As I keep saying, lockdowns are mostly endogenous

Roughly 99% of people think that low interest rates are an expansionary monetary policy. But the readers of this blog know otherwise. They know that low rates often reflect the delayed effect of previous tight money policies.

Roughly 99% of people think lockdowns are a restrictive Covid-19 policy. I hope to convince you that lockdowns are mostly endogenous. That countries like Taiwan did not close their restaurants precisely because they had quite effective Covid-19 policies. That lockdowns are often (not always) a sign of failure, of previous excessively lax policies.

Check out today’s Bloomberg headline:

Hmm, two states going in opposite directions. Who has the more lax polices? It’s a complicated question, isn’t it?

It’s not about a single “concrete step”, it about the overall policy regime.

I.e. never reason from a lockdown.

PS. I said “mostly endogenous”, because there are (exogenous) exceptions, such as Sweden.

PPS. The graph below shows the pathetically weak growth in nominal GDP since 1995 in Italy (red line), and also the mindbogglingly and almost incomprehensible lack of spending growth in Japan (blue line). Which one do you think the MMTers keep citing as a successful example of their (aggregate demand) policies in action? Yup—Japan.

If conventional macro occasionally lapses into reasoning from a price change, MMT is reasoning from a price change on steroids.

Yes, Italy’s population rose by roughly 6%, vs. almost no growth in Japan, but that explains only a tiny portion of the divergence. And again, I am comparing Japan to ultra-pathetic Italy.

And yes, Japan looks somewhat better using RGDP, but when evaluating AD policies it’s NGDP that matters, not RGDP. The latter is also influenced by supply factors. Do MMTers distinguish between NGDP and RGDP?

Off topic, check out Alex Tabarrok’s great post. I had thought I was crazy when almost no one agreed with me:


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41 Responses to “As I keep saying, lockdowns are mostly endogenous”

  1. Gravatar of barry barry
    25. June 2020 at 09:43

    Italians would probably not appreciate the words “pathetic Italy”. Italians have a unique culture and heritage that is globally envied. Nevertheless, I would agree that NGDP is a better target.

    I don’t agree with your offhanded remarks about Taiwan. I lived there for 10 years. Its slightly larger than the state of Massachusetts and has a very different legal system. The two are incomparable. You can compare Russia and US, china to U.S., or compare Massachusetts response to Taiwan, but to compare US to Taiwan is really absurd. Not to mention, the warrant process is very different. For example, the U.S. govt cannot get geolocation data from ISP providers without a warrant. This is something that U.S. citizen’s clearly value in terms of their freedom, but in this case impeded local govts efforts to track down potential carriers. No such law exists in Taiwan. And the govt took advantage.

    The response from the U.S. has been great considering the complexity of law, population size, size of the country, and limited federal power. Of course, data doesn’t seem to matter for those who see the world from a very narrow political lens.

  2. Gravatar of Kgaard Kgaard
    25. June 2020 at 10:15

    Scott … There is something warped about that Italy vs. Japan chart. It doesn’t make sense to me. Japan looks great, Italy is a wreck. Japan has unemployment of 2.6% and anyone who wants a job can get one. Italy had 9% unemployment pre-COVID and who knows what it is now.

  3. Gravatar of ssumner ssumner
    25. June 2020 at 10:59

    Barry, Italy’s one of my favorite countries. But it’s been pathetic on NGDP growth.

    I did not compare the US to Taiwan.

    You said:

    “The response from the U.S. has been great considering the complexity of law, population size, size of the country, and limited federal power.”

    Not sure if you are joking. You might say “Considering that we screwed up in almost every way imaginably (testing, masks, nursing homes, etc.), we didn’t do all that bad.”

    Kgaard, Yes, because there’s much more to life than aggregate demand.

    The world’s fastest growth in NGDP since 1995 has been Zimbabwe, they also haven’t done all that well.

  4. Gravatar of Arilando Arilando
    25. June 2020 at 12:04

    I don’t think MMTers cite Japan as a policy success, but as an economy that mainstream economics allegedly can’t explain.

  5. Gravatar of Christian List Christian List
    25. June 2020 at 13:27

    If one adds the NGDP of the US, one sees that Italy and the US are very close together until about 2002-2004, then there’s a first small separation. And then again much more extreme after 2007 and 2008. What are the reasons for this? Maybe the introduction of the euro and then the financial crisis; or in other words the bad monetary policy in the euro area in both cases?

    Maybe the link works, I don’t know:
    https://fred.stlouisfed.org/graph/fredgraph.png?g=sfJj

    Scott,

    The question that interests me wih Parasite is whether the film is worth watching at all for a person like me. I don’t know many Korean movies, but is it for example better than Oldboy, which was okay, but not really that special either.

    Parasite seems to be the same, okay, but worse than Oldboy, and not special either. So in other words, the wrong movie for me.

    I do not reject art house films per se. For example, I really like three films by Buñuel. So which Western or Japanese arthouse film (or director), if any, can Parasite be compared with?

    The Oscars seem to be an indication that the film is not particularly good.

  6. Gravatar of ssumner ssumner
    25. June 2020 at 14:15

    Arilando, I’m not sure they don’t view it as a model. In any case, I’d say market monetarism can explain Japan much better than MMT.

    Christian, Don’t go by the Oscars. Once in a blue moon they get it right. The Godfather won an Oscar.

    I have no idea if you’d like it, nor do I know why you compare it to Oldboy, which was done by a completely different director.

  7. Gravatar of Christian List Christian List
    25. June 2020 at 15:39

    Scott,

    yes, I said that about the Oscars, it’s my opinion, too. I named Oldboy, because it’s the only Korean movie I can name right now, that I have seen. I even wrote that.

    You can’t compare it to anything? Black comedy? Are you sure? It doesn’t sound like a comedy. I’ve taken a short look, but I couldn’t really go on.

    You’ve seen so many different movies, there’s nothing you can compare it to? The film did not look interesting, but the different interpretations made me curious again.

    Some movies have a certain scene, after which you know if you get hooked or not. Is there such a scene? How long does one have to hold out?

  8. Gravatar of P Burgos P Burgos
    25. June 2020 at 16:08

    I found one person on Tabbaroks comment thread who viewed Parasite through some kind of Confucian lense, in which both the upstairs and downstairs families violate Confucian norms, and both are meant to be judged for that. That seems to me likely to be closer to the director’s intent than anything else.

  9. Gravatar of Benjamin Cole Benjamin Cole
    25. June 2020 at 16:47

    Japan has also reduced hours worked. In 1990, for example, the average Japanese worker was on the job 2031 hours per year, compared with 1,833 hours for a US worker. But by 2018, the average Japanese worker was at 1680 hour per year, lower than the US level of 1786 hours. —-The Conversable Economist

    That is a remarkable 17.3% reduction in average labor hours per worker in Japan since 1990. At 40 hours a week, the average Japanese works eight weeks a year less than in 1990.

    As widely noted, GDP does not measure the value of leisure time.

    The nice thing about macroeconomic debates is that no one is ever wrong.

  10. Gravatar of Benjamin Cole Benjamin Cole
    25. June 2020 at 17:22

    Maybe Scott Sumer should re-title this post, “Lockdowns are Mostly Dubious”

    From today’s papers:

    “US officials believe 20 million Americans have had virus”

    OK. And deaths are 126,000.

    You see where this is going. 126,000/20000000=0.0063.

    That is a death rate of 0.6%, and those who die are primarily the elderly with co-morbidities.

    Let His Odiousness The Trump introduce modest tariffs on imports from a single nation, and the US macroeconomics community unleashes an avalanche of calumny upon his head, attended by oceans of sanctimonious sermonettes.

    But let a nation wreck its economy in a panic…

    (Actually, most of the damage done to the US economy appears to be done not at the federal level, but by local and state officials who have incredibly broad and intrusive powers to shut down commerce. Add on: Since the start of this year, 300,000 Americans have died of cancer, easily dwarfing C19 deaths).

  11. Gravatar of Benjamin Cole Benjamin Cole
    25. June 2020 at 18:32

    Back on Italy v. Japan:

    Another thought-provoking difference: In Italy in recent years, the measured unemployment rate has been around 10%, until the C19 debacle.

    In Japan, the unemployment rate has been under 3%—indeed in Japan there have been 157 job openings for every job hunter, until the C19 debacle. No inflation to speak of.

    International macroeconomic comparisons, of course, are always freighted with complexities and nuances.

    In the last 20 to 30 years, Japan has all but eliminated unemployment, radically increased leisure time and maintained GDP per capita.

    Another notable: Japan has underdone a huge amount of industrial offshoring–about 24% of production by Japanese companies is now offshore, vs. 5.7% in 1989.

    This huge offshoring of Japan manufacturing has been coupled with flat Japan per capita incomes, but increased leisure time.

    Fascinating topic.

    https://www.cfiec.jp/en-m/2019/0288-1099/

  12. Gravatar of anon anon
    25. June 2020 at 20:07

    benjamin cole,
    Add on: Since the start of this year, 300,000 Americans have died of cancer, easily dwarfing C19 deaths

    So what? Whats up with the apple to orange comparison vis-a-vis a non-contagious malignant life condition vs a highly-air-borne-contagious disease.

    Absent shutdown, how many would have been infected and what would be the mortality rate? How many sob stories of hospitals overflowing with patients, lack of beds and deaths? Overwhelming the medical profession community to exhaustion compounding to a vicious cycle?

    Shutting down isn’t going to prevent cancer unless one figures out a way to get rid of all carcinogens because of industrial activity/life quality improvements etc.

  13. Gravatar of Benjamin Cole Benjamin Cole
    25. June 2020 at 22:14

    anon-

    Yes, perhaps I mixed apples to oranges by comparing carcinogens and cancer, to a virus and C19.

    Actually, I think the lockdowns do not have an exit strategy, and recent events and trends seem to bear that out. The lockdowns lead to a novel virus still afoot among a naive population.

    The US has painted itself into a fantastically expensive corner.

  14. Gravatar of Postkey Postkey
    25. June 2020 at 22:57

    “I don’t think MMTers cite Japan as a policy success, but as an economy that mainstream economics allegedly can’t explain.”

    Some ‘background’ re the Japanese economy. Success and failure.

    ‘Princes of the Yen: Central Bank Truth Documentary’
    https://www.youtube.com/watch?v=p5Ac7ap_MAY

  15. Gravatar of Mark Z Mark Z
    25. June 2020 at 23:05

    I think a lot of people in the comments pointed out the error in Alex Tabarrok’s review. The poor family is portrayed the way they are because the class system has demoralized and ruined them, and the rich family only seems nice because being nice is a luxury rich people can afford, once they have their ill-gained wealth at the expense of the poor. This is definitely more in line with the director’s own thinking. Of course, Scott, perhaps you’re a fan of Derrida, and aren’t beholden to the intent of the author?

  16. Gravatar of Postkey Postkey
    25. June 2020 at 23:45

    From, the ‘Thatcherite monetarist’
    “Japan will be an interesting case. Over the last 30 years it has had both the lowest rate of broad money growth in the world and the lowest rate of increase in nominal GDP. (For years the Bank of Japan has declared a 2% inflation target, and inflation has remained stubbornly beneath it. If 5% plus money growth [at an annual rate] now emerges, inflation of above 2% would be expected by a quantity-theory economist.) On 16th March the Bank of Japan announced that it would buy “aggressively” exchange-traded funds at an annual pace of around ¥12 trillion (about $110b.), double the amount previously planned. The budget deficit has also widened dramatically and – as elsewhere – will be financed to some extent from banks. An upturn in money growth has occurred, with the three-month annualised rate of increase to May reaching 10.5%. June saw yet another package of measures that would widen the budget deficit. If Japan in the next few quarters hits and exceeds its 2% inflation target, this might persuade sceptics that inflation is indeed a monetary phenomenon and not a by-product of “national psychology” or some such nonsense. “
    https://mcusercontent.com/78302034f23041fbbcab0ac6d/files/6073457b-36e0-4d35-955a-cf036f092107/Monthly_e_mail_2006_Global_money_round_up_xx.pdf

  17. Gravatar of Christian List Christian List
    26. June 2020 at 02:21

    The poor family is portrayed the way they are because the class system has demoralized and ruined them, and the rich family only seems nice because being nice is a luxury rich people can afford, once they have their ill-gained wealth at the expense of the poor.

    Mark,

    I agree that this this seems to be the director’s intention and his world view.

    After all, it is a very widespread view, especially among left-wingers. I just wonder how one can come to this view. I meet many rich people and many poor people and I see no evidence that character traits like kindness or morality are based on material wealth. And if anything, it is rather the other way around, not by much, but maybe a little.

    At best, I see a correlation between material wealth and intelligence. Rich self-made people are often relatively intelligent, not necessarily moralistic, but intelligent. Poor people often have a “corresponding” level of education, they can be very nice, and very moralistic, but outstanding intelligence is not necessarily a trademark.

  18. Gravatar of Mark Mark
    26. June 2020 at 05:30

    Christian, I think rich people are at least more polite and less likely to commit crimes against you; thus they will seem kinder in interactions. Another reason for this view may be because most cultural critics are themselves bourgeois and thus more likely to be treated well by other bourgeois people. If I, a bourgeois person, were lost somewhere and needed to knock on a stranger’s door for help, I’d much rather this happen in a rich neighborhood than a poor one—but perhaps I’d feel differently if I looked and spoke like a homeless person. Another way people can come to that view is internal reflection—I certainly feel generous when I have a lot (especially when it’s an unearned windfall), but feel defensive when I am stressed, and I think that’s how people typically are.

  19. Gravatar of Spencer Hall Spencer Hall
    26. June 2020 at 05:40

    You target N-gDp ex-ante – not ex-post. The formula has been around forever.

    It’s so queer. First Central banks don’t know how to hit the target suggested, N-gDp. Neither does the author. I.e., they don’t have a viable model. So they will overshoot and overkill.

    The second problem is that any increase in AD will result in an increase in interest rates, which will destroy money velocity (as savings are subsequently impounded). See Dr. Philip George, “The Riddle of Money Finally Solved”

    In order to target N-gDp, a Central Bank will have to put a floor on velocity. The only way to do that is to reimpose Reg. Q ceilings on just the commercial banks. How would the ABA react?

  20. Gravatar of Spencer Hall Spencer Hall
    26. June 2020 at 06:01

    Lester V. Chandler, an economist (“a monetary expert”), Ph.D. Yale, author and adviser to the Federal Government during World War II stated:

    “Professor Leland J. Pritchard is quite right, of course, in pointing out that commercial banks tend to compete with themselves when they issue savings deposits.”

    Today’s economist don’t get it. Of course, the pervious statistics have been obscured in subsequent accounting mistakes. But the old statistics are available as proof.

    All monetary savings originate within the payment’s system. The source of time deposits, is demand deposit, directly or indirectly via the currency route (never more than a seasonal situation), or through the banks’ undivided profits accounts.

    There is a one-to-one relationship between time and demand deposits. An increase in TDs depletes DDs by an equivalent amount. And the source of bank deposits (loans=deposits, not the other way around), can be largely accounted for by the expansion of Reserve bank credit.

    That there is a close connection between aggregate bank credit and the aggregate volume of bank deposits can be verified by comparing the net changes in commercial bank credit to the net changes in total deposits for any given time period.

    In other words, the commercial banks cannot expand their earning assets by attracting something that they collectively already own. Since time deposits originate within the banking system, there cannot be an “inflow” of time deposits and the growth of time deposits cannot, per se, increase the size of the banking system. But because of the economies of scale, the largest banks can outbid / redistribute the smaller banks’ deposits.

  21. Gravatar of Bob Bob
    26. June 2020 at 09:56

    Lockdowns may start endogenously, with politicians chasing public opinion as people scale down their interactions, but ending them does seem controllable. People flocked back out when southern states reopened, but in the northeast people stayed put until the lockdowns were lifted.

    I saw Parasite as more of a commentary about the effects of wealth and poverty on the two/three families. The son served in the military and speaks English well enough to teach it, but he’s only able to get a job through a lucky reference and by fabricating his college degree. The daughter also falsifies her fancy art degree. The Park family would not accept them without the fake documents, but of course they’re delighted with how the two perform anyway. But as the Kims acquire more wealth, their tactics grow more vile, getting the driver fired and sending the housekeeper to the hospital. Eventually they literally kill in order to protect the little wealth that they’ve gained.

    The Parks are the aloof wealthy family that can appear kind by doling out the wealth slowly, but towards the end it’s clear that their lifestyle is only possible because of the suffering of those beneath them. It turns out their fancy house only works because Geun-sae literally activates the lights from his prison downstairs, and Moon-gwang working feverishly every day as the maid in order to protect her husband’s life. Without the Kim’s desperate circumstances, the Parks would never enjoy such a lavish lifestyle. The Parks can be oblivious to the hundreds of rained out families. They can afford to be kind and pleasant because they’re not cold and wet and in a gymnasium fighting over clothes.

  22. Gravatar of ssumner ssumner
    26. June 2020 at 11:29

    Christian, Yes, it’s a black comedy. My two favorite black comedies are Dr. Strangelove and Lars von Trier’s The Kingdom.

    Mark, What you wrote is completely consistent with what I wrote about Parasite.

    It’s a mistake to try to boil a great film down to a simple “argument”.

  23. Gravatar of Christian List Christian List
    26. June 2020 at 15:20

    All right, I watched the movie now. The previous interpretations are not wrong, because the movies leaves quite some room for interpretation, so I will only add my (additonal) impressions.

    – None of the three families are presented as good. The rich family is portrayed very negatively as well. I did not like them at all and I assume that this is intentional by the director.

    Each family has certain “mortal sins” of its own, so to speak. In case of the rich family, these “sins” are naivety, for example regarding the existence of evil, and ignorance, for example regarding the suffering and hard life of the less fortunate. “Suffering” from a certain (maybe the director’s?) point of view of course. Whether the “suffering” really exists, in a really extreme or at least relevant form, I would doubt.

    The rich family does take advantage of the poorer families to live a minimally better life. For example, they call 8 minutes in advance for a meal that they then don’t even (want to) eat.

    This is just one example, the rich family really acts really snobbish and vicious and ignorant during the whole movie, but they think they are so good, which makes it even worse of course.

    – The smell can have several meanings. It could refer to the low origin that the two poor families have and cannot get rid of, no matter what they do. In my view, the smell represents sin. That’s why the middle family cannot get rid of the smell, because they are morally depraved.

    The smell does not represent poverty, because, for example, the original driver of the family does not smell. He is also poor, but he seems to be free from moral depravity. Therefore, he does not stink. Poverty per se does not stink, but sin and moral depravity does.

    That’s also why the father of the middle family kills the father of the rich family, and rightly so. The father of the rich family is constantly bothered by the sinful smell of others, even though he himself is full of sin. This was actually the scene in the movie that made the most sense to me.

    – The people in the media misrepresent the film as well, who would have thought so. The film is not so much about poverty as it is about power. Poverty or wealth does not corrupt the families in the film. As I said, all three families are portrayed really negatively, completely independent of their wealth and status. In all three cases it is power that corrupts them.

    You can see that for example in the scene when the mother of the middle family finds the bunker. She’s not really richer than before, but she suddenly has gained a lot of power over the old housekeeper, and the more power she has over the other, the more vicious she becomes.

    Then the middle family falls down the stairs, which represents their loss of power (and again not poverty or wealth). The balance of power suddenly turns completely around. The old housekeeper realizes this at once and is not asking and begging anymore from one second to the next. Now she is the one who becomes vicious immediately, she and her husband even torture the other family. This goes on until the middle family takes back the power. As I said, this has nothing to do with wealth and poverty, nobody gets richer or poorer in most of the fights, it’s mostly about power and morality.

    Scott,

    thank you for your answer. I did not laugh during the movie so I personally don’t see it as a black comedy, at least not a good one. Dr. Strangelove is way superior. One can watch Strangelove so often and you still have to laugh every time, the acting and directing is simply superb.

    And if one wants to watch films about “inequality” and upward social mobility, then Barry Lyndon or films by Buñuel seem much more meaningful to me.

    Parasite was not particularly bad, but it wasn’t particularly good or special either. I hardly doubt that it will survive the test of time, at least not my memory and my time.

  24. Gravatar of Michael Sandifer Michael Sandifer
    26. June 2020 at 18:44

    Since Scott likes to post about this, here’s an interview with Bolton tonight in which he says that Trump was warned repeatedly by experts very early on about the danger of the pandemic, but didn’t want to pay attention to it or make a big deal of it, because he didn’t want to upset Xi in China.

    https://www.youtube.com/watch?v=_Op3SLTYVEI

  25. Gravatar of Todd Kreider Todd Kreider
    26. June 2020 at 18:54

    “This huge offshoring of Japan manufacturing has been coupled with flat Japan per capita incomes, but increased leisure time.”

    Japan’s per capita income has not been flat but had been increasing from 2011 through 2019.

    Hours worked per year in Japan:

    1970 2,250
    1980 2,100
    1990 2,000
    2000 1,820
    2010 1,730
    2018 1,680 (The U.S. is at 1,780 and Korea is at 2,000)

  26. Gravatar of Ray Lopez Ray Lopez
    27. June 2020 at 00:15

    Jesus H. Christ, is this blog now a personal blog of Christian List, to get recommendations of what movie he should see from Scott Sumner? Not that I have anything against List or Sumner.

    Ssumner: “Roughly 99% of people think that low interest rates are an expansionary monetary policy. But the readers of this blog know otherwise. They know that low rates often reflect the delayed effect of previous tight money policies.” – I did not know that (though I have read it here). Proof? While you’re at it, proof of: (1) sticky prices and (2) money illusion outside of a college small-money laboratory experiment, would be welcome. Seriously. The quantity theory of money? An idea going back to Copernicus…the late medieval ages. Do you guys also believe in using leaches as a cure for disease?

    PS–as usual, Sumner writes in cryptic prose. Why the reference to Sweden? Huh? Why is Italy pathetic and Japan is not? (if I read that correctly, it’s not clear and not my fault, I have excellent reading comprehension). Sumner = the Pied Piper of economics, leading his self-selected audience astray (and they love him for it).

  27. Gravatar of ssumner ssumner
    27. June 2020 at 11:27

    Christian, You said:

    “I did not like them at all”

    I like them much better than I like you. They don’t waste a lot of time lying about the views of other people in blog comment sections. They are polite.

  28. Gravatar of ssumner ssumner
    27. June 2020 at 11:29

    Michael, Yes, he frequently kowtows to Xi Jinping. But Christian List makes excuses for him while criticizing Xi critics like me.

  29. Gravatar of Ray Lopez Ray Lopez
    27. June 2020 at 12:44

    Wow, Christian List has really gotten under the skin of our host… I hope he doesn’t get threatened with a ban like somebody I know… (snicker, snicker).

  30. Gravatar of Michael Sandifer Michael Sandifer
    27. June 2020 at 15:36

    Scott,

    I think it’s difficult for ideologues to interpret what classical liberals such as yourself express. I struggled some with it myself when I was a new reader here, 11 years ago. It took me some period of time to understand that people like you, Bryan Caplan, and Tyler Cowen aren’t really on the left-right spectrum. Now, I can’t really detect ideology at all with respect to you guys.

    I’m still a left-winger, but I’m much more libertarian than most left-wingers, favoring almost total deregulation of healthcare, banking, and Wall Street, for example.

  31. Gravatar of Michael Sandifer Michael Sandifer
    27. June 2020 at 16:12

    Ray Lopez,

    You can only miss proof of sticky prices if you aren’t looking. For example, see GDP versus ECI:

    https://fred.stlouisfed.org/graph/?g=slum

    or GDP versus average hourly earnings:

    https://fred.stlouisfed.org/graph/?g=sluD

    See also, GDP versus core inflation:

    https://fred.stlouisfed.org/graph/?g=sluO

    and RGDP versus core inflation:

    https://fred.stlouisfed.org/graph/?g=slv3

  32. Gravatar of Christian List Christian List
    27. June 2020 at 18:55

    Ray,

    Yeah, I think I really got under his skin this time. As far as I remember, I didn’t write anything about CCP China or Xi in this thread.

    There’s an idiom for what he does in German, it’s called “getroffene Hunde bellen”, which literally translates into something like “stricken dogs are barking”. It means that if you really feel guilty about something because the other person has hit a really true point, then you can’t stop “barking” about it. So keep on barking Scott, keep on barking.

    Mike,

    I’d stop sucking up to Scott. There’s no point in comparing him to Tyler Cowen either. Tyler Cowen has very coherent positions, especially on CCP China, and they actually make sense. In comparison, Scott’s positions are rather inconsistent and conflicting. Tyler also has no TDS, he can look at Trump and CCP China without mood affiliation.

  33. Gravatar of Thomas Hutcheson Thomas Hutcheson
    27. June 2020 at 19:10

    It is conceivable that the Fed believes that the the pandemic has produced such a strong supply side shock that we remain at “full employment.” That would mean that they are complying with the “maximum employment half of its mandate.

    But do you have a theory that can explain their failure to maintain 2% PCE growth? Indeed, inflation expectations have FALLEN since February

  34. Gravatar of Thomas Hutcheson Thomas Hutcheson
    27. June 2020 at 19:18

    Ssumner: “Roughly 99% of people think that low interest rates are an expansionary monetary policy. But the readers of this blog know otherwise. They know that low rates often reflect the delayed effect of previous tight money policies.”

    Readers of this blog know that low (or high) interest rates are just rates that the Fed has set in order to achieve wherever mysterious policy with regard to employment and the price level they have at the time.

  35. Gravatar of Christian List Christian List
    27. June 2020 at 20:10

    Scott,

    No hard feelings. I think you might be confusing honesty and politeness. I’m just trying to be completely honest with you, that’s my caring way of being polite. I do appreciate the artificial politeness of some Americans from time to time, but it also can be quite dishonest and superficial.

    It is also kind of disturbing that you seem to find purely fictional people nicer than a real person with real edges.

    Not to mention that these fictional people are not polite at all, but completely unsympathetic and dishonest. It’s kind of hard to see what Tabarrok and/or you are trying to see in them.

    They fire their employees, even when they don’t stink, because of wild rumors that are not true at all. Truth, honesty and loyality do not interest our fine rich family at all. They are also terribly lazy, they wake up their housekeeper very late at night just because they are too lazy to cook a really simple 5-minute meal themselves. How is that being polite? A housekeeper ist not a 24-hour slave.

    They are also not polite in other regards, as I said, the husband is visibly disgusted by the smell of a stinky person every time, even though he is a smelly person himself, and even in a situation when his son is dying.

  36. Gravatar of Michael Sandifer Michael Sandifer
    27. June 2020 at 22:43

    Christian List,

    I have no reason to “suck up to” anyone. If I didn’t like reading and interacting with Scott, why would I be here doing so for 11 years? What can he offer me, other than opinions?

    Also, you’re apparently missing all the times I’ve pushed some contrary perspectives on monetary policy over the past 3-and-a-half years. My confidence that I’m correct is growing with time, as data continues to come in and as I think about it more.

    I disagree with you about Scott and Cowen. Yes, their views on China differ, but they have in common exactly what I mentioned, which is that neither are ideologues. Where is it written that classical liberals will never disagree with each other?

    I mostly agree with Scott’s positions on China. I’m more concerned about China’s aggression than he is though, including their military aggression and their increasing interference in the politics and cultures of other countries.

    I am usually more polite than Scott is, though that wasn’t always the case. I use to be less so. I just find that there’s usually no reason to be harsh with people, though I’m certainly not perfect in that regard.

  37. Gravatar of Michael Sandifer Michael Sandifer
    27. June 2020 at 23:17

    Christian List,

    Also, more explicitly, I think it’s obvious Scott isn’t inconsistent in his foreign policy views. He opposes dictatorship everywhere, but only favors constructive ways of dealing with dictators. I agree with him that many of the actions taken against China in recent years reflect hysteria, rather than rational analysis.

    Also, I don’t know why it’s so difficult to understand that an evil system of government can nonetheless do a great deal of good, at least in a relative sense. China would have been much better off with even freer markets over the past 40 years, but steps they’ve taken have lifted hundreds of millions of people out of extreme poverty. That’s unabiguously good.

    Yes, of course it’s strengthened China, which is more of a problem now that they’ve taken a harder turn toward authoritarianism and ethnic cleansing, but it comes with mutual benefits too. The world isn’t black and white. Freer markets are win-win.

    Finally, we need to be realistic about what we can actually achieve vis-a-vis China, even when we strongly oppose certain policies. We can, in concert with allies, provide a military deterence, along with a weaker soft power and political deterence, but we cannot win a cold war with them, and we cannot improve our situation or that of Taiwan or Hong Kong through broad trade restrictions.

    Very few of the Sumner critics here seem to recognize that China will increasingly become more important to us than we are to them. Our markets are deeper and wealthier, but much more future growth is in their markets. We should want to sell as much as we can to them over time, with the exception of sensitive military technologies. China is too large and devleoped now, with still a high differential RGDP growth rate to hope to defeat in a 20th century-type cold war. Our approach has to include a healthy balance of carrots and sticks, with increasing reliance on countries like India to help maintain favorable balances of power in Asia and elsewhere.

  38. Gravatar of ssumner ssumner
    28. June 2020 at 08:51

    Ray, You don’t think I really would have banned you? It’s too much fun mocking you.

    Christian, You said:

    “They fire their employees, even when they don’t stink, because of wild rumors that are not true at all.”

    LOL. At least they don’t falsely accuse people of supporting the CCP!

    Michael, You said:

    “Also, I don’t know why it’s so difficult to understand that an evil system of government can nonetheless do a great deal of good, at least in a relative sense.”

    Good point, but I won’t even go that far. I don’t think the CCP has done much good at all. Rather they’ve cut back on the amount of bad they’ve done (compared to the Mao era), providing some space for ordinary Chinese people to build a life for themselves. They just need to get out of the way.

  39. Gravatar of Michael Sandifer Michael Sandifer
    28. June 2020 at 09:36

    Scott,

    Yes, it’s semantics. I say the communist party in China has done more good by being less communist, i.e. being less bad.

  40. Gravatar of Michael Sandifer Michael Sandifer
    28. June 2020 at 09:49

    There are 4 big differences between China and the Soviet Union that mean we cannot win a cold war against the former as we did the latter:

    1. China’s GDP is larger than ours. This wasn’t even close to being true of the Soviet Union.

    2. China’s real GDP can reasonably be expected to grow much faster than ours for decades, making point number 1 even more of a problem over time.

    3. China has much freer trade and a freer economy generally, with much more innovation and high technology than the Soviet Union could muster.

    4. China has hard currency which means they have and will continue to grow a softpower capability that the Soviets could never have begun to contemplate. Being mostly autarchic, the Soviets had do things like starve their people to sell wheat on the open market to industrialize, or in later decades, export obsolete cars to Western Europe to earn what little hard currency they could get their hands on to try to gain enough soft power to even bribe western spies.

    In general, the US and UK, and perhaps the West more broadly, is having a very hard time dealing with our inevitable relative decline in the world. But, all of the blind getting tough, nationalist posturing, and pyrrhic victories like Brexit will only accelerate our relative decline by slowing our absolute rise.

    In reality, we need the opposite of many of the policies nationalist populists want. We need some combination of higher immigration and birth rates. We need even closer cooperation, in some cases, with non-white, non-Christian countries. We need to develop international law even more highly, increasing incentives for participants. We need to address climate change, globally.

  41. Gravatar of Michael Sandifer Michael Sandifer
    28. June 2020 at 10:20

    Also, I can’t emphasize enough that we need to lean on India as much as possible to reform its economy and political system. We will increasingly depend on them over time in Asia to help contain unhealthy Chinese ambition. India is the only true singular rival to China in the long run, and they’re still democratic.

    Other things we can do to pressure China, and North Korea through China, is start to openly discussing nuclearizing Japan and South Korea, militarily. This is, admittedly, very controversial,but may actually increase security in the region in the long run, via MAD.

    Maybe a deal can be struck, at some point, if North Korea feels enough pressure and suffers enough loss of support from China, for North Korea to give up nuclear weapons in exchange for keeping South Korea and Japan out of the nuclear club. I’m not convinced North Korea will ever voluntarily give up nuclear weapons, even under severe strain from Chinese pressure, but might be worth a try. Kim might think the nuclear deterrence is too important to the defense of the regime.

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