Do you think there's anything to the argument I've heard that continually pumping money into the economy via low interest rates and deficit spending actually increases inequality in the long term because the usual suspects (wall street, big business) has a knack for soaking in up?
Noah, I agree that the current consensus is much more pro-stimulus than in 2009. What could change that consensus is...er my article https://seekingalpha.com/article/4361570-skill-stalagmites-technology-stalactites. In that article I argue that the reason for low business investment - and thus low interest rates - is because firms are choosing not to invest more. And the reason for that is firms have a minimum return on capital hurdle, which they are loathe to go below.
Could someone help me understand how rising interest rates could pose an issue? Doesn't the federal government set the interest rates? I don't see how this is something that could happen exogenously to create an issue with sustainability of the debt
Great article Noah! Could you write about the shift towards and the importance of looking at disaggregated data as well? I think with this crisis in particular and looking at the Fed's focus on racial and wealth disparities, Raj Chatterjee et. al.'s focus on micro-data, etc. the role of headline numbers hiding underlying structural differences becomes super important. One of the frequent pushback against more stimulus of the "give people money" kind is the headline household savings rate and its still elevated level compared to pre-covid. Ditto with the consumption rebound across goods and to a lot lesser extent, services. What is unclear is how much of that still elevated savings rate or consumption recovery is driven by high income or digital economy workers with fewer avenues to spend vs the direct beneficiaries of the last stimulus package. Here again, disaggregated data or micro-survey data makes a huge difference in understanding the dynamic and the necessity or otherwise for more fiscal support.
What about the relative rise of HANK within macro models? I doubt these bigshots would get much air time making Ricardian Equivalence arguments nowadays.
Our thinking on income/employment risk, search frictions, precautionary saving, household liquidity, borrowing constraints etc has moved on a lot since the mid-00s, even if no single element was anything new to the profession....and that's to say nothing of the firm side.
It seems like we (or policy and media macro) got stuck with a weird mix of RBC/NK rep agent thinking for a long time
The heuristic I learned in the last crisis was “rates low, unemployment high = more spending”, “unemployment low, rates high = less spending”
It’d be cool if an actual macroeconomist formalised some kind of model with that heuristic in it so we got some kind of thresholds for where to switch across. My heuristic is to just plot them both on a graph and use whichever is higher in raw percentage terms, but there’s probably a more scientific way to do it.
Interesting article! Can you point to other sources about the failures of austerity or that comment on the evolving recognition for fiscal stimulus in the face of the pandemic? I'm fine with both academic sources and stuff written for laypeople.
Hi Noah, thanks for this. I'm one of those former amateur deficit hawks that have come around to the notion that things have fundamentally changed such that deficits no longer seem to matter as much, and "giving people money" is the best way to approach fiscal stimulus. However, I still have this nagging fear that while fiscal stimulus is pumping up the mean expected outcome we are simultaneously pumping up the long-tail risks as well in ways that we don't understand yet. How worried, if at all, do you think I should be?
To wring one's hands about the lack of a unifying theory describing the necessity of a massive fiscal response: Clench your teeth and SAY IT!: MMT. The Job Gty. State the obvious.
This has been an interesting period to be alive and aware of what's happening with economics, watching the consensus in economics evolve the way the "scientific consensus" does in regular science, in response to evidence.
I'm often not a fan of Paul Krugman, but his little NYT blog really did more good in this respect over the last decade than most people will ever be able to fathom, I think. I honestly think without it, Trump's Treasury dept and the Fed would have behaved very differently. I think he changed the minds of some of the "Serious People."
Or...depressing though...they're all just waiting for Biden to get in office to unleash some newfangled pro-austerity argument they have written up in some secret drawer somewhere. LOL
Hopefully I'm just being overly cynical wondering about that.
If only this sentiment could trickle down into academic macroeconomics as well. DSGE models need to be tossed in the trash.
Do you think there's anything to the argument I've heard that continually pumping money into the economy via low interest rates and deficit spending actually increases inequality in the long term because the usual suspects (wall street, big business) has a knack for soaking in up?
Noah, I agree that the current consensus is much more pro-stimulus than in 2009. What could change that consensus is...er my article https://seekingalpha.com/article/4361570-skill-stalagmites-technology-stalactites. In that article I argue that the reason for low business investment - and thus low interest rates - is because firms are choosing not to invest more. And the reason for that is firms have a minimum return on capital hurdle, which they are loathe to go below.
Could someone help me understand how rising interest rates could pose an issue? Doesn't the federal government set the interest rates? I don't see how this is something that could happen exogenously to create an issue with sustainability of the debt
Great article Noah! Could you write about the shift towards and the importance of looking at disaggregated data as well? I think with this crisis in particular and looking at the Fed's focus on racial and wealth disparities, Raj Chatterjee et. al.'s focus on micro-data, etc. the role of headline numbers hiding underlying structural differences becomes super important. One of the frequent pushback against more stimulus of the "give people money" kind is the headline household savings rate and its still elevated level compared to pre-covid. Ditto with the consumption rebound across goods and to a lot lesser extent, services. What is unclear is how much of that still elevated savings rate or consumption recovery is driven by high income or digital economy workers with fewer avenues to spend vs the direct beneficiaries of the last stimulus package. Here again, disaggregated data or micro-survey data makes a huge difference in understanding the dynamic and the necessity or otherwise for more fiscal support.
maybe the economy too complex and too ever evolving for any grand theory to ever predict outcomes consistently over multiple generations
Hey Noah. What will put upward pressure on interest rates on US Treasuries? When might we have to worry about deficit spending?
Could you please touch on Systemic and Structural inequality and its impact? Sometime...
What about the relative rise of HANK within macro models? I doubt these bigshots would get much air time making Ricardian Equivalence arguments nowadays.
Our thinking on income/employment risk, search frictions, precautionary saving, household liquidity, borrowing constraints etc has moved on a lot since the mid-00s, even if no single element was anything new to the profession....and that's to say nothing of the firm side.
It seems like we (or policy and media macro) got stuck with a weird mix of RBC/NK rep agent thinking for a long time
The heuristic I learned in the last crisis was “rates low, unemployment high = more spending”, “unemployment low, rates high = less spending”
It’d be cool if an actual macroeconomist formalised some kind of model with that heuristic in it so we got some kind of thresholds for where to switch across. My heuristic is to just plot them both on a graph and use whichever is higher in raw percentage terms, but there’s probably a more scientific way to do it.
Interesting article! Can you point to other sources about the failures of austerity or that comment on the evolving recognition for fiscal stimulus in the face of the pandemic? I'm fine with both academic sources and stuff written for laypeople.
can you write about inequality causes and solutions?
Hi Noah, thanks for this. I'm one of those former amateur deficit hawks that have come around to the notion that things have fundamentally changed such that deficits no longer seem to matter as much, and "giving people money" is the best way to approach fiscal stimulus. However, I still have this nagging fear that while fiscal stimulus is pumping up the mean expected outcome we are simultaneously pumping up the long-tail risks as well in ways that we don't understand yet. How worried, if at all, do you think I should be?
To wring one's hands about the lack of a unifying theory describing the necessity of a massive fiscal response: Clench your teeth and SAY IT!: MMT. The Job Gty. State the obvious.
This has been an interesting period to be alive and aware of what's happening with economics, watching the consensus in economics evolve the way the "scientific consensus" does in regular science, in response to evidence.
I'm often not a fan of Paul Krugman, but his little NYT blog really did more good in this respect over the last decade than most people will ever be able to fathom, I think. I honestly think without it, Trump's Treasury dept and the Fed would have behaved very differently. I think he changed the minds of some of the "Serious People."
Or...depressing though...they're all just waiting for Biden to get in office to unleash some newfangled pro-austerity argument they have written up in some secret drawer somewhere. LOL
Hopefully I'm just being overly cynical wondering about that.
Unrest on the left and threats of violence on the right? Reality - actual violence on the left. Silly and inaccurate comment from the author.