I think you’re going to have a hard time making the case for inflation causing Democrats to lose when the incumbent party almost always loses seats in the midterms anyway, seemingly regardless of inflation if I recall correctly.
Wasn’t the 2008 stimulus too small, which ended up prolonging the recession recovery time? It seems like Democrats were trying to avoid making the same mistake twice.
I’m probably biased but these kinds of arguments against spending on social needs always rub me the wrong way. It doesn’t seem like we’re spending enough or efficiently to ensure people have basic living standards now or before the pandemic. Most people live paycheck to paycheck and couldn’t afford a $500 emergency. Another example is that the consensus seems to be that we need to spend way more on solving climate change or we will face far worse costs in the future. And in principle I don’t see why we can’t just do these things. Is the root argument that we just don’t have enough resources in the world to take care of everyone, so spending to try and achieve them will inevitably cause inflation and eventually hyperinflation? Is current spending capable of establishing basic living standards and sustainability, but just used too inefficiently? Or is this just something that’s accepted?
This is correct and a well-known effect. I cite evidence suggesting that inflation will have an effect on Democrats losing election over and above this effect.[62],[63]
Wasn’t the 2008 stimulus too small, which ended up prolonging the recession recovery time? It seems like Democrats were trying to avoid making the same mistake twice
Yes, but it can both be true that the overall impact of OpenPhil’s macroeconomic stabilization program might be positive and the later parts negative. Many agree with OpenPhil (me included) that policy was too tight after ’08,[110] and that looser policy after covid led to a better recovery. Similar to the discussion above, perhaps a looser environment with more jobs led to less populism. But my ambition here was not to evaluate the program’s all things considered impact, but to single out the ’21 grants which might be harmful, which is still useful. In other words, I argued that had the ’21 grants not been made, perhaps the program would have been even more effective. My vague sense is that the program would come out net positive on the whole, however, perhaps if there are large negative effects of current high inflation—like lots of populists getting elected and we can causally attribute this to high inflation- then it also doesn’t seem inconceivable that the overall impact might be negative.
arguments against spending on social needs always rub me the wrong way. It doesn’t seem like we’re spending enough or efficiently to ensure people have basic living standards
I agree that we should weigh the effects of poor people disproportionately. And you’re right that there’s a case to be made that looser policy on the ’21 margin was good for the poorest 10% Americans (~30m) as it created more jobs and higher wages, but bad for the middle class (~150m) as their real wages went down. The first-order effects for wellbeing are still positive then on average, as the poorest benefit much more than the middle class lost (a simple rule of thumb is that $1 is worth 1/X times as much if you are X times richer and poorest Americans are more than 5x poorer [utility is logarithmic in consumption]). However, because 150m have lost in terms real income, which can predict midterms and naïve extrapolation of current income decline predict Dems losing 50+ seats, the resulting populist incompetence will have, at the very least, high downside risks (like Trumpists starting trade wars). This will harm everyone (in expectation), even the poorest, in the longer-run. But there’s also a case to be made that everyone has been harmed by inflation—and even the poor at this point have seen declining real wages (older people’s wages are stickier and have only gone up by 2.5%).
Moreover, from a global humanitarian perspective, the effects of suboptimal macropolicy might dominate suboptimal macro policy hurting rich countries.
we need to spend way more on solving climate change or we will face far worse costs in the future.
I agree that we need to tackle climate change and help the poor, but we can only do that with in a stable macroeconomy. As mentioned above, I can’t rule out that the current macropolicy has hurt the poor.
I did not argue that we should spend less overall, but maybe we could have avoided current high inflation by moving ramping up spending more slowly and being more expansionary under the curve / over time (and maybe move to higher inflation target in the longer-term). Spending will always cause some inflation but must not cause hyperinflation.
Is current spending capable of establishing basic living standards and sustainability, but just used too inefficiently?
If by sustainability you mean climate change, then we will need to spend more over time.
We emit ~50B tons/y, and offsetting costs ~$100/t, so that’d be $5T/y or ~5% of world GDP. (But it’d only 2% in 2050 people are also working getting to $10/t, so then it’d be much cheaper. So we’ll probably be fine with climate change, also see ‘Good News on Climate Change’.) I’m more worried about biosecurity, war, and AI.
On basic living standards for the US: countries with cutthroat capitalism like the US have more inequality but also provide more of the global public good of (technological) innovation which grows the world economy and countries (e.g. Scandinavian countries) with cuddly capitalism and less inequality freeride on. There seems to be some tradeoff, see Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World.
I guess then I’m wondering “if dems will probably lose anyway does it really matter if they lose more because of inflation?” Which I suppose if it leads to Republican supermajorities then it would be significantly worse than the “populist” blowout in 2010 and 2014 by the Tea Party and others taking hundreds of seats in local, state, and federal elections.
It also seems like even though it’s often ideal to introduce changes gradually, they kind of have to cram through a bunch of short-term spending or else nothing gets done or things that get planned have a high chance of repeal. The Affordable Care Act only held on by a single vote, for example, and became more popular over time as people saw the benefits like better protecting friends and family with preexisting conditions.
I would consider sustainability to include climate change as well as other problems like overfishing. We are currently on track for 2.7C of heating which is still pretty terrible especially for many island peoples, though very unlikely to reach worse extinction level scenarios people were more concerned about a few years ago. And the latest 2022 IPCC report is calling for “immediate and steep reductions in emissions across all sectors to limit warming to 1.5C” which don’t seem to be happening or close to happening. Maybe we’ll keep getting lucky with renewable and other innovations outpacing expectations but we’re already seeing irreversible damage.
Sure, I agree we should also be putting a lot more resources into pandemic prevention/biorisk, AI Safety, and peacebuilding as well. Though if I understand correctly, climate change does exacerbate all of them by releasing new pathogens and increasing the habitat of tropical diseases, creating food and water shortages that can lead to and inflame conflicts, and reducing resources to put toward causes like AI Safety by reducing GDP (the post you linked is good but it doesn’t seem to really address second order effects much. Maybe the evidence for their seriousness does not appear strong yet to them?)
That’s an interesting paper but I’m not sure it provides strong evidence of social spending inevitably reducing innovation. I would have to look into it more but it seems like their conclusion isn’t exactlysettled.
if dems will probably lose anyway does it really matter if they lose more because of inflation?
Good question. R. supermajority would be bad indeed. Also if you model this as Dems definitely losing, then it’s indeed bad, but the Dems do have a chance to win, and so you can also model this as inflation decreases the likelihood that Dems will stay in power—then every lost seat counts.
though it’s often ideal to introduce changes gradually, they kind of have to cram through a bunch of short-term spending or else nothing gets done
I get that, but the stimulus was too much all at once and should have been spread out even more. Also, if you lose elections based on this it might not be the optimal strategy.
climate change does exacerbate all of them by releasing new pathogens and increasing the habitat of tropical diseases, creating food and water shortages that can lead to and inflame conflicts, and reducing resources to put toward causes like AI Safety by reducing GDP (the post you linked is good but it doesn’t seem to really address second order effects much. Maybe the evidence for their seriousness does not appear strong yet to them?)
I’m a bit skeptical of the ‘Climate change will affect everything, thus, including conflict and biorisk’ and so working on climate change is the best way to reduce biorisk (Compare broad vs. narrow interventions).
And the latest 2022 IPCC report is calling for “immediate and steep reductions in emissions across all sectors to limit warming to 1.5C” which don’t seem to be happening or close to happening.
I generally agree with you, and the IPCC needs to say this, but it’s not a law of nature that we need reduce emission this year or next in order to stay under 1.5C, it’s just makes it more likely, there are different trade-offs. You’re right that there’s ‘irreversible damage’ but it’s not very large currently as a percentage of global GDP, and certainly much lower than the damage due to underinvestment in biosecurity.
That’s an interesting paper but I’m not sure it provides strong evidence of social spending inevitably reducing innovation. I would have to look into it more but it seems like their conclusion isn’t exactlysettled.
Not everyone agrees with this Acemoglu paper, but I find it quite plausible… Scandinavia is also mostly small rich countries, with Norway having lots of oil, and there’s this statistical bias where smaller countries / schools / whatever naturally have higher variance in terms of outcomes just by chance, whereas bigger countries regress to the mean.
For that reason, I think it’s better to compare US vs. France or Germany, which seem to not nearly innovate as much as the US, and I think this is to a large degree due to the economic structure.
I think if Dems had done more spending to keep stuff like keep the Expanded Child Tax Credit going and maintained their huge advantage among parents/recipients then maybe they would have a chance, but their 12-point lead among this group evaporated as soon as they allowed the monthly support to expire.
When you say spread out, what exactly do you mean? Do you mean something akin to four stimulus checks of $350 every three months instead of one check for $1400? Or that they should have been smaller—say $700 - even if more people would have lost their homes? Or both smaller and spread out?
Oh, I didn’t mean to suggest that stopping climate change is the best way to reduce biorisk; I meant that the value of stopping climate change is even higher because it alsocontributes to additional cause areas. And I just don’t see anything stopping us from strongly funding pandemic prevention/biorisk reduction and minimizing damage from climate change by aiming for 1.5C or less heating.
That post reminds me of some research suggesting that narrow piecemeal reforms tended to be more successful in US State Ballot Initiatives that people directly vote on, compared to more comprehensive Ballot Initiatives. Thus multiple narrow initiatives over the years could add up to more change over time than fewer big ones, though there are still challenges because sometimes it’s very difficult to change things one part at a time.
Hmm I just think of growing research on how poverty wipes out the potential of people much of the time and it seems like a pretty serious problem for innovation. Even if one ignored the moral side, it’s a drain on IQ and fosters scarcity mindsets with poorer decisions.
I really like this policy and also the earned income tax credit, and we can talk about different policies like the stimulus checks as well, which I don’t necessarily oppose. I also agree that they can help during elections. However, the point I’m making is not about what to spend on, nor the overall size of spending over time, but about timing… spending too much at once- be it on right wing issue (military, corporate tax cuts) or left wing (welfare, education, health) … I don’t have strong opinions on what the US should spend more on… maybe they should spend more (or less) on the military and more (cf. left) or less on health (cf. Robin Hanson) and/or education (cf. Bryan Caplan).
As Obama’s former advisor Furman says: The first $1T of stimulus led to a great recovery, but the last $0.5T of stimulus caused a lot of inflation but only few jobs. In other words, the marginal cost-effectiveness of looser policy was bad and the stimulus should have been smaller—maybe $1 trillion instead of 2.
I don’t have strong opinions on the exact implementation of spreading things out more, I was arguing that this should probably be done using econometric models that take into account the current macroenvironment, and not just based the discussion ‘on casual observation rather than econometrics’ i.e. ‘We need to spend more on health, climate, etc. $X.0T is a nice round number’.
I think you’re going to have a hard time making the case for inflation causing Democrats to lose when the incumbent party almost always loses seats in the midterms anyway, seemingly regardless of inflation if I recall correctly.
Wasn’t the 2008 stimulus too small, which ended up prolonging the recession recovery time? It seems like Democrats were trying to avoid making the same mistake twice.
I’m probably biased but these kinds of arguments against spending on social needs always rub me the wrong way. It doesn’t seem like we’re spending enough or efficiently to ensure people have basic living standards now or before the pandemic. Most people live paycheck to paycheck and couldn’t afford a $500 emergency. Another example is that the consensus seems to be that we need to spend way more on solving climate change or we will face far worse costs in the future. And in principle I don’t see why we can’t just do these things. Is the root argument that we just don’t have enough resources in the world to take care of everyone, so spending to try and achieve them will inevitably cause inflation and eventually hyperinflation? Is current spending capable of establishing basic living standards and sustainability, but just used too inefficiently? Or is this just something that’s accepted?
This is correct and a well-known effect. I cite evidence suggesting that inflation will have an effect on Democrats losing election over and above this effect.[62],[63]
Yes, but it can both be true that the overall impact of OpenPhil’s macroeconomic stabilization program might be positive and the later parts negative. Many agree with OpenPhil (me included) that policy was too tight after ’08,[110] and that looser policy after covid led to a better recovery. Similar to the discussion above, perhaps a looser environment with more jobs led to less populism. But my ambition here was not to evaluate the program’s all things considered impact, but to single out the ’21 grants which might be harmful, which is still useful. In other words, I argued that had the ’21 grants not been made, perhaps the program would have been even more effective. My vague sense is that the program would come out net positive on the whole, however, perhaps if there are large negative effects of current high inflation—like lots of populists getting elected and we can causally attribute this to high inflation- then it also doesn’t seem inconceivable that the overall impact might be negative.
I agree that we should weigh the effects of poor people disproportionately. And you’re right that there’s a case to be made that looser policy on the ’21 margin was good for the poorest 10% Americans (~30m) as it created more jobs and higher wages, but bad for the middle class (~150m) as their real wages went down. The first-order effects for wellbeing are still positive then on average, as the poorest benefit much more than the middle class lost (a simple rule of thumb is that $1 is worth 1/X times as much if you are X times richer and poorest Americans are more than 5x poorer [utility is logarithmic in consumption]). However, because 150m have lost in terms real income, which can predict midterms and naïve extrapolation of current income decline predict Dems losing 50+ seats, the resulting populist incompetence will have, at the very least, high downside risks (like Trumpists starting trade wars). This will harm everyone (in expectation), even the poorest, in the longer-run. But there’s also a case to be made that everyone has been harmed by inflation—and even the poor at this point have seen declining real wages (older people’s wages are stickier and have only gone up by 2.5%).
Moreover, from a global humanitarian perspective, the effects of suboptimal macropolicy might dominate suboptimal macro policy hurting rich countries.
I agree that we need to tackle climate change and help the poor, but we can only do that with in a stable macroeconomy. As mentioned above, I can’t rule out that the current macropolicy has hurt the poor.
I did not argue that we should spend less overall, but maybe we could have avoided current high inflation by moving ramping up spending more slowly and being more expansionary under the curve / over time (and maybe move to higher inflation target in the longer-term). Spending will always cause some inflation but must not cause hyperinflation.
If by sustainability you mean climate change, then we will need to spend more over time.
We emit ~50B tons/y, and offsetting costs ~$100/t, so that’d be $5T/y or ~5% of world GDP. (But it’d only 2% in 2050 people are also working getting to $10/t, so then it’d be much cheaper. So we’ll probably be fine with climate change, also see ‘Good News on Climate Change’.) I’m more worried about biosecurity, war, and AI.
On basic living standards for the US: countries with cutthroat capitalism like the US have more inequality but also provide more of the global public good of (technological) innovation which grows the world economy and countries (e.g. Scandinavian countries) with cuddly capitalism and less inequality freeride on. There seems to be some tradeoff, see Can’t We All Be More Like Scandinavians? Asymmetric Growth and Institutions in an Interdependent World.
Hey thanks for your response.
I guess then I’m wondering “if dems will probably lose anyway does it really matter if they lose more because of inflation?” Which I suppose if it leads to Republican supermajorities then it would be significantly worse than the “populist” blowout in 2010 and 2014 by the Tea Party and others taking hundreds of seats in local, state, and federal elections.
It also seems like even though it’s often ideal to introduce changes gradually, they kind of have to cram through a bunch of short-term spending or else nothing gets done or things that get planned have a high chance of repeal. The Affordable Care Act only held on by a single vote, for example, and became more popular over time as people saw the benefits like better protecting friends and family with preexisting conditions.
I would consider sustainability to include climate change as well as other problems like overfishing. We are currently on track for 2.7C of heating which is still pretty terrible especially for many island peoples, though very unlikely to reach worse extinction level scenarios people were more concerned about a few years ago. And the latest 2022 IPCC report is calling for “immediate and steep reductions in emissions across all sectors to limit warming to 1.5C” which don’t seem to be happening or close to happening. Maybe we’ll keep getting lucky with renewable and other innovations outpacing expectations but we’re already seeing irreversible damage.
Sure, I agree we should also be putting a lot more resources into pandemic prevention/biorisk, AI Safety, and peacebuilding as well. Though if I understand correctly, climate change does exacerbate all of them by releasing new pathogens and increasing the habitat of tropical diseases, creating food and water shortages that can lead to and inflame conflicts, and reducing resources to put toward causes like AI Safety by reducing GDP (the post you linked is good but it doesn’t seem to really address second order effects much. Maybe the evidence for their seriousness does not appear strong yet to them?)
That’s an interesting paper but I’m not sure it provides strong evidence of social spending inevitably reducing innovation. I would have to look into it more but it seems like their conclusion isn’t exactly settled.
Good question. R. supermajority would be bad indeed. Also if you model this as Dems definitely losing, then it’s indeed bad, but the Dems do have a chance to win, and so you can also model this as inflation decreases the likelihood that Dems will stay in power—then every lost seat counts.
I get that, but the stimulus was too much all at once and should have been spread out even more. Also, if you lose elections based on this it might not be the optimal strategy.
I’m a bit skeptical of the ‘Climate change will affect everything, thus, including conflict and biorisk’ and so working on climate change is the best way to reduce biorisk (Compare broad vs. narrow interventions).
I generally agree with you, and the IPCC needs to say this, but it’s not a law of nature that we need reduce emission this year or next in order to stay under 1.5C, it’s just makes it more likely, there are different trade-offs. You’re right that there’s ‘irreversible damage’ but it’s not very large currently as a percentage of global GDP, and certainly much lower than the damage due to underinvestment in biosecurity.
Not everyone agrees with this Acemoglu paper, but I find it quite plausible… Scandinavia is also mostly small rich countries, with Norway having lots of oil, and there’s this statistical bias where smaller countries / schools / whatever naturally have higher variance in terms of outcomes just by chance, whereas bigger countries regress to the mean.
For that reason, I think it’s better to compare US vs. France or Germany, which seem to not nearly innovate as much as the US, and I think this is to a large degree due to the economic structure.
I think if Dems had done more spending to keep stuff like keep the Expanded Child Tax Credit going and maintained their huge advantage among parents/recipients then maybe they would have a chance, but their 12-point lead among this group evaporated as soon as they allowed the monthly support to expire.
When you say spread out, what exactly do you mean? Do you mean something akin to four stimulus checks of $350 every three months instead of one check for $1400? Or that they should have been smaller—say $700 - even if more people would have lost their homes? Or both smaller and spread out?
Oh, I didn’t mean to suggest that stopping climate change is the best way to reduce biorisk; I meant that the value of stopping climate change is even higher because it also contributes to additional cause areas. And I just don’t see anything stopping us from strongly funding pandemic prevention/biorisk reduction and minimizing damage from climate change by aiming for 1.5C or less heating.
That post reminds me of some research suggesting that narrow piecemeal reforms tended to be more successful in US State Ballot Initiatives that people directly vote on, compared to more comprehensive Ballot Initiatives. Thus multiple narrow initiatives over the years could add up to more change over time than fewer big ones, though there are still challenges because sometimes it’s very difficult to change things one part at a time.
Hmm I just think of growing research on how poverty wipes out the potential of people much of the time and it seems like a pretty serious problem for innovation. Even if one ignored the moral side, it’s a drain on IQ and fosters scarcity mindsets with poorer decisions.
I really like this policy and also the earned income tax credit, and we can talk about different policies like the stimulus checks as well, which I don’t necessarily oppose. I also agree that they can help during elections. However, the point I’m making is not about what to spend on, nor the overall size of spending over time, but about timing… spending too much at once- be it on right wing issue (military, corporate tax cuts) or left wing (welfare, education, health) … I don’t have strong opinions on what the US should spend more on… maybe they should spend more (or less) on the military and more (cf. left) or less on health (cf. Robin Hanson) and/or education (cf. Bryan Caplan).
As Obama’s former advisor Furman says: The first $1T of stimulus led to a great recovery, but the last $0.5T of stimulus caused a lot of inflation but only few jobs. In other words, the marginal cost-effectiveness of looser policy was bad and the stimulus should have been smaller—maybe $1 trillion instead of 2.
I don’t have strong opinions on the exact implementation of spreading things out more, I was arguing that this should probably be done using econometric models that take into account the current macroenvironment, and not just based the discussion ‘on casual observation rather than econometrics’ i.e. ‘We need to spend more on health, climate, etc. $X.0T is a nice round number’.