Archive for July 2023


The future is 1962

This Matt Yglesias tweet caught my eye:

That picture reminded me of a TV show called The Jetsons, which premiered in 1962. So where did the producers of The Jetsons get their ideas for the look of a futuristic city? Perhaps from this building at LAX, completed in 1961:

Or how about this building, completed in 1962:

Or this 1962 building:

Or this 1962 building:

What’s my point? When people envision the future, they look around at current things that seem futuristic. That’s no surprise. The futuristic buildings of 1962 looked nothing like the futuristic buildings of 1912 or 1862. That’s no surprise.

What is surprising is that a 2023 picture of a futuristic city still looks like a 1962 TV show. And like a bunch of cutting edge 1962 buildings

So what’s going on here? I suspect that progress has basically stopped at the macro level, and micro progress in areas like like biotech and computer chips doesn’t affect the way things look at the macro level. And I haven’t cherry picked the building industry; I could have shown you an airliner from 1962 and today and you’d be hard pressed to tell them apart.

I have no idea what cities will look like in 2123. Perhaps they will look futuristic. Maybe they will look much like current cities. But I can predict the look of sci-fi movies in 2123. Their futuristic cities will look like the Jetsons. Like 1962. The eternal modern.

PS. When I was young, we drove through Chicago once or twice a year, on the way to visit grandparents. I’ll never forget the look of the Marina Towers (above) which blew my mind. I had a plastic model of the Space Needle in my bedroom. The future seemed really bright.

Little did I know . . .

Long and variable nonsense

I recently heard a NPR discussion of the “long and variable lags” in monetary policy. Not surprisingly, it made me cringe.

They discussed the fact that Milton Friedman believed that monetary policy affected the economy with a lag as long as 18 months (but variable in length.) Then the host explained that “monetary policy” meant changes in interest rates. Friedman must be rolling over in his grave. He explicitly rejected the notion that interest rates were monetary policy and he did not believe that changes in interest rates affected the economy with a long lag. It would be more accurate to suggest that he believed the economy affected interest rates.

Unfortunately, Friedman’s preferred indicator (M2) is only modestly less bad than interest rates as an indicator of the stance of monetary policy. Consider the fact that M2 is up 34.8% in the past 3 1/2 years, and is down 3.7% in the past year. I occasionally see old-line monetarists claim that the big rise in M2 caused the inflation overshoot, and that the recent fall in M2 shows that money has now become too tight. Maybe, but I don’t see the logic of this claim.

Over the past 3 1/2 years, the PCE price index is up 14.9% and NGDP is up 23.6%. Both of these increases are far less than the rise in M2. So if you took monetarism seriously, you’d conclude that the 34.8% rise in M2 hasn’t yet worked its way though the system. We’re still waiting for those mysterious “long and variable lags”. Velocity was temporarily depressed by Covid and (the theory suggests) once it returns to normal we’ll see a lot more inflation. Instead, monetarists seem focused on the recent drop in M2. Why? Are the money supply figures since the beginning of 2020 meaningful? Or not?

To be clear, monetarists might be correct that money is currently too tight and we’ll soon enter a recession. I just don’t see how one would conclude that from the fact that M2 is up 34.8% over the past 3 1/2 years and NGDP is up only 23.6%.

Here’s how I see things. A change in monetary policy affects future expected NGDP (say one or two years out) almost instantaneously. Current NGDP immediately responds by a very small amount (higher commodity prices), and over a few months the effects become quite large. The scientific way to look at policy lags would be to create a deep and liquid NGDP futures market, and then look at how long it takes changes in future expected NGDP (i.e. “monetary policy”) to affect current and near term NGDP. I suspect the effect mostly occurs quite fast, within a few months.

The whole long and variable lags nonsense is an excuse to explain flaws in existing Keynesian models (which suggest monetary policy is changes in interest rates), and flaws in monetarist models (which suggest monetary policy is changes in M2.) Since both models are wrong, they need to explain their failed predictions in roughly the sort of way an astrologer explains his bad forecasts by being intentionally vague. Lots of mumbo jumbo about long and variable lags.

Future generations will be embarrassed by the pseudoscience that masquerades as “monetary theory” in the 2020s.

PS. Many economists seemed to believe the Fed adopted a “tight money” policy in 2022 and that we’d have a recession in the first half of 2023. How’d that prediction work out?

PPS. The “credit channel” people thought last March’s banking crisis would worsen the recession. How’d that prediction pan out?

PPPS. The Atlanta Fed nailed the RGDP forecast (2.4%).

Do real interest rates matter?

Back in late 2008, I argued that tight money was driving the economy into a deep recession. One counterargument was that interest rates had declined over the past year. I pointed out that interest rates are a misleading indicator of the stance of monetary policy. The response would be something like, “Yes, nominal interest rates can be misleading, but surely real interest rates are indicative.”

Even real interest rates are unreliable, albeit less so than nominal rates. But here’s what’s interesting—real interest rates were soaring in late 2008, exactly when the Fed’s tight money policy drove the US into a deep slump. So why did almost all economists miss that fact? When I raised the issue, I was told that real interest rates are also misleading, due to various factors. I agree! But then how do we measure the stance of monetary policy? I prefer to look at NGDP growth (and levels.)

This tweet caught my eye:

Fortunately, Kathy Jones doesn’t make any claims about the stance of monetary policy. But you can be sure that lots of people will look at this graph and argue that the high real interest rates show that money is tight. So was money also tight in late 2008?

PS. Jones makes a minor error when suggesting that real rates are at the highest level since 2007. Actually, the spike you see (blue line) was in late 2008. But it’s an understandable error, as who would have imagined that the Fed would drive real interest rates up to 6% just as the US was sliding into a deep recession?

PPS. Q2 NGDP figures will be released in a few days. Let’s see what they show before concluding that money is tight.

Politics, vaccines, and excess deaths

This story caught my eye:

The study examined the deaths of 538,139 people 25 years and older in Florida and Ohio, between January 2018 and December 2021, with researchers linking them to party registration records. Researchers found the excess death rate for Republicans and Democrats was about the same at the start of the pandemic in March 2020.

Both parties experienced a sharp but similar increase in excess deaths the following winter. But after April 2021, the gap in excess death rates emerged, with the rate for Republicans 7.7 percentage points higher than the rate for Democrats. For Republicans, that translated into a 43 percent increase in excess deaths.

Researchers said the gap in excess death rates was larger in counties with lower vaccination rates and noted that the gap was primarily driven by voters in Ohio. The results suggest that differences in vaccination attitudes and the uptake among Republican and Democratic voters “may have been factors in the severity and trajectory of the pandemic” in the United States.

If the 2024 election is extremely close in places like Wisconsin, these excess deaths could cost the GOP the presidency. I’m not sure if killing off your voters is a wise political strategy.

There’s also this:

KFF estimated that between June 2021 and March 2022, at least 234,000 covid-19 deaths could have been prevented if people had received a primary series of vaccinations.

PS. Not content with killing these people, they are also trying to defraud them. If you watch Fox News, you’ll see that most of the commercials are aimed at taking advantage of gullible old people. And of course their private emails show they just make up the news, and don’t really believe the nonsense they spout. I don’t think Succession is cynical enough–the (liberal) screenwriters cannot even imagine the level of corruption.

An old man complains that things are getting worse

Here’s Bloomberg:

Former Governor of the Bank of England Mervyn King says the central bank hasn’t been covering itself in glory of late, and that’s partly thanks to it falling victim to groupthink. The economics profession is jammed with brilliant people, he argues on this week’s episode of Merryn Talks Money, but unfortunately, they’ve all been taught the same thing: money has absolutely nothing to do with inflation.

Believing that was a “big mistake,” King says it’s brought the UK economy to where it is: inflation at multi-decade highs and the BOE having its credibility questioned.

Consider the following two claims by the old man who writes this blog:

1. Since 2008, politics has sharply deteriorated throughout much of the world.

2. Since 2008, the economics profession has sharply deteriorated.

On the right, politics has become increasingly statist, authoritarian and nationalistic. On the left, politics has become more obsessed with issues of race and gender, less tolerant of free speech and more statist.

The economics profession has reverted to once discredited pre-neoliberal ideas on antitrust, budget deficits, monetary policy, industrial policy, trade policy, etc.

Here’s my question for commenters: Are these two negative trends related?