The first Presidential debate was last night (which I skipped). From my perspective, the main hot button issues in the U.S. election are not about macro policy, at least from a high-level perspective. Obviously, economic outcomes for American households will be different, but from the vantage point of a foreigner owning U.S. Treasurys, direct impacts are harder to see.
Wednesday, September 30, 2020
Sunday, September 27, 2020
Wednesday, September 23, 2020
This is related to what I refer to as the Fiscal Folk Theorem. If the technical definition of sustainability is not specified, nor the alleged problems created by unsustainability is specified, the discussion is inherently non-quantifiable -- no matter how many numbers are mentioned. The resulting discussion collapses to the Fiscal Folk Theorem. The theorem suggests that bad things can happen due to a high level of debt. However, this does not mean that something bad will happen -- as the Widowmaker Trade demonstrated.
Sunday, September 20, 2020
Neoclassical economists are not going to be happy with my message. For them, the most palatable possibility is that this is purely a communications problem. Even if this is true, it is a catastrophic communications problem - this sample may have been relatively small, but I have digested so much financial market commentary to know that this is a widespread condition. Very simply, any neoclassical theory that goes beyond the Fiscal Folk Theorem is not making a dent in the wider conversation.
Wednesday, September 16, 2020
(For this article, I will assume the conventional view that interest rate policy can be used to control inflation. I have severe concerns about this, but if we do not assume that the central bank can fine tune growth to match arbitrary trajectories, the story is a bit more plausible.)
Tuesday, September 15, 2020
The Canadian Establishment has launched a full-court press against lax fiscal policy of the Trudeau government. It would be only a slight exaggeration to say that they are calling for austerity (at least not immediately), but rumours of policies like Universal Basic Income are causing alarm bells to ring. The Canadian economic establishment is very much wedded to sound finance beliefs, courtesy of the Great Canadian Fiscal Crisis of the early 1990s.
Sunday, September 13, 2020
I ran into an attempted slam on Paul Krugman's 1998 argument that "the internet" would not be a big deal economically. Sadly for the anonymous account who dredged the argument up, Krugman was closer to the truth than the people he was arguing with at the time. This was part of a debate when I started in finance, and related to long-term growth. The linkage to fixed income is via the dreaded r>g fiscal sustainability debate -- what is the long-term real growth rate?
At the time, I was largely unimpressed with economists' grasp of the technological issues. My academic background was in control systems engineering, which was the discipline tied to harnessing the power of electronics to better operate mechanical and chemical systems. My view is that there is a certain amount of economic folklore around the subject, and the correct answer is that long-term real growth projections are almost entirely garbage in-garbage out exercises.