerated into a weird combination of sophomoric political satire and teenage comedy.

Older films I saw this year:

Spirited Away (Japan, 2001) 4.0  I enjoyed this film the first time around, but was absolutely blown away when I saw it again on the big screen. This is Miyazaki’s best film, done when he was at the peak of his imaginative powers. (And he made many excellent films.) There are a number of scenes that burrow deep into one’s subconscious. (Yes, my writing has too many cliches.) I’d rate it one of the top 5 films of the 21st century.

Touch of Evil (US, 1957) 3.9 Each time I see this film I become more and more convinced that it provided Hitchcock with the inspiration for Psycho. The similarity between these two classics seems increasingly obvious as time goes by. This is probably my favorite film by Orson Welles, who must have lived a wild life. He looks about 65 years old in the film, but is actually 42. He gets all the best lines and his performance is amazing. Unfortunately, the film was butchered by the studio. Although it’s been partly restored, Welles’s original vision is lost forever.

Lord of the Rings (US/New Zealand) 2001-03) 3.8 I saw all three of the extended versions in one day, from 11:30am to 12:45 am the next day—13 hours including two intermissions. That’s probably a bit much. The third film has been extended to over 4 hours, and it drags at times. (After 12 1/2 hours I was like . . . just throw the damn ring into the lava!)  Still, the combination of a great story and superb craftsmanship is hard to beat. It seemed like the third film drifted away from the novel at times, but then I haven’t read it for decades, so perhaps I forgot some things.

The Terrorizers (Taiwan, 1986) 3.8  Somehow I missed this masterpiece, which was never released in the US. Now I need to find all the other films directed by Edward Yang.  (They need to come up with a better translation of the title.)

Flowers of Taipei (Taiwan, 2014) 3.8 For film buffs, this is 2 hours of pure bliss. It looks at the Taiwan films of the 1980s, and made me realize how many great films I have yet to see. There are interviews with an amazing list of directors and artists from all over the world. The 21st century has yet to produce any film school as distinctive as Taiwan during the 1980s and 1990s. This is the first time I ever watched a film on Amazon Prime.

The Big Lewbowski (US, 1998) 3.8 I haven’t seen this film in 20 years, and it holds up extremely well. I always wondered why it became a cult classic—now I know.

A Time to Live, A Time to Die (Taiwan, 1985) 3.8 A semi-autobiographical film from Hou Hsiao-Hsien

Ikiru (Japan, 1952) 3.8 A classic Kurosawa film about a man with 6 months to live. Japan looks really poor, and much wilder than today.

Black Coal, Thin Ice (China, 2014) 3.8  This Golden Bear winning film is called “Daylight Fireworks Club” in Chinese, and is the best film noir I’ve seen in years. I can’t wait for the next film from the director (Diao Yinan.) Takes place in gritty northern China (Harbin), which has bitter cold winters. Almost everything about this film is outstanding. The story begins in 1999 and ends in 2004. At one point a character refers to the cost of an expensive coat that was damaged back in 1999, and says something like, “That was a lot of money back then.” In what other (non-inflationary) country would this statement make any sense, referring to only 5 years in the past!

You’ll never look at ice skates in the same way again.

Japanese Story (Australia, 2003) 3.7 I loved this film when I saw it 15 years ago, and re-watched it recently. It still holds up pretty well, mostly due to Toni Collette’s amazing performance. Hard to recall a film with a sadder ending.

Lost Highway (US, 1997) 3.7 A fairly representative David Lynch film, and thus a minor masterpiece. For a while during the mid-1990s, Bill Pullman seemed like the most interesting leading man in Hollywood. He also starred in The Last Seduction and The End of Violence at about the same time. Great soundtrack, put together by Trent Reznor.

It Happened One Night (US, 1934) 3.7  We watched this mainly because Netflix had a 4k copy, and I was interested in how it would look on my new 77 inch OLED. It looked very good. (It cost $5.99.)

Age of Consent (Australian, 1969) 3.4 I ran across this film on Amazon Prime, and noticed that it was directed by Michael Powell. When I was young, films from the 1930s seemed charming and innocent. Now I get that feeling from a film from 1969. Helen Mirren has plenty of “charisma”. If you’ve only seen her later work, you need to check out her short YouTube video from 1967.

Let the Wind Carry Me (Taiwan, 2009) 3.4 A documentary about Mark Lee, the cinematographer for many Hou Hsiao Hsien’s best films, along with other classics such as In the Mood For Love.

500 days of Summer (US, 2009) 3.4 As always with romcoms, you need to avoid overthinking what’s on the screen. The leads are charming and as an added bonus the film defies Hollywood convention by not having them end up together.

The Sandwich Man (Taiwan, 1983) 3.3 Considered the beginning of Taiwan’s new wave. Three short films, primarily interesting for the way they portray Taiwan during the 1960s (when it was quite poor.)

Bullit (US, 1968) 3.3 Interesting to see the famous car chase again after 50 years. It’s still probably as satisfying as any subsequent car chase, despite being pretty tame compared to modern extravaganzas. Less is more, perhaps because it seems bit more real. The same applies to Steve McQueen’s acting style.

Blowout (US, 1981) 3.3 Just as 1971 was actually part of the 60s, 1981 seems like the 1970s in this DePalma film. As usual, he rips off other directors. The good news is that he chooses to copy people like Hitchcock, Coppola and Antonioni. This film really makes me feel old—is 1981 already ancient history?

Invasion of the Body Snatchers (US, 1978) 3.3 When I first saw this film it seemed as good or better than the original. It doesn’t quite hold up, and the original (which I saw again a few years ago) now seems like the enduring classic. This version seems too frenetic at time, too noisy. When it slows down it’s still pretty good. San Francisco looks very rundown.

Riding the Breeze (Taiwan, 2014) 3.0  I’m drawn to films about long bike trips.

As far as books, I read volume 6 of Karl Knausgaard’s great novel, if that’s what it is.  Also Murakami’s new novel, as well as his first two, which were finally translated.  Also the excellent Chinese sci-fi trilogy The Three Body Problem. Another Chinese novel entitled “Decoded” is also pretty good.  I also read Zama, Disgrace, Solaris, and The Immoralist, all from the long list of famous authors that I’d never gotten around to reading.  Plus a few other novels and travel books that I’ve forgotten. I’m a slow reader.  The best nonfiction book I read was Simon Ley’s The Hall of Uselessness, which is a collection of essays.  It’s not perfect—the remarks on gay rights haven’t aged well—but overall it’s very, very impressive.  He’s a sort of Belgian George Orwell. The book I learned the most from (“How to Change Your Mind Life“) discussed psychedelic drugs.  In social science, my favorites were the latest books by Tyler Cowen, Eliezer Yudkowsky, Bryan Caplan and Kevin Simler/Robin Hanson.  All were excellent, and also very readable.


Kocherlakota wins 2013 (and Powell loses)

The minutes for 2013 were just released, and I’ve only had time to consider the January transcript. It’s clear that Narayana Kocherlakota is the clear winner.

Most people will focus on the fact that Kocherlakota’s 2013 policy advice (to be more stimulative) was clearly superior, evaluated in retrospect. I pay little attention to that fact, as it might have been merely due to luck. Rather I’d focus on the fact that Kocherlakota laid out a clear and logical approach to monetary policy determination, which was superior to that of the other FOMC members:

Mr. Chairman, my comments are not about the specific changes, but rather about the statement in its entirety. I supported the statement, what I’ll be calling the “principles statement,” a year ago. Today I’d like to reaffirm my support, but even more enthusiastically. By design, the principles statement encompasses a wide number of approaches to the making of monetary policy. Nonetheless, over the past year, I have found it to January 29–30, 2013 be sufficiently specific to provide valuable guidance when thinking about the appropriate stance of policy. To explain my thinking, Mr. Chairman, I think it’s helpful for me to refer back to a speech that you gave in December 2004 called “The Logic of Monetary Policy.” In that speech, you contrasted two approaches to monetary policy. Under what you called the “simple feedback” approach, the central bank responds in a relatively automatic fashion to the evolution of current and past variables. The Taylor rule is one example of this approach. In contrast, under the second, the “forecast-based” approach, the central bank chooses the action that it forecasts will produce the best overall results, taking account of the risks to the economy. Thus, if the central bank judges its results relative to targets for inflation and unemployment, it chooses the policy that is forecast to bring the economy closest to those targets. Lars Svensson has been a particularly vocal proponent of this approach.

As I’ll describe, my reading of what will now be the penultimate paragraph of the principles statement is that it is firmly grounded in the forecast-based approach. Correspondingly, that paragraph has led me to put considerably more weight on the forecast based approach in my own thinking about policy. The opening sentence of that key operational paragraph says that we should begin by asking, will the current path of monetary policy result in deviations between inflation and the longer-run goal of 2 percent? Equally, will it result in deviations between employment and its maximum level? The current policy path does imply such deviations. Then that same first sentence prescribes that we should adopt monetary policy actions to mitigate them. Suppose, for example, that given the current policy path, inflation is expected to run below its longer-run target over the next year or two and employment is expected to run below its maximum level. Then that first sentence implies that we should seek to mitigate those deviations by adding accommodation. Of course, decisions are more difficult when only January 29–30, 2013 one of the two variables is expected to be below its desired level. For example, suppose the current policy path is expected to lead to inflation of exactly 2 percent over the next few years, but also to lead to employment being below its maximum level. Here the second part of the paragraph provides the needed guidance. It espouses a balanced approach in the situation, and this means, I think, that we should add accommodation to mitigate the employment deviation. So I posited that inflation was exactly 2 percent. Adding accommodation would end up resulting in inflation running somewhat above target. But this is, I think, what a balanced approach has to mean: that monetary policymakers are willing to follow policies that give rise to slightly positive inflation deviations in order to mitigate negative employment deviations. The Committee has, of course, explicitly evinced that kind of willingness in the December 2012 FOMC statement.

Key takeaways:

1. Kocherlakota understood that the Fed needed clear policy goals.

2. Kocherlakota understood that policy needed to be set at a position where the Fed forecast equaled the Fed target for those goal variables.

3. Kocherlakota understood that the Fed’s dual mandate implied that if both targets could not be hit at the same time then inflation should be countercyclical, that is, above 2% inflation when unemployment is high, and vice versa.

4. Kocherlakota understood that the 2013 Fed economic forecast under the (consensus) “Alternative B” policy option was expected to lead to below target inflation and employment, and hence that the consensus policy choice was too tight.  This is discussed later in the transcript:

Now, as I said in the previous go-round, given the current stance of policy, I expect inflation to average less than 2 percent over the next two years, and I expect unemployment to remain above 7 percent over the next two years. This forecast conforms closely to the outlook described in alternative B and in the outlook in the Tealbook, and I think it’s actually fairly similar to a wide range of the forecasts we’ve heard around the table, certainly on the inflation front. So we’re confronted with a small negative deviation relative to our inflation goal and a January 29–30, 2013 large negative deviation relative to our employment goal. Yesterday, Mr. Chairman, we took the step of reaffirming the principles statement, the long-run goals and strategy statement, which I think will, over time, assume a quasi-constitutional status in this Committee. I think that statement is clear in its operational, penultimate paragraph about what needs to be done in this situation. The Committee should seek to mitigate these deviations from its goals by adding accommodation.

PS.  There’s discussion in the press of how Bernanke was pressured by the “three amigos” to slow down the QE program.  This led to the famous “taper tantrum” of 2013.  Ironically, two of those “amigos” were Obama appointees to the Board.  Their pressure to curtail QE might have slowed the recovery enough to cost Hillary the election (although of course it’s hard to be sure—in a close election almost anything can swing the result.)  Even more ironically, one of those Governors was appointed by Trump to be Fed chair, despite it being well known that his views were more hawkish than those of Yellen.  Fortunately, he is doing a good job so far, if one judges by the Lars Svensson criterion.

My views on monetary policy: An update

It’s time to update my current preferences on monetary policy:

Monetary authority structure:

1.  As in the UK, monetary policy decisions should be made by a committee of monetary specialists.  They need not be economists, but they must be experts. Self-taught is fine. Financial regulatory decisions should be made by a separate (Treasury) committee, composed of experts on finance.

2.  The FR Board should continue to be independent.  The regional Fed banks should be abolished.

3.  The Fed balance sheet should be moved over to the Treasury so that the Fed does not incur any balance sheet risk.

4.  Anyone should be able to have a “reserve” account at the Treasury. It would pay no interest.  I.e., electronic cash.

5.  Paper currency should not be abolished (as it provides privacy.)

Policy Tool:

The Fed should use just one tool, open market operations.  Generally these operations should involve Treasury securities.  There’s no need for the Fed to recommend discount lending, reserve requirements and interest on reserves as tools of monetary policy.  Other assets should be purchased only if necessary.  If we don’t get my optimal NGDP level targeting strategy and the zero bound problem occurs frequently, then there is a much stronger argument for making the purchase of other (non-Treasury) assets a routine part of policy.  Bank bailouts should be done by the Treasury, if at all. (Hopefully not at all.)  There should be an iron curtain between the Fed and the banking system, like the separation of church and state.

Policy Target:

Nominal growth targets should be high enough to avoid the zero bound problem.  With level targeting, a 4% NGDP growth rate should be high enough.  We should target expected per capita NGDP growth, level targeting.  (Perhaps growth of one basis point a day is a nice round number, for that future time when “big data” allows us to know daily changes in NGDP.)  A nominal total labor compensation target is better for some countries.  The Fed should completely offset the impact of any fiscal policy action.

Policy Rule:

The Fed should commit to a “guardrails approach”, a willingness to sell unlimited NGDP futures contracts at a implied NGDP growth rate slightly above target and buy unlimited NGDP futures contracts at an implied NGDP growth rate slightly below target.

Policy Accountability and Transparency:

The Fed should report to Congress twice a year on the effectiveness of previous policy decisions.  They should explain whether, in retrospect, policy settings adopted 12 months earlier were too easy or too tight, even if only slightly so.  They should clearly explain the metrics they used to make this determination.  This form of accountability is especially important if NGDP targeting is not adopted, less so if it is.

What am I missing?  I may add a few items based on comments.


I don’t use twitter, but I occasionally come across news stories discussing tweets that shame someone for not being politically correct.  How should we think about those tweets?  In principle, shaming should serve a valuable public function—discouraging offensive comments and behavior.  But shaming non-PC speech does not seem to be effective.  Why?

The straightforward interpretation of shaming is that the tweets are punishment for various racist and misogynist comments.  That might be true, but it doesn’t seem to fit the facts very well.  The actual racists and sexists among us are not damaged by the shaming tweets intended to punish them.  In contrast, the people who are damaged are generally not racist or sexist.  Shaming doesn’t hurt Donald Trump or Steve Bannon at all; indeed Bannon insists on wearing the “racist” label as a badge of honor in front of his adoring crowds.  Instead, these sorts of attacks tend to adversely affect people who are not bigoted, someone like Larry Summers.  Those who intentionally make racist or misogynist statements do so precisely because the public shaming will not hurt them.

Now consider the high school model of twitter shaming.  Recall that the cool kids in high school would create a set of rules that were impossible for the uncool kids to adhere to.  When the uncool kids fell short, they were ridiculed.  Isn’t that today’s twitterverse?

Suppose that you want to make sure your group is composed of only those with a high level of political correctness.  One method is to create rules that are so extreme that most people will not be able to keep up.  Thus Katy Perry did not know that dressing up like a geisha is insulting to the Japanese.  Why not?  Well, because Katy Perry dressing up like a geisha is not in fact insulting to the Japanese.  Indeed the Japanese were honored by her performance.  How could it be otherwise, as “cosplay” is a big part of Japanese culture?  If you make political correctness this detached from reality, it’s hard for anyone but the most committed to keep up.

The same dynamic occurred during the Chinese Cultural Revolution, where the Red Guards made increasingly extreme demands for ideological purity.  In fact, this technique goes far back in history.  A new book by Kevin Simler and Robin Hanson has this anecdote from ancient China:

Zhao Gao was a powerful man hungry for more power.  One day he brought a deer to a meeting with the emperor and many top officials, calling the deer a “great horse”. The emperor, who regarded Zhao Gao as a teacher and therefore trusted him completely, agreed that it was a horse—and many officials agreed as well.  Others, however, remained silent or objected.  This was how Zhao Gao flushed out his enemies.  Soon after, he murdered all the officials who refused to call the deer a horse.

[At least Jeff Flake wasn’t murdered!]

Even people far to the left of Larry Summers can be ensnared in the web.  During the 2016 campaign, Bernie Sanders got into trouble for saying that “all lives matter”.  For someone of his (1960s) generation, it’s not obvious why this statement is offensive.  After all, don’t all lives matter?  The whole point of PCism is to make things so confusing that only the insiders, the cool kids, avoid shaming. Sanders didn’t realize that saying all lives matter would be seen as an implied criticism of the Black Lives Matter movement (as it sometimes is, but not in Sander’s case). Bernie Sanders was once considered cool, but I predict his age, gender and race will eventually catch up with him, and he’ll be exchanged for someone who is not an old white male.  In 2019, being cool is no longer about standing up for blue collar workers that largely vote for Trump.

Suppose I’m wrong, and that twitter shaming really is about punishing offensive statements.  Let’s consider the most offensive statement in the mainstream media during the past year.  Here’s my vote, from Bloomberg:

A figure of 15 million births would be the third-lowest total since the People’s Republic of China was founded in 1949, He Yafu, one of the demographers cited by China Times, told Bloomberg News. It would only exceed 1960 and 1961, when the country was hit by natural disasters and famine.

As Bob Dole might have said, “Where’s the outrage.”  The Great Leap Forward of 1959-61 was one of the two or three worst crimes in human history.  And unlike the others, it occurred during my lifetime.  Perhaps 30 million died from the cruel policies imposed by Mao, and countless others enduring unspeakable pain, even as Mao was warned that his actions were having disastrous consequences.   Is there anything more offensive than implying this crime was a “natural disaster”?

The problem here is that shaming for ignorance of the Great Leap Forward is nowhere near as effective as shaming for saying that “all lives matter”, or for dressing up like a geisha, if your goal is to ostracize people who have insufficiently extreme views on race, sex and gender.

One popular form of shaming is to criticize statements that are not directly offensive, in a logical sense, but seem tone deaf.  The people likely to make these sorts of statements are often the exact same types who were viewed as “nerdy” in high school. Ironically, some of their oppressors are also former nerds, finally getting their chance to retaliate for all the misery they suffered in school.

PS.  I should say that the ideas in this post were partly inspired by the Simler/Hanson book on hidden motives.  But they should not be blamed (or shamed) if I’ve misused their theories.

PPS.  Please don’t tell me that the Bloomberg quote said natural disasters and famine.  I know that, but what does that phrase clearly imply to most readers?  A natural disaster that led to famine.

What if cherry pie could cure cancer?

[After reading this post, please check out my related Econlog post, an increasingly rare example (for me) of a post where I discuss a NEW IDEA for monetary policy. At least new to me.]

Imagine a world where eating lots of cherry pie was bad for healthy people.  (Not hard to do.)  Now imagine that for some strange reason the consumption of cherry pie improved the health of cancer sufferers.  And the more you eat, the quicker you get over your cancer.  A slice after every meal is good for cancer sufferers; adding an afternoon snack is even better.  Sweet!

This scenario is fanciful, but actually does describe one important aspect of monetary policy.

When LBJ became president in late 1963, the economy was in decent shape.  It was three years into an expansion and inflation was less than 2%.  But he couldn’t leave well enough alone, and a couple years later began pressuring the Fed to stimulate the economy.  The Fed responded with a massive purchase of government debt, which led to a rapid increase in the money supply.  The monetary base had risen from $33.4 billion to $44.3 billion between November 1945 and November 1963, but soared to $83 billion by November 1973—the Great Inflation was underway.  BTW, these purchases reduced the value of US government bonds, for those worried about “Cantillon effects”.

Screen Shot 2019-01-06 at 2.13.29 PM

Just as eating too much pie is bad for a healthy person, monetizing lots of debt is bad for a healthy economy.  It causes high inflation, which discourages saving and investment.

Oddly, when the economy is so unhealthy that interest rates have fallen to zero, printing money to buy back the public debt becomes a healthy policy.  The more you buy the better you feel.  And it’s also highly profitable, at least in most cases.  Of course it’s theoretically possible that you’d buy assets with a lower rate of return than cash, which earns zero.  But that’s unlikely.

Because eating lots of cherry pie has a bad reputation, lots of doctors would discourage their cancer patients from eating too much for fear they might get diabetes. Even if consuming cherry pie worked miracles for cancer patients, some doctors would keep recommending chemo and radiation.  As an analogy, certain mushrooms dramatically reduce depression in patients with terminal cancer, but many doctors refuse to recommend this enjoyable drug because . . . well . . . I’m not sure why.  Perhaps it’s our puritan instincts.

Even though QE is a miracle drug that helps a zero bound economy get better and usually leads to big profits for the government, our economic doctors warn against taking too much of this delicious medicine.  After all, QE is bad for healthy economies.  In their view it’s better to rely on fiscal stimulus, which not only is not profitable, it imposes trillion dollar losses on the Treasury.  We live in a world where the Very Serious People tell us we need economic equivalent of chemo, not cherry pie.  Even though cherry pie is far tastier, and more effective.


PS.  Kevin Erdmann has a new piece in the Wall Street Journal.  Also, please order his excellent new book on housing, it will lead you to completely rethink many of your views of what happened during the boom and bust.