Bad intentions are not enough

Do we judge a president on what they try to do, or the results? In 2019, Trumpistas sidestepped the bad intentions with claims that “results are all that matters”. Today it’s just the opposite. We are told that results don’t matter at all; they are beyond the control of the president. America’s massive job loss, skyrocketing crime, falling life expectancy and loss of global prestige under Trump’s watch don’t matter—we judge Trump on what he was trying to do. In this post, I’ll judge him both ways.

Successes:

Tax simplification and reduced corporate tax rates. I’m not an expert on deregulation, but my sense is that there was beneficial deregulation in areas such as education and labor markets.

Operation Warp Speed

Got a few small countries to recognize Israel.

Neutral:

In other areas such as the environment and banking, the utility of deregulation is less clear. It may have helped in some cases for the usual reason that free market policies are generally best, and it may have made things worse in some cases due to externalities and moral hazard.

I view the Supreme Court picks as being no better or worse than Merrick Garland.

Illegal immigration increased during 2017-19, but that might be viewed as a success if you think illegal immigration is good.

Like Clinton and Obama, no major wars but bombed some countries now and then.

Replaced Yellen with Powell.

Failures:

Murder rate soared.

Millions of jobs lost.

Falling life expectancy.

Trade deficit got larger.

Border wall project botched.

Obamacare still intact.

Reckless fiscal policy even prior to Covid.

No leadership on Covid, frequently mocked those who worse masks and discouraged testing. Vaccine rollout botched.

Promoted “cancel culture”, encouraging NFL to fire protesting players. Advocated expanding the ability of politicians to launch libel suits again the media. Opposed Section 230 protections.

Praised despots who engaged in human rights violation, Most notably, encouraged Xi Jinping to put Uighurs into concentration camps.

Advocated torture. (Policy was not carried out, which gets at the intentions/results issue. How do we judge?)

Tried to abolish American democracy by having a mob pressure Congress to overturn 2020 election.

Repealed Cadillac tax on health insurance, an underrated policy failure. By itself, this one act more than offset the gains from all his deregulation combined. Perhaps Trump’s worst decision from a purely “utilitarian” perspective.

Turned to NIMBYism in final year in office.

Massive election year boost in wasteful farm subsidies.

Restricted H1-b visas. Fewer refugees accepted.

Semi-racist Muslim travel ban.

Told brown-skinned Congresswomen born in America to go back to their own country.

Ended Iran deal, causing Iran to restart nuclear program.

Tightened sanctions on Cuba, a policy that has failed for 60 years in a row.

Launched trade war with China that failed on all counts (economic and political.)

Replaced NAFTA with a worse NAFTA.

Engaged in lots of white nationalist rhetoric.

Transformed the Republican Party into a personality cult.

Demanded that government officials be personally loyal to him, even if it meant breaking the law.

Frequently had his officials direct government business to his properties.

Pressured Ukraine to damage his political opponent.

Frequently praised (and pardoned) US war criminals, excusing their behavior.

Engaged in scorched-earth policy after losing election, having his aides enact a raft of last minute policy changes solely aimed at sabotaging the next administration.

Engaged in almost non-stop lying, far beyond the norm in American politics.

Pardoned many criminals to avoid having them testify against him.

Ended his term with the lowest average approval rating in modern polling history. First president to be impeached twice. First president to have someone in his own party vote to convict him (and likely multiple people in the second trial.)

These are just off the top of my head. Who can remember everything that happened over 4 years?

I’m trying to be impartial here, so I won’t tip my hand as to any sort of overall appraisal. I’ll leave that decision to my readers.

What do you think?

Remind me which party doesn’t like to wear masks

This caught my eye:

HT: Razib Khan

This post is not about China

China reports its RGDP growth rates in several ways. There is quarterly data, which is reported in “year-over-year” terms. In contrast, the US reports quarterly growth rates over the previous quarter, which are then annualized by multiplying by roughly 4.

China also reports growth for the entire year, as compared to the previous year. In 2020, RGDP grew by 2.3% over 2019, whereas in 2020:Q4, the growth rate was 6.5% over 2019:Q4:

In the past, commenters always tell me the Chinese data is fake. I provide detailed explanations as to why the data should be taken seriously. Commenters then ignore my detailed explanations, and keep repeating the same claims. So I’m going to treat the Chinese data as being roughly accurate.

But this post is not about China. It’s about the US and Europe. Most experts seem to expect our RGDP to remain well below trend for years. But why? The vaccine is being distributed and the pandemic may be mostly over by mid-2021. So why won’t things go back to normal at that point?

I’ve been asking myself this question for the past 12 months. Am I crazy to think that an economy might be able to bounce back quickly from this sort of shock? Given that almost all the experts think I’m wrong, that seems likely.

But the Chinese figures give me a bit of hope for the US and Europe. China is not a small country like Iceland, where GDP figures bounce around randomly due to industry specific factors. It’s one of the three great economies of the world (along with the US and the eurozone.) Changes in China’s GDP reflect the decisions of more than a billion people, and hence are “statistically significant”. China didn’t just luck back to the previous trend line (actually about 0.5% above trend.) Maybe there is some reason that China can quickly bounce back and the US and Europe cannot. I may be missing something. I just don’t know what it is.

PS. Hong Kong stocks rose sharply on that “fake” Chinese GDP data.

Clarida on price level targeting

David Beckworth directed me to a Richard Clarida speech from a few months back:

Five features of the new framework and September FOMC statement define how the Committee will seek to achieve its price-stability mandate over time:

1. The Committee expects to delay liftoff from the ELB until PCE (personal consumption expenditures) inflation has risen to 2 percent on an annual basis and other complementary conditions, consistent with achieving this goal on a sustained basis and to be discussed later, are met.4
2. With inflation having run persistently below 2 percent, the Committee will aim to achieve inflation moderately above 2 percent for some time in the service of having inflation average 2 percent over time and keeping longer-term inflation expectations well anchored at the 2 percent longer-run goal.5
3. The Committee expects that appropriate monetary policy will remain accommodative for some time after the conditions to commence policy normalization have been met.6
4. Policy will aim over time to return inflation to its longer-run goal, which remains 2 percent, but not below, once the conditions to commence policy normalization have been met.7
5. Inflation that averages 2 percent over time represents an ex ante aspiration of the FOMC, but not a time-inconsistent ex post commitment.8

The first point is defensible, as long as “expects” means expects, but the explanation Clarida provides later is a bit fuzzy on this point:

First element
A policy that delays liftoff from the ELB until a threshold for average inflation has been reached is one element of a TPLT strategy. In our September FOMC statement, we communicated that, along with other complementary conditions, inflation must have risen to 2 percent before we expect to lift off from the ELB. This condition refers to inflation on an annual basis. TPLT with such a one-year memory has been studied using stochastic simulations of the Fed’s FRB/US model by Bernanke, Kiley, and Roberts (2019).

Now “expects” becomes “must have risen to 2 percent before we expect to lift off”. (Note TPLT is temporary PLT, and ELB is the effective lower bound on interest rates, roughly zero.)

So why is this bad? Because I worry that people will focus on the “must”, and not the “expect”.

But haven’t I been saying that central banks need to make firm commitments about monetary policy? Yes I have, but interest rates are not monetary policy; they are a tool of monetary policy. The commitment should be to set the policy tools at whatever level is necessary in order to be expected to reach the policy goal.

After a period of disinflation, the Fed needs to commit to keeping the fed funds target below the natural rate of interest as long as necessary to assure that it expects to achieve the desired make-up inflation. But that does not necessarily mean it must keep the target rate at zero; it depends what is happening to the natural interest rate.

As a practical matter, this may not matter very much in the near term, as inflation is so well anchored that I’m not particularly concerned about an overshoot. But monetary policy should be forward looking and one can imagine scenarios where a low rate commitment becomes highly inflationary.

For instance, in 1949 and 1950 the inflation rate averaged zero. At the time, the Fed was committed to a low interest rate policy. In 1951 inflation shot up to 7.9%. Not surprisingly, in 1951 the Fed reached an agreement with the Treasury Department that ended its commitment to keeping interest rates very low.

I don’t see any 1951 scenarios on the horizon (the Korean War raised the natural interest rate in 1951), but this is why Clarida should emphasize “expects” rather than “must”. I’d prefer a commitment to set rates at a level that insures an average inflation rate of 2%, then let the markets decide what interest rate path will achieve that objective. Better yet, target market forecasts of 4% average NGDP growth.

Point 5 is a bit perplexing, but if Clarida is nodding to the Fed’s dual mandate then it’s acceptable.

For example, the Fed might want to use core inflation as an intermediate target. Because deviations between core and overall inflation are not forecastable ex ante, a policy that is expected to produce 2% core inflation, on average, will also be expected to produce 2% headline inflation, on average. And it’s OK if any core/headline deviations are not trend reverting, as the Fed’s dual mandate suggests that it should also care about unemployment. (Of course in this case they should probably just target core inflation.)

But . . . and this is very important . . . any flexibility should be symmetrical. Thus if you allow positive (and permanent) oil price shocks to permanently move the price level a bit higher, then you should allow negative (and permanent) oil price shocks to permanently move the price level a bit lower than the previous trend. Flexibility should not lead to a policy that is expected to produce above 2% headline inflation, on average.

All I’ve got left is hatred

For there is nothing good or bad, but thinking makes it so. — Epictetus

Seriously, are you telling me that within a 12-month period I must:

1. Root for Joe Biden to be elected president?

2. Root for the Lakers to win the NBA title?

Apparently so.

PS. Trade Kyrie for Russ. I want to see what OKC would have looked like if they’d stayed together.