Tag Archives: Krugman

Is the FED broken? Some random thoughts.

Is the FED  (Federal Reserve System) broken? If not broken then certainly being strongly tested, as this piece shows to me: The Fed Is Searching for a New Framework. New Minutes Show It Doesn’t Have One Yet. – The New York Times.

Since the start of the Great Recession, the target interest rate has gone from just over 5% to just over 0% and has more or less stayed that way for over half a decade. (See the chart). After a very long pause, the chairwoman of the Federal Reserve has begun the process of raising interest rates,  a process that her predecessors have engaged in over recent decades as they put their own distinctive stamp on the economy. (See A History of Fed Leaders and Interest Rates – The New York Times). Some of them, like Paul Volcker, have been hugely successful in shaping the economy. Others, like Alan Greenspan, also have shaped the economy hugely, but I would add, unsuccessfully. So what should the FED do?

Paul Krugman has his take, here. Perhaps an extreme inflation target is the answer, just like Volcker’s extreme interest rates were the answer for their time. However, I don’t think they are symmetrical, and the goals of a higher inflation target would be dampened down by other forces. Furthermore, the FED and most other central banks seem only capable dealing with tamping down inflation and not so capable when dealing with unemployment.

The Chairwoman is signalling she will be raising rates soon. We should see what the effect is, and how the economy and President Trump and Congress responds. If the economy goes into a recession, that would say to me the FED is broken.  If the economy does not go into a recession, I would say this means the FED still has a limited role in managing the economy. Let’s see.

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Nate Silver and Paul Krugman on the importance of good models to understand and predict

This piece by Nate Silver, How I Acted Like A Pundit And Screwed Up On Donald Trump in FiveThirtyEight, is ostensibly about how he messed up in his predictions on the rise of Donald Trump. What I think is worth reading is how he goes about his work and what he learned from his mistakes. Specifically, it’s a great study on how important models are and how a good model works and what it can tell us.

Related, Paul Krugman talks about his model here: Economics and Self-Awareness in The New York Times. Like Silver, he uses models both to understand and predict. Obviously they are modelling different things, but in both cases good models are the basis of their thinking and the work they do.

It’s likely too much to ask now, but eventually anyone doing analysis and making predictions should have to disclose the models they are basing their decisions upon. The opinions of anyone not having such models are likely not worth much.

Why Bankers Want Rate Hikes

It looks like the Fed in the US is going to raise rates. It is highly arguable whether it is a good idea. For a long time, it was a bad idea. Despite that, commercial banks recently have been arguing for the Fed to raise rates.  Now whatever reasons they have been given, the true and underlying reason is mentioned here:  Why Bankers Want Rate Hikes – The New York Times.

It is more difficult for banks to make money with lower rates. Higher rates make it easier for them to make money. Hence the push by some of them to raise the rates.

Banks aren’t stupid: they don’t want the economy to tank: they don’t make money that way either. But the sooner rates rise, the easier it is for them. Here’s hoping the US Fed continues to be smart enough to resist the pressure and do the right thing for the American economy.

 

The pros and cons of FitBits and other wearable fitness devices (plus my own thoughts)

Here’s two recent pieces on the pros and cons of wearable fitness devices.

Pro: Wearables and Self-Awareness (Personal) – NYTimes.com.

Con: Science Says FitBit Is a Joke | Mother Jones

I tend to agree with Krugman’s pro views in the NYTimes.  In a nutshell, Krugman’s view is that having a tracker like a FitBit makes it harder to lie to yourself about your fitness. A FitBit will let you know and help you track when you are active or sedentary, just like a scale will tell you when you are eating too much or too little.

The Mother Jones article has good points, too. FitBits have limits. They aren’t for all kinds or exercise, they may not be precise, and some apps on a smartphone can do just as good a job. That said, their title is a joke and their article is misleading. For example, trackers start at much lower than $100. As well, for people walking or running, carrying a smartphone is not always a good option. FitBits are more accurate than the article let’s on, and the readings that they provide is a reasonably close measure of your activity. The limits to wearable fitness devices are real, but Mother Jones overstate their case.

Do you or I need any of these devices? No. Based on my fitbit, I can walk a mile in about 2000 steps. If I were to sit down with a free service like Google maps, I could easily plot out a 5 mile walking route that, if I walked daily, would mean I would  hit at least 10,000 steps a day. (10,000 steps is my daily goal). Or I could just go for an hour walk and not worry about a route at all. (It takes me around that time to walk 5 miles if I walk it at a good pace.) Either way, a map or a watch can easily replace a wearable device. If you can’t afford or don’t want a wearable device, just use a map, a watch, and a log book, and you will get similar benefits.

Why I like my FitBit is that it does the work for me. I can walk anywhere I want, for as long as I want, and it will keep track of all that for me. Plus it keeps a ongoing record I can look up when I want. Finally, like Krugman noted, it prevents me from lying to myself about how active I am.

A wearable device is an aid, and like any aid, it helps you achieve your desired outcome. If you don’t need such an aid, don’t use it. As for me, the fitbit helps me meet my fitness goals and I am glad I have it.