During our segment on NPR yesterday, they were very curious about 2 songs on our album Qe2 and Main Street venting blues. This is funny because when Kyle and I recorded the album in Montreal, those were the 2 songs that we were considering cutting but ultimately decided otherwise. I think this is an experience that many artists go through which is that you do your best with your work but ultimately we don´t know what people will find interesting.
I am reminded of this quote by Melanie:
“My idea about songs is that once you write them, you have very little say in their life afterward. It’s a lot like having a baby. You conceive a song, deliver it, and then give it as good a start as you can. After that, it’s on its own. People will take it any way they want to take it.”
When I penned the song Central Bankers Dilemma in the summer of 2008, I was writing about the dilemma a central banker faces during a period of stagflation. When a central banker raises interest rates he constrains growth and when he lowers interest rates it exacerbates the inflation problem. Recently Japan and Switzerland engaged in expansionary monetary policy but not to stimulate their economy but rather to stem their currencies from appreciating more. Today central bankers have a new problem of how to deal in a world where developed countries have ultra stimulative monetary policy. When the United States keeps its overnight rate at roughly 0% it is very hard to raise interest rates without having your currency appreciate. Countries like Canada and Swtizerland whose economies have fared fairly well have had to maintain lower than normal interest rates to prevent a rapid appreciation of their currency. Canada has kept its overnight interest rate at 1% despite a reasonably robust economy. Luckily, Switzerland and Canada can do this without worrying too much about inflation. Unfortunately for some developing countries that is not the case.
In Brazil, interest rates are already extremely high – the overnight rate is roughly 12%. However, even despite the high interest rates, growth and inflation are both above trend. In Brazil’s case it would seem obvious that they should raise interest rates even more to cool off inflation and growth. However, in a world where other countries have nearly 0% interest rates, further moves to tighten monetary policy will make the Real even stronger. Since December the Real has already gained 10% on the dollar and has already made it very difficult for exporters. From a personal level, it is clear to me that the Real is already overvalued when I travel to countries like Argentina and the same things cost less than half the price. This marked difference is especially difficult to understand when Argentina is actually a more developed country than Brazil (based on GDP per Capita).
So the Central bankers dilemma for developing countries like Brazil is whether to raise interest rates and risk a further appreciation in the currency or to lower interest rates and risk even greater inflation. Sounds like a great subject matter for a song!
Alex Blumberg and Adam Davidson, interspersed with pre-recorded interview segments,
painted a picture of two coexisting US economies: the “broken” economy and the “American dream” economy. In their trademark style, they discussed how the growth of the knowledge and service economy have increased the value of education, resulting in a bifurcated American experience for those with advanced degrees and those without.
I won’t go too much into detail as the event will serve as their podcast this Friday, but suffice to say that, in their slightly tongue-in-cheek view, the US economy could be fixed in three simple steps:
1. improve access to preschool education – this is the key age for the soft skills required to excel in today’s economy (see Dr. Heckman)
2. bring national debt back under 90% debt:GDP – we don’t need to eliminate the debt, nor should we try, in order to restore fiscal sanity
3. replace employer-based health care with anything else – it’s a strange beast, and almost any other system would be better
In the face of how our issues relatively aren’t that severe, how any harm would be almost completely self-inflicted, and how solutions are in reach, they said that our “problems really are Jersey Shore problems”.
I was able to thank Alex and Adam afterward for setting the stage for Recession Sessions nearly three years ago by featuring a rough cut of Central Banker’s Dilemma on their podcast.
Make sure to tune in Friday to Planet Money for the whole show!