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Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

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.

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

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

  1. 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).
  2. 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 later 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.

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

remmelt  ...I was wondering about whether I had misinterpreted OpenPhil staff’s opinion being that rich people have been indirectly influencing the Fed towards a more hawkish stance

 

Yes, at least what I wrote was too simplistic.  Just found a claim on advocacy they made in their 2014 write-up:

A number of people who we spoke with noted that most advocacy on monetary policy tends to come from people who are skeptical of the Federal Reserve and want to focus on limiting inflation or return to the gold standard

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

I deliberately didn’t dive into the dimensions of political movements and democratic conversation in this post, because it could distract the conversation away from the more substantial concerns I had towards broadly conflicting ideologies and group affiliations. But guess now is a good time.

Here are summarising notes I took of a conversation with a smart family member last Wednesday:

•	Political dynamics are actually really complex here. And rationalists have a tendency to think that they analysed it and know what is going on
◦	R: and OpenPhil doesn’t seem like they’re specialised/great at understanding political nuances
◦	... was there something else I wanted to add to writing here?
•	From my experience learning about economics, not one type of theory but a bunch of assorted ones and can use one for situation/problem (especially in hindsight as economists often tend to do)
•	also democrats tend to be more for stimulus, and republicans against
•	bad that EA is going into something that seems political (R: and about broad ideology)
◦	targeted like vitamin D policy seems more sensible

And here is a post I wrote on my concerns of EA field builders optimising for their views to be represented more by policy decision-makers.

I’m particularly concerned by that key OpenPhil staff decided to jump in late 2015 to boosting the Fed Up campaign while not seeming to more openly enter into dialogue with and clarify the views of other stakeholders around this complex debate.

I find their conclusions of the political landscape quite suspect in how simplifying they sound (while stating “As ever, we acknowledge that this is an unusually complex policy area, and we could be mistaken in our views.” for their grants write-up on the progressive Center for Popular Democracy campaign). The following sounds the least simplifying of their summary explanations but still seems quite off (in particular, in how it seems to write off concerns by well-informed conservative thinkers as ‘inflation aversion’):

We've come to the view that there is institutional bias in a particular direction. We believe that there is more inflation aversion than is consistent with a "most good for everyone" attitude.

I’m also concerned about the higher chance of getting carried away inadvertently by partisan arguments and of fuelling political conflicts – from entering into what seems to be like what Robin Hanson refers to as a ‘policy tug of war’.

From the arguments I’ve been able to read/hear from OpenPhil staff, I get the sense that their focus was centred rather narrowly on ‘tweaking’ the weighting of criteria used for monetary decisions by the Federal Reserve to be closer to optimised for the general good for everyone. In case that’s about right (do correct me), I can very much relate. And I think that way of thinking was insufficiently allocentric in covering a broader set of relevant perspectives for what they were getting into.

Well, there you have it.

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

Just listening to this Clearer Thinking podcast with Tyler Cowen (at 9:00 mark) https://clearerthinkingpodcast.com/episode/084

Let me transcribe what I’m hearing them say:

SPENCER GREENBERG: Lately, I’ve heard quite a bit about modern monetary theory. And I don’t know enough about it to kinda analyse it from an economics point of view but it does seem like some people are using it as a justification for massively increasing government spending. And so there seems to be at least a political element to it from the people who want to use the theory. So I’m wondering what your thoughts are on that theory.

TYLER COWEN: I don’t think modern monetary theory was coherently defined in terms of a model so I in turn could not coherently present it to you. It was a series of somewhat disassociated views with a largely political slant, the essence of which being you can inflate your way out of a lot of problems. There is not really a constraint on boosting aggregate demand. And the one specific claim that was made ‘well if inflation gets too high, you know the way out of that is to cut government spending’. Crout we’ve gotten into a world where inflation has clearly gotten too high and none of those people are calling for cutting government spending. So I would be negative on MMT. And even a lot of predominant economists on the left you know Paul Krugman, Larry Summers, Noah Smith looked at MMT and just couldn’t quite wrap their arms around what exactly what it was saying in terms of a coherent model. So I view it as kind of a marketing thing and a politics thing.

...I would say that the part of it that seemed to make sense to me was the claim that in many situations but not all you can monetize more of government debt than a lot of people had thought. And that has been true. It may not be true at this particular moment. But if you look at the last 30 years, it’s been true on average. And the MMT people have been right about that, but again I think they need to write it all out in terms of an understandable model. And I just think they’re not willing to do that’ because I don’t think the whole thing entirely makes sense.

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

Ah, and I assume NGDP means ‘nominal gross domestic product’. Why should the Fed use nominal GDP instead of real (inflation-adjusted) GDP as a measure for setting targets?

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

These caveats are helpful, thank you. I appreciate the elaboration on changing plans for interest rates and inflation by the Fed board and changing influences by non-high income employees and people with pension plans.

I was wondering about whether I had misinterpreted OpenPhil staff’s opinion being that rich people have been indirectly influencing the Fed towards a more hawkish stance (I recalled hearing something like this in another interview with Holden, but haven’t been able to find that interview back). Either way, OpenPhil’s analysis around this is probably much more ‘clustery’ and nuanced. I would agree with you though that high net-worth individuals who have most of their capital put into ownership stakes of companies that hold relatively little cash or bonds on their balance sheets and can flexibly hike up pricing of their products/services won’t be impacted much by rising inflation.

Edit:

Economic theory doesn't lend much support to the idea that it's risky to have unusually large increases in the money supply. Most of the concern seems to come from people who assume the velocity of money is pretty stable. That assumption has often worked okay, but has been pretty far off in 2008 and 2020.

Good nuance re: not assuming a constant velocity of money (how fast money passes hands from transaction to transaction). What you wrote doesn’t seem to refute the argument I made concerning model error in current macroeconomic theories.

As again a complete amateur, I don’t have any comment on what range of inflation to target or what the trade-offs are, except that all else equal a 2% inflation rate seems pretty benign.

Overall, your points makes me more uncertain about my understanding of what current stakeholder groups particularly can and tend to influence Fed monetary policy decisions, and how they are motivated to act. Will read your review.

Two tentative concerns about OpenPhil's Macroeconomic Stabilization Policy work

Noted. Amongst shorter-term factors/trends those two do seem particularly relevant. I’ve honestly not dug into Jerome Powell’s monetary policy stance.

An Emergency Fund for Effective Altruists

I was going to say something similar. Have you considered trialling this with a fiscal sponsor (like Rethink Charity if they’re up for storing money, or Survival and Flourishing’s fiscal sponsor if you can get a grant through them?)

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