Tuesday, May 21, 2019

Help for graduates

Climate change is hard. It is a global phenomenon and any effort to “do something” must involve seemingly near-impossible global political cooperation. Sacrifices made by already relatively Green U.S, citizens are, about virtue-signaling which is in much demand throughout the U.S. (and beyond) these days. Joseph Epstein explains.

Betting beats BS, they say. Trouble is that there are few instances where the two parties can agree to terms and then sign on to the deal. The famous “Doomsday” bet between Julian Simon and Paul Ehrlich (which Simon won and was ready to repeat) was an exception.  But outcomes like this matter very little. Virtue signaling is too important.

Nevertheless, a fine addition to debates like this is Pierre Desrocher and Joanna Szurmak’s Population Bombed! Exploding the Link Overpopulation and Climate Change. The book is informative, well sourced, and clearly written. In addition, the final chapters wonderfully probe the mind set of the pessimists. Pessimists-zero-summers-neo-Malthusians-“anointed” elites (thank you, Tom Sowell) are given their due in the chapter entitled “Blind, blinkered and bought?”
Much of this has been said before, but not (in my view) this well.

The NY Times Book Review often asks authors which one book they would have the President read. I understand he does not read much. But he and many others would benefit from the Desrocher-Szurmak book.  Better yet, of the many young people graduating this month, many very likely will not have heard these arguments. Help them.

Saturday, May 04, 2019

What is the Fed to do?

The U.S. economy is doing well -- and no one really knows why. Keynesian macro-economics (aggregate demand economics) is no help because there is no theory of mood and investment. How could there be one? The donnish Keynes simple wrote investment off as from "animal spirits".  Not much has changed. The Obama-Trump hand-off seemingly incited animal spirits. With no better theory, that's all we have.

With no useful models, we are left to just argue over Fed monetary policy.  Is there an employment-inflation trade-off? What would be the timing? No one knows. Without a theory of how and when we get new and improved labor productivity, there is no answer. 

Can we ever get a better (useful) macro-theory to guide the Fed? Will the pretense of knowledge ever subside? Probably not. Enter Scott Sumner and the introduction of (you guessed it) markets to guide monetary policy.

"You can think of markets as a sort of super committee with 7.3 billion potential members, instead of 12. Markets are privy to even more useful anecdotes and impressions than is a committee of 12, and markets have even more perspectives and underlying models. ... So why not have the Fed set a 4% NGDP target, level targeting, and offer to sell unlimited NGDP futures at 5% and buy unlimited NGDP futures at 3%? In that case, the rule would be that the Fed is forced to put its money where its mouth is, anytime their policy views sharply diverged from the market consensus on expected NGDP growth. As a practical matter, the huge mistake of late 2008 would have been impossible under my ‘guardrails’ approach because investors like me would have gone short NGDP futures at the 3% price, as it was very clear we were going to have sub-3% NGDP growth in 2009. (NGDP actually fell by roughly 3% from mid-2008 to mid-2009.) If the Fed didn't respond adequately, their losses would have been massive. ... In this vision of monetary policy we have the best of both worlds. The ‘wisdom of crowds’ that you get from decision-making by committee, as well as the rigorous constraints on monetary policy imposed by rules.” Scott Sumner, Why Not Both?