Brad, when you write: "Is that simply because I am not updating my beliefs fast enough in response to new data—especially to the news that is the OPEC+ price cut?" - did you mean OPEC+ -production- cut?
I know that, but unless I missed something, the OPEC+ agreement was a production cut, not a price cut. And one would assume a production cut would result in a price rise (other things being equal - which of course they are not).
I'm continuing to slowly read the book (into the Cold War now), and that section of the history resonates with this point from the post:
"How reliable are the underlying historical examples and analogies? Not at all. Every generation, as I just said, face is the problem of building, Econo, social software code for humanity that will run on top of a brand new set of technologically enabled forces of production hardware."
You've used that analogy before (and it's a good one) and I've mostly heard it in terms of future shock -- the psychological and social stress of constant change. But reading about the world wars I find myself thinking of the (apocryphal) quote that, "[people] can always be relied upon to do the right thing — having first exhausted all possible alternatives." Humans learn by trial and error, and the section of the book I'm reading emphasizes that, as technology and globalization increase, business and governments wield and increasing amount of power to impact people's lives, and that the trial and error becomes more costly.
At the moment the lesson I am taking from it is a (small-c) conservative one. That we should remember there is rarely a straight line between intentions and outcomes, and that increasing power does not make that path any more direct.
I like Larry Summers, too. I worked for him sporadically at the Bank for a while and he’s at least 7 times 77 as smart as I, BUT he messed up his messaging in early 2021. The danger was that the Fed would not take steps soon enough to make temporary inflation temporary, NOT that the “stimulus” was too large and would cause inflation. And I do not like calling the Fed’s allowing inflation expectations to undershoot it target, “secular stagnation.”
Carter: Starting with “Starting with …” is a potpourri of obvious truths and nonsense.
When in the “neoliberal” epoch were deficits ever believed to be apocalyptic? The Original Sin of "neoliberalism" was the Reagan tax cuts + deficits, a sin that GWB and Trump eagerly emulated.
Maybe it was not the smartest people who abandoned the “orthodoxy” of free trade. 😊
Monetary policy is certainly not the “ideal or only appropriate tool for economic management” but it is for the management of macroeconomic aggregates, leaving fiscal policy to deal with allocation of resources between saving and investment and income distribution.
I’d have to agree with Carter that Powel’s press conference did not much advance the public's understanding of the Fed’s role as facilitating relative price adjustments or demonstrate his own.
Not to answer your question, I wish to again protest to giving almost exclusive (if not magical) important to the labor market. The Fed is supposed to be facilitating relative price changes when some prices do not adjust downwardly [or if we go full Liejonhufund the speed of adjustment of different prices differ]. Either way it's all the prices in the economy not just the prices of labor transactions that can fail to clear and the transaction not to occur.
But to answer your question, yes the Fed should not be announcing future movement of monetary policy instruments, ever, but especially not rate increases when TIPS shows that bond traders expect inflation to undershoot the target over 5 and 10 years. Too bad Janet hasn't let us figure out what the shorter term expectations are.
[BTW Matt Yglesias still has not explained the lack of shorter tenor TIPS but a knowledgeable sounding commentator on the Substack replied with the hypothesis that there would not be enough demand for the constellation of instruments for prices to be meaningful. ]
Corrected post here ( sorry, typing on my phone with my thumbs):
Hopefully you will read this:
As we analyze the Fed’s options for dealing with inflation I have seen too little (none?) analysis of an Econ 101 definition of the two factors in one basic view of the causes of inflation: “too much money chasing too few goods.” We acknowledge that the fed can have an impact on the “too much money” side of the equation, but virtually no thought seems to be given to the “too few goods” side, especially with the continuing supply chain issues, Ukraine, the oil cartel’s power of the cost of energy, etc.
I don’t have a platform from which to be heard and sure would like for someone with a true curiosity ( Krugman, DeLong, etc.) to spend some time analyzing ways to increase the supply of goods and the negative impact Fed tightening can have on the supply side of this equation. I know the world is complicated, but there has to be some valuable insight to be gained from this analysis.
Thanks! I guess I was hoping for more discussion about how the Fed might integrate and coordinate its actions to dovetail with efforts to increase the supply of inflated goods, recognizing that its tightening can have a negative effect on the supply side of the equation, and also help drive up the cost of goods.
Would you be willing to critique these ideas:
It seems there are many with the view that the Fed’s monetary policy moves are the only tool available to impact inflation and I think it is way too blunt an instrument even for the limited arena in which it can be impactful. Driving up the costs of production not only reduces employment, and thus overall demand, it also drives up prices -- yet does nothing to alleviate the limited supply of inflated goods.
Maybe they do this behind the scenes, but how about the Fed engaging in robust consultation with those that can help increase the supply of inflated goods with an eye towards the Fed playing a part in a public, integrated approach to battling inflation, instead of assuming the role of gods operating behind a veil secrecy? In other words, have the Fed approach the issue of inflation as one player of many, and be part of a team to devise a government/industry/consumer- wide strategy.
Of course there are some reasons for the Fed to operate in secrecy, and if they truly were all powerful and had sufficient tools to blunt inflation without awful side effects, maybe I could be swayed to support the current approach. But they aren’t able to control inflation except with their sledgehammer and its accompanying risk of economic mayhem.
Should economists at least explore this approach ?
The problem is that the Fed members are not themselves **elected**, and so don’t have legitimacy to assume a stronger role—or perhaps they do not think that they do. They think they are pushing the envelope as it is...
Brad, when you write: "Is that simply because I am not updating my beliefs fast enough in response to new data—especially to the news that is the OPEC+ price cut?" - did you mean OPEC+ -production- cut?
“OPEC+” = “OPEC plus Russia"
I know that, but unless I missed something, the OPEC+ agreement was a production cut, not a price cut. And one would assume a production cut would result in a price rise (other things being equal - which of course they are not).
I'm continuing to slowly read the book (into the Cold War now), and that section of the history resonates with this point from the post:
"How reliable are the underlying historical examples and analogies? Not at all. Every generation, as I just said, face is the problem of building, Econo, social software code for humanity that will run on top of a brand new set of technologically enabled forces of production hardware."
You've used that analogy before (and it's a good one) and I've mostly heard it in terms of future shock -- the psychological and social stress of constant change. But reading about the world wars I find myself thinking of the (apocryphal) quote that, "[people] can always be relied upon to do the right thing — having first exhausted all possible alternatives." Humans learn by trial and error, and the section of the book I'm reading emphasizes that, as technology and globalization increase, business and governments wield and increasing amount of power to impact people's lives, and that the trial and error becomes more costly.
At the moment the lesson I am taking from it is a (small-c) conservative one. That we should remember there is rarely a straight line between intentions and outcomes, and that increasing power does not make that path any more direct.
I like Larry Summers, too. I worked for him sporadically at the Bank for a while and he’s at least 7 times 77 as smart as I, BUT he messed up his messaging in early 2021. The danger was that the Fed would not take steps soon enough to make temporary inflation temporary, NOT that the “stimulus” was too large and would cause inflation. And I do not like calling the Fed’s allowing inflation expectations to undershoot it target, “secular stagnation.”
Carter: Starting with “Starting with …” is a potpourri of obvious truths and nonsense.
When in the “neoliberal” epoch were deficits ever believed to be apocalyptic? The Original Sin of "neoliberalism" was the Reagan tax cuts + deficits, a sin that GWB and Trump eagerly emulated.
Maybe it was not the smartest people who abandoned the “orthodoxy” of free trade. 😊
Monetary policy is certainly not the “ideal or only appropriate tool for economic management” but it is for the management of macroeconomic aggregates, leaving fiscal policy to deal with allocation of resources between saving and investment and income distribution.
I’d have to agree with Carter that Powel’s press conference did not much advance the public's understanding of the Fed’s role as facilitating relative price adjustments or demonstrate his own.
Not to answer your question, I wish to again protest to giving almost exclusive (if not magical) important to the labor market. The Fed is supposed to be facilitating relative price changes when some prices do not adjust downwardly [or if we go full Liejonhufund the speed of adjustment of different prices differ]. Either way it's all the prices in the economy not just the prices of labor transactions that can fail to clear and the transaction not to occur.
But to answer your question, yes the Fed should not be announcing future movement of monetary policy instruments, ever, but especially not rate increases when TIPS shows that bond traders expect inflation to undershoot the target over 5 and 10 years. Too bad Janet hasn't let us figure out what the shorter term expectations are.
[BTW Matt Yglesias still has not explained the lack of shorter tenor TIPS but a knowledgeable sounding commentator on the Substack replied with the hypothesis that there would not be enough demand for the constellation of instruments for prices to be meaningful. ]
Corrected post here ( sorry, typing on my phone with my thumbs):
Hopefully you will read this:
As we analyze the Fed’s options for dealing with inflation I have seen too little (none?) analysis of an Econ 101 definition of the two factors in one basic view of the causes of inflation: “too much money chasing too few goods.” We acknowledge that the fed can have an impact on the “too much money” side of the equation, but virtually no thought seems to be given to the “too few goods” side, especially with the continuing supply chain issues, Ukraine, the oil cartel’s power of the cost of energy, etc.
I don’t have a platform from which to be heard and sure would like for someone with a true curiosity ( Krugman, DeLong, etc.) to spend some time analyzing ways to increase the supply of goods and the negative impact Fed tightening can have on the supply side of this equation. I know the world is complicated, but there has to be some valuable insight to be gained from this analysis.
Will you do it please?
Thanks
Ron Feinman
ron-work@oneworld.ws
SPR release, Jones Act- suspension, liftiing immigration restrictions, wage subsidies to get more people into the labor force, etc….
Thanks! I guess I was hoping for more discussion about how the Fed might integrate and coordinate its actions to dovetail with efforts to increase the supply of inflated goods, recognizing that its tightening can have a negative effect on the supply side of the equation, and also help drive up the cost of goods.
Would you be willing to critique these ideas:
It seems there are many with the view that the Fed’s monetary policy moves are the only tool available to impact inflation and I think it is way too blunt an instrument even for the limited arena in which it can be impactful. Driving up the costs of production not only reduces employment, and thus overall demand, it also drives up prices -- yet does nothing to alleviate the limited supply of inflated goods.
Maybe they do this behind the scenes, but how about the Fed engaging in robust consultation with those that can help increase the supply of inflated goods with an eye towards the Fed playing a part in a public, integrated approach to battling inflation, instead of assuming the role of gods operating behind a veil secrecy? In other words, have the Fed approach the issue of inflation as one player of many, and be part of a team to devise a government/industry/consumer- wide strategy.
Of course there are some reasons for the Fed to operate in secrecy, and if they truly were all powerful and had sufficient tools to blunt inflation without awful side effects, maybe I could be swayed to support the current approach. But they aren’t able to control inflation except with their sledgehammer and its accompanying risk of economic mayhem.
Should economists at least explore this approach ?
Thanks so much for taking time with my ideas.
Ron
The problem is that the Fed members are not themselves **elected**, and so don’t have legitimacy to assume a stronger role—or perhaps they do not think that they do. They think they are pushing the envelope as it is...
Way beyond the comfort zone of THIS little neoliberal. :)