After being taped for a documentary on the Fed, I went over to San Jose State University to have dinner with David R. Henderson and Mark Brady. (Jeff Hummel was teaching money & banking so couldn't make it.) On the way to Mark's office I passed a lecture and thought I recognized the professor and yep, it was Emily Schaeffer talking about the median voter theorem or something along those lines. (I didn't linger too long, because I thought it might be distracting to Emily to see a guy out in the hall eavesdropping and wonder, "Why is Jason Alexander on campus, and why is he wearing a suit?") It really struck me just what a libertarian and Austrian-friendly outpost SJSU is.

I don't have any gossip I can report, except I will say that Jeff Hummel agrees with me that Gene Callahan's criticism of our Fed-as-counterfeiter argument was silly. So there.

[UPDATE below.]

For the documentary on the Fed, I spent about 5 hours under the hot lights today with the cameras rolling. I will never criticize a politician for saying something dumb on the campaign trail; I'm not sure I could have recited my date of birth by the end of this ordeal. Hopefully the filmmaker can edit out the nonsense and make me look sharp in the final cut.

On the flight here, I reread my Depression book. (This wasn't pure narcissism; the interview was going to be based on my book.) I ended up scaring myself all over again, and remembered why I was so sure the US economy was done for after I finished writing the book. The Fed and the government enacted similar policies back then to "fight" the downturn after the stock bubble burst, and we all know how that turned off.

One of the things that really interested me was a point Garet Garrett made on the 5th anniversary of the New Deal. Garrett pointed out that the surge in official output figures from 1933-37 notwithstanding, businesses were not replenishing their equipment through investment. In effect the US economy was consuming its capital even during the alleged Roosevelt recovery (which Krugman et al. say was aborted through premature deficit hawkishness in 1937).

So regardless of what the government and Fed did in 1937, there had to be a "depression within the Depression" or a "double dip" as we euphemistically will call it nowadays. Bernanke's insane 0-interest rate policy has ensured that the US (and indeed world) capital structure has gotten progressively more screwed up in the last two years. It doesn't matter what they do with quantitative easing, targeting NGDP futures, raising interest payments on excess reserves, or pinning the tail on a donkey... There will be another collapse. It might not be a sudden "crash"; it could be a slow-motion train wreck. But if you think interest rates serve a function, then you must concede that that function has not been fulfilled for a good two years.

Many commentators, not just Austrians, would now agree that in retrospect, it would have been fantastic if Greenspan had sat back and done nothing after the dot-com crash. Yes there would have been a painful recession from (say) 2001-2003, but it would be ancient history at this point. Moreover, that painful recession would have been child's play compared to what we have already been through and will continue to suffer over the next few years.

What we need to realize is that right now we are in the analog of the housing boom years. This is the "soft landing" that Bernanke has provided us. The bubble isn't in houses, it's in US Treasurys.

And the coming collapse will make the housing bust look as easy to cope with as the dot-com crash looks to us right now.

UPDATE: I was watching a very interesting documentary on--what else?--World War II in the hotel room. One of the historians explained that the Americans (under the command of the guy preceding Doolittle) tried precision bombing of German targets without fighter escorts. In one raid, the US lost 60 bombers--about 600 men--trying to take out a ball bearing factory. But as crazy as that is, I loved the understanding of capital structure behind it. The historian explained, saying something like, "You use ball bearings in everything. Taking out this factory would strike a crushing blow to the German war machine."

And yet a mainstream economist wouldn't be able to capture this in his or her description of the current recession. "Huh, a ball bearing factory got taken out? Well how many marks did those things fetch? Just have the German central bank print up some more, and go buy sauerkraut with the new paper. We have to boost aggregate demand back up if we want to beat the Yanks."

In this article I was trying to go for a saucy new take on things we all take for granted, but I suppose it's possible it would convince many people that economists are jerks:

I have similar misgivings about the way my school got us kids to raise money when I was growing up. I went to a Catholic grammar school that had annual marathons. So I was a little kid going door-to-door in my neighborhood and asking people to pledge a certain amount of money for each lap I walked around the school. (Some donors would be tough guys about it, asking me how long the laps were and sizing me up like I was a racehorse.)

In my high school, we had candy and magazine drives, where we again went door-to-door and guilt-tripped people into buying stuff they didn't want. We didn't get to keep a cut of the proceeds, of course, but the school would give out prizes to motivate us. It was always ridiculous because this one kid would get his parents to get orders at their jobs, so you never had a chance of beating him. I bet Ellery Queen Mystery Magazine owed half its subscriptions to that kid.

Of course, there are adult analogs of these things. For example people raise money for cancer research by "Walking for a Cure" and so forth. Please note, I am not criticizing the people who participate in these activities. I understand that they are social events, and you raise more money than if you simply went around to your coworkers with a hat. But my point is, isn't there a way we could tap into people's philanthropic side without doing something intrinsically useless, like having a bunch of fourth graders walk around the school parking lot eight times, or asking people to spend money on candy or magazines they don't really want?

I am in a hotel in San Jose. Tomorrow I will be interviewed for a long time for the documentary on the Fed. The strategy is that if you keep a camera on me for 4 hours, surely I'll say something profound.

This post is not going to be bulletproof by any stretch, but I went through a stream of consciousness yesterday and I thought some of you might appreciate hearing my views on some big issues in a slightly different way.

I believe Dr. Pangloss was almost right. This isn't the best of all possible worlds, but it's the best of all possible worlds that God has the power to design. He made it as good as it could possibly be, subject to humans having free will. And He decided (and I agree with Him) that the world is better with free will than without.

So when someone says something like, "How could a benevolent God have allowed the Holocaust?!" I think that's a rather ill-posed question. I would say, "OK, what would you have changed? You have absolutely no idea what the ramifications would be, if (say) Hitler hadn't been born, or if he had been struck by lightning, etc. You are simply assuming that God was sloppy and could have retained all the good things about the universe, but without the regrettable necessity of allowing the Holocaust to unfold as it did. Do you really think you are more upset about innocent people being killed--people whom you probably only know about as a statistic in history book--than does their Creator and Father, who actually watched them die?"

My understanding is that God designed the very fabric of the universe--from picking the charge on an electron and deciding how much mass/energy to create at the time of the Big Bang (assuming the cosmologists are right)--knowing beforehand what choices people would make. So ultimately He makes the best of the Holocaust and other awful events, but yes there is a reason (actually an infinity of reasons) that they had to happen. I believe that people who want to spend eternity with God will do so, and when they die they will understand why He made the choices He did. We will then say, "Ohhhhhh, thank you" when we see what would have happened had He allowed history to unfold any other way.

Now my views raise two objections or concerns, which I'll briefly address:


OBJECTION 1: So it doesn't help anything if we choose not to sin?

No, this is wrong. You do make the world a worse place when you sin. Conversely, when you obey God's laws you make the world a better place. Remember, God has made the world as good as it can possibly be, given our free choices. If you are familiar with game theory, it's as if God moves first, designing the physical universe and all its attributes, and deciding how many souls there will be etc. Then He can look ahead and see all the choices people will make in that particular timeline. He does this for all possible universes, and then actually creates the universe that is best. So one of the constraints He faces is our free choices in the "subgames" after He has moved and designed the universe and its laws of transformation. Every time you sin, you close off avenues to God, forcing the universe into an even less optimal path. When you obey God's will, you give Him more to work with.

The choices you make really are free; you really do have free will. God doesn't cheat. He won't force you to love Him or obey Him; He doesn't want slaves or dupes, unlike Satan (and unlike some religious leaders). But He does know beforehand what you will do in every possible circumstance, because God is outside time. Every moment of history in our universe's timeline is the manifestation of one unified decision, a single action (in the Misesian sense) that God performs to create the best of all possible worlds.


OBJECTION 2: Why does God allow sin to be so painful?

This one used to trip me up for a long time. Sure, we understand that unless people have the option of sinning, we really can't have free will. But why couldn't the world work such that the worst you could do would be to cause someone momentary pain? And then a forcefield kicks in, shielding the person from any serious damage?

Well, given how complex and interrelated everything in the universe is--how scientists can tell you that life wouldn't work (at least as we know it) if some of the physical constants were changed by 0.01% etc.--I think it's a bit sophomoric to say, "Let's keep all the good stuff, like love and poetry and the first season of 24--but change all the stuff we don't like." The point is, that is impossible. You can't just tweak things a little bit. The present state of the world is directly tied to the initial configuration, whether or not you believe in physical determinism.

The other thing is that we humans have naturally adjusted our expectations to think that "the worst thing in the world" is, well, pretty awful. But we can certainly imagine universes in which being waterboarded would be child's play. For example, remember Jabba's sentence to Luke and Han? I don't remember the exact wording, but he said they would be slowly digested in the belly of a monster for hundreds (thousands?) of years. Now that sounds pretty bad! We can imagine cynics in the Star Wars universe saying, "If George Lucas loved us, why would he allow such awful possibilities?" And then a Lucastian would say, "But look at how cool our world is! We have Jedi knights and get to blow up Imperial walkers."

I'm trying to be humorous but I'm dead serious. If the worst thing in the world were a wet willy, people would say things like, "I can't believe God allows such horrors! I just saw on the news that in Uganda, soldiers held a man down, got in line, and gave him 20 wet willies in a row--in both ears at once!"

In this post Paul Krugman explains that a popular critique of the benefits of fiscal expansion is a non sequitur, since the authors improperly look at deficit spending in periods where there is no liquidity trap (and hence we shouldn't be surprised if deficit spending doesn't spur growth). A fair test of Keynesianism would only look at big deficit spending during periods where central banks had pushed interest rates down to the zero bound:

First, the whole stimulus debate is supposed to be about what happens when interest rates are up against the zero bound....Yet the Alesina-Ardagna analysis doesn’t make that distinction; Japan in the 90s, which was up against the zero bound, is treated the same as a batch of countries in the 70s and 80s, when interest rates were quite high.

Second, they use a statistical method to identify fiscal expansions — trying to identify large changes in the structural balance. But how well does that technique work? When I want to think about Japan, I go to the work of Adam Posen, who tells me that Japan’s only really serious stimulus plan came in 1995. So I turn to the appendix table in Alesina/Ardagna, and find that 1995 isn’t there — whereas 2005 and 2007, which I’ve never heard of as stimulus years, are.

So to put it bluntly, I’m not much persuaded by a paper that doesn’t even identify the one clear example we have in the postwar period of large Keynesian stimulus in a zero-rate environment.

Are there any papers that, in my view, do this right? Yes: Almunia et al, which uses data from the 30s — a zero-rate era — and uses defense spending as an instrument to identify spending changes. And their results look pretty Keynesian.

Everyone got that? Krugman admits that the only two examples in world history to test the effectiveness of Keynesian policies are:

(1) The world in the 1930s, and

(2) Japan in 1995.

These are the two examples to prove how good Keynesian policies are at fixing economies and stimulating growth.

By the way, don't say World War II you silly fool--Krugman has explicitly argued that that isn't a test of Keynesian fiscal remedies.

OK kids, I am flying to San Jose tomorrow to be interviewed for a documentary on the Fed, bailouts, etc. I'm not sure how much I'm allowed to say about it, but let's just say they are also interviewing people with the following initials: RP (MD), PK (PhD), and BD (PhD).

The director wanted to know if I could talk about the allegedly nefarious role of Goldman Sachs during the Depression years, presumably advising Hoover and FDR and steering privileges their way. Can anyone point me to credible (online) sources on this topic? At this point I haven't found anything reputable enough for me to repeat.

I realize Glenn Greenwald is turning into the Britney Spears of Free Advice, but how can I not repeat stuff like this:

If I had the power to have one statement of fact be universally recognized in our political discussions, it would be this one:

The fact that the Government labels Person X a "Terrorist" is not proof that Person X is, in fact, a Terrorist.

That proposition should be intrinsically understood by any American who completed sixth grade civics and was thus taught that a central prong of our political system is that government officials often abuse their power and/or err and therefore must prove accusations to be true (with tested evidence) before they're assumed to be true and the person punished accordingly. In particular, the fact that the U.S. Government, over and over, has falsely accused numerous people of being Terrorists -- only for it to turn out that they did nothing wrong -- by itself should compel a recognition of this truth. But it doesn't.

This is one of the most entertaining interviews I've ever seen. If you like Jon Stewart and dislike Fox News, you will adore this and make sure you have a half hour to sit and watch it straight through.

These guys are great together. It's true that I think Stewart has the upper hand, but I must admit O'Reilly does a good job too keeping his shtick going. (HT2LRC)



BTW if you're pressed for time, Stewart brings up Ron Paul deep into the interview,* and I barely understand what O'Reilly's countermove is, but it's funny that O'Reilly just keeps moving along on that point. He dwells on a lot of other stuff but ZOOM right past the Ron Paul point that Stewart raises.


* At LRC they say it occurs at 34 minutes, but I can't verify that because you have to wait for the thing to load (I believe) and it's taking too long.

So I ran to Subway to get lunch. (If you stick to a 6-inch sub and just drink water, you can have plenty of food without spending $4, at least in Nashville.) The girl behind the counter started the sandwich, and then the guy came over to finish it. Then it hit me. Whoa.

You've perhaps heard of the Spector Wall of Sound? Well this was the Subway Wall of Stink. This wasn't a guy who missed his shower that morning. This was someone who was well-practiced in underarm odor.

I relay this just because there actually was a guy in college who didn't realize there was a distinction between mere deodorant and anti-perspirant. If someone forwards you this blog post--even if "just because it's funny, take a look"--then you know what you must do.

Thanks again for everyone who chimed in (both in email and on the blog) in response to my earlier post about Haiti. Believe it or not, there are so many people volunteering to go to Haiti--and their infrastructure is still so compromised--that you have to basically apply for the job.

I am still waiting to hear back from some churches; there was one place that had an opening but it coincided perfectly with a conference at which I had already agreed to teach.

At this point I have blocked out two separate weeks on my calendar and registered with this (secular) group. I have never felt like such a privileged American slob as when filling out the form to convince them they should pick me. A sample (paraphrased for humor and brevity):

List your medical training? Band-Aid technician; cleaned up son's puke and poop.

List your construction skills? Opened bathroom door the other day that had been locked from the inside.

Previous volunteer work. Setup chairs with the janitor every week at my old church, and was assistant coach to a junior high basketball team. (That's actually the real answer I put!!)

Other skills. I'm not actually a certified CPA, but I might be able to help with bookkeeping if you need that. I am a good writer but I'm not doing grant proposals to governments.

Why should we pick you? I have a blog and I bet I could get you guys more donations than some other skill-less clown. So if it comes down to a dozen skill-less clowns and you have one spot, pick me.

Whenever I see a particularly anti-capitalist Wall Street Journal op ed or editorial I complain, since "they ought to know better." So I should give positive reinforcement when they get it right. Thursday's paper contained two op eds that surprised me in how much they differed from the typical debates.

First was Michael Barone's piece titled "A Short History of American Populism." The cartoon accompanying the article featured a wistful Barack Obama looking at a bust of Andrew Jackson. I looked at the bio and saw Barone was a fellow at AEI. The title, cartoon, and bio all together made me think, "Oh great, let me guess, this guy's gonna complain about Obama taking on the banks, and then say Andrew Jackson exhibited the same hostility to commerce when he shut down the central bank."

But no, I was dead wrong. Barone's point was that Obama's populust rhetoric is not like the righteous Jacksonian movement:

So it is with populism. Ask anyone reasonably well versed in American history to name our most populist-minded president, and you'll likely hear the name of Andrew Jackson. He was the son of Scots-Irish immigrants, raised on the frontier, and he ran the first democratic (and Democratic) campaign. A gang of Jackson's roughneck supporters, so the legend goes, rushed to the White House after his inauguration and tore the place apart.

But Jackson was not a "spread the wealth" populist. On the contrary, he opposed the American System of John Quincy Adams and Henry Clay to have the government build roads and canals and other public works. He killed the central bank and paid off the national debt.

Jackson argued that government interference in the economy would inevitably favor the well-entrenched and well-connected. It would take money away from the little people and give it to the elites.

That view seems to be shared today in what I have called the Jacksonian belt, the broad swath of America settled by the Scots-Irish from the Appalachian chains in Virginia southwest to Texas. The Obama administration argues that Democratic big government and health-care programs will help the little guys. Jacksonians today, as in the 1830s, don't agree.

Jackson's arguments were not ill-founded. The Republican Party that fought and won the Civil War sponsored aid for railroads and favored corporations—and got caught up in messy scandals.

Then below Barone's piece we have Andy Kessler's call for Bernanke to eliminate fractional reserve banking! An excerpt:

To sum up, the Fed creates a monetary base and the banks can create $10 for every $1 of monetary base. Wall Street firms created $20 for every Fed $1. In other words, the Fed only seeds the market. Beyond crude instruments like interest-rate policy, it has little control over how much actual money supply exists. In good times banks lend too much. And in bad times, such as today, they don't create enough money because they lend too little.

Perhaps the lesson Mr. Bernanke drew from 2008-09 is not that we need more regulation but that financial firms should not be allowed to generate money out of thin air to write soon-to-be-bad loans. To seal his legacy, it is fractional reserve banking that he can rein in. Limit leverage and you take away the hot air from these bubbles.

Free marketers blanch at the idea of more regulation. But banking isn't a normal market. Banks create money when it did not previously exist. We've built a regulatory structure around this sleight-of-hand and each time are astonished that banks still fail. I doubt we will ever get to no leverage, a dollar loan backed by a dollar of capital, but I think Mr. Bernanke could be headed in that direction. One potential target is a 5 to 1 leverage limit—he could increase reserve requirements by 1% per year until it hits 20% by 2020. With credit dear, perhaps banks will do a better job of deciding what is a "sure thing."

Don't get me wrong, it's not as if these were articles by Tom DiLorenzo and Tom Woods. But c'mon, that's not too shabby.

Two examples:

(1) Herman's Hermits had more chart-toppers than The Hollies. (I think that's the stat; it's something along those lines.)

(2) Andy Dick charges more for appearances than Louie CK. (Although Louis CK--same guy, different head shot--asks you to contact his agent. Weird. Is that because corporate suits would naturally look up "Louis" whereas the club owners remember him from his HBO show? Is this a goof or price discrimination?)

And if you're thinking, "I've heard of Andy Dick, but who's Louis CK?" well thanks for proving my point. (Try this, but watch out for naughty language.)

I actually really like reading Matt Yglesias. Maybe I'm naive, but I think he is pretty sincere. It's too bad he just has a horrible theory of how the economy works.

Anyway, Yglesias has been on fire lately with the conservative pundits' horror over letting the courts deal with an (alleged) bad guy. Try this:

[W]hen discussing this whole subject it’s important to note that to the best of my knowledge, the conservative view is that the criminal justice system isn’t the appropriate way to deal with any sort of criminal. Conservatives didn’t like the Miranda ruling or any of the Warren Court’s other famous criminal procedure rulings. And since the Supreme Court became more conservative, right-wing justices have consistently sought to narrow the exclusionary rule, make it more difficult for convicted felons to get hearings for new evidence, etc. For all the “tea party” talk of freedom, and the right’s general blather about “limited government,” unrestricted violence by the agents of the state is a core priority for the right-wing. The view is that ideally you just detain people indefinitely. If forced, they get a military commission. If you have to have a civilian court, the accused shouldn’t have any rights. People should be tortured as a routine investigative technique. Wars should be routinely against foreign countries that haven’t attacked us. It’s a worldview soaked in violence and authoritarianism, and the relatively narrow question of what venue you try terrorism suspects in is just a small part of it.

Sure, he paints with a broad brush, but there are a heck of a lot of people to whom that applies perfectly.

In a quite reasonable post, he offers this judgment which struck me as ironic:

3. Does the state have necessary functions?

I believe that it does, but I am not sure. I am strongly inclined to believe that unless we agree to have an ultimate arbiter of disputes, the equilibrium is what North, Weingast, and Wallis call "the natural state," in which a coalition of violent gangs extorts from the general public and shares the loot.

In case you don't see the irony, try this.

When I'm doing the household budget, I put on the Neil Diamond Channel from Pandora in the background. (I used to listen to the Daily Show, but it was too distracting. My forecasts ended up looking like a CBO product.) But the Neil Diamond Channel features classic rock stuff that isn't too hard. It's not just Neil Diamond, but also such favorites as the Monkees' "Daydream Believer" and Gordon Lightfoot's "If You Could Read My Mind." Basically cheese with a little bit o' soul.

Anyway, today I had "Shilo" stuck in my head. These lyrics struck me:

Shilo, when I was young
I used to call your name.
When no one else would come
Shilo, you always came
And we'd play.

Is that really surprising, Neil? If you used to call out "Mary" and just this one particular girl responded, OK that might be worth putting in a song. But there aren't too many Shilos walking around.

[UPDATE below.]

If the Congress doesn't act (the Senate has already done it and we're just waiting on the House), the federal government will hit its debt limit by the end of February. The current limit is some walking-around money, specifically $12.4 trillion.

Now a lot of people say that's no big deal, because the US economy is so big. They throw around figures of the debt-to-GDP ratio being something like 60 percent. So two things:

(1) Just check the math. The federal debt will be $12.4 trillion in a few weeks, and 2009 GDP was $14.3 trillion. So that means a debt-to-GDP ratio of 87%. I think what's going on here is that the Federal Government & Friends own a lot of the outstanding Treasurys, so that the lower ~55% figure refers to the net debt (held by the public). For example, the Federal Reserve owns a lot of Treasury debt, and I think the way the books are cook-- setup, the Social Security "trust fund" consists of a pile of IOUs issued by the Treasury.


(2) More important, why is the denominator the US economy? That implies that the federal government owns the whole economy, so that every penny earned in principle is income to the feds who could use it to service their debt. But that's not what a household does. I don't say, "Honey sure our credit debt is high in absolute numbers, but compared to the neighborhood's total output this year, it's nothing." If we instead compare the US government's debt to its "income" (i.e. tax revenue) in FY 2009, then we see the debt-to-"income" ratio is more like ($12.4 trillion / $2.1 trillion) = 590% of income.

Obama has compared the government to a household in these tough times. So how many of you could get fresh loans right now, if you were carrying a[n unsecured] debt load 5.9 times higher than your annual income?

UPDATE: The anal von Pepe points out that plenty of households have debt-to-income ratios higher than 5.9. I should have clarified, I meant unsecured debt. It's not as if new creditors can repo the USS Kennedy if the Treasury defaults on its bonds. (Despite my sarcasm, I am acknowledging that von Pepe is right; my original post was unclear.)

OK so after ordering a new battery for my Toshiba laptop (which has never really worked properly), I'm sitting on my couch with the indicator saying I've got about 65% or so left, when BAM the whole computer shuts down. No warning about low battery or anything.

I'm tempted to be mad at the battery, but it might not be the manufacturer's fault. Even when this thing was about two weeks old, the computer would just randomly shut off for no reason. Good thing I don't run traffic light control programs from it.

Oh since I'm complaining, the power cord is new too because the original one literally started shooting out sparks one time.

Anyway, my wife switched to Mac a few years ago and has no regrets. The one thing holding me back is that I actually know my way around Microsoft Office fairly well, at least Word and Excel. When I've tried to use the Mac versions, they make me go cross-eyed.

Do I just need to adjust, or are Word and Excel really inferior on Macs? If it matters, I'm just getting a laptop.

OK we haven't had a TV for years, so you young whippersnappers will have to explain this to me. What's up with the storm troopers? (HT2LRC)



And why the homage to You Can't Do That on Television around 3:30?

Von Pepe tries to prevent me from working by sending me this NRO article by Daniel Pipes, but--like Odysseus with the Sirens--I will only allow myself to copy and paste the headline:

How to Save the Obama Presidency: Bomb Iran.

Read at your own risk; I'm outta here.

This is awesome. If you've never heard an audio of Mises, you should check out a new recording that the Mises Institute got its hands on.

[UPDATE below.]

Over at EconLog Bryan Caplan writes:

Two years ago, I was worried by the "Obama as FDR" scenario. That cloud is lifting. Now two alternate scenarios for Obama keep coming to mind.

Scenario #1: Obama as Carter. He'll ineffectively stick to his guns, seem weak, become a one-term president, and be replaced by a Republican who pulls the plug on a lot of accumulated statist nonsense.

Scenario #2: Obama as Clinton. He'll move to the center, let his opponents shoot themselves in the foot, win re-election, and preside over four more years of salutory gridlock.

Take your pick.

I'm not sure why Bryan is calm. I guess it's because of the loss in momentum on health care "reform" etc. in the wake of Scott Brown's election.

I agree that Leviathan's juggernaut has been slowed for various reasons, but I still think this will go down in history as the second Great Depression. The government has already set in place several mechanisms for keeping the economy in the toilet, and for ramping up its power, when the public demands it in the next crisis.*

And there will be a next crisis.

More generally, if we really have turned the corner, and we just go on from here with output steadily expanding and unemployment slowly moving down, then I think we free marketeers have been spending way too much effort on economic freedoms. If all the stuff the government/Fed have already done really just spell two years of harsh recession, then what's the big deal? We should be focusing on civil liberties or war or adult literacy or neutering your pets or something.

UPDATE: * In the original text I said the public would demand huge government interventions during the next crisis, but that's actually inaccurate. Really, what I think will happen is the public will be terrified and then the government will ram through an outrageous new set of measures, saying it is necessary to pull back from the brink. Even if people are very much opposed, they won't start rioting (a lot) because the situation is so dire. Over time, once the new measures are a fait accompli, the public's memory of what happened will be shaped by the official narrative offered by "both sides" in the media. This is exactly what happened with TARP, which you may recall was rejected around 9-to-1 by constituents phoning their Congresspeople back in 2008.

"The grant of a 1974 Nobel Prize in Economic Science to the great Austrian free-market economist Dr. Friedrich A. von Hayek comes as a welcome and blockbuster surprise to his free-market admirers in this country and throughout the world. For since the death last year of Hayek's distinguished mentor, Ludwig von Mises, the 75-year-old Hayek ranks as the world's most eminent free-market economist and advocate of the free society."

UPDATE below.

* One thing that really bothers me in our political discourse is that people in favor of more US military action abroad treat it as self-evident that the troop surge "worked" in Iraq. Yes, conditions did improve, at least in the short run after the surge, and the predictions of some of the most pessimistic critics were wrong. But Iraq is hardly an example of a successful US liberation effort. If George W. Bush had told the American people on the eve of the invasion, that almost seven years later, Iraq would still be plagued by suicide bombings that took 54 lives in a single attack, would Americans have been gung ho about the plan? (The latest body count is 3,478 U.S. combat fatalities, and some 100,000 Iraqi civilian deaths from violence.) And yet people who are urging restraint in sending more troops to Afghanistan are being ridiculed for failing to learn from our "success" in Iraq.

* Here's a scary summary: "The White House budget proposal released Monday assumes the U.S. economy is heading for a six-year run of above-average economic growth with no sign of a worrisome spike in inflation or interest rates." And it's not as if, in exchange for such rosy scenarios, the White House forecast shows balanced budgets as far as the eye can see...

* You ever notice how in the midst of a crisis, government officials lie through their teeth, and then after the crisis has passed, versions closer to the truth start trickling out? Here's Paulson admitting that his remarks about Lehman Brothers at the time of its collapse were "a ploy" (which I guess is not the same as a lie), and here's Kurt Haskell's brave article spelling out just how much the U.S. government has been lying in the wake of the Underwear Bomber incident (HT2LRC). If you have followed the story, you know that Haskell got a lot of attention immediately after the event, because he had been a passenger and swore that he saw a "sharp dressed man" trying to get the Underwear Bomber on the plane, despite his lack of a passport. The government pooh-poohed his account. Well guess what? The "sharp dressed man"...may have worked for the U.S. government!

Now Haskell isn't saying the feds plotted the attack. And maybe they didn't. But my point is, why should we listen to anything they say at this point? U.S. government officials lie to us repeatedly, day in and day out. We know they do; all you have to do is compare one statement to the press with a previous one issued a month beforehand. So the fallback position for conspiracy doubters is, "Well, sure they lie, but only to protect us. They have to lie to us all the time. We can't handle the truth."

UPDATE: My apologies, in the original version of this post, I said categorically that the "sharp dressed man" who helped the Underwear Bomber get on his plane, worked for the U.S. government. I misinterpreted Haskell's blog post. I thought the government itself had admitted this, but they haven't; they have only admitted that they intentionally didn't revoke the Underwear Bomber's visa, because they wanted to keep tracking him and not tip him off. It is Haskell's (very plausible) hypothesis that the "sharp dressed man" he saw, worked for the U.S. government in some capacity.

* A Fed official tells us (price) deflation is no longer a worry. Phew!

* Viresh Amin sends this video of three young guys harassing Bernanke as he checks into a hotel. The video reminded me of those 1960s alien invasion movies. I always thought it was funny watching them, because you understood why the people who had seen the aliens take over their neighbors etc. were going nuts, and running around warning others, but you also understood why--given their presentation style--they sounded crazy and nobody listened to their completely accurate warnings.

* Jeff Tucker damns my high school curriculum with faint praise (just kidding).

* At Mises.org today I have an article on "The Fed as Giant Counterfeiter." I think many of you, like me, have known for years that the Fed was "like" a guy running the printing press to pay his bills, but until about a month ago it never really clicked with me just how close the analogy was. Even old pros may want to skim this article to make sure you already had considered the similarities.

In one of His most famous and controversial teachings, Jesus instructs His followers to love their enemies:

27"But I tell you who hear me: Love your enemies, do good to those who hate you, 28bless those who curse you, pray for those who mistreat you. 29If someone strikes you on one cheek, turn to him the other also. If someone takes your cloak, do not stop him from taking your tunic. 30Give to everyone who asks you, and if anyone takes what belongs to you, do not demand it back. 31Do to others as you would have them do to you.

32"If you love those who love you, what credit is that to you? Even 'sinners' love those who love them. 33And if you do good to those who are good to you, what credit is that to you? Even 'sinners' do that. 34And if you lend to those from whom you expect repayment, what credit is that to you? Even 'sinners' lend to 'sinners,' expecting to be repaid in full. 35But love your enemies, do good to them, and lend to them without expecting to get anything back. Then your reward will be great, and you will be sons of the Most High, because he is kind to the ungrateful and wicked. 36Be merciful, just as your Father is merciful. (Luke 6: 27-36)

So for me, I don't really have any "enemies" in my personal life. It's probably partly because I'm a consultant and so I don't have any corporate rivals or a jerk boss I can't stand.

But there still is a temptation for me to hate the official power brokers in DC and other heads of state and militaries around the world, for all the carnage that they unleash on innocent people. If my worldview is correct, then the world could be incredibly better on so many levels, if these guys (and a few gals) would abandon their lust for power.

So in that context, it's a useful exercise as a Christian to work yourself up into at least trying to love someone like Ben Bernanke. (Or if you don't really have a strong feeling for him one way or the other, try Barack Obama or George Bush or Dick Cheney or Kim Jong Il.)

So for Bernanke, even though I am positive he is wrecking the US financial system and I am 90% confident that he is at least vaguely aware of what he is doing, I occasionally will try to recalibrate my indignation by stepping back and trying to understand "how could this have happened?" And in the process of doing so, I end up being a lot less angry. So I think (as usual) Jesus' command wasn't some pointless task of obedience that He threw out there for us; if you actually try to love your enemies, you gain a much greater understanding of how the world works. (And note I use that common phrase quite deliberately--in an important sense the ruler of the world is Satan, and it's important to analyze how he manipulates things without focusing your judgment on the weak people who facilitate his plans.)

OK then, if you're starting out in a fury and you think there's no way in the world you could ever sincerely have feelings of sympathy and compassion for someone like Ben Bernanke--and yet you are a Christian and intellectually know that you should--here are some methods that I use.

First, notwithstanding John Steinbeck's theory in East of Eden, I don't think we should assume that a particular adult who is doing really evil things, came out of the womb with no conscience. Steinbeck may be right that some people just never really had a conscience, but I think that's too easy and incorrect when trying to understand the development of adults who do astonishingly wicked things. So even though I haven't researched it, I'm willing to say that Benny Bernanke was a cute little kid who played with kittens and read Moby Dick to shut-ins every other Saturday at the nursing home.

Second, realize that Bernanke probably faces far more constraints on his actions than you realize. C'mon, do you really think the most powerful bankers and other men in the world, would sit back with bated breath to see what a former Princeton econ chair decides with regard to the fate of the world economy? So when you are trying to interpret some of his actions--such as bailing out foreign banks--keep in mind that part of that might be Bernanke trying to buy himself some friends to give himself more options. It doesn't make those actions right, but my point is simply that we don't really know what's motivating him. I don't for one second believe we're seeing the maximization of Bernanke's utility function, where the two inputs are his paramaters for distaste of inflation and the "output gap," but on the other hand it's probably also not correct to view Bernanke as sitting in his quarters twirling a mustache and saying moo-hoo-ha-HA!

Third, realize that whatever awful decisions Bernanke is "forced" to make right now--and which he himself probably recognizes as placing his own career / family's survival above the interests of average people--he probably didn't realize that, going into things. He must have been an incredibly ambitious and very talented guy, to even be a candidate for Fed chief. He probably was very familiar with previous Fed actions and thought he could do a better job, or at least thought he would do at least a good a job as any of the other people in the running.

For the above point, consider your own job experiences. Haven't you ever been disillusioned once you got into a job, and actually became somewhat disappointed (or even disgusted) with how it "made" you act? For example, I used to have this hallowed conception of the mighty Peer Review Process for journal articles. I was picturing scientific economists sending journal articles into an editor, who would then distribute them to the world's experts on the subject. The experts would spend days carefully vetting the submission, reproducing its claims and subjecting it to all sorts of stress tests to judge the robustness of its results. After such a grueling process, only the most airtight articles would see the light of day. And if any economics professors are reading this right now, I hope I gave you a good belly laugh. (I'm not even talking about the CRU email scandal; I'm talking about regular academic discourse here. In practice referees don't have nearly enough time to provide more than a cursory line of defense against erroneous journal submissions.)

So for Bernanke (or Obama or Bush) think of how much "on the job" training he must have received. Whatever promises (implicit or explicit) he made in order to get the job, he had no idea what certain powerful people were going to ask of him. It wouldn't surprise me if, in reality, Bernanke's true job is to take his marching orders from other people, and then come up with the way to sell it to the financial markets so it sounds like a coherent plan. Now even if that's true, note that Bernanke isn't a complete puppet. He always has the option of pushing the boundaries of what his handlers want him to say or do, because ultimately it would look really weird if all of a sudden his brakes didn't work next Tuesday. So once he got into power and (let's suppose) realized the people "coaching" him weren't doing their level best to help average Americans, even if he wanted to repent at that point, it would be pretty difficult. It would be very very very easy--and I bet many of us have thought like this in some of our jobs--for him to say, "This whole organization is going down the wrong path, but I'll do what I can to check its worst excesses and avoid disaster. Mr. X and Y and Z are some seriously bad influences, but I can steer things away from what they want." I'm not saying that is what's going on, but it could be.

I'll stop here because I think you get the point. As crazy as it sounds, try to work up some sympathy for the Fed chief. Jesus told us to.

This is for the geeks in the crowd... I came across my critique of Kevin Carson [.pdf] for another project, and--like Ralphie from A Christmas Story--was just really impressed with how good my essay was. So if you want to see a straightforward explanation of how the classical economists explained market prices, and why (in my opinion) the modern approach is superior, check it out. The so-called Marginal or Marginalist Revolution was truly an improvement in theoretical economics, analogous to Einstein's special relativity versus Newton's classical laws. In other words, the modern theory is more general, and can handle the classical theory's meat-and-potatoes as a special case.

* Scott Sumner discusses the Fed's hints that they will drop the "federal funds rate" as their target variable, and instead will use the interest rate on excess reserves. If you can't stomach the wonkish stuff, just scroll down to the end where Sumner explains that beyond the jargon, this transition would transfer power from regional Fed banks to DC. Hmmm. BTW, if you really parse their trial balloon statements, it seems that maybe what the Fed gurus are really saying is that they will still be targeting the fed funds rate, because it will trade at some spread relative to the interest rate on reserves. So having put 5 minutes of thought into this, I have to side with Robert Wenzel who says this is a mere codification of what the Fed has been doing already, rather than a stunning change in policy as Sumner argues.

* I haven't had time to read this carefully, but more on possible government moves to tap into your retirement accounts.

* Chip Knappenberger has an uncharacteristically harsh critique of the IPCC. What I mean is, Chip is usually very moderate in his claims, but he lets loose in this piece describing (apparently) shocking lapses in the IPCC's official procedures to codify the "scientific consensus" on various points. Chip is actually a published climate scientist so he is not a mere right-wing talking head.

* Doug French describes Rothbard in class.

David Kramer at LRC relays this choice excerpt from a Bloomberg commentary by David Reilly:

Secret Banking Cabal Emerges From AIG Shadows: David Reilly

Commentary by David Reilly

Jan. 29 (Bloomberg) -- The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week’s congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

As thrilling as it is to see this frank discussion in a Bloomberg article, Reilly doesn't go the full distance. If you're stocking up in preparation for Mad Max times, you need jelly to go with your peanut butter.

Amateur.

I'm not entirely outsourcing Free Advice to Glenn Greenwald--he works for union scale--but this post contrasting the British investigations into the Iraq Invasion with our own (nonexistent) ones contains some remarkable paragraphs. For example:

British political news has been consumed for the last several weeks by a formal inquiry into the illegality and deceit behind Tony Blair's decision to join the U.S. in invading Iraq. Today, Blair himself is publicly testifying before the investigative commission and is being grilled about numerous false claims he made in the run-up to the war, not only about Iraqi weapons programs...and Saddam's ties to Al Qaeda, but also about secret commitments he made to join the U.S. at a time when he and Bush were still pretending that they were undecided and awaiting the outcome of the U.N. negotiations and the inspection process.
...
[A]ll of this stands in stark and shameful contrast to the U.S., which pointedly refuses to "look back" or concern itself with whether it waged an illegal (and horribly destructive) war....[O]ne can barely even imagine George Bush and Dick Cheney being hauled before an investigative body and forced, under oath, to testify publicly about what they did as a means of determining the legality or illegality of that war. Doing that would fundamentally conflict with two leading principles in American political life: (1) our highest political leaders must never be accountable for actions they take while in power; and (2) whether something they do is "illegal" -- especially the starting of wars -- is utterly irrelevant. Instead of formally investigating whether they broke the law, we treat them like elder statesmen who deserve a life of luxury and media reverence.

And then this:

I'm periodically criticized for an "angry" tone in my writing, which I always find mystifying. I genuinely don't understand why anger should be avoided or even how it could be. What other reaction is possible when one looks around and sees the government leaders who committed these grave crimes completely unburdened by any accountability and treated as respectable dignitaries, or watches the Tom Friedmans, Jeffrey Goldbergs, Fred Hiatts and other unrepentent leading media propagandists who helped enable it still feted as Serious and honest experts, or beholds the current Cabinet and Senate filled with people who supported it, or observes the Michael O'Hanlons and Les Gelbs and other Foreign Policy Community luminaries who lent trans-partisan credence to it all continue to traipse around still pompously advocating for more wars that never touch their lives?

Tony G. apparently has nothing better to do than send me funny videos. Maybe he's not in the labor force?

I am as skeptical of GDP numbers as the next guy. But I don't quite get this commentary by Krugman:

As expected, a big GDP number (pdf), signifying nothing much. It’s an inventory blip: topline growth at 5.7 percent, but only 2.2 of that is final demand.

Don't get me wrong, I understand the superficial plausibility of distinguishing between changes in final demand versus "mere" changes in inventory. But when we push the analysis one step deeper, I can't come up with the same conclusion that Krugman reaches. (It's not just him, by the way, lot's of people talk like this.)

If I'm not mistaken, the procedure (roughly speaking) goes like this: The BEA measures how much money people spend on finished goods and services. But that figure isn't necessarily how much businesses produced during the quarter, because some of those sales could have been handled through falling inventories.

So for example, if final sales were $1 trillion, but inventories declined by $100 billion, then they would subtract it and say that GDP was actually only $900 billion. In other words, only $900 billion in stuff was actually produced, since the other $100 billion in sales came from drawing down inventories (which were produced in earlier periods).

OK, so now for today's announcement of the 4th quarter GDP figures, Krugman is saying that the 5.7% official figure is misleading, because if you strip out inventories, then "final demand" only grew 2.2%. This strikes me as backwards.

If you break down the numbers, inventories still fell in the 4th quarter, they just didn't fall as sharply as in the 3rd quarter:

Business inventories fell only $33.5 billion in fourth quarter after dropping $139.2 billion in the July-September period. The change in inventories alone added 3.39 percentage points to GDP in the last quarter. This was the biggest percentage contribution since the fourth quarter of 1987.

Am I making sense here? I can understand if inventories rose by a bunch, and then Krugman wanted to say, "Aww, that's just firms replenishing their depleted inventories--this isn't really a spike in final demand by consumers."

Can anybody clarify this? I am hesitant to say not only Krugman, but many other commentators, on this point are getting things backwards, especially since I'm no expert on GDP accounting. I am thinking I'm doing something wrong, because in my version I don't see where the 2.2% figure is coming from, when you "strip out inventories," if they only fell by $33.5 billion.

Tony G. passes this along. Note there are some naughty words at the end.

CNBC reports:

Federal Reserve Chairman Ben Bernanke won Senate confirmation for a second term, ending a bruising political battle that forced the head the world's most powerful central bank to fight for survival.

Bernanke's nomination was approved 70-30 by the Senate after clearling a procedural roadblock with a 77-23 vote. A simple majority of 51 votes in the 100-person chamber was needed for approval.

Well shucks, besides my disappointment that the "Bernanke saved us all" messaging was good enough for government work, his reconfirmation apparently blows a hole in my recent conspiracy theory. I had guessed that the last-minute upset was the way to get the architect of a dollar collapse safely out of power, so that the resulting inflation wouldn't be the fault of the sitting Fed chair.

Isn't it perfectly obvious what happened? The shadowy bankers read my last post, then told key senators to switch their votes in order to discredit me.

These guys are good. I had no idea what we were up against.

According to CNBC:

Federal Reserve Chairman Ben Bernanke won a key procedural vote in the Senate, clearing the way for his confirmation for a second term running the world's most powerful central bank.

The Senate is now moving to final confirming vote.

Bernanke was expected to win the Senate's backing despite the stiffest opposition to any nominee for Fed chairman in the nearly 32 years the Senate has voted on the position.

So it's not quite official yet, but it looks like it will go through. They needed 60 votes to end debate (or whatever) and now they just need 51 to confirm him.

I think some senators are voting to end debate but then will vote against confirmation, so they can say, "I voted against Bernanke!" in the fall.

As Robert Wenzel points out, the Senate's vote occurs after the markets closed, perhaps to avoid embarrassing the Printer in Chief.

* Josiah Neeley sends this article on "6 Enlightened Ideas Brought to You By Evil Empires." The premise is that yeah these regimes were mass murderers and ate their own children and such, but gosh they were kinda progressive in a modern way too. Rather than concluding that things like mandatory schooling or bans on smoking are suspect, of course the writer concludes that maybe these regimes weren't unadulterated evil after all. (Note that I am not saying I have a problem with women being allowed to own property, which is one of the examples.) Note that there are some naughty words in the article.

* I haven't done any research to confirm or deny, but David R. Henderson had an interesting blog post arguing that Republicans purposely allowed ObamaCare to advance in December, so they'd have a great thing to run against in November. (This was before the Scott Brown election.)

* Here's a weird thing: A guy got charged with DUI when his car wouldn't even start.

* Richard Ebeling saw that I survived, and so he too faced Wendell Jones and Godfrey Eneas on Platform TV in the Bahamas.

* RatherBFlying sends me this rather ominous RAND report, "Does the United States Need a New Police Force for Stability Operations?" Here's the conclusion from their summary:

Weighing all considerations, the researchers concluded that the best option would be a 6,000-person hybrid force headquartered in the U.S. Marshals Service. The personnel in reserve status could be employed in state and local police forces so they would be able to exercise police functions in a civilian population daily and could be called up as needed. The Marshals Service was deemed to have many of the requisite skills. However, its training and management capabilities would need to be expanded to take on this large mission, and it would have to recruit additional personnel as well. The annual cost, $637 million, is reasonable given the capability it buys. The cost savings in relieving military forces of these duties could be greater than required to create the SPF [Stability Police Force].

The Military Police option was attractive for a number of reasons, especially its capacity, training, and logistical capabilities, but its inability to engage in policing activities when not deployed was a major stumbling block. The Posse Comitatus Act precludes military personnel from exercising police functions in a civilian setting, and legislative relief might be difficult to get. Even if such relief were forthcoming, it is unclear where and how routine police skills might be honed.

Creation of a civilian SPF would not affect the roles that other elements of the U.S. government would play. Rather, it would complement other agencies such as the departments of Defense and State. But the SPF would provide a necessary capability, and the U.S. Army should support its creation.

Note that the report, as written, seems to be exclusively focused on deploying the new SPF to foreign theaters; I skimmed it and didn't see any mention of US operations. However, as I put in bold above, the SPF would obviously be trained on US soil. If you don't see the potential trouble, please watch Star Wars Episode III.