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Krugman on monetary and fiscal stimulus

My recent working paper on the “Princeton School” of macroeconomics discussed two interpretations of Paul Krugman’s 1998 paper, which had suggested that a “liquidity trap” is actually more accurately viewed as a sort of expectations trap.

In what I called the old Keynesian interpretation, monetary policy is ineffective at the zero lower bound because central banks cannot credibly “promise to be irresponsible”. In the new Keynesian interpretation of Krugman’s paper, monetary policy is still effective if the central bank promises a future path of inflation that is high enough to generate a robust recovery in aggregate demand. Thus the effectiveness of monetary policy is not a purely technical question, it also depends on the politics of central banking.

A “Straussian” reader might have noticed that I was writing this paper in part to boost my own view of monetary policy, which is closer to the new Keynesian interpretation of Krugman’s 1998 paper. Now Krugman has a new working paper that comes down squarely on the old Keynesian side of the issue; monetary policy cannot be counted on going forward, and aggressive fiscal stimulus is the best option for maintaining full employment when there is insufficient aggregate demand. Here Krugman explains why he is skeptical of a purely monetary approach:

The seemingly natural answer would be to raise the inflation target. But central bankers are firmly opposed, and conventional wisdom among those willing to take any of this seriously seems to have migrated toward the use of persistent fiscal stimulus to raise r* sufficiently that monetary policy can do the job with the existing inflation target.

It’s important to be clear that relying on a fiscal solution rather than a higher inflation target is, in effect, a choice to pursue higher public spending at the expense of lower private investment. As I said, a liquidity-trap economy in effect “wants” inflation; choosing not to accept that inflation is a decision to impose lower private investment than the free-market economy would choose on its own.

The main reason to engage in this de facto policy of crowding out is the suspicion that there are significant costs to inflation, even if it is in the low single digits, combined with the belief that the social costs of crowding out some private investment are low.

Here’s how Krugman concludes his paper:

Nonetheless, at the moment the case for a fiscal response to the threat of a liquidity trap, as opposed to a higher inflation target, is stronger than the “Princeton School” envisaged in the early 2000s. Maybe central bankers don’t need to be credibly irresponsible after all.

As is generally the case, Krugman’s paper is very well written and he’s good at clearly explaining the intuition behind his analysis.

Clearly Krugman doesn’t believe that a 2% average inflation target (AIT) is enough to get the job done in the modern world of very low equilibrium interest rates. While I don’t view a 2% AIT policy as optimal, I’m much more optimistic than Krugman about its effectiveness. I suspect that our differing views are based on differences in how we visualize the role of monetary policy in the business cycle. I’ll try to describe Krugman’s views to the best of my ability, and then explain where I disagree.

Krugman sees the economy being hit by occasional demand shocks, mostly due to instability in the investment sector of the private economy. Events such as the housing boom and bust of 2006 lead to a sharp fall in the equilibrium interest rate, at which point conventional monetary policy is largely ineffective. Even an average inflation targeting policy, which might call for a couple years of 3% inflation after a deep slump, is not enough. You need aggressive fiscal stimulus.

In my view, the private economy is not inherently unstable. Unlike most economists, I view the 2008 slump as being caused by an inappropriately tight monetary policy that allowed NGDP expectations for 2009, 2010 and 2011 to fall well below the previous trend line, and well below the levels expected in 2007. A level targeting policy (P or NGDP) that committed to do whatever it takes to get back to the previous trend line would have allowed the US to largely avoid the post-Lehman banking crisis, and would have prevented the equilibrium interest rate from falling nearly as far as it fell when NGDP expectations collapsed in 2008. I don’t take the fall in the equilibrium interest rate as a given; I see it as mostly reflecting an excessively tight monetary policy.

Krugman sees the private economy as a sort of arsonist, with the Fed playing the role of an ill-equipped fireman, and the fiscal authorities being a better-equipped fireman. I see the Fed as being an (unwitting) arsonist, which carelessly causes fires that are then inappropriately blamed on the private sector. (The ECB was even more careless in 2008-11, almost criminally negligent.) Unlike the ECB, the Fed didn’t raise rates in 2008. But it did not cut them fast enough, and more importantly it failed to credibly promise some sort of level targeting make-up policy.

My view is certainly more counterintuitive, and is clearly the minority view within the economics profession. In 2008, it certainly looked like the private sector was at fault. But that’s why I started this blog. Indeed my recent book was written to persuade people that my view should be taken more seriously.

In the end, I’ll probably fail to persuade the rest of the profession. But I won’t abandon my view unless people can provide good reasons why my analysis is wrong. Thus far, I have not seen a persuasive rebuttal.

PS. Krugman also covers other issues related to fiscal policy, such as the importance of r < g, the role of housing in the business cycle, and the efficiency cost of various approaches to stabilization policy. (The whole paper is well worth reading, even if you don’t agree with Krugman.) Thus I don’t mean to suggest that the issue I raised here is the only factor explaining why Krugman and I differ on the relative merits of monetary and fiscal policy, but I believe our differing views on the cause of recessions is the decisive factor.

PPS. At one point Krugman discusses what he views as the instability of the private sector:

I’ve written this paper largely as if r* were a constant or at least slowly moving number. In reality, however, a low-inflation economy appears to be subject to large fluctuations driven by private-sector overreach and retrenchment: the commercial-real-estate-driven cycle of the late 80s/early 90s, the tech boom and bust of the late 1990s, the monstrous housing bubble of the mid-2000s.

Those familiar with Kevin Erdmann’s research know that there was no “monstrous housing bubble” during the 2000s. Housing construction was not abnormal for an economic expansion, and in most areas house prices were not far out of line with fundamentals.

Films of the 4th quarter

I didn’t see many films at the theater this year, partly due to Covid, but partly due to the fact that I no longer have a convenient source of information about coming attractions. So I missed some. And I don’t subscribe to the channel that has the new Beatles documentary. La Flor was the best of the recent films I saw, followed by Our Time. (Both Latin American.) Then a couple Asian films (A Sun and Drive My Car), and the Sparks documentary. But nothing really stood out. My current interest is in films from the mid-20th century. I’ve been watching a lot of French films by people like Melville, Clouzot and Clement.

My favorite books were In Search of Lost Time, and a couple biographies (of Fernando Pessoa and Max Sebald.) It seems like a lot of great writers were mildly depressed, suffering from the misfortune of seeing reality too clearly.

2021:Q4 films

Newer Films:

Drive My Car (Japan) 3.7 Hamaguchi likes to make films that mix cinema and theatre. He’s at his best when the characters are interacting—not as effective when he attempts to create a (poetic) mood of alienation or despair.

The Velvet Underground (US) 3.6 I really enjoyed this documentary film, especially the historical footage of New York in the late 1960s. But if you don’t like the Velvet Underground and/or aren’t interested in Andy Warhol’s factory scene, then you will like it much less than I did. The Velvet Underground hold up better than most other 60s rock bands, including bands that were much better known at the time. Todd Haynes directed, and you can tell that he’s a fan.

The Alpinist (Canadian) 3.5 If I see a tiger leap at the screen in a movie, it doesn’t scare me. If the camera points straight down from a mountain or tall building, I get acrophobia. I’m not sure why, as in real life the tiger leaping at me would be more scary. I enjoy hiking in the mountains as long as it’s not too step. (I did Angel’s Landing at Zion this year, which is about my limit—don’t laugh.) In any case, this phobia limits my enjoyment of these sorts of “free solo” films. But otherwise, I’m kind of in awe of these people.

Reinhold Messner said that half of these daredevils end up dying from a fall. And yet I feel that the guy in this film had a much better life than me—much more total utility in a shorter period of time. Why don’t they ban this sort of mountain climbing? Perhaps because society considers it inspiring, whereas society doesn’t consider riding a motorcycle without a helmet to be inspiring. (Some motorcyclists may differ.)

Dune (US) 3.4 I had read Lord of the Rings before seeing the movie, and I thought it helped me to enjoy that film more than otherwise. Not because it made it easier to follow the plot, rather it made it possible to have a richer understanding of the importance of certain events, people, etc. The film had more “gravitas”. In contrast, I hadn’t read Dune so I probably didn’t enjoy it as much as those who did. I think I followed the plot, but the characters didn’t come to life for me as much as those in LOTR. The special effects were excellent, but not particularly creative or path-breaking. Indeed the director’s previous films (Blade Runner 2, Arrival) had more interesting special effects. The acting was fine. Overall, despite not having read the book I found the film to be enjoyable and fairly impressive, but a bit “heavy” or “ponderous” at times. Other epics like LOTR and Star Wars seemed more exciting (at the time), with more of a sense that life is a grand adventure. Maybe I’m just too old.

Oh, and I still think the giant worm in SpongeBob Squarepants was more impressive, and certainly more wiggily.

To Late to Die (UK) 3.2 This one is hard to rate. There’s a high level of craftsmanship and many scenes are very high quality—some of the best of any Bond film. And yet it has the same problem as other recent Bond films; it’s neither fish nor fowl. The actress with the low cut dress doing over-the-top fighting didn’t seem to be in the same film as Bond’s love interest. Recent Bond films have followed franchises like the Bourne Identity and Mission Impossible by becoming more “serious”. But they’ve also felt compelled to include a bit of the 1960s sexiness, humor, and gee wiz gadgets expected by viewers, which doesn’t really fit with the more modern elements. (Star Wars has the same problem, moving forward while still catering to audience nostalgia.) Still, I enjoyed it. The final scene seems directed at people overreacting to Covid.

Dave Chappelle: The Closer (3.0) Not as good as his previous film, perhaps because he’s doing more than trying to be funny. We live in a world where people see the difference between comedy and reality in different ways, which makes things complicated for Chappelle. I think he’s in a bit over his head on this one. Still, he’s very funny.

Shang-Chi (China) 2.7 There must be an audience for these endlessly extended scenes of CGI mayhem, but I can’t imagine what people enjoy about them. Sad to see a great actor like Tony Leung reduced to taking this sort of part. It’s too bad there are so many tiresome actions scenes, as the film does contain some nice moments when people aren’t fighting.

Older Films:

The Grand Budapest Hotel (US, 2014) 3.9 In some ways this is Wes Anderson’s best film. I say “some ways” because his films work on multiple levels, and deserve repeat viewings. The visuals here looked spectacular on a big OLED TV, and the screenplay was often wonderful, especially in little throwaway lines. There are all sorts of historical references to people who died in their 20s, from John Keats to Egon Schiele, and more broadly to the whole sad history of Eastern Europe in the first half of the 20th century.

Le Deuxième Soufflé, aka Second Wind (France, 1966, CC) 3.8 Of all the Melville films I’ve seen, this one might be my favorite. It runs 2 ½ hours, and it’s engrossing from beginning to end.

Equinox Flower (Japan, 1958, CC) 3.8 Ozu can make the glimpse of blue green bathroom tiles look like the detail in a painting by Vermeer.

Cleo From 5 to 7 (France, 1962, CC) 3.8 First time I’d seen this classic French New Wave film. A great example of how French films often have a wonderful lightness that is missing from Hollywood films. More than any other film that I can recall it gave me the feeling of what it would be like to be a young woman. Brilliantly photographed.

My Dinner With Andre (US, 1981, CC) 3.8 I expected to be disappointed, but instead was even more impressed than the first time I saw it. This is the sort of “philosophical” film that Woody Allen would like to make, but it took Louis Malle to do it. Seeing it again after 40 years, I noticed that it’s not just a screenplay, it’s a very visual film. Great acting, great camerawork, and yes, a great screenplay.

Cure (Japan, 1997, CC) 3.8 Outstanding Japanese horror film. Relies on mystery, not on cheap shocks.

Purple Noon (France, 1960, CC) 3.8 I was surprised to find that I enjoyed this version of The Talented Mr. Ripley just as much as I did the Jude Law/Matt Damon version. The plot is as good as it gets, one of the greatest plots in film history. Credit Patricia Highsmith. Rene Clement is less well known that the famous “New Wave” French directors, but I think I enjoyed this more than many of the more famous films from that era. Interestingly, the guy playing Greenleaf looked sort of like Jude Law (who starred in the remake). In contrast, Ripley was played by arguably the most handsome actor in the history of cinema (the young Alain Delon) whereas Matt Damon is, well . . . not the most handsome actor in film history. The gay subtext is less visible than in the later version, but according to the accompanying Criterion documentary, gay viewers understood what the film was actually about.

Diabolique (France, 1955, CC) 3.8 After 66 years, it’s clear that this is one of the most influential films ever made. Dozens of directors have stolen ideas from this and other Clouzot films such as Wages of Fear.

The Housemaid (Korea, 1960, CC) 3.8 Like many Korean films, the drama is racheted up to an almost hysterical level. Parts have been beautifully restored, while other parts are in bad shape. From a visual perspective the filmmaking is superb, done in a sort of Hitchcock style (and same year as Psycho) The screenplay is either ridiculous or a canny satire on Korean society, depending on your perspective. The ending seems tacked on, perhaps to satisfy the censors? One thing is clear, the over-the-top style we associate with people like Park Chan-wook and Kim Ki-duk have deep roots in Korean culture.

Cluny Brown (UK, 1946, CC) 3.8 Even in his final film, Lubitsch hadn’t lost his touch.

Viridiana (Spain, 1961, CC) 3.7 A Bunuel classic from the golden age of European film. It hasn’t lost much of its edge. I liked the first half much better.

The Trouble With Harry (US, 1955, CC) 3.7 Made at a time when Hitchcock was at his creative peak, this delightful comedy is underrated by critics.

Creepy (Japan, 2016, CC) 3.7 Another excellent horror film from the director of Cure. Some really nice images.

Closely Watched Trains (Czech, 1966, CC) 3.7 Delightful. The visual style reminds me of Wes Anderson’s films. I wonder if he was influenced by this film.

Devi (India, 1960, CC) 3.7 Sanyajit Ray’s films are consistently excellent.

After Life (Japan, 1998, CC) 3.7 I found this Koreeda film to be quite interesting from a philosophical perspective. I suspect that if God showed me the happiest moment in my life, it would be a moment that I no longer even recall. Perhaps something at age 3 or 4.

The Chess Players (India, 1977, CC) 3.7 Ray is one of the most intelligent directors out there. At first this film seems insubstantial, but after a while it becomes both funny and sad. Based on an Indian story, but also seems very similar to the plot of a story by Fernando Pessoa.

7 Men From Now (US, 1956, CC) 3.7 It’s the amazing Lee Marvin that puts this film above the other Budd Boetticher westerns. He might be among the top 10 American actors ever. I like how Boetticher’s films don’t mess around, coming in at under 80 minutes. This film probably influenced Sergio Leone.

Frenzy (UK, 1972, CC) 3.7 Made the same year as A Clockwork Orange, this is the only Hitchcock film that reflects the decadence of the 1970s. (As with the Kubrick film, there are uncomfortable scenes of the abuse of women.) But there is a lot to like here, especially the very funny interaction between the police inspector and his wife. Unfortunately, the whole is a bit less than the sum of the parts.

Major Barbara (UK, 1941, CC) 3.7 This film marked the debut of Deborah Kerr as an actress and David Lean as a director (although most of the direction was done by others, and Kerr had just a small role.) The wonderful Wendy Hiller is what makes the film worth watching, along with Shaw’s dialogue. Best of all, the film ends in a sort of art deco utopia, which gives the viewer a powerful sense of nostalgia for the future (Past futures seem so much more appealing than the actual future that we are entering.)

Metropolitan (US, 1990, CC) 3.6 Growing up, I never knew a single person who went to a private school. I don’t think I knew any rich people. So the society depicted in this film seems quite foreign to me. While in many ways it is comparable to a Woody Allen film, I value Whit Stillman films more highly because they are so much rarer, even if they are not superior in an artistic sense.

The Raven (France, 1943, CC) 3.6 Clouzot has been compared to Hitchcock, and in this film you can see why. Holds up very well after nearly 80 years. Made in Vichy-era France, the politics were widely misunderstood until well after the war. Love the final shot, where the receding figure looks like a raven.

Gertrud (Denmark, 1964, CC) 3.6 Carl Dreyer’s final film is one of those stories of a woman destroyed by love (but not really). It’s his distinctive style that makes the film worth watching.

Les Dames du Bois de Boulogne (France, 1945, CC) 3.6 Bresson directed, but it’s not really in the style associated with his later films. The actresses are great.

24 City (China, 2008, CC) 3.6 I enjoyed this Jia Zhangke film, but was a bit disappointed to discover that it was partly fiction.

To the Ends of the Earth (Japan/Uzbekistan, 2019, CC) 3.6 The first half often seemed rather slow and aimless, but the payoff was a very moving second half.

Crazed Fruit (Japan, 1956, CC) 3.6 I found the accompanying documentary by Donald Richie to be more interesting than the film itself. He pointed out that for Japan the film was a breakthrough in terms of both style (French) and content (rebellious youth). If I were to rate the version of the film with voiceover analysis by Richie, I’d give it 3.8, not 3.6.

The Man Who Would Be King (UK, 1975, CC) 3.5 John Huston is extremely good at choosing interesting plots, finding good actors, and telling them what to do. On the other hand, he doesn’t excel at the visual side of moviemaking, and the epic sweep of this film falls a bit flat. He’s no David Lean. Still, it’s well worth watching—I hadn’t seen it since 1975. As with so many other films, this one stars Michael Caine.

Heaven Can Wait (US, 1943, CC) 3.5 It’s interesting that this Lubitsch film is better known that Cluny Brown, as it doesn’t hold up nearly as well.

Rocco and His Brothers (Italy, 1960, CC) 3.5 This film is sort of a model for what Coppola and Scorcese were trying to do with their Italian-American family dramas during the 1970s. Despite its flaws, a must see film for fans of that genre.

Marnie (US, 1964, CC) 3.5 The pop psychology doesn’t really work, and even back in 1964 wouldn’t have been very persuasive (a time when pop psych was very much in vogue.) Tippi Hedren is all wrong for the part, and although Sean Connery is enjoyable to watch, he’s also miscast. (A younger Jimmy Stewart would have been better.) Nonetheless, Hitchcock mixes bits of Vertigo, Psycho and The Birds together and produces a tasty cinematic stew. The film is consistently watchable.

Bright Future (Japan, 2003, CC) 3.4 I enjoyed this Kiyoshi Kurosawa film, but you need to get on the same wavelength as the director (who also directed Cure.) He has a very good eye.

Any Number Can Play (France, 1963, CC) 3.4 Mid-century modern French casino heist film with jazzy score, starring Jean Gabin and Alain Delon. At first it was just average, but I really enjoyed the final 15 minutes of the film.

The Petrified Forest (Japan, 1973, CC) 3.4 Satisfying Japanese crime story with a fairly interesting plot.

King of New York (US, 1990, CC) 3.4 Lots of style, with Christopher Walken’s performance being especially notable. Unfortunately there’s not much of a plot, and it gradually runs out of ideas. But for a while it’s a very entertaining ride.

Thief (US, 1981, CC) 3.4 Films like Thief and The French Connection seemed more impressive when they first came out, as they pushed the envelope. But this Michael Mann film is still pretty good.

The Tall T (US, 1957, CC) 3.4 Basic no-nonsense entertainment from Budd Boetticher. With Randolph Scott and his Mt. Rushmore face.

The Murderer Lives at Number 21 (France, 1942, CC) 3.4 Clouzot’s first film is a delightful thriller, light and fluffy.

A Woman is a Woman (France, 1961, CC) 3.3 I’m not much of a fan of musicals, but this Godard film shakes up the genre. Anna Karina is what makes it worth watching.

The Mystery of Picasso (France, 1957, CC) 3.3 I have trouble connecting with his later period—but this is Picasso after all. The final third is an especially revealing look at the creative process.

Red Dust (US, 1932, CC) 3.2 Pretty decent pre-code film carried by Clark Gable and Jean Harlow. Takes place in Vietnam, and contains a pretty insulting portrayal of Asians (Vietnamese and Chinese).

Platform (China, 2000, CC) 3.2 If I’d seen this film when it first came out, I would have been more impressed. Now I feel like I’ve seen this sort of thing before, and without much plot the 2.5 hour length seems a bit much.

Walk Cheerfully (Japan, 1930, CC) 3.2 One of the few silent Ozu films that was preserved. Most were lost. This print was in really bad shape—I hope these can be restored at some point.

Across the Pacific (US, 1942, CC) 3.2 This John Huston film came out a year after The Maltese Falcon, and brought back most of the cast. It starts well, but fizzles out toward the end. They changed the plot half way through because of Pearl Harbor, and made the film even more insultingly anti-Asian than before. It basically provides a defense of putting Japanese-Americans into concentration camps, which makes it a low point in Huston’s career, at least from an ethical standpoint. (The same year he made another film where he attempted to portray African-Americans in a more positive fashion than was typically the case back then.)

Never Look Away (Germany, 2018) 3.1 Overlong and tedious in spots, but the film (about an artist similar to Gerhard Richter) does have its moments. Same director that did The Lives of Others.

Europa 51 (Italy, 1952, CC) 3.1 Ingrid Bergman does her long-suffering saint role here, but the only good reason to watch the film is that it presents the tail end of an interesting period of history. The late 1950s was the very end of an era—the last few years where you could make credible art about white people suffering from extreme poverty. Many years from now, the century before 1955 will seem especially left-wing. Lots of extreme poverty, and yet enough affluent people where the poverty didn’t seem inevitable. Unfair!

Before 1850, a world without poverty seemed a pipe dream, and after the mid-1950s the working class did well enough so that they gradually lost interest in left wing parties. In the early 1950s, there were still a few American film noirs based on desperate poor white men. Not much after that. By the 1970s, the problems were psychological (i.e. Taxi Driver, Deer Hunter, etc.) We’d become too rich to make romanticized poverty seem plausible.

Mishima: A Story in Four Acts (Japan/US, 1985, CC) 3.1 Paul Schrader directed this stylized documentary on the famous Japanese novelist. A lot of interesting visuals in a sort of baroque style. But in the end that’s pretty much all the film offered.

World on a Wire (Germany, 1973, CC) 3.1 Imagine Fassbinder making a 3 ½ hour version of The Matrix back in 1973. It lacks the special effects, but makes up for it in other ways. I liked it almost as much as the 1999 version, but it’s not for everyone.

The Big Sleep (UK, 1978, CC) 3.1 Not the (much better) Humphrey Bogart version; this one stars Robert Mitchum and a whole bunch of other well know actors and actresses. To me, the late 1970s are the absolute peak of freedom in all of human history, and while this movie is a bit bland, it’s always nice to be reminded of that golden time. The way things are going, we’ll never again regain that sort of freedom.

Monte Carlo (US, 1930, CC) 3.1 It’s been almost a century since the 1930s, and yet it still seems to be the case that films from the early 1930s look far more “dated” than those from the late 1930s. It seems to me that the best romantic comedies of the late 1930s and early 1940s remain the best romantic comedies of all time. This Lubitsch musical was just OK.

Ride Lonesome (US, 1959, CC) 3.0 Another Budd Boetticher western.

Suture (US, 1993, CC) 3.0 An interesting experimental film based on a clever idea and containing some nice B&W visuals. But it really needs a director like David Lynch, and the actual two directors just aren’t up to the task. An essay on this film would probably be more interesting than the film itself.

Hollywood Chinese (US, 2007, CC) 3.0 So-so documentary on the role of Chinese people in the US film industry. The problem here is that they just don’t have a lot to work with. Late in the film, you see images of Chinese from overseas who came to Hollywood to do a film, and are reminded of how the talent pool over there is just so much deeper than for American-born Chinese. (Not surprisingly, given the population disparity.) On the plus side, the tendency of Hollywood to use western actors for Chinese parts was discussed without a lot of hysterics and pearl clutching.

Drums Along the Mohawk (US, 1939, CC) 2.9 Yes, this John Ford film is somewhat racist and sexist, at least by modern standards. But it was perfectly acceptable by 1939 standards. The bigger problem is its boring plot—I just couldn’t get interested. And Claudette Colbert is miscast. It does have some very nice Technicolor photography, however, right up there with Gone With the Wind.

After the Wedding (Denmark, 2007, CC) 2.8 One of those northern European films full repressed anger. There are way too many close-ups of eyeballs (human and animal).

The Last Movie (US, 1971, CC) 2.6 Dennis Hopper tried to direct an avant-garde film, but it doesn’t really work. Still, there were a few moments that I found quite amusing.

Klute (US, 1971, CC) 2.6 This thriller was probably considered edgy when it first came out, but now seems dated. History is merciless at exposing mediocre directors. Jane Fonda and Donald Sutherland seem miscast and the musical soundtrack is quite annoying.

Dodes’ka-den (Japan, 1970, CC) 2.5 I’m not sure what Kurosawa was trying to do here, but he did not succeed.

The Grass is Greener (UK, 1960, CC) 2.5 One of the weaker efforts by Stanley Donen and Cary Grant.

The Anderson Tapes (US, 1971, CC) 2.5 I saw this 50 years ago when it first came out and was impressed, at a time when I was kind of stupid. Today, the film seems pretty stupid. (I’m probably still stupid, but less so.) Just a year or two later this sort of film was already obsolete (due to The French Connection, The Godfather, Mean Streets, etc.) The only thing that caught my eye was the very young Christopher Walken, already an interesting actor.

Office Killer (US, 1997, CC) 2.5 You’d think that Michael Jordan would have been a pretty good baseball player, but he wasn’t able to succeed in the major leagues. Similarly, graphic artists often have trouble crossing over to a related field such as filmmaking. This film was directed by Cindy Sherman, but it’s disappointingly conventional. I expected more. Seeing this gives me a greater appreciation for filmmakers like David Lynch.

Permanent Vacation (US, 1980, CC) 2.4 I’d never heard of this early Jim Jarmusch film, and now I know why. He didn’t hit his stride until his second film (Strangers in Paradise).

Covid before the cover-up

After Covid became a global problem in the spring of 2020, the Chinese government became very defensive about claims that it had allowed the disease to spread via unsafe animal markets. They became even more defensive when the accusations shifted to a possible lab leak. When the Chinese government gets defensive, it starts lying. In this case, it speculated that the virus might have come to China from imported fish, or it might have escaped from a US research lab—despite no real evidence for either claim.

Thus it’s refreshing to look at news reports from before anyone realized that anything important had occurred. This bulletin from Hong Kong’s version of the CDC is from December 31, 2019, and was one of the first news reports of what would later become a global pandemic.

That doesn’t sound too bad! If Chinese authorities had known what they were dealing with, they would have easily stopped the pandemic in its tracks in January 2020. Unfortunately, they were just as ignorant as the rest of us.

This is one reason why I still lean toward the animal market hypothesis. That was where all the evidence was pointing before the Chinese government even knew that they had a major disaster on their hands, a disaster that would later trigger an aggressive cover-up.

Random thoughts

1. For Christmas, we have a truly heartwarming story of entrepreneurial success from the WSJ:

TikTok really was everywhere this year.

The app, known for its silly dancing videos, was the world’s most visited site on the internet in 2021, surpassing last year’s leader, Alphabet Inc. GOOG 0.13% ’s Google, according to Cloudflare Inc., NET 0.34% a cloud-infrastructure company that tracks internet traffic.

The app, owned by Beijing-based ByteDance Ltd., has had a rapid rise, hooking people with its secretive algorithm, which delivers video clips that it thinks you would like. It has turned dancing influencers Addison Rae and Charli D’Amelio into household names, getting cast in TV shows, commercials and movies.

I seem to recall that about 18 months ago the media was full of stories that Tiktok and WeChat were a threat to American national security. (As you may recall I was skeptical of those claims.) Trump promised to protect us with a ban, or at least force a sale. And yet here they are 18 months later, bigger than ever. So why don’t we see more news stories about how Tiktok is hurting American national security? Where are the exposés?

The only “dark side” mentioned by the WSJ has nothing to do with national security:

Like other social-media sites, TikTok has its dark side. The video-sharing app’s algorithms can drive minors to videos about sex, drugs and eating disorders, investigations by The Wall Street Journal have found.

2. Because our medical ethicists opposed challenge studies, it took far longer than necessary to test the Covid vaccine. Thousands died. Because a bunch of medical experts discouraged Pfizer from filing with the FDA as soon as it was apparent that the vaccine was highly effective, the filing was delayed. Thousands died. Because the FDA took weeks to consider the application, despite the fact that the evidence was overwhelming, another delay took place. Thousands died. Because a bunch of demagogues peddled phony conspiracy theories that the vaccine was risky or less than highly effective, vaccination rates remained disappointingly low. Thousands died.

3. The Washington Post has a story headlined:

While omicron explodes around the world, covid cases in Japan keep plummeting and no one knows exactly why

Right under the headline is a photo of a crowded street in Tokyo, where everyone is wearing a mask. Further down in the story is a photo of London, where almost no one is wearing a mask. Hmmm.

The WaPo story actually discusses two issues. One issue is why Japan has a low rate of Covid transmission at the moment, a fact that is largely unrelated to masks. But the article also discusses the issue of why East Asian countries like Japan and South Korea have had low rates of Covid throughout the pandemic, an issue which clearly does relate to mask wearing. (Although In South Korea testing is also a factor.)

4. It’s even worse than we thought:

In Cape Girardeau County, the coroner hasn’t pronounced a single person dead of COVID-19 in 2021. 

Wavis Jordan, a Republican who was elected last year to serve as coroner of the 80,000-person county, says his office “doesn’t do COVID deaths.” He does not investigate deaths himself, and requires families to provide proof of a positive COVID-19 test before including it on a death certificate.

Meanwhile, deaths at home attributed to conditions with symptoms that look a lot like COVID-19 — heart attacks, Alzheimer’s and chronic obstructive pulmonary disease — increased.

“When it comes to COVID, we don’t do a test,” Jordan said, “so we don’t know if someone has COVID or not.”

Nationwide, nearly 1 million more Americans have died in 2020 and 2021 than in normal, pre-pandemic years, but about 800,000 deaths have been officially attributed to COVID-19, according to Centers for Disease Control and Prevention data

A majority of those additional 195,000 deaths are unidentified COVID-19 cases, public health experts have long suggested, pointing to the unusual increase in deaths from natural causes. 

And where are most of these unreported deaths? Do you even have to ask?

These trends are clear in small cities and rural areas with less access to healthcare and fewer physicians. They’re especially pronounced in rural areas of the South and Western United States, areas that heavily voted for former President Donald Trump in the 2020 presidential election. 

5. People sometimes tell me they don’t get why Scott Alexander is regarded as such an impressive blogger. Here he discusses why some doctors might be reluctant to prescribe fluvoxamine:

I could blog for 20 years and never write a paragraph that amusing.

6. I frequently use the term “Puritan” to describe recent cultural trends in the West, but Ed West suggests that a better analogy is the transition from the Regency era to the Victorian:

Ironically, just as those pushing for empire were the forebears of today’s sanctimonious decolonialists, Victorian moral campaigns against homosexuals were led by moralising Nonconformists, forerunners to today’s progressive campaigners. Acts such as the Criminal Law Amendment Act outlawing ‘any act of gross indecency with another male person’ were put forward by radical MPs, not by Tories. Quaker families who were involved in those early campaigns against sexual impropriety today often bankroll the moral campaigns against racism. The same urge to improve the world drives them, the same sanctimony. . . .

By 1842, Flashman laments that ‘respectability was the thing: breeches were out and trousers came in; bosoms were being covered and eyes modestly lowered; politics was becoming sober… the odour of sanctity was replacing the happy reek of brandy, the age of the dandy was giving way to that of the prig, the preacher to the bore’.

Those Regency men raised in the 20th century must feel the same way about this new age, even if it is a better world in most ways. The new Victorians may preach about different sins, but the sanctimony is the same.

Read the whole thing.

And Merry Christmas everyone!

(But then if you were the sort of person who celebrated Christmas, you wouldn’t be reading my bad blog today.)

Influencing the zeitgeist with a long and variable lag

Jay Powell was asked about long and variable lags in monetary policy, and his answer caught my eye:

You know, the question of long and variable lags is an interesting one. That’s Milton Friedman’s famous statement. And I do think that in this world where everything is — or the global financial connect
— markets are connected together, financial conditions can change very quickly. And my own sense is that they get into — financial conditions affect the economy fairly rapidly, longer than the traditional thought of, you know, a year or 18 months. Shorter than that, rather. But in addition, when we communicate about what we’re going to do, the markets move immediately to that. So, financial conditions are changing to reflect, you know, the forecasts that we made and — basically, which was, I think, fairly in line with what markets were expecting. But financial conditions don’t wait to change until things actually happen. They change on the expectation of things happening. So, I don’t think it’s a question of having to wait.

Matt Yglesias made the following comments, just five days prior to the Powell press conference:

But one problem with this view is that empirically when the Fed cuts its target interest raise or announces some new QE, bond yields sometimes go up rather than down.

One way to deal with this is to invoke Milton Friedman’s idea that monetary policy operates with “long and variable lags,” so you shouldn’t expect any immediate operation of the hydraulic mechanism. The long part could make sense, but long and variable suggests a flight away from inquiry and toward a kind of superstition. “Long and variable” means there is no empirical test of whether or not the mechanism is working. It takes time to operate, and there’s no way of knowing in advance how much time.

And I think it ultimately makes more sense to think of the whole thing as mostly a conjuring trick. A QE announcement can make rates go up because it is creating expectations of faster nominal growth in the future.

The really important thing, though, is that the bond market is not the only financial market. If traders all raise their expectations of nominal growth, the price of commodities and of stock shares will also rise. This generates wealth effects that can fuel spending. It also directly encourages investment in producing commodities and indirectly encourages investment in startups and tangible business equipment.

Now there are lags here, but they are lags in the sense that financial investments (the price of copper going up) happen faster than physical investments (because copper is more expensive now, the copper mines increase production). But the proximate mechanism is essentially instantaneous. If your goal in an inflationary environment is to reduce expectations of future nominal growth, then you can tell more or less immediately whether or not that happened by looking at financial markets. And critically, while doing things can and does influence expectations, so does talking about doing things.

I like that “superstition” remark. The final paragraph echoes the “no wait and see” point I used to make about policy initiatives.

PS. I hope Yglesias will forgive me if this unusually long quotation violates copyright rules, but I’m actually trying to send business his way. Powell already seems to be a subscriber.

PPS. When Abe took office at the beginning of 2013, Japan switched to easier money and tighter fiscal policy. A similar shift took place in the US at about the same time. NGDP growth sped up in both countries, clearly signaling that monetary policy is more powerful than fiscal policy. But The Economist has a new article out claiming that the lesson of the 2010s is that fiscal policy is more powerful than monetary policy.

Sometimes I feel like I’m just beating my head against the wall.