from the world's big
The Rules of Economy
Taylor’s academic fields of expertise are macroeconomics, monetary economics, and international economics. He is known for his research on the foundations of modern monetary theory and policy, which has been applied by central banks and financial market analysts around the world. He has an active interest in public policy. Taylor is currently a member of the California Governor’s Council of Economic Advisors, where he also previously served from 1996 to 1998. In the past, he served as senior economist on the President’s Council of Economic Advisers from 1976 to 1977, as a member of the President’s Council of Economic Advisers from 1989 to 1991. He was also a member of the Congressional Budget Office’s Panel of Economic Advisers from 1995 to 2001. For four years from 2001 to 2005, Taylor served as Under Secretary of Treasury for International Affairs where he was responsible for U.S. policies in international finance, which includes currency markets, trade in financial services, foreign investment, international debt and development, and oversight of the International Monetary Fund and the World Bank. He was also responsible for coordinating financial policy with the G-7 countries, was chair of the working party on international macroeconomics at the OECD, and was a Member of the Board of the Overseas Private Investment Corporation. His book Global Financial Warriors: The Untold Story of International Finance in the Post-9/11 World chronicles his years as head of the international division at Treasury.
His recent book Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis was one of the first on the financial crisis, and he has since followed up with two books on preventing future crises, co-editing The Road ahead for the Fed and Ending Government Bailouts As We Know Them in which leading experts examine and debate proposals for financial reform and exit strategies.
Taylor was awarded the Alexander Hamilton Award for his overall leadership in
international finance at the U.S. Treasury. He was also awarded the Treasury
Distinguished Service Award for designing and implementing the currency reforms in Iraq, and the Medal of the Republic of Uruguay for his work in resolving the 2002 financial crisis. In 2005, he was awarded the George P. Shultz Distinguished Public Service Award. Taylor has also won many teaching awards; he was awarded the Hoagland Prize for excellence in undergraduate teaching and the Rhodes Prize for his high teaching ratings in Stanford’s introductory economics course. He also received a Guggenheim Fellowship for his research, and he is a fellow of the American Academy of Arts and Sciences and the Econometric Society; he formerly served as vice president of the American Economic Association.
Before joining the Stanford faculty in 1984, Taylor held positions of professor of
economics at Princeton University and Columbia University. Taylor received a B.A. in economics summa cum laude from Princeton University in 1968 and a Ph.D. in economics from Stanford University in 1973.
Question: Should the inflation target implicit in the Taylor Rule change over the business cycle? (Mark Thoma, Economist’s View)
John Taylor: No. I don't think there is any reason to do that. I always assumed the inflation target should be 2%, some people think it should be lower, let's maybe talk about changing it. But, varying it across the business cycle seems to me to be just an extra element of confusion to people. There's no reason to do that.
So, the question for me is how would you adjust it? I think rather than move it around the business cycle is to do as good a job as possible assessing how you measure the inflation target. There has been a lot of confusion, for example, about using the Poor Inflation Rate. I've always preferred to use as a smoothing device, just average the inflation rate over a few quarters, there's actually four quarters in the Taylor Rule. But the Poor rates, especially if they're consistently higher than the headline rates over several years, then -- or lower the other way around, then they can be misleading. So, for one year or so paying attention to the core and looking at that is important, but ultimately, it's the measured inflation rate, the headline inflation rate that's most important and that's what I would focus on. And again, no reason to be changing that, that would just add confusion, add uncertainty to what monetary policy is doing.
Question: Was the deviation from the Taylor Rule in the early 2000’s severe enough to lead to the problems we’ve had? (Arnold Kling, Econlog)
John Taylor: I think of these as the original cause, if you like. Really, what got the excesses going. It was a big deviation, 300 basis points, we hadn't seen deviations like that since the 1970's, which of course was another period of lots of recessions, a very severe one in '81, '82. So, I think that there is a lot of evidence that says that this was really the factor that got things going in terms of the excesses, the boom, and ultimately the bust in housing, the search for yield, the extra risk taking. And I think you could have guessed that something would happen based on previous periods where central banks have deviated from the Taylor Rule, or other similar guidelines.
It's amazing to me through history and through time how much evidence there is that when central banks deviate from that kind of policy that things don't work out well. We saw that in the United States in the '70's, a terrible time with high inflation and recessions. We've seen it in other countries, and as countries started to follow those principles, things got better. So in some sense now, unfortunately, have another piece of evidence that when policy deviated, we had a big recession. I actually say that the great moderation was ended by the great deviation which has led to this great recession.
Now, I want to be very clear that other things happened that made this situation worse. I made that clear in my book, for example, Getting Off Track, that there really was three things; the deviation from monetary policy rules, the second was misdiagnosing the crisis in the summer of 2007 as a liquidity problem rather than a problem in the banks, and the third was this panic in the fall of 2008, September/October, which I think was largely the result of the rather chaotic government responses to the crisis. So, the deviation was part of it, but there in some sense there are other deviations from policies. Deviations in directions of very interventionist policies to misdiagnoses which is really why this one has been so severe, unfortunately.
Question: What do you think of Goodhart’s law, which suggests that targeting variables for the purpose of policymaking leads to those variables becoming misleading?
John Taylor: Well, Charles Goodhart makes a good point with that, that the policy responses actually affect individual behavior. I think it's what makes policy difficult. I think you can take account of those and be wary of them and still have conducted policy.
I'll give an example. I think when bond traders, people in the markets have a sense of what monetary policy is going to be like, then they will price securities, long run securities and medium run securities based on that. If the policy moves to something else, say for example, deviates from had been working, then it takes them a while to figure out what's going to happen, but they will adjust. They will adjust their forecasts, their procedures, their rules of thumb, sometimes indirectly, sometimes somewhat inadvertently they'll do it. So, that's the adjustment.
But, that's why we like our policies to be as predictable as possible sot hat people can make these adjustments. So, I would say, this is to me Goodhart's Law is another reason not to be changing from a policy that's worked well. I'd say not to do too much fine tuning. In a way, what Goodhart's Law shows you is that efforts to fine tune can actually be something that's harmful. In fact, I think the period in the early, say 2002-04 period, that could very well be explained by an effort to make policy even better than it was during the great moderation, if you like. Trying to fine tune an extra way, bring rates below what had worked before. But those are all fine tuning things and I think what messages such as Goodhart's Law show you is that the reaction to those can sometimes be hard to predict. People will begin to see that there's another target, there's another idea. You're moving away from the equilibrium and that's a reason, I think, to keep it simple, if you like. Keep the policy as simple as possible, keep the regulations as simple as possible, and that's true of both monetary policy and fiscal policy.
Recorded on December 21, 2009
Was the deviation from the Taylor Rule in the early 2000’s severe enough to lead to the problems we’ve had? Its creator explains.
Sallie Krawcheck and Bob Kulhan will be talking money, jobs, and how the pandemic will disproportionally affect women's finances.
Health officials in China reported that a man was infected with bubonic plague, the infectious disease that caused the Black Death.
- The case was reported in the city of Bayannur, which has issued a level-three plague prevention warning.
- Modern antibiotics can effectively treat bubonic plague, which spreads mainly by fleas.
- Chinese health officials are also monitoring a newly discovered type of swine flu that has the potential to develop into a pandemic virus.
Bacteria under microscope
needpix.com<p>Today, bubonic plague can be treated effectively with antibiotics.</p><p style="margin-left: 20px;">"Unlike in the 14th century, we now have an understanding of how this disease is transmitted," Dr. Shanthi Kappagoda, an infectious disease physician at Stanford Health Care, told <a href="https://www.healthline.com/health-news/seriously-dont-worry-about-the-plague#Heres-how-the-plague-spreads" target="_blank">Healthline</a>. "We know how to prevent it — avoid handling sick or dead animals in areas where there is transmission. We are also able to treat patients who are infected with effective antibiotics, and can give antibiotics to people who may have been exposed to the bacteria [and] prevent them [from] getting sick."</p>
This plague patient is displaying a swollen, ruptured inguinal lymph node, or buboe.
Centers for Disease Control and Prevention<p>Still, hundreds of people develop bubonic plague every year. In the U.S., a handful of cases occur annually, particularly in New Mexico, Arizona and Colorado, <a href="https://www.cdc.gov/plague/faq/index.html" target="_blank">where habitats allow the bacteria to spread more easily among wild rodent populations</a>. But these cases are very rare, mainly because you need to be in close contact with rodents in order to get infected. And though plague can spread from human to human, this <a href="https://www.healthline.com/health-news/seriously-dont-worry-about-the-plague#Heres-how-the-plague-spreads" target="_blank">only occurs with pneumonic plague</a>, and transmission is also rare.</p>
A new swine flu in China<p>Last week, researchers in China also reported another public health concern: a new virus that has "all the essential hallmarks" of a pandemic virus.<br></p><p>In a paper published in the <a href="https://www.pnas.org/content/early/2020/06/23/1921186117" target="_blank">Proceedings of the National Academy of Sciences</a>, researchers say the virus was discovered in pigs in China, and it descended from the H1N1 virus, commonly called "swine flu." That virus was able to transmit from human to human, and it killed an estimated 151,700 to 575,400 people worldwide from 2009 to 2010, according to the Centers for Disease Control and Prevention.</p>There's no evidence showing that the new virus can spread from person to person. But the researchers did find that 10 percent of swine workers had been infected by the virus, called G4 reassortant EA H1N1. This level of infectivity raises concerns, because it "greatly enhances the opportunity for virus adaptation in humans and raises concerns for the possible generation of pandemic viruses," the researchers wrote.
The word "learning" opens up space for more people, places, and ideas.
- The terms 'education' and 'learning' are often used interchangeably, but there is a cultural connotation to the former that can be limiting. Education naturally links to schooling, which is only one form of learning.
- Gregg Behr, founder and co-chair of Remake Learning, believes that this small word shift opens up the possibilities in terms of how and where learning can happen. It also becomes a more inclusive practice, welcoming in a larger, more diverse group of thinkers.
- Post-COVID, the way we think about what learning looks like will inevitably change, so it's crucial to adjust and begin building the necessary support systems today.
Scientists uncovered the secrets of what drove some of the world's last remaining woolly mammoths to extinction.
Every summer, children on the Alaskan island of St Paul cool down in Lake Hill, a crater lake in an extinct volcano – unaware of the mysteries that lie beneath.
The coronavirus pandemic has brought out the perception of selfishness among many.
- Selfish behavior has been analyzed by philosophers and psychologists for centuries.
- New research shows people may be wired for altruistic behavior and get more benefits from it.
- Times of crisis tend to increase self-centered acts.