Drivers of r* across ten countries;Bay Area left-techno-utopianism incarnate in the form of the Whole Earth Catalog; the emergence of the idea of inequality; entrepreneurship & business...
Things that go bump in the night: Demographics and productivity should lead us to low inflation and a low R*. A couple of things scare me. Not probabilities, but not outliers either. 1) China invades, or more likely blockades Taiwan. Supply chains are strangled. 2) Trump is President and kicks out & stops the immigrants and raises tariffs everywhere. These are one time shocks. But after enough shocks, bond buyers are going to price in higher volatility with higher real rates for the long run.
"The idea that it would be good if all in society were equal was pretty much completely foreign to Mediæval Europeans."
Not just the *Mediaeval* Europeans; equality is an Enlightenment idea. Rousseau you say, but I would have named Diderot and Voltaire. Will Ada Palmer ever find a publisher for her book "The Myth of the Renaissance"? I sure hope so.
Krugman: Maybe "most economists" thought the Fed should have been more aggressive in raising inflation rates and expectations of inflation rates in 2009-2020, but they sure were discrete about saying so, much more so than Rugoff, El Erian and John Cochrane were about saying the reverse.
OK, I get it that NK macroeconomists like to think about r*, the ST interest rate (~ the same thing as one of Central Bank policy instruments) that is consistent with full employment at the target rate of inflation. AND I’ll accept the premise that IF Central Banks had no other policy instrument available to use when shocks required temporarily higher inflation to maintain full employment and r* near zero would be a problem.
But …
a) With structural fiscal deficits across developed countries having risen, reducing savings and private investment, I see less reason to expect r* to remain near zero than before the Pandemic.
b) Some (even if they are less gung ho than Noah Smith) hold out hope that the development of mRNA vaccines and LLMs may signal in end to a period of low technological change which would increase demand for private investment, also pushing up r*.
c) Changes in ST interest rates are not the only policy instrument that central banks have for temporarily increasing inflation above target. IOR and QE have already been used and I have confidence that central banks coud invent others. It would be a bold secular stagnation hawk who would be willing to bet against a central bank that announced that it would do “whatever it takes” to raise inflation to above target.
We don’t need r.* One does not need a view on r* to think the Fed should have reduced the EFFR in December and should do so in January rather than waiting until March.
Things that go bump in the night: Demographics and productivity should lead us to low inflation and a low R*. A couple of things scare me. Not probabilities, but not outliers either. 1) China invades, or more likely blockades Taiwan. Supply chains are strangled. 2) Trump is President and kicks out & stops the immigrants and raises tariffs everywhere. These are one time shocks. But after enough shocks, bond buyers are going to price in higher volatility with higher real rates for the long run.
"The idea that it would be good if all in society were equal was pretty much completely foreign to Mediæval Europeans."
Not just the *Mediaeval* Europeans; equality is an Enlightenment idea. Rousseau you say, but I would have named Diderot and Voltaire. Will Ada Palmer ever find a publisher for her book "The Myth of the Renaissance"? I sure hope so.
In the meanwhile, we'll have to make do with scraps like this: https://youtu.be/YJU2CWYP4tI
Yes...
Whole Earth Catalog
Foundly remember it.
Now I use UTube
I bought a beat up Polaris quad and found out how to replace a front bearing and brake disk and how to adjust the shift links.
As a young engineer I had to go to the company library and get help from the librarian.
Krugman: Maybe "most economists" thought the Fed should have been more aggressive in raising inflation rates and expectations of inflation rates in 2009-2020, but they sure were discrete about saying so, much more so than Rugoff, El Erian and John Cochrane were about saying the reverse.
Noah Smith: "Larry, Secular Stagnation Summers, call your office."
Arrrrr*!
OK, I get it that NK macroeconomists like to think about r*, the ST interest rate (~ the same thing as one of Central Bank policy instruments) that is consistent with full employment at the target rate of inflation. AND I’ll accept the premise that IF Central Banks had no other policy instrument available to use when shocks required temporarily higher inflation to maintain full employment and r* near zero would be a problem.
But …
a) With structural fiscal deficits across developed countries having risen, reducing savings and private investment, I see less reason to expect r* to remain near zero than before the Pandemic.
b) Some (even if they are less gung ho than Noah Smith) hold out hope that the development of mRNA vaccines and LLMs may signal in end to a period of low technological change which would increase demand for private investment, also pushing up r*.
c) Changes in ST interest rates are not the only policy instrument that central banks have for temporarily increasing inflation above target. IOR and QE have already been used and I have confidence that central banks coud invent others. It would be a bold secular stagnation hawk who would be willing to bet against a central bank that announced that it would do “whatever it takes” to raise inflation to above target.
We don’t need r.* One does not need a view on r* to think the Fed should have reduced the EFFR in December and should do so in January rather than waiting until March.