Archive for August 2022


Recent articles

1. I knew things were bad in Russia, but I had no idea just how bad. The Economist has an excellent article in fascism in Russia. The following is just a very small excerpt:

In the 1930s Walter Benjamin, an exiled German cultural critic, analysed fascism as a performance. “The logical result of fascism is the introduction of aesthetics into political life,” he wrote. These aesthetics were designed to supplant reason and their ultimate expression was war.

Today the two faces of the war on television, Vladimir Solovyov and Olga Skabeeva, are caricatures of Nazi propagandists. Mr Solovyov is often dressed in a black double-breasted Bavarian-style jacket. Ms Skabeeva, severe and chiselled, has a hint of the dominatrix. They project hatred and aggression. They and their guests decry the West for having declared war on Russia and plead theatrically with Mr Putin to reduce it to ashes by unleashing the full might of Russia’s nuclear arsenal.

This fantasy Armageddon is matched by real violence, the basis of the relationship between the Russian state and its people. A Levada poll commissioned by Committee Against Torture (now itself blacklisted) showed that 10% of the Russian population has experienced torture by law-enforcement agencies at some point. There is a culture of cruelty. Domestic abuse is no longer a crime in Russia. In the first week of the war young women protesters were humiliated and sexually abused in police cells. Nearly 30% of Russians say torture should be allowed.

Atrocities committed by the Russian army in Bucha and other occupied cities are not just excesses of war or a breakdown in discipline, but a feature of army life that is spread more widely by veterans. 

Read the whole thing, it’s incredibly depressing. (We should be doing much more to help Ukraine.)

Conservatives like to dump on Sweden. And Sweden is indeed a bit too socialist. But there are far worse things than Sweden.

2. This is good news:

Now, Colombia is calling for an end to that war. It wants instead to lead a global experiment: decriminalizing cocaine. . . .

Domestically, Petro’s administration is planning to back legislation to decriminalize cocaine and marijuana. It plans to put an end to aerial spraying and the manual eradication of coca, which critics say unfairly targets poor rural farmers. By regulating the sale of cocaine, Tascón argued, the government would wrest the market from armed groups and cartels.

“Drug traffickers know that their business depends on it being prohibited,” Tascón said. “If you regulate it like a public market … the high profits disappear and the drug trafficking disappears.”

Of course the US government is opposed:

“The United States and the Biden administration is not a supporter of decriminalization,” said Jonathan Finer, the White House deputy national security adviser, who met with Petro here before his inauguration.

3. This is bad news, but not unexpected:

China’s ambitious students and their parents once dreamed of acquiring an American university education. Now that dream is dying.

During the first half of 2022, US student visas issued to Chinese nationals plummeted more than 50% compared with pre-pandemic levels, according to a Thursday report in the Wall Street Journal. The US isn’t directly limiting the number of visas. Rather, China’s Covid restrictions, combined with the increasingly unfavorable opinion of the US held by younger people, are giving the Chinese second thoughts about a US education. . . .

Chinese with experience living and traveling in the US generally have a better opinion of the country than those who don’t. As their numbers decline, the US and China alike lose a crucial means of bridging the bitter relationship between rival superpowers.

We launch a cold war against China, and then wonder why they don’t like us.

The best way to compete against China is to allow tens of millions of their best educated to move here.

4. This article on housing in Amsterdam and London is almost like parody of wokism from The Onion. Progressivism pushed to the point of absurdity:

Although Europe is making far more headway reducing greenhouse gas emissions than the United States, we can’t follow their lead in how they got there. From what I observed, people of color, immigrants, and low-income people are not prioritized in decision making in these two cities. Climate, impeccable design, and engineering are.

These cities have built exceptional infrastructure for the dominant culture, and that is much of what American tourists experience on their visits.

Throughout the study tour, we heard phrases like “I don’t see color”, and “we are taking care of those people so their voices aren’t needed at the table”. These “color-blind” approaches continue to leave people out and are not going to address the stark racial inequities in our society.

5. This caught my eye:

I dunno. Those social psychology studies never seem to replicate.

Still overheating?

Readers of this blog know that inflation is a pretty meaningless indicator. Biden didn’t lie when he said inflation fell to zero in July, but he also didn’t tell us anything useful.

NGDP is a much better indicator, but still not perfect. If we assume the key macro problem is business cycles created by nominal shocks interacting with sticky wages, then aggregate wage income may be a better cyclical indicator that NGDP. I usually focus on NGDP because in the US the two figures track each other pretty closely. But if I were a Kuwaiti macroeconomist I’d focus on aggregate wage income when trying to ascertain whether the domestic economy was out of equilibrium.

Commodity prices rose very fast in the first half of 2022. That doesn’t mean the inflation problem was all supply-side—nominal wages also rose rapidly. We have a supply problem and a demand problem.

In the second half of 2022, it seems likely that commodity prices will be trending lower, often sharply lower. Obviously this will make the headline inflation figures almost meaningless. Less obviously, it will subtly distort even NGDP. That’s right, NGDP is not a perfect indicator even in America; aggregate wages are slightly better. Fast rising commodity prices slightly boosted NGDP in the first half (relative to wage growth), and will probably slightly reduce NGDP growth in the second half.

A mild slowdown in NGDP growth in the second half will not represent progress in the Fed’s anti-inflation program unless accompanied by a slowdown in nominal wage growth. At a minimum, aggregate nominal wages must slow. Ideally, hourly nominal wages would also slow.

Today’s WSJ has an article suggesting that the labor market continues to tighten, with ever shorter periods of unemployment and fast wage growth. Some of it is anecdotal, but if true then the Fed may still be behind the curve.

A few weeks back, I suggested that I wasn’t too worried about a rising stock market, as bond market indicators continued to signal slower nominal growth ahead. Thus, it’s slightly worrisome that bond yields and TIPS spreads have been rising in recent weeks.

In its attempt to avoid a hard landing, is the Fed in danger of pulling up before the plane even hits the runway? We keep getting really bullish data, such as the July industrial production and payroll employment data. It still looks like a flat out boom. As of today, I’m with the Fed hawks.

And LOL at those Trumpistas who mocked me for suggesting that the US economy wasn’t in recession last winter. As of today, you look as foolish as the 2020 election deniers (which many of you are). The QAnon fantasy world becomes ever more all-encompassing each day. Soon they’ll be peddling theories of fake moon landings, grassy knolls, microchips in vaccines, and alien spacecraft coverups.

“But two quarters of falling GDP . . . “


MMT and Al Capone

People occasionally ask me what I think about MMT in light of the recent inflation surge. I suppose they believe this will cause me to think less of the theory. Just the opposite is true. On a scale of 1 to 10, my view of MMT has recently gone from 1.0001 to 1.0002.

AFAIK (and with MMT, one can never be certain), MMTers believe that inflation is caused by excessive fiscal stimulus running up against the constraints imposed by the economy’s production limits. Well, we just had a massive fiscal stimulus and inflation rose sharply. So . . .

So why does the recent inflation surge seem to have damaged the reputation of MMT? I suppose because some MMT proponents downplayed the risks of inflation. But that’s an error in judgment about the economy’s growth potential, not a flaw in the underlying model. The model deserves to be ignored, but not because of the recent inflation surge.

Then why do I still rate MMT so low? Because the entire model is utter nonsense, wildly at odds with the historical record. They believe that a fiat money central bank cannot create inflation by boosting the monetary base, even at a time when nominal interest rates are far above zero. That’s preposterous.

Like MMTers, I also underestimated inflation in 2022. (In 2021, I still thought the Fed was serious about FAIT.) That doesn’t make market monetarism wrong. Lots of monetarists and Austrians wrongly predicted high inflation during the 2010s, due to QE. That doesn’t mean monetarism and/or Austrianism are wrong. Lots of Keynesians wrongly expected the sudden austerity of 2013 to slow growth. That doesn’t mean Keynesianism is wrong.

It’s really sad that our profession seems unable to reject the MMT virus for the right reasons, and must instead rely on such dubious methods. It’s like when the Feds couldn’t get Al Capone for bootlegging, and had to convict him of tax evasion. Or they couldn’t get Trump for trying to overturn an election, and instead got him for technical violations in the handling of documents.

Biden’s Big Day

On the day after the election, I did a post that began as follows:

I was wrong about the Senate, as at the time no one knew Trump would decide to hand the Democrats the Senate on a silver platter a month later. As I said, he’s playing 4-D chess.

But I was certainly right that Trump was not going to follow the tradition of losing presidents, he would not fade away. Here’s a recent NYT:

Think of the Biden interlude (within the 12 years of Trump) as the period when all of Trump’s promises finally get done (infrastructure bill, Mexico pays for our border security, repeal Roe v. Wade, higher taxes on the rich, above 4% RGDP growth, etc.) You know, the ones he failed to accomplish while in office.

Case closed?

I’ve been arguing that Covid 19 probably originated in an animal market. Recent evidence suggests that this is indeed the most likely source:

But the Chinese government vehemently denies this claim:

A Chinese health expert has hit back at a Canadian researcher’s claims of strong evidence that Covid-19 originated from a wholesale food market in central China, saying the suggestions do not stand up to scrutiny.

Liang Wannian, the head of a Chinese government expert panel, said on Saturday that it was unscientific to conclude that some early cases of people living close to the market was proof that it was the origin of the community transmission.

Many commenters at this website have agreed with the Chinese government that animal markets are not the source of Covid. Ironically, those same commenters sometimes accuse me of being a lackey of the CCP!

Here’s another irony. While I don’t believe Covid-19 came from a lab, the recent pandemic suggests that gain-of-function research is just as dangerous as its critics claim, and needs to be strictly regulated. As policymakers, we should act as if the lab leak theories are true.

The issue is so complicated that many of the “mood affiliation” people out there don’t even know what side of the debate they are suppose to take. Hurry, someone tell those confused people what to believe in order to most effectively own the CCP!