This is an OpEd at the Washington Post. Their title: “How to protect the economy from the ghosts of 1979.” (Really 1951!) I posted an excerpt a month ago. Here is the full version.
It appears the US has followed our allies into the territory of fiscal unsustainability. Our situation is probably recoverable, with good leadership. Unfortunately, we face no prospects for good leadership. Russia and China are weak, dysfunctional states, but they seem well positioned to take advantage of our problems.
Russia is not at all well-positioned for all that much of anything beyond Europe idiotically cutting its own energy production, let alone to take advantage of the U.S.’s problems.
You many be right, but I think most westerners look at Russia with western eyes, not Russian. To a westerner, Russia is an economic basket case with a dysfunctional government and incompetent military. To a Russian, Russia has a strong government, good economic self-sufficiency, and a tough population willing to withstand any level of hardship to resist outsiders.
If you look at the Russian point of view, things aren't so alarming. Although demographics (very low fertility with decreasing life expectancy) should be an ominous sign.
The call for humility around Fed models and forecasts is spot on. Reexamining how monetary policy interacts with expectations, supply shocks, debt, and credibility feels essential.
If you're interested in exploring these dynamics interactively, check out the Inflation Lab ( https://inflation-lab.logicaleap.com ). It's a teaching simulator built on a standard 3-equation New Keynesian model (with parameters from the literature). You can drag levers for money supply, interest rates, government spending, supply shocks, and expectations and watch inflation, unemployment, and purchasing power respond in real time.
I'm no economic scholar, but John Cochrane makes a lot of sense to me. I like the suggestion "...a strong price-stability mandate, with restrictions on bond-buying, but one that Congress suspends in times of crisis..." But one problem I have with that is the definition of "crisis." Many people, including many politicians, have regularly been trying to redefine words. Bill Clinton questioned the meaning of the word "is" and also "sex". Is that an Obamacare "penalty" or a "tax"? Men can have periods and babies. Racism is a "health crisis." Presidents, including Trump, have been pretty loose with the meaning of "emergency" as they finagle funds for their pet goals. When there is money involved, definitions have a way of expanding at rapid rates. Seems to me the term "crisis" needs to be explicitly defined. Even so, when I consider how the two word Constitutional phrase "regulate commerce" has evolved into thousands upon thousands upon thousands of regulations, I wonder if there is any hope of sanity in our government. My only consolation is that we have as much or more sanity than most other countries.
If you mean the idea that more than 2% as a target is a good idea, you’d have to show examples of where it remained stable at said above-2% target.
Because other than Australia from 1990-2020 (with a target of 2%-3%), you’d be hard pressed to find a country that explicitly targeted inflation about 2% that delivered *both* good growth and stable inflation.
So let me get this straight, the soft landing under Biden's fed was a mistake, but now because we have a right wing president, the fed should absolutely capitulate to printing money for the president? So monetary policy differs for lobby pundits depending on the president rather than economic circumstances.
1. The Fed could reduce demand for reserves by reducing the interest it pays on them. The supply of reserves could then fall without tightening monetary policy.
2. "If Congress and the president want massive money-printing to finance a crisis response, should the central bank really force the government to borrow at much greater cost, spend differently, sharply raise taxes, restructure debt or withdraw from a confrontation? Tax, spending and foreign policy, even if unwise, are far outside the Fed’s limited mandate." Promoting stable prices is explicitly part of the Fed's mandate in the Federal Reserve Act and financing government budget deficits is not. You are advocating that the Fed contaminate the rest of the U.S. economy with the problems of the federal government. That will end badly for everyone. If you want an examples of how it works in practice, see Mexico in 1994, Argentina in 2002, and Sri Lanka in 2022.
The gift-link at the Washington Post has expired, John.
Hindsight is 20:20.
It appears the US has followed our allies into the territory of fiscal unsustainability. Our situation is probably recoverable, with good leadership. Unfortunately, we face no prospects for good leadership. Russia and China are weak, dysfunctional states, but they seem well positioned to take advantage of our problems.
You might be right about China, idk.
Russia is not at all well-positioned for all that much of anything beyond Europe idiotically cutting its own energy production, let alone to take advantage of the U.S.’s problems.
You many be right, but I think most westerners look at Russia with western eyes, not Russian. To a westerner, Russia is an economic basket case with a dysfunctional government and incompetent military. To a Russian, Russia has a strong government, good economic self-sufficiency, and a tough population willing to withstand any level of hardship to resist outsiders.
If you look at the Russian point of view, things aren't so alarming. Although demographics (very low fertility with decreasing life expectancy) should be an ominous sign.
The call for humility around Fed models and forecasts is spot on. Reexamining how monetary policy interacts with expectations, supply shocks, debt, and credibility feels essential.
If you're interested in exploring these dynamics interactively, check out the Inflation Lab ( https://inflation-lab.logicaleap.com ). It's a teaching simulator built on a standard 3-equation New Keynesian model (with parameters from the literature). You can drag levers for money supply, interest rates, government spending, supply shocks, and expectations and watch inflation, unemployment, and purchasing power respond in real time.
I'm no economic scholar, but John Cochrane makes a lot of sense to me. I like the suggestion "...a strong price-stability mandate, with restrictions on bond-buying, but one that Congress suspends in times of crisis..." But one problem I have with that is the definition of "crisis." Many people, including many politicians, have regularly been trying to redefine words. Bill Clinton questioned the meaning of the word "is" and also "sex". Is that an Obamacare "penalty" or a "tax"? Men can have periods and babies. Racism is a "health crisis." Presidents, including Trump, have been pretty loose with the meaning of "emergency" as they finagle funds for their pet goals. When there is money involved, definitions have a way of expanding at rapid rates. Seems to me the term "crisis" needs to be explicitly defined. Even so, when I consider how the two word Constitutional phrase "regulate commerce" has evolved into thousands upon thousands upon thousands of regulations, I wonder if there is any hope of sanity in our government. My only consolation is that we have as much or more sanity than most other countries.
I propose a replacement for the Humphrey-Hawkins mandate: First, do no harm. https://gonzoecon.com/2025/04/first-do-no-harm/
Is the universally adopted ideal inflation rate of 2% a kind of holy number not to be questioned?
If you mean the idea that more than 2% as a target is a good idea, you’d have to show examples of where it remained stable at said above-2% target.
Because other than Australia from 1990-2020 (with a target of 2%-3%), you’d be hard pressed to find a country that explicitly targeted inflation about 2% that delivered *both* good growth and stable inflation.
So let me get this straight, the soft landing under Biden's fed was a mistake, but now because we have a right wing president, the fed should absolutely capitulate to printing money for the president? So monetary policy differs for lobby pundits depending on the president rather than economic circumstances.
1. The Fed could reduce demand for reserves by reducing the interest it pays on them. The supply of reserves could then fall without tightening monetary policy.
2. "If Congress and the president want massive money-printing to finance a crisis response, should the central bank really force the government to borrow at much greater cost, spend differently, sharply raise taxes, restructure debt or withdraw from a confrontation? Tax, spending and foreign policy, even if unwise, are far outside the Fed’s limited mandate." Promoting stable prices is explicitly part of the Fed's mandate in the Federal Reserve Act and financing government budget deficits is not. You are advocating that the Fed contaminate the rest of the U.S. economy with the problems of the federal government. That will end badly for everyone. If you want an examples of how it works in practice, see Mexico in 1994, Argentina in 2002, and Sri Lanka in 2022.