David Andolfatto
@dandolfa
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Construction worker turned academic turned central banker turned academic again. Chair, Economics Department @MiamiHerbert University of Miami
Miami, FL
Joined April 2013
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Pinned Tweet
Hey, I spent Sunday morning thinking about macroeconomic theory.🤓
MacroMania: A Journey in Macroeconomic Thinking
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A bit of personal news. Today is my last day at the Fed. Am a bit sad about leaving, but at the same time am excited to announce my new position as head of the economics department in the Miami Herbert Business School at the University of Miami.
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If labor markets are so tight, why are real (inflation-adjusted) wages not rising rapidly?
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This is my America.
A man in Minnesota was saved by bystanders after he was pinned inside a burning car on the side of the highway.
Never forget…heroes walk among us.
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Big oil seems to have pivoted from price-gouging to predatory-pricing tactics at 9am this morning.
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Why is it always "workers" that need convincing and not anyone else (suppliers, consumers, investors, firms, etc.)? There are literally a thousand dimensions along which adjustments can take place, but somehow, it's U that *has* to do the adjusting. Why is that?
One thought about inflation fighting
1. When inflation comes from overheating, convincing workers that the economy needs to slow down, and that unemployment has to increase to control inflation, is hard but at least the logic can be explained.
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People, please stop arguing about which school of thought is responsible for inflation. There was a crisis. There was monetary/fiscal support. Support for those in need is common sense. Yes, it wasn't done perfectly. But we will manage. Let's prepare and do better the next time.
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Wow, I did not know this -- U.S. prime-age population stopped growing over a decade ago.
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"The *only* way to bring inflation down is to make sure that millions of people lose their jobs."
If this is a property of your theory, maybe it's time to re-think your theory. I have a suggestion. 🙂
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Remember, according to economic theory, your dinner hosts will be indifferent between you showing up with a $100 bottle of wine and one hundred $1 bottles of wine. 🙂
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Inflation is *not* defined as an increase in the price of *some* goods. This is evidence of *relative* price changes (driven mostly by non- monetary factors, imo).
@TheStalwart
@BurakYngn
@antiprosynth
Longer than 280 but...
1) The inflation is already here, it’s just not evenly distributed
2) High valuations and lots of paper wealth created, but real incomes for many Americans stagnating
3) Economy is tug of war between state inflation and technological deflation
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Brazilian inflation.
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What would happen if the Fed monetized the entire stock of U.S. Treasury debt? Let's think about it.🤔
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Underappreciated fact. Yes, foreigners own a lot of our debt. But our debt pays low interest rate (like bank deposits). On the flip side, we own a lot of their assets, which tend to have higher yields. U.S. operating like a global bank.
Had not looked at these numbers for a while. Interesting that the net interest received by the US is higher than a few years ago. US economy continues to borrow at low rates and earn a high interest rate on their investments abroad
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Global pandemic killing millions of people, massive sectoral reallocation of resources, partial shutdowns, supply chain disruptions, China, secular deglobalization, resource-consuming war, energy supply disruptions...if only central banks had raised interest rates earlier.
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When banks succeed, it's b/c of great management (hence bonuses). When banks fail, it's the Fed's fault (and so bonuses continue to be paid out).
Even if rate hikes not telegraphed, everyone knows the Fed's reaction function. Banks should have hedged accordingly.
Rate hikes weren’t telegraphed.
Go back to March 2021.
Inflation was a conspiracy theory.
Officials said don’t worry, not real.
So people kept buying 10yr bonds.
Denial continued through 2021.
Then rates got hiked. Fast.
In one year, higher than 10 years!
Existing bondholders…
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It’s a spreadsheet.
Bitcoin might just be humanities greatest invention because it allows changes without historical precedent, and allows humanity a great leap forward as a result. With a "potential" change of this magnitude, you owe it to yourself to really understand it.
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Development economists often ask why poor countries are not rich. The real puzzle, however, is why rich countries are not poor.
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How does the "Profits Drive Inflation" crowd explain this?
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"My child stopped growing. Why are they still tall?"
The government claims inflation is just 3%. But everywhere you look it seems to be 10% to 20%.
Who is correct? The government or your eyes when you are shopping?
🔊 ... 🤨
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How economists greet each other.
I hope you are well, at least after controlling for time fixed effects.
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Why do many analysts/economists believe high (+5%) inflation is expected to persist through 2022?
[1] Assuming they don't intensify, ongoing supply chain issues likely to manifest themselves as a higher P-level, not an elevated inflation rate.
[2] Fiscal stimulus is gone.
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After a decade of complaining about low interest rates for savers, we can now complain about high interest rates for borrowers.
When Biden took office, the average 30-year fixed mortgage rate was 2.7%.
Now, it's 7.44%.
That's Bidenomics!
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Theory meets data.
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There's something truly awe-inspiring in viewing the spectacle of a people removing a powerful leader from office through peaceful means.
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A reminder that an economist is indifferent between a gift of one $100 bottle of wine and 100 one-dollar bottles of wine. 😉
Ok, time to do my Christmas shopping. Fortunately, there's an ATM around the corner.
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In 1950, Americans spent 20% of disposable income on food. Today, this number is around 10%.
IT’S BEEN 30 YEARS SINCE FOOD ATE UP THIS MUCH OF YOUR INCOME
The last time Americans spent this much of their money on food, George H.W. Bush was in office, “Terminator 2: Judgment Day” was in theaters and C+C Music Factory was rocking the Billboard charts.
Source:…
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Great question. My Answer: to keep inflation lower than it would otherwise be.
If the government can create money out of thin air, why do they need us to pay taxes?
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Attended a workshop on stablecoins yesterday. Very timely in light of recent events! I was asked to provide my thoughts on the financial stability risks of stablecoins. Thought I'd share them👇 (usual disclaimer applies).
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Forget GDP as measure of living standards. Just give me two measurements: [1] How well do the toilets work? & [2] How well do people queue?
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Since everyone's talking about 🙂
Does the National Debt Matter?| St. Louis Fed
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Economy is headed into a "planned" recession. Best viewed as a wise investment in public health. The disruptions will be real and financial. Fed will do what it can to mitigate disruptions in credit flows. Expect more fiscal actions to smooth real impact. We will ride this out.
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What does it mean to say "market needs T-bills to park all that cash," with the implication that there's an apparent shortage of T-bills? Let me (try to) explain.
maturity mismatch in UST: market needs T-bills to park all that cash but the Treasury is supplying more Notes and Bonds.
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This libertarian expects 5% risk-free return and evidently does not count his consumption of public services as theft. 🙄
By the time I am 67, over $600,000 will be paid into
#SocialSecurity
on my behalf. That money would have been worth $1.9M if I had gotten a 5% return. My annual interest would be $95K.
The Government promises me $3,075/month at 67, which is $37K/year
How is this not THEFT?
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@theotherayo
@historyinmemes
Right, and they’d probably be in better shape than they are now.
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I refuse to pay $1.2B for peanut butter.
J.M. Smucker, the maker of Jif peanut butter, revealed that it will increase prices by $1.2 billion, while input costs are rising by less than $900 million.
Corporate greed is driving inflation, not wage increases for workers or government spending.
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This is not correct. The work (PoW) associated w/ BTC relates to managing the ledger, not creating BTC (which is created out of thin air via a parameter in the code). Money-creation in BTC is standard seigniorage revenue, used in this case to (partially) compensate accountants.
Quite to the contrary, Satoshi devised a new way to manufacture digital-native money that requires a tremendous amount of work.
Fiat currency systems manufacture free money. There is no real cost for the financial system to create more dollar/euro/yen currency units.
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Physicists send particles of light into the past, prove time travel is possible
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I never fully bought into the notion that the social sciences should become more like “the” sciences. We try to interpret/explain best way we can, given theory/data at our disposal. Who cares if it doesn’t look like physics?
Economics is becoming more like a science.
It obviously has a long way to go in that regard, and there's lots of pushback. But it's on its way.
And this year's Nobel celebrates that.
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What does "labor market overheating" even mean? Too many people working, producing too many goods and services? Workers getting paid too much for their labor and what it produces? 🤷♂️
Goldman: “This week brought three pieces of encouraging news about the prospects for gently reversing labor market overheating without a recession.”
Fewer job openings, few layoffs, softer wage growth.
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Banks can already do this. They choose not to b/c depositors would not want to pay the fees associated with "narrow banking."
The solution is for FDIC to offer a category of insurance where (1) deposits are fully protected but (2) banks are restricted to investing that money in fully liquid securities that are marked-to-market daily. That is the product everyone wants.
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Banks create the money they lend. Mainstream macro says sure, but so what? Heterodox says it's a big deal. Who's right? I offer my perspective here:
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Alright, so now I see what all the fuss is about. Sorry
@NobelPrize
, this sketch is not an accurate description of DD83. Let me explain...
The work for which Ben Bernanke, Douglas Diamond and Philip Dybvig are being recognised has been crucial to subsequent research that has enhanced our understanding of banks, bank regulation, banking crises and how financial crises should be managed.
#NobelPrize
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I'm not an MMTer, but I can say that, as far as I know, this does not fairly represent their views.
Prediction: MMTers will say that this doesn't fairly represent their views. Why? Because they say that about *any* attempt to represent their views clearly. MMT is an attitude, not a model; try to pin it down and they move the goalposts.
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It is very important to understand that our recent inflation experience was caused by one thing and one thing only.
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For the economists only: Are you indifferent between a $100 bottle of wine and 100 $1 bottles of wine?
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“When I was a boy of 14, my father was so ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years.” -- Mark Twain
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Government presently runs fast, efficient, not-for-profit payment system for U.S. banks (Fedwire). Seems to work pretty well.
The reliably dumb
@AOC
wants to turn banking services over to the US Post Office, which didn’t even offer overnight delivery until the private company FedEx came along. What’s next? Turn airplane manufacturing over to the DMV?
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Thank goodness mainstream economics doesn't have the power to hurt a lot of working and middle class people.
Supply-side economics hurt a lot of working and middle class people.
MMT has the power to hurt a lot of working and middle class people.
There is no left and right here. There is only magical thinking with regular folks paying the price when the spell breaks.
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Some people call Nikola Tesla (1856-1943) a visionary. But here's some evidence to the contrary. In 1926, for example, he predicted that we'd still be wearing vests today.
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Have no idea why (some) economists thought we needed 8+% unemployment to slow inflation, even with this graph. Textbook model tells us transitory supply shock plus one-time $5T helicopter drop should generate "transitory" inflation. What are we marveling at here?
Look at it again, just with values less than 0, so deceleration in year-over-year change.
If you want to know why economists thought you needed 8+% unemployment to slow inflation, this historical graphic is why. But it also tells us this time was different.
Now let's dig in. /2
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The price of food remains inflated. This is what resonates with consumers. The fact that the rate of inflation has decelerated, while welcome, is not viewed as something to celebrate.
So, if I were going to argue that consumer aren't feeling disinflation because they're focused on groceries, not the overall CPI, I'd probably note that grocery inflation has declined even faster than overall 1/
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It's amazing how the economy just keeps on growing too. 🙂
Every US President increases the size of the Federal Government. Every year. Every election. Democrat or Republican, it matters not. Clinton grew it. Bush grew it. Obama grew it. Trump grew it. The next one will grow it. There is no meaningful difference.
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If cost-of-living jumps significantly and then levels out, economists will say "inflation (rate) coming down." But people will think "my cost-of-living remains inflated and, indeed, continues to rise." Both views are correct.
WSJ poll: 74 percent of registered voters think inflation is headed in the wrong direction.
There is no reasoning with this many people being this wrong. It's not possible to shovel against that tide.
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If income-generating capacity of debtors is temporarily shut down by law, then income-generating capacity of creditors should also be shut down to similar degree. That is, creditors all along the credit chain should exercise reasonable forbearance. "Do unto others..."
"Renters are warning landlords they won’t pay. Property owners are having delicate conversations with their lenders. And regulators are racing to keep the wheels of finance turning in the middle of a global health crisis"
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Economy A: $10 income grows to $20 (+100%).
Economy B: $100 income grows to $150 (+50%).
Kudos to Economy A, but I think most people would still prefer to live in Economy B. 🙂
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Never wrong; only early. 😉
Bitcoin is down on the news that inflation for August came in higher than expected (8.3% instead of 8.1%). Bitcoin should be up today. Its properties dictate that it should be inversely correlated to inflation. The fact that it is down shows just how early it is.
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My lecture notes on Money Demand are now available:
These are still pretty rough--comments welcome. Appreciated the feedback on Chp1: Money Supply, revised notes available here:
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Remember, a transitory increase in inflation means a permanent increase in the cost of living (the price level).
So when central bankers say "inflation is transitory," people ask "what are they talking about, everything costs more!"
Yes, both things can be true.
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It's pretty close to the amount of securities it removed from the financial system over the past two weeks.
I've lost count of how much money the NY Federal Reserve has injected into the financial system over the last two weeks.
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All this talk of central banks having to create their own digital currency is funny in a way. Modern day banking systems consist of central/commercial bank partnerships. Most of the money these partnership create is already in digital form. If so, then what are the issues here?
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U.S. Dollar was established in 1792. The open source code known as "the laws established by Congress" has evolved over time in response to the demands and wishes of those that are governed by its laws. Some consider this design a bug. But it is, in fact, a feature of democracy.
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Call me crazy, but I still cannot fathom why one would want to perform simple debit/credit operations on a spreadsheet using the accounting services provided by miners playing a noncooperative game with each other.
1/ Breaking major news from US Treasury OCC, the largest US banking regulator (
@USOCC
), with new guidance allowing US banks to use public blockchains and dollar stablecoins as a settlement infrastructure in the US financial system.
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"According to researchers, 95% of Bitcoins are owned by 2% of accounts."
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Neoclassical theory: labor market determines the real wage (division of surplus b/w worker and firm).
Central banker: labor market determines price-inflation.
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Some further (perhaps controversial) thoughts. Maybe it's time to dispense with the micro-macro distinction. We want our students to understand game theory, information theory, dynamic systems, empirical methods, etc. This should be core training regardless of how it's labeled.
I just heard that 1st year PhD students in Econ at MIT no longer need to take a full year of macro. This should be a wakeup call for macro, lest this turn into a new trend. Some (perhaps controversial) thoughts. 1/
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So, print more USD to buy BTC ... for what purpose?
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The word quarantine comes from quarantena, meaning "forty days", used in the 14th–15th-centuries Venetian language and designating the period that all ships were required to be isolated before passengers and crew could go ashore during the Black Death plague epidemic.
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Word of the day: ERRORGANT: "To be twice as certain as someone who is merely arrogant while possessing only one-tenth the requisite facts."
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This is why I like neoclassical economic theory. Money is a veil (essentially, does not matter). The cost of any action is the opportunity cost of the resources deployed to that activity (e.g., guns vs. butter). Incentives, budget constraints, and resource constraints all matter
No priority ever goes unfunded. If the votes are there, the money is there.
True for defense.
True for Medicare.
True for Social Security.
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Waiter, I’ll have what he’s drinking.
Once you understand
#Bitcoin
, you stop caring what price it is at. It could go to $3k or $300k and I would still be in a good mood.
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Bitcoin -- a project designed to allow the masses to bypass the use of conventional intermediaries -- now brought to you by none other than the intermediaries it was designed to replace. 🤷♂️
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GDP should equal GDI by definition; any difference is a statistical discrepancy. A large gap is emerging b/w the two series. GDP measure is looking a little fishy to me. If so, calls for recession seem a little premature (though there is clear evidence of unsurprising slowdown).
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