This is a surprisingly fair summary of the pro-price control position.…
The problem with a lot of the recent debate around
price controls" (in reality a bag of different policies) is not that people are wrong to say that directly limiting price increases carries risks and costs. It's the implicit claim that the alternative is reliable and cost-free.
A lot of people have this sort of magical idea of how monetary policy operates, where there's a direct link from the policy interest rate (or from M, whatever that is) to the inflation rate, with nothing mediating it.
In reality - and it's funny that I'm the one who has to say this - prices are set in markets, by profit-seeking private businesses weighting costs against demand for their product. The only way the Fed can influence inflation is by changing market behavior.
The textbook story is that higher interest rates discourage investment. Less investment means less employment, raising the unemployment rate and reducing workers wage demands. Lower wages then get passed on to lower prices.
It's not enough to say that price controls could lead to longer delivery times or non-price rationing. To have an actual argument, you have to show that those costs are greater than the additional unemployment and lower investment that would result from higher interest rates.
And then at some point it will occur to us that, after all, isn't the interest rate itself a price? In which case, the debate isn't price controls, yes or no, but merely about exactly which prices to control.

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More from @JWMason1

7 Jan
One of the big questions this past year is how much the terms of macroeconomic debate have really changed compared with a few years ago. Here's an exhibit for the case that they have changed a lot.
This is a direct rejection of the past 30 years' textbook view of inflation: that it's always a result of excess spending or demand relative to potential output (which is fixed by long-run "structural" factors) and should be left strictly to the central bank to deal with.
More immediately, the Biden team is directly challenging conventional estimates of potential output that assume - implicitly or explicitly - that the US economy was operating at or above capacity before the pandemic.
Read 6 tweets
6 Jan
A little late, here is the obligatory what-wrote-in-2021 thread. It wasn’t the most productive year for me, but I wrote a number of things I feel good about, including my first-ever bylines in both The New York Times and The Washington Post.
At the start of the year I gave a response to Michael Hudson’s David Gordon lecture on financialization at the (virtual) meetings of the AEA. My part begins at 43:00, but if you’re interested in the topic, you should watch Michael’s preceding talk as well.
Replying to Hudson let me lay out my thoughts on one of the great isms of our times, financialization, and why it’s not helpful to see an opposition of finance vs industrial capital. My comments were published in Review of Radical Political Economics.…
Read 35 tweets
23 Nov 21
I've uploaded a set of teaching notes I use in my Research Methods class, which is basically a class on statistics for policy work.…
They're very much a work in progress, but if you teach econometrics or statistics (or are trying to learn them) please take a look - I'd be very interested if you find them helpful.
I'm self consciously trying to follow a somewhat different approach than most econometrics texts, by consistently taking a sample-first rather than a population-first perspective - starting from data as you actually encounter it rather than a hypothetical true distribution.
Read 4 tweets
16 Nov 21
You often hear that higher inflation is associated with higher real interest rates - that's supposed to be one of its major costs. I don't know where this bit of folk wisdom came from, but the reality is exactly the opposite. Higher inflation almost always means lower real rates.
The US has experience many episodes of inflation (and some of deflation) over the past century, and the early 1980s is the *only* case in which higher inflation has been associated with higher real interest rates.
To the extent that interest rates are linked to inflation, this is entirely mediated by the central bank. Higher inflation may cause the central bank to tighten, and bond yields do (slowly and incompletely) move with the policy rate.
Read 15 tweets
16 Nov 21
There seem to be a significant number of economists and economics-adjaent people who generally support strong demand and increased public spending, but are deeply worried about inflation. I'm genuinely curious how they'd answer the following questions.
First, do you think that some (not necessarily all) of the slow growth in employment and GDP after the Great Recession compared to before it was due to the ongoing effects of weak demand (hysteresis)?
Second, if weak demand caused a lasting fall in GDP and employment below the earlier trend, could a sustained period of strong demand (with GDP above current estimates of potential) reverse that damage?
Read 6 tweets
12 Nov 21
Here is one way to think about the inflation we are seeing now. (a thread)
Over much of the past two years, large parts of the economy were unable to operate as normal. Schools and daycares were shut down. Airports were operating at 5 percent capacity. No one was going to the gym or eating in restaurants. You probably remember this! 1/
Though you might have forgotten the scale of it. For example: In March of 2020, fewer than 100,000 people passed through TSA checkpoints each day, compared with 2.5 million a day in 2019. 2/
Read 22 tweets

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