Wake me when the tight money starts


The US labor market burned red-hot in January as hiring unexpectedly surged and unemployment fell to a 53-year low, defying recession forecasts and adding pressure on the Federal Reserve to keep raising interest rates.

Nonfarm payrolls increased 517,000 last month after an upwardly revised 260,000 gain in December, a Labor Department report showed Friday. The unemployment rate dropped to 3.4%, the lowest since May 1969 and average hourly earnings grew at steady clip.

May 1969? Ah yes, I recall eighth grade.

“bUt 2 neGAtiVe GDP qUArtErs Mean rECesSioN”

Please wake me up when the tight money starts.

Do the ducks ever shoot back?

Recall the metaphor “shooting ducks in a barrel”? It’s the phrase I think of when I see thoughtful progressives criticize the excesses of wokism. Their critiques are so obviously correct it’s hard to believe that anyone disagrees. So do the ducks ever shoot back? Are there any thoughtful rebuttals?

And yet we are told that the woke have taken over almost all of our key institutions.

[I suppose something analogous has happened on the right. Almost all thoughtful conservatives have written highly persuasive critiques of Trump, and yet Trumpism has taken over the GOP.]

These progressive critiques of woke excesses almost write themselves. I mean, how hard is it for an intelligent intellectual to write an op-ed full of stuff like this (From Nicholas Kristof):

As for my friends who are homeless, what they yearn for isn’t to be called houseless; they want housing.

Or this (from Freddie deBoer):

The basic stance of the social justice set, for a long time now, has been that they are 100% exempt from ordinary politics. BlackLivesMatter proponents have spent a year and a half acting as though their demand for justice is so transcendently, obviously correct that they don’t have to care about politics. When someone like David Shor gently says that they in fact do have to care about politics, and points out that they’ve accomplished nothing, they attack him rather than do the work of making their positions popular. Well, sooner or later, guys, you have to actually give a shit about what people who aren’t a part of your movement think. Sorry. That’s life. The universe is indifferent to your demand for justice, and will remain so until you bother to try to change minds. Nobody gives you what you want. That’s not how it works. Do politics. Think and speak strategically. Be disciplined. Work harder. And for fuck’s sake, give me a simple term to use to address you. Please? Because right now it sure looks like you don’t want to be named because you don’t want to be criticized.

Or Matt Yglesias:

Language is arbitrary and always changing, so personally I find “getting mad at language change” to be one of the lowest forms of reactionary politics. At the same time, it’s worth just applying a little bit of common sense to the question of who is and isn’t included by saying “practicum” instead of “field.” Highly educated people and white-collar workers who spend a lot of time bored at the office staring at computer screens and reading articles are well positioned to have large and flexible vocabularies. We are used to learning new words and learning how to use them.

I am quite fluent in why we don’t characterize non-white people as “minorities” anymore, and even why affirmatively characterizing them as “people of color” is in favor rather than saying “non-white,” which tends to center whiteness. I know what it means to “center” something. I know that URM stands for under-represented minorities, and that we tend not to spell it out because “minorities” is out of favor. I also know what URM means (not Asians) and how URM is distinguished from BIPOC. I don’t talk about third-world countries.

I know these things in large part for the same reason I know how to tie a bow tie. And while everyone knows about Skull & Bones, I also know about Scroll & Key and can tell you which school has eating clubs. But while there may be merit to cultivating a set of esoteric practices for the sake of maintaining a national (or these days, increasingly, global) elite class that can recognize its fellow members, that’s like saying (à la John Rawls) that there may be reasons for even egalitarians to support a certain amount of inequality.

These elite institutions and codes of manners are not egalitarian, not just because manners are insufficient but because their purpose is to be inegalitarian. Changing “field” into “practicum” doesn’t include more people — it’s a new means of excluding people whose information is out of date.

Relative to these thoughtful progressives, I am skeptical of many left-of-center public policies. But even if became converted to progressivism, my view of wokism would not change at all. In fact, I might become even more critical, as they would be hurting my cause.

Again, here’s Yglesias:

Some old school progressives seem to believe that wokism is a sort of secret plot by the neoliberal elite to divert attention away from economic inequality. That’s probably nonsense, but in some respects wokism does serve the material interest of the neoliberal elite, by making voters turn away from left wing political parties (not just in the US, but throughout the world.)

Here’s Freddie deBoer:

If you’re looking around online for criticism of Musk, you’ll find more in terms of pure volume that engages in culture war – going after him for the dumbshit rightwing memes he shares – than that which criticizes the position of billionaires in our economy, their disproportionate influence on our political process, and the connection between their riches and the poverty of others. This is a pretty effective gloss on the poverty of progressive priorities right now; even with one of the richest men in the world, people can’t look past culture war and see the structural problems underneath.

Montaigne pointed out that the barbarians that conquered Greece had a disdain for intellectuals. Surprisingly, they decided not to burn Greece’s libraries. One of their leaders pointed out that Greece was their enemy and that their intellectual pursuits would keep the Greeks from pursuing the sort of “vigorous and soldierly” lifestyle that would make them formidable military foes. I don’t know if Trump is funding the woke movement, but if he’s not then he’s even dumber than I thought.

PS. And it isn’t just progressives that get this point:

PPS. The Economist also sees how the scolds on the left are their own worst enemy. Remember when being left wing was cool?

The left once drew energy from scorning authority and bourgeois convention. But as it becomes America’s enforcer of social norms, it increasingly treats the arts as a tool for instruction. As a result it is surrendering what puts the arts in society’s vanguard, the capacity to question and shock.

Fiscal stimulus is costly

For years I’ve been warning that reckless fiscal policy (under Trump and Biden) would lead to future tax increases. And for years I’ve been attacked as an old fogey who doesn’t understand that we are in a new era of zero interest rates, a new era of free credit forever.

Here’s Noah Smith:

Monetary policy is about aggregate demand. Fiscal policy is about efficiency. The profession made a huge mistake in conflating the two policies.

PS. There are a few signs the economy might actually be speeding up:

Vacancies at US employers unexpectedly increased at the end of 2022, illustrating a solid appetite for labor that the Federal Reserve sees as one of the last hurdles to bring down inflation.

The number of available positions climbed to a five-month high of just over 11 million in December from 10.4 million a month earlier, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Wednesday. The increase was the largest since July 2021 and mostly reflected a jump in vacancies in accommodation and food services.

(While I’m doing my annoying “I told you so” routine, I might as well add that I ridiculed those who claimed two falling quarters of GDP meant we were in recession during early 2022. I don’t recall any previous recessions with record job openings.)

Tyler Cowen has a post discussing the possibility of the economy reheating, and has this to say:

Another possible pathway for these scenarios involves interest rates. During a normal disinflation, the Federal Reserve raises rates and keeps them high for a long period of time while the economy adjusts slowly — often passing through recession. But inflation has fallen more rapidly than expected, and so the market may expect the Fed to lower interest rates sooner than planned. And an expected cut in interest rates can encourage expansionary pressures just as much as an actual cut in interest rates.

It is a funny world in which slow inflation can cause faster inflation. It’s the logic of expectations that makes it possible, albeit far from certain.

Of course this would not be a case where low inflation is directly causing high inflation. Rather, if this happened it would be a case of the Fed looking at inflation when it should be looking at NGDP growth, and wrongly concluding that monetary restraint is no longer needed. Persistently excessive inflation is always and everywhere a monetary policy failure.

John Roberts on monetary reform

David Beckworth has a new podcast where he interviews John Roberts, who spent 36 years at the Federal Reserve Board as a macroeconomist. At one point in the interview he was asked about how the Fed should tweak its policy regime in the next review period (which is scheduled for 2024):

Roberts: So I think in that statement of longer-run goals, that constitutional document, I would keep, for the reasons I was just saying, the shortfalls language on maximum employment. But I’m not sure I would keep the shortfalls language on the average inflation targeting. My reasoning is that, if you think about it, that puts an upward bias to inflation. When they adopted that, it seemed like it was a good idea to have an upward bias on inflation, because their concern was getting stuck in a low inflation world because of the low interest rates. Today, it doesn’t look like we have a problem with inflation never being able to be high. It looks like that’s perfectly possible. So I don’t think, from today’s perspective, they need that asymmetry in the constitutional document anymore.

Roberts: And then in terms of if they ever do hit the lower bound again, what statement language they should use… So I think in retrospect, it looks like having those two criteria for liftoff, both the maximum employment and the price level-related one, led to monetary policy being too loose for too long. So a really simple change in my view would be to change the “and” in that conditionality to an “or.” So you would say then that, “We will keep the federal funds rate at the effective lower bound until either we’ve achieved maximum employment or some kind of average inflation targeting criterion has been reached.” So that would’ve stood them in good stead this last time around, because by the middle of 2021, they had already made up the shortfall in prices. So that promise would not have gotten in the way this last time. And it would’ve stood them in good stead in the previous cycle where it took a long time to get to maximum employment and inflation kept undershooting. So it would work for each of the last two cycles. Who knows? Maybe some other thing will come up that would make it not work in the future, but at least, it would have worked, I think, in the last couple of times. So the tweak there would simply be to change “and” to “or.”

Given his career path, I imagine that Roberts has much more insight than I do into where policy is headed. While these are his own views, I suspect the final decision will be not too dissimilar to his proposal. After all, the Fed knows they erred in allowing inflation to get too high, and thus the obvious place to adjust FAIT is in making it symmetrical, at least for inflation.

It’s unfortunate that the Fed is probably unwilling to adopt NGDP level targeting. I suspect they believe that their mandate forces them to target inflation and employment, but that is not the case. The mandate is the goal of policy; if the Fed believes (as I do) that NGDPLT is the best way to achieve that goal, then NGDPLT is fully consistent with the dual mandate.

The change from “and” to “or” does make the employment part of the regime less bad, but there’s still room for mischief. And it’s a mistake to make any promises about the path of interest rates, including a promise not to raise rates until some threshold for inflation or employment is met. To see why, consider Roberts’ explanation of what went wrong in 2021:

So they said that they would keep the funds rate at zero until the unemployment rate reached their estimate of maximum employment. They didn’t spell that out, but that could well have been, say, 3.5% unemployment because that’s where they were pre-COVID and that was not inflationary. 

He’s probably right about the 3.5%, but of course that’s a terrible way to do policy. During the 1970s and early 1980s, the unemployment rate was far about 3.5% and yet we had a severe inflation problem. The Phillips Curve is not a reliable guide for policymakers.

Again, the Fed needs to stabilize NGDP growth along a level path. All policies that lead to highly unstable NGDP will fail to stabilize the macroeconomy.

PS. This David Beckworth tweet caught my eye:

I mostly agree, but would delete the phrase “kind of”. The Fed wants to see convergence, but the kind of convergence they’d like to see is down below 10% chance of each type of overshoot, not roughly 25% chance of each.

PPS.   In a new article I wrote for the National Review, I point out that low and stable NGDP growth is a necessary and sufficient condition for the Fed to achieve its policy goals:

The Fed does not currently target nominal spending. But as a practical matter, the Fed cannot achieve its goal of low inflation and high employment without stable nominal-spending growth. Whenever spending growth is far below 4 percent, unemployment will rise sharply. Whenever it is far above 4 percent, inflation will rise. Because spending growth is the sum of inflation and real GDP growth, it is the best single indicator of the Fed’s performance.

A policy target of 4 percent spending growth is much more credible and transparent than a vague policy aimed at 2 percent inflation and high employment. How should high employment be defined? The Fed doesn’t tell us. How does it balance the goals of avoiding high inflation and encouraging high employment? The Fed doesn’t tell us. What does it do if it misses a policy goal? Again, the Fed doesn’t tell us.

Read the whole thing.

PPPS. New new NGDP figures show 7.3% growth over the past four quarters, which is far too high. I warned you all back in early 2022 not to assume that just because the Fed had embarked on a series of rate increases they were tightening monetary policy. Interest rates are not monetary policy. Money was extremely loose in 2022.

When will we ever learn?

Random articles

1. In many ways, the UK resembles the US. This is not one of them:

Despite its reputation as a hotbed of metropolitan liberalism, London is the most devout place in the country. One in four attends a religious service in the city each month, compared with one in ten outside the capital.

2. From Al Jazeera:

When Eriko Sairyo, a 30-year-old professional who lives in Shizuoka, Japan, saw that American pop singer Gwen Stefani was being accused of “cultural appropriation” in Western media, she couldn’t understand the controversy. . . .

“I don’t have any issues when, for example, foreigners wear kimono and walk around Kyoto for sightseeing. I actually love it that people love our culture.”

In an interview with Allure magazine published last week, Stefani, 53, sparked outrage across English-language media and social media with remarks expressing the deep sense of connection she feels with Japanese culture. . . .

Media outlets including CNN, The Guardian, CBS, ABC, NBC and Buzzfeed picked up the interview and resulting social media firestorm, while notably omitting any reference to the views of Japanese people themselves.

But why would anyone care what the Japanese people think of Westerners appropriating their culture? All that matters is the views of highly educated Westerners on Twitter. Right?

3. It turns out that the KKK arrived at “progressive” views on education even before the left:

“Throughout the boom years of the early 1920s,” the historian ​Adam Laats notes in a 2012 History of Education Quarterly article, “every local Klan group made education reform a leading goal of its public activism.” Eventually, Laats writes, a push for compulsory public schooling overseen by a federal cabinet agency became the “linchpin” of the organization’s agenda.

Why the Klan’s sudden interest in education policy? First and foremost, because of the KKK’s virulent nativism and anti-Catholicism. Most private schools at the time were associated with the Catholic Church, while most public schools were openly, if unofficially, Protestant. By requiring all children to attend the latter institutions, Klan members thought they could strip Catholic parishes of an income source, reduce the Catholic hierarchy’s ability to indoctrinate the next generation, and secure their own right to inculcate values instead.

In 1979, they finally got their Department of Education. Of course once desegregation became an issue, the attitude of Southern racists toward the public schools turned on a dime.

4. How does one become the first person to lose $200 billion? Easy:

Step one: Become the world’s richest man by selling cars to Democrats.

Step two: Spend months engaging in non-stop lame twitter jokes that ridicule Democrats.

Step three: Start censoring political speech that threatens your business interests, exposing yourself as a phony.

Easy come, easy go.

5. Just how obsessed have Republicans become with conspiracy theories? In the past, Republicans would defend themselves by pointing to nutty Democratic conspiracy theories, such as the idea that 9/11 was an inside job by the Bush administration. Today, however, Republicans are more likely than Dems to believe in silly 9/11 conspiracy theories, even though these theories implicate their own party!

6. Bloomberg suggests that China’s behavior has improved in recent months, and . . . surprise, surprise . . that’s a “problem” for the US:

China Is Trying to Play Nice, and It’s a Problem for the US

I suppose if you are determined to have a cold war with a country, then it’s a “problem” if their behavior improves.

7. Ron DeSantis’s attempt to become Censor in Chief is not going well:

Florida last year passed the Stop WOKE Act, which attempts to censor how schools and even private businesses teach about race, prohibiting the inclusion of the various ideas connected to Critical Race Theory. The law is being challenged by multiple parties in court as an unconstitutional abridgment of the First Amendment. It’s not going well for Florida. An injunction has halted enforcement of the business component of the law. Another injunction has halted enforcement of the law against college professors, with one federal judge describing the law as “positively dystopian.”

8. Meanwhile, the left is destroying what’s left of NYC’s school system:

When then-Mayor Bill de Blasio and the entire New York City political and educational establishment unveiled in September 2018 a trailblazing new middle-school Diversity Plan that radically changed the admissions criteria for Brooklyn’s District 15 in the name of racial “equity,” they chose the most symbolic possible site for the announcement: M.S. 51, the William Alexander School, in progressive (and prosperous) Park Slope. . . .

After sending 122 kids to the elite schools in both 2018 and 2019, William Alexander has nose-dived down to 52. Once among the top four feeder schools in the city, M.S. 51 is now tied for 16th. And it’s not just the smart kids suffering.

Seventh-grade math proficiency scores at the school have collapsed from 81 percent in 2019 to 48 percent in 2022, with double-digit declines among each of the four racial groups that the DOE tracks. This cannot be explained away by pandemic learning loss; Manhattan’s District 2, which is consistently the second-largest feeder into the specialized high school, saw very little decline over the same period.

9. I’ve always regarded NYC’s subway system as the world’s worst. But I must grudgingly admit that this looks very impressive.

10. I’m bored with Trump, but if you insist.

11. Almost all of America’s densest urban areas are in California. (LA is denser than NYC, if you evaluate entire metro areas including suburbs.)

California, with the densest urbanization, has 70 of the 100 densest urban areas. California also has 35 of the 43 urban areas (81%) with population densities exceeding 5,000. California has the three densest urban areas with more than 500,000 population.

12. I am of British descent, so this caught my eye:

13. Norbert Michel says the Fed already has something akin to the trillion dollar coin:

The deferred asset is the magic asset. Though like a tax loss carry forward, the “amount of net earnings a Reserve Bank will need to realize before remittances to Treasury resume” is entirely up to the Fed. (The Fed does not follow generally accepted accounting principles (GAAP), it follows the Financial Accounting Manual for Federal Reserve Banks, a set of accounting principles the Fed created.)

The implication, of course, is that there will be earnings in the future and the Fed will remit those earnings to the Treasury. So, the Fed could just decide that it will hold back from Treasury an additional amount in the future and increase the deferred asset.

The Fed could, for instance, decide that it will hold back an additional $1 trillion in the future and increase the deferred asset now by $1 trillion. As the deferred asset goes up, capital goes up by a corresponding amount.

Just as it did in 2015, Congress could then raid the Fed’s capital account. Back then, they raided the Fed to pay for new highway spending. But there is no reason that Congress couldn’t now take the Fed’s capital surplus to pay for whatever Congress wants. (For what it’s worth, I mentioned back then Congress was setting a dangerous precedent.)

Read the whole thing.

14. Cato has a long article on trade that is difficult to excerpt. They show that America has blatantly violated international trade laws under both the Trump and Biden administrations. When I was younger, we used to complain that other countries didn’t play by the rules. Now we are the bad guys. The Europeans are so disgusted with our hypocrisy that they are considering copying our protectionist approach.

A model for Europe? / The Trump and Biden administrations’ trade phobia has contributed to making America a sort of protectionist model for Europe. The EU recently acquired new protectionist powers and is working on creating more, such as retaliation against countries whose governments limit foreign competition on domestic tender offers and restriction of exports in emergencies. The Financial Times has suggested that these measures are partly a response to Trump’s tariffs on steel and aluminum and to Biden invoking the Korean War–era Defense Production Act to threaten export restrictions on vaccine ingredients.

When people tell me, “We need to get tough with China because they don’t play by the rules”, I wonder what world they are living in.

15. Update: Three weeks ago an FT reporter congratulated a colleague for calling cryptocurrencies a bubble:

My colleague Jemima Kelly, who always saw the crypto bubble for what it was, writes on what the year in crypto taught us.

Since that time, Bitcoin is up 38.4%: