17 ms·

The anti-inflation pivot of 2022

140 points by disgruntledphd2 4y ago

djbusby 4y ago
https://archive.ph/Xr8cv https://archive.ph/Xr8cv
- _8j50 4y ago
  Why do you need that for substack?
  - djbusby 4y ago
    The primary link blocks me after a short scroll. Couldn't get past "the fold". But with Archive I can read the full article.
    - geerlingguy 4y ago
      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?
      - djbusby 4y ago
        Wow, I just went back a fourth time and the previous full-blocker modal/nagbox is gone and it's just at the bottom. Guess I was in the B group for a while.
      - stackbutterflow 4y ago
        Medium was a breath of fresh air when it started. Then they had to make money. Substack is a breath of fresh air. Then they will have to make money. It's the same cycle over and over, for every startup. I don't why at the start of a new cycle people think this time it will be different.
      - TremendousJudge 4y ago
        I don't see how could they be. They are under the same constraints and have the same incentives.
Proven 4y ago
pid-1 4y ago
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.
mech987 4y ago
>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.
mjburgess 4y ago
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%.
- sfe22 4y ago
  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.
  - blagie 4y ago
    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."
    - refurb 4y ago
      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.
      - roflyear 4y ago
jmyeet 4y ago
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.
- micromacrofoot 4y ago
  > Why isn't corporate taxation being used to control the money supply? Because corporate donations are one of the primary ways to control politicians.
- juve1996 4y ago
  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.
rel2thr 4y ago
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
- colinmhayes 4y ago
  Core was .6% last month, pretty horrendous after July looked good.
  - dragontamer 4y ago
    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. ------- 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.
  - fennecfoxen 4y ago
    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.
    - landemva 4y ago
      > fuel prices falling 10% again next month. Mid-term elections are approaching and gas pump prices are an easy talking point. With SPR releases, why won't USA fuel prices drop?
mynameishere 4y ago
Blogger objects to central bankers doing their job. I imagine his book matches his views.
- disgruntledphd2 4y ago
  He's not just a blogger: https://en.wikipedia.org/wiki/Adam_Tooze https://en.wikipedia.org/wiki/Adam_Tooze His books (particularly Crashed) are also really, really good.
  - hef19898 4y ago
    Ok, so historian and author objects to current central bank policies. Not that much better...
    - disgruntledphd2 4y ago
      To be fair, he's an economic historian. I am the OP and thought that this was a really interesting article on inflation, sorry that you don't agree.
      - hef19898 4y ago
        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.
    - carlineng 4y ago
      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.
seydor 4y ago
> 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. https://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts https://www.newyorker.com/news/john-cassidy/pikettys-inequal...
- deleted 4y ago
  [deleted]
- ch4s3 4y ago
  You know high inflation makes it worse to be poor right? Especially core inflation.
  - dragontamer 4y ago
    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.
    - ch4s3 4y ago
spywaregorilla 4y ago
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.
- csours 4y ago
  I ask this question every so often on economic threads - Are jobs created or discovered? What field of study is most associated with "new jobs"?
  - tuatoru 4y ago
    What is the difference between "created" and "discovered" when it comes to jobs? Was "social media manager" created or discovered? How about (to take an older example) telex operator?
  - peteradio 4y ago
    spark+kindling+gust
  - vorpalhex 4y ago
    Jobs are more often created than discovered. Tomorrow we might discover a new kind of math, requiring newly trained mathmeticians in a novel field. Those mathmeticians will need admins, business services, places to work, food, etc. Thus even the discovery of a few jobs has more jobs created than found.
    - thaumasiotes 4y ago
      The mathematicians don't need any more food than they did before the new kind of math was discovered. Why would you count that as job creation?
consp 4y ago
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.
nie100sowny 4y ago
> A generation of young people whose education was blighted by COVID lockdowns, will face a closed labour market. But shortly after, when all inefficient companies bankrupt, they'll wake up in the booming economy, finding places in perspective businesses. Crisis is good for the economy in the long term. I only worry that governments won't allow young trees to grow after the forest's fire.
- desindol 4y ago
  Crisis is never good look at the correlation between unemployment and excess mortality rates…
  - nie100sowny 4y ago
    I think you refer to the long unemployment. 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.
    - landemva 4y ago
      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.
      - dragonwriter 4y ago
        > 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.
        reasonabl_human 4y ago
howmayiannoyyou 4y ago
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.
- landemva 4y ago
  Much manufacturing left the West to relocate the pollution. Pollution colonialism.
  - joshlemer 4y ago
    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.
    - concinds 4y ago
      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.
steve76 4y ago
polskibus 4y ago
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.
- harambae 4y ago
  Why does dry and hot weather kill solar power? (Is there something non-intuitive about solar panels and too much heat?)
  - polskibus 4y ago
    Their efficiency drops with each extra celsius degree above a certain temperature threshold, exact numbers depend on the model. See for example: https://www.bostonsolar.us/solar-blog-resource-center/blog/how-do-temperature-and-shade-affect-solar-panel-efficiency/ https://www.bostonsolar.us/solar-blog-resource-center/blog/h...
m3kw9 4y ago
The fed in the US isn’t going to handshake another countries fed so they all act like opec but for interest rates.
- skippyboxedhero 4y ago
  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.
lend000 4y ago
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). [0] https://blog.bitmex.com/teach-me-daddy/ https://blog.bitmex.com/teach-me-daddy/
mlsu 4y ago
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?
- gizmo686 4y ago
  That assumes interests rates are set by the free market, which is not true in todays economy. The reason interest rates are going up is not a mystery. A dozen people meet semi-quarterly and vote on what the interest rate should be.
  - colinmhayes 4y ago
    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.
- ryathal 4y ago
  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.
- nostromo 4y ago
  Did the US become more stable during Covid or during the financial crisis? No - quite the opposite.
skippyboxedhero 4y ago
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.

djbusby 4y ago

https://archive.ph/Xr8cv https://archive.ph/Xr8cv

_8j50 4y ago
Why do you need that for substack?
- djbusby 4y ago
  The primary link blocks me after a short scroll. Couldn't get past "the fold". But with Archive I can read the full article.
  - geerlingguy 4y ago
    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?
    - djbusby 4y ago
      Wow, I just went back a fourth time and the previous full-blocker modal/nagbox is gone and it's just at the bottom. Guess I was in the B group for a while.
    - stackbutterflow 4y ago
      Medium was a breath of fresh air when it started. Then they had to make money. Substack is a breath of fresh air. Then they will have to make money. It's the same cycle over and over, for every startup. I don't why at the start of a new cycle people think this time it will be different.
    - TremendousJudge 4y ago
      I don't see how could they be. They are under the same constraints and have the same incentives.

Proven 4y ago

pid-1 4y ago

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.

mech987 4y ago

>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.

mjburgess 4y ago

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%.

sfe22 4y ago
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.
- blagie 4y ago
  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."
  - refurb 4y ago
    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.
    - roflyear 4y ago

jmyeet 4y ago

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.

micromacrofoot 4y ago
> Why isn't corporate taxation being used to control the money supply? Because corporate donations are one of the primary ways to control politicians.
juve1996 4y ago
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.

rel2thr 4y ago

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

colinmhayes 4y ago
Core was .6% last month, pretty horrendous after July looked good.
- dragontamer 4y ago
  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. ------- 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.
- fennecfoxen 4y ago
  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.
  - landemva 4y ago
    > fuel prices falling 10% again next month. Mid-term elections are approaching and gas pump prices are an easy talking point. With SPR releases, why won't USA fuel prices drop?

mynameishere 4y ago

Blogger objects to central bankers doing their job. I imagine his book matches his views.

disgruntledphd2 4y ago
He's not just a blogger: https://en.wikipedia.org/wiki/Adam_Tooze https://en.wikipedia.org/wiki/Adam_Tooze His books (particularly Crashed) are also really, really good.
- hef19898 4y ago
  Ok, so historian and author objects to current central bank policies. Not that much better...
  - disgruntledphd2 4y ago
    To be fair, he's an economic historian. I am the OP and thought that this was a really interesting article on inflation, sorry that you don't agree.
    - hef19898 4y ago
      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.
  - carlineng 4y ago
    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.

seydor 4y ago

> 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. https://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts https://www.newyorker.com/news/john-cassidy/pikettys-inequal...

deleted 4y ago
[deleted]
ch4s3 4y ago
You know high inflation makes it worse to be poor right? Especially core inflation.
- dragontamer 4y ago
  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.
  - ch4s3 4y ago

spywaregorilla 4y ago

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.

csours 4y ago
I ask this question every so often on economic threads - Are jobs created or discovered? What field of study is most associated with "new jobs"?
- tuatoru 4y ago
  What is the difference between "created" and "discovered" when it comes to jobs? Was "social media manager" created or discovered? How about (to take an older example) telex operator?
- peteradio 4y ago
  spark+kindling+gust
- vorpalhex 4y ago
  Jobs are more often created than discovered. Tomorrow we might discover a new kind of math, requiring newly trained mathmeticians in a novel field. Those mathmeticians will need admins, business services, places to work, food, etc. Thus even the discovery of a few jobs has more jobs created than found.
  - thaumasiotes 4y ago
    The mathematicians don't need any more food than they did before the new kind of math was discovered. Why would you count that as job creation?

consp 4y ago

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.

nie100sowny 4y ago

> A generation of young people whose education was blighted by COVID lockdowns, will face a closed labour market. But shortly after, when all inefficient companies bankrupt, they'll wake up in the booming economy, finding places in perspective businesses. Crisis is good for the economy in the long term. I only worry that governments won't allow young trees to grow after the forest's fire.

desindol 4y ago
Crisis is never good look at the correlation between unemployment and excess mortality rates…
- nie100sowny 4y ago
  I think you refer to the long unemployment. 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.
  - landemva 4y ago
    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.
    - dragonwriter 4y ago
      > 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.
      - reasonabl_human 4y ago

howmayiannoyyou 4y ago

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.

landemva 4y ago
Much manufacturing left the West to relocate the pollution. Pollution colonialism.
- joshlemer 4y ago
  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.
  - concinds 4y ago
    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.

steve76 4y ago

polskibus 4y ago

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.

harambae 4y ago
Why does dry and hot weather kill solar power? (Is there something non-intuitive about solar panels and too much heat?)
- polskibus 4y ago
  Their efficiency drops with each extra celsius degree above a certain temperature threshold, exact numbers depend on the model. See for example: https://www.bostonsolar.us/solar-blog-resource-center/blog/how-do-temperature-and-shade-affect-solar-panel-efficiency/ https://www.bostonsolar.us/solar-blog-resource-center/blog/h...

m3kw9 4y ago

The fed in the US isn’t going to handshake another countries fed so they all act like opec but for interest rates.

skippyboxedhero 4y ago
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.

lend000 4y ago

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). [0] https://blog.bitmex.com/teach-me-daddy/ https://blog.bitmex.com/teach-me-daddy/

mlsu 4y ago

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?

gizmo686 4y ago
That assumes interests rates are set by the free market, which is not true in todays economy. The reason interest rates are going up is not a mystery. A dozen people meet semi-quarterly and vote on what the interest rate should be.
- colinmhayes 4y ago
  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.
ryathal 4y ago
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.
nostromo 4y ago
Did the US become more stable during Covid or during the financial crisis? No - quite the opposite.

skippyboxedhero 4y ago

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.