Only monetary policy can stop inflation

Supply-side reforms cannot stop inflation, but . . .

Supply-side reforms can make stopping inflation less painful.

Thus, under a dual mandate, supply-side reforms can nudge the central bank toward a less inflationary policy.

Fiscal austerity (here I’m assuming tax increases and cuts in transfers) cannot stop inflation.

Fiscal austerity doesn’t even make stopping inflation less painful.

But fiscal austerity can lead to tighter monetary policy if the central bank is dumb enough to target interest rates instead of inflation/NGDP.

PS. I have a new piece at The Hill, discussing the risk of recession.

For selfish reasons, I’m sort of rooting for a mini-recession. I’ve never seen one (in America) and had assumed I never would. And with a mini-recession we’d be getting off easy.

Films of 2022:Q2

Here are some recent films that I watched. (CC refers to Criterion Channel.)

2022:Q2 films

Newer Films:

Memoria  (Thai/Colombia)  3.8  This Apichatpong Weerasethakul film is not for everyone, as the pace is extremely slow.  But there are some highly rewarding scenes for the patient viewer (and some subtle humor).  The style reminded me a bit of a previous film by Jia Zhangke (who co-produced this film), but Weerasethakul is the more talented director.  Colombia’s “La Violencia” is referred to only indirectly, but it’s always present in the background.

Wheel of Fortune and Fantasy  (Japan)  3.6  Made the same year as Drive My Car (and by the same director), this film attracted much less attention.  That’s unfortunate, as the best parts are quite good.

You Won’t Be Alone  (Macedonia)  3.5   I generally don’t care much for horror films, and this is no exception.  But my taste has no bearing on whether a film is any good, and this film is quite good.  The approach is reminiscent of the immersive style of Terrence Malick.  I’d like to see one more from this director in order to form a firm opinion, but he could be a major talent.

France  (France)  3.4   I suppose you could describe this film as being “about” the news media, celebrity, class, or France in the 21st century.  But it’s actually about Lea Seydoux’s highly expressive face, which can be extremely beautiful at one moment and quite ugly a few minutes later.  At this late date, who really cares what directors have to say about social issues?  The real question is what sort of eye do they have. This is the first Dumont film I’ve seen, and he seems to have a pretty good eye.

Watcher  (US/Romania)  3.1  This sort of plot is tailor made for cinema and this particular film is fairly well crafted.  So why the so-so rating?  Unfortunately, the film is disappointingly conventional and predictable, with almost no sign of creativity.

The Northman  (US)  2.7   The reviews were good but I don’t see why.  The story wasn’t very interesting—they just threw some Homer, Shakespeare and Icelandic sagas into a bowl and mixed it all up.  The cinematography wasn’t all that creative or interesting.  It’s a tough slog to sit through almost 2½ hours of mud and rain and blood and guts.

What new films did I miss?

Old Films:

How Green Was My Valley   (UK, 1941, CC)  3.8  Won the best picture Oscar over Citizen Kane, and you can sort of see why.  Even Stephen Spielberg cannot combine “art” and “crowd-pleasing” as effectively as John Ford at his best.  Almost a textbook illustration of Ford’s idealistic view of the good life.  Or from a political perspective, Ford’s conservative liberalism.  One of a number of masterpieces produced in 1941.

The Empire Strikes Back  (US, 1981)  3.8  Seeing this again after many years, I was surprised at how well it holds up despite the mediocre acting.  Maybe the best adolescent adventure movie ever made?

The Samurai  (France, 1967, CC)  3.8  You could argue that these stylish Melville/Delon films are every bit as unrealistic as a modern superhero film.  But they are so much more beautiful.  Watching Delon put on a hat is more interesting than almost anything in recent Hollywood movies.

Double Indemnity  (US, 1944, CC)  3.8  A perfect film noir.  I love seeing what “modern” grocery stores looked like in 1938.

Alphaville  (France, 1965, CC)  3.8  As I get older, I become increasingly nostalgic for the future.  The best future was and always will be mid-century modern.  Seeing this film again after many decades, it seems a bit uneven.  But there are plenty of high points, which is more than you can say for most films these days.  Godard must have been influenced by Chris Marker’s La Jetee, and Ridley Scott must have been influenced by this film when he made Blade Runner.

The Hole  (Taiwan, 1998, CC)  3.7  This Tsai Ming-liang film works on many different levels—black comedy, dystopian story of a plague year, Grace Chang musical, surrealist take on plumbing problems, etc.

The Silence of the Sea  (France, 1949, CC)  3.6  Melville’s first film was made on a shoestring budget and has an interesting backstory.  The author refused to give Melville the film rights to his novel.  So Melville arranged for the author and 24 French resistance fighters to watch the film that he’d spent 18 months making, and promised to immediately burn the negative if they rejected it. Thank God they didn’t.

Pyaasa  (India, 1957, CC)  3.6  A crude but highly effective exercise in Bengali romanticism, mostly due to the extraordinary charisma of Guru Dutt.  The film exemplifies much of the best and the worst of Indian culture (its humanitarianism and its antipathy to capitalism.)

Accident  (UK, 1967, CC)  3.6  I don’t know if Joseph Losey and Harold Pinter adapted this novel with Dirk Bogarde in mind, but he’s perfect for the role.  The other actors are also excellent.  The film doesn’t have a clear message—thankfully.

The Lovers  (France, 1958, CC)  3.6   Louis Malle’s second film made Jeanne Moreau a star.  Not exactly a masterpiece, but its lightness epitomizes what so many of us like about French films. A deeply enjoyable film (particularly the second half, where the nighttime cinematography is a bit reminiscent of Night of the Hunter.) 

Belle de Jour   (France, 1967, CC)  3.6  A now classic film that made Catherine Deneuve a star.  The attempt to portray psychological states with fantasy sequences doesn’t quite hold up, but this seems to be a general problem with older films (recall Spellbound.)  The rest of the film is expertly crafted, as is typical of Bunuel.  Moviegoers who take a more intellectual approach to film may rate this one even higher.

The Last Picture Show  (US, 1971, CC)  3.6  I can see where this film would have seemed quite impressive back in 1971.  Today, it doesn’t have quite the same impact, but that’s probably because some of its best features have been widely imitated. Features a bunch of future stars.

La Piscine  (France, 1969, CC)  3.5  A very influential film.  Superficial in the best sense of the term. 

High Sierra  (US, 1941, CC)  3.5  One of Bogart’s first starring roles, which is all you need to know.  BTW, in 1941 we were prosperous, at peace, and without the threat of nuclear war hanging over our heads.  In a few scenes it looks like the 1950s were about to begin.

Claire’s Knee  (France, 1970, CC)  3.5  Like many French films of this era, it has an appealing lightness.  I imagine that the response of viewers depends in part on how many layers of interpretation they see, and how interesting they find those layers.  I was somewhere in between those who love the film and those who were bored. I prefer the Korean version of Rohmer films (directed by Hong Sang-soo).

A Taxing Woman  (Japan, 1987, CC)  3.4  Tampopo caught on with Western audiences, but this one is almost as entertaining.  A painless crash course in Japanese tax evasion.

Murder at the Vanities  (US, 1934, CC)  3.4  This rating is a sort of compromise.  It’s a 3-star film and a 4-star cultural artifact.  The musical numbers are pretty wild and highly creative.  There’s even an ode to smoking marijuana.  It seems like some of our most decadent years are during hard times—1934 and the 1974-82 period.  After 1934, this sort of film couldn’t be made again (in America) for another 30-plus years. 

Young Mr. Lincoln  (US, 1939, CC) 3.4  The second best John Ford film of 1939 (after Stagecoach), this is sort of like a Norman Rockwell painting come to life.  Some will find it too sentimental, but I liked Henry Fonda’s performance. 

Black Orpheus  (France/Brazil, 1959, CC)  3.4  I can see why this film was viewed as a classic, although today it seems a bit dated.  For modern viewers, the best reason to watch the film is that it shows what life in Rio’s favelas looked like back in 1959.  (Yes, it’s a romanticized vision, but still better than nothing.)

The Daytrippers  (US, 1996, CC)  3.4   Good acting and good screenplay—an entertaining film.  My favorite part is the shy young man harboring his deadbeat father.

Stolen Kisses  (French, 1968, CC)  3.3 A nice whimsical comedy, but I increasingly feel like Truffaut is a bit overrated.  It does nicely capture the mood of 1968, however, when the world in some sense seemed more open.

The Port of Last Resort  (US/ China, 1999)  3.3  One of the seemingly endless series of fascinating stories that came out of the WWII-era.  This documentary looks at the 18,000 Jews that fled from Europe to Japanese-occupied Shanghai in the late 1930s and (mostly) survived until after the war, often under horrendous conditions. The Japanese should be condemned for their harsh treatment of the Jews.  But all other countries refused to accept Jewish refugees, and they deserve even harsher condemnation.  Errors of omission are often far more inexcusable than errors of commission.

The film is only 23 years old, but already seems a bit politically incorrect.  The Chinese are merely in the background, despite making up almost 99% of Shanghai’s population. Perhaps that was excusable given the focus of the documentary, but given how much the Chinese suffered under the Japanese occupation, I don’t think that oversight would be acceptable in 2022. 

Man Hunt  (UK, 1941, CC)  3.3  The ending of this Fritz Lang film is marred by wartime propaganda.  But until then, it’s a pretty entertaining Hitchcock-style thriller.

Eva  (UK/Italy, 1962, CC)  3.2  This Joseph Losey film seems a bit pretentious at times—straining too hard to be cool with its references to everyone from Giotto to Billie Holiday.  But it does have a number of enjoyable scenes.  And there’s Jeanne Moreau.                    

The Funeral  (Japan, 1984, CC)  3.2  This comedy was highly regarded in Japan, and it is a very good film in some respects.  But to westerners (like me) that are unfamiliar with Japanese culture, this more than 2-hour film seems like a lot of variations of a single joke.

A Taxing Woman’s Return  (Japan, 1988, CC)  3.1  As in so often the case, the director tries to pack too much into the sequel.  But Japan’s non-puritanical approach to kinky humor makes it worth watching for fans of the original. 

Moontide  (US, 1942, CC)  3.1  This pleasant little film features Jean Gabin in his first American movie.

The Black Watch  (US, 1929, CC)  3.1 John Ford’s first sound film shows signs of his trademark style.  But it’s hard to take a film seriously in which Myrna Loy plays a white woman wearing a series of sexy sheer blouses as she leads a Taliban-like group of Islamic warriors through the Khyber Pass.

Magnificent Obsession  (US, 1954, CC)  3.1  We can tolerate a certain degree of stupidity in melodrama, but this Sirk tearjerker goes a bit too far.

The Cheat  (US, 1931, CC)  3.1  Tallulah Bankhead plays a bad girl with a heart of gold.  Trigger warning:  The films contains lots of cultural appropriation, including a costume ball full of rich white people dressed up as “Orientals”.  On the plus side, it actually deserves its pre-code label.

Trapped   (US, 1949, CC)  3.1  Routine B-noir about a counterfeiting racket.  Nothing special, but these noirs are all pretty entertaining.

The Face of Another  (Japan, 1966, CC)  3.0   The director’s first film after Woman of the Dunes is quite a letdown.  Makes me wonder if I overrated the earlier film.  The accompanying documentary on Criterion Channel, however, makes a strong case for the film.

The Deep Blue Sea  (UK, 2011, CC)  2.9  Tasteful but dull middlebrow drama that is never quite believable.  The British have a knack for making depressing films.

Amarcord  (Italy, 1973, CC)  2.8  Perhaps Fellini’s most overrated film; he seems to have lost his touch.

Million Dollar Legs  (US, 1932, CC)  2.7  A sort of poor man’s Marx brothers film, starring W.C. Fields.  Some quasi-surrealistic humor, but not quite surrealistic enough to make it interesting.

Lust For Gold  (US, 1949, CC)  2.4  The story’s present day framing is almost laughably inept, whereas the flashback at least has some competent acting (Ida Lupino, Glenn Ford).  As for Glenn Ford’s German accent, all I can do is SMH.

Rogoff on The Money Illusion

Kenneth Rogoff has a nice review of my new book in the Times Literary Supplement. Here’s an excerpt:

This thoughtful and broad-ranging critique of the post-financial crisis consensus on macroeconomic policy is worth reading for anyone interested in monetary policy, even if you don’t buy into the “market monetarism” (of which more later) championed by the author. Sumner is unafraid to challenge the academic consensus: in his earlier book on the Great Depression (The Midas Paradox, 2015), he argued that bad policy-making at every turn made things far worse in the late 1920s and early 1930s than they had to be. In The Money Illusion, much like Leonard in The Lords of Easy Money, he explores monetary policy decision-making during the 2008-09 financial crisis and its aftermath – but with more focus on the economics and less on the personalities. Some may wonder why anyone today would write (or read) a book raking over the financial crisis, when the world has moved on to dealing with the pandemic, war in Europe and how to manage economic policy in an era of wild political see-saws. In fact, Sumner’s book is of great significance to our current crises, and his challenge to conventional wisdom is bracing. . . .

Sumner’s book has all sorts of philosophical insights that will be interesting to anyone trying to understand markets and macroeconomics. One bogeyman he confronts is bubbles. Many market observers see speculative bubbles everywhere. Sumner, by contrast, argues that there is typically some rational factor behind the “bubble”, and the fact that the casual (or academic) observer isn’t easily detecting it is not a reason to dismiss signals from market prices. After all, the biggest bubble of the past forty years, if you want to call it that, is the collapse of interest rates, particularly “real” interest rates (the interest rate adjusted to remove the effects of inflation). Low real interest rates make virtually any kind of long-lived real asset seem more valuable, from housing to art to stocks to cryptocurrency.

Rogoff also reviews The Lords of Easy Money: How the Federal Reserve broke the economy by Christopher Leonard. Read the whole thing.

Many economists (including Rogoff) are now at least somewhat supportive of NGDP targeting. Today, I view my biggest challenge as convincing other economists that monetary policy remains highly effective at the zero bound. (Rogoff is skeptical, at least in an economy with cash.) My current project addresses that issue.

HT: David Gordon, Tyler Cowen

Why raise rates when we’re not yet at full employment?

Back in the late 2010s, I’d often get this question from commenters.

Here’s why:

What should the Fed do now?

Question: What should the Fed do now?

Answer: Hit its target.

Question: But what does that mean?

Answer: That’s the problem.

There’s an ongoing debate about whether the Fed should bring inflation down gradually or quickly. THIS DEBATE SHOULD NOT EXIST. The Fed should have decided on a policy regime in 2020, and then stuck to it. A policy regime includes instructions on what to do next if you miss the target. NGDPLT anyone?

Here are some fun facts:

Average inflation rate during the 30 years before the Fed adopted its 2% average inflation target in August 2020: 1.9%

Average inflation rate during the 20 months since the Fed adopted its 2% average inflation target in August 2020: 5.2%