301. A Monetary and Fiscal History of the United States (6)
2 (1h 6m 26s):
I've quote it many times. Yes. That's exactly right.
1 (1h 6m 29s):
Right? Yeah.
2 (1h 6m 31s):
Yeah. Don't judge by a party in South Hampton. Those people have more than they need.
1 (1h 6m 36s):
Or Martha's Vineyard site, another current event. That's really funny. What is your opinion of modern monetary theory? I, I don't know much about it. You know, there's books about it. There's some economists that say, government can print all the money at once because we're the top dog in the world. Our money is valuable because we say it is. It doesn't have to be backed by anything.
2 (1h 6m 58s):
Well, it doesn't have to be backed by anything. That part is right. But a lot of us economists for a few years scratched our heads. What does this mean? Is it didn't seem modern or monetary or a theory. And it was called modern monetary theory. As best I can tell. It was about, you were just saying some words like this. It was about the government shouldn't worry about deficits cause the Fed can always just print money to cover them. And that's literally true. If you just take the words, it's literally true. But a consequence of that, and we're seeing it now, is inflation.
2 (1h 7m 42s):
And people don't like inflation. This is not something that just a bunch of economists got together and studied and decided it's a bad thing. Ordinary people hate inflation. They really hate it. And so if you just don't pay attention to the size of the budget deficit on the grounds that the Fed can always print money to cover it, which is a true statement, you're leaving out the inflationary consequences.
1 (1h 8m 9s):
Mm. Right. That makes sense. Okay. Sort of pulling back to the bigger picture, you in, in the final page of your book, you talk about the last 60 years that you've just covered in the book and then you write, Monetary and fiscal policies will continue to evolve over the next 60 years, just as they did over the past 60 with many unpredictable twists and turns. I nonetheless finish this book with one fearless prediction. Fiscal policy decisions will continue to be made largely on political grounds. While monetary policy decisions will continue to turn on technocratic economic considerations, the twain shall not soon meet. Are you more worried about that now as politics becomes even more divisive and the left and right grow further apart and there's few and fewer people in the center?
2 (1h 8m 59s):
Yes and no. Let me explain the no first, despite what you just correctly characterize as the greater partisanship of polarization of our society, I don't see many real threats to the Feds independence. Donald Trump made some menacing noises, but even he didn't try to carry through on those menacing noises. Even he, and he's about as extreme as you can get. So I think the monetary, So you read that paragraph, what, what that paragraph said about monetary policy continuing to be made by techn Democrats with minimal political interference.
2 (1h 9m 43s):
I'm pretty optimistic that that'll stay true. Now, as we know, nobody can really predict the future. And as we also sadly know, our democracy is in some peril. Now, I never thought I would say that in my lifetime. Hopefully it'll, it'll work out okay, but if democracy falls, everything can fall. Turning to the political side, I think it is unfortunate how politicized everything is because become in America. I can remember once writing years ago, I, I can't quite remember where I wrote it.
2 (1h 10m 24s):
I've written a lot of things that Americans are not a very political people. I wouldn't write that now. I mean, we seem crazily political. I mean, take an example, the reaction to Covid. Why in the world should that have ever become political? Do people on the right wanna get sick? I don't think so. The fact that it's got politicized the way it did says to me that anything can get politicized. And the more macroeconomic policy, which is what we've been talking about, government spending taxes and so on, gets driven by what I'll call, for lack of a better term, purely considerations.
2 (1h 11m 16s):
They're always in political considerations, but I mean, purely political considerations. I think the worst it'll be. And that's not a good thing.
1 (1h 11m 29s):
No, indeed. Yeah. So I mean, if you look at the people that marched into the capital dome on January 6th, you know, these were not, you know, super fringe people without jobs and you know, just sort of near do wells. A lot of them were like careers and police soldiers, lawyers, doctors, and, you know, they left their comfort of their home to go there cuz the boss said, this is it. Right? Yeah. They really, they really seem to believe it. So what, you know, people act on those beliefs.
2 (1h 11m 60s):
It was a really sad day in American history and, you know, this is not what I write about. It's not my bail, but I'm worried about the next two elections being free and fair elections. Something I never thought I'd worry about in this country ever.
1 (1h 12m 19s):
Yeah, me too. Okay, final word on the stock market. What, since you mentioned the housing market cannot go up 12% every year forever, just run the numbers, but the stock market does that, right? If you look at the last century, it's, you know, eight, 10, 12% every year it goes up and down like the saw tooth blade going up. Yep. Like climate change, you know, could that go on indefinitely or is there things that could reverse it in the long run? Oh yes,
2 (1h 12m 44s):
Yes it can and should, but it depends on the rate. The stock market can't go on indefinitely growing faster than the size of the economy. Let's measure it, say by nominal gdp, something people should remember. The stock market's a nominal price, not a real, not deflated by the price index. So nominal prices can go up forever and they do newspapers cost more now than they did a hundred years ago and a hundred years from now, if they're still on newspapers, they will cost more than they do today.
2 (1h 13m 27s):
So stock, when I hear that, not lately, a few months ago, when I hear stock set yet another new record high, my usual reaction is, yeah, they should set a record high every single day, a little bit higher than the previous day on average. But of course the stock market doesn't behave that way at all. It goes to extremes, up, down, up, down, constantly over long periods of time. As you just said, Michael attends, there's a very clear upward trend, up pronounced upward trend, but over short periods of time, the stock market can, you know, it's not that unusual in a year for the stock market to either go up 20% or down 20%.
2 (1h 14m 13s):
That's not that unusual. That happens every time it happens. Like now people are cringe. People that are invested in the stock market as I am cringe, it doesn't feel very good. But these, these things have happened many times in the past and the stock market has made up the lost ground.
1 (1h 14m 33s):
Here's what I do. I look back to see where it was, say six months ago or, or two years ago. Like, here's, let's see, here's the de oh oh, that's what just happened today. Looks like it took a dip into the red. But I I go back and go, well say when it, when it hit 30,000, it's below 30,000. Now it's 28,700. Well, where, where was it? When was it? 28,700 back two and a half years ago. Well, I was really happy when it hit 28,700. Exactly. So I just kind of kind of put myself back in that time and go, yeah, everything is fine just to keep myself from crawling to the edge. Yeah.
2 (1h 15m 12s):
I think the main thing a stock market investor who wants to do is not watch the market every day.
1 (1h 15m 20s):
Right. You gotta be long term. Right. Okay. All right. Alan Blinder, thank you so much for your work, for your book. It's really an important book in terms of understanding all the details. It's really detailed about all the great history that's happened in there. And, and as you write at the very beginning, I forgot to read that quote cause I really liked how you opened the book with the quote from George Santiana, those who cannot remember the past or condemned to repeat it. And then you say, during the, during 50 plus years as an academic economist, one thing I've learned is that my fellow economist have a remarkable propensity for getting or ignoring the past. Such lapses of memory may not be terribly problematic in the world of pure theory.
1 (1h 16m 1s):
After all, scientific progress is rarely made by looking backward. The most reliable return to academic success is jumping onto the land's latest bandwagon, economic theory runs in thas and so on. But you're saying slow down, let's look at actually everything that really happened. Not in theory, but in practice and what the effects of that were. And to me that seems like sound policy.
2 (1h 16m 22s):
If you're involved in policy, you better remember the past. You really better
1 (1h 16m 27s):
Indeed. Okay. All right. I'll let you get back to your more important work than what I do. So thank you for that. Thanks for coming on, Alan. It's great to.
