Thursday, January 4, 2024

Wednesday, December 27, 2023

A Kind Word for the Fed

 This is my first post over at Substack. Follow me here and let me know if it isn't working. 

The post is in praise of interest on reserves and abundant reserves, with (of course) some suggestions for improvements. 

Wednesday, December 20, 2023

Politics by Law

Colorado's Supreme Court kicks Trump off the ballot (WSJ). I wrote earlier forecasting constitutional crisis with  next election. Legal chaos is starting right on schedule. 

Summary: Both sides are casting their opponents as illegitimate. That justifies profound norm-breaking behavior.  Political battles are being fought in the courts, so control of the courts and the judicial system now becomes vital to political success. When you can't afford to lose an election you do anything to win. Scorched earth rules the day. 

This affair offers a catch-22 to the Supreme Court. As a partisan chess move, you can't help but admire it. The case is weak, as even the judges voting for it admit. The election is coming up fast. There are many pending state cases to keep Trump off the ballot. The Supreme Court surely does not want to see elections more and more decided by courts. This will likely force the Court to act.

Sunday, December 17, 2023

Bond risk premiums -- certainty found and lost again

This is a second post from a set of comments I gave at the NBER Asset Pricing conference in early November at Stanford.  Conference agenda hereMy full slides here. First post here, on new-Keynesian models

I  commented on "Downward Nominal Rigidities and Bond Premia" by Fran├žois Gourio  and Phuong Ngo. The paper was about bond premiums. Commenting made me realize that I thought I understood the issue, and now I realize I don't at all. Understanding term premiums still seems a fruitful area of research after all these years.  

I thought I understood risk premiums

The term premium question is, do you earn more money on average holding long term bonds or short-term bonds? Related, is the yield curve on average upward or downward sloping? Should an investor hold long or short term bonds? 

Friday, December 15, 2023

Time for a new (?) theory of regulation

What's the basic story of economic regulation? 

Econ 101 courses repeat the  benevolent dictator theory of regulation: There is a "market failure," natural monopoly, externality, or asymmetric information. Benevolent regulators craft optimal restrictions to restore market order. In political life "consumer protection" is often cited, though it doesn't fit that economic structure. 

Then "Chicago school" scholars such as George Stigler looked at how regulations actually operated.  They found "regulatory capture." Businesses get cozy with regulators, and bit by bit regulations end up largely keeping competition down and prices up to benefit existing businesses. 

We are, I think, seeing round three, and an opportunity for a fundamentally new basic view of how regulation operates today. 

The latest news item to prod this thought is FCC Commissioner Brendan Carr's scathing dissent on the FCC's decision to cancel $885 million contract to Starlink. Via twitter/X

Wednesday, December 13, 2023

A Vision for the University of Pennsylvania

A group of faculty at Penn have written A Vision for a New Future of the University of Pennsylvania at  They encourage signatures, even if you're not associated with Penn. I signed. 

Big picture: Universities stand at a crossroads. Do universities choose pursuit of knowledge, the robust open and uncomfortable debate that requires; excellence and meritocracy, even if as in the past that has meant admitting socially disfavored groups? Or do universities exist to advance, advocate for, and inculcate a particular political agenda? Choose.  

Returning to the former will require structural changes, and founding documents are an important part of that rebuilding effort.  For example, Penn and Stanford are searching for new presidents. A joint statement by board and president that this document will guide rebuilding efforts could be quite useful in guiding that search and the new Presidents' house-cleaning. 

There is some danger in excerpting such a document, but here are a few tasty morsels: 


Penn’s sole aim going forward will be to foster excellence in research and education.


Friday, December 8, 2023

Sociology Meetings

When Jukka Savolainen wrote about it in the Wall Street Journal I couldn't quite believe it, so I had to go look. Indeed, on the website of the American Sociological Association describing its 2024 annual meeting we have the official "theme" of the meeting

"..sociology as a form of liberatory praxis: an effort to not only understand structural inequities, but to intervene in socio-political struggles."

"To intervene." "Political struggles." 

New-Keynesian models, a puzzle of scientific sociology

This post is from a set of comments I gave at the NBER Asset Pricing conference in early November at Stanford.  Conference agenda here. My full slides here. There was video, but sadly I took too long to write this post and the NBER took down the conference video. 

I was asked to comment on "Downward Nominal Rigidities and Bond Premia" by Fran├žois Gourio  and Phuong Ngo. It's a very nice clean paper, so all I could think to do as discussant is praise it, then move on to bigger issues. These are really comments about whole literatures, not about one paper. One can admire the play but complain about the game. 

The paper implements a version of Bob Lucas' 1973 "International evidence" observation. Prices are less sticky in high inflation countries. The Phillips curve more vertical. Output is less affected by inflation. The Calvo fairy visits every night in Argentina. To Lucas, high inflation comes with variable inflation, so people understand that price changes are mostly aggregate not relative prices, and ignore them. Gourio and Ngo use a new-Keynesian model with downwardly sticky prices and wages to express the idea.  When inflation is low, we're more often in the more-sticky regime. They use this idea in a model of bond risk premia. Times of low inflation lead to more correlation of inflation and output, and so a different correlation of nominal bond returns with the discount factor, and a different term premium. 

I made two points, first about bond premiums and second about new-Keynesian models. Only the latter for this post. 

This paper, like hundreds before it, adds a few ingredients on top of a standard textbook new-Keynesian model. But that textbook model has deep structural problems. There are known ways to fix the problems. Yet we continually build on the standard model, rather than incorporate known ways or find new ways to fix its underlying problems. 

Problem 1: The sign is "wrong" or at least unconventional.

Wednesday, December 6, 2023

The Income Tax Paradox

The Supreme Court is hearing a case with profound implications for the income tax. WSJ editorial here and good commentary from Ilya Shapiro here

This issue is naturally contorted into legalisms:  What the heck does "apportioned" mean? How is "income"  defined legally? I won't wade into that. What are the economic issues? What's the right thing to do here, leaving aside legalisms?

Monday, December 4, 2023

FTPL news: discount and Economist list


Just in time for the holidays, the perfect stocking stuffer -- if you have really big stockings. 30% discount on Fiscal Theory of the Price Level until June 30 2024. 

And Fiscal Theory makes the Economist's list of best books for 2023

Friday, November 24, 2023

Pro Dollarization

With President Milei's election in Argentina, dollarization is suddenly on the table. I'm for it. Here's why. 

Tuesday, November 21, 2023

Thursday, November 16, 2023


Sunday Nov 19 6-7 PM I will be giving the "Association Lecture" at the Southern Economics Association conference in New Orleans. The topic naturally is "The Fiscal Theory of the Price Level." If you're curious, and will be at the conference, stop by. I now have a pretty good condensed talk about fiscal theory! 

Sunday, November 5, 2023

Lukianoff and Schlott on Cancellation

Last week I was honored to be moderator for a discussion with Greg Lukianoff and Rikki Schlott on their new book "Canceling the American Mind" at the Commonwealth Club of San Francisco.  Link here, if the embed above doesn't work 

Here are my questions. I shared them with Greg and Rickki ahead of time, so the actual questions are a bit shorter. But this may give you some interesting background, and I think they're good questions to ponder in general.