Three on "emergence"; plus Dan Davies on "greedflation"; Antarctic sea ice; & Elder, El-Erian, & Macaulay on keeping your investors as the market goes mad, a conventional take on þe Fed, & why...
"I find this hard to grok because (a) there have been no “risks to growth” from the Fed’s hiking late and fast; (b) financial instability was generated but has been well-handled; and (c ) I see no sign that the Fed has lost any credibility with people who have put their money on the line, and so I see claims that it has as political fluff from people who want to elect Donald Trump President again, or from their useful idiots:"
This has been going on for a while. It is dangerous and unnecessary to have that narrative take hold. But yet, but yet, the usual suspects stick to it. Either there is a method to this madness or some of these people don't see the risk in drinking too much of their own bathwater.
2 areas that I suspect aren't in the Fed's view: private placement debt and equity derivatives (all time high in nominal to GDP). Fed rate hikes may not do much to household debt payments, but they'll hurt like hell to highly leveraged firms owned by PE's and such. Since those firms aren't publicly traded, and their debt may not be traded bonds or bank debt, they can be a mystery until the day they file bankruptcy.
Is Mancur Olsen's model of labor control of production (c.f. The Rise and Decline of Nations) validated or falsified these days? He seemed to make a good argument about how groups managed to control production to benefit themselves at the expense of the wider population, a model apparently supported by statistical analysis. The effect still seems evident today by modern guilds, like doctors and lawyers (c.f. Dean Baker).
The modern guilds are such a small part of the problem in the face of the corporate world that arguments against them seem to be a diversionary tactic. When the hospital corporations, pharmaceutical giants, insurers and various middlemen start beefing about doctors, lawyers and the clean up crew, it's hard to take them seriously.
Re: No, I Do Not Know What þe First-Order Effect of Decreased Antarctic Sea Ice Will Be on World Climate:
I would have thought that the obvious 1st order effect will be a warmer surface temperature of the oceans. In the Pacific this will increase el-Nino weather events, which in turn suggest more extreme rainfall and temperatures, at least in this region. Globally, any decline in high albedo zones will increase warming, and change the rainfall patterns - gains and losses depending on location..
I though computer models have long since predicted the positive feedback loop: warming->lower sea ice->more warming.
You know, Mohamed, Congress did not give the Fed a mandate to maintain “credibility.” Its job is to keep/return inflation to a long term real income maximizing path.
"If you can keep your head when all about you.
Are loosing their and blaming it on you"
And yes, I am very much afraid that Powell is worried abut "credibility."
Ozenic. An even more fundamental mistake is over-focusing on the labor market. It is the whole panoply of variously sticky prices that the Fed has to choreograph back nearer equilibrium after a shock. "Wage price spiral" is soooo 1970's. Summers really made a big analytic mistake and changes in the LFPR does not un-make it.
That Kamil Kazani piece was really eye-opening. America pre-fabricated Russian factories? I had no idea.
I believe that equal-weighted indexes tend to outperform market cap weighted indexes? Perhaps that is a question for your RA. But there is an obvious problem: it is not possible for the broad market to pursue an equal weighting strategy. On the other hand, it is expensive for an individual to rebalance a portfolio of 500 stocks. But perhaps equal weighting offers a possibility for a wealthy but not too-wealthy individual to beat the market.
Sean Carroll: Doesn't believe in God. Doesn't believe in Laplace's Demon. Just the Wave Function of the Universe. :) Good enough for all practical purposes.
If “greedfation” just means recognizing that not all prices are infinitely flexible or even not uniformly inflexible, and not symmetrically flexible up and down, well it’s a shame the Fed had to lean this from the newspaper pundits.
I bought my copy of The Affluent Society (from Woodward and Lothrop on 7th St) in 1967, the summer after my first year in graduate school and I didn’t see much use of it. [Did it inspire Buchanan et al in developing Public Choice Theory? 😊].
I've always been looser in my use of emergence. For example, I'll often say that temperature is an emergent property built on kinetic energy, or value is an emergent property built on price information. I'm probably out of the mainstream here.
Also, one thing to consider when thinking about the Fed and inflation: the capital glut. Back in the 1980s, IBM borrowed a billion dollars, the biggest commercial loan ever, to fund its new generation of computers and PCs. Nowadays, if Apple needed ten or twenty billion dollars, it would just cut back a bit on its stock repurchases. Higher interest rates might change some opportunity costs, but so many companies are vastly overcapitalized that they merely need to cut back on liquidation rather than borrowing. It's similar in residential real estate. My niece, the realtor, informs me that 60% of Manhattan sales were all cash deals. Basically, the haves pay cash while the have-nots don't buy, so the market is less sensitive to interest rates. I can almost here Leona Helmsley snickering, interest rates are for the little people, and the little people have less and less.
Basically, central bankers should say the same thing every month, "We are doing X0 [policy instruments p1 = t1, p2 = t2, ...) levers ] in order to achieve our target of Y. Next month we will do X1 to achieve out target of Y." And it wouldn't hurt to occasionally say, "Remember back when we did X -n? That was a mistake. We should have done X'-n. We've updated our model and wont make THAT mistake again."
As for "financial stability" Fed actions should only be to prevent hard to predict shifts in the demand for money; in other words to achieve target Y. It is NOT to save anybody's equity.
Antarctic sea ice: I don't even knw what if anything it means for the optimal tax on net CO2 and methane emissions. Hopefully it will persuade SOMEONE that it is not zero.
"I find this hard to grok because (a) there have been no “risks to growth” from the Fed’s hiking late and fast; (b) financial instability was generated but has been well-handled; and (c ) I see no sign that the Fed has lost any credibility with people who have put their money on the line, and so I see claims that it has as political fluff from people who want to elect Donald Trump President again, or from their useful idiots:"
This has been going on for a while. It is dangerous and unnecessary to have that narrative take hold. But yet, but yet, the usual suspects stick to it. Either there is a method to this madness or some of these people don't see the risk in drinking too much of their own bathwater.
but it is a great puzzle to me...
2 areas that I suspect aren't in the Fed's view: private placement debt and equity derivatives (all time high in nominal to GDP). Fed rate hikes may not do much to household debt payments, but they'll hurt like hell to highly leveraged firms owned by PE's and such. Since those firms aren't publicly traded, and their debt may not be traded bonds or bank debt, they can be a mystery until the day they file bankruptcy.
Re: “Greedflation” Properly Characterized
Is Mancur Olsen's model of labor control of production (c.f. The Rise and Decline of Nations) validated or falsified these days? He seemed to make a good argument about how groups managed to control production to benefit themselves at the expense of the wider population, a model apparently supported by statistical analysis. The effect still seems evident today by modern guilds, like doctors and lawyers (c.f. Dean Baker).
The modern guilds are such a small part of the problem in the face of the corporate world that arguments against them seem to be a diversionary tactic. When the hospital corporations, pharmaceutical giants, insurers and various middlemen start beefing about doctors, lawyers and the clean up crew, it's hard to take them seriously.
Re: No, I Do Not Know What þe First-Order Effect of Decreased Antarctic Sea Ice Will Be on World Climate:
I would have thought that the obvious 1st order effect will be a warmer surface temperature of the oceans. In the Pacific this will increase el-Nino weather events, which in turn suggest more extreme rainfall and temperatures, at least in this region. Globally, any decline in high albedo zones will increase warming, and change the rainfall patterns - gains and losses depending on location..
I though computer models have long since predicted the positive feedback loop: warming->lower sea ice->more warming.
You know, Mohamed, Congress did not give the Fed a mandate to maintain “credibility.” Its job is to keep/return inflation to a long term real income maximizing path.
"If you can keep your head when all about you.
Are loosing their and blaming it on you"
And yes, I am very much afraid that Powell is worried abut "credibility."
Ozenic. An even more fundamental mistake is over-focusing on the labor market. It is the whole panoply of variously sticky prices that the Fed has to choreograph back nearer equilibrium after a shock. "Wage price spiral" is soooo 1970's. Summers really made a big analytic mistake and changes in the LFPR does not un-make it.
That Kamil Kazani piece was really eye-opening. America pre-fabricated Russian factories? I had no idea.
I believe that equal-weighted indexes tend to outperform market cap weighted indexes? Perhaps that is a question for your RA. But there is an obvious problem: it is not possible for the broad market to pursue an equal weighting strategy. On the other hand, it is expensive for an individual to rebalance a portfolio of 500 stocks. But perhaps equal weighting offers a possibility for a wealthy but not too-wealthy individual to beat the market.
Sean Carroll: Doesn't believe in God. Doesn't believe in Laplace's Demon. Just the Wave Function of the Universe. :) Good enough for all practical purposes.
If “greedfation” just means recognizing that not all prices are infinitely flexible or even not uniformly inflexible, and not symmetrically flexible up and down, well it’s a shame the Fed had to lean this from the newspaper pundits.
I bought my copy of The Affluent Society (from Woodward and Lothrop on 7th St) in 1967, the summer after my first year in graduate school and I didn’t see much use of it. [Did it inspire Buchanan et al in developing Public Choice Theory? 😊].
Foreign Affairs link in top piece doesn't seem to work?
I've always been looser in my use of emergence. For example, I'll often say that temperature is an emergent property built on kinetic energy, or value is an emergent property built on price information. I'm probably out of the mainstream here.
Also, one thing to consider when thinking about the Fed and inflation: the capital glut. Back in the 1980s, IBM borrowed a billion dollars, the biggest commercial loan ever, to fund its new generation of computers and PCs. Nowadays, if Apple needed ten or twenty billion dollars, it would just cut back a bit on its stock repurchases. Higher interest rates might change some opportunity costs, but so many companies are vastly overcapitalized that they merely need to cut back on liquidation rather than borrowing. It's similar in residential real estate. My niece, the realtor, informs me that 60% of Manhattan sales were all cash deals. Basically, the haves pay cash while the have-nots don't buy, so the market is less sensitive to interest rates. I can almost here Leona Helmsley snickering, interest rates are for the little people, and the little people have less and less.
Basically, central bankers should say the same thing every month, "We are doing X0 [policy instruments p1 = t1, p2 = t2, ...) levers ] in order to achieve our target of Y. Next month we will do X1 to achieve out target of Y." And it wouldn't hurt to occasionally say, "Remember back when we did X -n? That was a mistake. We should have done X'-n. We've updated our model and wont make THAT mistake again."
As for "financial stability" Fed actions should only be to prevent hard to predict shifts in the demand for money; in other words to achieve target Y. It is NOT to save anybody's equity.
Antarctic sea ice: I don't even knw what if anything it means for the optimal tax on net CO2 and methane emissions. Hopefully it will persuade SOMEONE that it is not zero.