When it comes to political analysis, a common mistake is to focus on leaders. I suppose this is hardwired into us, as in ancient times when people lived in small tribes it was true that leaders actually mattered a lot. Today, not so much.
Truss? Sunak? Who cares when you have a dysfunctional Conservative Party. Here’s Reason:
Truss u-turned on several tax pledges to restore market confidence, as Tory M.P.s made clear they would not tolerate any major offsetting spending cuts.
Read that again. Britain’s “conservative” party won’t even consider significant spending cuts in its bloated budget, which is much larger as a share of GDP (43%) than after Labour PM Tony Blair had led the country for three years (35%). This is what I keep telling you; there is no small government party. In the US, government spending grows just as fast under GOP presidents as under Democratic presidents.
“Brexit was based on an act of immense stupidity,” says one European leader (on the condition of anonymity). “It was sold by politicians who promised a sort of great Singapore but voted for by people who were unhappy about globalisation.” As the leader went on to spell out, this is an impossible mandate to deliver on.
I love that quote—it perfectly encapsulates everything wrong with Brexit.
OK, but how about supply side reforms? No luck there either. Conservative MPs strongly opposed Truss’s proposed deregulation to make it easier to build housing, or to allow for fracking to produce energy. And a lack of housing is far and away Britain’s primary economic problem.
You might wonder why I’m so pessimistic about Britain. Actually, in a relative sense I’m optimistic. The whole world is becoming more nationalistic, more statist, more stupid. Rishi Sunak is not ideal, but as world leaders go he’s well above average. The political situation in the US is much worse than in the UK. In China it’s far worse than in the US. And in Russia it’s far worse than in China.
Three weeks ago, Sanna Marin, Finland’s prime minister, retweeted a link to an article by a Finnish academic together with the following quote: “There is something seriously wrong with the prevailing ideas of monetary policy when central banks protect their credibility by driving economies into recession.”
Defenders of those prevailing ideas predictably pushed back, warning against second-guessing independent central banks or not valuing their credibility. But defensiveness is the wrong response. Not just because Marin didn’t actually criticise any central bank actions. But, more profoundly, because avoiding a debate over whether our macroeconomic regime is fit for purpose is more perilous than having one. . . .
Like in the 1980s, in time bright economists will suggest better ways of designing monetary policy against energy price shocks.
Wouldn’t it be nice if there was some sort of alternative to inflation targeting, which was able to account for energy price shocks.
Got any ideas?
PS. This sentence had me scratching my head:
In 2020 and 2021, the Federal Reserve and the European Central Bank vowed to tolerate a period of higher inflation if employment had further to rise or there would be little room to loosen policy in case of a downturn. But this new attitude fell at the first hurdle.
China has delayed at the last minute the release of eagerly anticipated third quarter economic data, including its closely watched gross domestic product growth rate, which were due to be issued in the middle of the 20th communist party conference.
No explanation for the postponement was given in an update to an official statistics calendar and no new dates were provided. . . .
The latest figures were originally set to be published on Tuesday at a politically sensitive time, with China’s president Xi Jinping expected to use the party congress to extend his powers for a third term and outline the country’s overarching policy approach.
The economic data were expected to highlight China’s continued economic weaknesses, including a worsening property crisis and the impact of strict zero-Covid policies that this year locked down dozens of big cities, stifled consumption and effectively closed the country off from the rest of the world.
Research at Boston University that involved testing a lab-made hybrid version of the SARS-CoV-2 virus is garnering heated headlines alleging the scientists involved could have unleashed a new pathogen.
There is no evidence the work, performed under biosecurity level 3 precautions in BU’s National Emerging Infectious Diseases Laboratories, was conducted improperly or unsafely. In fact, it was approved by an internal biosafety review committee and Boston’s Public Health Commission, the university said Monday night.
But it has become apparent that the research team did not clear the work with the National Institute of Allergy and Infectious Diseases, which was one of the funders of the project. The agency indicated it is going to be looking for some answers as to why it first learned of the work through media reports.
I find the media response to both stories to be quite revealing. For years, the media has been telling us that China fakes its GDP figures to make the government look good. In that case, why weren’t these figures also faked? Why withhold the data? It makes no sense to me . . . unless . . . perhaps China’s National Statistics Bureau doesn’t fake the data. That would explain why the data was withheld at a sensitive time.
The BU gain of function story is also confusing. For several years, we’ve been bombarded with stories that the Chinese were doing risky gain-of-function research on the Covid virus. After all of this negative publicity, we find that the US is doing the same sort of research? And yet it doesn’t seem to be a major story. Why?
Am I drawing a moral equivalence between the US and China? No, we don’t have the sort of wild animal markets that the Chinese have. And these animal markets have produced two epidemics since 2002. That is how we differ from China.
1. There’s a lot of debate about whether Trump is delusional or evil. (Why not both?) This WaPo story leans toward the evil interpretation:
Former president Donald Trump’s communications director recounted popping into the Oval Office roughly a week after the 2020 election to find a morose Trump watching TV: “Can you believe I lost to this f—ing guy?” Trump lamented, referring to then-President-elect Joe Biden.
A young aide to Trump’s former chief of staff Mark Meadows recalled Meadows telling her, “A lot of times he’ll tell me that he lost but he wants to keep fighting it.” . . .
“Please recognize that President Donald Trump was in a unique position, better informed about the absence of widespread election fraud than almost any other American president,” Rep. Liz Cheney (R-Wyo.) said. “Trump’s own campaign experts told him that there was no evidence to support his claims. His own Justice Department appointees investigated the election fraud claims and told him — point blank — they were false. In mid-December 2020, President Trump’s senior advisers told him the time had come to concede the election. Donald Trump knew the courts had ruled against him.”
“He had all of this information,” Cheney continued, “but still, he made the conscious choice to claim fraudulently that the election was stolen.”
2. Back in the early 1990s, I recall people saying that racism used to be a problem before the 1964 Civil Rights Act, but was no longer a problem. Check out this graph.
In the 1980s, I recall one politically liberal woman telling me she opposed interracial marriage. I was shocked, as at the time one of my cousins was married to a black guy, as was a second cousin. Another cousin was married to a guy from India. My sister was married to a Hispanic. It was at that point that I realized I’d grown up in a liberal bubble (Madison, WI.) When I got married in 1994, most Americans opposed my marriage.
3. Ben Southwood has a good essay on why low fertility rates are not likely to persist in the long run:
A simplistic little model I built suggests that if one percent of the fertile UK population had a fertility rate 1.2 above the 1.8 norm, it would take over 200 years for the population to beat its current level, assuming zero immigration and everything staying static.
But I still think the story is true and important: humans are like bacteria, and we are evolving bacterial resistance to the antibiotic of low fertility.
Right after buying Alaska, we came close to buying the HBC. Had we done so, we would have eventually absorbed British Colombia and Canada’a far northern islands. The US would then be almost twice it’s current size:
In 1869, the United States offered the Company $10,000,000 for its land. If it had gone through, it would have meant that the USA would today control the vast majority of what instead became Canada. Under political pressure from Britain, this very generous offer was rejected and the Company agreed to cease to be a geographical entity, transferring all of its land to the British Government.
Policy analysts who favor reduced immigration to the United States have always had one plausibly compelling argument: If you cut off the supply of cheaper labor, they maintained, employers would be forced to raise wages for lower-skilled, native-born workers, who would then demonstrate the fiction behind the contention that there were some jobs “Americans just won’t do.”
Well, we have just conducted a fascinating real-world test of that hypothesis. Beginning with the restrictionist presidency of Donald Trump in 2017, and then supercharging through the effective 2020–21 border-closure triggered by the COVID-19 pandemic, the U.S. took in about 1.7 million fewer working-age immigrants than would have come at the prior intake rate, according to a recent analysis by Giovanni Peri, economics professor at University of California at Davis.
Alas, those not in the labor force Americans never showed up:
This should have been the moment when the startlingly high number of prime-aged Americans classified as Not in the Labor Force (“NILFs,” no really) got off the sidelines and back into the job market.
And yet: “That did not increase work rates or labor force participation of Americans who are already here,” says American Enterprise Institute economist Nicholas Eberstadt, author of the freshly revised (with post-pandemic intro) 2016 book Men Without Work. “We’ve now got this incredible peacetime labor shortage, and we also have a drop in the number of people in the workforce, by at least a ballpark of 3 million lower than we would have expected on trend before COVID. And that’s leaving out immigration, so it’s actually lower.”
For more than a decade, few places in the nation were associated with anti-vaccine movements as much as Marin County, the bluff-lined peninsula of coastal redwoods and stunning views just north of San Francisco. . . .
Now, Marin County’s Covid vaccination rate among all residents is 91 percent, compared with 68 percent nationwide.
The county has also shed its reputation as an anti-vaccine haven in part because of how much vocal resistance has taken root elsewhere. Marin County was once faulted for having a childhood vaccination rate of 78 percent. Now, almost every county in America has a lower Covid vaccination rate among children.
The anti-vaccine movement used to be a place where the left met the right, but increased polarization during the pandemic has made such a combination difficult to sustain, said Jennifer Reich, sociology professor at the University of Colorado Denver and the author of “Calling the Shots: Why Parents Reject Vaccines.”
6. On the same note, study after study shows that Republicans are more likely to die of Covid:
Last month, though, the National Bureau of Economic Research published an important study from researchers affiliated with Yale University. They took 577,659 death records from Ohio and Florida between January 2018 and December 2021 and matched the decedents to a 2017 voter file. In other words, they were able to identify the partisanship not only of the places those people lived but of the people themselves.
What they found is that the rate of excess death — that is, deaths above the expected toll relative to the pre-pandemic baseline — was higher for Republicans, particularly after vaccines were rolled out.
“Registered Republicans in Florida and Ohio had higher excess death rates than registered Democrats, driven by a large mortality gap in the period after all adults were eligible for vaccines,” the researchers write. “These results adjust for county-by-age differences in excess deaths during the pandemic, suggesting that there were within-age-by-county differences in excess death associated with political party affiliation.”
COVID-19 vaccines have reduced infections and hospitalizations across the globe, yet resistance to vaccination remains strong. This paper investigates the role of cable television news in vaccine hesitancy and associated local vaccination rates in the United States. We find that, in the earlier stages of the vaccine roll-out (starting May 2021), higher local viewership of Fox News Channel has been associated with lower local vaccination rates. We can verify that this association is causal using exogenous geographical variation in the channel lineup. The effect is driven by younger individuals (under 65 years of age), for whom COVID-19 has a low mortality risk. Consistent with changes in beliefs about the effectiveness of the vaccine as a mechanism, we find that Fox News increased reported vaccine hesitancy in local survey responses. We can rule out that the effect is due to differences in partisanship, to local health policies, or to local COVID-19 infections or death rates. The other two major television networks, CNN and MSNBC, have no effect. That, in turn, indicates that more differentiated characteristics, like the networks’ messaging or tendency for controversy, matter and that the effect of Fox News on COVID-19 vaccine uptake is not due to the general consumption of cable news. We also show that there is no historical effect of Fox News on flu vaccination rates, suggesting that the effect is COVID-19-specific and not driven by general skepticism toward vaccines.
7. Liz Truss came into office with bold plans to boost growth. Now it all seems to be falling apart:
A former Cabinet minister who supports the PM’s agenda also cast heavy doubts on her having the time to enact any of it.
“Who could argue with focusing on growth? But this takes time and there is a lot of uncertainty attached to it. It’s not like we haven’t been trying to encourage economically inactive people into work since 2010, for example. And some it will probably get dinged [scrapped] anyway, like the planning reforms.”
One Tory veteran of previous parliamentary battles adds: “There is no way they are getting planning through. They are just going to be stuck.”
Planning reforms means zoning reforms in American lingo. The supply side tax cuts are also gone.
8. Remember when it was the GOP that opposed strict zoning rules? Here’s Bloomberg:
Florida Governor Ron DeSantis’s administration is urging the city of Gainesville to abandon its zoning reforms after it became the first in the state to vote to eliminate single-family zoning citywide this summer. In an unprecedented move for the agency, Florida’s Department of Economic Opportunity (DEO) sent a letter to Gainesville Mayor Lauren Poe objecting to the city’s zoning plan last month. Gainesville’s City Commission is poised to vote to move forward with the changes anyway on Oct. 17.
The action raises the specter of Republican-controlled state governments stepping in to stop cities from passing progressive housing reforms — and mystifies some conservatives who support deregulation in the housing market.
I’m not “mystified”. The GOP abandoned free markets long ago.
A new law signed on Friday will allow Californians to legally jaywalk without being ticketed.
Now it’s time to legalize drugs and prostitution.
10. Philipp Markolin has a very good essay on why it is so hard to push back against conspiracy theories. One issue is politics:
The conspiracy myth playbook
The best predictor of believing in a conspiracy theory? Already believing in others
Has anybody noticed something weird going on in the US?
January 6th and Trump’s election steal myth, anti-vaccine conspiracy fantasies, lableak and biosafety fearmongering, QAnon, white genocide, moral panics about immigrant caravans or LGBTQ minorities; many of the most hateful and conspiratorial narratives seem to aggregate around a political movement, leader, and ideology. Prima facie, it is odd to see such a diverse set of conspiratorial ideas neatly align with a large segment of the population that happens to vote for the same political party under the whip of an autocratic leader. Even before the weird cult-like and parasocial worshiping of its demagogue, the MAGA movement is primarily animated by conspiracy myths, and this is dangerous.
It is also a strategy.
Political leaders and movements can use conspiracy myths to gain power, and this is not unique to the US by any means, we could also talk about Poland, Italy, and Hungary, or Myanmar, Nigeria, the Philippines or Brazil, and many other nations currently in democratic decline. Making use of conspiracy myths is one of the oldest tricks in the book that authoritarian leaders and movements use to attack opponents, galvanize followers, shift blame or responsibility, and undermine institutions that threaten their power.
11. Jordan Schneider discusses the new controls on tech exports to China:
Regardless of how narrowly Washington tries to draw the impact of these regs to allow for firms like LAM and ASML to continue working with Chinese companies on fabricating lagging edge chips, the explicit decision to try to freeze Chinese domestic manufacturing above a defined level will be perceived as a deeply provocative move, with lasting commercial, technological, and geopolitical repercussions. . . .
These export controls are even more dramatic of a “Sputnik moment” than what Trump delivered with Huawei’s foreign direct product rule. Even though the Administration may not have consciously timed the rollout of these regulations to the opening of the Party Congress, Chinese officials will certainly assume they have, in turn coloring their view of America’s intentions.
The honest way of competing with China would be to allow more Chinese engineers to immigrate here. Instead we shamefully try to sabotage their tech industry. What a disgrace.
The 21st century has gotten off to a bad start. The 1980s and 1990s were some of the best decades in human history, and the good times continued into the early 2000s. But in recent years things have gone steadily downhill. In the 1980s and 1990s, most of the news in the financial papers was good news. Now it’s almost all bad news. Mostly self inflicted wounds.
While there are many factors in play, including the aftereffects of Covid, the underlying problem is rising nationalism. Consider the following Bloomberg headline, discussing the effects of the US moves to restrict technology transfer to China:
Chipmaker Rout Engulfs TSMC, Samsung With $240 Billion Wiped Out
Markets in Korea, Japan and Taiwan return from Monday holiday
Selloff extended to currency markets, with Korean won falling
That’s all caused by nationalism in the US and China.
Other headlines point to problems with the UK economy. Once again, many factors are at work. But it’s worth noting that ever since 2016 the UK has been doing poorly even relative to other developed countries. Some of us warned that Brexit would reduce the UK’s GDP, and it has. Once again, the fruits of nationalism.
Growth in the US has been slowed by a labor shortage, mostly due to a crackdown on immigration. Again, that’s nationalism.
The global economy has been severely impacted by the war in Ukraine—the result of Russian nationalism.
Trump’s trade war with China, which Biden has continued, is also reflective of nationalism.
Biden’s recent IRA bill has major weaknesses due to various buy America provisions, which will limit their effectiveness in addressing global warming. That’s nationalism.
There has always been a certain amount of bad news. But it used to be offset by occasional good news, such as international trade agreements, deregulation, and privatization. Now we get the bad news without the good.
I actually view these problems as fairly minor. The developed world is pretty rich, and it doesn’t much matter if we lose a few points of GDP growth. The more worrisome effects of rising nationalism will come later, in the form of increased war. There was also a rise of nationalism during the early 20th century, and we all know how that played out.
PS. A while back I recall some pundits complaining about the effects of globalization. Well, how are you guys enjoying the alternative? Have you checked you investment accounts recently?
Welcome to a new blog on the endlessly perplexing problem of monetary policy. You’ll quickly notice that I am not a natural blogger, yet I feel compelled by recent events to give it a shot. Read more...
My name is Scott Sumner and I have taught economics at Bentley University for the past 27 years. I earned a BA in economics at Wisconsin and a PhD at Chicago. My research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. I had just begun research on the relationship between cultural values and neoliberal reforms, when I got pulled back into monetary economics by the current crisis.
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