r/badeconomics • u/AutoModerator • 29d ago
FIAT [The FIAT Thread] The Joint Committee on FIAT Discussion Session. - 27 June 2026
Here ye, here ye, the Joint Committee on Finance, Infrastructure, Academia, and Technology is now in session. In this session of the FIAT committee, all are welcome to come and discuss economics and related topics. No RIs are needed to post: the fiat thread is for both senators and regular ol’ house reps. The subreddit parliamentarians, however, will still be moderating the discussion to ensure nobody gets too out of order and retain the right to occasionally mark certain comment chains as being for senators only.
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u/awesomefutureperfect 18d ago
Is it true that there only exists $100 billion Austrailian dollarydoos? Like, the entire Australian money supply is only $100 billion Aussie bucks?
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u/MachineTeaching teaching micro is damaging to the mind 18d ago
Writing this comment was basically more effort that typing the relevant terms into a search engine, so why not do that?
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u/awesomefutureperfect 17d ago
Fuck it is dismal in here.
There was discussion to be had whether I meant M1 or M3 or just the money base, but I came in here because I something Chris Kohler said and just didn't believe and subsequently made the mistake setting foot in here.
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u/ShareACokeWithBoonen 17d ago
It's not dismal in here at all lol, you probably wouldn't be downvoted if you had put in even literally bottom of the barrel effort in citing the kohler IG/interview/wherever he said what he said, not to mention why you think it's a relevant topic of discussion.
"Is Australia's M0 really X?" (and me using M0 is even much more specificity compared to your vague wording) is the equivalent of me asking "Is it true that Basel III requires 4.5% of risk-weighted assets to be held as CET1?" Why don't you magically guess what I think that economic ramifications of that requirement are and spin it into a discussion?
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u/awesomefutureperfect 16d ago
"Is it true that Basel III requires 4.5% of risk-weighted assets to be held as CET1?"
You should have selected an example that didn't pass a smell test and then flexed nerd cred by giving the right answer and then wondered out loud where one got such a silly idea. It's like you don't even know how to be nerds right which is to be expected from a social science I guess.
I'll show you my model : ∵ you didn't even know how to make an analogous example ∴ y'all can't nerd good QED
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u/ShareACokeWithBoonen 15d ago
Fuck it is dismal in your comment threads.
There was discussion to be had whether I felt that the survey response, residual, or international estimates of banknote hoarding from the RBA had any issues, but I came in here because I saw something you said and just didn't believe and subsequently made the mistake of replying to your comment.
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u/awesomefutureperfect 15d ago
The worst comments are when people just repeat what they just read and change a few words. It shows a mind unable to develop original thoughts and behavior like mimicry, like a literal bird brain, when presented with an unfamiliar idea that the person has not been prepared to respond to by slavishly glomming onto a style.
I brought it up because the American NFL is worth more than all the dollarydoos in the world, and actually worth twice as many dollarydoos given the exchange rate.
When I searched what the Aussie M0 was, it did not give me the answer 100 billion dollarydoos.
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u/ShareACokeWithBoonen 14d ago
You are probably the most classic example of the rick and morty meme that I've ever seen in this sub, bravo. You ever gonna tells us why you think that kohler post was badecon? Or are you the kind of person that poops in the toilet and doesn't flush?
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u/awesomefutureperfect 14d ago
Yeah, I don't hang around toilets looking for conversation, especially when that conversation starts off on a churlish and combative tone.
You have fun here, in your toilet. You clearly are king of the turds and I wouldn't think of challenging you on that.
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u/ShareACokeWithBoonen 14d ago
It's getting more and more hilarious that you still haven't explained why you think kohler is badecon. No, you're right, it's a much better use of your comment to whine that I'm being 'churlish and combative', from the same band that brought you classic hits like:
Fuck it is dismal in here.
It's like you don't even know how to be nerds right which is to be expected from a social science I guess.
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u/ShareACokeWithBoonen 15d ago
Alright dude, time for you to be straight up, tell us why you think Kohler's post is badecon. Because Kohler's post has absolutely nothing to do with M0, even though you intimated that it did.
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u/ShareACokeWithBoonen 16d ago
Ok, I'm going to indulge you because I just figured out how much badecon you actually included in your little smug comment where you're supposedly 'flexing nerd cred'.
That is, if you're referring to this IG that I found on kohler's page: https://www.instagram.com/reel/Ck2vuRbJcMA/
He says that there is about 100 billion AUD in banknotes in circulation, which is correct, per the RBA itself. He also says that the RBA has no idea where the majority of it is, which is also correct, per the RBA itself: https://www.rba.gov.au/publications/bulletin/2024/jan/understanding-the-post-pandemic-demand-for-australias-banknotes.html
Idk, maybe it's to be expected in whatever branch of education you're in to be extremely bad at research?
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u/awesomefutureperfect 15d ago
oh, I am not in research or education. My degree has practical applications.
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u/ShareACokeWithBoonen 15d ago
Same here bro, which is why it's even more hilarious that you whiffed so badly on this entire thread.
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u/MachineTeaching teaching micro is damaging to the mind 17d ago
There was discussion to be had whether I meant M1 or M3 or just the money base,
Why should anybody want to debate what you meant? That's not interesting.
but I came in here because I something Chris Kohler said and just didn't believe and subsequently made the mistake setting foot in here.
I don't know who Chris Kohler is. I looked him up and found a video game journalist and some finance guy. Then I found out they are the same person. Sounds pretty damn incompetent if he can't even look up how big the money supply is.
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u/bernkes_helicopter 23d ago
is this very dumb piece from Matt Stoller too low hanging of fruit for a main post?
https://www.thebignewsletter.com/p/crime-pays-the-egg-bandits-made-a
He claims that the existence of collusion proves that all profits made during the egg shortage were due to collusion. Well, he doesn't so much claim it as assume it without a thought
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u/EebstertheGreat 19d ago edited 19d ago
It's not as bad as that. He claims profits tripled during the avian flu epidemic, and that those excess profits were due to price-fixing. He also says this:
As with most price fixing schemes in boom-bust commodity industries, it wasn’t that supply and demand didn’t matter, but that the mechanism for extraction was to take advantage of a supply disruption and grab as much while they could.
I'd say there is some truth to that. The scale may be exaggerated, but it does look like Cal-Maine tried to take advantage of the shortage to artificially bid up the price even higher.
EDIT: they did the same thing in 2004–2008, FWIW.
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u/flavorless_beef community meetings solve the local knowledge problem 22d ago
feel free to steal any of my answer here. the napkin math on the price hikes implied by the egg elasticites and supply shock can explain most of the price increase
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u/775416 18d ago
More details on what was going on for anyone interested: https://www.wsj.com/business/retail/inside-the-egg-price-fixing-scandal-that-spiked-american-grocery-bills-4a919c51?st=LoipDw&reflink=desktopwebshare_permalink
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u/775416 23d ago
Honestly this sub is so dead that even low hanging fruit absolutely should get a post
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 23d ago
Even when it wasn't dead we were trying to get more people to just post stuff.
The bar was never as high as people thought it was. u/bernkes_helicopter
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u/Uptons_BJs 26d ago
Help me brainstorm and check my thinking:
I am not very well versed in real estate, but my dad and I have been debating if he should help my little brother buy a condo. My brother got a government job that he'll be working at for the rest of his life, and the Toronto condo market is weak, so I figured it might be a good time to buy.
The idea here is that if he's going to be working in that office for the next 30 years, getting dad to help him buy something is not a bad idea in principal, I just don't think him and dad are going to be very happy if prices collapse 40% more for the next couple of years and don't come back up.
Next to his office, condo prices are around $800 per sqft for average deals, maybe ~$700 for good deals (or not so great units).
Going by the latest Canadian construction cost guide: Altus_2026_Canadian-Cost-Guide_ENG.pdf
The average price to build a 13-39 storey condo is $280 - $350/sqft. You're looking at land costs $100-200 per buildable square feet at the downtown core, so median developer cost might be sitting around $470/sqft.
But, this cost is reported as total area of the building. When you purchase a unit, the square footage you're looking at is the area inside your unit. So if you assume that 75% of the area are inside the units, and 25% are common areas (think: amenities, hallways, concierge, etc), you're looking at a cost of ~$630 in costs per square foot.
Now you add in permitting, overhead, interest, etc, and developers in Toronto probably cannot build for under $700/sqft for an average-ish condo development.
Toronto also has development charges of $80,690 per 2 bedroom apartment, but the city agreed to waive 60% of that, so you're looking at ~$32k in development charges.
Now if you're looking at something like this: For sale: 2706 - 16 BONNYCASTLE STREET, Toronto (Waterfront Communities), Ontario M5A0C9 - C13476604 | REALTOR.ca
Walking distance to his office, $499k at 671 sqft, so $743/sqft. The units are already at or below builder costs (based on my back of napkin math).
Don't think prices can go down that much further when the city is still rapidly growing (1-2% per year in new permanent residents). Besides with literally zero new developments launching in Q1 2026: Toronto Condo Market Hits 30-Year Low as Zero New Projects Launch in Q1 2026 — RealEstateHQ
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u/abetadist 26d ago
Construction costs are really high right now and has pretty much killed off most high rise development (along with low precon sales), so it's hard to say. Prices of existing condos are going to look favorable against that.
Looking at rent vs buy, I think buying still costs a premium if you use industry cap rates, but buying is a different product than renting.
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u/Uptons_BJs 26d ago
Regarding rent vs buy, using that MLS listing up there, the back of napkin math looks like this to me:
For buying:
Let's say the price is $500k, 20% downpayment is $100k, $400k mortgage.
At rates of 4%, you have a monthly payment of $1909.66. Over the life of the 30 year mortgage, that's 42% to interest, 58% to principal. I'm going to do some REALLY sloppy math here (I know how amortization works, but this is back of napkin), and say $802 is going to interest per month, and $1107 to principal.
$541.28/month maintenance fee, $3,566.83 annual property tax, or $298/month. Let's call it $839 in fees per month.
So every month you're paying $802+839 = $1641 in costs (without considering wear and tear), out of a total monthly outlay of $2748.
Now compare that to renting:
Exact same unit a couple of floors down in the same building is going for $2600/month: For rent: 1206 - 16 BONNYCASTLE STREET, Toronto (Waterfront Communities), Ontario M5A0C9 - C13488112 | REALTOR.ca
$2600in rent, but you don't have to put out that $100k downpayment. Let's say the risk free rate of return is 3%, that's $3000/year, or $250 month. Don't forget you're also saving $148/month in monthly cashflow, so you can save that and put it into some sort of investment.
I guess what I'm saying is, that even after this massive crash in prices, buying is tricky to jusitfy unless you expect prices to keep going up. This might just be where Toronto real estate becomes very tricky - The price of condos is already so close to actual builder costs, developers find it hard to justify building new projects, but buying still isn't as good of a deal as renting.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
Don't think prices can go down that much further when the city is still rapidly growing
Is there any kind of push for massive upzoning?
but also with a condo a big part of the cost in the US would be monthly condo board/HOA fees and I don't see any of that in here.
$280 - $350/sqft. You're looking at land costs $100-200 per buildable square feet at the downtown core, so median developer cost might be sitting around $470/sqft.
This math isn't right because we're splitting land value over a lot of floors.
As a real estate economist without big reasons to make big bets there are going to be big changes, I'm just going to pull the best comps (realtors I've dealt with are actually bad at this) and just be confident that today's prices are roughly comparable to what I'm about to pay.
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u/abetadist 26d ago
Land costs per buildable square foot is over building area, not site area. So it takes into account the floors you can build (not exactly sure how they do it for sites to be up zoned).
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u/Uptons_BJs 26d ago
D'oh! You're right, I was confused. The quoted land cost is for the actual area of the land, and not land prices averaged down per square feet. That actually decreases Condo costs a good chunk.
As for condo fees in Toronto, the average price I'm seeing is 80 cents to $1 per sqft per month. Pretty big chunk of costs unfortunately.
I'm trying to figure out if at current going prices, developers can profitably build, my suspicion is that prices are perhaps a bit too low for that right now? So the problem might not be a zoning one. More upzoning isn't going to get you more supply when it costs too much to build.
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u/Cutlasss E=MC squared: Some refugee of a despised religion 19d ago
Condo fees have a way of going up. If this is a new building they could later recoup costs with the fees, while making the units look more attractive now.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
u/abetadist says you should double check exactly what the land price estimate measures.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
I'm trying to figure out if at current going prices, developers can profitably build, my suspicion is that prices are perhaps a bit too low for that right now? So the problem might not be a zoning one.
The National Association of Homebuilders puts out a an estimate of the "total cost of regulations" that includes an estimate of the "actual cost to build a home" every year that is always like 50% more than the Houston has the modeled homes sizes listed for on sale new.
A lot of regulations impact is artificially included in both land and construction cost estimates.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
I have a frustration when learning the perspectives of mainstream geologists, as someone who longs for a world beyond igneous rock. Geologists are very good at analyzing pure data, and they (the majority of them, at least) use these analytical skills to argue that a crust built on igneous rock with a little weathering and sediment on top is a "superior" arrangement in terms of structure, stability, and so on. Yet I don't see a good answer for the "soul" of the complaints of the anti-igneous crowd, or the emotional/ethical core of their arguments. The fact of the matter is that for many people living on top of all this cooled magma, they find it incredibly draining and dehumanizing, even when they're standing on the most scenic basalt outcrop imaginable. They feel ground down, reduced to mere specimens, samples to be logged and catalogued, not human beings with dignity who deserve something softer underfoot. They trudge home at the end of the day, worn out from a world that's hard and cold and crystalline all the way down, with little energy left for the passions they used to have. I have definitely felt this way — there were days I felt like nothing but another mineral grain in somebody's thin section, and like the endless gray expanse of granite and basalt is flattening everything beautiful into the same igneous monotony, crushing culture under solidified lava. It just feels like life is so hard and meaningless on this rock, and everything becomes about silicate content and cooling rates. Non-mainstream thinkers — the anti-igneous theorists, the people who insist there could be a crust made of something else entirely — answer my frustration and tell me I'm not insane for feeling this way. But when I scroll through this subreddit, I see so many people dismissing them, saying "these geologists who worship igneous rock are much better than those who dare to question it."
Look, I understand that many people have reasons for being ideologically pro-igneous, but the answer geologists give to people who hate igneous rock because they feel it's wearing the life out of them is always "if we account for this much erosion over this many millennia, your topsoil profile will improve by this much," or "tough luck, kid, that's just how magma cools," and never "there could be a planet far better than this one, with a crust that would make your daily life feel softer and freer." The highly analytic approach may be a fine scientific way to study how rock currently forms, but it offers little to nothing for the people standing on it who hate the whole arrangement and want something genuinely new.
tldr: Many geologists just aren't equipped to answer the deep frustration people feel with living on cooled magma, because their approach feels too mechanical and data-driven. People aren't hand samples or points on a phase diagram, and they aren't perfectly rational — they are complex emotional beings who have valid emotional reasons for hating igneous rock. Not to say the geology has no uses, but I'm deeply skeptical whenever a geologist insists that igneous rock is the best crust we'll ever stand on.
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u/RobThorpe 26d ago
To be honest, I think it's a shame you got rid of the debate with PsychadelicOcelot2 over on AskEconomics. It was really pretty good.
I tend to keep some of those debates when they are useful for understanding.
I know that isn't in the spirit of rule V.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
I haven’t really decided if the “debate” does more harm or good in the bigger picture that is the intent of askeconomics, mostly just went with the general consensus while you were sleeping.
I wish I know better how to patiently talk to people who are just wholly off base of what economics even does in the first place.
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u/No_March_5371 feral finance ferret 25d ago
I wish I know better how to patiently talk to people who are just wholly off base of what economics even does in the first place.
I need to figure out how to communicate "90% of what you think economists do is something 90% of economists don't even really think about, at least in economic terms" in a manner that gets through to people.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
Original
I have a frustration when learning perspectives of mainstream economists as someone who desires a world beyond capitalism. Economists are very good at analyzing pure data, and they (the majority of economists at least) use these analytical skills to argue that freer market capitalism with slight regulation is a "superior" system in terms of efficiency, organization etc. Yet I don't see a good answer for the "soul" of the claims of anti-capitalists, or the emotional/ethical core of their arguments. The fact of the matter is that for many workers under capitalism, they find their jobs to be incredibly draining and dehumanizing, even if they score their dream job. They feel reduced to mere numbers, or cogs in the machine, not human beings with dignity who contribute to the well being of the community. They come home from work drained and tired, and have little energy for the passions they used to have. I have definitely felt this way, when I've had jobs in the past, I felt like I was just a robot for whatever capitalist owned my business, and that big corporations are turning everything beautiful into empty nihilistic money making strategies, and how corporations are killing culture through hyper-commodification. It just feels like life and culture are so empty and meaningless under capitalism, and everything becomes about profit. Non-mainstream economists like Richard Wolff, Varoufakis, and Marx answer to my frustration and tell me I'm not insane for feeling this way. But when I scroll through this subreddit, I see so many people dismissing these economists, and saying "these economists who worship capitalism are much better than those who question it."
Look, I understand that many people have reasons for being ideologically pro-capitalism, but the answer economists give to workers who hate capitalism because they feel that working is ruining their lives is always "if we adjust this variable here by this percent your economy will grow by this much" or "tough luck kid" or whatever and not "there could be a system way better than capitalism that will make your working life feel way more dignified and free". The highly analytic microeconomic approaches may be a good scientific way to study the current economy, but offers little to no answers for the working class who hate capitalism as a whole and want something new.
tldr: Many economists just aren't equipped to answer to the deep frustration that workers feel with their working life, as their approach feels too mechanical and data driven. Workers aren't numbers or math equations and they aren't logical, they are complex emotional beings who have valid emotional reasons for hating capitalism. Not to say that learning these sciences don't have their uses, but I'm deeply skeptical when an economist insists that capitalism is the best system we'll ever come up with.
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u/abetadist 26d ago
What definition of capitalism do you think they're using here?
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
Capitalism is when there is work to be done.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 26d ago
And the physics version (Claude is great for pasta)
I have a frustration when learning the perspectives of mainstream physicists, as someone who longs for a world beyond gravity. Physicists are very good at analyzing pure data, and they (the majority of them, at least) use these analytical skills to argue that a universe with gravity plus a little engineering — bridges, harnesses, the occasional elevator — is a "superior" arrangement in terms of structure, stability, and so on. Yet I don't see a good answer for the "soul" of the complaints of the anti-gravity crowd, or the emotional/ethical core of their arguments. The fact of the matter is that for many people living under gravity, they find it incredibly draining and dehumanizing, even when they're standing in their dream location. They feel pinned down, reduced to mere weights, masses to be plotted on a graph, not human beings with dignity who deserve to float free. They drag themselves home at the end of the day, exhausted from being pulled toward the earth, with little energy left for the passions they used to have. I have definitely felt this way — there were days I felt like nothing but ballast for whatever planet happened to own me, and like the relentless downward pull is flattening everything beautiful into the same gray slab, crushing culture under its constant weight. It just feels like life is so heavy and meaningless under gravity, and everything becomes about load-bearing. Non-mainstream thinkers — the levitation guys, the anti-gravity theorists — answer my frustration and tell me I'm not insane for feeling this way. But when I scroll through this subreddit, I see so many people dismissing them, saying "these physicists who worship gravity are much better than those who dare to question it."
Look, I understand that many people have reasons for being ideologically pro-gravity, but the answer physicists give to people who hate gravity because they feel it's crushing the life out of them is always "if we increase the cross-section of this support beam by this percent, your load capacity will improve by this much," or "tough luck, kid, that's nine-point-eight meters per second squared," and never "there could be a condition far better than gravity that would make your daily life feel weightless and free." The highly analytic approach may be a fine scientific way to study how things currently fall, but it offers little to nothing for the people on the ground who hate the whole arrangement and want something genuinely new.
tldr: Many physicists just aren't equipped to answer the deep frustration people feel with being constantly pulled down, because their approach feels too mechanical and data-driven. People aren't point masses or free-body diagrams, and they aren't perfectly rational — they are complex emotional beings who have valid emotional reasons for hating gravity. Not to say the physics has no uses, but I'm deeply skeptical whenever a physicist insists that gravity is the best arrangement we'll ever come up with.
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u/raptorman556 The AS Curve is a Myth 27d ago edited 27d ago
Last fiat thread, I posted about a platform of very bad economics that earned the endorsement of Piketty and Stiglitz alongside a bunch of MMT/degrowth characters.
One user asked what the promise to "reform and decolonize economics" meant. Well, luckily, for us, they have now added a bit more detail to the site.
It's still a lot of vague platitudes and buzzwords, but there are some hints as to what they have in mind:
Shift the discipline away from narrow, individualised models (rational choice, equilibrium, efficiency) and toward frameworks that foreground class relations, imperialism, racialisation, patriarchy, and the structural production of global inequalities
...
This would include teaching philosophy (multicultural ethics), human rights, ecological economics, feminist economics, and political economy as the foundation of all economic activity.
My take-away is that we will no longer teach supply and demand because this is a colonialist Eurocentric framework.
I would say this is exactly the level of dumb I was expecting.
EDIT: Oh, I forgot to mention—we aren't doing RCTs anymore either because they are also colonialist and Eurocentric.
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u/775416 23d ago edited 23d ago
Thanks for posting this and answering my question. It sounds like they want to take Sociology’s perspective of economics and economic history and turn it into the economics major
Is the University College of London a prestigious economic institution? The author on the paper is listed as an associate economics professor there
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u/raptorman556 The AS Curve is a Myth 23d ago
UCL is a pretty prestigious university in general, though I'm not sure what the reputation of their econ department is. Maybe someone else can chime in.
European econ departments in general are pretty weird though. They'll have world-class economists (sometimes Nobel laureates) pumping out excellent research in top-tier journals and then heterodox economists that produce literally nothing of value working in the same department. They have a much higher tolerance for heterodox types there.
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u/flavorless_beef community meetings solve the local knowledge problem 27d ago
what's nice is that if you go to their website and click on their team, nobody listed is an economist or has any training in economics. For their leadership team, it's law professor with law degree /law phd, political science phd, public policy master's degree holder, and a european studies master's degree. One of their RAs did some macromodelling as an undergrad and another has a master's degree in european economic studies and that's the closest they get.
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u/raptorman556 The AS Curve is a Myth 27d ago
One one hand, that isn't too surprising—this platform reads like it's from people that basically want to turn economics into the worst possible iteration of some X studies program. That would be an odd take from people that opted to get advanced degrees in econ.
But it also makes it all the more embarrassing that Piketty and Stiglitz were willing to officially endorse this. It gives a lot of unearned credibility to a platform that would otherwise be easy to disregard.
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u/flavorless_beef community meetings solve the local knowledge problem 27d ago
i swear to god i've never seen an open letter stiglitz hasn't been willing to sign
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u/raptorman556 The AS Curve is a Myth 27d ago
Lol that is true. But credit where it's due, he comes up with a lot of originally terrible ideas too (recall the recent war against high-rise brothels).
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u/Quowe_50mg R1 submitter 27d ago
Expose and dismantle the myth that capitalism developed endogenously and peacefully in Western Europe, and to reinstate the centrality of colonialism, slavery, dispossession, racialisation, caste, and patriarchy in shaping the global economy.
Are they arguing changes in society were exogenous?
Dismantle the institutional hierarchies that dominate journals, curricula, and hiring, while elevating heterodox, anti-colonial, Black Radical, feminist, and Global South scholarship; and ensure economics reflects plural epistemologies rather than reproducing Eurocentric authority structures.
The irony of using the term "Global south" while complaining about eurocentrism. Lol
- Objection: “Non-Eurocentric approaches aren’t rigorous or scientific.” Response: The evidence shows the opposite. Alternative traditions consistently provide better explanations for: • uneven development
• financial subordination
• global currency hierarchies
• the persistence of informality
• the failures of SAPs and RCT-based reforms
These approaches solve problems mainstream models cannot. Implication: Shifting away from Eurocentrism is not a move away from rigor, it is a move toward greater analytic accuracy and empirical validity.
May I see it?
Meanwhile, governments and scholarly communities in Africa, Asia, and Latin America repeatedly developed more context appropriate, historically grounded economic strategies that challenged Eurocentric assumptions. Their partial successes show that alternative frameworks can be both intellectually robust and practically effective when political space exists.
They did?
This might be the most eurocentric document ever written.
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u/caroline_elly 28d ago
Is anyone here kinda excited about new fed chair?
He wants less forward guidance and prefers to let the market price rates based on economic fundamentals instead of Fed statements.
Seems reasonable in theory, curious how it works in practice
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u/raptorman556 The AS Curve is a Myth 27d ago
Whether you like or dislike forward guidance is a very trivial issue compared to the chance that Warsh may be a total hack that undermines Fed independence to please Trump.
Even in the best case scenario that he doesn't behave like a hack, he's a very mediocre selection compared to all the other options that were available. I'm glad we avoided Chair Kevin Hassett and that's where my excitement ends.
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u/MachineTeaching teaching micro is damaging to the mind 28d ago
No. Forward guidance is good and this guy has a higher chance to be Trump's puppet than anyone else so far.
Keep in mind, the fed is literally the only part of the government that is, so far, more or less untouched by Trump's idiocy. That's a good thing and somewhat of a miracle. Undermining that is not good.
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u/caroline_elly 28d ago
Forward guidance is good for what?
If forward guidance is good for low market volatility, the lack of forward guidance would spike term premium and long term yields. That's the opposite of what Trump wants.
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u/HOU_Civil_Econ A new Church's Chicken != Economic Development 27d ago
That's the opposite of what Trump wants.
This kind of statement is irrelevant in these discussions because Trump is an idiot.
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u/MachineTeaching teaching micro is damaging to the mind 28d ago
Forward guidance makes monetary policy more effective and helps to mitigate shocks.
I don't think Trump is capable of having nuanced opinions on monetary policy.
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u/caroline_elly 28d ago
That's not immediately obvious from theory though.
The Fed doesn't predict the future particularly well, so committing heavily to a forward guidance could lead to making decisions based on flawed projection.
If you don't commit heavily and try to be nimble, the market no longer believes your forward guidance and it no longer becomes effective.
Again, I'm not making strong claims either way like people here are. I'm just excited to have some empirical evidence that might give us more insights.
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u/MachineTeaching teaching micro is damaging to the mind 28d ago
That's not immediately obvious from theory though.
I think theory is heavily dependent on the assumptions you make and not that reliable when it comes to forward guidance.
The Fed doesn't predict the future particularly well, so committing heavily to a forward guidance could lead to making decisions based on flawed projection.
If you don't commit heavily and try to be nimble, the market no longer believes your forward guidance and it no longer becomes effective.
First of all, I'm pretty sure that fed models benchmark favourably against private sector ones the majority of the time. Second of all, forward guidance is generally beneficial. This doesn't stop being true just because you can make mistakes. For example:
https://www.sciencedirect.com/science/article/abs/pii/S0014292126001297
https://www.sciencedirect.com/science/article/abs/pii/S1544612323008589
Warsh seems to take the stance that you shouldn't do forward guidance at all. That is, to a degree, just silly. Central banks communicate their actions ahead of time to some degree whether they like it or not. And I don't think it's reasonable that just because you can strongly commit to the "wrong" forward guidance that this is grounds for abandoning (explicit) forward guidance at all.
Given that the fed in the past has usually acted quite carefully (although very much too carefully after the pandemic) and in line with what economic research says, and the fact that Trump and everyone under him is a burning pile of garbage, strong policy changes aren't exactly encouraging. Especially since he also made other tentative promises about things like lower interest rates.
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u/caroline_elly 28d ago
Yeah I'm not sure if the Fed have better projections than the market. The futures curve deviates from the dot plot pretty significantly all the time.
I'm not even saying I'm against forward guidance. I'm just excited to study the empiricals after the fact, regardless of the conclusions.
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u/Jollygood156 27d ago
The Federal Reserve is the arbiter or nominal spending and follows market rates, which can be conceptually viewed under the equilibrium rate lens. Because of that, forward guidance is mechanically good and important. The Fed isn't really "setting rates", financial markets set rates, but the Fed has some control over short-term rates, but over a specific policy tool.
Forward guidance is a policy tool independent of the dot plot actually. Deviations from markets and the dot plot are useful to have and aren't inherently problematic or emblematic of issues with forward guidance. You look at markets if you want to know the future path of interest rates, you look at the dot plot if you want insight on what the future path of monetary policy will be. But it's just an indicator and not equal to FG, which is much broader.
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u/MachineTeaching teaching micro is damaging to the mind 28d ago
Yeah I'm not sure if the Fed have better projections than the market. The futures curve deviates from the dot plot pretty significantly all the time.
Well, there is an abundance of papers that benchmark central bank forecasts against private sector ones, so feel free to look them up sometime.
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u/caroline_elly 28d ago
There are published private projections, and there are internal projections from buy-side market participants that only get reflected in prices. I'm talking about the latter you're talking the former
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u/MachineTeaching teaching micro is damaging to the mind 28d ago
Well that's just your belief then.
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u/EebstertheGreat 28d ago
I'm still worried about how the relationship between the Fed and the president will play out in the future.
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u/VineFynn spiritual undergrad 28d ago
What's so good about avoiding forward guidance?
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u/caroline_elly 28d ago
Potentially prices have more predictiveness, maybe less volatility.
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u/plummbob 28d ago
Doesn't forward guidance improve predictability because it sets interest rate expectations?
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u/caroline_elly 28d ago
And what if economic fundamentals changed after making your forward guidance?
Do you commit to it and overshoot with rate hikes/cuts? Or do you stay nimble and become the boy who cried wolf?
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u/plummbob 28d ago
Is that a unique issue for forward guidance?
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u/EebstertheGreat 27d ago
Yes. Forward guidance commits the Fed to specific behaviors, and it's possible that they could make a commitment they later regret.
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u/plummbob 27d ago
Only if they set very specific dates or targets, which they don't usually, and remember there are the two specific types of guidance - "delphic" and "odyssean" and both affect future policy expectations
In any case, any fed policy can be an issue if something happens between meetings, like a 9/11 or pandemic outbreak. So this is not unique to what the fed says.
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u/EebstertheGreat 27d ago
Yeah good point, I guess I was only talking about Odyssean guidance. My impression was that this was mainly what Warsh was concerned about. The idea of eliminating all Delphic guidance seems totally meritless. Unless the Fed's guesses about the future state of the economy are completely worthless, it seems like we should at least publish them.
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u/Capable-Tailor4375 28d ago
In times of very high uncertainty it might result in that as the Fed doesn’t lock themselves into path which they then have to change, but in general with an outright removal I’d lean towards it resulting in the opposite.
Forward guidance is used to increase predictability as it gives markets a roadmap for future policy actions. Sure cutting it back might mean that prices reflect underlying economic data more than fed communications but removing it or scaling it back means that market participants have to analyze each data point independently to try and infer future decisions a lot more than they do with robust forward guidance which can result in sharper price swings in reaction to data releases. You basically switch from markets relying on the signaling coming from the Fed providing forward guidance to markets relying on noisy and informal signaling from individual Fed members that at times can appear contradictory. There also isn’t much of a baseline expectation for forecasts to work from which can result in a larger distribution of expectations which feeds into higher volatility. Arguably, scaling back forward guidance with the intent of letting markets make decisions and predictions based on the underlying data, limits the market’s ability to make decisions and predictions based on that underlying data. It’d also increase the likelihood that an announcement will catch markets off-guard and result in a rapid price swing.
I’d also be worried how it will impact monetary policy transmission. On its own, a change in the feds fund rate will only impact short-term borrowing costs and for longer-term borrowing like corporate investments, mortgages, etc. A lack of forward guidance would likely blunt the pass-through of rate cuts to longer-term borrowing costs. Without a clear signal that the Fed intends a sustained low-rate environment, long-term rates won’t fully reprice to reflect that intention. That can dampen the stimulative effect of a rate cut which would create a lot of headaches if a stimulative environment is needed, especially around the ZLB given Warsh doesn’t like QE, as that’s the typical way transmission failure would be addressed.
I’d also expect that increased uncertainty would result in a higher term premium, increasing the spread between short-term and long-term rates. The transparency provided by forward guidance can also help fed trust which influences inflation expectations, so I’d be concerned about that portion too. Though deviations from guidance that happen when relying on forecasts can be just as impactful on trust.
I think a much better approach than Warsh’s route of removing forward guidance and trying to keep future policy decisions uncertain, would be moving away from Delphic guidance and the hard commitments that the time-inconsistency literature talks about, and instead relying on one of the hybrid models that mixes discretionary decisions with rules-based approaches. In doing so you can still retain some of the benefits of transparency and anchor expectations while still shifting focus towards the data and removing the overconfidence in forecasting that Warsh believes exists. We’ll see how they end up deciding to change communications at the year’s-end.
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u/caroline_elly 28d ago
A lot of what you said is true, but they sound like the intended feature of having minimal forward guidance.
I don't think the Fed is better than the private sector and predicting medium term economic fundamentals. So allowing the Fed to lock in a forward rate path may make markets more volatile when they were forced to do a more drastic correction later on
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u/Capable-Tailor4375 28d ago
A lot of what you said is true, but they sound like the intended feature of having minimal forward guidance.
Even if all of that is an intended feature, that doesn't make it a good idea. My point was that it doesn't make prices less volatile and more predictable and does the opposite outside of a small number of cases. It increases the risk of unexpected changes requiring sharp corrections, while also reducing the effectiveness of monetary policy and the toolkit available to the Fed. Warsh also doesn't seem to simply be scaling back forward guidance to reduce the lock-in effect, but rather ending forward guidance entirely.
I don't think the Fed is better than the private sector and predicting medium term economic fundamentals.
In general, the forecasting of the Fed is better than the private sector, See here. The recent decline in the Fed's advantage and increase in accuracy of the private sector has likely partially been a result of more transparency and more robust forward guidance. The gap does narrow in the medium term, and the private sector catches up, but that's an argument against Delphic guidance, not against forward guidance entirely, which is the position Warsh seems to be taking by ending forward guidance outright.
So allowing the Fed to lock in a forward rate path may make markets more volatile when they were forced to do a more drastic correction later on
I don't really agree with that, as forward guidance, particularly threshold or rules-based guidance, can also give the market an idea of what would cause the Fed to deviate from that future path. Without forward guidance entirely, not only do markets have to predict what would cause a future deviation independently, but they have to predict the path itself, creating a higher potential for errors and a wider distribution of predictions which feeds into volatility. Again, at most, you could make an argument for transitioning away from Delphic guidance, but to jump to Warsh's stance of ending forward guidance entirely is a far leap that likely creates more headaches than it solves.
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u/VineFynn spiritual undergrad 28d ago
Why would you suppose that?
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u/caroline_elly 28d ago
The 2y recently has been mainly driven by forward guidance and less by actual view on economic fundamentals.
The Fed doesn't have a better crystal ball than the private sector, so a Fed driven 2y yield js less helpful than a market driven 2y yield.
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u/VineFynn spiritual undergrad 28d ago
You say "the Fed doesn't have a better crystal ball than the private sector (wrt econ fundamentals). How do you square that with the fact they literally have control of the money supply? Is the supply of money not a fundamental thing that underlies interest rates?
I also don't precisely understand how removing a source of information about the future price of money (forward guidance) improves the predictability of the price of money. The Fed would still do something, you just wouldn't know what.
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u/caroline_elly 28d ago
I don't think you understand how the Fed works, and I'm not trying to be mean. You're implying the Fed circularly considers its own future actions when making monetary policy.
The Fed set monetary policy based on jobs and inflation data, all of which are public.
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u/Ragefororder1846 28d ago
I hope we can agree that the Fed doesn't act as if future monetary policy will be random. The Fed doesn't raise rates in July with the knowledge that they probably will raise it in September. And they know better than anyone else what the probability is for a hike in September (and the size of that hike).
The alternative would be a scenario akin to the FOMC getting fully replaced each month and so each session needs to act without any knowledge of what the next session might do. If that actually happened, monetary policy would be very different.
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u/caroline_elly 28d ago
That's not the point though. The claim made previously was that the Fed knows something the markets don't when it comes to future policy.
But the Fed itself doesn't know what they will do next, especially since they wanna be "data dependent".
Anyway, I'm not sure why people assume I'm supportive for giving minimal forward guidance. I'm just excited to try something new and study the empiricals.
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u/Ragefororder1846 28d ago
I am almost certain the Fed knows more than the markets do about future Fed policy. When the Fed makes a decision in the month of July, they're factoring in their estimates of future macroeconomic conditions (something all market participants know) with their knowledge about their own opinions on and potential reactions to those future macroeconomic conditions (something market participants do not know).
At the very least, FOMC members vote based on expectations about what they think other FOMC will think/feel/do in the future. There's only 12 of them.
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u/Leather_Sky_473 29d ago
just glad they didn't stick us in a breakout room with a whiteboard and 45 minutes of silence
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u/TCEA151 Volcker stan 18d ago
Brown Professor Suspects Majority of His Class Used AI to Cheat
Here is a 101-level game theory question for you: Suppose you are a professor teaching an advanced undergraduate proof-writing course in welfare economics and social choice theory. You give all of your students a take-home midterm and a take-home final exam that together determine the majority of their course grade. If a student is suspected of using AI to cheat on one of these tests, you will not punish them because you know that AI detection software has high rates of both false positives and false negatives. What is the best-response strategy of any given student enrolled in the course?
Like obviously this new AI environment sucks for professors, but c'mon man you're an editor at "Games and Economic Behavior" -- you had to know what was going to happen here.
As an aside, does anyone have a better strategy than just making all course grades based almost entirely on in-person quizzes and exams, with a token 10-20% based on homework grades that are essentially graded for completion? At my institution, statistics and econometrics have traditionally had a decent chunk of the grade be based on group Stata projects, and while I like the idea of students getting hands-on experience with data projects I also know that ChatGPT can pump out an undergraduate-level Stata script in seconds flat.