I think the US (and Canada) just needs to ride the tide and let all the other boats sink. Pretty much everyone else is screwed. I think people are underestimating the second order effects of the US still having stable energy and farming capabilities. We'll see more stuff get done here and less stuff done elsewhere. Unemployment will be great here no matter what we do really. It will suffer in other countries.
Though I'll admit, I still found the stat that of 20% youth unemployment in China to be shockingly high. The idea that they're lowering their interest rates is also bonkers to think about. Their economy has been slow motion train wrecking for soooo long now. God help them if they get another covid flare up over the winter and and are stupid enough to do another lockdown.
North America is in a pretty good place compared to the rest of the world when it comes to energy/food/labor demographics.
China is, unfortunately, a long way from the competent leadership of Hu Jintao and the other previous post-Mao leaders. Unlike the previous leaders (primarily selected on merit), who WANTED to prevent another Mao-like cult of personality, Xi is a deeply-insecure man whose rise was entirely built on family connections. He has fostered a cult of personality while simultaneously using the cover of anti-corruption stings to remove all of his CCP rivals, or anyone critical of him.
The result is a huge departure from the previously competent CCP decisions. The current CCP is carrying out foolish, self-destructive, and non-sensical policies that can only make sense in the context of local decision makers desperate to please Xi. Xi is the ultimate centralizer of all decisions, having knee-capped the previous CCP policies of pushing decision making to local officials as much as possible. It's a real nightmare, and has resulted in China having an image of a shining (although somewhat authoritarian) city on a hill to a weird techno-dystopia with people starving in their apartments under absurdly stupid "Zero Covid" lockdown policies because the CCP can't admit the SinoVax is a complete failure.
This is why any system of government that relies on an unbroken chain of good leaders, as opposed to limited government with systemic safeguards, is bound to fail, and often times sooner rather than later.
China has 4x the population of the US. Abandoning zero COVID as a policy would lead to millions of deaths. How can you call SinoVax a failure when all of the non-mRNA vaccines perform similarly? The US has more COVID deaths than China has had cases. That's shameful, especially when the US sat on enough mRNA vaccines to completely immunize our population 9x over. Countries like Argentina that were guinea pigs for the Pfizer, Moderna, J&J vaccines couldn't get enough access because IP law is more important than stopping a global pandemic that disrupts manufacturing.
Countries like China and Cuba had to manufacture their own vaccines without the new mRNA process and it was less effective as a result but still better than nothing. Cuba even had to get permission from the US to import syringes to be able to administer the vaccine they manufactured. How is that defensible?
All of this without even saying that the CPC has an incredibly high approval rating (https://news.harvard.edu/gazette/story/2020/07/long-term-sur...), even when the polling is done by outside entities and anonymized. It seems incredibly condescending to treat a billion+ humans as inept drones under the iron grip of a tyrant simply because they're geopolitical rivals.
> a billion+ humans as inept drones under the iron grip of a tyrant
Drones, no, but it's very instructive to look at what the elites of China do. Many who achieve success in China spend significant resources to have a foot out the door, because they know that success is fleeting, depending on remaining in favor of the CCP. Even Xi Jinping's daughter went to school in the US.
If the CCP is actually so benign and China is well run and a good place to be, why does that happen?
They could be targeting economic policy around the, say, 1.3 billion or so non-elites.
A few million at the top may see a net burden in "we have to be responsive to overall planning goals" and "we might have less raw economic opportunity", but maybe it's a choice the CCP is willing to make. At least on an aggregate, society-wide level, the quality-of-life metrics do seem to be pointing in the right direction.
I don't think "schooling in the US" is inherently a culpable thing. Premier American universities are
globally very highly respected, and I could see value in "cross training" to make sure they're not missing any good ideas worth investigating.
Firstly, the mRNA "vaccines" do not produce any sort of immunity. AFAIK the Chinese vaccines actually work like traditional vaccines (i.e. cowpox particles to produce smallpox immunity). We really don't know the Covid death rate in China, whether there are excess deaths from Covid infection directly or as a result of the CCP's cruel and barbaric lockdown measures, which have caused reports of starvation in places like Shanghai.
I also would not extrapolate public opinion about the CCP based on polling, even if it's done by outside entities and anonymized. Any Chinese with an IQ higher than room temperature would know better than to speak out against the CCP in a western-designed poll. Xi Jinping is leading his country like Stalin...they have GULAGs for dissenters.
So, I don't disagree with you. I just think culturally, the Chinese are rightly reticent to express any antigovernmental sentiment, for good reason. Let's remember that the Chinese people have been occupied and oppressed by the Chinese Communist Party since the Chinese civil war. I pray for their liberation.
"The US has more COVID deaths than China has had cases."
You really believe that? In that case I'm sure you also believe that no Uyghurs have been harmed as well.
91 percent of Chinese people have absolutely no say in their government based on statistics of membership in the CCP. Nobody is saying they are inept drones but they certainly get disappeared if they protest their government.
> I think the US (and Canada) just needs to ride the tide and let all the other boats sink.
Look at USD FX rates. The US may be able to purchase resources and goods abroad at more favorable exchange, but who can afford to buy US exports as the USD rockets skyward? And what is the logical follow-on to unobtainable USD units of trade? Substitutes that China, for example, are more than delighted to support if it means they exert (even) more control over the global monetary system.
FX rates are like racing logic. It might be better to be behind for a while (weaker currency) because that could have long term advantages like moving industry to your country. But you want to be in first place.
The USD is strong because people need to buy things from the US to begin with. That is, at best, a "nobody goes there it's too popular" kind of comment. The idea that you weaken your currency to increase exports is something you do to benefit from growth, like moving industry to China. But if something like an energy shortage or a fertilizer shortage start limiting your ability to produce things with that opportunity, you're just doubled down on a bad situation.
This isn't even a story on "reserve currency" status. This is just the US (and Canada) being in an incredible competitive situation. What do you do when there's a global food shortage and the US is the only country unhindered? You suck it up, buy those stupidly expensive US dollars, and import US food. And get screwed if you owe USD denominated debts while your currency goes down.
And if the US finds it's not at the right level, it can always just... spend more money. It's basically free. Everyone's getting hit with inflation because it's genuinely harder to make and ship things. Slapping on some excess money sloshing around to try and keep things going is dangerous.
That's why petrodollar is part of heated conversations around the world.
You do this enough and your allies become collateral damage, the system begs for a change. Rest of the world starts to only base their trades in gold (or some other standard) and when faced with USD debt, change the debt amount through policy. US has to keep their (future) allies afloat either openly or with hidden support.
All the trinkets that could be offshored were done already. What the US manufactures now is high-end (chips) or protected by tariffs (cars). A lot of virtual stuff like software and call centers. I think we've hollowed out so much there isn't really much left to offshore.
(I highly recommend Perun's channel for analysis of the Ukraine war)
Also, it's a bit hard to take seriously someone that says "so no jets, no F-35, no battleships". Sure it's a throwaway line but it seems like someone trying to communicate something serious wouldn't refer to literal battleships, which nobody in the world uses anymore. It's not something that Perun would say.
I used to work in the Pentagon, and while we never took Zeihan's talks without a grain of salt, directionally he tends to be very accurate. Nations like China which lack a culture of immigration have extremely predictable demographic booms and busts, and Zeihan is spot on with those. He also hits on the reality of how dependent most nations, especially China, are on imports that pass through oceanic shipping lanes they have no ability to control or secure without the US Navy.
To be fair the us navy hasn't completely detached in the way that he expects... Yet. Shipping harassment hasn't appreciably gone up... Yet. It's also possible that cargo ships will arm themselves against pirates, which will increase the cost of shipping but maybe not as much as the most dire predictions.
I suspect the point of "oceanic shipping lanes they have no ability to control or secure without the US Navy" is "shipping lanes they cannot secure FROM the US Navy".
There is no way for a cargo ship to arm itself against submarines.
I think the outcome of the US navy torpedoing civilian ships of a national adversary is highly unlikely, unless 1) we were actually at war with them or 2) they are doing something generally accepted to be illegal -- like Chinese fishing boats turning off transponders and fishing in us territory. or 3) sanctions running
The only way I see the landscape changing meaningfully in the direction you suggest (cargo ships going up against seafarers they are not able to defend themselves from) is if letters of marque were reinstated. At least one proposal has been floated -- and when we all stop laughing about it I grant that it might become a thing
Given today's low cargo crew counts, it isn't crazy to think about the calculus of sinking cargo ships vs fighting an actual war, in order to prove ones seriousness.
If the nations involved want it to be one, sure. There have been incidents of militaries shooting down passenger jets, which were all but swept under the rug.
@throwawaymaths basically answered the question how I would. Also, just to clarify my use of "swept under the rug", my implication is that when it's not politically convenient for the parties to make a big deal out of an incident, they simply choose not to use it as a media prop to push their agenda.
There's a list here that would be a reasonable starting point for any further digging you might wish to do:
Korean air lines flight over Russia, us shooting down Iranian jet in the gulf, Russia shooting down Malaysian air over Ukraine, Iran shooting down a Ukrainian jet over itself.
I presume gp means Not swept under the rug in terms of information suppression, swept under the rug in terms of very little diplomatic fallout
I'm a fan but he does get a little too blinded by America patriotism. His predictions about other countries start getting too comically apocalyptic to be taken seriously at times.
Well he does get credence for predicting invasion of Ukraine (which was also thought to be comically apocalyptic). Twice. He's been remarkably consistent in calling bad times for china and it's certainly gotten worse over there in the last year.
I think there are a few other things that have lined up, like Sri Lanka collapse being a bellwether for his forecasts.
After I got turned on to Petar Zeihan the first thing I did was went back and watched his older talks, after all plenty of people can make good sounding predictions, first you want to see what he was saying before to see his track record.
I found a talk form 2018 in which he said there are going to be 3 major bush wars of global import, Ukraine-Russia, Iran-Saudi Arabia, and China-Indian Ocean. So far Ukraine has panned out, he also predicted where the political parties are going right now in the US and why they seem so out of whack.
“While ever-shifting economic, political, and military pressure pries the Ukrainian state apart, the Russians will begin ... Once those areas are pacified the Russians will return to Ukraine, “rescuing” those in the Russified east and…”
I also predicted the invasion of Ukraine. So did the US intelligence service last summer. So did the state department when trump was trying to extort zelensky over military aid for a hunter Biden investigation. Not a hard prediction to make at all after no one gave a shit about crimea, especially given putins longstanding goal of Soviet reunification.
Pretty much. I think he's too eager to write off certain things to paint a wholly American picture, but he's generally got it right. The China story is not as clear. But the Europe picture is pretty plain. America is gonna eat it's lunch.
Europe missed the train and train doesn't reverse when missing the station..
Energy and infrastructure are the venes of Europe which clocked and overstretched to the max. Something will need to give and it already begins by small bakeries closing and more to follow..
It wont end well. I don't believe we will have any growth in Europe for the next 3 years.
Who is going to invest in Europe if energy is literally unpredictable and expensive?
Are people blaming environmentalists for attacking nuclear energy all these years? France stuck to it, but Germany seems to have bowed to pressure. The lesson is always to dismiss idealists and ideologues in politics.
Yeah, bakeries are energy intensive. Methane generation from sewage would be one way to (relatively quickly^) replace some of the natural gas that was coming from Russia. And as a side benefit fertilizer could be produced from the same sewage.
^ even so it would probably take a couple of years to get methane generation going at scale.
Unless those bakeries can deliver baked goods at similar cost to bakeries using modern energy sources, the problem still stands of the populace having a downward shift in consumption and expectations of their quality of life , which typically has political ramifications.
Wouldn't that be great? America can't seem to function without a bogeyman. The world would be so much a better place if the bogeyman was a democracy like India instead of China or Russia. Shift that Overton window!
The post you're replying to mentions huge youth unemployment in China, doesn't Zeihan think China will collapse because there won't be enough workers? I was considering reading Zeihan's recent book but he comes off as kind of a fraud.
Europe has plenty of energy. They sit on huge gas reserves, for instance, but have decided to effectively ban using them by banning fracking while still being extremely dependent on gas. And not only that but most of gas imports came from a geostrategic adversary...
This is all self-inflicted. You can't prevent people and countries from shooting themselves in the foot.
Netherlands stopped fracking because their population density is too high to just sweep the environmental damaged caused by fracking under the rug, the only thing that is self inflicted are the now unavoidable earthquakes in the Netherlands.
Same amount of food yes. But if a mathematician was just sitting on the sidelines before this new field, they may decide it is more productive to trade time they spent on preparing food for more time to spend on math.
I don't think that's particularly relevant here. We're going to see jobs open up in the US (and Canada) because even with higher labor costs, the strong dollar and available energy will make it easy to purchase goods and build things here. They won't be novel jobs so much as leveraging an absolute economic advantage against every pretty much every other nation on earth to steal jobs from other countries.
But I guess to answer the question, jobs, especially at the bottom are "enabled" more than anything. We want people to do simple tasks, but tech advancements make it efficient enough to actually pay people to do it. Like rideshare drivers, ignoring valid claims about vc money burning. Some new types of jobs might be created or discovered but most jobs changes are about determining whether its viable to pay something to do something you want to do. The idea to have them do it has always been there.
And while we're at it, if a tree falls in a forest with nobody around to hear, does it make a sound? I don't think there's any difference of facts to debate around created or discovered, just semantics.
The fields are macroeconomics and labor economics. I don't understand your other question, so it's hard to answer. What do you mean by "discovered"? Discovered by whom, the employer or the the employee?
But you may be interested in knowing that models of labor markets are often based on matching models - you've got two groups (employers, employees) and everyobdy is trying to find {one,many} members of the other group that are a good match.
> The fields are macroeconomics and labor economics
As I understand it, those are mainly concerned with reduction in labor costs.
Job discovery is a phrase used by Clayton Christensen to describe finding a job to be done. He uses it to describe finding a product to sell to people to perform some function in their lives - a job to be done by a product that you make. I'm using it as an alternative to the idea of "job creation" because I don't think that's real.
There is a certain political narrative about job creation and job creators. I tried to find support for it in academia and I could not.
I didn't want to put all this in my original question because then I would only get political replies.
---
About politics - Yes my question has some political motivation, but I am genuinely interested in the subject. My motivation is not to prove or disprove, but to learn. You don't have to believe that about me, but I do.
> As I understand it, those are mainly concerned with reduction in labor costs.
Where does your understanding derive from? Reducing macroeconomics to "reducing labor costs" is akin to reducing classical mechanics to "computing projectile trajectories". I don't know Christensen but I take it that he's a business school professor and I guess that was the target audience he was speaking to there.
You're not wrong that economics is a discipline that is not free from ideological biases, but I guess you're going a bit far in reducing the discipline to that. People still want to answer questions with data, like "what happens to unemployment (and exchange rates, and investment,...) if we raise interest rates?". Labor economics might ask more narrow questions like "what happens if we raise the minimum wage?". That's the sort of questions that economics deals with, not musing over the semantics of creation vs discovery.
Saying that jobs are "discovered" instead of created is akin to saying that code is discovered instead of created. When you program you create code, there are many ways to structure it so the code will look vastly different, therefore it doesn't make sense to say that the code was discovered, it was definitely created.
Jobs are the same, when you create an organization there are countless ways to structure it and you will create different jobs depending on how you do things. Job creators are the people who create organizations, the better they do their job the more these organizations can do with less people so the more wealth there will be to share, so job creation is an extremely important job.
Did Zuckerberg discover all the jobs that Facebook has? I think it’s a bit silly to frame it that way. I’m not going to say he created them either though, but he definitely contributed to the creation of all those jobs.
Your understanding of what economics is interested in is also incorrect. I guess business programs are concerned with reduction of labor costs. Economics is concerned with efficiently allocating scarce resources.
Christensen isn't distinguishing creation from discovery, he's just using a buzzy term to describe his version of the same basic idea: increasing demand for labor and goods.
Neither does no planning and complete decentralization (no national industrial policy, no trade barriers, letting important supply chains move out of your control or even into the borders of your adversaries).
Many of the most successful free market economies embody the concept of "was born on third base and thinks he hit a triple."
The United States and Canada had relatively easy access to territorial expansion, which offered them huge amounts of fertile, temperate land and almost any natural resource needed. They also started with a high-immigrant and relatively educated population.
South Korea got to build their economy late enough to be relatively unburdened by legacy costs. They also had a Western world more than willing to ignore a series of presidents-for-life, domestic crackdowns, and incestuous government-industry relationships as long as they kept Kim Il-Sung up in the attic.
Even Singapore had the advantage of being ideally located for trade purposes.
With those benefits, was the free market necessary to unlock their success?
Conversely, if you dropped (say) the American Founders in 1917 Moscow or 1948 Peking, would they do any better?
Russia has even more natural resources. Doesn't seem to help.
> if you dropped (say) the American Founders in 1917 Moscow or 1948 Peking, would they do any better?
Absolutely. See Hong Kong, Japan & Germany after WW2, Chile does better when they go free market, does worse when they veer back left, etc. South American countries have vast resources, but little prosperity.
US immigration consisted of people in abject poverty, who arrived illiterate with nothing but a suitcase.
Re South America: Guatemala had incredible, almost miraculous success when Jacobo Árbenz did his landmark land reforms. The idea was simple: (1) unused land over X ha was expropriated (and the owners compensated), and distributed to previously landless peasants, and (2) credit lines were made available for those peasants to buy farm equipment, do renovations, etc.
The success was astounding. We're talking child mortality being halved and poverty rates dropping off a cliff, in only a few years. Of course, US businesses did not like it very much and US imperialism shut it down in violent fashion, and Guatemala has been an unstable and violent place ever since, with a long string of brutal dictators.
What is "funny" in a deeply grim and sad sense is that this was at once socialism (i.e. means of production to the people who work, rather than a separation between those who work and those who own), but also very much the American Dream: a plot of land which was your own, for you to work, and where you own the fruits of your labour. You, not a king, not a robber baron, you. That's why the violent stampdown by the US is especially disgusting and hypocritical.
As for Chile, it had a democratically elected left-wing government. Even if Pinochet's economic policy turned out better (which it by most measures did not), NOTHING can justify a violent operation to overthrow that government, to the tune of tens of thousands of tortures and deaths, to implant one that pursues your favoured brand of economics.
> Mining a bunch of copper, helping your cronies get rich, and pumping up land prices is not a "miracle".
And that's from an ideologically aligned source.
> This record is less bad than Allende’s, but it’s far from what I’d call good, and it’s certainly nothing that anyone should call an economic “miracle”.
But Russia has very limited access to viable shipping lanes and huge geographic barriers to shipping things overland. Why do you think Crimea is of such importance to Russia?
Lovely to hear this kind of thing on HN :) The free market looks like 'chaos' because it has millions of people making economic prioritisation decisions, as opposed to a control economy with few people. Millions of people making prioritising inputs vs a few, leads to a far more effectively prioritised economy, surely. And the proof is in the pudding!
Sometimes I think I'm the only person on HN who writes anything positive about free markets, which are the source of the great wealth in the United States and some other countries.
I really don't understand the romance with leftism, where the historical record of its implementations is pretty miserable.
It's never worth discussing political economy with die-hard free market types, because the they claim the US is a free market when it suits them, then deny it's a free market (calling it "crony capitalism", for example) if you point out legitimate flaws in the economic system.
Not to mention, the notion that the US was a free market at any point in its history is unequivocally false, and anyone who thinks a system that observes slavery qualifies as a free market should be embarrassed.
The US was never a 100% free market. But it was pretty close, and the beauty of a free market is the closer it is, the better it works.
> anyone who thinks a system that observes slavery qualifies as a free market should be embarrassed.
I usually say "excluding the slave south". Nevertheless, let's compare the slave south with the free north. The free north economically buried the slave south, which was a major cause of the southern rebellion. They wanted to protect their economy from the depredations of free labor.
The south lost the war because the north buried them with arms and supplies and trains and everything needed in plentiful supply to destroy the southern barefoot armies.
A similar thing happened in both WW1 and WW2. The American free market decided the fate of Germany and Japan the day the US entered the war, because Germany and Japan simply were overwhelmed. The US supplied not only themselves, but supplied Britain, France, and Russia, and still buried Japan with overwhelming endless supplies of everything the military wanted.
The Japanese understood this (Hitler didn't), and tried to win WW2 with one stroke (Pearl Harbor). When that failed, they put everything on the line at Midway. The carriers were sunk, their best pilots were killed, the planes were lost, and Japan could not replace them, and everything went downhill for them from there. The US lost carriers and airplanes and just built lots more.
Hitler lost WW2 the day he declared war on the US, in probably the stupidest military move in history. You can't win against a free market country unless yours is free market, too.
You can low price tickets for Hamilton now. It's a great show and has some interesting bits Hamilton's contribution to, as fictional James Madison put it "nothing less than government control".
Well, the part of the China's economy that works isn't centrally planned.
They do seem to have a very planned part (looks like so from the other side of the world), that isn't internationally competitive. But simply claiming that their economy is planned is clearly wrong.
The specific failure modes we keep seeing are 1) having a country run by an autocrat who does not listen to advice, and ruthlessly stifles all dissent; and 2) using measures as targets.
Continued unabated fossils use indeed is sinking the other boats to get ahead short term, but hopefully enough people will disagree to get some less cynical climate cognizant energy policy going there.
Land is generally not very valuable by itself, it is locations that are valuable (specifically desirable locations in growing cities). There are highly limited locations available in Canadian cities, particularly the desirable cities of Toronto and Vancouver.
Same with the Bay Area, NYC, Hong Kong, Singapore, Sydney, Auckland etc. Singapore does probably the best job of the above at keeping housing relatively affordable despite very limited locations.
What effect will that have? If some Canadians go underwater on mortgages, won’t others who were priced out be able to afford now? I guess some will lose jobs but what’s the big downside from a country perspective with having cheaper housing? Or are you concerned about immediate effects?
It's not only about being underwater on mortgages, but having your morgtage payment double (and maybe tripling soon...). Reddit is full of panicking homeowners who are starting to straggle with payments. This will have a wide effect on the whole economy because any discretionary spending will evaporate.
No, the US is the outlier with the 30 year fixed rates. Canada not only has variable rate mortgages, but instead of the rate just adjusting, they essentially have 5 year mortgages, with a balloon payment at the end. If you can't roll it over into a new load (say because your debt to income is now too high), you're screwed.
Wow - this is mind boggling. Also..kind of scary? I guess any big financial decision is scary but I didn't know that was America exclusive. Do you know if European countries have fixed rates or does it go up ever 5 years or so
supposedly about a 1/3 of mortgages are variable in Canada. But more importantly, fixed mortgages are almost all 5 year terms (or less). That is, every 5 years you have to renew your rate (even though the mortgage amount is for 25 years). That means every year, about 20% of homeowners are updating to the current fixed rate (assuming an random distribution of purchase date). Perhaps a big chunk renewed early in 2020, but by 2025/2026 all mortgaged homeowners will have a new higher rate.
Canadian mortgages have separate amortization periods (say 20 or 25 years for example) and interest rate terms (generally 1-5 years, after which the rate has to be renegotiated -- and you have the option of transferring the mortgage to another lender at that time).
You can also let your rate float with the market, which is called a variable rate mortgage.
> Do you know why mortgages in Canada are so different from the US?
The U.S. has been heavily subsiding mortgages since the great Depression, through programs such as FHA. Banks would not be willing to loan people money at such low rates over 30 years unless the government and taxpayers backed the loan.
The USG massively subsidizes home ownership. The burden is passed down to taxpayers, but also may cause a drag on the global economy due to lopsided interest rate hedging.
Nobody but the United States has long-term fixed rate mortgages: they're horrible for lenders because the lender has to assume all interest rate risk. The reason they exist in the US is because the government acts as a backstop due to pro-homeownership politics, but it causes a bunch of market distortions that are made invisible to American borrowers.
30 year fixed-rate is very much the norm here in Denmark. There was a period of experimentation leading up to 2007, but I think fixed rate is very popular. I'm certainly happy that's what we went for when we bought our first house two years ago.
Because it's more profitable for the lenders, and Canada's government is happy to bend over backwards to make old-boys-club-businesses like banks and telecoms comfortable.
IMO the best option for Canadian real estate is for prices to remain stagnant for a long time, allowing wages to catch up, and decouple the idea of your primary residence as being a good retirement plan.
Re: lowering interest rates, China has the largest foreign currency reserves in the world at over 3 trillion USD. So where most sovereign currency issuers can’t print money without reducing the value of their currency - or increasing interest rates to compensate - China can defend the value of their currency by purchasing with it foreign reserves.
I’m not an economist so I can’t tell you how far they can go with this. But they have an atypical margin for error correction re: interest rates / money creation.
This article appears to take place in a universe where interest rates at central banks are at counter-inflationary levels. They've been inflationary for a decade, and continue to be so.
With inflation at 10%, fears about "going too far with interest rates" make sense only *at least* north of 5%, and realistically, 8%.
It also takes place in a universe where policy making ended in 2022. Fiscal contraction is happening because we just recovered from historic fiscal expansion due to the pandemic. Contraction will continue so long as growth continues. If we slide into recession and inflationary pressure ebbs, we'll just reverse course again.
Honestly, I know cynicism and despondency are in vogue right now but the last 20 years have shown global policy makers are doing an absolutely outstanding job. Fiat currency and Keynesian orthodoxy have been vindicated at every turn. Obviously not everything has gone perfect but considering the amount of disasters faced, we've suffered far less than in the past.
Besides tanking all asset prices initially - that actually could pave the way for more inflation.
US federal debt is 30 trillion dollars. If the federal government had to pay 10% interest on its debt, it’d require almost all of federal spending be paid on our debt.
Of course that’d never happen. Instead they’d just borrow more to pay the interest, which means more dollars would be minted and we’d print several trillion dollars a year in unwanted stimulus each year just paying our federal debt. (Or enter a debt crisis.)
How about you introduce a negative interest rate on cash and then mandate an actual debt ceiling like a reasonable person instead of continuing this pyramid scheme.
Macroeconomics novice here. What's the argument that interest rates need to be close to inflation rates to counteract it?
It seems like there should be an intrinsic time-value of money (e.g. 1 stuff today is worth 1.05 stuff next year) which is tradable (supply of future-stuff will equal demand for future-stuff at some rate like 1.05). And that single rate of stuff-interest would exist if the central bank does nothing. If that's true, then in a long-run equilibrium, shouldn't there be zero inflation if the interest rate in dollars (i.e. the fed rate) matches that intrinsic rate of stuff-interest?
Any explanation or links to the same would be helpful! I'm just past the point of grasping the fact that interest rates going down causes inflation to go up, but finding it hard to find sources on anything that give me intuition on answering e.g. how much things would go up if you held one policy forever, and what factors that answer would depend on.
Interest rates are risk free premiums. If inflation is less than them they are profitable this people move their capital into “risk free assets” like bonds, loans etc that are based on that rate. If the risk free rate is less than the inflation rate then people move their cash into higher risk assets like stocks otherwise they lose out to inflation in the long run. This is said to kick start the economy etc.
The mechanism of higher rates reducing inflation isn't clear to me.
Does it go down because people with cash choose to park it and earn interest instead of buying goods and services? Or does it go down because higher interest rates make the cost of doing business more expensive which leads to reduction in overall business activity?
If it's by reducing business activity, then seems like the "breaking point" can be at any arbitrary interest rate for a given country in a given year.
Also, if inflation is caused by the lack of supply (like the supply chain issues / chip shortage and such), then I think reducing business activity will only exacerbate the problem by reducing the supply further (and I don't hear anyone explore this angle).
The economy is always deflationary because the way we create money also creates an obligation to return and destroy money so given enough time, the money supply trends towards zero no matter what you do. A higher interest rate makes it less appealing to take on a loan, which means repayment outweighs new loans which results in a net reduction in the money supply. Here is the dirty secret, you could have done the same thing by limiting reserves and increasing the reserve requirements without raising the interest rate. This is a long term effect that you can in theory do forever until your economy suffers from deflation and actually needs lower interest rates, possibly negative, to shrink the money supply.
Another reason is that a high enough interest rate makes people sell their risky assets and hold more money until the risk adjusted return on money and risky investments is the same. The latter is a short term effect that actually goes away eventually as paying a 70% interest rate makes the debt problem worse and necessitates even more debt just to pay the ridiculous interest rate.
You can't increase supply by lowering rates if there is a real shortage of inputs, as caused by Covid. Printing money (lowering rates) only helps if there is potential capacity (idle people and resources, and cash-poor-demand) that need a jump start to find each other and "combust" to create value.
The https://en.wikipedia.org/wiki/Real_interest_rate is defined as the nominal interest rate minus inflation. So with your numbers, nominal rates would have to go a lot higher than you suggest to result in positive real rates.
Why 8? Doesn’t there need to be a premium for borrowing money? If i can borrow money at zero percent inflation adjusted rate, that is a great deal and still inflationary. I would say 12 percent would be neutral on 10 percent inflation.
You are conflating backward-looking inflation (money has gotten 10 percent less valuable over the past year) with forward-looking inflation (we should lend at 12 percent interest because we expect money to get 10 percent less valuable over the next year). The former doesn't guarantee the latter; the latter is unlikely and gets unlikelier the more interest rates ratchet upward. That's why they are incremented - at a certain point inflation will inevitably reverse, and that point is likely below 12%, so going to 12% would unnecessarily knife the economy.
No, there doesn't need to be a premium on borrowing money. Why would there need to be a premium?
If I can invest in businesses with 0% return and make a profit, that's generally good for short-term economic growth, and bad for long-term economic efficiency.
I'm not arguing for more or less interest, but I don't think there is a "natural." Interest rates have gone negative several times in several contexts, and the universe didn't explode in a numerical singularity. I am arguing for having reason beyond "we've always done it that way" or "it doesn't make sense."
Of course there needs to be a premium to lend money.
Why would I lend someone money to get the same amount back (in real terms)? You'd need at least some premium to account for risk of non-payment, changes in inflation, etc.
There doesn't need to be a consistent premium to borrowing money. So if I borrow $1M for 30 years right now the interest rate doesn't have to be 10% because most people assume inflation will come down, so the average inflation over 3 years might be 3-4%, so an interest rate of 5-6% is probably enough of a premium.
This is correct. If you have $100B, what are your options?
1) Risky return-yielding instruments, like stocks and bonds
2) Non-liquid assets, like land
3) A Scrooge McDuck giant vault full of cash
4) ... and so on.
In many cases, a negative interest account works better than any of the above.
Sweden was the first to employ them in 2009, with an interest rate of -0.25%. The world didn't implode, as people predicted. If I deposit $100B overnight at -0.25%, I've lost just north of half a million dollars for that night. That's enough to push me to look for other places to stash my money (stimulating the economy), but not enough to break me (assuming I have $100B, which unfortunately, I don't).
Critically, if the economy is collapsing, and you expect stocks to go down, removing other places to stash money can prop them up.
If I borrow $1M in USD to buy a 11M SEK property in Sweden, and the dollar goes up, I'm drowning underwater. If the dollar goes down, I'm sitting pretty.
People also forget that banks are only FDIC insured up to a certain amount, generally. So if you have like $1b, though unlikely, there are many reasons to not keep it in cash.
People also forget that the negative interest rates are with central banks. They're not FDIC-insured because if they go under, that means the FDIC (together with the rest of the country) is gone.
Yeah. But without getting value through some mechanism like that (or, imagine if you're convinced that equities will be flat or return negative over the next few years) you're correct - you should make money from lending money.
When interest rates are negative it's inherently inflationary. It won't destroy the universe but it encourages people and businesses to borrow to get additional resources (the deteriorating economic conditions right now make that a very bad idea, but in general this is true)
>When interest rates are negative it's inherently inflationary.
Is this supposed to be some kind of joke? When you have 3% deflation then a -3% negative rate just sets real returns back to 0% like one would expect in a functioning market.
Also, a negative interest rate on cash allows the abolishment of inflation as central banks no longer need to target a positive inflation rate and can instead do price level targeting which is the complete destruction of the concept of inflation itself.
Lower interest payments mean most of the payments go towards the principal which means the money supply shrinks given a sufficient debt brake on government spending.
Negative rates allow 100% reserve requirements to function and mitigate almost all the problems with the loanable funds model which means the central bank doesn't have to control the interest rate anymore.
If anything it is the opposite, if interest rates exceed returns in the real economy, the government has to borrow and spend to stimulate the economy until there is enough inflation to pay the interest rates expected of it.
The idea is that you are TRYING to drive inflation down. You can borrow at 8%, and that's great when inflation is at like 10-12%, but once inflation goes down (the goal of high rates) it's bad.
We've had many years of 0% rates and 2%ish inflation. A return to that status quo ante isn't exactly crushingly tight monetary policy. But perhaps inflation will fall before we hit 8%.
Inflation is 8% right now, not 10%. So 6% seems to be a good "target" - but many economists in the US are thinking that inflation will not stay at 8% (that is the hope...) so they are aiming for a rate that reflects a 5.5-6.5% inflation rate over 2023 - which is from anywhere from 3.75% (I think at this point this is too low) to 4.75% (higher than expected). This makes a lot of sense to me and I think we'll see around a 4.5%-4.75% target rate by the end of 2023.
Inflation was 8% averaged over the past year. Right now, the calculation is much more complicated and we observed nearly net zero price change of the basket over the past two months.
I was being conservative to give the author some room to make the argument. If rates are 8%, I can see this article at least being justified in its concern.
Here's the lesson I want people to learn: we had 40+ years of stagnant real wages (overall; there are exceptions). What happened in the pandemic was:
1. People realized going into an officce to work was unncessary and even anachronistic for many jobs;
2. Employers like employees in the office as a form of control;
3. Employers made short-term decisions to lay off huge amounts of people (even after taking PPP loans for the purpose of preventing this);
4. After 1-2 years of suppressed demand, companies weren't equipped for the increased demand and couldn't hire back their staff at the same rate;
5. As always, there are no labor shortages, only under-market wages;
6. The pandemic created a situation where a lot of people could (and did) get their first real increase in wages in decades.
7. Much of those real wages have been eroded by inflation.
Take all this together and you realize that policymarkers consider labor movements an existential threat to profits. Suddenly it's increased wages that are responsible for inflation.
And then you have ideas (as in this post) where the only way of reining in inflation is by increasing borrowing costs, which hurts a lot of individual borrowers.
Why isn't corporate taxation being used to control the money supply? It would have the same net effect except that it would fund the government rather than lenders. Several countries have imposed windfall profits taxes.
We saw this last week with the averted rail strike. Those workers could face consequences for taking off unpaid sick days for themselves or their family. To give them all 15 paid sick days a year would cost 3.5% of the industry's profits (~$680m/year IIRC for 125,000 workers). Not revenue. Profits.
This system wants to keep you in debt, low-paid (just sufficient to service your debt) and have limited other options. Then you'll show up to work and not make trouble by asking for raises.
That underpins all the policy decisions around inflation, interest rates and the looming recession.
I will admit that to me this pandemic was eye opening in several different ways. One thing that surprised me is how lazy both management and propaganda machine in US is these days. They ( management ) have gotten so used to the idea that all they have to do is to hint at layoffs and people will immediately be motivated to do the work that they forgot how to do anything else ( the phrase I heard used to describe the situation was "I had to throw away my toolkit for WFH" ). As a result, WFH exposed management class as clearly coasting for the past few decades in terms of motivation skills alone.
But as bad as management is, having watched OWS downfall, I did not expect propaganda effort for fighting WFH to be so downright awful. I still remember the initial batch of articles claiming commuting to work is my zen time. It felt so ridiculously bad that even people, who would normally accept any advertisement at face value kinda asked:"The fuck?" since it is so at odds with their daily experience.
And now policy makers are openly discussing saying "Lets crash the economy so that companies can keep their leverage." I was always mildly cynical, but I found it ridiculously sad that "We are in this together." slogan is just a slogan the moment the sacrifice has to be shared by the ruling classes.
And as always, the sacrifice hits the poor the most.
I think the only reasonable objection here is whether individuals listed below could be considered policy makers, but the pattern seems relatively clear to me. Note that economy is weirdly connected to how a person feels. Just hearing that recession is just around the corner could potentially set it off ( not completely unlike say.. shortage after hearing something is about to be no longer accessible or run on a bank after finding out it is about to under ). And not surprisingly, the same decision process also applies to CEOs[9].Edit: And of course, it helps when all the platforms sing the same song nearly in concert.
Snippets indicating thought process from various government officials and their assorted influencers can be found with basic google search[1]("Some commentators argue that the US needs a recession to bring inflation down.") Those tend not to be some random bloggers with an idea, but rather a person with agenda in mind sometimes sending trial balloons into ether. Now those commentaries are much more careful now after initial outcry of some poorly chosen words, but Bloomberg in April[7] reported that "Labor demand is poised to ease, which will help the Federal Reserve tame inflation with less risk of triggering a recession." ( see also: "The Fed view is that when there's too much of an imbalance between labor demand and supply, you get a dysfunctional market with too much turnover and pay increases that lead to a unacceptable level of inflation.")
If you follow Powell's original comments that raise all that recent ire, you could see how those could be easily construed as "Lets crash the economy" ( "There’s too much demand. For example, in the labor market, there’s more demand for workers than there are people to take the jobs, right now, by a substantial margin. And, because of that, wages are moving up at levels that are unsustainably high and not consistent with low inflation. And so what we need to do is we need to get demand down, give supply a chance to recover and get those to align.")
Note that the May 2022 interview[8] comments are much softer as a result of pushback to some of the previous comments ( "And we need to get back to 2% inflation, that’s the main thing. The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will." || "I will also say that the process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like. " ||
"Ryssdal: What keeps you up more at night: the prospect of inflation sticking around? Or the idea that you’re going to cause a recession?
Powell: Well, look, I think it’s a very challenging environment to make monetary policy. And we certainly, our goal, of course, is to get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong." ||
"The main lesson is we must do whatever, you know, what we need to do to get inflation back to 2%. And we have the tools to do that. And we will."
Naturally, with few exceptions, few current officials ( say from FED or current Biden administration ) will put themselves on record by saying something like this, but former officials[4] have some reasons to do it regardless ("“Almost certainly there will be a full-blown recession. If we’re not in one yet, I think we will be in the next 12 months,” Dudley, the former president of the New York Federal Reserve, told CNN in a phone interview.").
Separately, sometimes for their own reasons, various executives from private sectors feel the need to weigh in [5]( Stephen Ross in June predicted that “employees will recognize as we go into a recession, or as things get a little tighter, that you have to do what it takes to keep your job and to earn a living.” Later that month, Intuit CEO Sasan Goodarzi told MarketWatch that “the power is shifting to employers,” and as “people move from hiring to now cutting jobs, and a possible recession, you might see more of a move back to work.”) on future recession and its impact on WFH.
And just to add a little spice to this, I wanted to add my favorite relatively recent opinion piece[10], where author gleefully notes tech jobs will finally stop being cushy ("The chief executives of Meta Platforms Inc. META, +1.18% and Alphabet Inc.’s GOOGL, +0.26% GOOG, +0.21% Google have warned employees of tough times ahead — with Mark Zuckerberg telling employees on the last day of the second quarter that the company faced one of the “worst downturns that we’ve seen in recent history” —and Microsoft Corp. MSFT, -0.09% is slowing hiring in some groups and eliminating a few jobs. Even the world’s most valuable company, Apple Inc., AAPL, +2.51% reportedly plans to scale back hiring and spending, after profligate spender Amazon.com Inc. AMZN, +0.91% signaled cutbacks earlier this year.")
We can then move to state officials, who stand to gain/lose from RTO/WFH. For example, NY Adams governor[6] ( "Adams has in recent weeks mounted a major advocacy push for private businesses in the city to order their employees back to their offices, arguing that the economy at large is hampered by telework policies popularized during the pandemic" || “I’m trying to fill up office buildings, and I’m telling JPMorgan, Goldman Sachs, I’m telling all of them, ‘Listen, I need your people back into office so we can build the ecosystem.’).
Naturally, after several recorded conversations that indicated that type of thinking, PR campaign began to claim that it was never the case[3]("We're not trying to have a recession, and we don't think we have to,"||"That's what we're trying to achieve and we continue to think there's a path to that. We know that path has clearly narrowed… and it may narrow further.") and FED is actually trying really hard not to say stuff out loud[2] (“They’re trying to slow down the overall economy, and that would include firms’ appetite to hire, without ever saying that out loud,” ).
Perception is reality and it looks to me like more than just policy makers are involved in creating this particular scenario ( recession ). All this while the job market remains stubbornly strong.
> If you follow Powell's original comments that raise all that recent ire, you could see how those could be easily construed as "Lets crash the economy"
Sure, I can see how it can be construed that way. I think a broader reading of what Powell is saying would lead you to "let's bring inflation under control, even though it means crashing the economy". That's quite different from "Lets crash the economy so that companies can keep their leverage."
I think the Powell comments you quote later indicate that he'd prefer to get inflation under control without crashing the economy, if possible.
The comments from business leaders don't impress me. Of course they want businesses to go back to having the leverage.
Corporate taxation is a great tool for managing inflation but our legislature is gridlocked and taxes are not popular. It's a shame because they would be particularly effective right now w/ rate raises.
I think corporate taxation is the only way out of this mess. Tax the profits, take money out of the system. It makes extra sense given that most of this money was injected into the system in 2020 anyways. It's not like it was 'earned' even in the traditional neoliberal capitalist sense. It was an economy-wide bailout and now that it has served its purpose, it's time for the money to return to where it came.
Trying to tackle inflation by suppressing wages is both immoral and silly. How is that a 'free market' solution? It's the equivalent of price controls. I am glad that the Fed has taken that as their position, only because it seems to have made people across the political spectrum realize that there is a real antagonistic relationship between the architects of the system and those living within it.
I agree, but interest rates have to return to a natural level (where risk is priced correctly), and thus reset asset prices (to better reflect their true returns).
<< But shortly after, when all inefficient companies bankrupt,
Eh. It sounds great in theory, but in practice ( including in US, where all the more recent crises shown ) inefficient companies get saved if they are sufficiently connected or 'important' enough to the system writ large.
I am not defending the practice, but I want to point to obvious flaw in the analysis since it diverges from reality somewhat ( I just noticed the inclusion of government involvement ).
The government bails out comparatively few businesses.
While many, myself included, dislike the practice, I don't think it happens on a large enough scale to make a significant impact on the economy at large.
I don't really feel like I know much about this, so someone may point out an obvious way in which I'm wrong, but:
How do you measure the effects of the moral hazard created by the post-housing crisis bailouts circa 2008? Are major financial institutions incentivized to take outsized risks if they're too big to fail? How can we be sure that doesn't "make a significant impact on the economy at large"?
the War economies are related to this phenomenon of massive, inefficient companies getting new contracts and new cash; similar to Old World central contract awards connected to long-term govt cash flows, I believe..
Whenever I see takes on the long term status, I'm reminded of the casino scene in The Big Short. Though it may be good in the long term, the short term can be pretty grim for a lot of people.
> Crisis is good for the economy in the long term.
there is some name for this kind of dismissive optimism, but I do not know it.. suggestions?
I hear this kind of thing from the Cato Institute Human Progress people, who have trillions in paper wealth and the Oil and Gas economy to defend. What could go wrong?
Crisis time needs to be shortened then. Banks should raise rates firmly, reaching levels higher than inflation. Big companies should not be artificially saved from collapsing, and regulations simplified. The unemployment period will be then short.
When big companies collapse people take huge losses, lose the trust in the economy necessary for things to grow, and the economy is hurt for a long time. The bankruptcy of Lehman Brothers almost destroyed the entire financial system, slow-motion collapses like GE and Sears that take decades are vastly preferable
I agree with much of this. If we got the Fed out of the business of propping things up, the downturn would be quick and underperforming assets would change hands and quickly be productively redeployed. Instead, Fed in partnership with government will prop this up and protect the incumbents/existing winners.
> If we got the Fed out of the business of propping things up, the downturn would be quick and underperforming assets would change hands and quickly be productively redeployed
Interesting belief. Things like the Long Depression challenge it, though.
>The risk is that it will be excessively contractionary and will trigger a worldwide recession
>Those who advocate a tightening of fiscal and monetary policy in the name of stopping inflation, do so because they fear a build up of inflationary momentum. That risk may be real. No less real, however, are the costs of the contractionary policy mix being applied now.
My intuition on the problem is that no matter where we fall along the spectrum once it lands, we will have both unacceptably high inflation (which we've already had) and an unacceptably large recession. Don't know which one will hurt more yet.
Month to month inflation has been flat or near flat for some months now. It’s seems like we had a price spike in December/Jan for various reasons and now things have stabilized.
If trend continues it seems we should be back in normal yoy inflation rates shortly once we start comparing against that post spike floor
> Month to month inflation has been flat or near flat for some months now
Inflation compounds and we've been at relatively high inflation for a while now. Of course the Biden admin will want to just normalize this sustained inflation.
People are effectively getting around a month of salary stolen from them. Transaction cost of a new job hurts most people & depresses wage growth (the obvious side-effect of monetary expansionism).
It's fair to say that we won't experience deflation since no central bank will allow that. And our high debt load prevents raising interest rates anywhere near the necessary amount, if you compare it to Volcker. The only responses they seem to have, in practice, are: print tons of money or print slightly less than that.
We're trapped in a debt spiral and my guess is that the world suffers enormously from central planning (artificially low interest rates in the modern era in order to finance government disasters) and the US suffers less than everyone else because of their global hegemony (reserve status), economy & geography.
Nothing against you in particular, but all the "inflation complainers" were using CPI (not core-CPI) back in January/February to talk about Fed inaction. Now that we're 9 months later, with the Fed hiking rates, suddenly those _SAME PEOPLE_ are now complaining that the Fed rates are hiking too much.
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That being said, I agree with you. Core-CPI exists for a reason, and its a better measure of long-term trends. Oil/food prices change dramatically, while they're important real world measures of cost of living, they change too quickly to be useful. We should typically ignore oil/food prices and focus on other costs of living to try to glean the longer-term trend.
But what's even worse than using "CPI" or "core-CPI", is when people switch between the two to make a focused political argument, rather than an analysis into the state of the economy. Stay consistent damn it.
Yeah, this isn't just a one-time transient price spike that happened months ago. August fuel prices fell a lot (10.6%), a gift! — but core inflation erased all that progress, with a 0.1% month-to-month rise in the CPI overall. Food's up 0.8% in a month. Rent was up 0.7%. Cars were up 0.8%.
We probably can't rely on fuel prices falling 10% again next month.
The problem with core inflation is that it is a lagging indicator. Rent especially. If a landlord increases the rent on Jan 1 but your contract rolls over on Dec 1 that increase shows up in the December numbers.
And yes gas has already fallen 10% in September. From $4.087 in August to $3.677 today.
The USA is emptying the Strategic Petroleum Reserve at a rate of 1 million barrels per day. Crude is typically extracted from the ground at about 15 million per day by that country.
When the SPR draining is finished (for midterms), upward pressure on energy prices globally will resume.
Don't forget that the Covid stuff finally seems to have settled to some kind of new "normal," and that it's a once-in-a-century event that is going to be very hard to make any comparisons to.
> rumors of the end of the pandemic are greatly exaggerated.
Only if people are stupid enough to repeat the last two years of nonsense. Take away all the fear mongering and testing and you probably wouldn't even notice covid was a thing. You'd get sick like you always do and just shrug it off as "that thing that was going around" like we all did in 2019...
This is the problem of mostly successfully preventing fires or preparing for floods. "It wasn't that bad" because it was handled, but since that was handled by somebody else it's invisible to you
“If we did it right you’ll never even notice we did a thing” also happens to be an excellent way for any sleazy politician or “expert” to deflect any questioning.
It could be but does that happen often? I almost never see sleazy politicians claiming that, it's almost always taking credit for a great economy (that was on a trajectory before they took office) or promising some amazing future thing (that they don't actually do). I can't think of hearing a single "we prepared for this so it wasn't a problem", true or not
Yes how dare the plebs stay home to avoid dying when they should be toiling in the fields and factories so we can continue in the lavish lifestyles to which we've become accustomed.
It is the (#2/#3/#4 depending on study) leading cause of death. We're currently at around ~150K dead/year - about 5 times the average rate of flu, about 3 times a really bad flu year.
It has significantly affected workforce participation, with a large disability burden.
Not that I like it but, I happen to think it's just a new normal as well and if everyone starts behaving as if it's normal then the impact on global economics when compared to a similar period should be rather normal. Continuing lockdowns and other things that impact supply chains/production are examples of behaving like it's not normal. They will likely continue to some degree despite my opinions.
Neither deaths nor disability can be wished away by "just behaving as if it's normal".
As for "continuing lockdowns" - most of the western world hasn't had a single actual lockdown. So let's not pretend that's the issue, or a desired approach to the problem.
What is needed is
- data transparency, instead of reduced data collection.
- targeted measures, instead of blanket measures. Utilizing the above data, and focusing on leading indicators, not trailing ones.
- a medical system that actually makes the tools we have available, as opposed to undermining them and pricing them out of range.
- a focus on ventilation.
- a normalization of mask wearing in public indoor settings.
None of those are close to "lockdowns". That's a strawman nobody is asking for.
Sorry I thought this was an economic conversation, I’m not really debating how best to manage the disease at this stage, but if X deaths a year becomes part of the run rate economics should normalize.
> normalization of mask wearing in public indoor settings.
However, I am curious how this is not normalized now? It’s personal choice where I live and nobody blinks twice if you want to wear it. And my state is full of antimaskers. The issue becomes when you expect other people to wear it and they don’t want to.
Oh, I see and think we’re just mincing words then. I think this is much closer to mandatory, law, requiring, etc than “normalization” which to me just means people don’t look at you weird for doing it. It says nothing about an expectation that they should be doing it too.
For example I could care less about someone wearing a mask if they want. I am not staying home for not wearing a mask. If I’m reading you right, you’d want me to stay home. So, we’re pretty far from any type of social compact and IMO have no hope for getting there given so many more people feel much more extreme about it than myself.
Social compact is an agreement and nobody is agreeing on this. Somehow everyone mostly agrees with pants.
Not to make it a personal attack, but I really find it strange how the “extreme measures” cohort of people on Covid and risks are still at it with this type of stuff. The news cycle on Covid is over. The turmoil is still happening but for most people the disease is not a daily concern anymore. They’ve resumed their lives. Are you still hoping things like mandatory masks become a thing? Do you really believe that’s even tenable? On a global scale? I never viewed that as particularly possible given how much cooperation would be required.
You are right. Forcing “non essential” small businesses to close, stopping all events, closing churches, parks, playgrounds, schools, making it illegal to walk on “the dry part of the sand”, disallowing dying people to have visitors, forcing hospitals to stop taking elective surgery, arresting people sitting on benches,etc… these all just ordinary things… right? Definitely not a “lockdown”, right?
What is a lockdown if that isn’t? And how come those “real lockdown” places still have Covid? Or did they not “lockdown” hard enough either? I’m very confused here.
And as I explained to you above, nobody except you is in any form talking about lockdowns. Put the strawman down already, it's starting to get worn on the edges.
You may define lockdown as that if you wish, but what happened in practice starting in 2019 was extremely disruptive, especially before the vaccines came. Bottom line, it will be hard to draw conclusions from comparing metrics between 2019 or 2020 and any other "normal" year.
Inflation isn't increasing much in August - relatively to July, but July was still high.
That graph needs to go negative (a decrease in the inflation rate each month) for a long time before we get back to something "normal" like 2-3% inflation.
I think you're misreading the chart. My understanding is that 12 months of 0 means a year over year inflation rate of 0, not the same amount of inflation as the year before.
Monetary policy is far from the whole picture here. Global policy makers are dealing with about 25% of the global population being lifted from poverty over the last several decades and their increased consumption and wages are supply-side inflationary in ways not easily (or appropriately) reversed. The impact isn't just economic. Inflation is destabilizing (Venezuela, Argentina, Turkey).
The west invested heavily in manufacturing and resource extraction in the developing world for profit (mostly) and virtue (slightly) and inflation was always the likely outcome.
The only alternative to a global recession is step changes in productivity that relieves supply side pressure. Historically, those advancements can emerge quickly, but they are usually slow to propagate.
Please. China and others who benefited from trade with the West could have chosen not to allow industries to operate in their countries. They prioritized the economic benefits over environmental concerns all on their own, it's not colonialism.
And the argument there is that poor countries being forced to keep their populations in poverty to protect the environment while the West could develop while polluting as much as it wants, is unfair. They can easily argue that the West has a duty to help fund the Global South's clean energy infrastructure. The West deliberately sought out this oursourcing, and benefited from it just as much as China and the South did.
All it takes for a world power to be on its knees is a couple of years of dry and hot weather. It kills agriculture, nuclear and solar power plants, usually also wind ones. A combination of that and covid and war induced logistics disruptions is what is hammering EU now. It is not a single cause but a multitude.
A lot of analysts put excessive weight on interest rate activity. Especially when rates start rising into reasonable territory (closer to the inflation rate), the effect tapers. For example, if the Fed raised rates to 100% tomorrow, it would be almost the same economic effect as if they raised it to 1000%. It would essentially just stop all borrowing in the affected channels and cause banks to reduce lending to the point where they don't find themselves needing to take a reserve loan and pay that rate.
Arthur Hayes did an entertaining write-up of some of the other factors the Fed can use, two of which are either not being leveraged or actively conflicting with the interest rate hikes [0]. We could guess at political motivations for going soft on inflation until the election (while appearing to be hard on inflation) and then really ramping it up (including finally reducing the Fed's balance sheet and ramping up reverse repo sizes) in November when inflation continues, predictably, because the Fed keeps expanding its balance sheet and interest rates are still low (relative to most of its history).
No mention in the article why there is so much reaction from policy makers other than general monetary policy. In my opinion in some countries the politicians are scared shitless of large groups people not being able to pay the bills and actually taking action.
I heard a while back the idea that interest rates are a proxy for stability.
That more stable societies support low interest rates, because in a stable society, money is more likely to be paid back 1, 5, or 10 years from now.
Does the sharp rise of interest rates in the past year indicate that we are existing a period of prolonged stability and entering a period of relative instability?
This is probably a good way to think about it, but it's not a straight scale of 0% good and 100% bad. There's a goldilocks zone in there, things above that are bad for instability, and things below are bad for lack of caution.
The rise is a correction that rates have been artificially low for 5-10 years, because the massive growth with no real risk assessment was addictive. If Fed rates get around 5% or more and they are still hinting at increases that's probably a bad sign for the long term. Short term instability already is happening.
I’m not sure your point contradicts the hypothesis though. Stability is the whole point of macroeconomic policy, and central bankers instituting a high interest rate is absolutely a sign that they believe some instability is coming.
I am a huge fan of Tooze and his books (Wages of Destruction is one of the best works of economic history, probably the best macro history imo, his more recent books are unfortunately terrible...but this is what happens when someone decides to become a celebrity academic) but this is from another reality.
Unfortunately, the decade of continuous monetary intervention has completely addled the mind of usually intelligent people. Their response to everything is always the same: begin stimmy, continue stimmy.
There's a dumb anti-pattern link that's like "I don't want to subscribe yet", but yeah, annoying nonetheless. I thought Substack was supposed to be a nicer alternative to Medium?
> It is the most concerted effort to slow down growth and employment in the interests of monetary stability that we have seen since the 1980s.
I see it as a war of generations. The boomers/genXers are eager to preserve their wealth and are once again dumping on young people. The 70s was a period of high inflation, it was also, according to piketty a period of high income equality for the world over. The central banks are going beyond what is mandated by them. If I were young, i would not take that deal.
Everything is bad for the poor though. Rising rates fixes inflation, but reduces employment. As it turns out, unemployment is bad for the poor.
Lowering rates improves employment, but comes with inflation risks. As it turns out, the poor also hate inflation.
Screwed if you do, screwed if you don't. Dual mandate says that the Fed aims for as good employment as possible, while also aiming at a targeted 2% to 3% inflation rate.
> Especially core inflation.
EDIT: My understanding is that core-inflation isn't about "good or bad for people", its about "good or bad for statisticians". Food/Oil prices move too quickly and are therefore bad measurements. Too noisy. If food prices go up or down 10%, is it because the economy is bad? Or is it because of a terrible storm that wiped out a chunk of crops somewhere?
Ignoring food means we ignore these volatility / storm / disease issues. Oil is similar. A war started in Europe, and lo-and-behold, oil prices went crazy, both upwards and downwards. There's no amount of economic policy you can do to predict a war.
> EDIT: My understanding is that core-inflation isn't about "good or bad for people", its about "good or bad for statisticians".
Bad for making decisions. If there's too much noise in a signal you can't steer the ship. If you do try to take action on noisy data, there's a big chance that you'll over- or understeer, especially when effects are slow to be seen.
I'm referring to core inflation because it shows upward trend across all prices, which means people without much disposable income will feel the pinch everywhere. High inflation also erodes savings, making it hard to get out of poverty, particularly the generational type.
Unemployment is obviously a problem, but the labor market is super tight right now. There's room to fight inflation without a big dip in employment.
> I'm referring to core inflation because it shows upward trend across all prices
Hmm. I think you're mistaken. "CPI" is across all prices. "Core-CPI" is across most prices (ignores energy and food).
Turns out that poor people use electricity and eat food, at least in America. Upon first glance, it would seem that "CPI" is a better measurement. The issue, as I stated earlier, is that energy/food prices swing wildly in ways completely unrelated to economics. (Look: war in Ukraine... Food prices and Oil prices in peril. Its not "unimportant", its just unpredictable and unrelated to greater economic issues)
We ignore energy/food not because they're "unimportant", but because they're too volatile to draw conclusions from. Even without wars, there's famine, hurricanes, storms, disease, swarms, locusts, etc. etc. which wreck food/energy prices. Even with a perfectly balanced economy in a peaceful world, Mother Nature would still wreck us in an unpredictable fashion.
US production of energy (coal, natural gas, and even petroleum) is almost entirely domestic.
The entirety of this year's fluctuations isn't because "we don't have oil/energy", but because global oil/energy prices were changing. In fact, USA exports more energy than we import.
So the higher price of energy is "good" for the US economy, as our companies obtain higher profits. Nonetheless, it still means higher prices at the gas pump and other inflationary measures.
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Just having a domestic base of energy didn't do jack diddly squat for oil prices. Oil prices will rise and fall with geopolitical reasons.
Now USA has a domestic energy source, which gives us a leg up compared to say, Germany, who was relying upon natural gas from a country to their East. But this has to do with supply of energy more so than price.
Energy prices are also floating upon the weather. La Nina this year will give us a mild winter, meaning Europe won't need as much natural gas... which counter-acts the war somewhat. We're lucky that Mother Nature smiles upon us this year...
Inflation isn't inherently bad for the poor. If you have debts and inflation is above the (fixed) interest rate on your debts, you're coming out ahead.
The downside of inflation is wages and cost of living adjustments often don't keep pace with inflation because government statistics are rigged to understate the real rate of inflation and many things aren't even indexed to inflation. For example, the minimum wage has been $7.15 an hour in the US for about 15 years. Wage growth not keeping pace with inflation is, as far as inflation hawks are concerned, a feature not a bug as it increases public support for inflation hawk policies.
Gen Xers are mostly still 30 years from retirement. This is the work of the ownership class who are seeing their profits nibbled away by employees who want to be paid a fair wage for their labor and aren't afraid to change jobs because millennials and gen Z aren't going to "go the extra mile" without being compensated for it.
And now Gen X are included in the anti-boomer rhetoric. Great.
As a tail-end UK Gen Xer, while I have some wealth I have built from working for over 20 years, I missed out on houses costing 2-3x your income just as much as the younger generations did. I'm not sitting on a million dollar property that I paid 10c for in 1972, largely because I wasn't born then...
Welcome the the club, mate. I'm a tail-end boomer (born 1963), and missed out on most of that gravy train boomers had. Apparently we are all selfish right-wing assholes.
Boomer hate is stupid. The enemy are the elites, corporations and billionaires.
> Boomer hate is stupid. The enemy are the elites, corporations and billionaires.
Hate of any generation - especially an individual member of a generation based on their membership in it - is stupid.
However, the critique against Boomers by younger generations is not about you as an individual, but is about largely Boomer-backed policies that pull up the the ladder of affordability behind them for housing and education.
That doesn't mean every Boomer is to blame, or that the wealthy among younger generations don't often advocate the same positions as Boomers. But as a cohort, Boomers' voting patterns at both a national and local level have tended to exacerbate the specific problems of housing and education unaffordability.
I do find the Boomer hate to be absolutely incoherent, but not new. Ultimately, the biggest factor is your economic class. If you're a boomer, but you're poor, you will live just as poorly as someone who's a poor Gen Z. If you're black and poor, you have far more in common on a day-to-day basis with a white poor person than with a black millionaire/billionaire.
Boomers / GenX can simply buy TIPS / I-Bonds if they're worried about inflation though.
Honestly, given how much they're invested into the stock market, raising interest rates will hurt their 401k / retirement accounts the most. Its not like the stock market or bond-market likes it when rates go up.
The job of an investor is to navigate these waters as the tides of the economy rise and fall. If you're in the wrong spot at the wrong time, you can lose everything. Alternatively, you keep your wealth spread out in a large basket of different goods: Stocks, Bonds (including I-bonds/TIPS), Cash, Real Estate, and hope for the best.
It is very likely that we get a new Plaza Accord. Not now, but the dollar's strength is going to be absolutely ruinous for corporate America over the next 12 months. And, at that point, you will see a move towards monetary co-operation (the thing that Obsfeld is talking about).
I do agree though: suggesting that the Fed stop rate hikes today because of the international consequences is madness. We are getting a much needed rebalancing, the Fed is kind of exporting deflation but this is being made up for with exchange rates moving downwards, the Fed's low rates during the last decade have heavily distorted international markets, continuing isn't helpful.
If one is well hedged and reduced exposition to markets before the hikes (basically anyone who was paying attention to inflation), a global recession might be a good thing. Inflation will be tamed, us labor markets will be relaxed and nonsense companies will die.
I would categorize it differently. Rather than just objecting to their policy, he is describing a reason why current policies are suboptimal, and suggesting ways that current policies could be improved. Namely, that domestic central banks around the world don't coordinate policy with foreign central banks, despite the existence of major feedback loops between foreign and domestic policy. He hypothesizes that the world economy would be better off if there were more global coordination on monetary policy.
And we all saw hoe that approach, in a much more contected system for sure, worked during the Euro crisis. Funny how we survived this and the EU isn't a ruined shambles.
We just ruined average peoples lives in the southern part, especially Greece, in order to save the big banks.
There are worlds between a BA in economics being an economic historian and an expert in monetory policy. If Covid tought me something, it is listening to those doing it, or directly advicing those doing it, instead of all those people regardless of who they are, that obly stand at the sidelines.
Though I'll admit, I still found the stat that of 20% youth unemployment in China to be shockingly high. The idea that they're lowering their interest rates is also bonkers to think about. Their economy has been slow motion train wrecking for soooo long now. God help them if they get another covid flare up over the winter and and are stupid enough to do another lockdown.