Tyler Cowen: evaluation

Transcript context

…Let’s back up and try to look at big countries that are not export-oriented, that are primarily domestically driven like the United States. I think imports are what, 10 percent, 12 percent of personal consumption. You take Nigeria, you take India, you take a series of big economies that are primarily domestically driven. Why was inflation high in all of these places simultaneously? I do think there’s a puzzle. I don’t think it’s 100 percent supply. I do think there was a serious demand component, but you’ve still got to explain when the demand stimulus rolls off, inflation doesn’t go down, and then when the negative supply shock rolls off, inflation does go down. I’m still curious about it, but I find the argument that this was predominantly or entirely demand unpersuasive for some of those reasons. Let me try a question from the other extreme. Why does money matter at all? Isn’t it a very close substitute for T-bills? You’re paying interest on reserves. You balance that rate with other interest rates. There are slight differences in terms of maturity and liquidity profiles, but it could be like the proverbial swap of two nickels for a dime. Maybe money just doesn’t matter. Could you teach me why that’s wrong? I need to ask you to teach me why it’s wrong. I know you’ve raised this before, and it’s not really an answer to say the market seems to feel like they’re not the same, that there’s some yield to safety that we don’t quite understand, I’d say, and it becomes more relevant perhaps in a world where people are creating money-like deposits all over the place. We’ve got stablecoins as well as the use of credit cards, debit cards, a whole bunch of things that look like old-fashioned bank accounts or checking accounts. I guess the long answer is the definition of a money-like deposit — why is it different from explicit money? I don’t totally know, but part of me wants to caution you back from going back to M2 in a world like that, where there are imperfect substitutes for money.…

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