Believe whatever you like
Lindsey Graham has certainly raised some eyebrows since the death of his friend John McCain, by radically shifting his approach to politics. But give Graham credit for being honest about what’s going on, in this remark from 2018:
“I would imagine in a Democratic administration, I would be all over them for being in the pocket of Saudi Arabia,” Graham said of Mattis and Pompeo. “But since I have such respect for them, I’m going to assume they are being good soldiers.
In politics, people obviously believe what they wish to believe. Some Trump supporters would like to believe that Trump shares their opposition to the Fed’s recent “lowflation” policies. But does Trump actually oppose tight money? Or is he a secret NeoFisherian, who favors low interest rates because they are associated with low inflation?
The best way to answer this question is NOT to look at the statements of Trump himself, which are entirely incoherent. But I know that some of you disagree, and so I provide this recent quote for those of you that hang on his every word:
He followed up with a separate tweet, saying: “The United States has VERY LOW INFLATION, a beautiful thing!”
(Yes, I’m just joking around here, so don’t get on your high horse in the comment section. I have a more serious post on the same topic over at Econlog, which I recommend that you read.)
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11. June 2019 at 10:57
Well I’m glad you finally agree with me about taking people – especially conservatives – at face value.
11. June 2019 at 11:35
Trump is our first NeoFisherian president. He announces with great fanfare trade deals and peace accords, which might be true. Yes, they might be true. And markets (and voters) react accordingly. And it might be true that better days lie ahead if the Fed raises interest rates. Bullshit is the coin of (this) realm. In politics as well as in economics. Believe it.
11. June 2019 at 14:52
Scott,
really what is that? Is it TDS again?
No president has ever known what Fisherian and what NeoFisherian is. No president knows your definition of inflation. No president knows your way to determine the stance of monetary policy.
Even 99.99% of all economists do not follow you at all. They believe for example that cutting interest rates is equivalent to easing monetary policy. Most of them wouldn’t even cut rates right now.
You attack Trump at the only point where he’s right in the best sense of the word: Interest rates are too high right now.
11. June 2019 at 15:10
Christian List,
Trump is singularly stupid. Believing he has any useful knowledge at all would be like believing Mr. Ed could talk.
11. June 2019 at 16:27
Michael,
your point makes it even worse. It’s not about how stupid he is, what knowledge he has, or if he can talk or not. It’s about the simple fact that – all else unchanged – interest rates are not correct right now, and Trump, the fool, the idiot, call him what you want, gets it and so many experts (including the FED), don’t get it. So yes, your argument (which might as well be very true, 10x true) makes it even worse, 10x worse.
11. June 2019 at 18:51
Christian List,
I take your point, but I don’t count being right for the wrong reasons as being right. Trump also said he thought policy was too loose during the Obama administration, which was obviously disasterously wrong.
11. June 2019 at 18:52
disastrously, rather
12. June 2019 at 08:33
Christian, You tell us that we should take Trump’s word’s seriously, except when he says low inflation is wonderful. Who gets to choose which of Trump’s words to take seriously?
12. June 2019 at 12:48
Scott,
no, I said something else entirely. I said that Trump’s general impulse and gut feeling is not so wrong. And I said that you should not demand the knowledge of quite complicated concepts from him, concepts that no president has, concepts that even most of your colleagues don’t agree with you up on. Your concepts look correct to me, but Trump is hardly the only person who doesn’t get them.
But to get to your point: I would not have picked his inflation quote at all to “prove” that he is wrong. There would have been way better quotes. He is even quite right again: Inflation is a bit too low, and he is quite happy about that, because he wants to cut interest rates, hence the “beautiful” in his quote. What do you not understand? It’s actually quite easy without TDS. TDS does make you quite blind (sorry but it’s true).
Michael,
Trump also said he thought policy was too loose during the Obama administration, which was obviously disasterously wrong.
That is obviously politics. Partisan hackery. Most politicians do that if not all. Some politicians do this more extreme than others, with Trump certainly being one of the more extreme types.
Hell I remember Yellen, who said just before Trump’s election, that the US needs more loose conditions and even fiscal stimulus. And then Trump was elected and she told the opposite. I was really shocked back then. But again: it’s true that Trump is extreme in this sport. Or as Machiavelli might say: He’s very “good” at it.
12. June 2019 at 17:31
Larry Summers is explaining carefully to everyone that larger fiscal deficits are needed (but horrors, not MMT!). Adair Turner and Ray Dalio just come out an say it, we need helicopter drops.
Now lots of people are calling for the Fed to cut rates, not once but twice this year.
Trump is ascendant!
Trump strikes me as a crackpot genius, minus the genius part. Still, he certainly has been right so far on monetary policy—and as for fiscal policy, well that is really being made by the Congress, and the GOP. The Trump White House is regarded as weak on congressional liaisons.
Anyway, Trump is great entertainment. He often blurts out the truth amid all the sideways verbiage and obvious lies. Watch closely.
12. June 2019 at 19:24
Scott – Off topic, but I was wondering if you have any thoughts on Elizabeth Warren’s proposed wealth tax?
https://www.cnbc.com/2019/06/12/most-millionaires-support-tax-on-wealth-above-50-million-cnbc-survey.html
She claims it would raise $275 billion per year. The corporate profits tax raised $297 billion in FY 2017. If she became President, and then made a deal with the Republican Congress to use the revenue from her wealth tax to eliminate the corporate profits tax (or just make dividends deductible to corps, almost the same thing) would that be a positive supply-side reform?
13. June 2019 at 02:08
“Fed’s Evans: The market is seeing something ‘that I haven’t seen yet’”–CNBC headline
—30—
Scot Sumner should get a chuckle out of this.
13. June 2019 at 04:32
In case you guys haven’t seen it yet, Trump openly says he’d accept damaging info about a political opponent from a foreign agent. Can’t make this up. His statements are video recorded.
https://www.cnbc.com/2019/06/12/trump-i-think-id-take-damaging-2020-info-rival-from-foreign-agents.html
Should we be more disturbed by his casual attitude toward being compromised, or his sheer stupidity for admitting it publicly? Personally, I think the latter.
13. June 2019 at 09:32
Christian, You said:
“Inflation is a bit too low, and he is quite happy about that, because he wants to cut interest rates, hence the “beautiful” in his quote.”
Proving you are just as confused as Trump. Or maybe you are both NeoFisherians in drag.
Negation, I’m strongly opposed to wealth taxes. How do we even measure wealth? Say I have a family business. What is it worth?
Michael, And a day earlier he reassured the North Koreans that we wouldn’t use their family members to spy on them. Almost every single day he says something that disqualifies him from office on the basis of stupidity.
13. June 2019 at 10:57
Scott,
Yes, there’s so much daily stupidity and recklessness, that it literally overwhelms the ability to process it all.
13. June 2019 at 13:23
Scott,
Interest rates and inflation are one of the most complicated topics in your field of expertise. I truly believe that you are the absolute expert in this field and that there is no one (really no one) in the whole world who understands the subject better.
You’ve already explained this topic a hundred times, I know that, too. But unfortunately, your explanations do not stick, they do not penetrate. I’m sure I’m not the only one, I’m even sure that most people don’t get what you say. We might get it at the moment when we read it, but we cannot reproduce it on the same level as you do, and after ten days most of it is gone again anyway.
I reread the blog entries by Krugman and Noah Smith on the subject (from 2014) and I have to say that you economists really do NOT agree on any topic, let alone on this difficult topic. Put 10 economists in one room and you get at least 12 different opinions, something like that, yes?
Or maybe we think that low inflation is a sign that money has been too tight??? Well I can’t be sure what he thinks, if anything, but he seems to think: Low inflation? Fitting market reactions? Maybe money is too tight? Maybe we should cut interest rates?
Sorry, when I can’t see why exactly that makes him the biggest idiot in the world. Is this really your best example? I buy it at once if you can explain it in an understandable way.
14. June 2019 at 06:51
Christian List,
I think some of us non-economists understand the basics of Scott’s perspective, even if less knowledgeable, and especially less familiar with the data overall.
That is, I think I have a undergrad understanding of it, but I’m not capable of writing a peer-reviewed paper in the field.
As I intend understand it:
change in NGDP = (1 + exp. change in supply of money / 1 + exp. change in demand for money)RGDP, for the short run, for example. In the longer run, if exp. demand outstrips supply, RGDP falls, for example. In the longer run still, money is neutral, as wages aren’t permanently sticky.
The hypothetical equilibrium interest rate varies with looser money or tighter money in the short-run. In the long run, the neutral rate is determined by real factors.
I have the hypothesis that the neutral rate should roughly equal NGDP growth expectations in a healthy economy, but no economist I’ve discussed this with agrees with me, so I’m likely wrong.
14. June 2019 at 07:31
I think Trump’s thinking is as simple as this: If the stock market isn’t exploding upward and NGDP growth above the Obama trend, he’ll want lower interest rates. I don’t think his thinking goes any deeper than that.
When Obama was President, he wanted stock market performance and GDP growth to be worse, so he favored raising interest rates. He hates Obama, so he wanted higher rates.
Why do I think his thinking goes no deeper? Because two years ago, in an MSNBC interview, he talked about running up huge federal debt to increase economic growth, and said if that didn’t work out, he’d just default on the debt. He proudly called himself the “King of Debt” in what should have been an infamous interview. After a few days of criticism, he revised his remarks to say he would just print money to pay off the debt.
https://www.politico.com/story/2016/06/trump-king-of-debt-224642
What Trump doesn’t know fills volumes of undergrad economics textbooks.
14. June 2019 at 07:37
CBS, not CNBC
14. June 2019 at 09:54
Michael,
I talked about interest rates and inflation. A really complicated topic in my opinion, which can’t be explained with just one equation. It’s more subtle. I also can’t figure out a representation of inflation in your equation. I don’t even know if your equation is that useful. I rather use M x V = P x Y, or no equations at all. I assume all these equations make you reason from a price change too often.
Maybe reread the blog entries by Krugman and Noah Smith on the subject as well. As I said, it made me realize again that economists hardly agree on anything. It’s a bit frustrating, even though I trust Scott regarding this topic close to completely. It would be nice if his colleagues would do the same, but as far as I can tell they really don’t.
I basically agree with you on that. I’m saying something really similar for months. He’s just looking at the market and not much else. There’s no big theory behind it. He’s not even capable of having a big theory.
He has very severe dyslexia. I even assume he doesn’t understand a text that consists of more than a few lines. Let’s say more than 20 lines, maybe even less. I assume that’s one reason, why his theories are so simple.
The key question is: How bad is all this?
I believe here our opinions are far apart, because I think, it’s – to my own surprise — not so bad. Maybe even the opposite is true: It’s quite refreshing to have a president who is unable to do much more than just one thing: Listening to the market and reacting to it.
Most politicians I know are convinced that they know better than the market, and that they have an obligation to correct the “evil” market. Think of Warren, think of Sanders. Trump is not capable of doing that. He’s really afraid of the market.
Trump is as close to market monetarism as no president before him, and probably no president after him. As soon as the market has a small hiccup, Trump chickens out and runs home to his mommy. And that’s a good thing.
14. June 2019 at 10:08
Christian List,
The problem is, Trump isn’t market monetarist at all. Here’s where the danger lies: nominal rates below the neutral rate could cause inflation to overshoot, which would boost the stock market in the short-run. In the longer run, higher inflation suppresses the stock market.
So, Trump’s simplistic approach could easily lead to an inflation problem, if he actually got his way.
14. June 2019 at 10:15
As far as my equation is concerned, I think it’s better than the equation of exchange, M x V = P x Y, because it makes demand for money explicit. V = 1/ demand for money in the equation of exchange. Otherwise, they say the same thing. I like demand for money to be explicit, because it clarifies thinking, especially in those situations in which economic shocks overseas affect US markets more than direct real effects would suggest. This is due to increased demand for dollars overseas, which lowers US NGDP, unless the Fed loosens policy.
14. June 2019 at 10:54
Michael,
come on, he doesn’t get his way completely (not even close) but he is pushing the FED into the right direction, because (as we all know and see) the FED really loves to undershoot, especially in times of crisis.
Scott and you should look at things with way more humor. You guys should really care about your emotional well-being. Anger, over a longer period of time, is not a good idea. My counterintuitive, humorous approach looks like this: The FED and Trump are basically a dream team. I bet in a few years, when social democrats and/or MMT guys have taken over, we will look at Trump with nostalgia.
I’m also happy how alive and vital the American democracy actually is. The critics are wrong. Look at how many candidates there are and through which (pretty) transparent methods they are chosen. America should be really happy about that. Which other important country has something like this? And look how diverse your media is. I think it’s marvelous.
And a simpleton like Trump can become president. From the very bottom (from an intellectual point of view) to the very top of the power pyramid.
He is a simpleton, who thinks like ordinary people regarding quite a few topics, yes, (how bad is that in a democracy?), but he has a lot of respect for the market. A rather rare combination in my opinion, which might be possible in America only. It could be much worse, really.
Thank you for explaining your equation to me, I get it better now.
I leave it at that for now.
14. June 2019 at 12:21
Christian List,
I’ll give you this. It is nice that the stock market seems to provide some limit to how far Trump will go with his bad policies. That’s better than the attitude that the stock market absolutely doesn’t matter.