“Gold bugs” take it for granted that it was no coincidence that the US got hit with stagflation in the 1970s, because Richard Nixon infamously severed the dollar’s last tie to gold in 1971. Others, however, dispute this connection. So I thought it worthwhile to make a simple case in defense of the gold bugs:
In the above chart, the blue line is year/year percentage increase in the Consumer Price Index (CPI); it’s what most people nowadays mean when they ask, “How high is inflation running?” The red line shows yr/yr percentage increases in M2, which is a particular measure of the quantity of money which includes currency but also commercial checking account balances. It is a popular measure of how much money “the public is holding.”
As the chart shows, yes indeed there was a sharp jump in the rate of money growth after Nixon cut the link to gold. More generally, there were two long periods where the rate of money growth in the 1970s was head-and-shoulders higher than it had been in the 1960s. The only time money growth crashed in the 1970s appears to be an effort to get price inflation (the blue line) to come back down. This accords with commonsense stories about the printing press and the business cycle: The authorities can print money and goose the economy, but as price inflation gets out of control they have to slam the brakes and cause a bad recession to get it back under control.
But notice something else: Year/year CPI inflation didn’t break the 10% mark until February 1974, several years after Nixon severed the tie to gold. Consumer prices didn’t instantly respond to the new monetary policy. Also, the chart clearly shows that price inflation rates bounced all over the place during the 1970s; it wasn’t a continuous upswing throughout the decade.
If you sign up for my online class on government intervention (which covers the last third of my textbook, Lessons for the Young Economist) before the first class begins–which is Thursday, April 24, 5:30pm Eastern–then you get FREE access to the first two classes in the series. (Those classes cover the first 2/3 of the textbook.)
This is more for posterity than anything else, but check this out. In today’s post Krugman writes:
I happened to notice Greg Mankiw citing some bogus claims that the one percent is an ever-changing group, not a persistent elite, and I thought “Wait — didn’t we deal with that one long ago?” And that brought to mind the piece I wrote for the American Prospect 22 years ago, “The rich, the right, and the facts.” (It doesn’t say this on the Prospect site, but it was indeed published in 1992). See the section on income mobility.
The truth is that inequality denial is largely a crusade of cockroaches — the same bad arguments just keep coming back.
Oh, and I do think that my old piece looks surprisingly contemporary. In particular, I was focused on the one percent even then.
This is fascinating for several reasons:
1) Krugman makes it crystal clear that he is talking about the 1% (not the 0.01% as his defenders tried to say, when the awkward $225,000 CUNY post to study income inequality story broke), and that he’s talking about annual income, not wealth. Incidentally, I should point out that I believe Krugman’s defender in Slate, who wrote, “As Krugman has made clear on more than one occasion, his quarrel is not with members of the top 5 percent or even with members of the top 1 percent. The real problem, in his view, lies with the top 0.01 percent.” Just as I believe Krugman now, when he tells us, “I was focused on the one percent even then.” Now you guys know why I coined the term Krugman Kontradiction.
2) This raises the very ironic fact that back in 1992, Krugman was probably not in the 1%, whereas today he almost certainly is, at least depending on the payment of his book advances. (In addition to his $225,000 salary for raising awareness of income inequality, Krugman can command a high speaking fee if he wants, he gets royalties on his books, he probably has a lot of financial assets since he never had kids, and–something I had forgotten before–he runs a hugely popular blog, for which the NYT might pay him a lot. Although I don’t know, since it’s a great perch for him so maybe he doesn’t need to get paid much.) So I don’t know, I just think it’s really really weird that Krugman quite specifically blasts the 1% of income earners, and says there’s not much mobility in the US, without ever mentioning to his readers the fact that he climbed up and now resides in the 1%. (I actually have never read the biographical pieces on Krugman in detail; I am assuming he comes from a middle class background, since he has written several articles and given speeches bemoaning the loss of Middle Class America. If he came from a rich family, then that’s even weirder.)
3) Regular readers of Krugman know that he often explains the wonderful fact-checking of the New York Times, in contrast to conservative-leaning newspapers. Well, the article that Greg Mankiw cited–which Krugman says contains “bogus claims”–ran in the NYT.
4) The “bogus claims” about the 1% from the NYT piece that Mankiw linked include this: “Although 12 percent of the population will experience a year in which they find themselves in the top 1 percent of the income distribution, a mere 0.6 percent will do so in 10 consecutive years.” So think about what that means: If you’re looking at “the 1%,” fully 40 percent of them will not be a part of that group for the next decade. (In contrast, if “the 1%” were a stable group, then 1% of the US population would be in the top 1 percent of income earners for 10 consecutive years–not the actual figure of 0.6% of the US population.) So that’s a pretty good indication of how stable (or not) the elite 1% are. Is Krugman saying that these data are faked?
5) No, as far as I can tell, Krugman is simply throwing some other stats around. He doesn’t offer a single stat (in the section he tells us to examine, on income mobility–I didn’t read the rest of the 1992 article) concerning the 1% directly. The best thing in his defense is where he cites two studies that find “about half of the families who start in either the top or the bottom quintile of the income distribution are still there after a decade, and that only 3 to 6 percent rise from bottom to top or fall from top to bottom.” Thus, to show how bogus the claims about the 1% are, Krugman gives claims about quintiles.
OK I had an epiphany yesterday. I realized that I was only checking the comments here at the blog out of my duty to approve pending ones, but that I had no desire to actually “hang out” in the comment section because I can’t stand its tone.
Well that’s dumb. So starting today:
1) Ken B. is banned for three months.
2) You are allowed to criticize me, libertarians, Austrian economics, other posters, etc. in the comments. But don’t be completely rude about it. Imagine you were at a dinner party at my house, and someone said something you thought was nuts. How would you voice your opinion?
I don’t want to do this stuff, but the strategy of “chime in occasionally and people will get the hint” obviously doesn’t work. On the bright side, I can now at least understand why Brad DeLong runs his blog the way he does. But don’t worry, I still think DeLong is wrong about Bastiat. (HT2 DK)
For some time now, Krugman has been writing articles and blog posts explaining that the rich in this country are paranoid, that Obama is not some neo-Marxist trying to get them, etc. This isn’t the very best example of the genre, but it will serve the purpose: In September 2013 Krugman had a piece called, “Plutocrats Feeling Persecuted” in which he wrote (I’m relying on Mark Thoma’s summary):
Robert Benmosche, the chief executive of the American International Group, said something stupid the other day. And we should be glad, because his comments help highlight an important but rarely discussed cost of extreme income inequality — namely, the rise of a small but powerful group of what can only be called sociopaths.
For those who don’t recall, A.I.G. is a giant insurance company that played a crucial role in creating the global economic crisis… Five years ago, U.S. authorities, fearing that A.I.G.’s collapse might destabilize the whole financial system, stepped in with a huge bailout. … For a time, A.I.G. was essentially a ward of the federal government, which owned the bulk of its stock, yet it continued paying large executive bonuses. There was, understandably, much public furor.
So here’s what Mr. Benmosche did in an interview with The Wall Street Journal: He compared the uproar over bonuses to lynchings in the Deep South … and declared that the bonus backlash was “just as bad and just as wrong.” …
In 2010…, there was a comparable outburst from Stephen Schwarzman, the chairman of the Blackstone Group, one of the world’s largest private-equity firms…
This is important. Sometimes the wealthy talk as if they were characters in “Atlas Shrugged,” demanding nothing more from society than that the moochers leave them alone. But these men were speaking for, not against, redistribution — redistribution from the 99 percent to people like them. This isn’t libertarianism; it’s a demand for special treatment. It’s not Ayn Rand; it’s ancien régime. …
The thing is, by and large, the wealthy have gotten their wish. Wall Street was bailed out, while workers and homeowners weren’t. …
So why the anger? Why the whining? And bear in mind that claims that the wealthy are being persecuted aren’t just coming from a few loudmouths. They’ve been all over the op-ed pages and were, in fact, a central theme of the Romney campaign last year.
Well, I have a theory. When you have that much money, what is it you’re trying to buy by making even more? You already have the multiple big houses, the servants, the private jet. What you really want now is adulation; you want the world to bow before your success. And so the thought that people in the media, in Congress, and even in the White House are saying critical things about people like you drives you wild.
Beyond the specific example above, Krugman has a running theme of “Ma He’s Looking at Me Funny!” (here’s one) in which he mocks the rich businesspeople who claim there is some sort of concerted effort to hurt them under the Obama Administration. (The point of the insult is that these rich whiners are just like kids complaining about being mocked, as opposed to actually being injured.)
Uh oh, but today Krugman realizes that this puts him in a bit of a bind. If it were literally true that Obama isn’t chafing the super rich, then there would be no reason to vote for Democrats. Thus he clarifies:
it’s quite wrong to say that the parties’ behavior in office is the same. As Floyd Norris points out, Obama has in fact significantly raised taxes on very high incomes, largely through special surcharges included in the Affordable Care Act; and what the Act does with the extra revenue is expand Medicaid and provide subsidies on the exchanges, both means-tested programs whose beneficiaries tend to be mainly lower-income adults. The net effect will be significant losses for the super-elite — not crippling losses, to be sure, and hardly anything that will affect their elite status — and major gains to tens of millions of less fortunate Americans.
So if I understand this, the elites in this country are “sociopaths” and “paranoid” even though Krugman admits that they have suffered “significant losses” under Obama’s policies, compared to what would have happened if someone else were in office.
The latest installment in the videos for the Infinite Banking Institute:
==> Following Bryan Caplan’s lead, I talk about the long-term results of TARP.
==> Be careful, kids: My son was telling me matter-of-factly that this scientist Hooke was a bastard (not his actual term) etc. etc., and I interrupted to ask, “Did you get this from a Cosmos episode?” He said yes. Then–relying on this guy’s withering account–I warned my son that apparently there were a lot of problems with the history of science as rendered by this show. The most serious blunder, I told him, was that Tyson claimed authoritatively that Newton developed the new calculus in the Principia, when in fact historians of science have argued for decades about why Newton didn’t use it, instead relying on geometry.
My son was startled by this, chiefly because he had told things he learned in Cosmos to the kids in his school. (I was pleasantly amazed that that was his reason for being glum.) In an exercise to discover truth, my son and I wanted to independently see whether in fact Newton never used calculus in the Principia. We decided it was much more nuanced than the blogger made it seem. E.g. from a 2007 publication titled, “Did Newton use his calculus in the Principia?”:
A question that is often formulated by people interested in the history of mathematics is: Did Newton use his calculus in the Principia? This question comes very naturally to mind, since Newton discovered the calculus of fluxions before writing the Principia. It is just obvious to think that Newton had employed the calculus in order to mathematize his natural philosophy. However, very little trace of calculus techniques is to be found in the Principia, which are mostly written in ‘geometric style’. On the other hand, some propositions of the Principia are framed in a geometric language which appears to be very easily translatable into calculus concepts. Thus our question is very tricky.
As a matter of fact, the question of the presence of calculus in the Principia has been debated since the 169Os, when Fontenelle stated that almost the whole work is about the differential calculus. The question played an important role in the muddled context of the priority dispute with Leibniz. Since then the opinions of mathematicians and Newtonian scholars have been very contradictory and our question seems still to be waiting for a definite answer. In order to achieve an understanding of Newton’s use of calculus in his mugnum opus, we have to consider the exchange of information between a restricted group of adherents to the Newtonian school.
So, I will give Tyson (and his writers) the benefit of the doubt on this one. From further investigations, it seems that Newton used the idea of a limit of shrinking geometric shapes, which one could plausibly say is, or is not, calculus.
==> This economist debate about Hank Aaron is really interesting. I first agreed with Tyler Cowen that Nate Silver had left something important out of his analysis, when Silver wondered, “What if Hank Aaron had never hit a home run?” But then Scott Sumner convinced me that Cowen’s critique was churlish, and that Silver’s method was perfectly fine for this sort of thing.
Then, I couldn’t stop myself from reading the comments at Scott’s post, where people went nuts over Barry Bonds vs. Babe Ruth. This was my favorite from W. Peden (which I’m slightly editing to maximize the punchline): “On baseball: like most Brits, I know next to nothing about baseball, but I think most of the stats people are quoting are very misleading. I looked up a site called shadowbaseballstats.com and it pointed out that, due to changes in the sport, Barry Bonds had 100,000 home runs in [the original] terms.”