From CDC, Atlantic/Covid Tracking Project, and IHME: Figure 1: Weekly fatalities due to Covid-19 as reported to CDC for weeks ending on indicated dates (black), excess fatalities calculated as actual minus expected (teal), fatalities as tabulated by The Covid Tracking Project/Atlantic (dark red), IHME forecast (light red) . Source: CDC 7/29/2020 vintage, Covid Tracking Project/Atlantic accessed 7/29/2020, […]
Second stimulus checks: States warn GOP’s jobless plan could mean months of delayed payments WKBN.comSecond stimulus checks: States warn GOP’s jobless plan could mean months of delayed payments WKBN.com
1. Should colleges teach outside under tents? 2. Is the strain newly found in Vietnam more contagious than the older one? 3. Andrew Kortina on the winners and losers from accelerated virtualization. 4. Andy Matuschak and Michael Nielsen on Timeful Texts. 5. Against optionality. 6. George Church and some other scientists are taking DIY vaccines […]
The Fed is currently contemplating a set of monetary policy changes that might be viewed as “second best”. These include yield curve control and average inflation targeting. With yield curve control the central bank would peg the yield on longer-term Treasury bonds. This was Fed policy during the 1940s. Under average inflation targeting the central bank tries to make up for an inflation undershoot or overshoot, so that inflation will average 2% over the business cycle.
In my view, these are second best policies. Holding down long-term interest rates might be expansionary, but it also might end up being contractionary. After all, contractionary monetary policy can easily decrease long-term interest rates by reducing expectations of inflation and economic growth.
Average inflation targeting might be expansionary during a recession, but it also might lack credibility for exactly the same reason that the current inflation targeting regime lacks credibility; there is no hard and fast commitment to make up for inflation undershoots, just an intention to try to do so.
In my view, first best policies would involve level targeting (of prices or better yet NGDP) and a “whatever it takes” approach to monetary expansion to hit those level targets. That’s the only policy regime that would give me confidence that the Fed would actually hit its target over the very long run.
So here’s the question. Should we view the adoption of second best policies as a step forward, even if not optimal? Or would they be a step that makes the optimal policy less likely? That is, would average inflation targeting involve the opportunity cost of rejecting level targeting?
What do you think?
Last week, I was part of the Cato Institute’s book forum on Laurence Siegel’s Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance. Here’s my commentary on the book.
1. Vast areas of agreement:
a. Until March, the world was getting richer at a marvelous pace. Absolute poverty has been disappearing before our eyes after ten thousand years of apparent permanence.
b. Conventional measures sharply understated the glorious reality, because the environment keeps getting cleaner and the quality of the goods keeps getting higher.
c. Like it or not, global population is leveling off.
2. Overarching complaint: Siegel is so excited to share his conclusions that he rushes through the arguments in their favor. When the arguments are strong, the rushing is harmless. When the arguments are weak, the rushing leads Siegel to embrace errors.
3. Error #1: Leveling off of population now is a good thing. Siegel has no argument for this other than to say that population growth can’t be a good thing forever. But this argument would have been just as true when global population was 8000, 8M, or 800M.
True, Simon dodged the question of when population would start to be a problem. But he genuinely demonstrated vast neglected upsides of population – especially the effect on innovation. Almost all innovation really does come from high-population areas – and this can hardly be a coincidence. Furthermore, the main downsides of population – pollution and congestion – can be easily mitigated with pollution taxes and tolls, rather than fewer births.
Key point: Siegel presents no evidence that extra population has ceased to be a good thing overall yet, so why is he so happy about falling birthrates? The world is still mostly uninhabited – you could fit the entire world’s population into the continental U.S. at the density of Los Angeles. So why not hope for a world population of 20B, 50B, 100B, or even a T? If this seems absurd, imagine how absurd multiplying humanity 25-fold would have seemed 1000 years ago. Yet this “absurdity” turned out to be awesome.
4. Error #2: We should just live with (or even celebrate) declining birth rates. If you do the math (as I have in an earlier Cato Unbound piece), you’ll discover that large tax credits for births are the holy grail of tax policy: They more than pay for themselves in the long-run. We can reasonably expect a $10k per birth one-time tax credit to increase fertility enough to ultimately yield about $250k in net present value for the Treasury. A fantastic deal!
Also: Housing deregulation. City-dwellers have few kids because they’re so cramped for space, but this is largely a product of zoning and land-use policies that grossly inflate the price of housing, especially in the country’s most desirable areas.
5. Error #3: Becker’s economics of the family readily explains declining family size. Reality: Kids were never a good financial investment. As a business model, hiring able-bodied farmers makes far more sense than breeding helpless infants and waiting 15 years for help. Yes, modern economies offer many extra opportunities for child-free fun, but they also drastically reduce the pain of child-rearing and offer many extra opportunities for family fun. Why rising wealth causes falling birthrates is a fascinating question that social scientists have still failed to successfully answer.
By Montford Mlachila and Rasmane Ouedraogo While the economic effects of conflict and political instability have been analyzed extensively, much less attention has been paid to how banks are affected. Our IMF staff paper addresses this gap by investigating whether rising conflict and political instability globally over the past several decades has led to more […]
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