Archive for August 2021


Random articles

1. Philippe Lemoine has a good article on how Covid will impact society in the long run:


The pandemic is on its way out, but SARS-CoV-2 is here to stay. Fortunately, as everyone develops immunity to it (whether through vaccination or natural infection), it will soon no longer be a major problem anymore. The virus will continue to circulate, but much less than during the pandemic and, even when people are infected, the infection will typically be mild. In the future, almost everyone will get infected for the first time during their childhood, which is harmless and will protect them against severe illness when they are reinfected.15 The virus will continue to mutate and some of those mutations will favor immune evasion, but while this will allow it to infect people who have already been infected or vaccinated more easily, immunity should continue to protect against severe forms of the disease, thanks in particular to the role played by T-cells. This is likely what happened with other human coronaviruses, which are already endemic and typically cause a cold in the people they infect. To the extent that immune evasion occurs, it will be very gradual and the fact that most people will be infected every few years will update their immunity, ensuring that subsequent reinfections will also be mild. The most vulnerable people, whose immune system doesn’t work very well and could use some help to be ready in case of infection, can get a vaccine booster from time to time. The virus will still kill people, as the flu does, but it will never cause the same amount of disruption again. The hardest part of what lays ahead may be to convince people who have been traumatized by the pandemic that it’s over and that restrictions are no longer necessary.

2. The Economist reports that only 15% of the Bulgarian population has been fully vaccinated, and yet demand for vaccination is so low the country is being forced to export lots of unused doses:

Historically, Bulgarians have had little trust in official advice. Circumventing rules of all sorts is a national pastime. Many people are suspicious of the jabs because they are new; some think the virus does not exist, and that measures against the pandemic are a conspiracy. Only a handful of prominent politicians have had themselves vaccinated on television, or are urging people to get a jab. . . .

Watching Bulgarian television can leave you confused. A few covid-sceptical doctors are regularly invited on talk shows. Some advise people with medical conditions that would place them in priority vaccination groups in most countries against getting jabbed. About 30% of doctors and 60% of nurses are unvaccinated.

Dr Kunchev says this is partly because infectious diseases and immunology are barely covered in medical-school curriculums. 

Is this because Bulgaria is poor? Perhaps, but Portugal is also relatively poor, and has the world’s highest vaccination rates, with over 78% having received a first dose:

3. Speaking of The Economist, this is madness:

Only when the world is adequately vaccinated will travel start to feel as it did before the pandemic. That may not be until 2024, by some estimates. Even then, daft rules could stick. America’s ban on travellers with hiv was introduced in the 1980s and abolished only in 2010. Likewise, airlines could be asking for covid-19 papers for years to come. Britain’s transport minister, Grant Shapps, says Britons who venture abroad will need to be fully vaccinated against covid-19 “for evermore”.

Vaccine certification may well make sense in the long run. But bans on visitors from certain countries or caps on international arrivals do not. The risk is that these rules and regulations may outlive their purpose not because governments cannot undo them, but because no politician wants to be the first to try.

4. And The Economist is skeptical of the value of massive fiscal stimulus:

Some economists see insufficient spending as a cause of subdued labour demand. In three-quarters of rich countries the “fiscal impulse”, a measure of the oomph government spending gives the economy, is expected to turn negative this year. Yet it seems unlikely that governments can close the worker deficit simply by spending more. Compare America and the EU. In the spring of 2020 aggregate working hours in both economies tanked. America then passed gargantuan stimulus packages, while European governments chose more modest measures. The recovery in working hours since then has been only marginally better in America—not much extra labour for a lot of extra cash.

5. The same issue documents the sad decline in democracy in numerous Asian countries, including India:

Under Narendra Modi, the prime minister since 2014, the ruling Bharatiya Janata Party (BJP) has eroded many of the checks and balances that underpin true democracy. Elections themselves are largely free and fair. But defamation laws are abused to hound critics. Political opponents are intimidated and even imprisoned. Over 7,000 Indians have been charged with sedition under the BJP, casting a chill on civil society. . . .

The v-Dem Institute at the University of Gothenburg, which produces an annual report on the state of democracy around the world, declared this year that India has gone from “electoral democracy” to “electoral autocracy”, as autocratic as Pakistan and worse than Bangladesh or Nepal. 

Still more democratic than China, but the gap is narrowing.

6. A few months ago, some commenters asked me why I thought the US was becoming more puritanical. Here’s an example:

OnlyFans provided a financial lifeline to sex workers during the Covid-19 pandemic. Now those who have built businesses on the platform are wondering whether they’ll see everything evaporate. . . . The company has said the changes were due to pressure from financial services companies, such as banks or payment providers.

This article in Reason provides some context.

7. The war in Afghanistan may soon be over, but the American government’s war on drug-using Americans is endless:

None of the nine wealthy 20-somethings who were rushed to Manhattan emergency rooms by ambulance one night in November 2019 meant to use opioids. They all thought they were using cocaine, until seven of them passed out within minutes of the first bump.

All of them needed hits of naloxone, the overdose reversal drug, on the way to the hospital. Two were so far gone that they needed three.

The partiers were part of five groups who didn’t know each other, but several had the same contact’s number in their phones, suggesting that a tainted batch of coke was indeed floating around Midtown and Lower Manhattan that night. Blood tests indicated that the cocaine was tainted with fentanyl,

That’s what an illegal drug market looks like—lots of accidental overdoses.

8. Trumpistas a month ago: “Biden shouldn’t get credit for the pullout, as he is merely implementing Trump’s policy decision.”

Trumpistas today: “How dare you suggest that this fiasco was Trump’s idea.”

(But don’t underrate Pompeo’s role.)

Covid follies

Here’s what I said in April 2020:

My general view is that social distancing is better than an explosion of coronavirus cases. I believe we were too slow to begin social distancing, at least in hindsight. At the same time, I expect that after the worst phase of the epidemic is over we’ll do too much social distancing.

And here’s Matt Yglesias today:

I’d like to claim to be some sort of Nostradamus, but anyone who has lived in the US for 65 years and has half a brain would have known that Americans would wildly overreact to Covid risks at the tail end of the pandemic. But even I could not have imagined the overreaction would be this extreme. Here’s the NYT article that Yglesias was reacting to:

Dr. Murray said boosters would undoubtedly boost immunity in an individual, but the benefit may be minimal — and obtained just as easily by wearing a mask, or avoiding indoor dining and crowded bars.

The administration’s emphasis on vaccines has undermined the importance of building other precautions into people’s lives in ways that are comfortable and sustainable, and on building capacity for testing, she and other experts said.

“This is part of why I think the administration’s focus on vaccines is so damaging to morale,” she added. “We probably won’t be going back to normal anytime soon.”

Sadly, a hysterical overreaction to minor risks has been “normal” life in America for decades, so we actually are back to normal. I recently did some traveling and found that not only does everyone have to wear a mask on airplanes, you even need to wear a mask in airports. Why?

PS. This link has lots of amusing comments:

The case for Powell

David Beckworth has an excellent piece in the NYT explaining the case for reappointing Jay Powell for another 4 year term. Since I don’t have much to add, I’ll instead focus on one part of David’s article that I agree with, but fear that some may misinterpret:

Perhaps the most important element that Mr. Powell could bring to a second term as Fed chair is humility. After taking the helm in early 2018, he oversaw four interest rate hikes motivated by a belief that the economy was exceeding its “speed limit” and might soon overheat, with undesired price increases around the corner. Mr. Powell, however, had begun doubting that the Fed actually knew the speed limit of the economy and admitted as much in an August 2018 speech. Later, after the Fed was forced to reverse itself with interest rate cuts in 2019, he acknowledged to Congress that the Fed had indeed underestimated how much room the economy had to grow.

It is rare to see a Fed official, especially a chair, admit a mistake so soon after it happens. Rather than a demerit, this willingness to learn is precisely what a president facing the uncharted waters we are in would want in a central bank leader.

This midcourse correction is an example that I often cite as reason to be optimistic about monetary policy. Indeed before Covid hit in 2020, it was the primary reason why I thought we might finally get that elusive “soft landing”. Alas, that was not to be, but we’ve recovered so quickly that I am once again getting my hopes up for a soft landing in the 2020s. Being able to reverse course when you’ve made a mistake is one of the most important attributes of being a good Fed chair.

So why do I worry that some may misunderstand this example? My fear is that people will assume that the Fed made a mistake because it raised rates 4 times in 2018 and then turned around and cut them 3 times in 2019. That’s not why David and I view 2018 as a mistake. The natural rate of interest moves around, and the policy rate should move with it. Rather David’s appraisal is based on evidence that, in retrospect, a more expansionary policy in 2018 would have led to an outcome closer to the Fed’s target. The Fed misjudged the economy’s “speed limit”

Just so that you don’t think that I’m splitting hairs, let me throw out a claim (which David may of may not agree with), which will help to clarify what it means for the Fed to make a mistake. Fed mistakes do not occur when the Fed reverses course on interest rates, they occur when the inflation/employment outcome is unfavorable. More specifically, when the economy is far from the Fed’s target of 2% PCE inflation and high employment. And here’s my radical claim: The two years in question (2018-19) were the most successful Fed policy in my lifetime, perhaps in all of Fed history. Not one of the best pair of years, the very best.

During my lifetime, there are only a couple two year periods that look even close to 2018-19. One is 1999-2000, when inflation was equally close to 2%. But in that case the unemployment rate was higher than in 2018-19. The only other two year period with similarly low unemployment was 1968-69, but that was purchased at the cost of severe overshooting on the inflation front. So 2018-19 was the very best 2-year period.

Then why do David and I view this as evidence of a policy mistake? Because it could have been even better. If money were a bit easier in 2018, then inflation during 2018-19 would have been slightly closer to 2% and unemployment would have been a bit lower. But again, while this was a policy mistake, it was also the smallest policy mistake in modern Fed history, at least by my estimation. Every other 2-year period was worse.

Confused? Now you see why I fear some people might misinterpret this point. They might assume David is talking about the famous “Mistake of 2018” like it was some sort of huge policy blunder. If it had been a huge blunder, then the case for re-appointing Powell would be weak.

Instead, what we observed is the Fed making a small mistake in 2018, and quickly correcting the mistake in 2019. Think of a bus that is going down the highway. It drifts six inches from the center of the lane, and the driver quickly and smoothly adjusts the steering to bring it back on center. That’s a lot better than having the bus drift onto the gravel shoulder and have the driver lurch back so sharply that people lose their lunch! Powell is like a skilled bus driver, making small and agile corrections to keep aggregate demand on course.

The obvious objection to this post is that I’ve assumed all Fed chairs are dealt the same hand. That’s a fair criticism, especially regarding real shocks like the Covid recession. But most recessions in the US are caused by demand shocks, i.e. bad Fed policy. So it really does make sense to judge the Fed based on macroeconomic outcomes, at least in most cases (not in 2020).

A better objection is that the natural rate of unemployment moves around, and that Powell benefited from a low natural rate in 2018-19 (compared to say the 1970s and 1980s, when the natural rate was higher.) I agree, but that just means that 2018-19 was one of the best 2 year periods ever, perhaps not the very best. The bottom line, however, is that inflation slightly below 2% and unemployment below 4% is a really good outcome, at least relative to any other period in US history.

2926 dead Americans

About three weeks ago, I did a post entitled “1470 dead Americans” (the 7 day total). It’s time for another post, with a death toll that’s doubled.

And in three weeks I’ll do another, with a much higher death total.

It’s also time to get back to normal. Yes, the current death toll is appalling and rising and almost entirely preventable. But this is not a public health emergency; it’s the new normal. Almost everyone (over 12) who wants a vaccine has received one. It’s time to go back to normal life. It’s not going to get better. Just accept the fact that we are self-inflicting one 9/11 a week, and get on with life (or death, if that’s what you prefer.)

End the ridiculous supplemental unemployment benefit program. Stop the fiscal stimulus. End the idiotic eviction moratorium. End the useless mask mandates. Repeal the insane Florida law that prevents private sector vaccination mandates. Open the schools. Open up the world to international travel. Restart America’s immigration program.

Let’s get back to normal.

Jason Furman on NGDP targeting

David Beckworth has a new tweet that caught my eye:

David has some good follow-up tweets that further explain his argument.

I have several problems with Furman’s claim. Let’s start with policy alternatives such as simple inflation targeting, average inflation targeting, and price level targeting. If you use 2019 as the starting point, all three of those alternatives call for even tighter money than NGDPLT. That’s because while NGDP is still modestly below a 4% trend line from 2019, current PCE inflation is well above 2%, and the price level is somewhat above a 2% trend line from 2019.

Now you might argue that the Fed is a “flexible” average inflation targeter, taking into account not just inflation but also output gaps. But as David suggests in a follow-up tweet, the “dual mandate” policy is actually quite similar to NGDPLT. When policy is too expansionary by the NGDPLT criterion it is usually too expansionary by the dual mandate criterion as well. The main advantage of NGDPLT is its greater clarity and transparency.

My second complaint with Furman’s claim is that he’s mixing up NGDPLT with NGDPLT plus a mechanical formula analogous to the Taylor Rule, But NGDP is mostly advocated by a bunch of market monetarists and New Keynesians that are quite skeptical of these sort of mechanical policy rules.

For example, consider the market monetarist view that policy should be set at a position where market expectation of future NGDP is roughly equal to the policy goal. Right now, interest rates are near zero and markets expect them to remain near zero for an extended period of time. And yet the 10-year TIPS spread is consistent with roughly 2% PCE inflation (a bit more with the CPI.) We don’t have a direct market measure of 10-year NGDP growth expectations, but if markets expect 2% PCE inflation then it’s a good bet that 10-year NGDP growth expectations are not significantly above 4%. So it is not obvious that monetary policy is too tight, and there’s no suggestion in market prices that short-term rates should be 4% right now.

The same people who advocated NGDP targeting in 2008 and 2009 were also saying that money was too tight in late 2008 precisely because the Fed was setting interest rates too high on the basis of flawed formula that relied too much on past inflation and too little on market forecasts of future inflation.

Please do not assume that NGDPLT can only work with a mechanical backward-looking formula for central banks to peg interest rates.