Author Archive


The incredible shrinking yen

Over the past 28 years, the dollar/yen exchange rate has behaved very oddly. During this period, Japan’s CPI has risen by 4%. Not 4%/year, rather 4% in total. And even that merely reflects a set of sales tax increases. Meanwhile, the dollar has appreciated by about 6% against the yen (in nominal terms). If we combined those two facts, and apply the theory of purchasing power parity (PPP), then you might have expected the US price level to have fallen by about 2%. Instead, it rose by 90%.

This means that the US real exchange rate appreciated by roughly 92% against the yen. That’s a lot!

Each year, I expect PPP to finally kick in. But over the past 12 months, the US CPI rose by 6.2%, while the Japanese CPI fell slightly. So did the dollar depreciate? No, it’s up almost 8% against the yen, for a real appreciation of nearly 14%. (Japan is becoming a real travel bargain.)

So why don’t I give up on my belief in PPP? Why do I still believe that the optimal forecast of the real exchange rate for the dollar against the yen in the year 2049 (28 years from today) is roughly the same as the real exchange rate today? The answer is simple. The logic behind PPP is so powerful that almost any anomaly is easier to explain as being due to a one-time adjustment in Japan’s real exchange rate, rather than PPP being wrong. Ceteris paribus, I still expect US/Japan inflation differentials to show up in future movements in the nominal exchange rate.

Here’s another example. Over the past 28 years, the NASDAQ stock index has massively outperformed British and French stock indices. And yet, if asked to predict which index will do the best over the next 28 years, I’d predict they do about the same. And the reason is simple. The logic behind the Efficient Markets Hypothesis is incredibly powerful. Rather than reject the EMH, it’s easier to explain this huge NASDAQ outperformance as a one-time unanticipated adjustment in response to US tech firms doing better than they were expected to do back in 1993.

People often respond to these explanations with, “Oh come on, for 28 years?”

Apparently so.

Would innovation stop inflation?

The FT has a new article by Rana Forooher entitled “How innovation could stop inflation“. The article focuses on how innovation is transforming all sort of industries, from energy to transport to computers. Lots of exciting things are happening.

After reading the article, I wondered why the FT had not entitled it “Why innovation could boost real GDP”. After all, you could remove all mention of “inflation” from the article, and still make the same basic points. So why are these issued framed in terms of inflation, and not in terms of RGDP growth?

If we were on the gold standard, the title would make perfect sense. Under a gold standard, global NGDP tends to rise at roughly the same rate as the gold stock. Anything that boosts global RGDP without boosting global gold stocks (a big assumption, BTW), tends to push the price level in the opposite direction. This explains why there was almost no long run inflation under the international gold standard.

For the same reason, if we currently had NGDP targeting then the title would also make perfect sense.

But we don’t have a gold standard and we don’t have NGDP targeting. We have inflation target, at 2%. So why would anyone expect long run technological change to have any impact on inflation? Why wouldn’t faster RGDP growth merely lead to faster NGDP growth, leaving the inflation rate stuck at 2% on average, over the long run?

Just to be clear, in this post I’m not being sarcastic, and I’m not taking some sort of weird market monetarist perspective. Unless I’m mistaken, a New Keynesian or an Austrian would be equally perplexed by this FT article. I’m sincerely asking the following question:

When reporters talk about inflation in this way (and it occurs quite often), exactly what are they assuming about the monetary regime?

Are they claiming that although the major central banks claim to target P, they actually target NGDP? If so, I hope they are correct. But does that assumption actually seem plausible?

The left wing version of Trump

Woke people are like unicorns. I often read about them, but can’t say I’ve ever spoken with one. Nonetheless, their impact is now so great that a backlash is setting in.

From the far left you have Freddie deBoer:

Tom Scocca is going for the “it’s just a ginned-up controversy that no liberals have been pushing for.” Scocca obviously knows that thousands of liberals have in fact gone to war for CRT in that span, arguing that CRT is good actually and every student should be taught it. . . .

The bigger question for the entirety of American progressivism is this: who is Scocca talking to? To whom is he making this appeal? This is something liberals do relentlessly, appealing to some shadowy and vague arbiter of what’s fair. Hey, Republicans are pulling dirty tricks!, they complain again and again. But who is listening? What tribunal of wise judges does Scocca think is reading his tweets? What arbiter is ready to dispense justice? Too many in the left-of-center intelligentsia in this country grew up in contexts where fairness matters, where you could always count on mom or the teacher or the HR department to mete out justice. But life doesn’t work that way. There are no refs. “Republicans only won because of racism.” Yes, it’s impossible to imagine voters rejecting the party of Andrew Cuomo and Kyrsten Sinema and Gavin Newsome for any reason other than racism, agreed. So what? Who do you think is going to come and correct that injustice for you? The only opinion that matters is that of the voters, and they think your whining about unfairness makes you look weak.

From the right, you have Razib Khan:

Politically speaking, deBoer and Khan have little in common, except a strong distaste for bullshit. In this case, that’s enough. You want someone center-left who doesn’t like bullshit?

James Carville

You ever get the sense that people in faculty lounges in fancy colleges use a different language than ordinary people? They come up with a word like “Latinx” that no one else uses. Or they use a phrase like “communities of color.” I don’t know anyone who speaks like that. I don’t know anyone who lives in a “community of color.” I know lots of white and Black and brown people and they all live in … neighborhoods. . . .

Sean Illing

Sounds like you got a problem with “wokeness,” James.

James Carville

Wokeness is a problem and everyone knows it. It’s hard to talk to anybody today — and I talk to lots of people in the Democratic Party — who doesn’t say this. But they don’t want to say it out loud.

Sean Illing

Why not?

James Carville

Because they’ll get clobbered or canceled. 

Wokeness is the left wing version of Trump. Every thinking person knows it’s mostly nonsense (beyond the obvious “don’t be racist and sexist”). But the world is full of cowards who are afraid to say so. Just as GOP politicians are afraid to criticize Trump, left-wingers are afraid to criticize wokeness. So they deny that it exists.

American politics is actually quit simple. It contains three elements:

  1. Donald Trump
  2. The Donald Trump Personality Cult.
  3. The Committee Ensuring the Election of Donald Trump in 2024.

The second group is sometimes called the “Republican Party”, while the third group is sometimes called the “Democratic Party.”

Years ago, you guys laughed when I said America was becoming a banana republic. Still laughing?

PS. What’s wrong with the woke? They claim that all racial and gender differences in achievement are proof of racism and sexism. They make anti-racism into a religion, while making crude generalizations about people based on nothing more than their race. They are opposed to free speech, preferring shaming over honest debate. They indirectly help white nationalists by promoting identity politics. They are too tolerant of crime. They obsess about unimportant symbolic issues and completely ignore important issues that affect people’s lives. They promote destructive (statist) economic policies. They oppose cultural appropriation.

Fun with Schopenhauer

Here are some quotes from The World as Will and Representation:

If I were to call to mind the way in which Hegel and his companions have misused such wide and empty abstractions, I should necessarily be afraid that both the reader and I would be ill, for the most sickening and loathsome tediousness hangs over the empty bombast of this repulsive philosophaster.

I feel the same way about MMT.

In volume one I regarded it as superfluous to illustrate this theory by examples, as everyone can easily do this for himself by reflecting a little on the cases of the ludicrous which he calls to mind. However, to come to the aid of the mental inertness of those readers who always prefer to remain in a passive state, I will meet their wishes here.

Yes, nothing worse than lazy readers.

In general, I make the demand that whoever wishes to make himself acquainted with my philosophy shall read every line of me.

I feel the same way. And on the same page he ridicules those who will have the nerve to criticize him without being fully informed:

[W]hoever wants to learn from me and to understand me must not read unread anything that I have written.Yet without this people can criticize and condemn me, as experience has shown; and for this also I further wish them much pleasure.

Once I start tweeting, I’ll demand that people read all my tweets before commenting on any one of them.

(At first, Schopenauer’s personality flaws seemed sort of ridiculous to me. Then I began wondering how many I share.)

Is this the least romantic paragraph ever written?

If, from the standpoint of this last consideration, we now contemplate the bustle and turmoil of life, we see everyone concerned with its cares and troubles, exerting all his strength to satisfy infinite needs and to ward off suffering in many forms, yet without daring to hope for anything else in place of it except just the preservation of this tormented existence for a short span of time. In between, however, we see in the midst of the tumult the glances of two lovers meet longingly: yet why so secretly, nervously, and furtively? Because these lovers are the traitors who secretly strive to perpetrate the whole trouble and toil that would otherwise rapidly come to an end. Such an end they try to frustrate, as other like them have frustrated it previously.

And some people think I’m a pessimist.

Schopenhauer has a chapter on homosexuality, a subject on which he seems to be unusually ill-informed. He eventually concludes that while it is a “disgusting depravity”, it is also a necessary evil that helps to preserve the species. The chapter itself is of little interest, but the conclusion is amusing:

Finally, by expounding the paradoxical ideas, I wanted to grant the professors of philosophy a small favor, for they are very disconcerted by the ever-increasing publicization of my philosophy which they so carefully concealed. I have done so by giving them the opportunity of slandering me by saying that I defend and commend pederasty.

I am equally generous. My China posts give my readers the opportunity to slander me with claims of sympathy for the CCP.

And finally, for those of you who wonder what our future AI overlords have in mind, Schopenauer has an answer:

It is a deduction from what has been said that we have no ground for assuming that there are even more perfect intelligences than those of human beings. For we see that this intelligence is already sufficient for imparting to the will that knowledge in consequence of which the will denies and abolishes itself. With this knowledge, individuality, and therefore intelligence, as being merely a tool of individual nature, of animal nature, cease. To us this will appear less objectionable when we consider that we cannot conceive even the most perfect possible intelligences, which we may tentatively assume for this purpose, as indeed continuing to exist throughout an endless time, a time that would prove to be much too poor to afford them constantly new objects worthy of them. Thus, because the inner essence of all things is at bottom identical, all knowledge of it is necessarily tautological. If this inner essence is once grasped, as it soon would be by those most perfect intelligences, what would be left for them but mere repetition and its tedium throughout endless time? Thus, even from this point of view, we are referred to the fact that the aim of all intelligence can only be reaction to a will; but since all willing is error, the last work of intelligence is to abolish willing, whose aims and ends it had hitherto served. Accordingly, even the most perfect intelligence possible can be only a transition stage to that which no knowledge can ever reach; in fact, such an intelligence, in the nature of things, can take only the place of the moment of attained, perfect insight.

What if a future AI decides that Schopenauer is right, that life is not worth living? And we program it to maximize aggregate human utility? Would this be a good thing?

I guess the answer depends on whether they are in fact correct.

Have a nice day!

Covid deaths and politics

Matt Yglesias directed me to an interesting graph showing the correlation between cumulative Covid deaths and county voting patterns:

At first glance this looks like proof that being a Republican makes you more likely to die of Covid, but correlation does not prove causation. After all, during the early months of the pandemic the Democratic leaning counties had much higher death rates. If correlation proved causation then that would suggest that early Covid deaths were partly caused by being a Democrat.

Nonetheless, I do believe there is a link between Covid deaths and politics, especially in recent months. In Florida, slightly less than 60,000 people have died of Covid, more than 22,000 just since the beginning of June. These recent deaths are especially important, as most were probably preventable via vaccination. So what about recent deaths among the unvaccinated, how are those associated with politics? We don’t know for certain, but we have three completely independent pieces of evidence that the unvaccinated skew Republican. I emphasize completely independent, as each individual piece of evidence can be questioned. But all three together are fairly persuasive.

The first piece of evidence is in the graph above, recent deaths (i.e., those since vaccines were widely available) skew heavily toward Republican areas. This is even true within states.

The second piece of evidence is that polls show a huge difference in vaccination rates between Democrats and Republicans:

Of Americans surveyed from Sept. 13-22, 72% of adults 18 and older had been vaccinated, including 71% of white Americans, 70% of Black Americans, and 73% of Hispanics. Contrast these converging figures with disparities based on politics: 90% of Democrats had been vaccinated, compared with 68% of Independents and just 58% of Republicans.

A Gallup survey released on Sept. 29 confirmed the KFF findings. As of mid-September, 75% of adult Americans have been vaccinated, including 73% of non-Hispanic white adults and 78% of non-whites. Along party lines, however, the breakdown was 92% of Democrats, 68% of Independents, and 56% of Republicans.

And the third piece of evidence is that much of the fake information about vaccine effectiveness is being spread on conservative news outlets. Here’s Tucker Carlson:

TUCKER CARLSON (HOST): Like almost everyone his age, Colin Powell was fully vaccinated against COVID. And yet according to his family and doctors, Colin Powell died of COVID. Of course, that fact does not make his death any less sad nor is it unusual. Many thousands of vaccinated Americans have died of COVID. 

Former CDC Director Robert Redfield announced just today that about 40% of all recent COVID deaths in the state of Maryland, for example, are among those who’ve had both shots. 

So, what does that tell you, exactly? Well, it tells you, you’ve been lied to. Vaccines may be highly useful for some people, but across a population, they do not solve COVID.

Of course this is false, this doesn’t show you’ve been lied to. From the beginning, vaccines were only claimed to be about 90% effective, and that still seems to be the case. Powell had previously had cancer, and thus was unusually susceptible to Covid. And the 40% figure is hugely misleading, as all but the most innumerate among you probably recognize. (What percentage of older Marylanders are unvaccinated, for instance?)

So Carlson’s wrong; the evidence he cites doesn’t prove we were lied to. (Of course we’ve been lied to plenty of times, but not on this specific point.)

Carlson isn’t explicitly telling people not to get vaccinated, but his frequent misinformation has the effect of discouraging people from getting vaccinated. What kind of people? The kind of people who watch Fox News. I have no proof that Fox News viewers skew Republican, but I’m pretty confident they do. And I suspect there’s even more inaccurate vaccine information on far right wing conspiracy websites.

The upshot of all of this is that the constant drumbeat of anti-vax misinformation coming from the right has recently contributed to the needless deaths of hundreds if not thousands of Florida Republicans, people who would be alive if those they look to for information had been more honest with them. This whole situation isn’t just sad—what happened in 2020 is sad. This is a disgrace.

BTW. People on the left should not be smug about this. There are 40,000 needless deaths each year due to the ban on selling kidneys. How many on the left are speaking out on that travesty? And how about the fact that illegal opioid deaths (especially fentanyl) soared by tens of thousands after the government cracked down on legal opioids? Who is speaking out on that issue?