I recently saw a Wall Street commentator talk about how uniformed uninformed investors are piling into Nvidia stock. He mocked some people he overheard at the gym referring to it as “nah-vidia”, instead of the correct “en-vidia”. But I don’t think we should mock people who mispronounce words, as it’s often a sign of intelligence.

Consider the following two people:

1. Person A went to an Ivy League school, where he learned how to correctly pronounce all the fashionable intellectual words. But he actually didn’t spend much time reading books, as he was too busy networking to advance his future career.

2. Person B is not particularly ambitious and works at Starbucks. She is a loner who spends much of her free time reading intellectual books.

Which one is better informed? Which one is superior at pronunciation?

I am surprised how often people suggest that I listen to videos discussing some hot button topic. It’s far more efficient to read, so why not send me an essay with the same set of information? Obviously, the fact that these videos are popular is an indication that many people don’t like to get information by reading. (Trump is a famous example.)

I also notice that many of these videos take “contrarian” positions on controversial issues like vaccines, global warming, and Russia/Ukraine.

I also notice that many of the contrarian positions are really dumb.

Of course these are just generalizations. So you don’t need to tell me that there are lots of thoughtful videos and lots of dumb essays. I agree.

But my point is that, on average, the information conveyed in writing is superior to information that is conveyed verbally. Put aside the question of bias (which exists everywhere)—in terms of quality the major newspapers are clearly better than the major TV news shows.

And my second point is that people who primarily receive their information by reading are more likely to mispronounce words than people who get their information by listening.

I’d prefer an investment advisor who mispronounces Nvidia over one who pronounces it correctly.

PS. Of course I’d also prefer no investment advisor at all.

1. I agree with 95% of the views in this Zvi Mowshowitz post, but not this one:

Andrew Biggs makes the case for eliminating the tax preference for retirement accounts. This mostly benefits the rich, does not obviously increase net savings values, causes lots of hoops to be jumped through, and we can use the money to shore up social security instead, or I would add to cut income tax rates. This would be obviously great on the pure economics, assuming it did not retroactively confiscate existing savings and only applied going forward. But as Matthew Yglesias says, political nonstarter, so much so that not even I support doing it.

For the umpteenth time, retirement accounts (401k, Roth, etc.) do not provide any tax preference for saving. They remove a tax penalty for saving, and make the system neutral between current and future consumption.

2. I strongly agree with this claim (in the same post.):

Most economics papers and other academic work is useless, everyone involved knows this, outside of the top quartile it is essentially a grift where nothing would survive critical review. Tyler Cowen retweeted and I too have come around to thinking this is basically correct.

So how can economics be a relatively successful field, given that most research is garbage? It seems that theory plus a few robust experiments are enough to provide a solid foundation. At this point, the difference between a good and bad economist is not the amount of research they’ve done, it’s whether or not they have good intuition about which theories and empirical work to rely upon.

3. I am increasingly depressed about the current state of macroeconomics. But Alex Salter provides a ray of hope:

The connection between government spending and inflation seems obvious. Fiscal policy affects aggregate demand by changing total dollar-valued spending in the economy. If the government ratchets up spending, financed by borrowing, that should inject a new flow of funds into the national income stream. This is standard income-expenditure Keynesianism — and it’s wrong. . .

The central bank, not the fiscal authorities, is the residual determiner of aggregate demand.  . . .

Deficits are bad for the economy because they transfer resources from the productive private sector to the unproductive public sector. Deficits are bad for self-governance because they transgress a basic small-r republican commitment: not to saddle future generations with crippling debt before they are even old enough to vote. 

That’s exactly my view. It’s sad that something that was conventional wisdom in the 1990s (the Fed determines inflation) is now a heterodox view. This is the new Dark Age of macro.

Suppose that in the late 1990s you had told a group of economists that in late 2021:

1. The economy would be booming.

2. The Fed would be rapidly increasing the money supply.

3. The Fed would be targeting interest rates at zero.

Then you told them that the profession would blame fiscal policy for the resulting inflation!!

(HT: David Levey)

4. Some people claim the world is getting dumber. I’m not convinced (recall the Flynn effect), but it’s an intriguing hypothesis. Of course we cannot extrapolate this model into the future, as embryo selection seems to be on the horizon.

5. In the past, I’ve discussed how the Chinese public uses funerals to voice their displeasure with the government. The same seems to be true in Russia.

6. For years, I’ve been telling you that presidents and former presidents are completely above the law. So this FT story should be no surprise:

Ever since Donald Trump was charged with seeking to overturn the 2020 presidential polls, his lawyers have argued a trial should not take place until after the 2024 election or risk tainting the vote.

The odds are now in Trump’s favour, after the US Supreme Court on Wednesday determined it would hear his appeal over claims that presidential immunity shields him from the Department of Justice’s indictment.

People who don’t understand how deeply corrupt our system has become were caught flat footed:

Analysts at Eurasia Group said the Supreme Court’s decision was “a surprise and is a massive break for [former] president Trump”, saying the expectation of a conviction was an “important component” of their forecast of Biden as a narrow favourite to win re-election.

What a surprise that Trump selected judges would throw him a lifeline!! (I doubt that Al Gore was surprised.)

7. Denmark shows up at the top (or bottom) of all sorts of lists. It’s arguably the country with the highest level of civic virtue, the most free market economy, and the most egalitarian society, which is an odd mix of attributes. Now we can add in least religious. (BTW, I understand “religious” can be define many ways, such as belief in God. The following is religious attendance.) The other odd result is the vast difference between Slovakia and the Czech Republic—no wonder they split up! The following graph is from a Ryan Burge tweet:

I don’t mean that literally. Atheists have not started believing in God. But in one respect they have replaced Christians—they are now the group that views all humans as having equal worth. In contrast, universalist Christianity has largely been replaced with Christian nationalism (which of course is a sort of oxymoron.)

Here’s Matt Yglesias:

George W. Bush took up the cause of HIV/AIDS in Africa and created the PEPFAR program with the backing of a bipartisan majority in congress.

PEPFAR is quintessential elite-driven, inside-game policymaking. You could never win a high-profile public argument about how we should help poor people in Africa. That’s why now that Bush is off the scene and it’s no longer a personal priority of anyone important in Republican Party politics, the program is mired in the larger abortion discourse dynamics.

But membership in the cosmopolitan minority is increasingly correlated with other issue positions. The kind of Bush-style politics where Christian commitments drive traditionalist notions of sex and gender, but also universalist beliefs about human value is going out of style. Increasingly, the cosmopolitan-minded people are just the secular people who are also on the left on other issues. This is all part of the larger process of education polarization — politics in western countries increasingly pits the business class not against a labor union left, but against what Thomas Piketty calls the “Brahmin left” of educated professionals and social service providers. Those are the people who are mostly likely to be cosmopolitan, and that’s created a mutually reenforcing cycle in which politics increasingly aligns around views of immigration rather than views of Medicare.

Illegal immigration could easily cost Biden the election.

Trump should have said something like the following:

There should be a Nato agreement that each country contributes at least 2% of GDP to the mutual defense. Those countries falling short in their defense spending must contribute the difference to a fund to assist those countries spending more than 2% of GDP.

That would have been a responsible approach to Nato reform, unlike his actual comments, which served to weaken the alliance.

But Trump doesn’t wish to save Nato, he’d rather see it destroyed. Trump doesn’t respect Putin despite his flaws; he respects him precisely because of his flaws. Trump respects power—the power to kill your political opponents and invade neighboring countries. He feels so passionately about this that he refuses to forcefully condemn Putin’s crimes despite the fact that it costs him votes. In contrast, Trump despises leaders that seek to cooperate with other countries, or those who advocate human rights, viewing them as weak.

People wonder why Trump keeps saying these awful things about Russia and Ukraine (and occasionally China). Even Trump’s critics cannot quite wrap their minds around the fact that he says them because he believes them. Trump really does believe that Putin should be able to kill his opponents and invade neighboring countries. He really does wish to see Nato destroyed. Ditto for the EU. These are not just slips of the tongue. We are not used to having candidates who are 100% pure evil, so we cannot see the truth when it’s right in front of our eyes.

In 2016, I pointed out that Trump had authoritarian tendencies, and commenters mocked me for it. After January 6th, those commenters look like complete fools, and the current iteration of Trump is far worse than the 2016 version. If anything, I greatly understated how bad Trump is.

Inevitably, commenters will tell me that the first Trump administration was staffed with some mainstream GOP officials who occasionally put sanctions on Russia. But listen to what Trump is saying now. He’s saying that in his second term he will not use any of those mainstream “RINOs”, and instead will staff his administration with authoritarian right-wing nationalists.

Maybe he’ll be too lazy to pursue that agenda. But if he does, don’t say that we weren’t warned.

PS. Can someone explain to me why Australia, New Zealand, Japan and South Korea have not already been added to Nato? It seems like a no-brainer that would clearly make Nato even stronger. What are we waiting for?

Bloomberg says that some pundits are beginning to contemplate the possibility that the Fed’s next move might be up, not down:

Summers, a Harvard University professor and paid contributor to Bloomberg Television, suggested a perhaps 15% chance that the next Fed move is an increase. Mark Nash, who manages absolute return macro funds at Jupiter Asset Management, puts the odds at 20%.

Even some who do expect rate cuts have advocated taking out insurance on that bet. BMO’s Davis has been shorting two-year Treasuries since December, though covered half of that position amid the climb in rates since the start of the year.

At Societe Generale SA, Chief FX Strategist Kit Juckes told clients in a report last week that if “the US economy re-accelerates, the Fed will eventually have to tighten again and the dollar will rally,” possibly back to 2022’s all-time high.

Clearly the markets believe the next move will be toward lower rates, but no one should be surprised by the fact that a rate increase is possible. In an efficient monetary policy regime, there would be roughly a 50-50 chance of a rate increase on any given day. (Under an efficient regime, policy would set the target fed funds rate to the nearest basis point, and that target would be adjusted daily in response to a continual flow of new information.)

Even with our current inefficient regime, policy moves should be at least somewhat unpredictable. For simplicity, define easy money as a policy rate below the natural rate and tight money as a policy rate above the natural rate. If the central bank is trying to set rates at the (unobservable) natural rate of interest, then they would be expected to overshoot 50% of the time and undershoot 50% of the time. More importantly, the errors made by a rational central bank should be completely uncorrelated with the level of interest rates.

This means that you would not necessarily expect a high interest rate policy to be any more contractionary than a low interest rate policy.

Of course you can imagine models where high rates are correlated with tight money, as in the case when the central bank intentionally sets rates above their estimate of the natural rate in order to control inflation. But in general, policy errors should be uncorrelated with the level of rates. So “make up” policies to correct previous policy errors should be hard to forecast.

The Fed has now set rates at a level expected to produce a soft landing. If they overestimated the natural rate of interest they might deliver a hard landing, and if they underestimated the natural rate we might get no landing at all. In the latter case, inflation might stay stubbornly above target, requiring further rate increases.

Two years ago, almost no one correctly forecast the recent path of interest rates. The same could be said about interest rate forecasts in early 2020, or early 2019. I don’t know what will happen to rates over the next two years, but I have very little confidence that things will play out in the way the markets or the Fed currently expect. There could be surprises in either direction.

I see people cherry picking some obscure inflation metric which has hovered around 2% for 6 months. But price inflation is not the right variable to look at. In order to have lower interest rates, we need a slowdown in wage inflation and NGDP growth. If wage inflation gets stuck at 4.5%, then interest rates are headed higher. I still think it’s likely that wage inflation will slow, but recent price inflation moderation doesn’t reassure me at all.

In an efficient monetary regime (NGDPLT), policy errors in either direction would be equally bad. But we don’t have level targeting. In addition, recent policy errors have been in the direction of an excessively expansionary policy. For that reason, the damage from a somewhat overly expansionary policy in 2024 would be greater than the damage from a somewhat overly contractionary policy in 2024. The longer that wage inflation stays elevated, the more difficult it will be to bring it down.

PS. Here’s the FT:

Earlier this month, Australia’s central bank — the Reserve Bank of Australia — decided to keep its main interest rate on hold at 4.35 per cent. Nothing alarming there. But in a statement, rate setters indicated that the next move could conceivably be up, not down. . . .

Assumptions for swift rate cuts are also on shaky ground in New Zealand. Last week, regional bank ANZ flipped its view on what the Reserve Bank of New Zealand will do next. As recently as January, it thought the central bank would start pruning rates back in August. Now it is forecasting two more rate rises by April, taking the benchmark rate to 6 per cent.