Archive for November 2021


How to avoid a recession

This comment in the WSJ caught my eye:

Fed officials will have to decide whether or when to raise interest rates to restrain inflation. If they move too little or too late, they risk letting inflation get worse for longer. If they move too much or too soon, they risk causing an economic downturn.

Actually, the bigger risk is that moving too late will cause a recession. Right now, the labor market is quite strong and the economy has a lot of upward momentum. Inflation expectations remain modest. Modestly slower NGDP growth will not raise the unemployment rate. The economy has a lot of upward momentum. Inflation expectations remain modest. Thus it is a good time to slow inflation.

Recessions tend to occur later in a cycle, when growth has slowed and inflation expectations have risen to unacceptably high levels. The biggest risk is not a recession in 2022, it’s a recession in 2024 or 2025.

You don’t respect people by killing them

This story caught my eye:

The trailer for Tucker Carlson’s special about the Jan. 6 mob at the U.S. Capitol landed online Oct. 27, and that night Jonah Goldberg sent a text to his business partner, Stephen Hayes: “I’m tempted just to quit Fox over this.”

“I’m game,” Hayes replied. “Totally outrageous. It will lead to violence. Not sure how we can stay.”

And this:

The reality of Fox and similar institutions is that many of their leaders feel that the tight bond between Trump and their audiences or constituents leaves them little choice but to go along, whatever they believe. Fox employees often speak of this in terms of “respecting the audience.” And in a polarized age, the greatest opportunities for ratings, money and attention, as politicians and media outlets left and right have demonstrated, are on the extreme edges of American politics.

Carlson became the network’s most-watched prime-time host by playing explicitly to that fringe, and “Patriot Purge” — through insinuations and imagery — explored an alternate history of Jan. 6 in which the violence was a “false flag” and the consequence has been the persecution of conservatives.

I’d expect anyone with half a brain to know that you respect people by telling them the truth, not by lying to them. But if you’ve watched Fox News . . .

Fox has peddled conspiracy theories about Covid, and as a result their viewers are now much more likely to die of the disease than CNN viewers. That’s not treating them with “respect”; that’s catering to the ignorance of a segment of Fox viewers (not all).

Meanwhile the Democratic Party is making an all out push to elect Donald Trump president in 2024. They seem to be operating with the political theory that, “Meals are especially tasty when you eat the dessert first and the vegetables at the end.”

Have a nice day.

PS. Powell was reappointed. Yawn. Trump will dump him in 2026.

Why I don’t post on crypto

Tyler Cowen recently noted that monetary economists don’t have much useful to say about crypto:

But take [monetary economics] in general — has it had anything interesting to say about crypto developments? I don’t expect it to have predicted crypto, or its price, any more than I expect macroeconomists to have predicted recessions (see Scott Sumner on that one). But surely monetary theory should be able to help us better understand crypto? And its price.

Money is one of the most ambiguous terms in the English language. What does it mean to say, “Bill Gates has a lot of money”? That he has a fat wallet full of dollar bills? Or a lot of Microsoft stock? The field of “monetary economics” might better be described as the field of “medium of account economics”. Because crypto is not a medium of account, our models are not very useful in explaining changes in its value. if you want to learn about it, you can visit the latest posts at Funfair’s Blog.

Some people might say, “Wait a minute, crytpo has many money-like attributes. It is often used as a store of value. Like fiat currency, it has no intrinsic value. Occasionally, it is even used as a medium of exchange.” Yes, all that is true. And any true “theory of money” should have something useful to say about crypto.

But the field that economists call “monetary theory” is not a theory of money, it’s a theory of the medium of account. And crypto is not a medium of account. Sorry.

PS. What about stablecoins? Well, we do have models that explain changes in the value of stable coins. Those are the models that explain price inflation (not always very well, but no worse with stablecoins than with other media of exchange.)

In search of high school

A few days ago, I completed reading In Search of Lost Time. The same day, I got an email that had a list of everyone in my high school class (of 1973). Looking over the list, I saw just 5 names of people I recalled, out of about 650 students. BTW, at least 44 of my classmates are now dead, 30 men and 14 women.

Reading Proust got me thinking about how little I recall of my early life. I’m writing this rather aimless post in the hope of getting feedback—do other people my age recall high school?

Here’s what I recall:

1. I see two Asian names on the list, but I don’t recall them. I’d guess 98% or 99% of my class was white. Today, that high school (Madison West) is 52% white.

2. I recall almost none of my teachers. I don’t recall what went on in class. I do recall there were classes of roughly one hour, and then we would move to a different room (unlike elementary school). I recall English, math, social studies, chemistry, etc. But what happened in class? Was it a lecture, like college? I don’t recall. I recall being endlessly bored, watching the clock slowly edge up to 3:20, when we were released. Most of all, I looked forward to summer vacation.

3. By graduating a semester early, I was able to spend only 2 1/2 years in high school . (9th grade was still junior high school) But not because I was a brilliant student (my GPA was about 3.2). Rather I just wanted to finish up as soon as possible, so I took the final two courses via correspondence courses. (Via the US mail, there was no internet). Then after finishing my in-person classes in January 1973, I worked five days a week in a canning factory to earn money for college. I must have hated school, but I don’t recall why. I wasn’t bullied.

4. I feel like high school must be really different today, due to innovations like computer games. I recall lots of time spent doing nothing–no phone to play with. During my final semester they switched to “open campus”, as the 1970s were among the most decadent period in US history. I’d take off Tuesday and Thursday afternoon when I had no classes and bicycle out into the country for 40 or 50 miles.

5. The 99% white figure probably makes you think it was a very conservative “pre-woke” time and place. But it didn’t seem that way at all. Students would go down to the nearby campus to engage in the frequent protests against the war in Vietnam.

6. On the other hand, politics was not polarized between the two parties. There were no blue and red tribes. The primary national news media were bland evening news shows that were all sort of center left—nothing like Fox or CNN. Sophisticated Madisonians might read the New Yorker, but (AFAIK) almost no one read the NYT. Without the internet I relied on our local paper, along with magazines like Time. (Yet somehow this primitive society put a man on the moon when I was in junior high.)

7. I don’t recall people being obsessed with getting into good colleges. I was accepted at the University of Chicago, but my family decided it was too expensive so I went to the University of Wisconsin, right in my hometown. (I did eventually go to the UC for grad school.) And how did I get accepted to the UC with a 3.2 high school GPA and precisely zero extracurricular activities of any kind? I have no idea.

8. Because the upper Midwest was still pretty rich in the early 1970s, and because the civil rights movement was still in people’s minds, there wasn’t really a coastal vs. interior split in America, it was more north/south. Wisconsin seemed somehow closer to Massachusetts or Washington state than to Alabama or Arkansas. We made fun of southern rednecks. Each time I return to Wisconsin it seems a bit more “southern”, further and further removed from coastal cities. More country music and more confederate flags than before. More Republican.

PS. Proust must have been greatly influenced by Schopenhauer. Consider (from the final volume):

And even a more profound pleasure, like the pleasure which I might have hoped to feel when I was in love with Albertine, was in fact only experienced inversely, through the anguish which I felt when she was not there . . .

PPS. And Knausgaard was clearly influenced by Proust. Both produced long, semi-biographical novels. Both long novels became less novelistic and more like an essay toward the end. Proust has a long discussion of WWI in the final volume, and Knausgaard has a long discussion of the Nazi era. Both also break the “fourth wall” toward the end, commenting on the reception of the earlier volumes. Both end up writing novels about writing novels. About struggling to write novels.

Here Proust defends himself from critics that accuse him of creating amoral characters:

The vulgar reader is wrong to think the author wicked, for in any given, ridiculous aspect [of someone’s personality], the artist sees a beautiful generality; and he no more faults his subject for being ridiculous than a surgeon looks down on a patient for being afflicted with persistent circulation problems.

No faith in FAIT?

James Pethokoukis recently tweeted a Goldman Sachs forecast for growth, employment and inflation. This caught my eye:

That forecast is not consistent with the “Fed’s goal under its new framework”, at least according to my understanding of the framework. To achieve a 2% average inflation rate for the 2020s, the Fed would need to bring inflation down below 2% in future years, in order to offset the above 2% inflation of the past few years.

Of course not all policy failures are equal. If Goldman Sachs is correct, the Fed will still have done far better than during the Great Recession. A modest miss on the upside is far better than a miss on the downside. But “good enough” should not be the goal. The Fed should try to do the very best it can. I will be very interested in seeing the next set of Fed forecasts for inflation. If they are serious about FAIT then the forecast for inflation in 2023 should be below 2%. Unfortunately, I don’t expect that to occur.