Kevin Warsh just lost me. He argues he's going to be an independent Fed Chair, but refuses to acknowledge that Trump lost the 2020 election. If you can't state simple facts when you're in the political spotlight, you aren't independent. You're a coward.
Zipf’s law drives anyone who thinks too much about it into gibbering madness
My view is that persistent inflation creates a structural environment where the wealthy are uniquely positioned to accumulate wealth, as cash is taxed
The rich have 3 benefits vs labor
1. Leverage
2. The Cantillion effect (early access to cheaper dollars)
3. Assets valued at a multiple of prices
“But if you think about it, it’s hard to see how rising prices for stocks, which are both bought and sold mainly by the richest 10 percent of the population, hurt those below.”
paulkrugman.substack.com/p/the-vindic...
“Granted, stock prices rose substantially under Biden, and stock ownership is highly concentrated at the top. So the Biden economy was K-shaped in that sense…”
Agree
I think people (more politicians and the lay economist) underestimate the degree to which productivity-driven deflation is very a natural economic result. It’s what supply *should* do.
(I’m also probably biased b/c I’ve worked in mfg for ~15 years, so I see it every day)
Humans are not useless just because we cant remember 10 digit numbers.
Agree. If we are going to use AI effectively, we need to understand its capabilities and limitations, just like with labor.
But people often use the true observation that AI has different limitations/capabilities as an argument for its uselessness.
3. (More of my own reaction) the only time I really want to see the Fed be hawkish, or really just do nothing in the aggregate, is when supply is growing due to productivity gains.
If so, I agree wholeheartedly with this point, too.
2. My main takeaway from the argument is that raising rates as a response to inflation is often counterproductive, especially if the inflation is caused by supply constraints. (Is this a fair reading?)
The world needs new energy capacity to help fix oil shocks, and more housing to fix high rent
Great stuff; a few thoughts:
1. Agree that relying on macro inflation expectations “to do work” seems silly. Who is going to put off / accelerate consumption / savings on the expectation of a 0.2% price change in a month? I can see where it can have a marginal impact on investment, maybe.
Thanks for sharing this - off to dinner now but will read tonight/tomorrow
Do you not like his work?
Here: “Thus, suppose everyone thought that under the current instrument setting, NGDP would come in below the five percent target. In that case they would begin buying NGDP futures contracts. Each purchase would trigger a parallel open market purchase of ordinary Treasury bonds by the Fed.”
Yeah agree if it drives wage deflation then it is counterproductive.
At the same time, if productivity drives inflation below 2% and the fed responds with liquidity, the money must go somewhere. And empirically a lot of it has gone to assets (higher multiples)
I learned about this idea from Scott Sumner; i think its pretty clever as a way to automate liquidity to market expectations of GDP
From Discretion to Futures Targeting, One Step at a Time | Cato Unbound www.cato-unbound.org/2009/09/25/s....
Yeah the foreign accounts bit as a complicating factor, which I’m sure has playing init why we’ve seen more goods deflation than services
I like the idea of an NGDP futures market
Idk, it’s not a space I’ve done a lot of reading im the specific modern context. Tech stands out for vibes, but don’t know if the data supports that. Thoughts?
NGDP targeting should be good enough. Even if we just get to 0 during full-ish employment, would go a long way
Price war. Might require some antitrust work in some industries
(We need a better word though than “deflation” that doesn’t make people grimace with discomfort)
When productivity is cooking lower prices, just let it cook
Clearly.
The fact that people don’t think of inflation as a tax is part of what makes it so insidious.
It’s a blatant policy choice that funnels 2% of post-tax income directly from consumers to capital. It’s not some magical, permanent requirement of capitalism.
And you have to deal with the inflation tax as Amazon raises prices.
The post-1990 flattening of the U.S. Phillips curve significantly weakens the inflation response to policy-induced unemployment, fundamentally challenging the effectiveness of modern monetary policy. onlinelibrary.wiley.com/sha...
How much did accountants make on transfer pricing studies?