28 Jul 2016

Contra Krugman: What Does the Stock Market Mean?

Contra Krugman No Comments

Tom and I respond to Krugman’s column on the stock market.

27 Jul 2016

Gene Callahan on Non-Human Actors

Deep Thoughts 51 Comments

In a post criticizing methodological individualism, Gene writes (and then quotes):

A plain fact that methodological individualism will block us from seeing or accepting:

“The facts authorize us — no, they oblige us! — to say that Islam as such, Islam understood as a meaningful whole, is in motion, that it strives and struggles, in a world [where] it is an actor on the stage of history that must be taken very seriously. Thus the world in which we must live and act is a world marked by the effort, the movement, the forward thrust of Islam.”

I think Gene’s position here is interesting to juxtapose with his earlier criticism of the notion of intelligent computers that could play chess better than humans:

They were, of course, built by human beings. When a grandmaster is “shredded” by a computer program, he is really being defeated by a team of programmers and chess experts who have a calculation machine at their disposal. Just because they don’t literally sit inside the machine, as a human being did inside the chess-playing Turk, does not mean that the machine has somehow mysteriously “become intelligent,” any more than a rabbit trap is intelligent because it “knows” how to catch a rabbit. Machines can be “intelligent” only in that they can be “intelligently built.”

I think this raises the obvious question: Can Islam as such play chess better than humans?


25 Jul 2016

Eugen Was Not PC

Humor 9 Comments

For the History of Economic Thought lecture on Bohm-Bawerk, I came across this passage that I remember reading in grad school:

How many an Indian tribe, with careless greed, has sold the land of its fathers, the source of its maintenance, to the pale faces for a couple of casks of “firewater”!

(I have no idea whether this is what it was in the original, or if the translator had some fun with it.)

25 Jul 2016

Do you value justice higher than mercy?

Religious 12 Comments

I took the Briggs-Meyer test (due to peer pressure). (I am not telling you my score because that’s what the narcissists do.)

The question in the subject is one that struck me as very interesting. (I think they should’ve said “more highly” than “higher”?)

I thought for a bit and then decided that no, I don’t value it more. That is not say that I think it’s okay to compromise on justice. But they are certainly different values–justice and mercy–and the question asked is one more important.

As a Christian, I now answer that no, but I bet I would’ve said yes back when I was an atheist. And, now as a Christian and being aware of this difference, I am going to say I was too unmerciful back then. It’s not that I am now in favor of injustice. No, the reason I changed is that I elevated the importance of mercy since becoming a Christian.

As always, Jesus provides the role model. His actions as portrayed in the gospel accounts were a brilliant display of superhuman justice and superhuman mercy. All of the characters in the gospel accounts ring true, except His: Jesus is an unbelievable character, not because of multiplying loaves and fishes, but because, “No man could have that depth of moral strength and compassion.”

22 Jul 2016

Why the Social Cost of Carbon (SCC) Is a Dubious Tool for Policymakers

Shameless Self-Promotion 2 Comments

I don’t think I blogged this when it ran… my latest at IER.

22 Jul 2016

LMS: Are the Markets Signaling Confidence or Fear?

Lara-Murphy Show 7 Comments

In the latest episode of the Lara-Murphy Show, Carlos and I discuss the divergence in bond yields and stock prices, which has some Bloomberg analysts puzzled. Below is the chart that motivated the discussion.

Bonds vs Equities

22 Jul 2016

Is Bitcoin a Fiat Currency? FEE vs FEE

Bitcoin 13 Comments

I have no problem with a lot of the specifics in this post by Demelza Hays (who’s my friend), but she is aghast that economists might classify Bitcoin as a fiat currency.

Well, that’s how I classified it (in my guide to Bitcoin co-authored with Silas Barta), and I think it’s consistent with Misesian monetary theory, as I explained in this earlier FEE post.

I don’t this is mere pedantic quibbling over definitions. I think many libertarians give the State too much credit when they say that it causes the dollar to be money “at gunpoint” or some such language. Here is me, discussing a quote from Mises:

Finally, we should guard against a mistake that is all too common in libertarian discussions of money. The term “fiat money” sometimes leads critics to declare that the State can turn something into money “by fiat.” At first glance, this assertion seems to follow naturally enough from Mises’s definition of fiat money. But accompanying his definition in The Theory of Money and Credit, Mises also wrote:

“In order to avoid every possible misunderstanding, let it be expressly stated that all that the law can do is to regulate the issue of the coins and that it is beyond the power of the State to ensure in addition that they actually shall become money, that is, that they actually shall be employed as a common medium of exchange. All that the State can do by means of its official stamp is to single out certain pieces of metal or paper from all the other things of the same kind so that they can be subjected to a process of valuation independent of that of the rest….These commodities can never become money just because the State commands it; money can be created only by the usage of those who take part in commercial transactions.” –Ludwig von Mises

To illustrate Mises’s point we can use the modern case of the US dollar. The US government can announce rules telling Americans which pieces of paper are and are not authentic US dollars. For example, there are rules (that the tellers at banks know very well) governing how much of a paper dollar can be ripped off, and periodically the dollars are redesigned to stay ahead of counterfeiters.

Even though the US government can tell Americans which pieces of paper are dollars, it cannot tell Americans that dollars are the money that they will use economically. The existence of legal-tender laws and other regulations complicates the issue, but nonetheless it is possible that next Tuesday, nobody will want to hold US dollars anymore and so their purchasing power will collapse, with prices quoted in US dollars skyrocketing upward without limit. This has happened with various fiat currencies throughout history, and these episodes did not occur because the State in question repealed a regulation that had previously ensured its currency would be the money of the region. Instead, the people using that currency simply abandoned it in spite of the government’s desires, resorting either to barter or adopting an alternative money.

21 Jul 2016

Open Borders and NGDP Targeting: A Numerical Example

Bryan Caplan, David Beckworth, Economics, Scott Sumner 55 Comments

In my last post, in which I argued that Open Borders plus NGDP (or even total labor compensation) targeting would lead to disaster, I fired off some quick numbers that (although technically not wrong) made it look as if I were missing the basic logic of Sumner’s framework. Thus, David Beckworth in the comments said:

The point of a NGDP target (or some variant of it) is to stabilize the nominal income (or nominal wage) growth and allow output prices to fluctuate inversely to supply shocks. In your scenario, there would be benign deflation of roughly 10% along side the stable stable nominal wage growth of 5%. Real wages growth of 15% would still emerge.

Your scenario is basically a large positive supply shock. Whether such a shock comes from a surge in labor or a surge in technology, the Fed would keep nominal wage growth stable–which NGDP is a rough approximation–but would be indifferent to the price level. This has ALWAYS been the implication of NGDP targeting. It allows benign deflation to emerge when there are rapid gains to the supply side of the economy.

So no, Caplan’s plan and Scott’s plan do not conflict with each other. They actually complement each other.

Again, my numbers in the last post were not clear, but in the above excerpt David is not seeing the problem. So I’ll be clearer in this version:

Originally the country has 1 million workers who each make $100,000 per year. So total labor compensation in nominal terms is $100 billion.

The central bank targets 5% growth in total nominal labor compensation. So next year, workers are going to be paid $105 billion total in wages/salaries.

Suppose that at the same time, productivity jumps 15%. In other words, the workers are producing 15% more in real goods and services. Is this a problem?

Nope. As David’s comment above said, it just means the prices of goods and services falls 10%. (Give or take, we always round in these exercises even though the math isn’t exactly right with growth rates.) So the typical worker made $100,000 in year 1 with CPI at 100, and in year 2 makes $105,000 with CPI at 90.

* * *

But now we’re going to start over, and introduce a different change. We’re back to the original scenario, where there are 1 million workers who each make $100,000 per year. The central bank is still targeting 5% growth in total labor compensation, meaning next year workers will collectively be paid $105 billion.

But in the meantime, the government throws open the borders and lets in another 150,000 workers, who are identical in productivity to the original batch. Assume there are no changes in productivity because of the addition, so that total real output goes up by 15%. Is this a problem?

Yes, it is, if you think “sticky wages” and “sticky debt contracts” are a problem. There is now $105 billion in total labor compensation to be spread among 1,150,000 workers, meaning each worker gets paid $91,304. It’s true that consumer prices will drop, which (if we had perfectly flexible prices) would just compensate, keeping real wages constant. (After all, per capita the workers are producing, and hence consuming, the same amount as before the influx of immigrants.)

But the whole point of NGDP targeting is that we don’t have perfectly flexible wages and debt contracts. The worker who signed a 30-year mortgage is going to be hurt by his nominal paycheck going from $100,000 down to $91,304, even if food prices are lower.

Moreover, if for various reasons nominal wages can’t fall to $91,304, but instead are stuck at $100,000 (or close to it), then the only way to enforce the central bank’s cap on total labor compensation growth is to reduce employment. After the immigrants come in and boost the labor force to 1,150,000, if wages stay fixed at $100,000 and total labor compensation is capped at $105 billion, then only 1,050,000 workers can keep their jobs. Another 100,000 will be involuntarily unemployed. If the immigrants are identical to the original population, then we would expect a bunch of the original workers to be “thrown out of work by the immigrants.”

In this outcome, Steve Sailer would be running victory laps, and poor Bryan Caplan would have to say, “It’s not my fault! Blame Sumner!”

P.S. I’m writing this post pretty late so it’s possible I made an arithmetic mistake. If you guys catch anything I’ll fix it in the morning.