(Trade) war, children, it’s just a tweet away

When I listen to the Rolling Stones, I often cannot understand the lyrics. But then the lyrics don’t matter, at least in terms of “information content”. All that matters is whether they sound good when Mick Jagger sings them. And they often sound very good.

When I listen to Trump, the information content often makes no sense. He’s going to pay off the entire national debt in 8 years? And he’s going to do so with tariff revenue? Well . . . that does sound good.

It sounds good when Trump announces that he’ll declare a trade war on big bad China, using higher tariffs. And it sounds even better when he reassures us that the tariffs won’t raise prices because they’ll be paid for by the Chinese. And it sounds even better when he announces that the tariffs will be delayed so that they won’t hurt our Christmas shoppers.

In a world where voters paid attention to information content, Trump might run into problems. But voters see no inconsistency here, because the tweets consistently sound good.

It looks like I was wrong in my earlier post about Trump’s tariff announcement signaling a desire to get an agreement.  Either he never intended that strategy, or China’s tough response made it impossible.  (Maybe the Chinese read my blog.)

Obviously if Trump is frightened of the political consequences of 10%, his previous threat of 25% on the consumer imports is completely off the table.  The Chinese called his bluff, and he backed off like a dog with its tail between its legs.

I must say that I am really enjoying seeing the US lose the trade war.  For years (even before Trump) we’ve been pushing other countries around.  It’s nice to see someone finally stand up to American bullies. That’s doesn’t mean I’m “pro-China” (whatever that means), as I hope the Chinese government loses its battle with pro-democracy forces in Hong Kong.  I’m pro-neoliberalism, which I’ll support any time and any place in the world.

Speaking of neoliberalism, this FT editorial is another sign of the decline and fall of Western Civilization:

It’s sad to see former neoliberal media outlets such as the FT and The Economist move in a statist direction.  A younger generation seems to have forgotten all the lessons of the final 3 decades of the 20th century.  I suppose some people would cite a quote attributed to Keynes:

When the facts change, I change my mind. What do you do, Sir?

So let’s consider the facts:

1. Market economies did better than statist economies before the Great Recession.

2.  Market economies did better than statist economies during the Great Recession.

3.  Market economies did better than statist economies after the Great recession.

In the same edition of the FT is another headline, a reminder of what statist policies do to an economy:

Argentine peso falls sharply for a second day

Turmoil continues to rock currency after strong showing by populist candidate in primary vote

I hope Tyler Cowen will hurry up and write his book entitled “The Great Forgetting.”

We’ve forgotten that monetary policy drives NGDP, and that fiscal policy is a fifth wheel.  We’ve forgotten that trade deficits are not a problem and budget deficits are.  We’ve forgotten that industrial policies don’t work.  We’ve forgotten that price, rent, and wage controls don’t work.  We’ve forgotten that saving is a virtue.  We’ve forgotten that low interest rates don’t mean money is easy.  We’ve forgotten how to build infrastructure. We’ve forgotten that nationalism is one of the great evils of world history.  We’ve forgotten that socialism is another of the great evils of world history.

Here’s Mick:

Oh, a storm is threat’ning

At least I think that’s what he said.

PS.  Brian asked me to talk about monetary policy.  Hey Fed, cut rates by 50 basis points.

HT:  Stephen Kirchner


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71 Responses to “(Trade) war, children, it’s just a tweet away”

  1. Gravatar of George George
    13. August 2019 at 11:59

    “We’ve forgotten that monetary policy drives NGDP, and that fiscal policy is a fifth wheel. We’ve forgotten that trade deficits are not a problem and budget deficits are. We’ve forgotten that industrial policies don’t work. We’ve forgotten that price, rent, and wage controls don’t work. We’ve forgotten that saving is a virtue. We’ve forgotten that low interest rates don’t mean money is easy. We’ve forgotten how to build infrastructure. We’ve forgotten that nationalism is one of the great evils of world history. We’ve forgotten that socialism is another of the great evils of world history.”

    No, just Demokkkrats and their propaganda arm the MSM, and the sheep they create/harvest have forgotten these things (except nationalism as allegedly evil).

    Nationalism is not an evil when it’s the only thing stopping the world from plunging into a communist dystopia controlled by child killing Satan worshipers.

    “The NWO worships Satan” – Vladimir Putin

  2. Gravatar of MORGAN WARSTLER MORGAN WARSTLER
    13. August 2019 at 12:26

    Chinese tariffs after the Christmas retail season – make sure 2019 last good memory before the election.

    —-

    Nobody I know talks about this like its a trade war, it’s maybe on non-tech / non war-scale stuff…. but it’s an Econ cold war to be sure.

    US doing rare Earth metals, it’s own steel, gas, oil, probably even see some robotic silicon chip factories – whatever it takes to cut China out of the supply chain and keep them off the Internet we use.

    IF WE WERE REALLY SMART as Libertarians we’d be hammering home hardcore encryption as civil right – RIGHT NOW.

    So that as we culturally and Economically divvy up the world, almost everyone worth having joins our club.

    This is the exact right time to be saying to Barr, “what are you, Chinese???” China can’t say no to dystopian tech, we should be protecting ourselves from our own govt right now.

    We’ve to win the Libertarian vs Authoritarian fight here, so when we kick China’s ass, it was worthwhile.

  3. Gravatar of LC LC
    13. August 2019 at 12:42

    Scott, question for you regarding Argentina: according to this John Authers Column (https://www.bloomberg.com/opinion/articles/2019-08-13/the-bond-market-is-in-a-bubble-jz9atl25?srnd=premium), the Macri administration did try to do some market oriented reforms. Seems he is now paying the price in the polls. Is this because Argentinians have become dependent on bad statist policies or is this a sign that Argentina will stop reforms and go back to statist policies? (Or both? My knowledge of Argentina is almost zero.)
    Regarding Hong Kong, I hope the Chinese government loses too. However, the signs are ominous. I see bulletins coming out about censoring internet and Wechat posts starting on August 17th. If true, that is a really bad sign and means Beijing is going to do something stupid. I hope the West can offer some assistance (and perhaps even some carrots to Beijing) to prevent this?

  4. Gravatar of Todd Kreider Todd Kreider
    13. August 2019 at 13:14

    “US Should drop concerns around state planning”

    It’s 1993 all over again…

  5. Gravatar of Mike Sandifer Mike Sandifer
    13. August 2019 at 14:13

    It’s amazing that such an editorial board piece appeared in the FT. The extreme fringes really do gain ground when aggregate demand is badly mismanaged.

  6. Gravatar of E. Harding E. Harding
    13. August 2019 at 14:59

    “Hint: the Malthusian trap meant it was often a choice between death through war and death through starvation.”

    Sumner, you moron, quit pretending to know anything about the Bronze Age. I know much more than you. No Bronze Age war can be adequately explained by overpopulation. The most Malthusian Bronze Age settled society was Hatti. Its wars did not obviously have Malthusian causes. Most Bronze Age wars were either struggles between migrants and settled men, between empires and rebels, or between rival city-states.

  7. Gravatar of George George
    13. August 2019 at 15:33

    https://i.imgur.com/7mbGeHq.png

    This is definitely not another “trend” that is 100% manufactured by silicon valley communists and kept alive by NPCs and fake accounts.

  8. Gravatar of George George
    13. August 2019 at 15:33

    https://i.imgur.com/XUpi9GU.png

    We promise.

    Sincerely, Twitter.

  9. Gravatar of George George
    13. August 2019 at 15:41

    https://twitter.com/TishaMosley15/status/1160493256347664385

    Due to President Trump’s “First Step Act”, this man is free after 23 years incarceration from a majorly unfair sentence (caused by racist rapist Bill Clinton’s 1994 act that threw millions of blacks into prison for non-violent offenses).

    He surprises his mom for the first time as a free man.

  10. Gravatar of ssumner ssumner
    13. August 2019 at 15:55

    LC, The recent problem has been high inflation (easy money). But the market response is a sign that investors remember what her government did last time they were in power.

    Agree that the signs don’t look good in HK.

    Todd, 1933 was a golden age compared to today. At least intellectually. The policy hasn’t changed all that much—so far.

    Harding, I’m sure you are an expert on what motivated Bronze age empires.

  11. Gravatar of Benjamin Cole Benjamin Cole
    13. August 2019 at 15:58

    How does a nation build infrastructure without effective execution of intelligent state planning?

    Ideology often runs into reality.

    Moreover, we can promote free markets but need to consider how to make sure free markets are uniformly applied and even then that they work for the bulk of the population.

    If the US right-wing free-market types lack resolve to end property zoning (actually, property zoning is not even a topic of polite conversation) then I suspect voters are going to trend towards AOC or Trump.

    Macri just got derailed in Argentina. Side question: have IMF loans with the usual fiscal tightening conditions ever worked? The ECB bailout and conditions of Greece have resulted in an economy that is permanently 25% smaller than it was previously. Is this how to convince populations that free markets work?)

    Well, we will see if the Communist Party of China and President Xi send the hobnail boots into Hong Kong. One can rest assured that US-based multinationals will be very contrite and mute.

  12. Gravatar of E. Harding E. Harding
    13. August 2019 at 16:22

    “I’m pro-neoliberalism, which I’ll support any time and any place in the world.”

    Sounds dumb, Sumner. A rational man is committed to no ideology.

  13. Gravatar of E. Harding E. Harding
    13. August 2019 at 16:24

    “I’m sure you are an expert on what motivated Bronze age empires.”

    Several dozen times more than you. Look at my blog archives (pre-2014).

  14. Gravatar of George George
    13. August 2019 at 17:27

    Arguing over the bronze age…sheesh.

    Meanwhile:

    https://saraacarter.com/exclusive-google-insider-turns-over-950-pages-of-docs-and-laptop-to-doj/

    A former Google insider claiming the company created algorithms to hide its political bias within artificial intelligence platforms – in effect targeting particular words, phrases and contexts to promote, alter, reference or manipulate perceptions of Internet content – delivered roughly 950 pages of documents to the Department of Justice’s Antitrust division Friday.

    Google is exploiting its ‘platform’ status under the law by acting as a ‘publisher’.

    What was former CEO Eric Schmidt really doing in North Korea?

  15. Gravatar of George George
    13. August 2019 at 17:30

    https://twitter.com/bennyjohnson/status/1161394125993926656

    ENEMY OF THE PEOPLE

  16. Gravatar of David R. Henderson David R. Henderson
    13. August 2019 at 17:31

    Who is Brian?

  17. Gravatar of Benjamin Cole Benjamin Cole
    13. August 2019 at 17:52

    I am not Brian. At least, not yet.

  18. Gravatar of George George
    13. August 2019 at 18:07

    Ah, no wonder the failing NYT is so anti-Trump

    https://i.imgur.com/PQlHYkL.jpg

  19. Gravatar of Andrew Andrew
    13. August 2019 at 20:08

    When you say that statist economies under-performed market ones, I’m not clear on your terms.

    Is China a statist economy or a market economy?
    South Korea?
    Singapore?
    Saudi Arabia?
    Italy?
    Finland?
    Turkey?
    South Africa?

    I guess I just feel like a clear definition of terms is required to assess the statement….

  20. Gravatar of Andrew Andrew
    13. August 2019 at 20:09

    hen you say that statist economies under-performed market ones, I’m not clear on your terms.

    Is China a statist economy or a market economy?
    South Korea?
    Singapore?
    Saudi Arabia?
    Italy?
    Finland?
    Turkey?
    South Africa?

    I guess I just feel like a clear definition of terms is required to assess the statement….

  21. Gravatar of George George
    14. August 2019 at 03:17

    https://www.whitehouse.gov/briefings-statements/wall-street-journal-99-get-bigger-raise/

    “Corporate profits declined 2.9% in the first quarter of 2019 even as wages grew at an annual rate of 10.1%. This sure sounds like an economy that is benefiting the 99%”

    “The Bureau of Economic Analysis (BEA) on Tuesday published its annual revisions to personal income data, and the surprise was the huge jump in disposable income and employee compensation.”

    “The revisions show that employee compensation rose 4.5% in 2017 and 5% in 2018—some $4.4 billion and $87.1 billion more than previously reported. The trend has continued into 2019, with compensation increasing $378 billion or 3.4% in the first six months alone. Wages and salaries were revised upward to 5.3% from 3.6% in May year over year. And in June wages and salaries grew at an annual rate of 5.5%, which is a rocking 4.1% after adjusting for inflation.”

  22. Gravatar of Todd Kreider Todd Kreider
    14. August 2019 at 03:33

    “Todd, 1933 was a golden age compared to today. At least intellectually. The policy hasn’t changed all that much—so far.”

    I wrote “1993” which was when the Clinton Administration started promoting the idea of industrial policy.

  23. Gravatar of George George
    14. August 2019 at 03:47

    It is not a coincidence that Sergei Brin, whose family was Russian KGB, is a co-founder of Google, aka Goolag.

    Brin started Google in the garage of Anna Wojcicki.

    Anna Wojcicki founded 23andMe.

    Feeling sick yet?

  24. Gravatar of Three assertions | Tim Worstall Three assertions | Tim Worstall
    14. August 2019 at 04:26

    […] So let’s consider the facts: […]

  25. Gravatar of Brian Donohue Brian Donohue
    14. August 2019 at 06:14

    Thanks Scott.

    It’s early today, but the 30-year Treasury yield right now is 2.05%. The lowest close ever was 2.11%. Pretty cool huh?

    Just trying to help with the documentation when we look back and scratch our heads over the Fed’s 2019 policy.

    Also, man that Trump is a goof amirite?

  26. Gravatar of msgkings msgkings
    14. August 2019 at 07:30

    @Brian D, ssumner:

    Is there any doubt now that a recession is coming fairly soon? Otherwise, why should we even care about the bond market, isn’t the signal unambiguous now?

    Good news for anti-Trumpers.

  27. Gravatar of Brian Donohue Brian Donohue
    14. August 2019 at 07:45

    It’s a choice. Based on LFPR numbers, there could still be another million potential workers out there, and record levels of immigration continue. There’s a little bit of wage pressure (i.e. workers are getting paid more), but nothing crazy.

    The yield curve isn’t even that out of line other than at the very short-end. Given the cratering of the yield curve this year, Powell might consider a 0.75% cut. TIPS spreads are heading back toward 1.5%. Generate some inflation. Stop screwing debtors to the benefit of banks.

  28. Gravatar of Cameron Blank Cameron Blank
    14. August 2019 at 08:24

    msgkings,

    Bond market is predicting some reasonably high recession odds (maybe about 50%) and 95%+ odds that NGDP growth will be slower in the medium term. Still, stock prices are optimistic, so overall markets are ambiguous.

    “Good news for anti-Trumpers.”

    True. Of course Trump’s policies are largely to blame for rising recession odds. Yes, the fed should ease, but he’s made its job tougher in every respect.

  29. Gravatar of Mike Sandifer Mike Sandifer
    14. August 2019 at 08:46

    Scott,

    Off-topic, but do you care to comment on a recent negative quarter of GDP growth in the UK, presumably at least partially due to Brexit concerns?

  30. Gravatar of George George
    14. August 2019 at 08:47

    “Of course Trump’s policies are largely to blame for rising recession odds.”

    Of course no evidence or substantive documentation of exactly how Trump’s policies are depressing on the economy (that’s because the truth is the exact opposite, but fake news has brainwashed many sheep across the country)

    In other news, left wing terrorism continues to rise (Demokkkrats are not only not condemning the violence, but encouraging it)

    https://www.foxnews.com/politics/ice-offices-workers-wave-of-violence-threats

  31. Gravatar of Mike Sandifer Mike Sandifer
    14. August 2019 at 08:50

    Personally, I’d now put a risk of US recession over the next 12 months at greater than 55%, though I don’t think the yield curve is yet inverted enough to send an unambiguous recession signal.

    Just looking at the trend of the Fed falling behind increased money demand, it appears we don’t have much longer until we could be in negative growth.

  32. Gravatar of George George
    14. August 2019 at 08:55

    While the TDS suffering sheep parrot what fake news tells them to be outraged about based on no evidence, meanwhile bombshell disclosure just released:

    Google document dump by insider.

    Example:

    https://i.imgur.com/rET5m6U.png

    Google does NOT want the world to know the Las Vegas shooter was anti-Trump. They’re censoring truth for the sake of political power of the left.

    This is why people like the blog author and his sheep followers believe what they believe.

    They don’t think for themselves.

    They believe NARRATIVES that feel good.

    This:

    “according to people familiar with the matter”

    suffices as sufficient evidence to make the blog author believe a statement as really true.

    They’re the conspiracy theory tin foil hat wearers. They are the ones who believed Trump colluded with Russia (even though Mueller and 18 angry Democrats) concluded he didn’t after a 22 month investigation.

    Morons, all of them. Truth is RIGHT THERE, but their minds are so warped by Operation Mockingbird they can’t even see what they’re looking at.

    WAKE UP YOU STUPID IDIOTS.

  33. Gravatar of George George
    14. August 2019 at 08:57

    Mike Sandifer,

    If we wanted Democrat party propaganda, we’d watch fake news, your posts are not needed.

  34. Gravatar of LK Beland LK Beland
    14. August 2019 at 09:06

    Brian Donohue

    “Given the cratering of the yield curve this year, Powell might consider a 0.75% cut.”

    I suspect that this would be a good move. The market is predicting a 20% chance of a 0.5% cut, and the 5-year tips spread is at 1.4% (i.e. breakeven pce inflation at 1.1%). In other words, even if it cut rates by 0.5%, the market wouldn’t be that surprised and inflation expectations wouldn’t increase much.

    A 0.75% cut would be more-than-expected, and likely lead to an increase in inflation expectations.

  35. Gravatar of anon/portly anon/portly
    14. August 2019 at 10:44

    But actually Jagger wrote some pretty great lyrics, that can work brilliantly even when he’s not singing them.

    “Can’t you see I’m on a losing streak?”

    https://www.youtube.com/watch?v=Gs7X3Jk5KOc

    “Childhood living”

    https://www.youtube.com/watch?v=M6s7tIdhbxM

    “Candy and Taffy hope you both are well”

    https://www.youtube.com/watch?v=jC1ax4pPzBY
    https://www.youtube.com/watch?v=cTCZSE_gLzk

  36. Gravatar of sarah sarah
    14. August 2019 at 12:53

    I read these comments, and I cannot help but wonder why we have such immature children working at our Universities. One guy is arguing about how much knowledge he has over the bronz age (are you serious?), another about how much they support Hong Kong (easy to say 10,000K away). The question you should be asking yourselves, and the question that should be keeping you up at night is why China’s quasi state government is more successful than a supposedly “capitalist model”. I put that in quotes because having owned a business in China for 5 years and owning one in the US I can tell you that it is easier to setup business in todays china, and that should be a redflag for those of you who think the US has the most free and equitable system. I see a great deal of bickering, a great deal of pointing the finger, and very few solutions to some incredible and important problems that the US faces in the 21st century. A real genius does not criticize, they propose “realistic solutions” to complex problems. I will say this about Trump – at least he is trying to find a solution instead of arguing over who read more books about the bronze age – “yawn”

  37. Gravatar of Christian List Christian List
    14. August 2019 at 12:56

    Scott’s reading comprehension is gold. Mixing up 1993 with 1933. GOLD.

    Sadly, nobody has complained about how Scott wants to separate Hong Kong and the trade war.

    The “poor” totalitarian regime of China standing up against the “evil, evil” bully USA – I assume by clubbing down its own citizens because they want a bit of democracy and because they insist that China finally honors their deal regarding Hong Kong.

    But why would China ever respect their own deal, it’s a totalitarian regime, worse than any mafia organization. It’s state terror. They will never respect any deal. They are evil thugs, simple as that. And Scott complains in 99% of instances about Trump, who, by the way, came much later than the thugs from China.

    Great show, Scott, really great show. A sight to behold.

  38. Gravatar of sarah sarah
    14. August 2019 at 13:06

    Let me also add about the “american bullying” because it rubs me as a comment driven by idealistic thought. One could argue that currency manipulation is a form of bullying (china). State religion and oppression is a form of bullying (most of the middle-east). Starving your people could be considered “bullying” (northkorea, drc,etc) . Its not just america folks. Every regime, regardless of type (i..e, authoritarian or democratic) has its bullies. But in the world of government policy you don’t call it bullying. You call it “realism”. Nation states do what is in their best interest. You don’t go to the negotiating table looking for a win/win, you go there looking for absolute victory.

  39. Gravatar of MORGAN WARSTLER MORGAN WARSTLER
    14. August 2019 at 13:15

    Thi sis the stuff Libertarians should be focused on, getting US authoritarians in both parties to EAT IT on encryption to prove they are bad like China:

    https://www.wsj.com/articles/huawei-technicians-helped-african-governments-spy-on-political-opponents-11565793017?shareToken=st68b2d465a9cd489d8e7fec015c4f77f0&reflink=share_mobilewebshare

    Brian, / Scott

    My main frame is Digital Deflation™ – I think it’s an Iron Law, our first:

    1. The digital only deflates.

    2. Atomic inflaton just shift consumption to digital.

    In the long run, we are all in VR pods sucking down just electrons and calories.

    If you assume this frame, it’s pretty easy to ee how long term rates would be lower than short term.

  40. Gravatar of ssumner ssumner
    14. August 2019 at 13:29

    Andrew, I’d consider China to be statist. Although compared to North Korea, it’s obviously free market.

    If you look at indices of economic freedom, developed countries that are relatively statist (Greece, Italy, etc.) did more poorly than those that are relatively free market (HK, Singapore, Switzerland, Australia, New Zealand, Canada, etc.)

    China’s a developing country and should be compared to other developing countries.

    Todd, Sorry, a typo on my part, I meant 1993.

    Brian, You said:

    “Also, man that Trump is a goof amirite?”

    Everyday there’s another example of his idiocy.

    msgkings, You said:

    Is there any doubt now that a recession is coming fairly soon?”

    Historically, recessions have been almost impossible to forecast. So I’d say there’s a great deal of doubt. It wouldn’t surprise me either way. Bond yields plunged at earlier stages of the recovery, without a recession. The risk is obviously elevated, but it’s still within the power of the Fed to prevent it. But they need to get moving.

    Cameron, I think we all new a NGDP slowdown was coming, as the previous rate was unlikely to be maintained.

    Anon, I guess so, I never paid much attention.

    Mike, Hard to say how a big a role Brexit played. But it’s obviously a negative factor, based on how the pound responds to Brexit news.

    Christian, Yes, let’s not separate issues. After all, if someone supports the war on drugs we automatically know how they feel about property zoning, monetary policy, UBI, dog leash laws, and every other public policy issue. It’s all linked.

    Sarah, Does Harding work at a university?

    You said:

    “Let me also add about the “american bullying” because it rubs me as a comment driven by idealistic thought.”

    Sorry to engage in idealistic thought.

    You said:

    “One could argue that currency manipulation is a form of bullying (china).”

    Yes, but it would be a silly argument.

    You said:

    “You don’t go to the negotiating table looking for a win/win, you go there looking for absolute victory.”

    Yes, nationalism has worked well in the past.

  41. Gravatar of Carl Carl
    14. August 2019 at 13:39

    @sarah
    How do you work with allies if your goal is absolute victory? What does absolute victory even look like?
    And where did you get the impression that people here are advocating greater regulation of business? The main point of advocacy of this is blog er is to call for NGDP level targeting as a way to improve monetary policy by making it more responsive to the market. Last time the Fed screwed up monetary policy, we got the Great Recession which Barney Frank and his control freak colleagues used as an excuse to wrap a few more rolls of red tape around the economy.

  42. Gravatar of Todd Kreider Todd Kreider
    14. August 2019 at 14:30

    “Scott’s reading comprehension is gold. Mixing up 1993 with 1933. GOLD.”

    The funny thing is that I accidentally *typed* 1933 so when Scott wrote that I was surprised I didn’t correct that, but I did. Weird.

  43. Gravatar of Cove77 Cove77
    14. August 2019 at 14:38

    Who is Brian ?? A late, great FX broker used to refer to certain chart configurations as “Brian Jones formations”….especially helpful re moves in BP

  44. Gravatar of Mike Sandifer Mike Sandifer
    14. August 2019 at 15:10

    It looks like Trump is getting desperate for a way out of the trap he set for himself since China called his bluff.

    https://www.cnbc.com/2019/08/14/trump-suggests-personal-meeting-with-chinas-xi-over-hong-kong-crisis.html

  45. Gravatar of Mike Sandifer Mike Sandifer
    14. August 2019 at 15:18

    I was looking up recent GDP growth figures for countries that are led by right wing nationalist executives. I didn’t find one that was doing well.

    That includes the US, India, the Philippines, Turkey, Russia, Brazil, the UK, Hungary, Poland,… Did I leave any out?

    There is now this irony of the right wing leading countries away from neoliberalism, while in the 80s and 90s even many socialist parties were enacting serious neoliberal reforms. Of course, many left-wing parties are turning against markets now too.

  46. Gravatar of Lorenzo from Oz Lorenzo from Oz
    14. August 2019 at 15:47

    Is nationalism one of the great evils of the C20th? The Aryan supremacism of the Nazis was much more than just “nationalism”. Nationalism allied to Fascism (based on the fascist triad of rejection of democracy, belief in the purifying power of violence and fetishisation of military virtues) was certainly one of the great evils, but I am not sure that Danish nationalism, for example, did much harm.

    Nationalism also broke up empires. It is not clear there is much of a resting point between those two options.

  47. Gravatar of Rodrigo Rodrigo
    14. August 2019 at 16:02

    Hi Professor,

    Great post. Trump definitely blinked.

    Why does Fed seem to be ok with an inverted curve?

    I am hoping we get some dovish commentary next week at Jackson Hole but even the uber-dove Janet Yellen seems to think the inverted curve is not significant.

    Will this Fed commit the same mistakes the previous?

  48. Gravatar of andy weintraub andy weintraub
    14. August 2019 at 17:09

    Yes, but how should the Fed cut rates by 50 basis points? Isn’t that the key? i.e. Increase MV?

  49. Gravatar of andy weintraub andy weintraub
    14. August 2019 at 17:10

    I haven’t been through all the comments, , but how should the Fed cut rates by 50 basis points? Isn’t that the key? i.e. Increase MV?

  50. Gravatar of George George
    14. August 2019 at 17:25

    Mike Sandifer, nothing in that article suggests any self-imposed “trap” nor “China calling his bluff”

    You’re retarded

  51. Gravatar of George George
    14. August 2019 at 17:26

    “Everyday there’s another example of his idiocy.”

    According to ‘people familiar with the matter’?

    😂

    What a loon

  52. Gravatar of George George
    14. August 2019 at 17:27

    The entire fake news media is trying to push a recession – that doesn’t exist – in order to scare people out of buying just to blame it on Trump.

    And the morons on this blog swallow it up.

  53. Gravatar of George George
    14. August 2019 at 17:29

    Aaaaand another shooting in a Demokkkrat controlled area (North Philly).

  54. Gravatar of George George
    14. August 2019 at 17:34

    New Epstein Island (pedophilia/ritual sacrifices) flight logs released.

    https://i.imgur.com/zWi1I5P.jpg

    Well would you look at that.

    All the loudest Trump haters.

    Totally a coincidence.

    See Larry Summers?

    No wonder he was an Obama ‘advisor’.

  55. Gravatar of George George
    14. August 2019 at 18:30

    ‘member when the blog author poo poo’d any concern about Huawei?

    https://www.zerohedge.com/news/2019-08-14/huawei-bombshell-cyber-spying-beijings-political-opponents-africa

  56. Gravatar of Benjamin Cole Benjamin Cole
    14. August 2019 at 18:48

    Egads, Trump was right.

    The Fed is, and has been, too tight.

    That a vulgarian reality TV host is better at monetary policy than our central banks speaks volumes—no, encyclopedias and libraries—about our central banks. If you want to ossify an organization, make it public. If you want to embalm the ossification, make that public agency independent. Then you can freeze the ossified, embalmed carcass by making that public independent agency self-financing. Voila! The Fed!

    Trumps tariffs are debatable, but minute in relation to the US, let alone the global economy.

    A general global GDP slowing, in combination with sinking interest rates and dead inflation, can only be explained by global central bank tightness.

    Sadly, in general, the US orthodox macroeconomics profession has been barking up the wrong trees—actually derelict in their duties—by constantly defining the Fed as “easy” and howling in righteous indignation about the Trump tariffs as the cause of economic maladies.

    The Fed is too tight, and Trump tariffs are a thorn in the side, but hardly fundamental, of a large economy.

    As pointed out by Scott Sumner, even the financial media appears adrift.

    But societies will adopt statism if free-markets are suffocated long enough by central banks.

  57. Gravatar of msgkings msgkings
    14. August 2019 at 19:41

    @ssumner and others here:

    I was speaking with an economist at First Trust who does not believe the Fed is at all ‘tight’ right now, and is not worried about the inverted yield curve. His reasoning is that credit conditions are not tight, credit is flowing, banks are making loans. Normally an inverted curve is a problem because what bank wants to borrow at 3% to lend at 2%?

    But banks are awash in excess reserves so they can still make loans even in this environment. They don’t see many recession indicators, just a slowdown in growth, not tight money. The collapse in yields is about the savings glut, the delta with European yields, the flight to safety as Trump flails about.

    Does that take have any validity?

  58. Gravatar of Sarah Sarah
    14. August 2019 at 21:26

    “Sorry to engage in idealistic thought”.

    – You are free to dream of what ought to be, but the world is not so nice. And pretending it is, will only result in more bad policy. Xi Jinping wakes up in the morning thinking how he can make “china” a better place. And if that means taking the currency lower to keep manufactures then he will. If it means stealing intellectual property by either forcing businesses to reveal secrets to obtain operating licenses, or in some cases hacking databases, then he will do that. If it means paying for FB ads to sway elections he will do that too. That is his obligation to the chinese people. Maybe (I hope) there is a better model, but this is the model we currently live in and it has to be embraced in the moment or you might find yourself taking home $5 a day…

    “Yes, but it would be a silly argument”.
    – If you work in manufacturing you might think otherwise. Open markets work great in a perfect world where everyone plays by the rules. But in the real world nobody plays by the rules because self interest is involved. I hear so much about adam smith and pursuing self interest. It has become a cliche for those who never read his book. But if you actually take time to read his work, which I am sure you have, then you must know he warned about self interest “back firing”…so did marx, jefferson, adams, and hume. You can read their correspondence. Remarkable letters…

    “Yes, nationalism has worked well in the past”.

    – Well, in my opinion Realism is not Nationalism. Two very different things. A government has a moral obligation to its citizens first. And it should always be that way – at least long as we have nation states.

    So call it what you want, but at the end of the day when your at the negotiating table – whether you are a business owner or a government acting with fiduciary responsibility – you always go for the win. And if you come up short, then you settle for a win/win which is usually the natural outcome.

  59. Gravatar of Sarah Robinson Sarah Robinson
    14. August 2019 at 21:56

    My only purpose in posting here is to implore you and others to start questioning why China’s model is outperforming our own. I am not an economist, I am a businessperson. But we need to recognize that their system, their model, has been outperforming ours. Currency manipulation has certainly played a role, and you can point the finger and yell “your cheating” but that is not going to solve the problem. We are in a battle for our standard of living, and way of life, and the threats are not just from China. We need academics who are willing to question mainstream thought, and who are willing to hear different points of view. That is actually why I respect Scott, because I’ve noticed he has come from the outside with his own model. krugman, and others who think they know everything is, in my opinion, a very dangerous type of academic. scholars should never stop questioning the status qou.

  60. Gravatar of mbka mbka
    15. August 2019 at 00:42

    Christian List,

    “The “poor” totalitarian regime of China standing up against the “evil, evil” bully USA – I assume by clubbing down its own citizens because they want a bit of democracy and because they insist that China finally honors their deal regarding Hong Kong.”

    So far, the police in Hong Kong has reacted the exact same way as the French police has reacted to the yellow vests. If those demonstrations were to happen in New York City, they’d get the same police reaction too, or worse. No comment on the underlying demands, that’s a different matter.

    Sarah,

    everything we know about negotiation suggests that “win/win” typically creates the best payoffs, not just in the aggregate but for each individual player as well. Even in sales, the classic negotiation situation where we tend to only look at the “win” of the salesperson, this win will be considerably larger (or might only exist at all) if the win of the buyer is put first. A hard sell might work occasionally but ruins your reputation and you’ll never sell again to the same client.

    This is also true more generally for cooperation. You can look this up in game theory, you can look this up in negotiation or sales courses, or you can learn it on the street. BTW politics is about the same thing – you can only get stuff done if you get others to help you, and you can only get others to help you if you give them something.

    Internationally, the US has fared so well since WWII not only because it was strong and a bully, but because it created systems and arrangements that benefited others too, not just the US. Something that China now shrewdly tries to do with Belt and Road, clearly modeled after the Marshal plan, while the US is apparently forgetting it. Russia only ever played zero sum and therefore, never had any friends unless they put tanks on their territory.

    I would have thought all this was elementary if you’ve been around for a while, but obviously, it isn’t. Or maybe all these commenters here never left their desks and learned everything they write about from the internet.

  61. Gravatar of ssumner ssumner
    15. August 2019 at 07:46

    Lorenzo, What you describe as Danish nationalism is actually Danish patriotism. Nationalism is zero sum, us against them thinking. It’s the big lie. It’s demonization of foreigners and minorities.

    As an analogy, some would describe communism as sharing, I describe it as a totalitarian horror show.

    Todd, I hope people understood I meant 1993. Obviously 1933 was not a time of clear thinking!

    Rodrigo. The yield spread is not a good guide to monetary policy. It inverted in 1966, 1989, 1998, and 2006, and yet on none of those occasions was money too tight.

    Andy, They aren’t going to follow my advice and go back to the the 2007 regime. Second best would be to cut IOR by 50 basis points.

    Ben, You said:

    “Egads, Trump was right.”

    This is idiotic. If Trump wanted lower rates he would not be pressuring the Fed to lower rates, as if his comments have any effect it just makes them more reluctant. They don’t want look like they were pushed around.

    There is no reason to believe anything Trump says—don’t be silly.

    msgkings. Credit is not tight, but money is.

  62. Gravatar of ssumner ssumner
    15. August 2019 at 07:51

    Sarah, I’d encourage you to read a book like Pop Internationalism and learn about why free trade is best and mercantilism is counterproductive.

    Also, please think before you write comments like this:

    “You are free to dream of what ought to be, but the world is not so nice. And pretending it is, will only result in more bad policy.”

    Do you really believe than I think Hitler is a nice man? If not, don’t write comments suggesting I believe the world is a nice place. It just wastes my time and makes me not want to even respond to you.

    And we are 4 times richer than China, so God only knows why you want to copy their horrible model.

  63. Gravatar of Benjamin Cole Benjamin Cole
    15. August 2019 at 08:12

    Scott Sumner: Well I don’t know if anyone is reading anymore cuz there’s a new post. But I think President Trump wants lower rates, and he is using the bully pulpit, just as Ronald Reagan did a generation ago when he proposed placing the US Federal Reserve into the treasury Department where it would report to his Treasury Secretary Don Regan.

    One might posit, with a great deal of evidence, that President Trump wants lower rates with the same vision that President Nixon did. No vision at all, it just would be good for his re-election chances.

    But, given the still unexplained weight on the global economy that appears to press it down towards deflation and negative interest rates, we might be better off with monetary policy made by self-interested boorish Presidents rather than the embalmed Federal Reserve, which is still fighting wars long past their expiration date.

  64. Gravatar of Student Student
    15. August 2019 at 11:57

    Sarah,

    It seems as though you might not understand catch-up growth. Economies off the technological frontier can grow rapidly simply by absorbing the technology from economies on the frontier. It happens through copy catting. It’s much easier to copy someone else’s good idea than it is to innovate new things. Off the frontier economies like China (though its catching up) can grow rapidly by absorbing frontier technologies, as China is doing.

    Initially they were doing this via FDI (and theft which is a problem that should be dealt with even though it is inevitable… think Carnegie and the Bessemer process and why ancient guilds sought to be so secret. How many English and German technologies did they US copy as we were catching up to the frontier?) as factories moved there to take advantage of cheap labor and a stable set of laws and institutions that enforce property rights. They will most likely run into issues once they get closer to the frontier because their government (in the past and currently) is authoritarian with largely extractive institutions (as opposed to inclusive ones). They must adopt a less authoritarian and open environment (which includes tolerating dissent and competing political parties) if they want to continue to grow once they reach the technological frontier. Innovation requires openness to new ideas, people, and political points of view. Always has, always will. It’s the nature of the beast.

    It’s quite analogous to a fat person deciding to lose weight. At first it’s real easy and the weight drops quickly. But once the person starts to lose weight, additional weight loss becomes much harder to do and the weight loss rate drops as the basal metabolic rate lessons do to the previous shedding of weight.

  65. Gravatar of Tom Brown Tom Brown
    15. August 2019 at 12:20

    “A former Google insider claiming the company created algorithms to hide its political bias within artificial intelligence platforms”

    Turns out that guy is a raging anti-Semitic, Qanon-believing nutter of the highest order. https://www.thedailybeast.com/james-okeefes-google-whistleblower-loves-qanon-accused-zionists-of-running-the-government

    Doesn’t mean he’s wrong about Google, but some serious skepticism is warranted at the very least.

  66. Gravatar of ssumner ssumner
    15. August 2019 at 13:09

    Ben, Reagan did not criticize Volcker’s anti-inflation policy.

  67. Gravatar of Christian List Christian List
    15. August 2019 at 17:24

    Ben, Reagan did not criticize Volcker’s anti-inflation policy.

    Well, that may be right or not. In any case, Reagan wanted lower interest rates quite often, just like almost every president before and after him. Some of these presidents have exerted extreme pressure, including Reagan. The really new thing about Trump is that he seems to make the pressure public. In negative terms, one could say that he is more stupid, in positive terms one could say that he is more transparent and honest than the others.

    Of course I don’t know if he’s using even more pressure behind the scenes, that’s a possibility, but the leaks in his government are so big that I think it’s unlikely, because it would have been in the NYT by now. In positive terms, has there ever been more (involuntary) transparency under another American government? Trump’s government is so leaky that you can read in the NYT if Trump farted the night before.

  68. Gravatar of Benjamin Cole Benjamin Cole
    16. August 2019 at 04:31

    https://www.washingtonpost.com/archive/politics/1984/06/26/reagan-assails-rising-interest-rates/eb47c183-48f8-4c51-95b1-c83b2c11e63c/

    https://www.nytimes.com/1982/09/18/us/reagan-suggests-tighter-control-of-central-bank.html

    https://www.businessinsider.com/ronald-reagan-fed-chair-volcker-trump-2018-10

    Well, this is an old battlefield, but Reagan called for placing the Fed into the Treasury Department, and also publicly “assailed” rising rates. Reagan sat silently in the Oval Office as as Baker told Volcker to cut rates.

    In truth, the Reaganauts detested Volcker, but were fearful of his credibility in financial markets. He was a Carter appointee. Plus, they had other things on their mind. Reagan did pack the FOMC with easy-money types, to try to counter Volcker, and Volcker threatened once to quit.

    All long ago. I actually liked Reagan, and most of his policies. But hey, what is, is.

  69. Gravatar of ssumner ssumner
    16. August 2019 at 10:58

    Ben, Reagan reappointed Volcker in 1983, at a time of very high unemployment. You think Trump will reappoint Powell?

  70. Gravatar of George George
    16. August 2019 at 11:20

    Blog author is a two faced forked tongue liar.

    “What you describe as Danish nationalism is actually Danish patriotism.”

    Oh yeah? What you describe as American Nationalism per Trump is actually American patriotism.

    Dumbass

  71. Gravatar of Christian List Christian List
    19. August 2019 at 09:55

    Scott,

    Christian, Yes, let’s not separate issues.

    You can separate issues in democracies. Point by point if you want to. This is not possible in totalitarian regimes like China. How can you not see this, how can you be so naive???

    Sanctions or an escalation of the trade war are the only methods that might prevent Xi from further escalating his totalitarian terror in Hong Kong.

    Where are Merkel and her lying hypocrites when it’s really about human rights for once? I can’t hear them, those mendacious THUGS. Screw them all.

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