Data on Asian Genes that Discourage Alcohol Consumption Explode the Myth that a Little Alcohol is Good for your Health

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Link to the Lancet article shown above. All images in this post are from this article.

Many people have taken comfort from news reports suggesting that moderate drinking is healthy. The top three graphs in the panel below, from a recent study of hundreds of thousands of Chinese drinkers and non-drinkers, confirm the kind of stylized facts that have led people to believe this. As the authors of “Conventional and genetic evidence on alcohol and vascular disease aetiology: a prospective study of 500 000 men and women in China” describe these results,

… conventional epidemiology showed that self-reported alcohol intake had U-shaped associations with the incidence of ischaemic stroke (n=14 930), intracerebral haemorrhage (n=3496), and acute myocardial infarction (n=2958); men who reported drinking about 100 g of alcohol per week (one to two drinks per day) had lower risks of all three diseases than non-drinkers or heavier drinkers.


But, one should be concerned that the U-shape in the top three graphs is generated by some combination of reverse causality and “Cousin Causality.” In the words of the authors (click here for the full paper, then click on the link to show all authors),

… poor health might affect alcohol consumption (reverse causality), and other systematic differences might exist between people with different drinking patterns that were not fully allowed for (residual confounding).

Fortunately for statistical identification, there are a pair of genes that have a big effect on drinking through well-understood biological pathways. Alcohol itself is mostly pleasant, but is ultimately turned into acetaldehyde, which is unpleasant until the acetaldehyde is in turn broken down into acetate, which is OK. Two gene variants in East Asia lead to a lot of acetaldehyde: one slows down the process of turning the unpleasant acetaldehyde (which causes flushing) into acetate; the other turns alcohol into acetaldehyde faster. Both make drinking less pleasant. Just below is the top of the explanatory box in the paper for this causal pathway:

Assuming these genes have no other substantial affect besides making alcohol consumption unpleasant, they can be used as instruments for alcohol consumption, allowing one to see the effects of alcohol without confounding from reverse causality and “Cousin Causality.” The relevance of these genes as statistical instruments can be seen from the graph below:


The authors have relative risk on the left-hand-side of the equation, put region of China as a control variable on the right-hand side of the regression, then effectively use region and genes as instruments for region and alcohol consumption. They do the analysis separately for men and for women. Since Chinese women in this study do not drink much regardless of their genes, the analysis for women is a good test of whether the genes affect health through pathways other than alcohol consumption. After correcting for multiple hypothesis testing (See “Who Leaves Mormonism?”), no effects of the genes are seen for women.

The results for six levels of alcohol consumption as predicted by region and genes can be seen below for men and women:

This evidence is quite persuasive. It seems unlikely that tinkering with the analysis in any appropriate way would yield a different result. Translating the outcome descriptions into simpler words, the analysis says that higher alcohol consumption in men leads causally to:

  • higher blood pressure

  • higher “good cholesterol”

  • a marker for liver disease

  • stroke

  • brain bleeding

There is no evidence of heart attack danger from drinking, but no evidence of protection from heart attack either.

Note that, while women help to verify that the gene variants don’t have big effects unrelated to alcohol, the low variation in alcohol consumption among these Chinese women (because few of them drink very much) means that there is little direct evidence here on the effects of alcohol on women. But many of the health effects of alcohol on women are likely to be similar to the health effects of alcohol on men.

The only shred of evidence for a physical health benefit from alcohol consumption is its effect in raising “good cholesterol.” But in their appendix, the authors give the first-stage regression of many health-related measures on the genes, and the news there is not good. For example, gene variant GG, which is associated with higher alcohol consumption than gene variant AG, fairly precisely predicts a body-mass index about .24 higher. Here is their full table for that first-stage regression on the genes:

Let me mention in closing that alcohol doesn’t seem to do its damage by causing an insulin spike. The insulin index data I discuss in “Forget Calorie Counting; It's the Insulin Index, Stupid” gives a very low insulin index (less than five) to white wine and gin, and even beer only has a measured insulin index of 20. So the health harm from alcohol seems to come from other pathways, not from causing an insulin spike that would make you feel hungry afterwards.

For annotated links to other posts on diet and health, see “Miles Kimball on Diet and Health: A Reader's Guide.”

Chris Kimball: Grief in the Journey

I am pleased to have another guest post on religion from my brother Chris. (You can see other guest posts by Chris listed at the bottom of this post.) Below are Chris’s words. When he writes “Church,” it means the Mormon Church, but those who have been in other churches or faiths may have had similar experiences.

I read a short article in Psychology Today titled “Four Types of Grief Nobody Told You About” (And why it’s important that we call them grief). I turned to the article out of curiosity and thinking about recent and not-so-recent deaths that affected me. What I found was surprisingly applicable to people I know in faith crisis. I generally prefer the term “faith journey” but the kinds of grief Sarah Epstein (the author) talks about refer me to the crisis part of the journey. I found it validating to see these described and recognized as important.

 Here are the headers from the article, with my personal experience following. I fight the temptation to generalize, believing that these stories are best told in raw first person.

1. Loss of identity: A lost role or affiliation.

Being an active all-in Church member was an identity, a role, an affiliation. The loss of identity is hard.  “Grief” seems like a good word. It is not a public grief, not dependent on other people knowing or any kind of formal change in membership or even attendance. Grief is about my own feelings. Sitting in a pew on Sunday knowing I don’t belong, knowing I will not be participating when others are called, knowing I am not the person I grew up thinking I was.  

2. Loss of safety: The lost sense of physical, emotional, and mental well-being.

The loss of safety may not be obvious to an outside observer, but I have often observed that one of the things the Church “offers” (scare quotes because I believe it is a false promise) is a feeling of safety and that can be lost. Keep the commandments at the temple recommend level—which gets you into “the house of the Lord”—and you’re good. Get your children sealed to you, on a mission, married in the temple, and you will be together forever. So goes the promise.

When I started questioning the promise, one result was to feel unsafe. I remember getting up from my knees (almost 25 years ago) with the words fear and trembling in my mind: “From now on you live in the world of working out salvation with fear and trembling.” (Philippians 2:12)

For me, growing up in a fully active multi-generation family with a grandfather who was an Apostle, the Church felt like home. Felt like family. I no longer feel that. I feel like an outsider. Like I'm wearing a disguise when I take up space in a pew on Sunday morning.

Even though the overall process is one of growth and independence, I grieve the loss of “safe" and "home" feelings, even if they never were fully justified.

3. Loss of autonomy: The lost ability to manage one’s own life and affairs.

I’m not sure about the loss of autonomy. The faith crisis happened to me. I didn’t choose it. I didn’t go looking for trouble. That out-of-control feeling might well fit this loss-of-autonomy category. It may also show up as a frustration when I hear “just don’t think about it” or “choose to be faithful” and know that is so not helpful. My annoyed reaction underscores an inability to take charge and make it right.

However, that all happened years ago and subsequent events—a cancer diagnosis—overwhelmed any Church-related loss of autonomy in my life. I cannot manage my life, but the highlight in my head is an invader trying to kill me, not the Church.

4. Loss of dreams or expectations: Dealing with hopes and dreams going unfulfilled.

This one really strikes home. I grew up in the Church. I expected to graduate from seminary. I did. I expected to go on a mission. I did. I expected to marry in the temple. I did. I expected to have normal sorts of callings and live much of my life inside the Church. I did . . . until age 40. I expected to hit an early retirement and spend most of the rest of my life in Church service. However, at around age 40, I realized with crystal clarity that I was stepping off the path. That my future was unknown except that it would not be what I grew up expecting. 

A lot of years have passed since I got up off my knees with an uncertain future, but it is not quite as simple as water under the bridge. My cousin and his wife—almost exactly my age—are mission president now in Japan Fukuoka. I think about what might have been. There are several ways it never would have worked (including my health), but “what might have been” doesn’t go easy. It is a loss and I hurt.

In the big picture I am happy and enjoying my second life. But the grief is there too. I have lost an identity, I have lost a sense of safety, I have lost control over my life, and I have lost dreams and expectations. I am better for naming and recognizing, but that doesn't make it all better.

 Don't miss these posts on Mormonism:

Also see the links in "Hal Boyd: The Ignorance of Mocking Mormonism."

Don’t miss these other guest posts by Chris:

In addition, Chris is my coauthor for

Don’t miss these Unitarian-Universalist sermons by Miles:

By self-identification, I left Mormonism for Unitarian Universalism in 2000, at the age of 40. I have had the good fortune to be a lay preacher in Unitarian Universalism. I have posted many of my Unitarian-Universalist sermons on this blog.

The Tree of Life Web Project: A Cool Website Implementing a Giant Cladogram

The Wikipedia article “Cladogram” explains cladograms this way:

A cladogram uses lines that branch off in different directions ending at a clade, a group of organisms with a last common ancestor.

Thus, a cladogram tells a lot about what we know about the evolution of different species.

The link above starts with Amniota, the narrowest clade that includes both us and our cousins the dinosaurs. The home page, with a link to the root of the tree, is here.

JP Koning on Ill-Considered Government Policies Standing in the Way of the Emergence of the Digital Cash that Can Eliminate Any Lower Bound on Interest Rates

I have always been impressed with JP Koning, both for his blog Moneyness and for the insights he has on Twitter. Now he is also posting fascinating pieces on the website of the American Institute for Economic Research. I show two above, with links at the bottom of screenshots. These two share the theme of government agencies—without sufficient thought—standing in the way of the development of the digital cash that could reduce the footprint of physical cash and thereby make it easier to neutralize any tendency of paper currency to create a lower bound on interest rates. (See “Ruchir Agarwal and Miles Kimball—Enabling Deep Negative Rates to Fight Recessions: A Guide.”)

Let me back up the claim that they are doing this without sufficient thought. First, the Financial Action Task Force, in its desire to make an easy trail of cryptocurreny transactions for law enforcement is ignoring the benefit of drawing people away from physical cash transactions that leave much less of a trail. It would be a different matter if we were eliminating physical cash (or allowing only heavy coins) for the sake of crime control, as Ken Rogoff recommends in The Curse of Cash. But as long as we leave physical cash unconstrained, we should try to make digital cash a more attractive option, since when necessary, it can be tracked more easily than physical cash.

Second, the Fed is worried that access by narrow banks to reserve accounts will lead to a lower bound on rates that will be contractionary. The solution is simple: the Fed can and should lower the interest rate on reserves very quickly in such situations. There should always be a quantitative trigger in place that instantly lowers the interest on reserves if reserves suddenly and unexpectedly go up. Or a good substitute is to have a quantitative ceiling on reserves, but provide a repo facility for funds beyond that, with the rate on the repo facility allowed to go down instantly if there is a surge of funds into it. (See “How to Keep a Zero Interest Rate on Reserves from Creating a Zero Lower Bound.”)

During times when the Fed is trying to keep the economy from overheating, allowing narrow banks to put money into an interest-bearing reserve account helps to keep interest rates up. One thing the Fed might worry about is that keeping deposit rates up would reduce bank profits. Lower bank profits could lead to lower bank capital in a proximate sense. But there are many other ways for banks to keep their net worth’s high to enhance financial stability, such as not paying dividends until they are stable. If these other financial stability measures lead to lending rates being higher, the Fed can just cut rates overall. (See “Why Financial Stability Concerns Are Not a Reason to Shy Away from a Robust Negative Interest Rate Policy.”)

And if ending the ‘tax’ on depositors and ‘subsidy’ to banks and borrowers implicit in banks being able to get away with low deposit rates is a serious policy concern (which I don’t believe for a minute), legislation should increase the existing explicit tax on depositors and explicit tax breaks for banks and borrowers rather than using oligopolistic low rates for bank depositors as a sneaky way of doing this. Remember, allowing narrow banks the same privileges as regular banks is a way to increase competition in a safe way. It is rare for increased competition to be a bad thing, especially after the Fed has used interest rate policy to get the economy to the natural level of output given that level of competition.

Miles Kimball on Diet and Health: A Reader's Guide

Bread and Fruit Dish on a Table, 1909 by Pablo Picasso   .  Two of the more controversial pieces of advice in the links below are to cut bread out of your diet and to eat fruit sparingly.

Bread and Fruit Dish on a Table, 1909 by Pablo Picasso. Two of the more controversial pieces of advice in the links below are to cut bread out of your diet and to eat fruit sparingly.

The list of links to my posts on diet and health has become too long to continue putting at the bottom of each new diet and health post. So I will begin referring to this post for a categorized list of those links. I will keep updating this categorized list of links as I write additional diet and health posts. Take a good look at the list. I have high hopes that you can find something useful to you in it.

I. The Basics

II. Sugar as a Slow Poison

III. Anti-Cancer Eating

IV. Eating Tips

V. Calories In/Calories Out

VI. Other Health Issues

VII. Wonkish

VIII. Debates about Particular Foods and Drinks and about Exercise

IX. Gary Taubes

X. Twitter Discussions

XI. On My Interest in Diet and Health

See the last section of "Five Books That Have Changed My Life" and the podcast "Miles Kimball Explains to Tracy Alloway and Joe Weisenthal Why Losing Weight Is Like Defeating Inflation." If you want to know how I got interested in diet and health and fighting obesity and a little more about my own experience with weight gain and weight loss, see “Diana Kimball: Listening Creates Possibilities and my post "A Barycentric Autobiography. I defend the ability of economists like me to make a contribution to understanding diet and health in “On the Epistemology of Diet and Health: Miles Refuses to `Stay in His Lane’” and “Crafting Simple, Accurate Messages about Complex Problems.”

John Locke on Monarchs (Or Presidents) Who Destroy a Constitution

Link to the Wikipedia article on “Louis XIV of France.”    Among other actions during his reign, Louis XIV presided over ethnic cleansing of the    Huguenots    (the Protestants in his realm) and centralized power in his own hands.

Link to the Wikipedia article on “Louis XIV of France.” Among other actions during his reign, Louis XIV presided over ethnic cleansing of the Huguenots (the Protestants in his realm) and centralized power in his own hands.

John Locke, in Chapter XIX of his 2d Treatise on Government: Of Civil Government, “Of the Dissolution of Government,” lists four ways in which a monarch can subvert the constitution of a nation in a way that effectively undoes the government and so eliminates any obligation to obey the unconstitutional pretense of a government that replaces the legitimate government:

  • Ruling by decree instead of duly enacted legislation

  • Preventing the legislature from meeting or constraining free speech and free deliberation within the legislature

  • Stealing or fixing elections

  • Giving people to a foreign power

By “monarch” I am referring to the “single hereditary person” in John Locke’s description of a should-be-constitutional monarchy:

§. 213. This being usually brought about by such in the commonwealth who misuse the power they have; it is hard to consider it aright, and know at whose door to lay it, without knowing the form of government in which it happens. Let us suppose then the legislative placed in the concurrence of three distinct-persons.  

  1. A single hereditary person, having the constant, supreme, executive power, and with it the power of convoking and dissolving the other two within certain periods of time.  

  2. An assembly of hereditary nobility.  

  3. An assembly of representatives chosen, pro tempore, by the people. Such a form of government supposed, it is evident,  

However, the same principles apply to a president or any other top ruler in a nation.

Here are John Locke’s four no-nos for a monarch, president or other top ruler that are serious enough to dissolve any obligation of obedience to the remaining pretense of a government.

Ruling by decree instead of by duly enacted legislation.

§. 214. First, That when such a single person, or prince, sets up his own arbitrary will in place of the laws, which are the will of the society, declared by the legislative, then the legislative is changed: for that being in effect the legislative, whose rules and laws are put in execution, and required to be obeyed; when other laws are set up, and other rules pretended, and inforced, than what the legislative constituted by the society have enacted, it is plain that the legislative is changed. Whoever introduces new laws, not being thereunto authorized by the fundamental appointment of the society, or subverts the old, disowns and overturns the power by which they were made, and so sets up a new legislative.  

Preventing the legislature from meeting or constraining free speech and free deliberation within the legislature.

§. 215. Secondly, When the prince hinders the legislative from assembling in its due time, or from acting freely, pursuant to those ends for which it was constituted, the legislative is altered: for it is not a certain number of men, no, nor their meeting, unless they have also freedom of debating, and leisure of perfecting, what is for the good of the society, wherein the legislative consists: when these are taken away or altered, so as to deprive the society of the due exercise of their power, the legislative is truly altered; for it is not names that constitute governments, but the use and exercise of those powers that were intended to accompany them; so that he, who takes away the freedom, or hinders the acting of the legislative in its due seasons, in effect takes away the legislative, and puts an end to the government.  

Stealing or fixing elections.

§. 216. Thirdly, When, by the arbitrary power of the prince, the electors, or ways of election are altered, without the consent, and contrary to the common interest of the people, there also the legislative is altered: for, if others than those whom the society hath authorized thereunto, do chuse, or in another way than what the society hath prescribed, those chosen are not the legislative appointed by the people.

Giving people to a foreign power.  

§. 217. Fourthly, The delivery also of the people into subjection of a foreign power, either by the prince, or by the legislative, is certainly a change of the legislative, and so a dissolution of the government: for the end why people entered into society being to be preserved one entire, free, independent society, to be governed by its own laws; this is lost, whenever they are given up into the power of another.  

John Locke then explains why the monarch or top ruler is usually to blame when these things happen, although the monarch or top ruler usually has accomplices (sometimes within the legislature):

§. 218. Why, in such a constitution as this, the dissolution of the government in these cases is to be imputed to the prince, is evident; because he having the force, treasure and offices of the state to employ, and often persuading himself, or being flattered by others, that as supreme magistrate he is uncapable of controul; he alone is in a condition to make great advances toward such changes, under pretence of lawful authority, and has it in his hands to terrify or suppress opposers, as factious, seditious, and enemies to the government: whereas no other part of the legislative, or people, is capable by themselves to attempt any alteration of the legislative, without open and visible rebellion, apt enough to be taken notice of, which, when it prevails, produces effects very little different from foreign conquest. Besides, the prince in such a form of government, having the power of dissolving the other parts of the legislative, and thereby rendering them private persons, they can never in opposition to him, or without his concurrence, alter the legislative by a law, his consent being necessary to give any of their decrees that sanction. But yet, so far as the other parts of the legislative any way contribute to any attempt upon the government, and do either promote, or not, what lies in them, hinder such designs, they are guilty, and partake in this, which is certainly the greatest crime men can be guilty of one towards another.

For links to other John Locke posts, see these John Locke aggregator posts: 

Dan Ariely: The Power of Morning, Time Together and Positive Feedback

Dan Ariely has a weekly advice column in the Wall Street Journal based on Behavioral Economics. I felt all three bits of advice he gave in his April 23, 2019 column were especially useful, so I wanted to share them here.

First, Dan suggests tackling especially tough tasks as one’s first big work item in the morning. He describes this as

… taking advantage of the clarity and energy that most people enjoy in the morning to tackle a problem that is important, complex and difficult …

I have been finding that things that seem daunting the evening before seem doable in the morning right after I have finished other basic parts of my morning routine.

Second, Dan retails a very interesting statistic about the formation of friendships:

Researcher Jeffrey Hall at the University of Kansas looked at the question of how long it takes to make friendships, and his findings show that after spending 80 to 100 hours together, the odds of two people moving from a casual friendship to a deeper one are about 50%.

Unaccountably, there is then an arithmetic error:

Prof. Hall goes on to estimate that creating a friend group of 25 to 35 people would require a total investment of 2,000 to 3,500 hours. 

As you can see from multiplication, that is what the calculation would be if the odds of creating a friendship were 100% after 80 to 100 hours. The estimate of 50% odds implies it would take twice as long: 4000 to 7000 hours to generate a friend group of 25 to 35 people.

Third, and most striking to me, he points out a crucial flaw in negative feedback—above and beyond negative feedback making people feel bad:

The problem with negative feedback is that it tells us to stop doing something, but doesn’t give us a new course of action to replace it with.

He suggest that it is easy to put a direction into positive feedback:

Instead, try using positive feedback to redirect … efforts in a way that will be useful. For instance, you could ask for advice on another subject you genuinely want to learn more about …

Traditional economics often assumes that everyone is doing everything right, except the government. As a consequence, it only has advice for the government. Behavioral economics opens up the possibility of individuals, households and firms making mistakes, and so has a lot more potential advice to offer.

Is 10,000 Steps a Day More Than is Necessary for Health?

Japanese has a one-syllable word for 10,000: man. An early wearable stepcounter had the trade name manpokei, or “10,000-step measuring device” in Japanese. The article above, “Association of Step Volume and Intensity With All-Cause Mortality in Older Women,” theorizes that this is the origin of the idea—and default setting for many step-counting devices—that 10,000 steps a day has some magic to it in fostering health. But in a large study of older women (who had an average age of 72), the decline in bad health events seemed to level out at about 7500 steps.

What is more, when relating steps per day to health, it is hard to tell whether steps are causing health or health causing steps—it is easier to take a long walk when one feels good. When one is interested in the ability of steps to make people healthier, the reverse causality effect of health in making steps easier tends to make deaths go down with more steps more than if it were possible to isolate the effect of steps on health. The authors of this study, “I-Min Lee, Eric J. Shiroma, Masamitsu Kamada, David R. Bassett, Charles E. Matthews and Julie E. Buring” control for obvious indicators of health at the time of the step measurement when looking at the association of steps per day and deaths, but there would be a lot of subtle health problems that wouldn’t be in the data set that could affect how pleasant it seemed to go out for a walk. What that means is that 7500 steps might be a modest overestimate of how many steps per day are needed to get most of the health benefits.

Graph from the article above

Graph from the article above

Fortunately, on the question of whether making an effort to walk rather remaining quite sedentary improves health, there are other studies that did interventions that I can write about in a later post. Exercise interventions still have the problem of a potential placebo effect; it is hard to hide from people the fact that they are walking extra. But if one is willing to include the placebo effect, interventions do genuinely show the benefits of exercise.

All the evidence we want isn’t in yet, but my advice would be to make sure to do some amount of walking and other physical activity rather than sitting around all day. It doesn’t have to take much extra time. Taking the stairs a couple of flight instead of the elevator doesn’t really take any longer, and taking the first parking space you see even though it is further away probably doesn’t end up taking much more time either. But those few steps might do some real good.

Overall, what evidence we do have suggests that exercise will make you healthier, happier and smarter. And maybe even a modest amount will have those effects. On “smarter,” I find personally that I can solve hard math problems at the limit of my ability much better while on a walk than I can while sitting at a desk. Once I have cracked the math problem, the details are easier to work out with pen and paper, but cracking the math problem is easier to do when my blood is pumping from the walk.

If anyone had the patent on a pill that had the benefits of exercise, they would be filthy rich. Fortunately for you and me, exercise itself is low cost. It does take time, but most people manage to figure out good ways to multitask while exercising—listening to a podcast, watching TV, listening to music, listening to an audiobook, doing math problems, or just enjoying the view.

Don’t miss my other posts on diet and health:

I. The Basics

II. Sugar as a Slow Poison

III. Anti-Cancer Eating

IV. Eating Tips

V. Calories In/Calories Out

VI. Other Health Issues

VII. Wonkish

VIII. Debates about Particular Foods and about Exercise

IX. Gary Taubes

X. Twitter Discussions

XI. On My Interest in Diet and Health

See the last section of "Five Books That Have Changed My Life" and the podcast "Miles Kimball Explains to Tracy Alloway and Joe Weisenthal Why Losing Weight Is Like Defeating Inflation." If you want to know how I got interested in diet and health and fighting obesity and a little more about my own experience with weight gain and weight loss, see “Diana Kimball: Listening Creates Possibilities and my post "A Barycentric Autobiography. I defend the ability of economists like me to make a contribution to understanding diet and health in “On the Epistemology of Diet and Health: Miles Refuses to `Stay in His Lane’” and “Crafting Simple, Accurate Messages about Complex Problems.”

Charlotte Graham-McLay—New Zealand’s Next Milestone: A Budget Guided by Well-Being

I am proud that the Well-Being Measurement Initiative, headed by Dan Benjamin, Ori Heffetz, Kristen Cooper and me, is involved in this New Zealand effort. In the summer of 2015, I spent three weeks at the New Zealand Treasury working on this effort. Data collection is slated to take place this summer.

I do not see guiding policy by well-being as inherently left-wing. It only becomes left-wing when important aspects of well-being that are especially important to those on the right are omitted from data collection. In our approach, we strive to include a wide range of aspects of well-being.

Larry Summers Says the Fed Should Move Fast to Cut Rates

The European Central Bank and the Reserve Bank of Australia have announced more monetary stimulus. Larry Summers says the Fed should follow suit, in his latest Washington Post op-ed:

The best way to take out recession or slowdown insurance would be for the Fed to cut interest rates by 50 basis points over the summer and by more, if necessary, in the fall. A serious recession anytime in the next few years would encourage populism and polarization at home, and reduce American influence and strength in the world as well as damaging the global economy. It is clear in retrospect that the Fed was too slow in responding to gathering storms during 2008 as the Great Recession took hold and in 2000 when the Internet bubble collapsed.

I make the point in “Next Generation Monetary Policy” that most central banks act too slowly in general: they should move interest rates faster and further, being quickly ready to reverse course so they don’t have to be afraid of overshooting.

Larry Summers is doing more than saying the Fed should move fast in general. He is arguing for a rate cut as insurance. Larry gives three key arguments. One is that the economy we are seeing now is what we get when the markets indicate that they are expecting rate cuts. The economy conditional on no rate cuts is worse than what we see. Another argument is that inflation expectations are not convinced that the Fed is serious about its 2% inflation target. In the last few months, Fed officials are being crystal clear in their words that 2% is intended to be a symmetric target. For example, from the Wall Street Journal article “Low-Inflation Trap That Ensnared Japan and Europe Worries Fed” by Nick Timiraos

“We’re trying to think of ways of making that inflation 2% target highly credible, so that inflation averages around 2%, rather than only averaging 2% in good times and then averaging way less than that in bad times,” Fed Chairman Jerome Powell said in February.

But the markets are brushing that off in their long-run inflation predictions. Larry points out:

… market expectations as reflected in Treasury index bonds are for inflation on the Fed’s preferred measure to remain in the 1.5 range even over a 30-year horizon and to be even lower over shorter horizons. 

One can argue over the inflation target the Fed should set, but whatever they say the target is, if markets don’t believe them, that is a problem.

Larry’s other argument is that we have to nip any potential recession in the bud because the Fed may be slow to use deep negative interest rates:

… the Fed normally cuts rates by a cumulative 5 percentage points in response to recession, and with rates now below 2.5 percent there is nothing approaching that amount available. Allowing a recession with inadequate firepower to confront it risks “Japanification” — a situation where interest rates are permanently pinned at zero and deflationary pressures take hold. The Fed will be able to do too little in combating the next recession, so it is especially important that it’s not too late.

I agree. Until I can trust that central banks will, in fact, use the kind of vigorous negative interest rate policies that Ruchir Agarwal and I lay out in our IMF Working Paper “Enabling Deep Negative Rates to Fight Recessions: A Guide,” I want them to avoid getting into a situation where they would need to do so to get a good outcome. Every year that passes is likely to make it seem easier for central banks to implement vigorous negative interest rate policies. If we can just avoid a serious recession in the meantime … (I am very eager for central banks to implement alternative paper currency policies at a very small dosage—say minus 5 basis points for the effective nominal rate of return on paper currency for a year or so) to demonstrate that they can, and to work out technical details. But I would be glad if the need to use negative interest rate policies in a big way—for example, minus 5 percentage points—can be put off for a while longer.)

Larry Summers was one of my professors at Harvard. I have known him a long time. I have talked to him on more than one occasion about negative interest rate policy. He understands the ideas well, and has them in his own view of contingency plans. (See “Peter Sands and Larry Summers Say Deep Negative Interest Rates Are Feasible from a Technical Point of View.”)