Book review: The Resilient Society, by Markus Brunnermeier.
This is a collection of loosely related chapters on current political topics such as pandemic response and macroeconomics. I haven’t read the whole book. But since each chapter is designed to stand alone, I feel comfortable reviewing a subset of the book.
They’re more readable than the comparable Wikipedia pages, but less rigorous.
Brunnermeier devotes a medium-sized part of the book to summarizing the response to COVID-19. He mostly repeats ideas that have been prominently discussed in the news media, without adding much insight. E.g.:
There are two ways to incentivize vaccine development.
He’s referring to patents, and to government guarantees.
Only two ways? Really?
With a bit more imagination, he could even have noticed the standard textbook advice of letting drug companies charge as much as the market will bear. To have any hope of political feasibility, that would need to be combined with significant subsidies for some buyers.
My guess is the best incentive would be prizes, given in proportion to the estimated number of lives saved.
A related peculiarity involves the speed of vaccine deployment. The 1957 flu pandemic was not very memorable in the U.S., probably because 40 million vaccine doses were deployed within about 6 months of getting virus samples. Whereas in 2020, the news media mostly called Trump a liar for hoping to achieve roughly half that speed. [ETA: apparently the 1957 vaccine was a modified version of an existing vaccine, so it’s harder to compare than I realized. Still, it likely tells us a good deal about how quickly production can be ramped up. And it’s clear that our leaders didn’t aim for fast approval. ]
The slow response in 2020 seems to involve something like Eroom’s Law impairing our resilience. Yet Brunnermeier implies (vaguely enough to avoid any clearly false statement) that COVID vaccines were produced with unprecedented speed. Why do people such as Brunnermeier seem oblivious to this outrageous decrease in resilience? I don’t have a full answer. I suggest reading Where Is My Flying Car? for some hints.
I’ll now focus on inflation, since I’ve studied that topic a good deal. Brunnermeir used to advise the Fed, so he’s based his writing on this topic more on academic literature than on the news media.
He claims that “persistent stimulus” after the 2008 crisis failed to increase inflation much. He ignores the economists who show evidence of tight monetary policy. Brunnermeir implies that if the Fed fails to meet its target, we should conclude it was impotent.
Brunnermeir says that a large Fed balance sheet creates some sort of default risk. Yet two paragraphs later, he makes a cryptic comment which could be interpreted as agreeing with Scott Sumner’s response: the risk is an illusion, and that illusion could be dispelled by a simple accounting change. The resilience of Fed policy is rather dependent on the Fed knowing whether this risk is real. Brunnermeir mostly sounds like he’d prefer that the Fed worry about the illusion.
Here’s one of the rare cases where he’s willing to make something resembling a forecast:
In the short term, the outlook appears at this time to be deflationary, but other long-run forces could contribute to a potential whipsaw pattern in the future.
He knew that markets were predicting that inflation would be slightly above the Fed’s target, since he includes this graph: https://fred.stlouisfed.org/graph/graph-landing.php?g=L33x&width=670&height=475
That’s the 5 year forecast; the market forecasts for shorter-term inflation were higher.
The graph indicates that he finished writing the chapter in July 2021, at which time inflation was a bit over 5%. Inflation for 2021 ended up to be more than 7% – the highest in about 40 years. In other words, he picked one of the least appropriate times of the past few decades to express concern about deflation.
In sum, Brunnermeir exemplifies the kind of “expert” who encourages the Fed to avoid resilient policies, with this pattern:
- promoting misleading summaries of when the Fed engaged in stimulus.
- excusing Fed failures as the result of impotence (I expect the Venezuela central bank could show them how to avoid that impotence).
- implying that concern about PR risks from a large balance sheet justify subpar stimulus.
- making inflation forecasts that look like attempts to fight the previous war, rather than keeping up with the latest evidence.
Brunnermeir provides a good three page summary of why interest rates are currently low. My main complaint here is that 2 of his 3 references here are to his YouTube channel. His impressive guest list suggests that it’s one of the best YouTube channels, but the videos provide less evidence than do the best academic papers. Yet I can’t fault him very much, since for the claim I find most valuable, the only good reference I know of was published later than this book.
You may have noticed that I didn’t mention Brunnermeir’s advice about how to increase resilience. It’s easy to read large parts of the book without noticing anything of relevance to that topic, other than generic platitudes about the benefits of being competent.
I see that Taleb has written a book that appears to say a good deal about resilience. I was hoping to find a better author than Taleb to cover this topic. The Resilient Society has made me pessimistic about finding such an author.