Here are some vague thoughts on the state of academic macroeconomic research and how it might be improved*. The current mainstream macroeconmic research program has recently been severely criticized by so many extremely emminent econonmists, that it is hard to consider it the main stream. However, the many efforts to present an alternative approach (including this one) are vague and tentative. I am one of those who think a good first step is to go back to the old Keynesian research program, to research done 40 or more years ago, and pick up where Tobin, Solow and Samuelson left off.
To publish, researchers need to address questions which are neither too easy nor too hard. Answering an easy question is not significant original research, while answering a very difficult question is very difficult. I think macroeconmic research has suffered because the questions to be addressed are either too easy or too hard. I think it is very hard to answer any question about behavior which depends on long term expectations. I think it is too easy to understand macroeconomic issues which don’t depend on long term expectations. This is the view expressed 80 years ago in “The General Theory of Employment, Interest, and Money”. I think subsequent research has tended to demonstrate it to be valid.
The appeal of assuming rational expectations is that models with rational expectations are tractable but not trivial. I think the resulting advantages for the academic made the assumption irresistable. Unfortunately, I think it leads to a sterile research program. I think it might be wise for all macroeconomists to try at least once to understand economic aggregates without even any appeal the rational expectations assumption. I think this is a good way to realize how central it is. This isn’t my first attempt to do so, but I aim here to consistently avoid the concept of model consistent expectations.
Excessively Easy Problems
I think the too easy problems include the determination of aggregate consumption and short term fluctations in employment. The old model of consumption is that it is determined mostly by current disposable income, but somewhat smoother than one would guess looking at current disposable income, and, finally, also higher when the ratio of financial wealth to current income is higher. This fits a model in which people mostly consume from income, are myopic, and have habits so their consumption slowly adjusts to new levels. It is a brief summary of the Keynes’s discussion. I think it fits the data amazingly well (old pdf warning). There are theoretical arguments for why such a primitive model shouldn’t work, but it does. I think the fatal weakness of this story is that it was written 80 years ago. The old Keynesian model of consumption also has the advantage that it is so tractable that adding it to a model of other macroeconomic variables adds almost no difficulty. I see no reason not to use it (really 0 (zero)).
The average non economist assumes that employment is determined by labor demand because there are unemployed workers looking for jobs. There are theoretical arguments that this can’t be true. However, it is very hard to fit the data unless one assumes that there is excess supply of labor. The currently dominant new Keynesian (NK) dynamic stochastic general equilibrium (DSGE) models imply that there is excess supply of labor. Worker’s desire for leisure affects future wages, but doesn’t prevent them from supplying all the labor demanded in the present. I fear that this paragraph isn’t obvious to some working academic macroeconomists (at least 2 in the world). The models aren’t transparent. The fact that their equation for total hours worked is old school, isn’t obvious.
Similarly, the average person and most working mainstream macroeconomists assume that current sales of goods and services are determined by demand — that firms supply the amount demanded and that their costs and profit maximizing decisions about prices affect future prices not current sales. This assumption is now main stream but it wasn’t either 15 or 30 years ago. Again, I think the extent to which current NK models are similar to old Keynesian models isn’t universally recognized.
I have not written that the level of production is demand determined. Total output is equal to sales plus net inventory investment. One very odd thing about NK DSGE models is that there are no inventories. This is very odd, because net inventory investment is highly cyclical and they are models of business cycles. Instead all investment is treated as non residential fixed capital investment.
Investment of all sorts will be discussed under the heading of “too hard problems”.
In NK DSGE models, government consumption plus investment is treated as a policy variable. The idea is that it isn’t optimized now but can and should be. I think that’s a safe assumption.
Closed economy models are oddly appealing even to economists who work in small open economies. Here a very large part of the problem is that exchange rates are very hard to model. Given exchange rates, I think macroeconomists can get away with the old assumption that imports depend on GDP and the real exchange rate, so exports depend on foreign gross production and the real exchange rate.
Finally benchmark NK DSGE models assume that there is one interest rate and that it is determined by a monetary authority using a simple backwards looking Taylor rule. It is also assumed that all agents are free to lend or borrow as much as they want at this interest rate (that they aren’t liquidity constrained).
This is not adequate and a huge amount of the research of the past 8 years has attempted to address risk premiums, term premiums and liquidity constraints. I am quite certain that benchmark NK DSGE models have fatal faults which are not addressed by this literature.
So far, I’ve mentioned but not addressed six difficult topics: investment, wage inflation, price inflation, exchange rates, interest rate differentials, and liquidity constraints. They are all difficult because they are determined by agents who worry about the medium and long term future.
Excessively Hard Problems
Some investment doesn’t not depend crucially on long term expectations. In particular, inventory investment doesn’t. It is easy to see why this is true of work in progress inventories — investing in half finished products is just a cost of business. The level of inventory investment can be fit pretty well assuming that finished goods inventories are retailing work in progress. Basically, a very simple model which works quite well is the target inventory model in which desired inventories are a constant times final sales and inventories are adjusted to hit the target next period. This means that short term forecasts are enough. I strongly suspect that the model would work about equally well whether expectations were assumed to be rational or it it were assumed that agents assume that next period’s final sales are equal to current sales (plus a Christmas season effect).
Investment in equipment and software also might not involve long term forecasts. Equipment wears out and becomes obsolete. Software is perceived to become obsolete (I am typing this on a brand new computer running Windows 7, but I am eccentric).
I think that inventory, equipment, and software investment can be modeled with a super simple accelerator in which such investment depends on the growth of GDP. This is even simpler than 1960s era models of investment, because the (problematic) subjective expected real interest rate doesn’t matter.
Investment in structures (whether residential or not) is much more problematic. Investors (househods in the case of residential investment) care a lot about what the structure’s price will be in future years and decades. People buying houses have to try to forecast their future income and other future needs (their future health) to decide how much wealth to tie up in a house. Firms building structures have to predict demand for their products and operating revenues years into the future.
I think it is possible to usefully summarize all of this uncertainty as if it were uncertainty about the resale value of the structure. I also think that decades of painful experience have taught us that we are nowhere near to being able to forecast agents’ long term forecasts of resale values. I am very confident that there are irrational bubbles which grow and burst. I am equally confident that I can’t predict when they will inflate, explain how to prevent them, or even recognize all of them while they are inflating. I think macroeconomists have to deal with a failure to model bubbles. This does not mean that I think they can be treated as exogenous. That would be appropriate only if one were sure that policy can’t affect the frequency and magnitude of bubbles. I think we have to prepare to deal with bubbles (and with our mistaken impressions that a sustainable asset price increases are bubbles). The problem is very hard to solve, but I don’t think we can pretend either that we have solved it or that it doesn’t matter.
There has been a similarly heated debate about the effect of future price expectations on wage and price inflation. This is the rock on which old Keynesian macroeconomics was perceived to have smashed.
The old model of wage inflation was an expectations augmented Phillips curves in which wage inflation depended on unemployment and expected future price inflation. It was perceived that simple primitive formulas for expected price inflation failed when confronted with data (and still more when confronted with thought experiments). Oddly the primitive formulas work very well (an old PDF on expectations warning and one on the Phillips curve). In fact, current discussion of monetary policy by the Federal Reserve Open Market Committee (FOMC) sure sounds extremely old fashioned. I think it is very hard for an agents to forecast inflation during a hyperinflation and very hard for an economist to understand the flailing efforts of such agents. I don’t think that is a relevant problem for first world monetary authorities.
update: replying to a comment by Bakho, I realize that I didn’t mention downward nominal wage rigidity — that is the claim that it takes extremely high unemployment to convince workers to accept fewer dollars per hour (but it is much easier for them to accept the reduction value of fixed nominal wages caused by inflation). I think it is extremely important. I think it isn’t discussed because it is unusually hard to reconcile the clear pattern in the data with any sort of conventional micro foundations.
I think the problem with the Phillips curve is the other variable unemployment. There is strong evidence that cyclical unemployment can become structural (that there is hysteresis). Wage inflation depends on lagged unemployment as well as current unemployment and is fit a bit better using the change in the unemployment rate not the level. This is very important, because it implies huge long lasting costs of high unemployment. It does not make models intractable. It is very odd that not so very much is written about the issue even in countries (such as Italy where I type) where it is very clear it is gigantic problem.
Until recently, I would have thought that it was easy to pass from wage inflation to price inflation with prices adjusting towards marginal cost times a constant markup factor. It is easy to calculate marginal cost if one assumes a Cobb-Douglas production function, so the marginal product of labor is the constant share of labor times the ratio of output to labor. However, recently, there has been reduced pass through from wage to price inflation (basically prices kept going up even with very low wage inflation — in other words, the share of labor declined). I still think the really hard part of the problem is that firms attempt to forecast future wages, materials prices and prices charged by competititors. So expected future inflation affects current price inflation as well as current wage inflation.
Here I am confused enough that I have to appeal to actual data. I don’t claim to understand why this graph looks as it does.
I think any attempt to model exchange rate fluctuations is foolish. It might be possible to understand them some day, but not usefully soon. Most foreign exchange transactions are speculative — forecasts of future exchange rates are the whole point not just one factor. I think that they have to be treated as an endogenous but not understood variable. In any case, most macroeconomists can say they aren’t our problem.
Similarly, I think it is very hard to understand risk premiums. They are much too important to ignore. Risk premiums and liquidity constraints are financial frictions. There is currently an extremely active effort to put financial frictions into macro models.
As with long term house price expectations and exchange rates, I think varying risk premiums must be considered too important to ignore and too difficult to model. I don’t think it is OK to treat them as exogenous shocks. I don’t think it will be possible to model them any other way for a good long while (too long for impatient policy makers).
I think it is possible to largely dodge the question of when and why people are liquidity constrained, because I think it is possible Liquidity constrained consumers consume all of their current income. They do not create much of a problem in a model of aggregate consumption largely determined by current income. Myopic consumers do not attempt to solve the very hard problem of optimal consumption by a consumer who is not liquidity constrained now but might be in the future. similarly, liquidity constrained firms invest their free cash flows. Their behavior is simple. Liquidity constraints make simple inter-temporal models messy. But I think that such models have worse problems.
It is possible to understand the effect of home equity on liquidity constraints — people with negative home equity (underwater mortgages) can’t get home equity loans. Unfortunately, the same mysterious wave of fear which causes high risk premiums causes tight lending standards. I think we can understand a little about who is liquidity constrained when, but I doubt it is enough to be useful when modelling aggregates.
So, in sum, my proposal is to admit that many problems are very simple and were solved decades ago, and that others won’t be solved any time soon. I think the hard problem of how people really form expectations is still unsolved and must be solved before macroeconomics can amount to a social science. I think (as I have for over 30 years) that we have to listen to psychologists and (shudder) sociologists. I am pleased to note that many very famous economists do just that (cough Akerlof cough). I do think that wide spread distress about the fruits of the rational expectations assumption make
We can still ask if there is anything useful we can say any time soon. I think it is clear that there is. NK and old Keynesian economists have fundamental methodological disagreements (which means most macroeconomists suffer from fundamental methodological ambivalence). However, we agree that fluctutations in nominal aggregate demand can affect output and welfare, that demand is currently still slack in most of the developed world, and that temporary government spending increases are effective fiscal policy.
That isn’t all that much (and adds nothing at all to Keynes). However, it implies policy recommendations which are too radical to be seriously considered by policy makers and supported by the majority of macroeconomists (the vast majority of macroeconomists who don’t work near great lakes).
*Sorry I can’t resist the temptation to write this post. I have posted most of these thoughts many times already. (Almost) no one ever asked me. The post is above my pay grade — I should first earn some standing in the profession before presuming to tell it how to reform itself. I am also sorry for this apology (also typed many times before) so I put it down here where no one is likely to read it.
As an outsider, I get the impression that assuming models were true because they were tractable spread from Mathematics to Physics about a century and a quarter ago. Again, as an outsider, it seems to me that turns out that the strategy bore some fruit for physicists until about the 1960s. But it also led to the crazy dead end stuff of the past few decades like string theory.
Now, for an economist looking at physics as a layman would have, until very recently, only seen the successes and not the failures. So with physics as an example, it makes sense that “because the math works” was seen as a justification for selecting models. But unlike physics, economics has not gotten fifty or seventy five good years from that assumption. I am not sure anything useful has come from it at all for economics. And now, though economics is not a science, we have run into the “from funeral to funeral” problem.
One other thought. Because everyone on the street has an opinion about economics (which isn’t true about physics), fancy schmancy math also works to weed out the complete shoot from the hip opinions. That will make it harder to move past the math.
Personally, I think/hope data mining will lead to better theory.
Thanks for the comment Mike. Economists decided to pretend to be Physicists back in the 70s and 80s when Physics had just had an amazing 70 years (as impressive as anything in the history of human thought if you ask me).
During those decades, dearly loved theory after dearly loved theory bowed to facts. Many physicists hated the models they worked with — they seem logically contradictory. It was highly mathematical, but I think the data were always pushing.
Even since, physics is doing OK — the past 30 years haven’t been like the preceeding 70, but have been fine by any normal standards (I think). The now standard model really wasn’t developed 35 years ago.
The problem with string theory (if I understand correctly which isn’t very likely) is that it has (as yet) no testable differences from good old particle theory. That means it isn’t even false. But it also means it is harmless.
The problem with economics motivated by physics envy is that using the same equations but with different meanings (because the letters stand for different variables) doesn’t mean that the models have the same validity. This is obvious, but not obvious enough.
I wrote about macroeconomics not economics as a whole. I think there is a huge amount of excellent economic research revealing actual truth. But it is empirical microeconomics based on experiments (who would have thought that experiments were useful) and natural experiments.
The theory (which is required to identify causation) is common sense (say the draft lottery connected days of birth with the risk of being drafted). Obvious and plausible to the lay person. I think useful things have been learned.
I don’t think the problem with current macroeconomics is just that there aren’t randomized controlled experiments. I think there are plenty of data to refute the standard NK model.
I think one big difference is that physicists seem to prefer less tractable models. Ptolemaic astronomy solved the seven body problem nicely. Newton’s theory breaks down with the three body problem. Einstein’s general relativity can’t handle the two body problem. More advanced theories that attempt to unify gravity and quantum mechanics fail with the one body problem and usually fail with the zero body problem given all the stuff that quantum theory puts into a vacuum.
Economists are going to have to move into the 17th century and get used to a post-Ptolemaic world
a few issues I have with this.
1. Why do you not separate the resale value of buildings into land prices and building value?
2. I’m not certain that all economic modeling doesn’t suffer from the problem that it is assuming invariant parameters when there aren’t any.
3. What happened to long and variable lags?
P.S. With long and variable lags, I’m being serious. I think that the stochastics in economics should be seen not as variations in the outside world, but in variations in delays.
People have to decide to act, and then get organized to act, time is an essential part of the process. The delays should follow roughly a poisson distribution where the parameters depend on the strength of the inpulse to which people are reacting (which is therefore endogenous, except to extent that it is hard to model uncertainty).
What did you mean to say here:
“I do think that wide spread distress about the fruits of the rational expectations assumption make ”
Something is missing.
Your questions of inflation are very important.
The concept of wages tied to inflation expectations only holds when output is constrained by labor.
We are currently in a period of structural change where labor is being replaced by capital in the manufacturing sector. The US manufactures more today with fewer people. Expansion of the labor supply through globalization further disconnects wages and inflation. Labor no longer defines wages as there is a large pool of unutilized and underutilized labor subject to education and skills training. We are structurally shifting from manufacturing jobs to service jobs, in a period where we lack the political will to ease the transition.
In a previous era, around 1920-1930, the US had a similar structural change due to the mechanization of agriculture, drastically reducing the demand for farm labor. The US economy restructured by replacing jobs in farming with jobs in manufacturing. It was a rocky transition, aided by large inputs by BigG. WWII generated the political will for BigG and created new jobs in manufacturing, educational training in skills such as electronic, transportation logistics, hotel and tourism, etc.. BigG intervention continued past the end of the war with a GI Bill that paid for housing loans, college education and small business loans. Infrastructure projects such as freeways and creation of suburbs allowed labor to relocate near jobs.
These interventions plus the early baby boom led to a period of full employment where labor could demand higher wages. The Keynesian inflation models captured the period from 1950-1970 but does not necessarily apply to other periods where labor is in excess.
A model that captures the important factors linking wages and inflation from 1950-1970 is probably incomplete by missing factors that came into play between 1980 and the present.
I don’t see any use for macroeconomists in separating land value and building values. For the owner as investor the sum is what matters. So also for the bank which might foreclose. If one works with macro data, it is very very important to have as few parameters as possible.
I agree the problem of varying parameters has nothing specifically macroeconomic abou it. Actually nothing economic. It occurs in all social sciences (at least). There are really two problems. One is just a parameter changes exogenously. This isn’t too bad — the model just has to be written differently as a function of time.
The real problem is a parameter which changes because we do something. This means that we have made a mistake attempting to infer causation from correlation. It really just means the unsolved problem of induction has not been solved. It has nothing in particular to do with macroeconomics without microfoundations, or macroeconomics, or economics, or (in theory) just human sciences.
Physicists, chemists and biologists have found parameters which stay the same since they were first measured (and looked at fossiles and far away stars which sure suggest they were the same long before that). This may just show people have been lucky so far and there is no reason to hope any more such parameters will ever be found.
I wrote a long reply but my computer ate it.
I think you wrote about the effect of expected inflation on wage inflation. There is also causation the other way when wage inflation causes price inflation, so one has to be clear. Before going on, I should note that the effect of 1% of wage inflation on price inflation seems to have become much lower than it used to be. If this is really happening, it is very important. I have no idea why it might be happening.
OK back to the expectations augmented curve, so back to a discussion of how expected inflation and unemployment affect inflation.
The model does not assume that output is labor constrained and cerrtainly doesn’t assume full employment. It is a model in which the unemployment rate varies.
There are many models of involuntary unemployment such that a 1% increase in expected prices should cause a 1% increase in wages. It is very hard to write a model in which people are rational and yet this doesn’t happen. Here the rational people can care about fairness and social justice. I mean rational not interested only in consumption and leisure (swinish).
I see I didn’t mention downward nominal wage rigidity. This is a description of cases in which expected inflation doesn’t affect wages. The claim is that it is very hard for people to accept a cut in the $/hour wages. This happens in developed western countries, but IIRC only when the unemployment rate is over 20%.
Here what matters is dollars per hour and *not* the amount of goods which workers expect to be able to buy for an hours work. It is possible (as always) to reconcile this with rational utility maximization, but I can’t find a way which isn’t unusually absurd. I think the explanation is that people are irrational.
In any case, it is clear that downward nominal wage rigidity was fairly important in the USA in the past decade. Many people had wages exactly the same as the previous year. There is evidence it is hugely important in Portugal where almost all workers had exactly the same wage in two successive years. I got this from Krugman (as usual),
It explains why at very low inflation rates, expected inflation can cease to affect wages and, therefore, how a stable Phillips curve with no expected inflation term can fit the data. This is what one sees in recent US data.
But, importantly, if the story is correct, you wouldn’t see it if everything else including unemployment were the same and inflation was 10%.
I should update to mention this issue.
The long periods of near full employment and long periods of high unemployment, and trade and technology don’t explain the changes in the apparent effect of expected inflation on wages. They should move the economy along a Phillips curve.
The idea that expected inflation affects wages is not based on assuming that output is constrained by labor or that there is full employment. It has been part of the standard Phillips curve based model of wage determination since the model was first introduced in the 1960s.
The idea is that, for given expected price inflation, different unemployment rates cause different wage inflation rates. So it only makes sense if the unemployment rate varies.
Now there is one
“This isn’t too bad — the model just has to be written differently as a function of time.”
That can only work if they vary consistently as a function of time. (For instance if they are distributed through a population, and the distribution changes by cohort and by the age of each cohort, and then behavior itself influences the way the distribution changes by cohort – for instance through weighting changes – then it becomes hell to model.)
Also, the problem with time variant parameters, is that it reduces the number of observations you have to estimate the parameters.
P.S. For macro-economics it may not make too much difference if the value of buildings is reflecting changes in the price of land or the value of buildings UNLESS you are actually trying to model housing investment.
Sorry your computer ate your longer comment.
In thinking about inflation, Fed models predict that as inflation increases, it becomes a drag on growth. This seems to be the primary justification for pursuing low inflation rates such as the 2% target.
As you mention, wages are sticky downward. If inflation is high enough, inflation will automatically reset a downward shock on wages. If inflation is too low or the downward reset for wages is too large, relative wages will not reset quickly. Downward pressure on wages is accommodated by increasing unemployment. If wages cannot reset by remaining neutral, then unemployment is the result. An inflation rate that is too low to allow relative wages and prices to reset quickly will trigger a prolonged period of unemployment and underemployment. This is precisely what we see at the ZLB.
Most everyone accepts and understands the reasons why deflation is bad. However, deflation and inflation are a continuum. Nothing magical happens at zero inflation. It is important to recognize that inflation that is too low is only marginally less bad than deflation.
“I think it is possible to largely dodge the question of when and why people are liquidity constrained, because I think it is possible Liquidity constrained consumers consume all of their current income.”
A key feature of depressions is the missing demand as noted by Say, John Stuart Mill and Keynes. It is, however, not common to mention that the key factor in that deficiency is that firms and persons alike use available income for loan repayments instead of taking new loans. The terms actually used, like insufficient savings and liquidity preference are somewhat misleading. They come along as economists refuse to recognize neither endogenous money generation in the banking system nor its mirror of overblown repayments.
Welcome to AB. First posts go into moderation.
Without exception, every “wither macro” essay I read talks about what we should be doing without first discussing what we should be trying to accomplish. To me the condition of macro seems analogous to that of medicine prior to the germ theory of disease. There are fundamental mysteries, but we can’t avoid deciding what to do now. Fundamental issues include:
Why are economic aggregates as variable as they are?
Why are there bubbles?
How can unemployment (in the Depression, Spain, and Greece) remain at ridiculously high levels for many years and perhaps decades?
If I knew how to say something useful about any of these questions, I probably would do that instead of writing a comment on a blog post, so I shouldn’t say too much about what will or will not work. But my reading of the history of science is that progress on such issues results from conceptual breakthroughs, not squinting at the data in some new way or adding just the right epicycle to an NK model.
So, how should we think about macro policy? On the whole this post seems quite reasonable, in its broad thrust and many details, and it is certainly very well informed about several decades of research. But it doesn’t start out by posing a general conceptual framework for talking about this sort of thing. An important point that is seldom mentioned is that WE KNOW THAT ALL OUR MODELS ARE FUNDAMENTALLY FLAWED, BECAUSE THEY DO NOT PROVIDE SATISFACTORY ANSWERS TO THE QUESTIONS ABOVE. Well, what’s an 18th century physician supposed to do? Most obviously, pay a lot of attention to what actually happens when you treat patients with certain conditions in certain ways. Understand the available theoretical models, but regard them with intense suspicion. Also, understand that although we don’t know the answers to certain big questions, we do have some actual knowledge, some of it well established and other parts more tentative, and it can be applied with suitable attention to logic, common sense, and general skepticism, to arrive at recommendations that are truly helpful.
What should macroeconomic researchers be doing? Above I suggested that if you want to address big questions, you should think about what big answers might look like. If you want to improve current policy making, you can look at the details of its logic and try to find points where things seem a bit wrong headed. Sadly, if you want to get tenure or advance your status in the profession, the answer seems to be exceedingly depressing.
Welcome to AB. First posts go into moderation.
Crude fiscal it’s that some of us dream to be
What is so grand about better models
When the model cluster
the two Ks fathered in the GD
Are perfectly adequate to bust us out of slumps stags and such
By injection ..feed back …injection etc
Wage driven output price inflation…
Okay so what about that
Can’t price levels be regulated
Without rigidity ing relative adjustments ?
Enter Lerner circa 1980
by way of a Tobin introduction …
“I don’t see any use for macroeconomists in separating land value and building values. For the owner as investor the sum is what matters.”
For the owner as investor, he can depreciate the building, but not the land.
Same goes for exchange rate navigating
With the added fun of potential foreign keystone cop gigs
Building values don’t bubble
Lot values bubble
The structure value and location value are importantly distinct
We be best to separate each purchase and title
You don’t by your car as well as your lot and garage
In one bundle
On prices of land and the buildings built on it. Yes they are different. However, I think llumping them together is the best way to get a useful macroeconomic model. I know of decent time series of national average house prices, but as far as I know, there aren’t good nationwide aggregate data on land prices vs building prices.
J. Bakho: yes extremely low inflation has bad effects similar to deflation. Your argument about inflation making it possible for relative wages to adjust is valid. It is an old argument which was unburied relatively recently by Akerlof and Dickens. Akerlof is married to Yellen, so I think the Fed is familiar with the argument.
I really don’t know why so many people think 2% inflation is better than 4% inflation. Well I’m pretty sure that it is because ordinary people use inflation to mean price increases and not wage increases so they think higher inflation means lower real wages. Over at the Fed, they understand what inflation is, but, I think, policy makers bow to public opinion even if the public has crazy opinions.