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From the Editor

This issue begins with Mark Carney’s Volcker Award address. Appropriately, Carney talks about the challenges faced by today’s central bankers, which are in some ways comparable but in key ways considerably different from those Volcker faced as Fed Chair. Perhaps the largest new consideration is climate change—a challenge Carney believes should be put on a par with the traditional inflation and output goals of Central Banks. The stresses created by climate change could change the business cycle in ways hard to predict, complicating monetary and fiscal policy. Warding off catastrophic climate change will involve investment of such magnitude so as to put upward pressure on inflation, though as a byproduct the equilibrium real interest rate will also rise, easing the now chronic fear that stimulative monetary policy will be hampered by the zero lower bound on nominal interest rates. On balance, the world is turning from an environment where demand shocks—which are relatively simple for monetary policy to offset—predominate, to one where supply shocks, examples of which the current supply chain disruption, as well as the pressures inflicted by the invasion of Ukraine, are more evident. Nonetheless, well-designed policies can create virtuous cycles, allowing the world a smoother adjustment to the new regime.

Inflation is now seen as the most pressing macroeconomic concern, as the dramatic recent turnaround in Fed policy shows. Last year in his Abramson Award article, Ray Fair predicted, contrary to many other forecasts then made, that higher inflation would persist for some time. In his article in this issue, Fair asks whether the Federal Reserve is capable of fairly quickly reducing inflation to its target. His answer is, most likely, no, not without an extremely sharp increase in the target federal funds rate to the vicinity of 5 percent by early 2023—and even then, inflation will need some further time to retreat. The impact would be stronger if it assumed that Fed tightening would reduce the value of the stock market (Given the sharp market declines in early 2022, it may well be that impact will take hold).

The outset of the pandemic in March 2020 led to a scramble to develop new ways to track the economy. At a panel Ron Jarmin led at last November’s NABE TEC Conference, Scott Brave, Rebecca Hutchinson, Christopher Kurz, and Michael Stepner discussed the products they helped to develop: Brave, a weekly tabulation of retail sales; Hutchison, a Census Bureau product measuring retail sales at the state level; Kurz, a monitor of business closings and their employment impacts; and Stepner, measures of business activity at the Zip Code level.

The first book review is Carl Walsh’s take on Alexander Salter and Daniel Smith’s Money and the Rule of Law…, a work that argues that Central Banks should adhere to tight policy rules. Indeed, the authors apparently view much discretionary policy as “unlawful.” Walsh finds much of the book resting on very outmoded views of macroeconomics and what macroeconomists actually study, is disappointed that the authors do not offer examples of the type of rules that Central Banks should adhere to, and notes the failure to discuss the actual record of Central Bank policy results.

Alexander Field reviews Robert Gallman and Paul Rhode’s Capital in the Nineteenth Century. The word draws on Gallman’s (he died in 1998) comprehensive analysis of changes in all types of capital goods from the beginning of US history to 1900. Field praises the vast scope and detail of the work, but would have liked to see more discussion along the lines of modern growth analysis.

Economists of a certain vintage will recall the 1971 “Nixon Shock,” when the US began its retreat from the Bretton Woods system of pegging the dollar to gold, and addressed inflation through the blunt instrument of price controls (analysis of the policies announced that summer added a certain real-world zest to the Intermediate Macroeconomics class I took that fall). Ted Truman reviews Jeffrey Garten’s Three Days at Camp David…(the policies were decided on there at a meeting of President Nixon with his economic policy team, including Paul Volcker and Arthur Burns—back in the days when no eyebrows would be raised by Fed Chair Burns attending a meeting of that kind!). Truman, who was long one of the US’s top international economic policy officials, and well acquainted with numbers of those at Camp David, praised the book as “well researched, highly readable, and technically accurate.”

John Kay is critical of Daniel Kahneman, Olivier Sibony, and Cass Sunstein’s Noise: A Flaw in Human Judgement. Kay disagrees that the world is full of examples of decisions based on sheer “noise”—outcomes influenced by sheer arbitrary randomness. Kay argues, for instance, that judges do not systematically impose harsher sentences after lunch, as the book claims, and that the author’s general proposals, while probably sound, are not especially innovative.

Another book that disappointed our reviewer is Marie Springer’s The Politics of Ponzi Schemes… Robert Wright does praise the comprehensive tabulation of these crimes. However, he finds the analysis lacking, and parts of the work poorly written.

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Correspondence to Charles Steindel.

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Steindel, C. From the Editor. Bus Econ 57, 41–42 (2022).

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