It seems like this issue is basically moot now? Back in 2016-2018 when those OpenPhil and Karnofsky posts were written there was a pretty strong case that monetary policymakers overweighted the risks of inflation relative to the suffering and lost output caused by unemployment. Subsequently there was a political campaign to shift this (which OpenPhil played a part in). As a result, when the pandemic happened the monetary policy response was unprecedentedly accomodative. This was good and made the pandemic much less harmful than it would have been otherwise, at the cost of elevated but very far from catastrophic inflation this year (which seems well worth it given the likely alternative). And indeed Berger in that 80k interview brings the issue up primary as a past “big win”, mission accomplished, and says it’s unclear whether they will take much further action in this space.
I think this is a somewhat reasonable argument: OpenPhil is no longer making any big grants in the US to increase monetary stimulus (or more indirect Fed ‘transparency’ or ‘diversity’ work), so why prioritise spending time to understand this issue even more deeply?
Having said that, the broad concerns I wrote about put in doubt whether OpenPhil’s grants there were a ‘big win’ in the first place, given
that the US’ unprecedented monetary stimulus over the previous decades meant a higher chance of model error when using macroeconomic theories economists thought up in the past to make predictions ‘from outside the historical distribution’ (where acting on error-prone predictions puts the entire financial system at risk).
how OpenPhil staff appear to have overlooked political dynamics that shape their and Federal Reserve board’s views and decisions (OpenPhil staff dismissing inflation concerns by conservative thinkers they don’t seem much in touch with; the Fed tending it seems to not tighten stimulus enough afterwards to curb debt-fuelled speculation if that may result in people blaming them for triggering a recession).
Frankly, the self-congratulatory stance that Holden Karnofsky in particular seemed to take on their 2016 Fed Up Campaign grant lacked the caution (that comes with recognising when you’re actually in uncharted territory) and the self-aware humility (that comes with being cognisant of the limitations and blindspots of your own ideologies, and of the social circle around you that reinforces those) that seems appropriate when technocratically deciding for everyone how the US financial system should be fine-tuned.
I wouldn’t want the lesson that up-and-coming OpenPhil analysts take away from the ‘big win’ Holden and Alexander contend they got out of this relatively small-sized grant that they must make more uncertain, high-leverage, broadly scoped policy grants like that in the future, but bigger!
(try search “Effective Altruism is Self-Recommending” for some clarification why that seems an epistemologically eroding and systemically harmful cycle to get into)
Also, a nuance: Berger did mention that they’re exploring doing ‘a little bit more in that space’, particularly by pivoting to supporting policy work in Europe (though admitting they understand the policy landscape less well there). The two concerns I bring up above also seem to apply to OpenPhil lobbying for macroeconomic stabilisation in Europe, albeit to a lesser extent.
As a result, when the pandemic happened the monetary policy response was unprecedentedly accomodative. This was good and made the pandemic much less harmful than it would have been otherwise, at the cost of elevated but very far from catastrophic inflation this year
These seem like plausible inferences to me! At least over the short-term, increasing stimulus further seems like it should have benefited people with low and unstable incomes in their material well-being and reduced social unrest that emerged from and got magnified by COVID restrictions.
This is a conclusion we can draw in hindsight (we couldn’t have reliably predicted at the time when a global pandemic would appear again). You can make a similar milder case though for the benefits of stimulus around the slow post-GFC economic recovery between 2016 and 2018.
In short, I think there’s a totally reasonable case to make that any extra monetary stimulus that OpenPhil’s grants enabled benefitted people over the short term (1-5 years). I’m worried about the longer-term repercussions of their approach.
What longer-term repercussions would you be worried about? I understand the general concern of unprecedented action within a system that’s not very well understood, but what specific harm could happen?
Monetary policy is usually framed as really only having two objectives, inflation and employment. Other impacts are surely present and important, such as recent acknowledgement given to climate change or income inequality as other strategic monetary policy priorities. But many economists I’ve seen dismiss those other goals, saying monetary policy has no direct effect on those goals and that inflation and employment are the real metrics worth tracking. Unemployment looks great right now, and while inflation is high right now, Tyler Cowen just posted evidence that markets expect stable ~2% inflation over the next five years. Are you concerned about inflation or something else?
Strongly agree with lexande above, the response to Covid was a perfect example of how we learned our lesson from 2008 and decided to deliver much more stimulus.
This is a sharp question (hence the strong upvote). I appreciate this.
I’m an amateur here, so do take any more specific thoughts I have on this (that go beyond ‘this seems really uncertain/fuzzy and potentially systemically damaging’ and ‘let’s not get stuck in conflicts with people who wield differently insightful ideological views’) with a grain of salt.
Some concerns that come to mind:
fostering the expectation amongst institutions and companies that the US Fed will centrally take care of any economic threat or crisis whenever one appears disincentives locally responsible leaders from stockpiling needed money and materials to ensure their organisation weathers the storm and from designing regulations and programs to avert, prepare for and deal with outside shocks in more targeted and concretely verifiable ways.
long-run USD inflation (in twenty years or more)
loss of trust in the United States Dollar as a ‘world reserve currency’ with foreign governments shifting their funds away to some other currency or portfolio of currencies (this would be bad for US trade interests, but could be good from a cosmopolitan perspective if what replaces it is some common currency storage mechanism that doesn’t have first movers gain outsized wealth/decision power in bits and zeros and therefore indirectly disincentivise work by entrepreneurs and workers elsewhere).
I don’t feel satisfied by the above list. I think a reasonable counterargument is that those vaguely possible consequences don’t justify not extending monetary stimulus right now that could avert obvious harms experienced by citizens. I would be wary though of getting anchored on requiring specific claims here.
These all make sense to me, particularly #3 with the huge recent interest in crypto. Monetary policy seems like some strange dark art where we think we have more control over the world than we actually do, and we’re probably not seeing some of the most important unintended consequences of our actions. You have to do the best you can based on what you understand, so I mostly agree with the monetary policy regime, but wouldn’t be surprised if we look at things very differently in 50 or 100 years. (The history of the subject is really rather recent — the Federal Reserve was born in 1913, and Nixon only fully took us off the gold standard in 1971.)
A separate topic you might be interested in would be Modern Monetary Theory. It’s is widely derided by economists, mainly I think because it’s so closely tied to Democratic politics and advocating big budget increases. But as an academic theory I think it’s a really compelling new account of the function of money and the levers we have at our disposal to affect the economy. A lot of the MMT authors themselves are pretty polemical, I didn’t like Kelton’s Deficit Myth. Greg Mankiw’s introduction is pretty balanced IMO, check out the full thing if you want but here’s his conclusion:
“In the end, my study of MMT led me to find some common ground with its proponents without drawing all the radical inferences they do. I agree that the government can always print money to pay its bills. But that fact does not free the government from its intertemporal budget constraint. I agree that the economy normally operates with excess capacity, in the sense that the economy’s output often falls short of its optimum. But that conclusion does not mean that policymakers only rarely need to worry about inflationary pressures. I agree that, in a world of pervasive market power, government price setting might improve private price setting as a matter of economic theory. But that deduction does not imply that actual governments in actual economies can increase welfare by inserting themselves extensively in the price-setting process. Put simply, MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises.”
Monetary policy seems like some strange dark art where we think we have more control over the world than we actually do, and we’re probably not seeing some of the most important unintended consequences of our actions. You have to do the best you can based on what you understand, so I mostly agree with the monetary policy regime, but wouldn’t be surprised if we look at things very differently in 50 or 100 years. (The history of the subject is really rather recent — the Federal Reserve was born in 1913, and Nixon only fully took us off the gold standard in 1971.)
This resonates for me (it’s interesting though how you and I still draw different conclusions on whether to build up the supply of monetary stimulus or not; seems like some underlying differences in how we each relate with the use of leaky abstractions like MMT in practice?).
Thanks, I appreciate learning from you here.
A separate topic you might be interested in would be Modern Monetary Theory.
I’ll make time to read this paper and arguments for MMT policy when/if OpenPhil writes up their updated review later this year. For now, got to focus on digging into other research and research programs.
Awesome yeah, this was a great discussion. Relevant to OpenPhil’s grantmaking and it’s great to have a venue for discussing thorny questions in a reasonable way. I probably trust the monetary establishment a bit more and see newer proposals as more predictable / within the historical distribution of what we’ve seen before. But I’m not an expert and definitely could change my views here. Really appreciate your perspective and would be happy to follow up later.
I probably trust the monetary establishment a bit more and see newer proposals as more predictable / within the historical distribution of what we’ve seen before.
I guess Joseph Tainter’s historical work is also somewhat relevant – on past developing societies like ancient Rome becoming increasingly spread out, specialised and organisationally complex to the point where political leaders couldn’t centrally fund regulatory governance and maintenance of their society except by debasing the common currency of trade (noting that an analogy to the current US situation I think only holds if the Fed ‘printing money’ induces inflation of the US currency down the line). From this perspective, monetary stimulus could correspond with an implicit attempt at maintaining US organisational complexity at a level that is no longer tenable.
Another point, could be seen as generalisation of your first point: more money supply than optimal for the economy just makes the entire economy less efficient. It’s entirely analogous to how an organism gets excessive fat and becomes inefficient (and incurs health risks) when over-fed (and I strongly suspect that this is deeper than just a superficial analogy, that there is a general system development law behind this).
More concretely:
Excessive bureaucratisation and creation of ‘bullshit jobs’, i.e., unproductive jobs whose main functions are in organisational politics and labor union relationships. BTW, these bullshit jobs will also mask deeper issues with employment: for example, participation rate (which is different from ’100% - unemployment’ though) is an important economic metric, but it seems to be misled (Goodhearted if you wish): what we are really interested in is productive participation rate.
Low productive participation rate is not only due to bullshit jobs, but also due to excessively many rentiers or early retirees created by too high money supply. Paradoxically, this leads to a decrease in the quality of life: many people have enough money to retire from productive jobs ⇒ shortage in real sector labour: doctors, public transport workers, street cleaners, canalisation maintenance workers, electricians, etc. ⇒ public services start to crumble, and wait times for non-public services (e.g., private doctors) increase, and the prices for both rise ⇒ lower quality of life even for those rentiers and retirees!
Creation of totally inefficient startups that burn money, don’t have a path towards profitability, but still raise a lot of funds. It is possible to overshoot here in another direction, too, but the current situation when there are so many deeply unprofitable unicorns in late venture investment rounds and even long IPO-ed is unique.
Downstream effect of this unhealthy startup environment is https://en.wikipedia.org/wiki/Enshittification, which is at least partially caused or exacerbated by the monetary overhang. Too many startups are funded and are confident that they can raise money for a very long time ⇒ Price war and winner-take-all mentality ⇒ Quasi-monopolies and enshittification. We have seen this with Uber, and we are likely see it on a massive scale with AI startups, which are currently free or massively subsided, but later will come to eat our arm and leg. But note that I don’t say that the over-supply of money is the only cause of this dynamic.
It seems like this issue is basically moot now? Back in 2016-2018 when those OpenPhil and Karnofsky posts were written there was a pretty strong case that monetary policymakers overweighted the risks of inflation relative to the suffering and lost output caused by unemployment. Subsequently there was a political campaign to shift this (which OpenPhil played a part in). As a result, when the pandemic happened the monetary policy response was unprecedentedly accomodative. This was good and made the pandemic much less harmful than it would have been otherwise, at the cost of elevated but very far from catastrophic inflation this year (which seems well worth it given the likely alternative). And indeed Berger in that 80k interview brings the issue up primary as a past “big win”, mission accomplished, and says it’s unclear whether they will take much further action in this space.
I think this is a somewhat reasonable argument: OpenPhil is no longer making any big grants in the US to increase monetary stimulus (or more indirect Fed ‘transparency’ or ‘diversity’ work), so why prioritise spending time to understand this issue even more deeply?
Having said that, the broad concerns I wrote about put in doubt whether OpenPhil’s grants there were a ‘big win’ in the first place, given
that the US’ unprecedented monetary stimulus over the previous decades meant a higher chance of model error when using macroeconomic theories economists thought up in the past to make predictions ‘from outside the historical distribution’ (where acting on error-prone predictions puts the entire financial system at risk).
how OpenPhil staff appear to have overlooked political dynamics that shape their and Federal Reserve board’s views and decisions (OpenPhil staff dismissing inflation concerns by conservative thinkers they don’t seem much in touch with; the Fed tending it seems to not tighten stimulus enough afterwards to curb debt-fuelled speculation if that may result in people blaming them for triggering a recession).
Frankly, the self-congratulatory stance that Holden Karnofsky in particular seemed to take on their 2016 Fed Up Campaign grant lacked the caution (that comes with recognising when you’re actually in uncharted territory) and the self-aware humility (that comes with being cognisant of the limitations and blindspots of your own ideologies, and of the social circle around you that reinforces those) that seems appropriate when technocratically deciding for everyone how the US financial system should be fine-tuned.
I wouldn’t want the lesson that up-and-coming OpenPhil analysts take away from the ‘big win’ Holden and Alexander contend they got out of this relatively small-sized grant that they must make more uncertain, high-leverage, broadly scoped policy grants like that in the future, but bigger! (try search “Effective Altruism is Self-Recommending” for some clarification why that seems an epistemologically eroding and systemically harmful cycle to get into)
Also, a nuance: Berger did mention that they’re exploring doing ‘a little bit more in that space’, particularly by pivoting to supporting policy work in Europe (though admitting they understand the policy landscape less well there). The two concerns I bring up above also seem to apply to OpenPhil lobbying for macroeconomic stabilisation in Europe, albeit to a lesser extent.
These seem like plausible inferences to me! At least over the short-term, increasing stimulus further seems like it should have benefited people with low and unstable incomes in their material well-being and reduced social unrest that emerged from and got magnified by COVID restrictions.
This is a conclusion we can draw in hindsight (we couldn’t have reliably predicted at the time when a global pandemic would appear again). You can make a similar milder case though for the benefits of stimulus around the slow post-GFC economic recovery between 2016 and 2018.
In short, I think there’s a totally reasonable case to make that any extra monetary stimulus that OpenPhil’s grants enabled benefitted people over the short term (1-5 years). I’m worried about the longer-term repercussions of their approach.
What longer-term repercussions would you be worried about? I understand the general concern of unprecedented action within a system that’s not very well understood, but what specific harm could happen?
Monetary policy is usually framed as really only having two objectives, inflation and employment. Other impacts are surely present and important, such as recent acknowledgement given to climate change or income inequality as other strategic monetary policy priorities. But many economists I’ve seen dismiss those other goals, saying monetary policy has no direct effect on those goals and that inflation and employment are the real metrics worth tracking. Unemployment looks great right now, and while inflation is high right now, Tyler Cowen just posted evidence that markets expect stable ~2% inflation over the next five years. Are you concerned about inflation or something else?
Strongly agree with lexande above, the response to Covid was a perfect example of how we learned our lesson from 2008 and decided to deliver much more stimulus.
This is a sharp question (hence the strong upvote). I appreciate this.
I’m an amateur here, so do take any more specific thoughts I have on this (that go beyond ‘this seems really uncertain/fuzzy and potentially systemically damaging’ and ‘let’s not get stuck in conflicts with people who wield differently insightful ideological views’) with a grain of salt.
Some concerns that come to mind:
fostering the expectation amongst institutions and companies that the US Fed will centrally take care of any economic threat or crisis whenever one appears disincentives locally responsible leaders from stockpiling needed money and materials to ensure their organisation weathers the storm and from designing regulations and programs to avert, prepare for and deal with outside shocks in more targeted and concretely verifiable ways.
long-run USD inflation (in twenty years or more)
loss of trust in the United States Dollar as a ‘world reserve currency’ with foreign governments shifting their funds away to some other currency or portfolio of currencies (this would be bad for US trade interests, but could be good from a cosmopolitan perspective if what replaces it is some common currency storage mechanism that doesn’t have first movers gain outsized wealth/decision power in bits and zeros and therefore indirectly disincentivise work by entrepreneurs and workers elsewhere).
I don’t feel satisfied by the above list. I think a reasonable counterargument is that those vaguely possible consequences don’t justify not extending monetary stimulus right now that could avert obvious harms experienced by citizens. I would be wary though of getting anchored on requiring specific claims here.
These all make sense to me, particularly #3 with the huge recent interest in crypto. Monetary policy seems like some strange dark art where we think we have more control over the world than we actually do, and we’re probably not seeing some of the most important unintended consequences of our actions. You have to do the best you can based on what you understand, so I mostly agree with the monetary policy regime, but wouldn’t be surprised if we look at things very differently in 50 or 100 years. (The history of the subject is really rather recent — the Federal Reserve was born in 1913, and Nixon only fully took us off the gold standard in 1971.)
A separate topic you might be interested in would be Modern Monetary Theory. It’s is widely derided by economists, mainly I think because it’s so closely tied to Democratic politics and advocating big budget increases. But as an academic theory I think it’s a really compelling new account of the function of money and the levers we have at our disposal to affect the economy. A lot of the MMT authors themselves are pretty polemical, I didn’t like Kelton’s Deficit Myth. Greg Mankiw’s introduction is pretty balanced IMO, check out the full thing if you want but here’s his conclusion:
“In the end, my study of MMT led me to find some common ground with its proponents without drawing all the radical inferences they do. I agree that the government can always print money to pay its bills. But that fact does not free the government from its intertemporal budget constraint. I agree that the economy normally operates with excess capacity, in the sense that the economy’s output often falls short of its optimum. But that conclusion does not mean that policymakers only rarely need to worry about inflationary pressures. I agree that, in a world of pervasive market power, government price setting might improve private price setting as a matter of economic theory. But that deduction does not imply that actual governments in actual economies can increase welfare by inserting themselves extensively in the price-setting process. Put simply, MMT contains some kernels of truth, but its most novel policy prescriptions do not follow cogently from its premises.”
https://www.nber.org/system/files/working_papers/w26650/w26650.pdf
This resonates for me (it’s interesting though how you and I still draw different conclusions on whether to build up the supply of monetary stimulus or not; seems like some underlying differences in how we each relate with the use of leaky abstractions like MMT in practice?).
Thanks, I appreciate learning from you here.
I’ll make time to read this paper and arguments for MMT policy when/if OpenPhil writes up their updated review later this year. For now, got to focus on digging into other research and research programs.
Awesome yeah, this was a great discussion. Relevant to OpenPhil’s grantmaking and it’s great to have a venue for discussing thorny questions in a reasonable way. I probably trust the monetary establishment a bit more and see newer proposals as more predictable / within the historical distribution of what we’ve seen before. But I’m not an expert and definitely could change my views here. Really appreciate your perspective and would be happy to follow up later.
Glad this opened up a richer discussion :)
Got it.
Happy to have a chat in February btw. Will try to read the paper you linked to before our call in that case: https://calendly.com/remmelt/30min/?month=2022-02&date=2022-02-01
I guess Joseph Tainter’s historical work is also somewhat relevant – on past developing societies like ancient Rome becoming increasingly spread out, specialised and organisationally complex to the point where political leaders couldn’t centrally fund regulatory governance and maintenance of their society except by debasing the common currency of trade (noting that an analogy to the current US situation I think only holds if the Fed ‘printing money’ induces inflation of the US currency down the line). From this perspective, monetary stimulus could correspond with an implicit attempt at maintaining US organisational complexity at a level that is no longer tenable.
Another point, could be seen as generalisation of your first point: more money supply than optimal for the economy just makes the entire economy less efficient. It’s entirely analogous to how an organism gets excessive fat and becomes inefficient (and incurs health risks) when over-fed (and I strongly suspect that this is deeper than just a superficial analogy, that there is a general system development law behind this).
More concretely:
Excessive bureaucratisation and creation of ‘bullshit jobs’, i.e., unproductive jobs whose main functions are in organisational politics and labor union relationships. BTW, these bullshit jobs will also mask deeper issues with employment: for example, participation rate (which is different from ’100% - unemployment’ though) is an important economic metric, but it seems to be misled (Goodhearted if you wish): what we are really interested in is productive participation rate.
Low productive participation rate is not only due to bullshit jobs, but also due to excessively many rentiers or early retirees created by too high money supply. Paradoxically, this leads to a decrease in the quality of life: many people have enough money to retire from productive jobs ⇒ shortage in real sector labour: doctors, public transport workers, street cleaners, canalisation maintenance workers, electricians, etc. ⇒ public services start to crumble, and wait times for non-public services (e.g., private doctors) increase, and the prices for both rise ⇒ lower quality of life even for those rentiers and retirees!
Creation of totally inefficient startups that burn money, don’t have a path towards profitability, but still raise a lot of funds. It is possible to overshoot here in another direction, too, but the current situation when there are so many deeply unprofitable unicorns in late venture investment rounds and even long IPO-ed is unique.
Downstream effect of this unhealthy startup environment is https://en.wikipedia.org/wiki/Enshittification, which is at least partially caused or exacerbated by the monetary overhang. Too many startups are funded and are confident that they can raise money for a very long time ⇒ Price war and winner-take-all mentality ⇒ Quasi-monopolies and enshittification. We have seen this with Uber, and we are likely see it on a massive scale with AI startups, which are currently free or massively subsided, but later will come to eat our arm and leg. But note that I don’t say that the over-supply of money is the only cause of this dynamic.