I see a lot of people in the media gushing about all of the actions that the Fed has recently taken. The Fed has been unusually active, but it’s important to always keep in mind that what matters is output, not inputs.

If NGDP growth is inadequate then monetary policy is too tight, regardless of what the Fed is doing. This isn’t the Boy Scouts, there are no badges earned for effort.

I don’t expect the Fed to maintain steady NGDP growth during the current lockdown, but we absolutely should expect expected NGDP a year or two from now to be on target. In my view, the current market expectation for NGDP in 2021 and 2022 is lower than we would like (although it’s hard to be sure.)

So while the Fed has appropriately been very active in various stimulus measures, let’s hold our applause until we see various futures markets provide evidence that expected NGDP growth is on track.

Printing money is basically costless, and requires essentially zero effort. All that matters is whether they’ve printed enough and whether they are aiming at the right target. Right now, I’m not convinced on either count. The Fed needs to announce a level targeting policy regime and they need to generate bigger TIPS spreads.

PS.  Stephen Kirchner interviewed me a few weeks ago:

Scott Gottlieb poses an excellent question:

He’s right.

Here’s another good question:

What if the US began taking coronavirus seriously on February 20, when we had 15 reported cases, instead of waiting three weeks until the NBA shut down, by which time we had 1630 reported cases. (I understand that we actually had many more than 15 cases on February 20, but it’s also true that we had many more than 1630 cases on March 12.)

And here’s one more question:

Is it more inexplicable to be slow in reacting to a new and poorly understood virus, or slow in reacting to a virus that has been very well understood for more than a month?

[And don’t give me a “public choice” model to excuse our slow response, unless you plan to apply that public choice model to Wuhan/Beijing conflicts within China as well.]

PS. Check out this excellent David Beckworth interview of Alex Tabarrok. I particularly liked the discussion of how we in America reacted to the Chinese coronavirus outbreak.

Update: Great article on how Azar tried to warn Trump in January, and top Trump aides told him to avoid giving the president any bad news. Trump doesn’t like bad news. I’ve always known that the Trump administration was a clown show, but it’s even worse than I imagined.

Oh, and the medical people in the Trump administration knew this was a problem from early January, so the Chinese “cover-up” is not an excuse.

During the late 1980s, I recall being greatly influenced by Michael Fumento, the author of “The Myth of Heterosexual AIDS.” I never read his book, but when I read an earlier article he wrote and then looked at the data, it was pretty clear that people in America were not at a high risk of contracting AIDS via heterosexual intercourse.

Razib Khan says that he was also convinced by Fumento’s argument. Then Khan points out that after correctly anticipating that various epidemics would be less severe than forecast, Fumento incorrectly forecast that the coronavirus would not turn out to be a major global pandemic.  Here’s Khan’s explanation:

What’s going on here? Fumento clearly knows a lot about the spread of infectious disease. He has a historical perspective. But perhaps he has too much? I’m old enough to remember the 1990s Ebola scare, SARS, H1N1, and, the second Ebola scare. It is entirely true to assert that these were sensationalized by the press. For various reasons, all of these outbreaks did not spread into a very lethal pandemic.

COVID-19 seems to be in a different category. Fumento talks about SARS and H1N1. It is important to remember that China did not shut-down in the way it did for COVID-19. They perceived it to be different, and it was. The best of models often don’t plan out. That’s why my own early alarmism was driven by the reaction of the Chinese authorities in Hubei. They clearly thought this was very dangerous.

I still think there is room to dissent from excessive panic and the hyperventilating of the press and its amen corner among the cultural elites. But it needs to be done calmly and judiciously.

That’s also my view.

This case reminds me a bit of Nouriel Roubini, who became famous when he correctly forecast the housing collapse and subsequent recession in the 2000s.  Roubini has a long history of being relatively bearish, at least much of the time since 2003.  Thus he’s been criticized for being overly bearish during periods when, in retrospect, it was a good time to buy stocks.

It seems to me that we expect too much from forecasters.  No one can predict all the twists and turns of world history.  Successful forecasters often have one key insight, and that insight allows them to be ahead of the curve when it fits the situation and the general public lacks that insight.  For Roubini, the insight was that financial “black swans” are a bigger risk than many of us assumed.  For Fumento, the insight is that human’s often overreact to scary sounding viral outbreaks.

Most viral outbreaks are not catastrophic, and hence Fumento will be right more often than not.  The stock market has had a strong upward trajectory for a century, and hence bears like Roubini will often be wrong.

But people remember the big issues, the unusual events.  Roubini will always be remembered for his correct prediction of the Great Recession, and Fumento better hope that he doesn’t end up being remembered for getting the coronavirus wrong.

Speaking for myself, I’m more like Fumento.  I’m more likely to predict that people are overreacting to whatever comes along, as frequent readers of my blog may have noticed.  Black swans are very rare, and hence the prediction most likely to pan out is that that fuzzy outline of a bird you see flying in the distance is just a robin or sparrow, not a black swan.

Each year I predict that the Chinese economy will not crash and until it does I’ll be correct.  Of course when it does finally crash then people will remember my foolish optimism, and forget all the previous times I was right and the China bears were wrong.

I can live with that.

PS.  This Econlog post on the EMH covers similar ground from a different perspective.

The news media has recently been discussing the reduction in mortality estimates for the US, from a 100,000 to 240,000 range to more like 60,000. Why did this occur? This National Review article by Jonah Goldberg caught my eye:

My American Enterprise Institute colleague Lyman Stone, an economist based in Hong Kong, makes the case that the essential variable in “flattening the curve” isn’t central planning but behavior change. Many businesses closed down well before they were ordered to. Millions of people practiced social distancing and refused to get on planes not because they were commanded to, but because they were convinced this was a wise course of action for themselves and their loved ones.

People change their behavior when they are given clear information about risks. 

This doesn’t mean that governments have no role to play; closing government schools was probably a good idea. (Heck, it’s been a good idea for 200 years.) And many average people look to government leaders for advice. This is one area where Sweden’s leaders may have fallen short.

I’ve done a number of posts pointing to the unusually low number of recent cases on the West Coast (which is where the epidemic began in America). We did adopt official social distancing policies before the rest of the country, but not far enough ahead to fully explain the difference. On March 23rd I said:

My wife is well connected with the Asian community out here, and told me of numerous events being cancelled back when the total case numbers were still tiny.  I thought the actions were excessive, but now those cancellations now look much more sensible. . . .

It seems to me that the Asian community in California was especially aware of the severity of coronavirus, and that may explain why it spread much less rapidly here, after presumably entering California via travelers from China. After all, the previous SARS epidemic made a much greater impression on the psyche of Asian people than on Westerners.  East Asian countries also seemed better prepared than Western countries.

(BTW, there are significant cultural differences between the Asian communities here and in places like New York.)

Since I wrote that post, the West Coast disparity is becoming ever more obvious. I recall reading a few weeks ago that California expected 11,000 deaths. A more recent estimate is only 1700, not that many for a state with 40 million people. And while the Asian community comprises only a modest portion of the West Coast’s population, it’s also the population where the coronavirus first took root.

At the time, I thought the local Chinese were foolish to cancel social events when the whole US had only a few dozen cases, but now their response looks more reasonable.

Orange County (where I live), has a big Chinese community and previously had lots of flying back and forth with China. While my county has almost 1% of the total US population, we have less than 0.1% of deaths from coronavirus (18 deaths out of 3.2 million people.) We are very lucky.

The NR article ends as follows:

Information doesn’t just come from governments. The death tolls in Italy and New York probably did more to change behavior on the ground than all of Trump’s press conferences or Dr. Anthony Fauci’s TV appearances.

And this raises another complication for those who think the government can just “re-open” the economy with the flick of a switch. Trump and all of the governors could lift the stay-at-home orders and federal advisories tomorrow. That wouldn’t necessarily fill the restaurants, airplanes, or stadiums. People would still need to be convinced it’s safe. Such persuasion comes via clear, believable information, not orders from on high.

And that’s how it should be in a free society.

I’ve been arguing that we did far too little social distancing in the early part of the epidemic, and we’ll probably do too much during the latter stages of the epidemic. I still feel that way. As for now, I think we need to continue aggressive social distancing for a while.

Update: It occurs to me that the final paragraph gives a misleading impression that I was prescient. Not so. I meant that in retrospect we clearly did too little social distancing in late February and early March. I was also behind the curve at the time.

I’m endlessly fascinated (and frustrated) with the US media reports on “China”. Here I’d like to consider what it would be like if they covered “America” in the same way. Take this comment, in an otherwise very high quality essay:

China is certainly engaged in an English-language propaganda campaign to depict its response as an effective deployment of high-tech authoritarianism that rapidly contained the virus and bought the world time. It’s buttressing the message by sending medical equipment and experts to other countries, and spreading a false story that the illness originated as U.S. military bioterrorism.

The article links to a NYT story:

The insinuation came in a series of posts on Twitter by Zhao Lijian, a ministry spokesman who has made good use of the platform, which is blocked in China, to push a newly aggressive, and hawkish, diplomatic strategy. It is most likely intended to deflect attention from China’s own missteps in the early weeks of the epidemic by sowing confusion or, at least, uncertainty at home and abroad.

Mr. Zhao’s posts appeared to be a retort to similarly unsubstantiated theories about the origins of the outbreak that have spread in the United States. Senior officials there have called the epidemic the “Wuhan virus,” and at least one senator hinted darkly that the epidemic began with the leak of a Chinese biological weapon.

“The conspiracy theories are a new, low front in what they clearly perceive as a global competition over the narrative of this crisis,” said Julian B. Gewirtz, a scholar at the Weatherhead Center for International Affairs at Harvard.

Which conspiracy theories? The Chinese theories about America or the American theories about China?

Sen. Tom Cotton keeps airing a long-debunked theory that the deadly coronavirus is a Chinese biological weapon that was leaked from a government lab in Wuhan.

And who is “they” in that final sentence of the NYT quotation? China and America? Or just China?

I’d guess that 99% of NYT readers would assume that “they” means just China, even though the evidence clearly suggests that people in both countries are spreading conspiracy theories.

I can already hear you complaining about moral equivalence. “One wacky Senator from Arkansas is not equivalent to a Chinese ministry spokesman. We all know that individual Americans are free to speak their minds, whereas the Chinese move in lockstep.”

You mean like the Chinese ambassador to the US?

In a rare interview, China’s ambassador to the United States, Cui Tiankai, told “Axios on HBO” that he stands by his belief that it’s “crazy” to spread rumors about the coronavirus originating from a military laboratory in the United States.

I guess China’s ambassador to the US never got the memo.

As far as I know, “China” never accused the US as having created the virus, nor did “America” accuse China. But our media seems to have a double standard regarding which countries to anthropomorphize.

Here’s Politico:

While we often think of those jobs as focused on protecting against terrorism, both agencies have critical public health roles, too; U.S. intelligence spent the winter racing to understand how serious a threat Covid-19 truly was and deciphering the extent of China’s cover-up of its epidemic. Just last week, news broke about a special report prepared by U.S. intelligence documenting China’s deception about the disease’s spread—information that, had it been more accurately captured and understood, might have caused a faster, harder response and lessened the economic and personal toll of the epidemic at home.

Apparently spending “the winter racing to understand” did not include asking our close allies in Taiwan if there was a problem in Wuhan. More importantly, even after the Chinese admitted the severity of the problem (in January) and closed down Wuhan, the US government spent the next 6 weeks twiddling its thumbs. And we are supposed to be upset that we weren’t given an extra two weeks to twiddle our thumbs?

Is China now the country to blame for all our inadequacies? We have 4% of the world’s population and nearly 30% (and rising) of the coronavirus cases. That’s China’s fault? I guess if you believe that the deindustrialization of the Rust Belt was China’s fault, it’s not such a stretch to blame them for Mardi Gras or our lack of testing and surgical masks.

Here’s just a small portion of the failures documented in the Politico piece:

Yet Trump has churned through officials overseeing the very intelligence that might have helped understand the looming crisis. At Liberty Crossing, the headquarters of the Office of the Director of National Intelligence, the government will have been without a Senate-confirmed director for eight months as of next week; last summer, Trump accepted the resignation of Dan Coats and forced out the career principal deputy of national intelligence, Sue Gordon. Coats’ temporary stand-in, career intelligence official Joseph Maguire, then served so long that he was coming close to timing out of his role—federal law usually lets officials serve only 210 days before relinquishing the acting post—when Trump ousted him too, as well as the acting career principal deputy. In their place, at the end of February—weeks after the U.S. already recorded its first Covid-19 case—Trump installed U.S. Ambassador to Germany Richard Grenell as his latest acting director, the role that by law is meant to be the president’s top intelligence adviser. Grenell has the least intelligence experience of any official ever to occupy director’s suite.

This Friday, the role of Homeland Security secretary will have been vacant for an entire year, ever since Kirstjen Nielsen was forced out over Trump’s belief she wasn’t tough enough on border security. DHS has numerous critical roles in any domestic crisis, but its acting secretary, Chad Wolf, has fumbled through the epidemic; in February, Wolf couldn’t answer seemingly straightforward questions on Capitol Hill from Republican Senator John Kennedy of Louisiana about the nation’s preparedness—what models were predicting about the outbreak, how many respirators the government had stockpiled, even how Covid-19 was transmitted. “You’re supposed to keep us safe. And you need to know the answers to these questions,” Kennedy finally snapped at Wolf. Wolf has been notably absent ever since from the White House podium during briefings about the nation’s epidemic response.

Yeah, it’s all China’s fault.

I predict that when Trumpistas read this story . . .

In phone calls with outside advisers, Trump has even floated trying to reopen much of the country before the end of this month, when the current federal recommendations to avoid social gatherings and work from home expire, the people said. Trump regularly looks at unemployment and stock market numbers, complaining that they are hurting his presidency and reelection prospects, the people said.

. . . they’ll think the important point is when should the economy restart, not the criterion that Trump uses when making this decision.

PS. It’s been a couple decades since I heard Rush Limbaugh on the radio. When did he become a conspiracy nut? Do millions of conservatives still listen to this man? I’d like to see Rush go speak to the overworked doctors and nurses in NYC and tell them that California faced a far more severe coronavirus epidemic last November, and none of their doctors and nurses complained about being overworked.