Noah Smith has a blog post eviscerating the idea of EconoFacts, both a blog and the idea that academic economists should present their theory-laden opinions as facts. The authors of EconoFacts want to lean into the current wave of lies and distortions, but are doing it the wrong way, according to Noah, who seems convincing on this. I sit half way between lay and academic and have definitely noticed that the academics are often very condescending while being very wrong. Probably my favorite example of this is on h money, where Adair Turner says the debate is solely a matter of political will and Willem Buiter says any “minimally competent” policy maker could easily pull off the initiative successfully. Such comments do not cover academics in glory. Smith’s post is short, readable and seemingly deadly. I would add only that this relates to the idea — discussed three blurbs below — that the practical effect of assessing lies may be mostly to give them more currency. Tim Harford was truthy on that. I am not competent to judge if he is right, but I am going to go ahead and assume he is.
Paul Krugman has a very nice op-ed laying part of the blame for the current mess of lies at the feet of fake-balance centrists in the media. I could not agree more, probably because I got my own high-conviction take on this from him. I would add just two points, neither of which are in opposition. First, I think fake-balance centrism if often more about the fake-balance centrist than about the external world. Look at me, the sort of person who would say this sort of thing. When they offer a pox on both houses, they are offering a pox on neither house because nobody is held to account. The purpose is to bless their own house, and what they do is the opposite of what they present themselves doing. It is so nauseatingly weak. Second, if you think for some reason that you must come across as non-partisan overall, then you can limit the damage of that at least by considering things on a case by case basis. Slag the Dems when they eff up on issue A and then slag the GOP on B. This is a little less stupid than saying Dems and GOP are all just the same on every issue. If a lot of fake-balance centrists in the lamestream media took this approach, it might create an incentive for better behavior on both sides. It would still be very misleading of the broader reality, that the GOP has become a party of terrorists, but it would at least have that marginally favorable incentive effect.
Most importantly, here is some coverage of my beloved daughter, Sarah MacDonell. She is a poet and does know it, which is rare. (Dad humour.)
When I first read this piece from Tim Harford on agnotology, the study of the propogation of ignorance, I was miffed that he presumed that academics and journalists (i.e. himself) were particularly interested in “truth.” I don’t know about academics, who seem sometimes to be a bit tribal, but I am pretty sure that journalists – to generalize – don’t care much about truth. Did anybody notice what happened in November? Questions were raised. But questions were not answered. I stunk up Economist’s View’s comments section making this observation. But on reflection, I think this is a really great article. It explains how Big Oil and now Trump have learned from Hill and Knowlton’s attack on science on behalf of Big Tobacco beginning in the 1950s. The indisputable facts were disputed. The unquestionable sources were questioned. Facts, it turns out, are important, but facts are not enough to win this kind of argument. I am not sure if he proves his case, but it sure is an interesting read. I believe it straight away, which might not be best practice by me. My only quibble now is that he tries to conclude on an optimistic point, that scientific competence is not enough but that scientific curiosity is an antidote to what I would call the fake-balance indifference to reality. The problem with that optimism is that encouraging scientific curiosity is no easy task, especially when there are very powerful forces opposing it. Religion, the MSM, national bigotry, respect for tradition…. The usual conservative shit.
Michael Bloomberg (FBC) advises Democrats not to play to win on SCOTUS but to lay back and think of America. Taking advice from fake-balance centrists has worked so well for the Dems that I think this voice really needs to be heard. (Full disclosure: I bought the pragmatic case for Hillary and was seemingly wrong.) Billionaire Bloomberg’s important opinion was posted on Bloomberg, which is obviously part of the liberal media bias that we all believe exists. Thankfully he has an eponymous outlet for his views, which is lucky because in America views such as his are typically suppressed. This is why his ilk invariably speaks out, whereas the riff raff merely speak. Have you ever noticed that?
Tim Day says that the Fed has given us a “monetary policy safety net.” By this he means, I think, that the economy is moving away from liquidity trap, which means the Fed has some room to ease or tighten less than expected if required. I think he also might have meant that the Fed can go slowly if he wants, which is a different sort of safety net. I am not sure. If it is mostly the former point, then I would say that the economy, not the Fed, has given us that net. The economy is why the Fed is raising rates. The economy, not the Fed, is moving out of liquidity trap. That is a minor quibble, though. FWIW, I agree with his take on that big point. One implication is that fiscal stimulus per se here is pointless. It would operate on the fed funds rate, not the rate of economic growth over the medium term. A sensible infrastructure spending program would have its own separate merits. Is that on offer? (Keep in mind that a fiscal stimulus per se is inherently transitory. It would not durably raise r*, most likely. And yes, this take presumes a model of the economy, just like yours.)
In this video, Bloomberg reports that self-described pro bono banking patriot, Jamie Dimon, will be pushing for deregulation and tax cuts as head of the Business Roundtable. In this role, Dimon needs to suck up big time, which puts into context his earlier — laughably off-base — claim that Donald Trump would “govern differently from how he campaigned.” Our extremely liberal, anti-corporate media fawned all over Dimon’s earlier Deep Thoughts, but oddly have not followed up. We remain mesmerized and focused on the profound political wisdom of Jamie Dimon, who has done well in business.
Bloomberg reports that Russian hackers are shaking down liberal activists for hush money. In some cases, the liberal activists were doing some naughties, like using grant money as bus fare to anti-Trump events. The hackers really deserve style points for demanding the hush money be paid in Bitcoin. But Yuri may be confusing liberal with libertarian. I pity the liberal scurrying around Brooklyn in a panic looking for a Gadsden flag and tech support.
Slate reports that dreamboat Roger Stone, whose dyed plugs really shine, is quite concerned that some of Trump’s critics are not very good looking and could be both stupid and ignorant. Centrists, these are your peeps. Roger Stone and Van Jones are both bad, and probably equally so.
Talking Points Memo reports that the Keystone pipeline is not going to use US steel, despite Trompe’s claims. IMV, Trompe’s lies should be pointed out to demonstrate that he is a lying liar. But on the substance, the purpose of a pipeline is to carry fluid to market, not to create demand for US steel. Not to be too neoliberal globalist about it, but that’s how I see it.
In a paper presented to the US Monetary Policy Forum in New York on Friday, Cecchetti, Feroli, Hooper, Kahyap and Schoenholtz argue that the single best predictor of where inflation will be in the future is where it has been in the recent past. Predictions of how inflation will change tend not to be that reliable.
We find that the level of inflation fluctuates around a slowly changing trend that we call the local mean of inflation. Few variables add extra explanatory power for inflation once the local mean is taken into account. This local mean is itself well characterized by a random walk. Labor market slack has a statistically significant, but quantitatively small, effect on the local mean and inflation expectations have no effect.
This is ammo for the enemies of the natural rate. For me, it underscores the importance of situational awareness over forecasts. Start with where you’re at.
Krugman’s claim that coal jobs are not really about coal jobs rhymes with my own argument that manufacturing jobs are not really about manufacturing. Krugman’s take is a bit darker, as is coal itself. But in both cases, people seem to think they are talking about reality when they are in fact talking about symbolism, I think.
I like the self awareness Josh Marshall shows here. Occam’s Razor and his own instinct not to overstate the reliability of his own imagination says Trump’s relationship with Russia is just a simple, typical case of sucking up to money. But the information he gets, the pilot’s instrument panel, keeps insisting otherwise. Ed note: guy’s who rely on instinct over instruments go into an ever-tightening spiral and stall/crash. That is a behavioral paradigm. Separately, Josh Marshall invented this silly construct called “Trump’s Razor” which involved Trump doing the dumbest most self-destructive thing during the election. But as a correspondent told me about Kevin Hassett, you don’t have to judge a guy by his dumbest move.
Via Economist’s View, as is more often the case than I mention, here is Uneasy Money joining the debate about how policy should react to the apparent approach of what the conventional take calls full employment. UM points out that Richard Lipsey, fine Canadian, was all over this several decades ago. I was struck by the very last sentence, which gets straight to the issue of making policy with uncertainty around this issue. I like the idea of pressing down on the unemployment rate, particularly because inflation has been too low, rather than worrying about inflation temporarily going above target. To me inflation above target late cycle would be a feature, not a flaw, as I have gone over a few times. But my view on this is not well informed enough to matter. This is a fun debate, which was not relevant before, because the case for easy money was so obvious, but has recently become relevant. UM provides nice context on this debate from a history-of-thought angle.
Krugman often seems extreme, especially when not going for fake balance centrism is most important. He goes with earth roundish, not shaped like football which would be the centrist view. Lying to Congress under oath is a thing.
David Andolfatto makes the case for the Fed maintaining a large balance sheet because it shortens the effective maturity of the federal debt and thereby saves the US government money, given that there is typically a positive premium in the term structure. I have no argument there and congratulate Andolfatto for knowing what QE did. I would add three points. First, Andolfatto’s argument has nothing to do with providing “stimulus.” Yay. Second, for the extremely-strong form of this same argument, check out Larry Summers urging the us to take out the middle man and just have the Treasury finance entirely with bills. Also, watch the Treasury official squirm when he says that. Fun. Finally, there is a government in the sunshine issue here. Whatever the optimal term structure is, should it be the Fed or Treasury acting on their judgment of it? I am a bit old fashioned on republicanism, so I say Treasury. But I would not get all pearl clutchy about it.
Bloomberg has an article claiming the S&P could reach about 4,000 by the end of Trump’s second (yikes!) term, although pointedly not because of Trump, they say. I don’t actually recommend reading the article, which is quite literally just extrapolation of the fact that US stocks have really done well since the depth of the Great Depression. But it is fun because if the S&P goes to 4,000 then it might be Dow 36,000 finally. That would fit because Kevin Hassett is going to be the chair of the (demoted) Council of Economic Advisers.
John Cochrane moots the case, without being too cocky, for a monetary policy that would deliver an equilibrium nominal interest rate of zero and an inflation rate of perhaps -1%. He suggests that a mild deflation might not be too damaging because, in new Keynesian models at least, economies don’t actually “spiral” downward when prices fall. Moreover, to the extent that the deflation would be delivered in large part by new product prices implicitly falling, the issue of sticky prices would not even be relevant. It is well worn stuff for those who have followed Cochrane and he is careful not to overstate his point. He is raising issues, not “adjudicating” them. I particularly noticed this aside re Yellen’s recent talk:
She also talked a lot about Taylor Rules, seeming to move much closer to John Taylor’s view of how to implement monetary policy. See interesting coverage on John Taylor’s blog. On r*, see Measuring the Natural Rate of Interest Redux by Thomas Laubach and John C. Williams for a central paper on r*. Henrike Michaelis and Volker Wieland have an interesting post on r* and Taylor rules, also commenting on Ms. Yellen’s speech.
This fits my view that the Fed is the main cause of the confusion it – and hangers on — often attribute to other people’s stupidity or unwillingness to listen carefully. In that talk, Yellen was not endorsing the Taylor Rule. She was protecting the Fed from it! But she spoke intentionally obliquely and in so doing confused John Cochrane while flattering John Taylor. Later, when the Fed again does not follow the logic of the Taylor Rule (thank God), some hanger on will blame the public for having expected it to. Or Stan Fischer will insist more directly how people just refuse to listen.
Simon Wren-Lewis has a “response to crtics”, in which he defends the concept of the NAIRU against something he calls “heterodox economics”, by which he means people who do not accept the highly non-predictive consensus approach to macro favored by Wren-Lewis (and often me too). For an example of one of these heterodox, see two entries down in this timeline. SWL insists that in debates like these it is important to be practical. Those words are music to my ears, but the sense in which he wants people to be practical is not. Without the concept of a NAIRU, he says, it is hard to link real-economy developments to inflation or even to talk to macroeconomists. Ok, perhaps you are not supposed to do either of those two things, then. If you don’t believe in Jesus, you may also have trouble sleeping at night or talking to televangelists. But that is not evidence for Jesus. FWIW, I am pretty conventional on this issue, using NAIRU casually and insisting these days the decline of the unemployment rate is probably mostly over. An economic boom from here seems unlikely: it would be stopped by the Fed acting on behalf of supply constraints. But reading Simon Wren-Lewis reminds me of the need to be humble about all this stuff.
John Williamson has written an FRBSF letter arguing that the recent decline of r* is global and enduring. It affects risky assets as well as riskless. I share his view that returns will be lower going forward and have regrettably had that view for a couple years now. I would not guess that r* is a very useful guide for monetary policy. Confidence in the concept seems to be lowest when most relevant. Somewhat related, the dispersion of various estimates of r* is not remotely a measure of the uncertainty around the level of the variable. For one thing there is selection bias among those who would bother to calculate it. Somewhat related, if your “range” is based on five estimates, you probably should not have yourself in there twice.
Brian Romanchuk of Bond Economics joins a fight with Simon Wren Lewis over the practical usefulness or even meaning/existence of the Non-Accelerating-Inflation-Rate-of-Unemployment (NAIRU). Brian points out that after decades of effort, NAIRU-inclusive inflation models have not been made to work, so the concept does not have much use. He also gets into some of the metaphysics (I don’t mean that sneakily) around what the NAIRU might even be. I share Brian’s skepticism but lack his confidence, probably because I have not studied this at the depth he has. I remember once Vince Reinhart said to me while he was at the Fed, “something beats nothing.” That stuck. I learned about the concept of emergence from Sean Carroll just within the past year and now everything I see seems to relate to it. This I concede is a flaw. But I am guessing NAIRU is emergent. It probably is not a primary force, but that does not necessarily mean it would improve things to just toss the concept. Anyhow, nice debate. It is good to be humble about these things, I think.
Josh Marshall has a meditation on the anti-Trump leaks coming out of the US security services. He claims that we are on “extremely dangerous ground” in two opposing — from a partisan perspective — regards. First, the security services should not be leaking for political purposes. It was wrong when Comey tolerated it and it is wrong now. Such leaks undermine the authority of the president and are undemocratic. Second, the content of what the services are leaking is itself very “troubling” and needs to be investigated. One can be politically objective without wimping out into fake-balance centrism, and I think Marshall finds the mark. (It helps that I generally share his politics, in fairness.) My own view is that the leakers are probably in many cases patriotic and should be punished anyway, on rule-of-law grounds. We don’t get to choose which lawbreakers to like. Somewhat related, the deep state fighting back at what it judges presidential behavior going over the line strikes me as a bit British or Tory. The constitution is what the constitution does, and the deep state is a central part of the state. Needless to say, Americans are not necessarily comfortable with that idea (me neither) and may not recognize its relevance. Separately, Josh Marshall does not seem to like neocons or Eli Lake very much.
Hannah Arendt has a book out called Eichmann in Jerusalem, A Report on the Banality of Evil. Actually, it has been out for 54 years now and I have just not gotten around to reading it. But I was reminded of it when I saw this harmless looking little fellow endorsing Trompe’s claim that the media are the enemy of the people, which directly opposes the spirit of First Amendment. If Trompe acts on that impulse, then he will have opposed the letter. Not all real bad dudes need to look the part or even to be aware of what they are doing. Lack of moral center is enough, according to Arendt. Larry Summers pointed that out about Davos Man, without invoking Arendt, although he did obliquely allude to Nazism, by mentioning “the 1930s.” As the pro bono banking patriot Jamie Dimon said to wild applause from the fake-balance centrist media, Trompe will not govern as he campaigned. Phew!
Thanks to Dario Perkins, I see that Stephen Williamson of New Monetarist Economics has a new post assessing the efficacy of QE and the likely effects of the Fed’s plan to unwind it. He makes roughly the points I have, although with greater rigor and in the context of formal models, and concludes as follows: So, in conclusion, I think Bernanke’s arguments are weak. It’s hard to make a case that QE is a big deal, or that stopping the Fed’s reinvestment policy is risky or harmful – indeed it might improve economic welfare. Further, if one thinks that QE is accommodative, and that we can measure accommodation by the average maturity of the Fed’s asset portfolio, or by the ratio of interest-bearing Fed liabilities to GDP, then withdrawal of accommodation has been underway for some time. I am not inclined to argue, obviously. I would put more emphasis on the idea that it does nothing than that it might “gum up” the financial system. But it is a pretty minor point relative to the ballyhoo that has been made over this largely benign/pointless policy effort. As you know, I think a big part of the emphasis the Fed placed on QE had to do with being unwilling to concede that the zero bound binds. I am guessing Williamson might disagree with me on the actual role of the zero bound, but that is separate, I guess.
Paul Krugman has no problem with fake-balance centrism and its accompanying false equivalence. Here he describes the facts around Putin’s interference in the US election, Trump Administration complicity in that, and the failure of GOP members of Congress to defend the interests of their own country. He will be accused of being shrill by those whose main interest is self-regard. Whatevs. The pice is quite informative. Recently, consensus seems to have been creeping toward we the shrill. So unfair to The Man in the Low Castle.
Bless you, Barry Rithholtz. My heart sank when I read the open of this article because it had the usual pointless whine about “partisan politics.” If you don’t name names or parties, then what is the point? It is like complaining about the weather or democracy or free will. But then Ritholtz names names and gets specific. He does it in a bipartisan way, but he specifically mentions who to blame for what. In my view, it is only by holding the parties to account for specific failures, without false equivalence, that the media can exert some actual oversight. This was such a breath of fresh air compared to the lazy, self-serving above-it-all nothing we usually get from fake-balance centrists. Bravo!
Via Economist’s View, Uneasy Money has a nice piece explaining how difficult it is to identify currency manipulation with protection. He goes over some of the economic conditions that need be in place for the mapping to be valid. I have no quibble with the piece, and I assume he is doing the world a service by unmasking the “monetary policy entrepreneur” into whom he laces. (That concept, I think from Krugman, is very fun.) I would add, though, that this whole discussion is arguably beside the point from a welfare perspective. The welfare gains associated with importing low-priced stuff do not rise and fall based on the source of the low pricing. I suspect people have forgotten about this, again (pet peeve warning) because they fall for the essence in this case, as is others. Is Germany currency manipulating or not? Wrong question.
Talking Points Memo reports that the Tea Party is re-engaging to stiffen the spines of conservatives in Congress, particularly their Freedom Caucus within the GOP. They plan to hold a rally in support of the repeal of Obamacare. Please do this! Please be very clear that you own it. The more specific you can be about your intentions and the quicker you carry them out, the better. Perhaps that is an odd thing to say. Shouldn’t a nice liberal want to protect his programs more than to punish his political opponents? Yeah, probably. But I am not a nice liberal, and I think the stakes are higher here than Obamacare. Get thyself uninsured! Do it now!!
Via Economist’s View, Brad Setser highlights that the prospect of a big dollar rally in response to the border adjustment tax has sparked a debate about whether that might lead to global financial instability. One source of this, for example, might be currency mismatch in EMG balance sheets. The optimists point out that the dollar makes large moves all the time. But Setser retorts that there is a difference between a mean-reversion of the dollar, which partly explains its recent move off the low, and a surge to a record new high. I am not competent to weigh in on this debate, or on what seems to be a widely accepted premise within it: that the border adjustment tax is indeed protectionist and that the protection will not actually be delivered but will be vented through the exchange markets, which will deliver up to a 25% dollar appreciation. Huge if true.
Feldstein, Halstead and Mankiw make the case for a carbon tax with revenues paid back to citizens in the form of “dividends.” The tax increase is offset by a social credit, not a reduction of marginal tax rates. Unemployed and liberal, I love it. Send money soon. They claim this can win support across the political spectrum, including from “populists” who want income redistribution in line with Trump’s stated objective. I am glad they said stated. They claim it could justify repealing the Clean Air Act outright. I wonder if the Clean Air Act regulates anything but carbon. It would be hard to argue with less and more effective regulation.
Mark Thoma claims that Trump may radically change and politicize the Fed to the point where it is not recognizable, as an independent technocracy. That seems like a big deal if true, and it strikes me as the sort of thing the American political process is not likely to focus on. By the time we do, it may be too late. Governors add up over time.