The bullying continues

China gets a lot of criticism for its bullying of other countries. But in many ways, the US is even worse. China tends to bully by threatening to do less trade when foreigners say things they don’t like. Everyone from Australian government to the NBA has been on the receiving end of Chinese government threats. But in the end, it’s possible to ignore those threats. Australians continue to criticize China. NBA players still have the freedom to criticize China (if they are willing to give up a bit of money.)

The US bullying is even worse. The US basically demands that other countries do what we say. Here’s a recent example:

Washington, D.C. — The Commodity Futures Trading Commission’s Division of Market Oversight (DMO) today announced it is withdrawing CFTC Letter No. 14-130 effective immediately. When DMO issued the letter on October 29, 2014, it took a no-action position with respect to the operation of a not-for-profit market for certain event contracts and the offering of such contracts to U.S. persons by Victoria University of Wellington, New Zealand without registration as a designated contract market, foreign board of trade, or swap execution facility, and without registration of its operators. [See CFTC Press Release No. 7047-14]

DMO has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it. As stated in the withdrawal letter issued today, to the extent that Victoria University is operating any contract market in a manner consistent with each of the terms and conditions provided in CFTC Letter 14-130, all related and remaining listed contracts and positions comprising all associated open interest in such market should be closed out and/or liquidated no later than 11:59 p.m. (EDT) on February 15, 2023. [See CFTC Letter No. 22-08]          

Prediction markets are one of the few useful innovations to come out of the financial industry in recent years. We need many more of them. (Rajiv Sethi has a good post on this.)

It would be a terrible mistake for the US government to shut down a US firm operating prediction markets. Demanding that a New Zealand market cease operation is even worse. What right do we have to tell the Kiwis how to run their economy?

The US routinely forces foreign governments to bend to our will by threatening to shut them out of the global banking system. As bad as China’s bullying is (and it’s very bad), the Chinese have nowhere near this much power. I cannot even imagine the CCP demanding that New Zealand shut down this market.

PS. The FT has a good article explaining how fools in Washington and Beijing are blundering toward what could end up being a catastrophic war.

PPS. And then there’s Russia, which is a far worse bully than either China or the US. The world seems determined to replay the first half of the 20th century. Remember a decade ago when all sort of so-called intellectuals were complaining about globalization? Welcome to the world of nationalism.

Level targeting or bust

There’s some recent speculation that the new British leader might opt for NGDP targeting:

Andrew Bailey would be told to abandon the Bank of England’s 2pc inflation target under a radical plan to reform its mandate and boost the economy.

Mr Bailey, the Bank’s Governor, may be ordered to target nominal GDP in future – the size of the economy in cash terms – instead of seeking to keep inflation at 2pc, under plans being floated by allies of the Tory leadership frontrunner Liz Truss.

That might be good news, but as always the devil is in the details. I’ve always said that 90% of the benefit of shifting to NGDPLT comes from the level targeting part of the policy regime, and 10% comes from the NGDP part. Thus it is essential, and I mean essential, that any NGDP targeting regime involve level targeting.

For instance, NGDP growth rate targeting might not have prevented the Great Recession, whereas NGDPLT would have turned the Great Recession into (at most) a brief and very mild recession. Level targeting is that important.

If anyone listening out there has the ear of the new UK government, I implore you to emphasize the importance of the level targeting part of the NGDPLT regime.

Nonetheless, even a move to NGDP growth rate targeting could be considered good news, if it means were are gradually moving toward the ultimate goal of NGDPLT.

Imaginary conversation

We’re in a recession!

I don’t think so.

Yes we are; GDP fell two straight quarters.

That doesn’t mean we’re in a recession

Yes, it does.

OK, let’s say it does. Why should I care if we are in a recession?

Recessions are bad.

Why are they bad?

Because lots of people lose their jobs.

But lots of people are getting jobs right now; we have one of the strongest labor markets ever. So why are recessions bad?

Everyone knows recessions are bad, that’s why they’re called recessions.

Yes, but why are they bad? What’s the big problem?

Well, productivity has recently declined.

Does productivity usually decline in recessions?

No, but it did this time.

But that’s just a coincidence, as you yourself have just admitted. So why are recessions bad?

We have high inflation.

Is inflation usually high during recessions?

No, but it is this time.

But that’s just a coincidence, as you yourself have just admitted. So why are recessions bad? I need an answer.

You just don’t want to admit that we are in a recession!

Sigh . . .

PS. Perhaps were are experiencing a banana.

Changing of the guard

China’s population appears to have peaked last year at just under 1.413 billion, and has begun what is expected to be a protracted decline to 587 million at the end of the century. By that time, Nigeria will have more people than China.

India’s population is now 1.408 billion, as is rising at about 14 million per year. Thus India is just a few months away from having the world’s largest population. It’s population is expected to exceed 1.65 billion people in the early 2060s, before falling back to 1.45 billion at the end of the century:

Just imagine if British India had not been partitioned; they’d now have 1.8 billion people!

These forecasts are subject to charge. Forecasts of China’s future population have been dramatically trimmed in just the past three years, due to an unexpectedly rapid reduction in their birth rate. It’s also hard to predict how much immigration China will receive in the distant future. If it becomes a first world country, then I’d expect China to import workers to do the jobs that the Chinese don’t wish to do.

It is also very difficult to predict the US population in 2100, as that mostly depends on future decisions we make regarding immigration. If we were serious about competing with China (we are not), we’d accept 100 million high skilled immigrants from China.

The following statement was published in a China news outlet:

China is struggling to overcome young people’s growing reluctance to start families. Over the past year, the government has launched an unprecedented drive to push couples to have more kids, raising the birth limit and introducing a range of policies to support new parents. So far, however, the measures appear to be having almost no effect.

That has to be one of the funniest things I’ve ever read, right up there with Trump saying no one respects women more than he does. AFAIK, China is the only country that limits how many children a woman is allowed to have. To call legal limits on childbirth an “unprecedented drive” for more kids, is like Trump saying he has unprecedented respect for women when he grabs their private parts.

The Chinese government may have its reasons, but to an outsider like me their entire policy regime seems bizarre.

I often see people say the world has too many people or too few people. But they never tell me how they know this. How many people would be optimal? Is it 6,712,334,233 people, or 8,913,212,793 people? Or is it 12,382,008,113 people? Be specific. And how do you know which is the right number? (BTW, the animal kingdom might vote zero as the optimal figure.)

I’m agnostic on population—I acknowledge my ignorance as to the optimal population. My focus is on making the world a better place for those who are here, and those who will be here in the foreseeable future. As for the very long run, who really knows anything?

PS. Scott Alexander is also agnostic.

When should the inflation target be raised?

Here’s The Economist:

There may be a benefit in the short term, too, to raising targets now. Reducing stubbornly high inflation requires cooling the economy, which generally involves raising the unemployment rate. The lower the inflation target, the more unemployment central banks need to generate to get there. If the costs of inflation at 3% really are not much different from inflation at 2%, central banks will be generating additional unemployment for little benefit. . . .

Set against this, however, are the consequences of reneging on a 30-year promise. The experience of the past year has made clear that the public detests inflation; both finance ministries and central banks are being excoriated for losing control of price growth. To shift the goalposts now could give the impression of giving up the fight entirely. . . .

As long as inflation is so far off-target, such considerations seem likely to stay the hand of any would-be monetary reformers. Yet once it peaks, restoring a degree of central banks’ credibility, the pain of further disinflation, together with the promise of well and truly escaping the zero lower bound, could just start to make the idea of higher targets more alluring.

I’m not convinced that raising the inflation target is a good idea. But let’s say I’m wrong and that the benefits of moving to a 3% inflation target outweigh the costs. When should the target be raised?

The Economist suggests that it might be wise to do so in the near future, when inflation has fallen to 3% and further disinflation would lead to higher unemployment. I disagree.

If we are to move to 3% inflation, then we should wait until inflation has fallen back to 2% before making that intention public. At that point the Fed should announce that it will keep the 2% inflation target for immediate future, but plans to shift to a 3% inflation target during the next recession. That would make it seem more like a principled decision, and less like an expedient to avoid unpleasant choices, which would reduce policy credibility. If we make the change when inflation is overshooting the Fed’s target, why would anyone believe the new target would be adhered to?

PS. You may want to check out the 22nd Amendment to the Constitution, which was enacted before America became a banana republic. (Or the 27th Amendment). When people say they want to expand the Supreme Court, I respond, “As long as the new rule doesn’t take effect at a time which would benefit the current administration.”