What lessons do conservatives need to learn?

The Financial Times has a mildly critical piece on the monetary policy  views of US conservatives, which still ends up being too generous:

Governing parties naturally gravitate towards lower rates as they seek re-election, and the change in mood within the broader party is in part a reflection of Mr Trump’s ability to make the political weather, said Michael Strain, director of economic policy studies at the conservative American Enterprise Institute.

“The president is an easy-money guy. That has an effect,” he said.

This is followed by a long list of examples of Republican politicians and pundits (like Moore and Cain) bashing the Fed’s so-called easy money policies under Obama, and then recently flipping the other way.

Then the excuse making:

Mr Strain and other analysts think there is more afoot than simply politics.

Ike Brannon, a senior fellow at the Jack Kemp Foundation in Washington, said conservatives who had warned of inflation during the great recession are now being forced to re-evaluate. . . .

“Steve [Moore] has figured out like the rest of us that inflation is no longer the spectre and we need to think about monetary policy with a different context,” Mr Brannon said. “People have learnt from mistakes that were made — including by people in the GOP a decade ago.” . . .

Doug Holtz-Eakin, who advised the late John McCain’s presidential campaign, said the post-crisis experience had been a salutary one for conservatives.

“Inflation dynamics are not what they used to be,” he said.

Actually, inflation dynamics are exactly what they used to be.  Herbert Hoover’s QE did not cause high inflation, nor did the Japanese QE of the early 2000s.  This was all clearly explained by market monetarists back in 2009, but conservatives were too attached to their outdated models to pay any attention.  And why did this conservative reappraisal of monetary policy suddenly occur the moment Trump was elected?

In a few places the truth slips through:

Alabama senator Richard Shelby was among the Republicans who opposed Ms Yellen’s nomination to be Fed chair five years ago because he believed she was displaying a bias towards inflation and backed QE.

In February, however, Mr Shelby lavished praise on Jay Powell, Ms Yellen’s successor, saying it was “the best economy I’ve seen in my lifetime”. . . .

At the same hearing Patrick Toomey of Pennsylvania was the only Republican member of the Senate banking committee to raise concerns about a potential overhaul of the Fed’s inflation target under which the central bank could sometimes shoot for higher-than-target inflation.

In earlier times such a policy might have prompted far more anxiety among inflation hawks.

It’s not just that the GOP wrongly thought QE and low rates would create high inflation; in the early 2010s they actually favored low inflation.  Now Toomey seems to be just about the only one left who is strongly committed to a policy of low inflation.

If the conservative movement were serious about learning from their mistakes in the early 2010s, they’d be looking at the group that provided the most accurate description of what was likely to happen, especially given that this group has a number of people with right-of-center views on economic policy issues.  They’d be embracing market monetarism and encouraging Trump to nominate David Beckworth to the Fed, not Herman Cain and Steve Moore.  Don’t hold your breath, as this not about getting to the truth.

PS.  Off topic, I have a (probably stupid) question for those who know more physics than I do.  The picture of a black hole that was recently released looks like a donut.  Actual donuts only look like donuts when viewed from a certain angle.  Does the black hole in M87 always look like a donut from any angle, or only from our perspective?  For example, AFAIK the Ring Nebula only looks like a ring because we are viewing it down one of its poles.

PPS.  Now that I realize just how big M87 is (a trillion stars, and presumably roughly as many planets), it makes our current debate over level vs. growth rate targeting seem rather unimportant.  I’d guess there are already about 379 planets within M87 using NGDP level targeting.  I’m assuming that 1/1000th of their star systems have life, and 1/100 with life have animal life, and 1/1000 with animal life have civilizations with monetary policy, and 3.79% of those with monetary policy have NGDP level targeting.



22 Responses to “What lessons do conservatives need to learn?”

  1. Gravatar of Benjamin Cole Benjamin Cole
    11. April 2019 at 17:56

    Great post. There was quite a hullabaloo about the pending black hole photograph. I was hoping for a window inyo the eternal, or at least something revelatory. It may be a a doughnut, but maybe it is a jelly-doughnut too. “Ich bin ein Berliner,” for those of you with long memories.

    OT but in the macroeconomic-monetary policy ballpark, is this release from the OECD yesterday.


    The OECD posits middle-classes are shrinking in developed nations, and housing plays a key role. Housing is becoming expensive, as anyone who lives in Hong Kong, Singapore, Australia, NZ, Great Britain, the US West Coast, Canada etc knows.

    Kevin Erdmann wonders if (dubious) inflation-signals sent off by the artificially constrained housing markets (think property zoning) aggravate central banks to over-tighten (and remember, a central bank can over-tighten when standing still nominally).

    This housing-cost problem may be compounded by foreign-capital inflows into importing developed-nation property markets, which lead to “bloated” asset prices (so asserts the IMF).

    i wonder if the macroeconomics profession is barking up the wrong trees.

    As for the GOP embracing easy money, I say thank goodness.

    This GOP easy-money-free-love scene also happened when Reagan was Reagan. The Wall Street Journal attacked Fed Chair Volcker for being too tight, a Carter Administration Trojan Horse (Carter appointed Volcker the first time), a stooge of the D-Party, and the WSJ opined inflation under 5% was good enough.

    Reagan valiantly proposed placing the Fed into the US Treasury (where it would report to the Oval Office).

    Oh, where is Reagan when we need him?

  2. Gravatar of Matthias Görgens Matthias Görgens
    11. April 2019 at 18:33

    Benjamin, housing has actually become quite a lot cheaper in Singapore since a peak in 2012. My rental bill fell by a quarter. Prices for buying fell by similar amounts.

    The economy is still doing well. They built more (supply), and it has become harder to get certain visas (demand).

    I do agree that housing is pretty expensive here still.

  3. Gravatar of Matthias Görgens Matthias Görgens
    11. April 2019 at 18:35

    PS Of course the ‘problem’ of foreign capital in housing can be turned into a boon with a simple measure: land value taxes.

  4. Gravatar of Matthias Görgens Matthias Görgens
    11. April 2019 at 18:40

    Scott, I think they call it an accretion disk for a reason. And not an accretion sphere.

    Check out https://en.m.wikipedia.org/wiki/Accretion_disk for some background and more pictures.

  5. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    11. April 2019 at 19:02

    They are stupid enough to sustain this universe.

  6. Gravatar of E. Harding E. Harding
    11. April 2019 at 20:47

    Super-weird post, given that it was conservatives who killed the Cain nomination due to lack of qualifications.

    “And why did this conservative reappraisal of monetary policy suddenly occur the moment Trump was elected?”

    It was a much more gradual shift than that.

  7. Gravatar of dtoh dtoh
    11. April 2019 at 22:02


    1. If you don’t believe the opposition party will always promote a tight money policy on the party in power, then I have a bridge to sell you.

    2. Which is worse, the opposition party pushing a bad policy for political reasons, or the party in power actually adopting the bad policy because they are incompetent morons.

  8. Gravatar of J.V. Dubous J.V. Dubous
    12. April 2019 at 00:48

    As for the black hole question, there was this very interesting video about what we are expected to see: https://www.youtube.com/watch?v=zUyH3XhpLTo

    So in short, yes due to spacetime curvature we will always see blackhole as having a donut-like shape because she is capable of bending light around itself so that it does not seem to project shadow. Very interesting stuff.

  9. Gravatar of Benjamin Cole Benjamin Cole
    12. April 2019 at 01:43

    Mathias G: Glad to hear you are enjoying the good life for less money. I read that 80% of housing in Singapore is government-built.

    I was actually thinking more of Hong Kong, now offering the world’s least affordable housing and where “nano-flats” (120 square feet) sell for what a mansion in Missouri commands.

    Yes, Singapore is tightening up on visas.

    I am thinking on the Philippines next.

    Tokyo is not expensive either.

  10. Gravatar of Benjamin Cole Benjamin Cole
    12. April 2019 at 01:46

    Speaking of Japan:

    Comments from the IMF’s Japan Mission Chief:

    Fiscal policy, rather than monetary policy, should be first line of defence in battling headwinds to Japan’s economy

    Japan should not put off sales tax hike in October, should increase fiscal spending if risks materialise

    BOJ should clarify link between inflation and its forward guidance pledging to keep rates very low

    Banking sector woes are fundamental, not really issues for monetary policy


    So deficits are bad, except when they are not…..

  11. Gravatar of EmmaP EmmaP
    12. April 2019 at 02:19

    The answer to your black hole questions can be found in this youtube video from the excellent Veritasium (if you have not already seen it) https://youtu.be/zUyH3XhpLTo Enjoy!

  12. Gravatar of Grant Gould Grant Gould
    12. April 2019 at 03:00

    (1) A hollow sphere of translucent or glowing material will look like a donut because you are looking through more material at the periphery than in the center. This will be doubly true if there is something (an event horizon) blocking your view of the back — you are looking at a single thin layer of material in the center and looking along a long wall of material at the edges.

    So it would look like a donut even if it were perfectly spherical. But:

    (2) It’s not. Black holes accumulate accretion discs spinning with them because things orbiting them will collide and fall in if they are not moving in the same general direction as the rest of the things orbiting them. This accretion disc is not quite pole-on in the image but it’s close — I believe the nearer pole is oriented to the north of the image.

    I don’t know for sure but Messier 87 may have been chosen as a target because its orientation is so nearly polar to us. Presumably Sagittarius A, though nearer, would have been edge-on and so harder to distinguish.

  13. Gravatar of Håvard Ihle Håvard Ihle
    12. April 2019 at 04:53

    because of the weird physics of light orbits around a black hole it would look sort of donut-like from any angle.

    Here is a gif of what simulations predict it would look like from different angles:

  14. Gravatar of Brian Donohue Brian Donohue
    12. April 2019 at 05:56

    I just don’t see inflation is a worry right now or for the foreseeable future. Do you?

    Janet Yellen presided, as vice chair and chair, over the lowest inflation the US has seen in more than 50 years. She’s actually consistently undershot expected inflation (yay, creditors).

    The fact that Richard Shelby is clueless and hypocritical about monetary policy is one of the less remarkable things I hope to learn today.

  15. Gravatar of SG SG
    12. April 2019 at 06:22


    The short answer to your question is that our view of a black hole will always look like a donut because of gravitational lensing.

    Here’s the best video explanation I’ve seen! https://m.youtube.com/watch?v=zUyH3XhpLTo&feature=youtu.be

  16. Gravatar of SG SG
    12. April 2019 at 06:26

    And this video explains that we actually do have a sort of “top down” view of THE accretion disk around the m87 black hole.


  17. Gravatar of ssumner ssumner
    12. April 2019 at 08:15

    Everyone, Thanks for the black hole info.

    dtoh, You said:

    “If you don’t believe the opposition party will always promote a tight money policy on the party in power, then I have a bridge to sell you.”

    Get ready to sell the bridge, as the Dems did not promote tight money under Bush or Trump.

    Brian, You said:

    “I just don’t see inflation is a worry right now or for the foreseeable future. Do you?”

    I’m never worried about inflation, as inflation doesn’t matter. I worry about unstable monetary policy. Right now monetary policy is stable, but there is always the risk it might become unstable, until the Fed adopts NGDPLT. So we should always be worried about that.

    To the extent that inflation matters, it matters because the Fed is targeting PCE inflation at 2%. Thus the 2008 recession was partly caused by the Fed reacting to above 2% inflation. Fortunately, inflation is currently close to 2% and seems likely to stay close for a while.

  18. Gravatar of Brian Donohue Brian Donohue
    12. April 2019 at 08:29

    In the context of Steve Moore, can you sketch out specifically what kind of ‘unstable monetary policy’ might arise over the next couple years?

    From your post, it sounds like inflation is your worry. But above you say you never worry about inflation, so it must be something else.

    In my simplistic model, ‘unstable monetary policy’ can lead to inflation or recession. Do you think Moore’s policies would provoke a recession? If not, what does my simplistic model miss?

  19. Gravatar of Benny Lava Benny Lava
    14. April 2019 at 05:37

    Oh Scott you’re so naive. Conservatives are all Keynesian. They were deliberately trying to sink the economy during the Obama years to trigger a downturn that they could then turn and blame on the party of the President for political gain.

  20. Gravatar of myb6 myb6
    15. April 2019 at 06:05

    I enjoyed some jokey riffing combining NGDPLT and the Drake Equation. Goodness I’m an insufferable nerd.

  21. Gravatar of ssumner ssumner
    15. April 2019 at 14:19

    Brian, I worry about policies that lead to NGDP instability. It might be an excessively tight policy that causes a recession (as in 1929), or an excessively easy policy which pushes up PCE inflation, causing the Fed to enact a tight money policy that triggers a recession. In the past, the second problem is usually more common.

    Right now I’m fairly happy with policy–things seem pretty stable.

    Benny, Naive? You’ll enjoy my next post.

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