1. The reform of EU fiscal rules: An opportunity mostly missed. The new rules are better than the old ones. But they could have been much better. 2. When the old rules proved unworkable, the EU commission looked for better ones. And, instead of making marginal changes, it actually started from first principles and achieved an intellectual revolution.

1. A bit of provocation, based on the answers to this poll:
With all due respect, the answers show how confused we, the economists, are on the topic. Nearly none of the answers deal with the central issue:kentclarkcenter.org/surveys/public… 2. There is no question that, given externalities and distortions, profit maximization may lead to bad outcomes. The relevant question is: Should firms behave differently?

Are shareholders willing to give up dividends for making the planet a better place?

1. My views on the implications of higher long rates for fiscal policy and debt trajectories. Here is a short summary.shorturl.at/gntAF 2. Interest rates at the long end have increased by more than can be explained by the fight against inflation. (I shall freely admit that I did not expect it). It is hard to think that, for example, the 5year/5year rate should be very much affected by the current Fed tightening.

At the start of my undergrad textbook, I have this picture, taken by my wife, which basically says to the reader: Open your mind and enjoy.

I am revising the book, and here is what the DEI editor said about the picture: : "Undoubtedly, the intent is to compel Noelle, the person to whom the book is dedicated, to broaden her thinking. People who are visually impaired, however, might be offended by the image because it not only compels them to do something they cannot,

1. Triggered by the exchange with @R2Rsquared @AngelUbide, @Guido_Lorenzoni and others: The discussion was at the core of macro. The nature of the determinants of the price level is THE fundamental issue in thinking about short run fluctuations, not a marginal or esoteric issue. 2. Without nominal rigidities, the price level would indeed behave like an asset price, reacting to future changes in monetary and fiscal policies. John Cochrane would be (largely 😊) right. Shifts in aggregate demand would be absorbed automatically by changes in interest rates.

1. Looking at Ricardo's answer to my puzzled reaction. I realize that an important difference between the way he and I think. (And, more generally, this difference is behind many discussions in macro. For example, in assessing John Cochrane’s fiscal theory of the price level). 2. He thinks of the price level very much as an asset price
I think of the price level as the result of millions of uncoordinated nominal price decisions by individual price setters, who do not care about the price level, but care about their relative price.

1. I know I should not try to answer the MMT crowd. But I am told: Look at Japan. It shows that MMT is right. Deficits are large.The BOJ is buying bonds by the bundle, and yet no inflation. So three points (I know, it is complicated.Much easier to give categorical pithy answers): 2. When a central bank buys bonds and issues interest-paying reserves at an interest rate close to that on bonds (QE), then, to a first approximation, this has no effect on the balance sheet of the consolidated government, and:

1. In the world of social media, it is hard not to be pigeonholed as a dove or as a hawk (in this case on fiscal policy). People are confused if you are hawkish in some case, dovish in others. So, for the record: 2. I still believe in the importance of (r-g) and the fiscal and welfare implications of debt, and am, as a result, more relaxed than most (for example in discussing EU fiscal rules, or the debt situation in Europe). But:

1. I see that my paper with Ben Bernanke on inflation is interpreted in contradictory ways: “BB show that demand played a small role, BB show that there is no reason to worry, etc.” It is clear that we were not clear enough... So here it goes, stated as clearly as I can. 2. (The video is available at ). The paper is available at brookings.edu/wp-content/upl… )

1.Random thoughts after the discussion with Summers about future rates. bit.ly/3mHv0J2. More to come.

First issue: Is the current resilience of demand an indication that private demand is structurally stronger than it was pre-covid, implying higher future rates? 2. I do not think so. I think it comes mostly from the cushion of excess saving, the pent-up demand for durable goods, especially cars, and the strong balance sheets of firms. The first two at least will most likely go away over time.

1/7 Christian Lindner pocht zu Recht auf einheitliche Fiskalregeln. Aber er missversteht die Implikationen. Einheitliche Fiskalregeln implizieren keine einheitlichen Haushaltkonsolidierungspfade. 2/7 Länder können sich vielen Aspekten underscheiden, die für die Dringlichkeit einer Konsolidierung relevant sind.

1/6. Christian Lindner is right to insist on common fiscal rules. But he misunderstands the implications. Common fiscal rules do not imply identical desirable paths. Countries are different in many ways, all of them relevant. 2/6. To take an example that Germany will appreciate, two countries with the same debt levels, but different interest rate premia, say because of past behavior, have different fiscal spaces. The country with the lower interest rate has much more space than the other.

1/8 This is a great discussion, so I shall continue. Second round answer to @IvanWerning. I like very much the Werning-Lorenzoni framework. dropbox.com/s/pbsurtd5onvn… One of its merits is indeed to show that thinking in terms of distributional conflict is totally mainstream. 2/8. The idea is surely not new. Rowthorn et al, and due acknowledgment of Post-Keynesians.
Blowing my own horn: A paper on the wage price spiral in 1986: nber.org/papers/w1771.
Or the treatment of inflation in my textbook.

1/8. A point which is often lost in discussions of inflation and central bank policy. Inflation is fundamentally the outcome of the distributional conflict, between firms, workers, and taxpayers. It stops only when the various players are forced to accept the outcome. 2/8. The source of the conflict may be too hot an economy: In the labor market, workers may be in a stronger position to bargain for higher wages given prices. But, in the goods market, firms may also be in a stronger position to increase prices given wages. And, on, it goes.

1/6 The risk of a false dawn in US inflation.
Headline inflation is likely to decrease sharply over the next few months. The reason is simple: Many of the large increases in commodity prices have started to reverse. 2/6 Since June, the producer price index has decreased by 5%, the energy component of the CPI has decreased by 10%. The global supply chain pressure index of the New York Fed is nearly back to its pre-covid level.

1. In the context of COP27, an assessment of the required portfolio of measures needed to fight global warming, by Jean Tirole, Christian Gollier and myself: bit.ly/3g5zoyD 2. This assessment is largely based on the conclusions of the “Blanchard Tirole” commission. bit.ly/3AkhkYG As such, it can be seen as largely representing the consensus of the economic profession.

1/6 The lag conundrum of monetary policy
Monetary policy affects activity with a lag. This enormously complicates the task of policy makers, and the design of disinflationary policy. 2/6 Suppose there were no lags. Then, faced with too high inflation, the central bank should stop increasing rates when core and wage inflation stabilize and then turnaround.

1. A mild disagreement with @paukrugman on the measures to fight global warming in the IRA. It is all subsidies, no taxes. Maybe it was the best that could be achieved politically. But let’s not kid ourselves. It is a sure way to spend more than needed to achieve the desired goal 2. Subsidies are surely part of an optimal package. There are good economic reasons for example to subsidize R&D for high risk high return technologies. There are good reasons to rely on public investment, say for charging stations. But these cannot be the whole package.

1. I thought it useful to gather my thoughts and predictions for the US economy for the rest of the year. The usual caveat applies: there is a lot of uncertainty around them, but these are my best guesses. 1/9 2. Inflation will come down, probably more than many people expect. This reflects the sharp turns in some commodity prices, weakness in China, improvements in supply chains. There will be claims of victory (not by the Fed), but they will be wrong.

1. During World war II, economists working for US military intelligence, and using analytical tools, identified how bombings should be chosen so as to have the maximum impact on production in Germany. 2. This implied identifying chains of production, and finding which inputs and intermediate products were essential to production, were hard to find alternatives for, and hard to replace. And then bombing particular plants.

100K followers… (although still no blue button ☹ ). My life’s goal is achieved… Maybe not...

A few reactions:

1. Twitter is chronophage. I have spent too much time strolling down threads that I should not have. 2. Twitter leads to witty tweets and faster reactions than desirable. One starts thinking in 280 character pieces (or 280 times n), which is not always best. My last tweet thread on the case of gas subsidies was an example of that.