Monday , November 18 2019

Random notes

Summary:
1. The FT on Boris, pt. 2 A few days ago, I said this: Imagine a Democratic president with dictatorial powers. What would a President Sanders or Warren do if there were no restraints on their power? Yesterday, the FT said this: Mr Johnson’s move may not be a “coup” but Tories cackling over this wheeze might ponder how they would view a leftwing government under Jeremy Corbyn taking the same step. . . .There are reasons conventions survive. All sides know that the boot will one day be on the other foot. Conservatives should remember that what goes around comes around. 2. A great Noah Smith tweet: 3. I’m not going to blame Noah Smith for this, as authors don’t get to write their own headlines: The Fed’s Stimulus Might Be Undermining Growth What if

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1. The FT on Boris, pt. 2

A few days ago, I said this:

Imagine a Democratic president with dictatorial powers. What would a President Sanders or Warren do if there were no restraints on their power?

Yesterday, the FT said this:

Mr Johnson’s move may not be a “coup” but Tories cackling over this wheeze might ponder how they would view a leftwing government under Jeremy Corbyn taking the same step.. .

There are reasons conventions survive. All sides know that the boot will one day be on the other foot. Conservatives should remember that what goes around comes around.

2. A great Noah Smith tweet:

3. I’m not going to blame Noah Smith for this, as authors don’t get to write their own headlines:

The Fed’s Stimulus Might Be Undermining Growth

What if low interest rates are bad for productivity?

My biggest disappointment over the past 10 years is the complete, total, 100%, lack of progress in getting people to stop reasoning from a price change. That subhead isn’t even a question. It’s nonsense to talk about low interest rates affecting any almost macro variable.

BTW, the headline is fine. Monetary stimulus is a clear concept, and could impact productivity. (I doubt it actually does, and if it does I have no idea in which direction. I also doubt anyone else knows.)

4. On the same note, here’s William Cohan in the NYT:

Instead of continuing to try to right the ship, by gradually raising interest rates, Mr. Powell, in that speech, seemed to be caving to political pressure — from the president and from Wall Street bankers and traders — to keep rates low. Indeed, that is what he has done. On July 31, for the first time in more than a decade, he lowered short-term interest rates.

That was a mistake. Mr. Powell and his colleagues at the Fed need to stand up to Mr. Trump and do what’s right for the economy. If they don’t, the only question that remains is, when will it all blow up? When it does — and that day will be soon — we will be staring down yet another financial panic.

Put aside the problem with reasoning from a price change, and go back to the Bloomberg headline about “monetary stimulus”. Is it contractionary? It’s contractionary for output if it has a contractionary effect on asset markets. If not, then it’s not contractionary. Right now, Fed actions intended to be stimulative generally have a positive impact on asset prices, at least if they are clearly more stimulative than expected.

The next financial crisis is likely to occur in an environment of low interest rates. But it won’t be caused by low interest rates; it will be caused by the things that cause low interest rates. And for the most part that is not monetary stimulus.

Reasoning from a price change seems to be increasingly messing up the entire field of economics. You have Larry Summers making bizarre claims that low rates might slow economic growth. You have the embarrassing debate between New Keynesians and NeoFisherians. Come on people.snap out of it!

HT: David Beckworth, Marcus Nunes


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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