Talking with Eric Torenberg, Noah Smith says “The Fed will not stick to any rules that it officially adopts.” (minute 32) “The Fed will always exercise discretion.”
If I had more time, I would annotate this podcast. Instead, I will make a few other comments.
1. He claims that we don’t restrict supply in health care, and instead the problem is that prices are too high. If the government took over health insurance and drove down prices, all would be well. This is wrong, for reasons I won’t get into here. The analysis I offered in Crisis of Abundance still holds.
2. He claims that the government is not responsible for supply restrictions in higher ed. If Harvard wanted to expand one hundred-fold, it could. But that would dilute its brand. That seems right. But I would say that policy acts as if getting everyone a low-end college degree is like getting everyone into Harvard.
3. He relates productivity growth to energy technology. And a lot of the productivity boom of the 1930s was due to widespread use of oil instead of coal. To me, this seems like possible support for a PSST interpretation of the Great Depression. A lot of jobs, particularly in the agriculture sector, got destroyed by machine substitution (gasoline-powered tractors, for example). And it took a long time to reconfigure the economy to get to full employment.
4. Along these lines, he thinks that improved battery technology is revolutionary.
5. He thinks that MMTers are “meme warriors” and they are correct that the fiscal budget constraint is inflation. That is, the government can spend as much as it wants until its paper causes inflation. This is reasonable. The question is how much we want government to spend and how much we should worry about inflation. On those issues, I differ quite a bit from MMTers.
I’m not American and don’t understand the details of Medicare etc, but why can’t they already be used by the govt to drive down healthcare costs? They’re half of total US healthcare spending, I believe, which should mean they have enormous purchasing power already.
I’m American and I don’t understand either. For as long as I can remember politicians have been promising to reduce costs in Medicare some time in the future.
We’ve been trying to “bend the cost curve” since forever in the U.S. Good luck to us.
When you have an ethical assumption that all lives matter at any cost, particularly among those in the final years of their lives, then the result has already been pre-established.
Spend baby, spend!
One man’s waste is another man’s income. It’s difficult to cut total spending without cutting total wages. I’m not just talking about CEO salaries, either. Doctors, nurses, office administrators, janitors, and everybody all along the supply chain from post-operative recuperation to disease prevention would have to take a hit.
Yeah, most of the people profiting from Medicare spending vote Democrat.
Government might be able to keep price increases closer to overall CPI (i.e. shave a point or two off) each year. That’s basically how the gap between the US and Europe came about. But absolutely no government has ever reduced health spending by 50%, ever.
As it stands government is mostly trying to privatize cost reduction strategies to companies so it can blame them for rationing.
BTW, at least in the drug space Trump honestly tried to revolutionize the industry, at least in his lame duck phase. Absolutely everything he did got reversed by Biden.
Doctors cost a lot – why aren’t there more Med schools being built?
Until there is more government focus on increasing the supply of doctors, most other potential solutions to US health care will be so disappointing as to be called failures, even if they’re slightly positive.
I’m pretty sure there’s been far more Law Schools built and lawyers trained since the Depression than Med Schools – but normal law abiding people need more doctors rather than more lawyers.
I don’t think doctors are really driving the bus on cost, but other aspects of the healthcare system. If I had to pick one constituency with huge power that would block any meaningful shrinkage of healthcare as a sector it would be nurses. There are a lot more of them and there is no way you are going to achieve European levels of % GDP health spending without a lot of nurses losing jobs or taking big pay cuts.
I have (intentionally) not read Noah in years, but if my memory holds I don’t think he would score well iin your FIT system.
“ He claims that we don’t restrict supply in health care, and instead the problem is that prices are too high. If the government took over health insurance and drove down prices, all would be well.”
American kids cost a lot to educate relative to most countries. Why not do the same thing in public education?
“ He claims that the government is not responsible for supply restrictions in higher ed.”
Are there meaningful supply restrictions in higher ed? Over the decades, enrollment has soared. Rather, for various reasons, buyers of higher ed aren’t price sensitive.
Correct. This is a demand problem. Namely, people who issue debt to 18 year olds for university aren’t price sensitive. Probably because the one on the hook if they overpay is the government.
Noah Smith on the Cultural Revolution:
Amazing stuff. He’s consistently, hilariously awful.
So … mostly peaceful?
I have been looking at solid-state batteries for years. Maybe soon, but that’s what many insiders said five years ago.
Still, if the solid-state batteries work, the internal combustion engine will be phased out and by market forces.
Too late for me (I am older already), but a thrifty smart younger fellow could buy a solid-state battery car and keep it for life. Electric motors are much more durable than fuel motors.
Yeah, building a better battery seems to be a lot harder than a lot of people want to admit. Seems reminiscent of nuclear fusion. People were talking about how it was almost there back when I was in graduate school 45 years ago…
But from what I hear the batteries last something like eight years and literally cost a new car to replace.
“That is, the government can spend as much as it wants until its paper causes inflation. This is reasonable.”
We already have inflation, even hyper inflation – in assets. Like Apple stock, or houses in nice areas.
Previously, exchange rate changes would stop any one country from excess inflation/ money printing. But in today’s globalized world, all of the other “strong” countries depend internally on selling a lot of stuff to the USA – if the Euro or Yen get stronger, Europe or Japan will go into recession/ lose exports.
“This time it’s different”. Yes, it really is different. Who is betting that the nominal price of a Big Mac will double in 7 years or less (10% avg inflation)? I don’t see such bets in the financial markets, nor actually hear pundits quantify their “fears of inflation”.
There’s a limit … or is there?
We don’t have hyperinflation in assets, though many assets have increased in value and are expensive. It’s also difficult to be certain right now whether today’s high-ish inflation is due to temporary factors such as supply chain constraints & stimulus or not. If the country can’t wean itself off of multi-trillion dollar single year spending packages or ultimately decides to do something like UBI, then I suspect inflation will prove to be a larger problem than it has been in the recent past.
But anyway, things right now are just expensive. Consider Apple stock. Due to its services business and the potential for new products, it could easily grow net income at above inflation rates on average over the next decade (let’s say 3%). Given its commitment to buybacks, that means that Apple could easily achieve 6-7% EPS growth through 2031, allowing for 4% annual returns even if the P/E multiple falls to 22 in a decade. From my perspective, a fair price is closer to $110, which would allow 6% annual returns keeping all other assumptions the same, meaning that from my perspective, Apple is ~20% overvalued. It’s not a great investing environment, but if the risk free long term bond yield is just 1.5%, it’s easy to see why the highest quality bluechip stocks are priced to yield something like 4%.
Of my purchases, the things I am noticing which are substantially more expensive than normal almost all come with explicit rationing systems (“maximum 1 per customer”) and warnings about temporary shortages. That is:
A. Demand is normal;
B. Supply is less than normal;
C. Because production was impaired a lot this year;
D. But we are not going to increase production capacity or surge output, because re-hiring is really hard right now, and we couldn’t get enough product to customers at the right time at the right price, so;
E. You are just going to have to deal with high prices and rationing this year, and next year everything goes back to normal.
All that doesn’t mean that some of the inflation isn’t ‘real’, it just means that this is a really bad or difficult time to measure inflation. It’s a huge confounder to the usual logic about all the debt spending and money printing. Everybody is impatiently looking for those early signs and indicators, but that’s probably a mistake and we’ll just going to have to wait for things to settle down with regards to economic matters.