faulker020

I recently wrote a Bloomberg View post about consumption Euler equations, and how these are increasingly being targeted as a broken piece of macroeconomics. I traced the idea back to Milton Friedman and the Permanent Income Hypothesis, and Bloomberg decided (wisely) to go with Friedman for the headline. "Economists Give Up on Milton Friedman's Biggest Idea" is probably going to get orders of magnitude more clicks than "Economists Search for Replacement for Infinitely Lived Perfectly Far-Sighted Model of Consumption Smoothing". BUT, anyway, Emily Skarbek decided that Uncle Miltie needed some defending, and wrote a blog post praising his legacy. Most of the post discusses stuff that I didn't touch on in my Bloomberg post, since I was only talking about the PIH. So I decided to do a post about Milton Friedman's overall legacy - actually, much too big a topic to do justice to in one post, but hey, that never stopped anyone before, so what the heck! I pitch...

Tyler Cowen (now a Bloomberg View colleague of mine) took a crack at this question back in February, and I've been thinking about it ever since. Here's my unified theory of why a guy like Trump managed to take over the Republican party this year, when nothing similar had ever happened before in living memory. First of all, a note about causality. Most events are the result of a chain of causes - if one link in the chain falls apart, the event doesn't happen. This is not the way human intuition naturally thinks about causality - we instinctively imagine each event as the sum of causal factors, and attribute some percent of responsibility to each factor. But with a causal chain, each link is responsible for 100% of the causality. Just like the marginal value of a right shoe and the marginal value of a left shoe are both equal to 100% of the total value of a pair of shoes . So I think that Trump is a special human being. He's a reality star, a possibly-faux-billionaire c...

Zak David, a quant trader, recently wrote a post criticizing Scott Sumner's idea of NGDP futures market targeting. Sumner fired back with a defense of the idea , and Zak responded with an update to his post. I want to see if I can explain Zak's ideas in a little greater detail. Basically, he's right. To recap, the original NGDP futures targeting idea goes something like this: 1. The Fed sets an NGDP target (say, 5%). 2. The Fed then offers to enter into any number of NGDP futures contract with anyone who wants, at a price equal to the target. So if I take a $1000 long position in these futures, and NGDP comes in at 10% (double the target), I get $2000 back. If I take a $1000 short position, and NGDP comes in at 2.5% (half the target), I get $2000 back. And so on. The Fed is always on the other side of the deal, and I can make as many of these deals as I want (assuming I can post sufficient margin). 3. The Fed then makes monetary policy automatically in response to people e...

I'm now reading Paul Kennedy's The Rise and Fall of the Great Powers , so I thought I'd ask a disturbing, alarmist, but important question. If China makes a bid to overturn the U.S.-led global order by military force, when will that bid come? (This sounds like a job for...amateur made-up political science!) First, two preliminary questions: 1) Will such a bid really come? And 2) What would it look like? My answer to (1) is "maybe, maybe not." So far, there have been several modern examples of great powers not trying to overturn the existing order by force. The UK dominated the seas and built a huge maritime empire, but never tried to leverage its global power to dominate the other great powers of Europe; instead, it tried to maintain a balance of power that allowed it to be rich and secure. The U.S. made a few aggressive moves in the early 1900s, but only reluctantly joined World War 1, and then tried to go isolationist in the interwar years - it eventually became...

"Gekokujo" (下克上) is a Japanese word meaning "low overcoming high". It refers to when the people lower down in a hierarchy rise up and overthrow those above them. Rebellions, mutinies, and populist uprisings are all gekokujo. The word was often used in conjunction with coup attempts by lower-level military officers in the years before WW2. Japan, it turns out, is a lot less hierarchical - or at least, obedient - of a place than people think. One culture I know that is very hierarchical is the econ profession. It has a centralized job market . Academic hiring is heavily weighted toward candidates from top departments. And it's sort of an open secret that old, famous professors can essentially publish whatever they want in top journals, which gives these old famous people enormous clout. As in most academic fields, publishing in one of a few top journals is key to career advancement. But in recent years, more and more top-journal publishing has been dominated by...