Here’s Jason Furman, in a WSJ article calling for tighter money:

What makes the current inflation particularly troubling is that all the hoped-for saviors have come and gone without reducing underlying inflation very much. Inflation was supposed to go away after base effects receded, when the economy got over the Delta and Omicron surges, when the ports were unclogged, when timber prices fell, when the fiscal stimulus wore off, when microchips were available, when energy prices came back down again after the Russian invasion. All of that has happened, and yet the underlying inflation rate remains above 4.5% on just about every time horizon and every measure.

All the forecasts I’m seeing are suggesting that NGDP in the first quarter of 2023 will come in very hot. So what went wrong in 2022?

In my view, we made some of the mistakes of 2008, but not all. This time, both inflation and NGDP were telling the same story—so that wasn’t the problem. And I don’t think the key problem was a lack of reliance on market forecasts. Instead, I see policymakers repeating these two mistakes from 2008-09:

1. Not doing level targeting.

2. Assuming that interest rates represent the stance of monetary policy.

Both hawks and doves tended to view policy in 2022 as contractionary, due to sharply rising interest rates. Actually, monetary policy in 2022 was highly expansionary. The rising rates were caused by the rapid growth in NGDP.

Interest rates do not now and never have represented the stance of monetary policy. Throughout history, many policy blunders have been based on that misconception. Focus on the level of NGDP, not the rate of interest.

Our textbooks tell us not to reason from a price change. Our money and banking texts say that interest rates are not monetary policy. But we don’t seem to be able to help ourself.

PS. Tyler Cowen sent me this tweet. I fear for our profession if a concept as fundamental as “Don’t reason from a price change” is associated with a crackpot like me.

We recently did an 8-hour drive from the Chilean island of Chiloé to San Carlos de Bariloche in Argentina, where we had booked a room for three nights in a very nice hotel (much above our usual price range). Or at least we intended to drive there; we never completed the journey. Indeed it is highly unlikely that I will ever visit Argentina, at least in this life.

At 3 pm we approached the border in the Andes foothills and saw a long line of cars. On further inspection (by foot), the line was almost 2 kilometers long. More importantly, it was not moving. We gained a mere 100 or 200 meters during those three hours of sitting in traffic. At 6 pm, a police officer informed us that the border would close at 7, and there was no chance of our getting through, and that we should return the following day at 9 am. That meant a very long backtrack to an a part of Chile where there were almost no rooms available.

We eventually found a “hotel room” for $50, which was pretty primitive. The next day we went back up the long highway, and again confronted a 2 kilometer line of cars. This time we waited only an hour, during which time the line barely budged—more “computer problems”. We sat behind this vehicle:

At this point, we decided that perhaps Argentina was not for us. Our original intention was to do a vacation in Argentina, not Chile. When we found out that people using credit cards in Argentina were charged double (necessitating the carrying of thousands of dollars in cash), we opted for the Chilean alternative. Nonetheless, I thought there’d be no harm in dipping into Argentina for three days. But crossing borders down here is not like driving from France into Belgium.

Don’t cry for me; we’ve seen lots of great scenery in Chile. Cry for the Argentinian people who have to deal with their dysfunctional government every single day of their lives.

P.S. Things I like about (southern) Chile:

1. Clear sky—no airplane entrails. Upside down moon. Better stars.

2. Great scenery—delightful climate in the lake district.

3. Friendly people (mostly).

4. Chile reminds me of when I was young. Old fashioned diner-type places along the road, with virtually no corporate fast food. The parking areas are gravel, so lots of dust is kicked up by cars. Lots of hitchhikers, both male and female. Perhaps it’s safer than other Latin American countries? (Except Valparaiso.)

5. It’s almost a developed country.

6. The better restaurants–particularly the seafood.

Things I don’t like:

1. It’s almost an underdeveloped country–with all of the frustrating inefficiency that that implies. It’s nowhere near as tourist friendly as the US or Europe.

2. Unattractive towns with lots of wooden buildings. I had thought that Latin countries built out of stone.

3. Many mediocre restaurants, which have massive portions of meat and carb-intensive food.

4. Too many long gravel roads, not well signed.

5. As in many countries, it’s hard to just pull over to the side of the road.

One day you say to yourself: “Actually, Chile’s a developed country.” For instance, the cars and trucks are not as crappy as in many developing countries. And the next day you say “WTF?”

Last fall I was in Austria, and got spoiled. Travel here is more difficult.

Chile’s per capita GDP is about $16,000, or $29,000 in PPP terms. Basically, I would define a “developed country” as any country richer than Chile, and I’d define a “developing country” as any country that’s poorer than Chile. As I travel about, Chile looks almost exactly like I’d expect a country with a $29,000 (PPP) per capita GDP to look.

BTW, that’s why I’m skeptical of China GDP skeptics. China also looks almost exactly like you’d expect a country to look with its reported GDP/person (which is well below Chilean levels.) These things cannot be faked; it’s easy for any tourist to observe a country’s general level of economic development.

Speaking of China, it’s obvious that Chile has a close relationship with that manufacturing powerhouse. You see lots of Chinese cars on the road, and lots of trucks hauling natural resources that are likely being exported to China.

Chilean society is mostly comprised of a mix of Europeans and Native Americans. (I see very few of African or Asian descent.) I suspect that socioeconomic inequality in Chile is linked to ethnic differences, with the more “European” Chileans doing somewhat better than those with more native ancestry. (Can someone confirm?) I don’t meet many Chileans who know English, but you can sort of tell who’s more likely to know some English just based on appearance.

Chile could produce a lot of hydropower, but I believe there is opposition to building dams in the south.

Bonus question: Where am I?

1. It’s a very hilly city on the Pacific Ocean, with a grand harbor.

2. Based on the latitude, you’d expect a warm climate. But even in summer it’s only in the 60s (about 18 C)

3. But just 20 miles inland the weather can be much warmer, and there are famous valleys that produce great wine.

4. The city has a bohemian vibe.

5. Recently, they have an increasing problem with petty crime.

Still don’t know? Here’s some more hints:

6. Back in 1849, lots of men came through here on clipper ships, on the way to the gold fields in the Sierra Nevadas.

7. Its once great port has been eclipsed by nearby competitors.

8. In 1906, somewhere between 3000 and 4000 people died when a devastating earthquake leveled the city.

So where am I? Surely you ought to be able to answer the question by now.

This year, India surpasses China in population. Here’s another milestone:

2. This twitter thread presents a depressing take on Brexit. I’m glad I opposed Brexit, as I’d hate to have to rebut all of these arguments. Regarding this one, I wonder how British nationalists feel about immigration switching from (presumably white) Europeans to (presumably non-white) non-Europeans?

3. I used to think that I couldn’t be a feminist, because I believed that gender was not just a social construct. I was relieved to hear that feminists have come around to my view:

Political opportunism, with both parties loving science where it suits them and spitting it out where it does not, is nothing new to James Cantor, a sex researcher who has seen “fair-weather friends” come and go. He has acted as an expert witness for Florida’s government in several gender-care cases. He remembers how 20 years ago he was pitted against lesbians and feminists because he focused on the role of biology in explaining differences between the sexes, whereas they saw most differences as social constructs. “Well, here we are 20 years later and suddenly I’m their darling now the science, which hasn’t changed, suits their argument [that sex differences are real],” he chuckles.

4. An argument for progressive consumption taxes.

5. We live in a sick, sick, sick society:

According to the Rockland/Westchester Journal News, David McKay Wilson—a tax columnist at the Westchester, New York, newspaper—was visiting Rye Playland for a story on the park’s changing tax status. He bought a ticket to the rides and was standing in line for the locally famous dragon coaster when he struck up a conversation with the kids waiting alongside him.

One of the kids told her father about how she had just been talking with a grownup. Outraged that a man spoke to his daughter without his permission, the dad reported Wilson to a guard. That guard called the police.

6. When the number one Republican is so insecure he feels a need to insinuate that the number two Republican is a pedophile.

7. Medieval working conditions? Well, yes. Here’s the Orange County Register:

Medieval Times workers launched an unfair labor practice strike Saturday, Feb. 11, claiming management has given substantial pay hikes to employees at other castles while their wages remain low amid unsafe work conditions.

The group of about 50 performers and stable hands walked off the job and began picketing after their first performance Saturday, forcing the Buena Park dinner theater to cobble together the two remaining shows by pulling in employees from other departments.

8. Measurement before theory:

OK, now for some theories?

PS. Oddly, I visited both Prague and Budapest last fall.

9. Here’s the National Review:

We should support Ukraine because Russia is our enemy, but that support can’t be unlimited.

No, we should support Ukraine even if they had been attacked by our closest ally.

10. The FT describes Marin County:

Artists of all stripes are still trading urban life for Marin’s wide vistas and locals-only beaches. The county’s progressive liberalism has always played a role in its allure, as has the legacy of the 20th-century counterculture that proliferated across the Bay Area. . . .

Bolinas, population 1,400, has always been a self-regulating community. Though it gets its fair share of tourists, not all the locals are welcoming, and far less so to the cashed-up city denizens who’ve inflated the housing market enormously in the past decade. The road sign indicating the turn-off from Highway 1 regularly gets stolen, and if you venture into the bar at Smiley’s (established 1851), the old-time saloon on Wharf Road, the intensity of the collective appraisal can be, to borrow from the local parlance, a little gnarly.

Locals-only beaches? Stolen road signs? Super tight zoning laws? Is this actually liberalism? Sounds more like a left wing version of Trumpian tribal anti-immigration ideology.

11. Here’s Tyler Cowen:

Bacon discussed the printing press in his seminal work, The Advancement of Learning (1605), where he identified three inventions that had changed the world: gunpowder, the compass, and the printing press. He acknowledged that these inventions had enabled the expansion of human power, discovery, and communication, but he also warned that they had also introduced new dangers, errors, and corruptions.

Of course the Chinese developed those three inventions, and the Europeans stole them without compensation. Later, America stole intellectual capital from the UK to jump start its industrial revolution. (A point not emphasized in US history books.). And now there’s great moral outrage that China is stealing Western intellectual capital.

12. As I’ve been predicting, Brexit did not deliver the promised independence to the UK. Here’s Bloomberg:

Hardline Brexiteers are nonetheless depressed at the seeming inevitability of the [Northern Ireland] agreement passing relatively easily. One said the promise of divergence from Brussels rules was dying and it was inevitable the UK would end up aligning more closely with the EU over the next decade, first under Sunak and then if Labour wins the next election. 

Haruhiko Kuroda will go down in history as one of Japan’s greatest central bankers. His policies were not perfect, but given the political constraints he operated under he achieved a great deal.

He will be replaced by Kazuo Ueda, a 71-year old academic with an MIT background (one of Stanley Fischer’s students). Some describe him as mildly hawkish, but this Bloomberg piece suggests a more complex picture:

The first impression by the market has been that a surprise choice indicates a hawkish turn by [Prime Minister] Kishida. . . .

That may yet prove wide of the mark. . . .

As a BOJ board member, he dissented from that controversial decision in 2000 to raise the benchmark rate. That step by the bank was opposed by the government, and quickly turned into a fiasco. The global economy was already slowing down and the BOJ was forced to reverse course the following year. The incident deeply scarred the bank, and made policymakers in Japan extremely wary of backing away from easy money. It subsequently tried again in the lead-up to the global financial crisis, only to cut when the world economy tanked.

The decision by the BOJ to tighten policy in 2000 was a terrible mistake. I am pleased to learn that Ueda opposed the decision—it’s a strong indication that he has good judgment.

I recently flew down to Punta Arenas, Chile. A few comments about latitude (and these are guesstimates on my part; correct me if I’m wrong.)

People talk about a North/South split in development, but it’s really more North/Central. Africa runs from about 37 degrees north to 34 degrees south. That’s central. The actual south is mostly empty.

It’s interesting to contrast the north and south of the planet. Take the region from 38.5 degrees up to the arctic circle. That’s from Lisbon up to the northern tip of Iceland. Over in the US, 38.5 is about a line from Sacramento across to DC, and the arctic circle is way up in northern Alaska. So this northern region includes most of North America and most of Eurasia.

The world is 71% water and 29% land, but I’d guess the region from 38.5 degrees up to the arctic circle is more than 50% land. In contrast, the middle section of the world is much more water intensive, and the southern section (from 38.5% south to the antarctic circle) is almost entirely ocean. Down there you have most of New Zealand, Tasmania, a tiny piece of Antarctica, the Falkland Islands and Patagonia. But all that together comprises perhaps 3% (or less?) of the surface area of this southern region. And the vast majority of land in this region lies in Patagonia, which begins roughly at the 38.5 degree south latitude (the Rio Negro.)

The south is like Ursula Le Guin’s Earthsea. It’s a water planet with hardly any people. The Earth is very “top heavy” in terms of land, people, power, almost everything. That’s why world maps often put the equator about 2/3rds of the way down.

I like to read. Most normal students stop reading for fun when they enter grad school and begin to seriously focus on economics. I did the opposite in my first year at Chicago (1977). I suddenly began reading lots of novels and travel books. Here are a couple of examples; both came out at about the same time:

Right before this trip, I reread the Chatwin book. It’s every bit as good as I recall—a travel masterpiece. But is it true? When it’s this good, who cares?

Us northerners tend to associate the term “south” with “hot”. But the southern part of this planet is really cold. In Punta Arenas, the average high during mid-summer is only 60 degrees (15 or 16C), whereas an equal distance north of the equator (say Hamburg, Germany) is 73 during the summer (23C). The great Southern Ocean is like a big bowl of water with a giant ice cube floating in the center. And nothing to break the relentless wind. The south is too cold for me. Soon we’ll head up north to warmer regions.

The native people of Fireland (which the local people call “Tierra del Fuego”) lived mostly outdoors, with almost no clothing. The cold, wet and windy climate in this area is similar to that of Reykjavik. In contrast:

1. I live in Southern California.

2. I live indoors.

3. I have warm clothing.

4. I have a furnace.

And for four months, I’m still &$#@&% cold all the time!

A while back I recall reading that residents of San Diego complain more about the cold than people of any other city. At one time, that made no sense to me. Now that I’ve moved to Southern California, I finally understand.

This is just one more illustration of why economic growth doesn’t make people happier. Hedonics. Set points. And don’t tell me that you’d hate living without clothing in Patagonia. Of course you would—you’re soft! But the natives didn’t hate their lives. Painkillers? It’s all relative. Here’s Montaigne:

Most of Mankind spend their lives without experiencing poverty; some without even experiencing pain or sickness

He wrote that in the 1500s. What do you think Montaigne regarded as “poverty”? What definition of poverty would cause one of the world’s wisest men to make that claim during the 1500s? What definition of “pain or sickness”. A toothache? A cold?

You say that teenage girls are depressed by social media? I bet the teenage girls of Fireland were not depressed.

PS. I am currently reading a memoir entitled “Uttermost Part of the Earth”, written by Lucas Bridges, one of the first European settlers of Fireland. An amazing book. Imagine something like Kipling’s “The Man Who Would Be King”, except a true story. (Not the same plot, but an equally thrilling adventure.) Fascinating stuff on the native Patagonians, who have mostly disappeared.

PPS. After Punta Arenas we visited Puerto Natales. The weather was even worse than normal; cold, windy and rainy. Wind tends to come from the west, and there’s no land going west from the Falklands–all the way around the world until you reach the west coast of Chilean Patagonia.

When I was young I liked looking at maps and dreamed of visiting the southern tip of South America. So here I am. But I waited too long. Hiking near Grey glacier yesterday I was all bundled up and still felt cold—in mid-summer! Don’t wait to travel—do it when you are young. Patagonia is “no country for old men”.

BTW, it gets dark at 9:30 and light again at 6:30, which means their time is shifted two hours forward. One hour is because Chile is currently on daylight saving time, and the other because Puerto Natales is in a time zone one hour ahead of New York and Boston, despite lying directly south of those eastern US cities. It’s like Chile normally has DST, and then double-DST in the summer.

If you plan to travel to this area, I’d suggest staying up at Torres del Paine, not Puerto Natales. Otherwise, you’ll have very long and bumpy bus rides between your hotel and the best scenery. If you are old, I’d consider NZ’s south island before Patagonia—it’s much easier.

We visited the cave that motivated Chatwin’s trip, where his grandmother’s cousin had found the remains of a mylodon skin (one of those many large mammals wiped out by the early human inhabitants of the Americas.)