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The world’s biggest bully

People often say that the Chinese government is a big bully. And they are correct. But when it comes to bullying, no one comes close to the US government.

Yahoo news has a recent piece on the Biden’s administration’s decision to allow a gas pipeline to be built between Russia and Germany. I have no problem with the decision; what bothers me is the reporter’s implicit assumption that countries need to get permission from the US government before engaging in any sort of major economic investment:

But in May, the Biden administration served up good news for the project when Secretary of State Antony Blinken, minutes before his first meeting with Russian Foreign Minister Sergey Lavrov, announced the U.S. was waiving two key congressionally mandated sanctions on Nord Stream AG, which oversees the pipeline. The decision left critics fuming, all the more when the pipeline was completed last month.

Those were “the sanctions that could have stopped it,” former U.S. Ambassador John Herbst, now director of the Eurasia Center of the Atlantic Council, told Yahoo News. “And they lifted those sanctions. For zip.”

Since when is it for the US to decide what sort of economic arrangements are made between Russia and Germany? Or France and Iran? Or Canada and Cuba? Or Japan and China? China’s government often bullies smaller countries, but can you imagine the Chinese telling the Germans that they are not allowed to build a gas pipeline to Russia? Even the Chinese government would never go that far.

Everyone interviewed by the reporter wanted the US to stop the pipeline. These experts are presumably a part of the same foreign policy “blob” that has done such an outstanding job of directing our foreign policy since the Vietnam War.

Permitting the Nord Stream 2 pipeline to become functional “is a mistake from so many angles,” said Herbst. “I understand that Biden wants to be the anti-Trump. Trump was mean to Merkel. Biden wants to make up with Merkel. That’s a good idea in principle, but not by giving Germany something that is bad for the U.S., bad for Germany and bad for Europe. It’s a strategic mistake of the first order.”

So the US is so adept at making wise foreign policy decisions that it knows better than the German government what is “bad for Germany”? The country where a recent president told Xi Jinping that it was a good idea to put a million Muslims into concentration camps? The country where the leader of one of the two major political parties no longer even accepts the outcome of democratic elections? That’s the country you want running the world?

As an aside, the gas pipeline may or may not be a good idea, but that issue has no bearing on this post.

Films of 2021:Q3

Here’s my latest dump of movie reviews:

Newer Films:

A Sun  (Taiwan)  3.7  I found the first half to be a bit slow and predictable, but the second half is really good.  Netflix has an excellent 4k print.  The director was also producer for The Great Buddha, and you can see some similarities in style.

Annette  (US)  3.7   Leos Carax’s new film is a musical, which isn’t exactly my favorite genre.  But this one shows some real imagination, an increasingly rare commodity in modern Hollywood.

The Lost Leonardo (US)  3.5  They kept saying that Da Vinci was the greatest painter of the Renaissance, but I’m not sure he’s even as good as Tintoretto, much less Titian.  (A better argument is that he was the greatest man who painted during the Renaissance, where his only rival for all-around renaissance man is perhaps Michelangelo?)  But whatever you think of the painting itself, the story is a quite entertaining look at the intersection of art, commerce, academia, museums, politics, etc.

Roadrunner  (US)  3.5  It’s going to depend on what you think of Anthony Bourdain.  I thought he was pretentious when I first saw him, but gradually warmed up to his act.  He has a package of skills that is actually pretty rare.  (The food stuff in his show is totally beside the point.)

Malice in the Palace  (US)  3.4  Not sure how non-NBA fans would react to this, but for NBA fans this is must see TV.  Not to sound all “woke”, but seeing this did give me a better sense of what people mean by unconscious racism.  I squirmed a bit at all the white commentators (even liberals) talking about how NBA players are “thugs” with tattoos and a hip-hop style.  One NBA player pointed out that they don’t seem to say that about hockey players, even though that sport is ten times more violent.  Yes, this one incident involved a couple players going into the stands, but the commentators kept saying that there there was a continuing problem of violence in the NBA, which has to mean violence on the court.  Really?  Compared to hockey?  And why all the tsk-tsking when African American players skip college and go right into the NBA, but no similar complaints when white athletes go into professional tennis, golf and baseball at age 18?

The River Runner  (US)  3.4  Interesting documentary about some pretty extreme kayakers.  Is this the riskiest hobby?

Days  (Taiwan)  3.0  An interesting exercise in Asian slow cinema, but I don’t think Tsai Ming-liang quite pulls it off.  It reminded me a bit of Karl Knausgaard’s famous novel, but Tsai didn’t always seem to know how to make this idea work using images rather than words.  Still, there are some things to appreciate in the film.  Perhaps I underestimated it.

Silver Skates  (Russia)  2.6  Everything that is wrong with recent films.  Way too much CGI, instead of relying on St Petersburg’s natural beauty.  Tiresome action sequences that go on forever.

Older Films:

An Autumn Afternoon  (Japan, 1962, CC)  3.9   Seeing this a second time, I am struck by the enormous amount of alcohol consumed in the 110 minute length of the film. I wonder if that stood out at the time?

Happy Together  (HK, 1997, CC)  3.8  Each time I see this it takes me while to get into the rhythm of the film, but once I do it becomes very enjoyable to watch.  Great acting and great cinematography.  Criterion Channel has a very interesting documentary on the film with lots of outtakes that were not used in the film.  These outtakes almost form an alternative film.  I really miss the golden age of HK/Taiwan filmmaking, which seems to be over.

Ran  (Japan, 1985)  3.8  Probably Kurosawa’s most ambitious film, although his talent had slipped a bit from his peak period.  Perhaps that makes the film (based on King Lear) slightly autobiographical.  Seeing it in 2021, the visuals of pre-Edo era Japan have a sort 1980s vibe, which is slightly disconcerting.  Despite these reservations, there is some pretty overwhelming spectacle.

The Dead  (Ireland, 1987, CC)  3.8  It’s hard to imagine someone my age not liking this gem, which was John Huston’s final film.  (His daughter is great, as usual.) I enjoyed this even more the second time around. (And don’t say the short story is better—what do you expect?)

Tokyo Twilight  (Japan, 1957, CC)  3.8  One of Ozu’s more tragic stories.

The End of Summer  (Japan, 1961, CC)  3.8  What I’ll most remember about this film is Ozu’s use of color.  It gave me the feeling that this was the first truly color film that I had ever watched, that all other modern films were merely “not black and white.”

The Hand  (Hong Kong, 2004, CC)  3.7  This was somewhat longer than the version that appeared in “Eros”, which contained three short films, but still runs well under an hour.  I find this film hard to rate, as in some ways it’s almost perfect, but also seems to be a bit lacking in something.  It’s a film I respect more than I like.

Mr. Klein  (France, 1976, CC)  3.7  A beautifully restored print of this stylish and intelligent film directed by Joseph Losey.

The Hit  (UK, 1984, CC)  3.7  A very entertaining crime story with some great acting by Terence Stamp, Tim Roth and John Hurt.

Key Largo  (US, 1948, CC)  3.7  It’s the acting that makes this a classic Hollywood film, especially Bogart and Edward G. Robinson.

Alois Nedel  (Czech , 2011, CC)  3.6  B&W animation with very strong visuals.

The Burmese Harp  (Japan, 1956, CC)  3.6  This (somewhat dated) classic Japanese film reminds me a bit of The Bridge on the River Kwai.  Both films show a few of the horrors of war, but both also romanticize war.  In the early postwar decades, audiences weren’t interested in seeing how bad it really was. Even today, most people don’t want to see war as it really was.

Remember the Night  (US, 1940, CC) 3.6 Another great performance by Barbara Stanwyck, in this case in a rather sentimental romantic comedy.

Dracula: Pages From a Virgin’s Diary  (Canada, 2002, CC)  3.5  Black and white (and a touch of red) — silent — vampires! — Mahler — ballet — Guy Madden.  Enuf said.

Diary of a Chambermaid  (France, 1964, CC)  3.5  Bunuel’s version is skillfully made and very dark.  Hard to feel good about the human race after seeing this film.

Reflections in a Golden Eye   (US, 1967, CC)  3.4  A good film for a gender studies class.  Laugh all you want at the 1967 perspective, but these cultural artifacts are still pretty interesting a half a century later.  As is usually the case, Liz Taylor and Marlon Brando give interesting performances, and John Huston did a really good job directing several of the scenes.

Christmas in Connecticut  (US, 1945, CC)  3.4  Routine screwball comedy raised to a higher level by the presence of the sublime Barbara Stanwyck.  (BTW, the film featured a tasteless joke based on the idea of a black man being able to explain the Greek origin and meaning of the word ‘catastrophe’ to a white man.  In a weird coincidence, the very next day I read about Zaila Avant-garde winning the national spelling bee.  Old Hollywood films often have a racist joke or two.)

Lilith  (US, 1964, CC)  3.3  Halfway between an exploitative American film on insanity and a European art film.  Worth seeing for Jean Seberg’s performance, and the other actors are also pretty good.

Cutter’s Way  (US, 1981, CC)  3.3  This noir starring Jeff Bridges really captured the feel of life in 1981.

A Farewell to Arms  (US, 1932, CC)  3.2  At less than 90 minutes, it has enough space for a Hemingway short story, but tries to pack in a entire novel.  It’s Hollywood, not Hemingway. On the plus side, Borzage’s direction has a nice visual flair.  Helen Hayes is an odd looking actress.

Carmen Comes Home  (Japan, 1951, CC)  3.2  Although it’s just a silly B film, Japan’s first color film feels like some sort of cultural turning point.  I suspect that Japanese audiences left the theatre a bit more “modern” than they entered.  Stupid, but also as fun as eating cotton candy at a carnival on a summer evening when you were young.

People on Sunday  (Germany, 1930, CC)  3.1  This silent film made by a couple future Hollywood directors is not all that entertaining, but it’s nevertheless a sort of treasure, a peek at how people in Berlin spent Sunday’s back in 1929.  At least for the middle class, life was definitely “worse”, without actually being any worse than today.

The Spy in Black  (UK, 1939, CC)  3.1   A Powell/Pressburger WWI film made in 1939, perhaps before WWII broke out.  The Germans were treated respectfully.

An Irrational Man  (US, 2015)  3.0  At this point there’s not much to say about newer Woody Allen films.  Here I think he would have benefited from having a younger and more intelligent screenwriter, as much of the philosophy discussion seemed to come out of a 1960s-era copy of Cliff’s Notes.  Still, I always enjoy a good black comedy, even if it’s not so good.

City of Women   (Italy, 1980, CC)  3.0  Right off the bat you know you are in the hands of a brilliant director.  Unfortunately, it soon becomes apparent that he’s a director that has been given too much freedom and has lost his way.  The second half of this late Fellini film had enough to keep me interested—barely.

The Touch  (Sweden, 1971, CC)  3.0  To outsiders, a love affair often seems to make no sense.  Whereas most directors romanticize love affairs so that they makes sense to the average person, Bergman is oblivious to audience expectations.  He seems to embrace the senselessness of love, and doesn’t seem bothered by the fact that the affair will make no sense to most viewers of this film. The problem here is Elliot Gould; it’s unclear (at least to me) what Bergman was trying to do with his character.

California Split  (US, 1974, CC)  3.0  I often find Altman films to be slightly disappointing.  He generally seems more interested in capturing the zeitgeist than in actually making an excellent film.  I just don’t connect with his sensibility.

Midnight  (US, 1939, CC)  3.0  OK romcom starring Claudette Colbert.

Nothing Sacred   (US, 1937, CC)  3.0  At the beginning, the screenwriter Ben Hecht is pretty hard on Vermont.  Recall that in the 1936 election, Vermont was only one of two states to vote against FDR.  Hecht was a leftist.  OK film; nothing special.  Oddly, the film is in color.

Song to Song  (US, 2015)  2.8  Malick has recently produced some interesting experimental films, with a sort of stream of consciousness style.  This is more of the same, but now I’d call it an interesting failure, as the style seems increasingly hollow.  Watch it as a pretty travelogue of 21st century Austin.

Death Takes a Holiday  (US, 1934, CC)  2.7     Not just death, good acting and dialogue also take a holiday.  Still, it’s an interesting cultural artifact.  “There are only three games: money, love, and war.”

Five Corners  (US, 1987, CC)  2.5 Not sure why Criterion Channel had this one—perhaps the attraction was seeing a young John Turturro and a young Jodie Foster.  Also not sure what sort of film the director was trying to make; it’s a mishmash that doesn’t fit together.

The dead horse I’m beating is very much alive

Lots of people tell me I’m beating a dead horse. The profession knows that low interest rates don’t equate to easy money. You can find dozens of quotes from eminent economists attesting to this fact:

“Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.  .  .  . After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.”(Milton Friedman, 1997)

 “It is dangerous always to associate the easing or the tightening of monetary policy with a fall or a rise in short-term nominal interest rates.”  (Frederic Mishkin, 2007, p. 606)

The argument that current monetary policy in Japan is in fact quite accommodative rests largely on the observation that interest rates are at a very low level. I do hope that readers who have gotten this far will be sufficiently familiar with monetary history not to take seriously any such claim based on the level of the nominal interest rate. One need only recall that nominal interest rates remained close to zero in many countries throughout the Great Depression, a period of massive monetary contraction and deflationary pressure. In short, low nominal interest rates may just as well be a sign of expected deflation and monetary tightness as of monetary ease. (Ben Bernanke, 1999)

But then why do we continue to see prestigious outlets such as the Financial Times saying the following:

Unlike many on America’s left, I’ve always been sceptical that ultra-low interest rates make things easier for the poor. Keeping rates too low for too long encourages speculation and debt bubbles. When they burst, they always hurt those on low incomes the most, as we witnessed during the 2008 financial crisis.

And yet for years, progressives have argued that loose monetary policy and low interest rates are necessary to promote employment, particularly at the lower end of the socio-economic ladder.

The second paragraph is a complete non-sequitur with the first. We don’t have low rates due to a “loose” monetary policy. Interest rates tell us nothing useful about the stance of monetary policy.

Can someone explain to me why people keep saying things like this if the correct view is all so “well known”? Why does this keep happening? And how can it be stopped?

The beatings will continue until the horse is completely dead.

Jeffrey Sachs on anti-China hysteria

Here’s Jeffrey Sachs in the FT:

Georgieva is receiving McCarthyite treatment of the kind for which Washington has been notorious in the past. President Joe Biden’s administration, counting votes in a closely divided Congress, looks on with wariness, not wanting to pick more fights with Republicans and anti-China Democrats. Those anti-China forces hope that by making enough noise, all will conclude that “for the good of the institution”, for peace and quiet, Georgieva must go. Pundits will add weighty nods of approval.

Such an outcome would be a dangerous and costly capitulation to anti-Beijing hysteria.

The American right in particular is overtly trying to undermine the multilateral system. In the minds of many in Washington, either the US runs a multilateral institution or should leave it. Under President Donald Trump, the US left the Paris climate agreement, the World Health Organization, Unesco and the UN Human Rights Council. For the unilateralists in Congress, and there are many, the US must control the World Bank and IMF.

Read the whole thing.

What if monetary policymakers lack credibility?

Trevor Chow sent me the following questions, as a follow up to my recent post:

I was wondering what your thoughts are regarding the following:

1. I agree that the thought experiment shows monetary policy can set nominal aggregates as high as they would like. But I’m not entirely sure this solves the machete-scalpel problem.

2. What I mean is the following. Suppose we start in a world where we’re on some nGDP growth path. Suddenly, there’s a recession (V falls/k rises) and expected nGDP falls. The central bank tells everyone about this helicopter thought experiment and persuades them that it can credibly maintain the nGDP growth path. Consequently, it needs to do very little actual money creation in order to keep nGDP futures on the nGDP growth path. And so expected nGDP doesn’t actually fall. This is basically what you were saying.

3. However, suppose instead that for some reason it screws up. And for some reason, people no longer believe that the thought experiment is enough i.e. they believe in the machete-scalpel problem. Perhaps this is because they mess up for a period of time or because everyone misdiagnoses what tight and loose policy are. Regardless, it is no longer credible. Then it can’t just say it wants an nGDP path and hope that people will respond accordingly, and in fact might have to do a lot just to get close.

4. This may be particularly difficult because people’s belief in a central bank depends on whether they think other people find the central bank to be credible. And in that sense, it would seem likely that while what you’re saying is true most of the time, it is possible to get stuck in bad equilibria where you need a lot more than the usual show of force to even begin regaining control of the scalpel?

5. What I’m trying to say, albeit somewhat poorly, is that the machete-scalpel problem seems to be true if everyone believes it to be true, and to be false if everyone believes it to be false.

I’m going to disagree with this:

This may be particularly difficult because people’s belief in a central bank depends on whether they think other people find the central bank to be credible.

In my view, people tend to doubt central bank commitments mostly when central banks are not in fact committed to doing whatever it takes. Yes, you can imagine a hypothetical case where a central bank was committed to do whatever it takes to boost inflation, but the public for some reason still did not believe the central bank. But I suspect that that’s pretty rare. It is most likely to happen in a case where a central bank had previously made a commitment that was not sincere, reneged on its promise, and then subsequently made a commitment that was sincere, but not credible.

For instance, Volcker backed off on his first attempt to reduce inflation in late 1980, and then in late 1981 adopted a “whatever it takes” approach that was ultimately successful. Note, however, that it didn’t take all that long to convince people that the Fed was serious, and NGDP growth rates plunged sharply in late 1981 and 1982. And when it comes to stimulus, the central bank’s job is actually much easier in a political sense. Volcker faced doubts because a contractionary monetary policy hurts workers, businesses and borrowers. There was intense pressure on him to back off on the tight money policy. In contrast, a policy aimed at raising inflation from zero to 2% tends to make the economy better in the short run, and thus is less politically controversial.

Central banks are not completely transparent, but they are also not particularly secretive. Top Fed officials frequently describe their policy preferences to people in the media. Thus I doubt that a sincere and publicly announced policy to do whatever it takes to hit an NGDP level target (or price level target) would be non-credible. On the other hand, I could easily imagine such a policy not being sincere.

Consider the following example. Suppose that in 2003, BOJ policymakers announced that they were going to adopt Lars Svensson’s “foolproof” plan to escape from a liquidity trap. They say that they will do “whatever it takes” to hit the target amount of yen depreciation. But privately, BOJ officials decide that if the US complains too strongly about a weak yen, and threatens trade sanctions, they will back off. That’s not a sincere “whatever it takes” policy decision, and the markets would (correctly) find the promise non-credible. They’d see right through it.

In the vast majority of cases, promises are seen as non-credible because they are not in fact sincere, and when sincere they are seen as credible. For that reason, I’m not very worried about the hypothetical raised by Trevor. Nonetheless, let’s consider the outcome of a sincere promise that was seen as being non-credible, no matter how remote that possibility. Suppose the BOJ made the sincere decision to implement Svensson’s recommendation regardless of how much flack they received from the US, but the decision was not credible. What then?

I’d still say the policy was a scalpel, not a machete. Yes, the BOJ would probably have to increase the monetary base dramatically, as speculators would anticipate big profits if and when the BOJ caved in and let the yen appreciate. But in the longer term, the central bank that abandons its stimulus is actually forced to do more money creation than the sincere central bank.

Thus in early 2015, both the Swiss and Danish central banks were under pressure from speculators who anticipated a break in their currency’s euro exchange rate peg. The Swiss did cave in, a decision that in retrospect was clearly a mistake, whereas the Danish central bank refused to give in to speculators. Indeed I’d even go further. I suspect that speculators attacked the Swiss franc in early 2015 partly because they anticipated that the SNB was not sincere, and would soon let the franc appreciate as a result of the false belief that Switzerland was threatened with spillover inflation from the eurozone. Speculators didn’t so much force the SNB’s hand as they anticipated a bad decision that was already in the works.

Denmark got the last laugh, however, as once speculators saw the Danes would not let the krone appreciate, they stopped speculating in their currency. Thus, in the long run, the SNB had to increase their monetary base far more than the Danish central bank, as speculators assumed that the Swiss franc would continue to appreciate over time.

Given the fact that a non-credible central bank might have to dramatically boost the monetary base, why do I insist that this policy is a scalpel and not a machete? Because in this case it is more useful to think of the policy instrument as the exchange rate, not the base. The monetary base might change dramatically, but only in service of a central bank policy aimed at targeting the exchange rate (the scalpel) at a precise level.

Here’s an analogy. Consider a Taylor Rule-type policy in 1991, which sets the fed funds rate at 3%. Then assume a sudden collapse of the Soviet bloc, which leads to massive hoarding of US currency. To keep the fed funds rate at 3%, the Fed must accommodate that demand by printing enough base money to meet the growing demand for US currency in the former Soviet Union. From the perspective of the rapidly growing monetary base, policy looks like a blunt instrument, a machete. But from the perspective of the fed funds target, policy looks like a scalpel, a very precise instrument that keeps the fed funds rate exactly where the Fed wants it.

I favor a policy where the Fed adjusts the base as much as needed to keep its policy indicator right on target. That indicator might be an exchange rate, an NGDP futures price, or a TIPS spread. More likely it would be a hybrid market/internal forecast of something like NGDP or core inflation. But I don’t want the Fed to actually target the monetary base, or to use it as an indicator of the stance of policy.

The base is like the steering wheel for the nominal economy. A steering wheel controls the path of the car, but I don’t “target” the position of the steering wheel. Rather I move it as needed so that my GPS says I’m moving to the place I’d like to reach in the most efficient way possible.

When monetary policymakers are sincere but not believed by the public, the central bank may have to move the base by more than otherwise, until the public becomes convinced that it is sincere. But, in general, when a central bank is truly sincere it won’t take the public long to figure that out. They are like 5-year old children, whose intentions can easily be read in their face. Speculators that are slow to realize the central bank’s sincerity will lose money on their investments.

The key is that the central bank must be sincere. Everything works so much better if you tell the truth.