drummerboy said:

also, good job ignoring all the evidence staring you in the face.

What evidence has been ignored in this discussion?

“So far, though, we haven't seen even a hint of a demand slowdown.” Addressed.

“Pretty much every broad measure of the economy shows no slowing down.” Addressed.

“The fact remains that the economy has continued to grow and remain quite strong during the rate hike period while inflation has substantially moderated.” Addressed.

“My overall point here is that the Fed is trying to weaken the economy so as to lower inflation, but it has failed to do so.” Addressed.

You can continue to run with the idea that demand hasn’t been dampened, and that an overheated economy can’t keep humming along after weakening, but it won’t be because you’ve been given a clear field.

PVW said:

If DB is right, then I don't know why rates are even worth discussing. If they have no effect on inflation, then by the same logic why should we believe they have any effect on employment, or carry any risk around causing recessions? Consistency would lead us to the conclusion that if the Fed deserves no credit, it also is free of any blame.

some economists think that the effects of rate hikes are delayed. so it may be that it's not so much that they have no effect, as the effects have not hit us yet.

DaveSchmidt said:

drummerboy said:

also, good job ignoring all the evidence staring you in the face.

What evidence has been ignored in this discussion?

“So far, though, we haven't seen even a hint of a demand slowdown.” Addressed.

“Pretty much every broad measure of the economy shows no slowing down.” Addressed.

“The fact remains that the economy has continued to grow and remain quite strong during the rate hike period while inflation has substantially moderated.” Addressed.

“My overall point here is that the Fed is trying to weaken the economy so as to lower inflation, but it has failed to do so.” Addressed.

You can continue to run with the idea that demand hasn’t been dampened, and that an overheated economy can’t keep humming along after weakening, but it won’t be because you’ve been given a clear field.

not addressed by jim, has it?

drummerboy said:

PVW said:

If DB is right, then I don't know why rates are even worth discussing. If they have no effect on inflation, then by the same logic why should we believe they have any effect on employment, or carry any risk around causing recessions? Consistency would lead us to the conclusion that if the Fed deserves no credit, it also is free of any blame.

some economists think that the effects of rate hikes are delayed. so it may be that it's not so much that they have no effect, as the effects have not hit us yet.

I was being wishy-washy with the "some economists think". It's generally accepted to be the case.

I guess I don't understand why "effects may be delayed" is acceptable for adverse effects, but "inflation is less than it would have been" can be absolutely ruled out.

If your position was "rate hikes don't seem to have had the effect some economists expected, here's some economists discussing this" I'd have no problem with that. Maybe it turns out that the empirical evidence of the last few years gives solid reasons for revisiting long-held economic consensus positions. This would be a position that begins a discussion. But your argument has been that rates definitely had no effect on inflation. This is a position that ends discussion, and does so by being very selective in what arguments and evidence it sees as convincing and which ones it does not.

To Jim's climate science analogy, the current consensus on human driven climate change is convincing because one can read through years of studies and arguments looking into it, and for those who truly find the subject interesting, there's actually still a lot of ongoing questions we don't know definite answers to. It's not just some blogger that pointed to a temperature graph and made a pronouncement.

also, as regards to evidence - conventional wisdom said we were to expect a recession and much higher unemployment in order for inflation to go down. The Fed itself worried about those outcomes.

neither came close to happening before inflation moderated. chart sophistry notwithstanding.

exactly what more evidence do you need to tell you that inflation did not come down due to rate hikes? how could it be more obvious?

PVW said:

I guess I don't understand why "effects may be delayed" is acceptable for adverse effects, but "inflation is less than it would have been" can be absolutely ruled out.

If your position was "rate hikes don't seem to have had the effect some economists expected, here's some economists discussing this" I'd have no problem with that. Maybe it turns out that the empirical evidence of the last few years gives solid reasons for revisiting long-held economic consensus positions. This would be a position that begins a discussion. But your argument has been that rates definitely had no effect on inflation. This is a position that ends discussion, and does so by being very selective in what arguments and evidence it sees as convincing and which ones it does not.

To Jim's climate science analogy, the current consensus on human driven climate change is convincing because one can read through years of studies and arguments looking into it, and for those who truly find the subject interesting, there's actually still a lot of ongoing questions we don't know definite answers to. It's not just some blogger that pointed to a temperature graph and made a pronouncement.

see my prior post. there is little to no evidence that the economy has been affected in the expected way by the rate hikes. it's not possible to say the hikes "definitely had no effect", and I don't think I said that. but to me anyway, the evidence is pretty overwhelming that the effects of hikes was pretty minimal (so far anyway), and that if there were no hikes we'd probably be in the same position, more or less, on inflation.

eta: I don't quite understand your first sentence.

drummerboy said:

not addressed by jim, has it?

Kudos to Jim for not being redundant.

This gave me a chuckle.

On chart sophistry: “The FRED database is maintained by the Federal Reserve Bank of St. Louis, and it's absolutely the first place to look for economic data.”

— Kevin Drum

DaveSchmidt said:

This gave me a chuckle.

On chart sophistry: “The FRED database is maintained by the Federal Reserve Bank of St. Louis, and it's absolutely the first place to look for economic data.”

— Kevin Drum

I am familiar with FRED and I never claimed the data itself was flawed in any way.

What was flawed was what you were trying to prove with it.

drummerboy said:

also, as regards to evidence - conventional wisdom said we were to expect a recession and much higher unemployment in order for inflation to go down. The Fed itself worried about those outcomes.

neither came close to happening before inflation moderated. chart sophistry notwithstanding.

exactly what more evidence do you need to tell you that inflation did not come down due to rate hikes? how could it be more obvious?

Naturally the Fed worried. It’s at least as aware as you are that economics isn’t a science. (Your acknowledgment that the Fed doesn’t take itself to be all-knowing is noted.)

What you keep missing is that a soft landing that squeaked past conventional wisdom was always considered a possibility and was, in fact, the Fed’s goal.

And here’s Powell, just this week, on why bringing down inflation has been different this time. (CNBC)

drummerboy said:

I am familiar with FRED and I never claimed the data itself was flawed in any way.

What was flawed was what you were trying to prove with it.

Shame on you for recanting, then.

drummerboy said:

Smedley said:

Nobody said Fed criticism is a fringe position. That is a straw man.

jim literally said this:

You glossed over my point regarding climate science deniers. What makes them smarter than all of the scientists and what makes you smarter then the Fed? Your certainty regarding what is a fringe position is what I find off-putting, and its only explanation is that it doesn't fit your worldview.

Your specific position, that it’s obvious that inflation did not come down as a result of rate hikes, is a fringe position.

Being critical of the Fed generally is not a fringe position. You indicated people were arguing this when you (literally) said: “And it might not be even fair to regard Fed criticism as a fringe position.”

So I reiterate that “Nobody said Fed criticism is a fringe position”, noting that your rebuttal failed to show that someone said that. 

drummerboy said:

exactly what more evidence do you need to tell you that inflation did not come down due to rate hikes? how could it be more obvious?

Well, for one it's not at all obvious to me how to figure out how the rates impacted demand. Your original claim was "the purpose of raising rates is to decrease demand, which is then supposed to decrease inflation."

Ok, but to know if this really worked or not we'd need a good model of what we think the demand would have looked like without the rate hikes, and that's what's missing here. You're assuming that demand should have decreased, but I don't see why we should take that as a given -- as DaveSchmidt pointed out, demand could still have been lower relative to what it otherwise would have been, without it showing an absolute decrease.

You seem to to think it's obvious what the demand graph should look like. I think it's far from obvious, and would expect links to economists discussing this, not definite pronouncements.

Smedley said:

drummerboy said:

Smedley said:

Nobody said Fed criticism is a fringe position. That is a straw man.

jim literally said this:

You glossed over my point regarding climate science deniers. What makes them smarter than all of the scientists and what makes you smarter then the Fed? Your certainty regarding what is a fringe position is what I find off-putting, and its only explanation is that it doesn't fit your worldview.

Your specific position, that it’s obvious that inflation did not come down as a result of rate hikes, is a fringe position.

Being critical of the Fed generally is not a fringe position. You indicated people were arguing this when you (literally) said: “And it might not be even fair to regard Fed criticism as a fringe position.”

So I reiterate that “Nobody said Fed criticism is a fringe position”, noting that your rebuttal failed to show that someone said that. 

dollars to donuts you can't name any economist other than Larry Summers and Paul Krugman off the top of your head (interestingly enough, Powell is not an economist.) so I don't know why you think you're in any position to identify a fringe position.

Anyway, do you consider James K. Galbraith on the fringe?

James K. Galbraith, Professor of Government and Chair in Government/Business Relations at the University of Texas at Austin, is a former staff economist for the House Banking Committee and a former executive director of the Joint Economic Committee of Congress. From 1993-97, he served as chief technical adviser for macroeconomic reform to China’s State Planning Commission. He is the author of Inequality: What Everyone Needs to Know (Oxford University Press, 2016), Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe (Yale University Press, 2016), and the forthcoming Entropy Economics: The Biophysical Basis of Value and Production (University of Chicago Press).

Why Mainstream Economics Got Inflation Wrong

PVW said:

drummerboy said:

exactly what more evidence do you need to tell you that inflation did not come down due to rate hikes? how could it be more obvious?

Well, for one it's not at all obvious to me how to figure out how the rates impacted demand. Your original claim was "the purpose of raising rates is to decrease demand, which is then supposed to decrease inflation."

Ok, but to know if this really worked or not we'd need a good model of what we think the demand would have looked like without the rate hikes, and that's what's missing here. You're assuming that demand should have decreased, but I don't see why we should take that as a given -- as DaveSchmidt pointed out, demand could still have been lower relative to what it otherwise would have been, without it showing an absolute decrease.

You seem to to think it's obvious what the demand graph should look like. I think it's far from obvious, and would expect links to economists discussing this, not definite pronouncements.

as I have said, the general expectation and fear was that raising rates would trigger a recession with high unemployment. clearly, under that scenario, the expectation would be that demand would drop, not simply slow down its rate of growth. I kind of doubt that they were just shooting for a flattening of the curve. Particularly not with their quite aggressive approach.

Of course, we're quite unlikely to see actual proof either way, but it seems to me that the belief that inflation dropped so dramatically and so quickly after the rate hikes because the rate of growth in demand dropped (let's not forget the delayed effects of the hikes, so it's quite possible that even the drop in the growth rate was unrelated to the hikes) flies in the face of both evidence and common sense. (OK, I'm just repeating myself now.)

Also, regarding the general theory of raising rates to fight inflation - we don't have a lot of data points to work with. All I can find is Volcker in 1979 and Greenspan in 1988. Both led to recessions. So, there is no historical evidence backing up the notion that a slowing of demand growth led to any inflation reversal, much less the dramatic one we've seen now.

BTW, the idea that demand even played a significant role in our recent inflation is hardly a given in the first place. Almost all of you are just assuming it's the case.

drummerboy said:

BTW, the idea that demand even played a significant role in our recent inflation is hardly a given in the first place. Almost all of you are just assuming it's the case.

It’s hard to accuse us of ignoring evidence of Fed failure that’s staring us in the face while also blaming us for a focus on demand, which is evidence that you put on the table with Drum’s blog post.

drummerboy said:

Smedley said:

drummerboy said:

Smedley said:

Nobody said Fed criticism is a fringe position. That is a straw man.

jim literally said this:

You glossed over my point regarding climate science deniers. What makes them smarter than all of the scientists and what makes you smarter then the Fed? Your certainty regarding what is a fringe position is what I find off-putting, and its only explanation is that it doesn't fit your worldview.

Your specific position, that it’s obvious that inflation did not come down as a result of rate hikes, is a fringe position.

Being critical of the Fed generally is not a fringe position. You indicated people were arguing this when you (literally) said: “And it might not be even fair to regard Fed criticism as a fringe position.”

So I reiterate that “Nobody said Fed criticism is a fringe position”, noting that your rebuttal failed to show that someone said that. 

dollars to donuts you can't name any economist other than Larry Summers and Paul Krugman off the top of your head (interestingly enough, Powell is not an economist.) so I don't know why you think you're in any position to identify a fringe position.

Anyway, do you consider James K. Galbraith on the fringe?

James K. Galbraith, Professor of Government and Chair in Government/Business Relations at the University of Texas at Austin, is a former staff economist for the House Banking Committee and a former executive director of the Joint Economic Committee of Congress. From 1993-97, he served as chief technical adviser for macroeconomic reform to China’s State Planning Commission. He is the author of Inequality: What Everyone Needs to Know (Oxford University Press, 2016), Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe (Yale University Press, 2016), and the forthcoming Entropy Economics: The Biophysical Basis of Value and Production (University of Chicago Press).

Why Mainstream Economics Got Inflation Wrong

I follow what economists at banks and other financial firms say on a fairly regular basis, and I don’t think I’ve come across anyone this year whose position is anything like yours.

And your guy is all well and good but citing this one individual indicates you may not know the definition of fringe, which is ”not part of the mainstream; unconventional, peripheral, or extreme.” So your guy could be the smartest guy in the room and still be fringe — which the headline of his piece attests to.

Lastly, a fringe opinion isn’t necessarily a wrong opinion, so I don’t know why you’re fighting tooth and nail that your opinion is not only correct, but also that it’s not fringe. Why not just own that you have a fringe opinion?

Smedley said:

drummerboy said:

Smedley said:

drummerboy said:

Smedley said:

Nobody said Fed criticism is a fringe position. That is a straw man.

jim literally said this:

You glossed over my point regarding climate science deniers. What makes them smarter than all of the scientists and what makes you smarter then the Fed? Your certainty regarding what is a fringe position is what I find off-putting, and its only explanation is that it doesn't fit your worldview.

Your specific position, that it’s obvious that inflation did not come down as a result of rate hikes, is a fringe position.

Being critical of the Fed generally is not a fringe position. You indicated people were arguing this when you (literally) said: “And it might not be even fair to regard Fed criticism as a fringe position.”

So I reiterate that “Nobody said Fed criticism is a fringe position”, noting that your rebuttal failed to show that someone said that. 

dollars to donuts you can't name any economist other than Larry Summers and Paul Krugman off the top of your head (interestingly enough, Powell is not an economist.) so I don't know why you think you're in any position to identify a fringe position.

Anyway, do you consider James K. Galbraith on the fringe?

James K. Galbraith, Professor of Government and Chair in Government/Business Relations at the University of Texas at Austin, is a former staff economist for the House Banking Committee and a former executive director of the Joint Economic Committee of Congress. From 1993-97, he served as chief technical adviser for macroeconomic reform to China’s State Planning Commission. He is the author of Inequality: What Everyone Needs to Know (Oxford University Press, 2016), Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe (Yale University Press, 2016), and the forthcoming Entropy Economics: The Biophysical Basis of Value and Production (University of Chicago Press).

Why Mainstream Economics Got Inflation Wrong

I follow what economists at banks and other financial firms say on a fairly regular basis, and I don’t think I’ve come across anyone this year whose position is anything like yours.

And your guy is all well and good but citing this one individual indicates you may not know the definition of fringe, which is ”not part of the mainstream; unconventional, peripheral, or extreme.” So your guy could be the smartest guy in the room and still be fringe — which the headline of his piece attests to.

Lastly, a fringe opinion isn’t necessarily a wrong opinion, so I don’t know why you’re fighting tooth and nail that your opinion is not only correct, but also that it’s not fringe. Why not just own that you have a fringe opinion?

you're right. I should have realized that "fringe" was meant as a term of endearment.

DaveSchmidt said:

drummerboy said:

BTW, the idea that demand even played a significant role in our recent inflation is hardly a given in the first place. Almost all of you are just assuming it's the case.

It’s hard to accuse us of ignoring evidence of Fed failure that’s staring us in the face while also blaming us for a focus on demand, which is evidence that you put on the table with Drum’s blog post.

I'm not complaining about a focus on demand. I'm complaining about the assumption that it was a substantial cause.

And the Drum post can be read as "not only was the Fed wrong about demand's role in causing inflation, they were wrong in its role in reducing it". That's how I read it anyway.

drummerboy said:

Of course, we're quite unlikely to see actual proof either way, but it seems to me that the belief that inflation dropped so dramatically and so quickly after the rate hikes because the rate of growth in demand dropped (let's not forget the delayed effects of the hikes, so it's quite possible that even the drop in the growth rate was unrelated to the hikes) flies in the face of both evidence and common sense.

The discussion would be more constructive, on the whole, if you could let go of your strawmen. Nobody, from Powell on down, has claimed that the rate hikes alone brought inflation down.

I'm not complaining about a focus on demand. I'm complaining about the assumption that it was a substantial cause.

And the Drum post can be read as "not only was the Fed wrong about demand's role in causing inflation, they were wrong in its role in reducing it". That's how I read it anyway.

There’s the strawman again. Nobody said substantial.

Drum wrote that the evidence was in favor of this conclusion: “The Fed hasn’t had any effect yet.” (Emphasis mine.) That assertion was the genesis of the objections, which you pooh-poohed, stating yourself that “the Fed's actions are probably not the reason for inflation falling.”

If you didn’t really mean to go that far — if you agree it’s possible the rate hikes played some role, in conjunction with other, perhaps even more substantive causes — I think we’re basically on the same page. (And not on Drum’s.)

let me put it this way - I think the rate of inflation would be essentially the same without the rate hikes. of course it's possible that they played a bigger role, but for all of the reasons I've already cited, I'm not seeing the evidence for it.

no recession or anything close to it, very strong employment, strong demand

and yet again and perhaps most importantly, the time lagged nature of the effect of rate hikes. inflation started going down well before the hikes had any effect.

seriously, what more do you want?

drummerboy said:

seriously, what more do you want?

I don’t want anything. Setting the world straight is your job.

As the Kenneth Burke quote in the NJ Transit section of Penn Station says, "With my book in one hand and my drink in the other, what more could I want but fame, better health, and ten million dollars?"

PVW said:

As the Kenneth Burke quote in the NJ Transit section of Penn Station says, "With my book in one hand and my drink in the other, what more could I want but fame, better health, and ten million dollars?"

Toes that can turn pages.

here's a question:

It's generally accepted that raising taxes on corporations will result in higher prices, as businesses will just pass on the cost to consumers in order to maintain their profit margins.

By the same token, shouldn't higher interest rates have the same effect?

Never mind.

drummerboy said:

here's a question:

It's generally accepted that raising taxes on corporations will result in higher prices, as businesses will just pass on the cost to consumers in order to maintain their profit margins.

By the same token, shouldn't higher interest rates have the same effect?

I don’t know. The economy, we can all agree, is complicated, and like you I’m a layman.

But taking your question at face value (I’m aware that companies warn that higher corporate taxes will force them to raise prices, but beyond that …), I see two differences between the two policies right off the bat.

First, there’s supply and demand. An increase in corporate taxes leaves consumers’ purchasing resources alone, maintaining whatever elasticity already existed in their ability to absorb higher prices, which businesses could be tempted to test. They’re less likely to test it when monetary policy is tightened for everyone.

Second, paying a higher corporate tax is a legal requirement for businesses, an unavoidable cost. Borrowing new money with higher interest rates isn’t.

I don't quite understand your first point.

As for your second, I don't think most corporations would consider borrowing to be avoidable.