Recommended Reading, Jan. 2023

Last month, I shared the economics books I liked best in 2022. This month, a couple of things I’ve liked about inflation and risk-taking:

Where (else) might inflation come from?

In recent months, like any reasonable central bank economist, I’ve tried to assess how current inflation came to be, and how it might be brought back to the Fed’s 2% target with the least pain. Monetary policy is always for me the first place to look, and maybe that is the start and end of the story.

But there’s a longer tradition in economics that stresses the (undeniable) unity of all government policy, monetary and fiscal, in driving the cost of living. It goes by the name “the fiscal theory of the price level.” Exemplars of this tradition include Eric Leeper, our neighbor at UVa. Two readings I think you’ll find useful—if you’re interested in learning more—are this blog post and this Richmond Fed Economic Brief.

How can, do, and should we think about risk?

If nothing but death and taxes are certain, I guess the rest is at least uncertain, if not risky? Not knowing what will occur, and not even knowing how to think about the way in which we don’t know what will occur, seem to me pervasive. Risk and perceptions of its role in daily life also influence a lot of how we think about policies as disparate as food safety and estate taxes.

Probability as a scholarly field helps us a lot. (Like many others, I initially found Bayes’ rule difficult to understand and implement, but soon came to realize how vital it was to--even if only a little--lower the number of stupidities I would think and utter about what was likely and unlikely.) But there’s much more to processing risk, especially communicating it (think public health) and working to reduce it (think nuclear vs. coal). A gem of a book that I’ve been working through is Risk: A Very Short Introduction, which, true to its name, is very short, but wide-ranging and thoughtful.