Archive for August 2020


As I predicted . . .

. . . back in early May. Here are the year-over-year growth rates for 2020:Q2:

Norway: Minus 5.3%
Finland: Minus 6.4%
Sweden: Minus 7.7%
Denmark: Minus 7.8%

It was never about lives vs. the economy. If people don’t want to go out and spend, you can’t stop them.

PS. The bigger European countries did worse than Sweden, but the other Nordic countries are probably the best comparison.

Things we already know about the winning party

The winner of the 2020 election will be the party that supports vast increases in government spending, fueled by debt (i.e. a tax burden on the next generation.)

It will be people who believe the government should run the economy, picking winners and losers:

Government intervention in the economy used to be anathema to conservatives. But when the Senate called a vote last month on legislation that would direct billions of federal dollars to semiconductor manufacturers, nearly every Republican supported it. . . .

“Ultimately, capitalism is the best economic model. It will always yield the most efficient outcome. But there are times where the most efficient outcome is not the best outcome for America,” Sen. Marco Rubio (Fla.), one of the Republican sponsors of the semiconductor legislation, said in an interview.

For the past year, Rubio has been arguing that the government must identify the industrial sectors most critical to national security and economic growth, and spur investment in them, an approach he calls a “21st-century pro-American industrial policy.”

That kind of language is more often associated with Democrats, who have long endorsed the government taking an active role in shaping the economy, from Franklin D. Roosevelt’s New Deal to Alexandria Ocasio-Cortez’s Green New Deal. Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) are big proponents of the approach, and Democratic presidential candidate Joe Biden has peppered his platform with industrial-policy proposals to revive the economy, including spending an extra $400 billion of federal money on American-made goods.

Nationalism, protectionism, industrial policy, ballooning federal spending, bigger budget and trade deficits, Nimby zoning, personality cults, loyalty tests, anti-Muslim, pro-global warming, militarize the police, macho mask phobia, anti-testing, bleach!, pro-vigilante, pro-torture, pro-US war criminals, Putin worship, xenophobia—welcome to the modern GOP (excluding Mitt.)

The Dems are still sane at the very top, but at the lower levels the left is rapidly moving toward the US version of China’s Cultural Revolution.

Have a nice day.

Fed: MMs were mostly right during the Great Recession

The new Fed policy represents an implicit acknowledgement that the Fed erred during the Great Recession, and should have done enough stimulus to offset the deflation of 2009.

This is basically the argument made by market monetarists back during the Great Recession. Yes, our argument referred to offsetting the fall in NGDP, but offsetting the fall in the price level would have implied the same sort of make-up policy. Prices and NGDP tend to move in tandem when monetary stimulus is applied. During periods of slack in the economy, an extra 1% inflation implies much more than an extra 1% in NGDP growth. I’d estimate that the Powell doctrine applied back in 2009 (if credible) would have given us roughly 80% of what we were asking for.

I won’t live that long, but perhaps David Beckworth will get a public apology from the Fed when he turns 90. 🙂

Focus on 135

We can change Fed policy. By we, I mean all the groups that talk about the Fed.

Of course 99% of Americans pay no attention to Fed policy. The other 1% includes pundits like me, reporters, academics, blog readers like you, big bankers, some politicians, and investors.

To make policy more effective we need to keep mentioning the number 135, over and over and over again. The PCE price level must be near 135 in January 2030 if average inflation targeting is to be a success.

The Fed wants to keep it all quite vague so that they have more discretion, more excuses for failure. But it’s actually pretty clear what success means; it means a PCE price level of 135 in January 2030. That’s the criterion for success.

All discussion of monetary policy should now include a reference to 135. “How’s the Fed doing at delivering the 135 price level that they promised?” The Fed may not believe it made that promise, but what else could AIT mean if not a promise to produce an average inflation rate of 2% over this decade? There’s no other sensible interpretation. A PCE of 130 would be a failure. A PCE of 140 would be a failure. It must be near 135.

So hold them to their promise. Hold their feet to the fire!





135 . . .

(Straussian reading: I’m trying to convert their AIT promise to PLT.)

It’s not the heat, it’s the stupidity

Wouldn’t you know that California’s mild summer climate would be ended by global warming just about the time I move here. During the dog days of summer, I’ve been thinking about the political situation. I always start with an international perspective, as I don’t believe you can understand America unless you understand the world.

I’m a bit dense, so it took me a while to figure out that we aren’t living in the 20th century anymore. I’m going to argue that 21st century politics is dominated by stupidity and tribalism, but first a long digression, explaining how I reached this conclusion.

In the early 21st century, I recall being astounded that a buffoon like Berlusconi could be elected in a major Western European country—on a vacuous platform of making Italy great again. The European media was also astounded, and quite annoyed. (Berlusconi even sued The Economist for libel, a very Trumpian move.)

When Chavez came along in Venezuela, I initially assumed he was a sort of Fidel Castro-type figure. One of my Venezuelan students set me straight. “You don’t understand, he’s a complete buffoon. He goes on TV and rambles incoherently for hours on end.” Whatever you thought of Fidel Castro, he was a serious man with serious objectives.

I recall when places like the Philippines started electing empty headed soap opera stars, merely based on personality. (No Reagan comparisons please—Reagan was a two-time California governor who was well read in politics.) I thought to myself; “What’s wrong with voters in these banana republics?” Now I know it was I who was stupid—missing the bigger picture.

I’ve always been as anti-communist as anyone, but at the same time I viewed international communism as a serious enterprise. The goal was to spread Marxist ideas all over the world, to covert the global proletariat and intellectuals. Then North Korea became simultaneously the most stupid and the most racist regime on Earth. Their Dear Leader puts out numerous statements that are laugh out loud idiotic, when not being appallingly racist. (“Koreans are the master race”, “Obama is a monkey”, etc.)

I couldn’t process any of this. I had assumed the communists were trying to subvert other countries, to make communism sound appealing.

How did all of this happen? Maybe neoliberalism is to blame. But not in the sense that the left assumes. Voters throughout the world are not embracing socialism.

Start with the stupidity. Younger readers can’t even imagine the media environment I grew up with. Imagine that almost 100% of Americans rely on only three sources of information. There were called “CBS”, “NBC” and “ABC”, but you might just as well have called them NPR-1, NPR-2 and NPR-3. All were serious, sober news outlets that tried to be impartial but ended up with a center-left bias simply because most people interested in becoming journalists are left of center.

[That doesn’t mean that everything was different back then. Trump’s likely to win in 2020 for exactly the same reason that Nixon won in 1968. The white backlash to race riots, the “silent majority”, the “tough on crime” rhetoric. History does rhyme. But despite his corruption, Nixon was a highly intelligent man with serious ideas and respect for the presidency. Nixon became corrupt, he didn’t start out that way. And he was certainly no buffoon.]

So how did we end up with our mind-bogglingly stupid media (and politics) of the 21st century? The market gave viewers what they wanted. When I was young the content of news was determined by the elites; there was no market. It was a government-controlled cartel. Now we get what we want. Most of us (left and right) want stupid.

Neoliberalism also ended the socialism/capitalism split of the 20th century, and replaced it with tribal splits. No longer do white and black working class people see themselves as being on the same side.

The GOP understands how the world has changed, and is running a campaign on that basis. The Dems still think we are in the 20th century. They’ve brought a knife to a gunfight.

It’s not that Trump himself is highly popular. He won in 2016 because America is one of the least democratic rich countries, the only one where the guy getting the most votes for president can lose. He’s not even popular enough to win the electoral college (i.e. lose the popular vote by less than 3%) without the incompetence of the Democrats.

The single event that best encapsulates the woeful Dems is the firing of David Shor for tweeting an academic study that shows how racially triggered riots help the GOP. First, the study is obviously true. And second, the firing of Shor advertised the self-righteous intolerance of the modern American left. Yes, this single event isn’t going to tip the election; most voters don’t even know it happened. But you can be sure that most voters do know in a general sense about the PC excesses of social justice warriors.

The Dems also miscalculated on the demographics. Years ago, I pointed out that America is not becoming a majority minority country. The Dems wrongly used California as the model— a state where whites became the minority and the left took over. But the real reason this occurred is that the whites in California became increasingly liberal. The actual model for 2070 America is Texas, the other big state where whites are in the distinct minority. In Texas, the GOP continues to dominate.

The left is right about one thing—race is a social construct. What they don’t realize is that in a country where 14% of the population is black, and that percentage is stable, race will never be a winning issue for the Dems. All the GOP needs to do is persuade enough Hispanics and Asians and mixed race people to associate themselves with the “successful” white tribe and they can keep winning elections. That’s a lot easier to do than the Dems realize. It becomes even easier if there are riots in the streets, and easier still if SJWs go around demanding that whites admit their privileged status, and even easier when Asian students are discriminated against by mostly Democratic college officials.

Given a choice between white nationalism and anti-white nationalism, voters will choose white nationalism.

Fifty years from today, most Americans will be officially “non-white” and yet 75% of Americans will continue to self-identify as white. (My Chinese daughter will be white.) And the GOP will still be winning 50% of elections, representing the “white” tribe.

PS. As far as I’m concerned, Trump has already won. Given the appalling condition of the country, the fact that the betting markets have this a close race is an indication that the GOP dominates US politics. Indeed the appalling condition of the country (riots, etc.) actually helps Trump. This is no longer the 20th century, when presidents were held accountable.

PPS. I know it’s stupid for intellectuals like me to write about stupidity. I do understand that people are people, and that all that’s changing is that stupidity is being empowered. The Roman Empire was incredibly stupid (read Suetonius). The late 20th century was smart. Now we are again empowering stupidity. People don’t change; it’s society that changes.

PPPS. Beyond stupidity and tribalism, there is also an aging global population. In the 21st century, politics almost everywhere will increasingly become dominated by the very old. A world of stupid grouchy old tribalists.

PPPPS. I’m proud of my Bucks, even though their recent action will probably help Trump in the short run. The arc of the moral universe is long . . .

HT: Razib Khan