Feb 2 2022
During my recent visit to Austin, I interviewed Richard Hanania for the Salem Center's podcast. Very wide-ranging, hence the title: "The Politics of Everything." Enjoy! https://www.youtube.com/watch?v=2M33am5sGws&ab_channel=SalemCenterforPolicy
Feb 1 2022
In a recent tweet, George Selgin pushes back against the view that the Fed creates asset price bubbles that persist for more than a decade. But then why do these theories keep finding support? The basic problem in economics, especially in macroeconomics, is that people tend to believe what seems plausible, not the...
Feb 1 2022
The interview is here. It's about 5 minutes. I think John looks good with a beard.
READER COMMENTS
MIchael Sandifer
Feb 1 2022 at 8:23pm
Unfortunately, this video and interview are very misleading. The fact is, most of the inflation we experience now has nothing to do with monetary policy. It’s primarily due to supply shocks and changes in demand composition. And, it is mostly transitory. Powell and Yellen should not have stopped using the word. They just underestimated how long these problems would last.
As the below 5 year inflation breakeven indicates, inflation expectations have never even reached 3% in core PCE terms during this recovery:
https://fred.stlouisfed.org/graph/?g=Lxoc
There’s even a graphic presented in the video that shows what happens to the value of savings over several years at 7% inflation. The fact is, there’s no reason to believe inflation much above 2% will occur for much longer. This is a lot of misinformation.
I expected this transitory inflation to last 2-3 years all along. This is nothing like the Great Inflation, in which high inflationary expectations were well-anchored.
David Henderson
Feb 2 2022 at 1:27pm
I think the inflation is transitory also and I agree with your maximum 3-year time frame. I even think it will be shorter run than that.
I pointed out in a recent post that inflation, measured monthly, fell in December.
Michael Sandifer
Feb 2 2022 at 5:00pm
David Henderson,
Yes, normally, your comments on inflation are very reasonable, as they were in the aftermath of the Great Recession. You were not predicting high inflation would eventually come, like so many others. I’m glad to see you continue to be reasonable.
David Henderson
Feb 2 2022 at 5:53pm
Thanks, Michael. Moreover, on my last bet on that, I made $500.
Mike Sproul
Feb 1 2022 at 11:36pm
The Fed is not a counterfeiter. Counterfeiters don’t put their name on their money, don’t hold assets against it, and don’t stand ready to use those assets to buy it back. Furthermore, inflation is not caused by “too much money chasing goods”, but by too much Fed Money chasing the Fed’s assets.
David Henderson
Feb 2 2022 at 10:09am
You wrote:
You’re right. It does what it does legally. I have found in the past that students can understand the effect of the Fed printing money by imagining the Fed as a counterfeiter. Notice that I didn’t it’s a counterfeiter. I said that the Fed does the same thing, i.e., print money.
Mike Sproul
Feb 2 2022 at 10:53pm
When the Fed prints a new dollar, it gets a dollar’s worth of new assets. Thus the left side of the Fed’s balance sheet grows by the same amount as the right side, and the value of the dollar is unchanged. I presume you object to the Fed printing money because there is “more money chasing the same goods”, but a better argument is that there is more Fed money chasing more Fed assets, and therefore no inflation.
Inflation only happens when the Fed’s liabilities outrun its assets, with the result that the Fed can no longer buy back the money it has issued.
Monte
Feb 2 2022 at 12:34am
Some pretty bold claims being made here about transitory vs long-term elevated inflation going forward. Might a bet be in order?
MIchael Sandifer
Feb 2 2022 at 1:34am
I’ll bet you, certainly, but there are already plenty of bets in the stock and bond markets. It’s not just TIPs spreads that indicate no long-term high inflation expectations, but the discount rate for the S&P 500 is also not much above 4%.
If you think you know better than markets, sure. How much do you want to bet?
Monte
Feb 2 2022 at 3:08am
As Yoda might say, “Too much faith in the markets you place, Master Sandifer.”. I’ve been researching this some lately, and I think de-anchoring of expectations might plague the markets. I thought Prof. Henderson might step up on a gentleman’s bet, since he’s the one you’ve challenged with a claim of misinformation (Economists on this site have a tendency to place wagers when opportunities like this come into play), but I’ll go good on a bet. We’ll have to set some boundaries. What did you have in mind?
MIchael Sandifer
Feb 2 2022 at 7:57am
I like Caplan’s take on wagering, which is to say, in part, that it greatly clarifies the confidence people have in their stated opinions. Obviously, you’re not confident about yours.
If David Henderson wants to bet on the max realized rate of inflation going forward, whether in core PCE or CPI terms, I’m certainly game. I’m willing to wager at least $100,000 right now, but will also accept “friendlier” amounts, down to $100.
I want to say that I don’t comment on most of his posts, usually because I agree with him, but sometimes also because the topic isn’t important to me.
David Henderson
Feb 2 2022 at 10:05am
Michael Sandifer and Monte,
I trust that you can distinguish between John Stossel’s views and mine. I’m not betting on something I don’t believe. I think the odds that we’ll have an average of 7% inflation over 20 years are less than 1 in 100.
Also, notice that I think you both missed a hypothetical on Stossel’s part. He stated the consequences of 7% annual inflation over 20 years. I don’t think he said that he expects that to happen.
Monte
Feb 3 2022 at 10:13am
You’re right. Forecasting inflation is a dismal science, and I’m not nearly as confident in predicting it as you professionals seem to be. But I chose to step in front of this bus for the good doctor, so I’m all in, I suppose.
I believe this inflation is non-transitory. I believe we’re going to continue to see supply chain issues and a de-anchoring of expectations. I believe economists like Larry Summers when he says we have an overheated economy and that he anticipates “higher entrenched inflation for the foreseeable future” (he cites labor shortages in a number of professions, which “suggests a surfeit of purchasing power and demand relative to the capacity of the economy to produce, and unless we bring those things into balance, we’re going to have not just higher inflation but possibly even accelerating inflation.). I believe we have a tight labor market and that workers will push for higher wages and firms will pass that on to consumers in the form of higher prices. And most of all, I believe our government is deliberately pursuing an inflationary policy to bring the debt/GDP ratio back in line and that will take several years to normalize. So I believe, and I’m willing to bet, that we’ll see average inflation of between 2.5-4% through 2024 against your more optimistic forecast of <2.5% tapering to the Fed’s target of 2.1% over the same period. I may very well lose this bet if Powell pumps the brakes too early and too often, pushing us into a recession, but…c’est la vie.
If these terms are agreeable to you, I’ll raise the ante to $500 towards our favorite charities. Mine is Alzheimer’s Association, a health organization whose services I fear I’ll probably need in my later years like dear old dad, bless his memory. We can provide contact information to each other off line and hold each other’s promissory notes, or however you’d care to settle up.
Monte
Feb 3 2022 at 7:15pm
Just to be clear, I never said anything about, or agreed with, 7% inflation over 20 years. I may have misinterpreted Michael’s comment about the video being “misinformation.”
Eric Garretty
Feb 2 2022 at 10:22am
Professor Henderson has been consistently right about when inflation occurs, its root causes, and its impacts for over 20 years. I took his class while at Naval Postgraduate School and his theories have been proven right time and again. Keep up the great work.
Monte
Feb 2 2022 at 10:53am
I’ll respond asap. Unfortunately, our cat is having a bad time of it and we need to take to vet this morning and I’ll be working after, but once we establish the conditions, I’m thinking a friendly bet of $100 in the form of a donation to our respective charities or causes on behalf of each another. I’m just a poor, untrained armchair economist who can’t afford high stakes poker, especially during these inflationary times.
Comments are closed.