This is like one of those movies where the subject is not something you'd normally be interested in but you watch because it has your favorite actors in it
Yeah, except The Legend of Tarzan. I was on an airplane and figured hey great cast it's gonna be decent at least but it was unfuckingwatchable. Or like how the right teacher in high school made a boring subject great.
Yeah you nailed it that's exactly what I'm doing here. Same thing with a lot of Tyler's guests on the podcast.. it's not the person you would want him to interview but it ends up being interesting anyway
I like the part where Tyler asks what we should use instead of T-bills as a safe global asset and Alex suggests... mortgage backed securities. Brief awkward pause. Yeah, that's never gone wrong before!
It was not surprising, actually. The Great Society, the Space program and the Vietnam War, pumped a lot of money into the economy and when things start going wrong, the Nixon Shock accelerated the process.
1. Social programs expanding government expenditure. 2. Policymakers consistently under-estimating the natural rate of unemployment. 3. The twin energy shocks.
Excellent podcast! You mention inflation has recently been going down, but surprised that it didn't involve "fiscal tightening". But, what about "quantitative tightening" via Federal Reserve asset sales? I was alarmed at the steep increase in the Fed balance sheet in 2020, part of their quantitative easing tactics (I presume). That, along with huge increase in money supply in 2020 - yeah, that seems like a simple explanation of our current inflation. But, it appears the Fed balance sheet has decreased, somewhat significantly, since Q2 2023. Does that partially explain the drop in inflation?
I notice you two were both born in the 1960s, so your lived experience of the 1970s is questionable. I started working as a kid in 1959, and worked all through the 1960s and 1970s up to a few years ago. I lived and worked in Southern California in the mid to late 1970s -- the economy was humming along, even with the inflation expectations, until mid-1979. Even for small investors profits were made. You could write off a lot of debt interest expense against operational costs in those days before that changed in the 1980s, and we still had good capital appreciation. Some small investors built in the negative cash flow for business operation (taxed at ordinary rates when the flow is positive; or offset against other positive ordinary income) to offset the capital appreciation (taxed at much reduced rates) for tax purposes. We built in the inflation expectations. Of course that could not sustain itself. And that was the problem Volcker had to address in 1979 when he became Fed Chairman. How bad was the economic performance of the 1970s? Well it definitely was not a good decade for economic performance; I would call it erratic. Four of the years had annual rates of real GDP growth (that factors out inflationary growth) over 5% and one year over 4% -- compare that with any ten year period after 2001. There were four bad years -- I'm including the year 1980 because that year was more typical of the '70s than what would follow with the Reagan years of the '80s. There were two other years with growth rates over 3%. Let's look at some data -- I'm including 1980 in the decade, a recession year. Recession Years 1970, 1974-1975, 1980
Average Rate of Growth 1970s 1960s 1790-2020 1947-2020 1947-2001 2001-2020 Nominal GDP 9.86% 6.93 5.46 6.35 7.28 3.65 Real GDP 3.19% 4.53 3.77 3.03 3.47 1.71 Nominal GDP per capita 9.37% 5.50 3.40 5.14 5.92 2.84 Real GDP per capita 1.88% 3.13 1.78 1.86 2.16 0.92 Source for data: Samuel H. Williamson, "What Was the U.S. GDP Then?" MeasuringWorth, 2024; URL: www.measuringworth.org/usgdp/. My calculations.
Of course what politician wants to decrease spending? Keynesian economics gets thrown away and Friedman's monetarists version of just spending leads into borrowing and spending for 50 years, but blame Keynes for the new public policy that is not Keynesian anymore. Borrow and spend is uniquely monetarist. They were running public policy by that time. Blame Canada. Blame Canada.
Why do we need safe assets from the govt? Just keep NGDP growing at a constant rate. if you do that you can run an economy perfectly fine even with 0% outstanding federal debt
Boiling water at 1 atm is inevitable at 100 c. However inflation is chosen, and nothing that is chosen is inevitable, including stupidity, immorality, theft, and evasion.
It's amazing 2 economists don't know about all the euro gold shipments to Fort Knox in WWII era. Audit Fort Knox to find out how much gold is actually there. Strange how that's never happened.... hmmmmm
Why not blame inflation on my grandmother farting on the precise moment it started? Or just blame Canada? The inflation of the 70's was caused primarily by two oil shocks. Nixon and the oligarchs of the time got blind sided and needed time to adjust their portfolios so Nixon did a temporary wage price freeze. A temporary measure to buy time. Unfortunately, the oil oligarchs never had any desire to address the problem. High prices means profits goooood. The price freeze worked perfectly, but the price went up anyway when the freeze lifted. Cost-push inflation is caused by a shortage of supply and energy is an essential input in almost every economic transaction. When Carter tried the same thing during his spat with stability in the middle east which including revolution in Iran, the oil oligarchs were ready and you had shortages and gas lines then more inflation.
I think that this discussion would have benefited by embedding it in the context of several long-term cycles: First, there is the impact of the Baby Boom generation, as they passed through different phases of their live. In the 1970s they were largely young adults, entering the labor market and taking on debt. Then there is a commodity cycle. Commodity prices seem to have fallen through the 1960s, probably because of massive mechanization and the opening up of new territories for exploiting raw materials, but the pace of the economy during the long boom of 1963-73 caused demand to outstrip supply by the early 70s, which lead to high commodity prices from 1973 to 1984. The cycle seems to have repeated after that, with a slump from the 90s until the early 2000s, caused partly by the collapse of the Soviet Union (which was in turn partially caused by low oil prices), with a boom from about 2004 to 2014, followed by another slump. The boom leading up to the 2007 peak was probably caused by the extraordinarily rapid growth of China in the previous 10 years, which had spread to other developing nations because of the impact on commodity prices. There is also a military spending cycle, though diminishing over time as US military spending drops from almost 50% of GDP in 1944 to about 3.5 % today. But you see a boom in the early 40s with WW2, stagnation in the late 40s, a boom in the early 50s with the Korean War, than relative stagnation until the long boom from 1963 to 73, that corresponds almost exactly with the Vietnam War. There is also a deflationary effect from free trade with developing nations, namely relatively free trade with Japan, South Korea, Hong Kong and Taiwan in the 1960s and 70s, then the beginning of the maquiladoras along the Mexican border in the 1970s and 80s, then the opening up of China beginning in the 1980s, but especially after 1990. These waves of free trade with developing countries often had the impact of weakening the US labor movement, especially blue-collar labor in the manufacturing sector.
Both of these guys believe that the CPI number is accurate? I sure as heck don’t. Please look up Eric Weinstein talking about how Harvard intentionally started fudging the number in the 90s. Not sure how we can have a good conversation without hashing that out. Lastly, a lot of the excess money went into stocks and real estate. The productive economy not so much.
No one believes the CPI is the true number, it’s a laspeyres index so it’s well understood that it overstates inflation. “Harvard” didn’t start fudging the numbers, a Senate Finance Committee appointed a panel which made recommendations to reduce the upward bias; but it’s still an upward bias.
This is like one of those movies where the subject is not something you'd normally be interested in but you watch because it has your favorite actors in it
Yeah, except The Legend of Tarzan. I was on an airplane and figured hey great cast it's gonna be decent at least but it was unfuckingwatchable.
Or like how the right teacher in high school made a boring subject great.
Yeah you nailed it that's exactly what I'm doing here. Same thing with a lot of Tyler's guests on the podcast.. it's not the person you would want him to interview but it ends up being interesting anyway
MARGINAL REVOLUTION HAS A PODCAST NOW? Oh lord Jesus thank you
Mr Cowen, remember Mr Bastiat! Just because you don't see safe assets today, doesn't mean that new ones wouldn't have been created
Yesss!!! So excited for this. Long overdue
This is excellent. Hoping we get a lot more.
I like the part where Tyler asks what we should use instead of T-bills as a safe global asset and Alex suggests... mortgage backed securities. Brief awkward pause. Yeah, that's never gone wrong before!
Many things have gone wrong before. Stocks have gone wrong before. Do you know about the tulip craze? Imagine if we had given up on stocks then.
Love these guys.... brilliant and honest minds in a sea of nonsense.
It was not surprising, actually. The Great Society, the Space program and the Vietnam War, pumped a lot of money into the economy and when things start going wrong, the Nixon Shock accelerated the process.
1. Social programs expanding government expenditure.
2. Policymakers consistently under-estimating the natural rate of unemployment.
3. The twin energy shocks.
Thanks for sharing
Excellent podcast!
You mention inflation has recently been going down, but surprised that it didn't involve "fiscal tightening". But, what about "quantitative tightening" via Federal Reserve asset sales? I was alarmed at the steep increase in the Fed balance sheet in 2020, part of their quantitative easing tactics (I presume). That, along with huge increase in money supply in 2020 - yeah, that seems like a simple explanation of our current inflation. But, it appears the Fed balance sheet has decreased, somewhat significantly, since Q2 2023. Does that partially explain the drop in inflation?
I notice you two were both born in the 1960s, so your lived experience of the 1970s is questionable. I started working as a kid in 1959, and worked all through the 1960s and 1970s up to a few years ago. I lived and worked in Southern California in the mid to late 1970s -- the economy was humming along, even with the inflation expectations, until mid-1979.
Even for small investors profits were made. You could write off a lot of debt interest expense against operational costs in those days before that changed in the 1980s, and we still had good capital appreciation. Some small investors built in the negative cash flow for business operation (taxed at ordinary rates when the flow is positive; or offset against other positive ordinary income) to offset the capital appreciation (taxed at much reduced rates) for tax purposes. We built in the inflation expectations. Of course that could not sustain itself. And that was the problem Volcker had to address in 1979 when he became Fed Chairman.
How bad was the economic performance of the 1970s? Well it definitely was not a good decade for economic performance; I would call it erratic. Four of the years had annual rates of real GDP growth (that factors out inflationary growth) over 5% and one year over 4% -- compare that with any ten year period after 2001. There were four bad years -- I'm including the year 1980 because that year was more typical of the '70s than what would follow with the Reagan years of the '80s. There were two other years with growth rates over 3%.
Let's look at some data -- I'm including 1980 in the decade, a recession year.
Recession Years 1970, 1974-1975, 1980
Average Rate of Growth 1970s 1960s 1790-2020 1947-2020 1947-2001 2001-2020
Nominal GDP 9.86% 6.93 5.46 6.35 7.28 3.65
Real GDP 3.19% 4.53 3.77 3.03 3.47 1.71
Nominal GDP per capita 9.37% 5.50 3.40 5.14 5.92 2.84
Real GDP per capita 1.88% 3.13 1.78 1.86 2.16 0.92
Source for data: Samuel H. Williamson, "What Was the U.S. GDP Then?" MeasuringWorth, 2024; URL: www.measuringworth.org/usgdp/. My calculations.
Of course what politician wants to decrease spending? Keynesian economics gets thrown away and Friedman's monetarists version of just spending leads into borrowing and spending for 50 years, but blame Keynes for the new public policy that is not Keynesian anymore. Borrow and spend is uniquely monetarist. They were running public policy by that time. Blame Canada. Blame Canada.
Why do we need safe assets from the govt? Just keep NGDP growing at a constant rate. if you do that you can run an economy perfectly fine even with 0% outstanding federal debt
Boiling water at 1 atm is inevitable at 100 c. However inflation is chosen, and nothing that is chosen is inevitable, including stupidity, immorality, theft, and evasion.
IMHO The Government gold standard was bad. Free banking was what worked better than Government money in Canada and Scotland.
Why inflation was there in 1970s. Oil crisis. That's it.
It's amazing 2 economists don't know about all the euro gold shipments to Fort Knox in WWII era. Audit Fort Knox to find out how much gold is actually there. Strange how that's never happened.... hmmmmm
Why not blame inflation on my grandmother farting on the precise moment it started? Or just blame Canada? The inflation of the 70's was caused primarily by two oil shocks. Nixon and the oligarchs of the time got blind sided and needed time to adjust their portfolios so Nixon did a temporary wage price freeze. A temporary measure to buy time. Unfortunately, the oil oligarchs never had any desire to address the problem. High prices means profits goooood. The price freeze worked perfectly, but the price went up anyway when the freeze lifted. Cost-push inflation is caused by a shortage of supply and energy is an essential input in almost every economic transaction. When Carter tried the same thing during his spat with stability in the middle east which including revolution in Iran, the oil oligarchs were ready and you had shortages and gas lines then more inflation.
I think that this discussion would have benefited by embedding it in the context of several long-term cycles:
First, there is the impact of the Baby Boom generation, as they passed through different phases of their live. In the 1970s they were largely young adults, entering the labor market and taking on debt.
Then there is a commodity cycle. Commodity prices seem to have fallen through the 1960s, probably because of massive mechanization and the opening up of new territories for exploiting raw materials, but the pace of the economy during the long boom of 1963-73 caused demand to outstrip supply by the early 70s, which lead to high commodity prices from 1973 to 1984. The cycle seems to have repeated after that, with a slump from the 90s until the early 2000s, caused partly by the collapse of the Soviet Union (which was in turn partially caused by low oil prices), with a boom from about 2004 to 2014, followed by another slump. The boom leading up to the 2007 peak was probably caused by the extraordinarily rapid growth of China in the previous 10 years, which had spread to other developing nations because of the impact on commodity prices.
There is also a military spending cycle, though diminishing over time as US military spending drops from almost 50% of GDP in 1944 to about 3.5 % today. But you see a boom in the early 40s with WW2, stagnation in the late 40s, a boom in the early 50s with the Korean War, than relative stagnation until the long boom from 1963 to 73, that corresponds almost exactly with the Vietnam War.
There is also a deflationary effect from free trade with developing nations, namely relatively free trade with Japan, South Korea, Hong Kong and Taiwan in the 1960s and 70s, then the beginning of the maquiladoras along the Mexican border in the 1970s and 80s, then the opening up of China beginning in the 1980s, but especially after 1990. These waves of free trade with developing countries often had the impact of weakening the US labor movement, especially blue-collar labor in the manufacturing sector.
Both of these guys believe that the CPI number is accurate? I sure as heck don’t. Please look up Eric Weinstein talking about how Harvard intentionally started fudging the number in the 90s.
Not sure how we can have a good conversation without hashing that out.
Lastly, a lot of the excess money went into stocks and real estate. The productive economy not so much.
No one believes the CPI is the true number, it’s a laspeyres index so it’s well understood that it overstates inflation. “Harvard” didn’t start fudging the numbers, a Senate Finance Committee appointed a panel which made recommendations to reduce the upward bias; but it’s still an upward bias.