03 Jan 2013

Potpourri

David R. Henderson, DeLong, Krugman, Nick Rowe, Potpourri, Scott Sumner, Shameless Self-Promotion, Tom Woods 70 Comments

==> I want to call your attention to a major UPDATE I made to my response to DeLong/Krugman, inspired by Nick Rowe’s thoughts on macroeconomic disputes.

==> Justin Merrill makes some good points about Cantillon Effects. One thing I had meant to mention myself: The people objecting to the “simplistic” Austrian critiques love to say, “Hey you morons, it’s not like Bernanke is literally handing out money to the bankers. He’s doing an asset swap!” But no, not in the case of paying interest on excess reserves. That is a huge income flow–what I guess would be “fiscal policy” in Scott Sumner’s framework–to the banks, that would be very much appreciated by any other industry.

==> David Glasner (quoted by Callahan) has a nice take on the “efficient markets” hypothesis.

==> I stumbled across this a few weeks ago (honest! This isn’t about the Krugman debacle) and thought it was interesting. Russ Roberts quotes from a Keynesian apologist explaining what went wrong with the WW2 forecasts.

==> At IER, I discuss the funny reaction to the supposedly good news that the US is predicted to become oil independent.

==> Gene Callahan gives a good compilation of smart guys who apparently never read the crushing arguments of Christopher Hitchens. Also this.

==> Tom Woods takes down the modern Greenbackers.

==> David R. Henderson and Scott Sumner clash over taxes.

70 Responses to “Potpourri”

  1. Major_Freedom says:

    I want to call your attention to a major UPDATE I made to my response to DeLong/Krugman, inspired by Nick Rowe’s thoughts on macroeconomic disputes.

    Nailed it.

    • facts says:

      There is no dispute. Murphy does not understand what drives inflation.

      • Major_Freedom says:

        You’re right. Austrians who almost daily define inflation as rise in the money supply, don’t understand what drives inflation.

        facts = troll.

  2. Daniel Kuehn says:

    I think a lot of your update is right, but it would seem to all depend on the conditions. If unemployment remained high and we had stagflation Krugman would have to revise his understanding of what is going on. I would imagine it would look a lot like our way of explaining the 1970s, but the point is something will have obviously changed.

    The essential point, I think, is that in 2009 your view of the world didn’t seem to include strong money demand as a constraint on price inflation and output, and the question is – should that change in the same way that Krugman’s view should change if we see stagflation by the time Caplan’s bet comes due? A lot of us think the answer is “yes”.

    If there is no stagflation and it’s just a poorly executed exit then you’re right – Krugman shouldn’t have to feel like anything needs to change.

    You and with this: “But they should then not get so upset when I and my fans explain away my botched price inflation warnings”

    The concern is that people didn’t think you were doing a good job at it, not the fact that you were doing it.

    Your post was an eye opener to me, because I did not realize initially it had so much to do with the exit strategy. My first impression was the same as Steve Horwitz’s first impression: that you had not been taking money demand explanations of the crisis seriously enough.

    • Major_Freedom says:

      My first impression was the same as Steve Horwitz’s first impression: that you had not been taking money demand explanations of the crisis seriously enough.

      This is an empirical question.

      As I noted in an earlier thread, Austrian theory includes demand for money as a component of price formation.

      Rothbard explains:

      “Mises agreed with the classical “quantity theory” that an increase in the supply of dollars or gold ounces will lead to a fall in its value or “price” (i.e., a rise in the prices of other goods and services); but he enormously refined this crude approach and integrated it with general economic analysis. For one thing, he showed that this movement is scarcely proportional; an increase in the supply of money will tend to lower its value, but how much it does, or even if it does at all, depends on what happens to the marginal utility of money and hence the demand of the public to keep its money in cash balances.”

      If an Austrian economist forecasts higher price inflation, and his forecast of either the quantity of money or demand for money is off, then so will his price inflation forecast be off. In no sense however does making a mistake in either money supply or demand for money forecasts mean that Austrian theory has been refuted.

      Can you agree with that?

      • Daniel Kuehn says:

        I never said Austrian theory has been refuted!

        I think it’s more than an empirical question, though. There is a reason why lots of Keynesians and monetarists are concerned about demand and lots of RBC guys, new classicals, and Austrians aren’t. Yes, the level of demand is an empirical matter, but these alignments aren’t random. Theories ought to explain the expected behavior of demand and its relationship to the business cycle. That’s the whole point.

        • Major_Freedom says:

          “I never said Austrian theory has been refuted!”

          I know! I was just asking.

          I had in mind what DeKrugman said about Murphy.

          “I think it’s more than an empirical question, though. There is a reason why lots of Keynesians and monetarists are concerned about demand and lots of RBC guys, new classicals, and Austrians aren’t. Yes, the level of demand is an empirical matter, but these alignments aren’t random. Theories ought to explain the expected behavior of demand and its relationship to the business cycle. That’s the whole point.”

          Agreed. I had a small epiphany the other day, and maybe it’s just me thinking about something old, but maybe the problem is that too many economists are divorcing “real side” from “demand side” as explanations for recessions, which results in a pigeon hole effect whereby everyone becomes either “with us” or “with them”.

          Maybe to explain recessions we need to integrate money and goods, and to explain recessions using a theory that takes into account both real side and demand side factors, so that the “real side is the problem!” folks aren’t faced with having to deny that recessions can be caused by gremlins suddenly burning half the money supply, while the “demand side is the problem!” folks aren’t faced with having to deny that recessions can be caused by gremlins suddenly rearranging half the capital base of the economy.

          Maybe recession explanations should be about both demand and real side factors. Maybe one reinforces the other, or maybe one causes the other, or maybe both are reflections of some third thing.

          Maybe real side and demand side explanations alone are insufficient, because we don’t only do barter, and we don’t only trade money. We trade money and goods.

          Maybe “the problem” of recessions is a mismatch between money and goods. Maybe the entire economics profession is out to lunch that we can’t see why the real side folks say the solution is to change the real side and ignore the nominal side, while the demand side folks say that the solution is to change the demand side and ignore the real side.

          Maybe there needs to be a change to both the real side and demand side, but they can’t be changed independently without affecting the other, so any solution that calls for a singular approach, could be asking for destruction since that singular approach will affect the other side, and thus exacerbate the problems in the “both sides are important” sphere.

          I don’t know, maybe this is too silly to entertain.

          • guest says:

            … we don’t only do barter, and we don’t only trade money. We trade money and goods.

            Simply make a necessary distinction between notes and money and the problem is solved.

            Notes are a CLAIM to money.

            In a commodity money system, indirect exchange is still, technically, barter.

            • Major_Freedom says:

              Claims to money that are exchanged for other things, is that still barter too?

              • guest says:

                No. That is a situation in which people are trading promises to money; The transactions are incomplete.

                Only if there are 100% reserves for the money that the notes promise, at the moment of redemption (and at any agreed upon maturity date; covering my bases, here), can the transactions be completed.

                Until the notes are redeemed, the barter transaction is incomplete.

            • guest says:

              This is why, in a crash, it’s imprecise to say that the money supply has shrunk; The credit supply is what has shrunk.

              Notes are claims to – credit for – money.

              • Major_Freedom says:

                When “claims to money” circulate as medium of exchange, they become money, don’t they? Or does money have to be constrained to a specific physical range of potential forms?

              • guest says:

                Well, people are trying to use promises as money, but people don’t realize that the promises aren’t money.

                People can make as many promises as they want. Real wealth is scarce (which is why we trade at all).

                Money has to be constrained by its ability to represent the value you wish to receive in exchange for that which you will sell.

                If the money has no value of its own, then you have no basis for believing that you can use it to know if you’re receiving the value you wanted for what you traded away.

                And it’s not enough to say that “this other guy has set a price in paper” because eventually, as we ask these people, in succession, why they accept paper, we get to reasoning that “A prefers paper because Z prefers paper because A prefers paper”;

                Which is completely arbitrary. And if you’re going to agree amongst yourselfs that anything can be the money, then let ME have the printing press, because I would be able take wealth from you at practically zero cost to me.

                The only reason the fiat money we use now still kind of works is because it was based on the market value of the commodity that is gold, and goods and services had their value in terms of that:

                Why the Greenbackers Are Wrong
                http://www.tomwoods.com/blog/why-the-greenbackers-are-wrong/

                And make no mistake: money has to emerge the way we have described it. It cannot emerge for the first time as government-issued fiat paper. Whenever we think we’ve encountered an example in history of a pure fiat money being imposed by the state, a closer look always turns up some connection between that money and a pre-existing money, which is either itself a commodity or in turn traceable to one.

                When Franklin Roosevelt confiscated Americans’ gold in 1933 and gave them paper money in exchange, this money did not enter the system “as debt.” It was a simple act of conversion of specie into paper. (Thanks to J.P. Koning for tracking down that link.) This is how all hard-money systems become fiat ones: the precious metal that backs the currency is taken away, and the people are left only with paper given to them in exchange for their metal.

                That whole article is very good.

                And if you want a video that goes through this argument, as well as rebuttals to objections to this view of money, then I recommend this:

                Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
                http://www.youtube.com/watch?v=HAzExlEsIKk

    • Maurizio says:

      Daniel, could you briefly describe your explanation of stagflation in the 1970s? THanks

  3. Daniel Kuehn says:

    OK, help me out Bob.

    I clicked your Wenzel deflation link because I find it entirely plausible that Krugman uses the word “deflation” carelessly when what would be better to say is weak price growth, however – the first link where Wenzel does indeed anticipate Krugman talking about inflation doesn’t even quote or cite Krugman, and the second link about Krugman “going global with his deflation view”, Krugman actually doesn’t promote deflation at all – he talks about dropping inflation.

    So help me – give me a hint – how many more links do I have to click through before I get to the place where Wenzel actually catches Krugman predicting deflation?

    • Daniel Kuehn says:

      Aha – the fourth one! In 2011 apparently Wenzel had to reach back to a 2010 post where Krugman says that there’s a deflation risk.

      n,

      • Bob Murphy says:

        DK wrote:

        Aha – the fourth one! In 2011 apparently Wenzel had to reach back to a 2010 post where Krugman says that there’s a deflation risk.

        Right, just like in 2013 apparently Krugman had to reach back to a late 2009 post where I bet on an inflation risk.

        Is there a statute of limitations on Krugman’s bad forecasts, but not mine?

        And do you still not see why people think you have a double standard?

        • Daniel Kuehn says:

          I don’t have double standards.

          I’m marveling that it took four tries to get a post where Wenzel accused Krugman of deflationary expectations until he was actually able to quote Krugman making deflationary predictions.

          • Bob Murphy says:

            In the second link that I clicked–the one you checked too–at the bottom of the post Wenzel links to the 3.6% one.

            Suppose I wrote a post saying Krugman believes in IS/LM. If I don’t actually quote him saying that, or link to a post where he explicitly says that, am I full of crap? This is ridiculous Daniel. Krugman said the threat is price deflation, and that didn’t happen. When someone brings that up, you pounce on the guy for making it inconvenient for you to source the claim. Go ahead and use italics if you want, you have a humongous double standard.

            • Daniel Kuehn says:

              No, I don’t.

            • Daniel Kuehn says:

              I’m not “pouncing on” I’m getting a kick out of the fact that this guy is obviously trigger happy when it comes to making diagnosis.

              But I am considering a pounce the more I read. One post promising deflation claims has Krugman talking about “dropping” inflation. Another one has Wenzel conveniently leaving off the “or at least slow their [prices'] rise”.

              I honestly clicked through initially agreeing with Wenzel – I’ve thought Krugman used “deflation” too carelessly.

              Then I thought it was funny that he really only had one post in 2010 – he was not actually documenting a long series of multiple instances.

              And now I’m starting to think Wenzel is deliberately trumping this up!

              On deflation, I don’t think it’s wrong to talk about the threat being deflation not inflation – because that is the threat. But that sounds like a forecast for deflation, so – like I said above – talking this way is probably careless.

              • Bob Murphy says:

                Right, and I understand exactly what you are saying. Of course Wenzel is trumping it up–he thinks Krugman was absurd for warning of deflation, just like DeLong and Krugman are trumping up my lost bet, even though I haven’t been shouting about inflation from the rooftops recently.

                This is what people mean when they accuse you of a double-standard: It’s not that you are ever lying or saying something demonstrably false, but rather that your immediate reaction is almost always to mitigate whatever the complaint is against Krugman, in a way that you wouldn’t do for his critics.

                For example, I bet that Krugman has linked to someone like Peter Schiff or Marc Faber talking about “inflation” and used the term “hyperinflation” or “Zimbabwe” in his post, even if–on that particular link he gives–they didn’t use those terms. But, maybe they used them in the past, and so Krugman is just keeping up the running gag of ripping on them. There is no way in this universe if you were commenting on that pattern (assuming it’s true), that your first reaction would be, “I find this hilarious, that Krugman keeps accusing Schiff of hyperinflation, and yet I have to go back to the 4th most recent post of Krugman saying this, to find Schiff actually using the term.”

              • Daniel Kuehn says:

                re: “in a way that you wouldn’t do for his critics.”

                Oh right. I totally forgot that I haven’t been producing a series of posts and comments making the point that these claims about your inflation bet are too strenuous, that the source of the poor prediction is much narrower than “Austrian theory”, etc.

              • Daniel Kuehn says:

                I don’t see why I wouldn’t respond that way to your Schiff hypothetical, but let’s not keep this hypothetical!

                Just before Christmas I accused Krugman of “melodrama” in his saltwater/freshwater talk about the lack of a consensus in macroeconomics, and defended Stephen Williamson, who I obviously don’t tend to agree with on a lot of things!

                That’s all I’m accusing Wenzel of here: melodrama on the deflation stuff. You don’t have to invent hypotheticals – I was accusing Krugman of the same thing, agreeing with an ideological opponent of mine, not long ago at all!

              • Dan says:

                “Then I thought it was funny that he really only had one post in 2010 – he was not actually documenting a long series of multiple instances.”

                Then I pointed out a link where Krugman was warning about severe deflation just over a year ago. Not just deflation, severe deflation. But since you agree with that prediction I guess it doesn’t count. It sounds like Krugman needed to make these incorrect predictions more often for you to find them meaningful.

              • Dan says:

                “that the source of the poor prediction is much narrower than “Austrian theory”, etc.”

                When Robert Murphy makes a prediction about inflation that ends up being wrong it is a poor prediction.

                When Paul Krugman makes a prediction about deflation that ends up being wrong it is a result of using the word deflation carelessly.

                Nope, no double standard there.

              • xgsmmy says:

                It seems to me Krugman wasn’t even predicting deflation, but merely saying inflation wasn’t the problem because the economy faced deflationary pressure.

                That is that by trying to prevent inflation we’d get deflation.

                Also as Daniel points out it’s reasonable to read Krugman as simply being loose with term deflation to mean lower than expected inflation.

                Remember Krugman actually wants higher inflation.

              • Major_Freedom says:

                xgsammy:

                “It seems to me Krugman wasn’t even predicting deflation, but merely saying inflation wasn’t the problem because the economy faced deflationary pressure.”

                “Also as Daniel points out it’s reasonable to read Krugman as simply being loose with term deflation to mean lower than expected inflation.”

                This is gold medal quality in the mental gymnastics event at the double standard Olympics.

              • Daniel Kuehn says:

                MF -
                Not really. I’m sure xgsmmy is happy to concede that anyone talking about hyperinflation or currency collapse actually just means “high inflation”.

                I, for one, am not so generous with PK as xgsmmy. While I anticipate he doesn’t always mean literally falling prices (although that perhaps was a reasonable fear in 2009), I would not just let him off the hook and I’d still criticize him for use of a word that means “falling prices”.

              • xgsmmy says:

                Okay, here is a post where he says he expected more evidence for deflation: http://krugman.blogs.nytimes.com/2012/07/25/fallible-me/

                I’ll trying looking around for more predictions though.

              • xgsmmy says:

                So, here’s a prediction: http://krugman.blogs.nytimes.com/2010/05/14/flation/

                He does put in a qualification about the strength of the recovery. And here’s another post where he admits error: http://krugman.blogs.nytimes.com/2011/06/28/3-5-out-of-4/

                I’d note though that Krugman is probably talking about the possibility of Japanese style deflation rather than something more severe.

              • Daniel Kuehn says:

                Thanks xsgammy – that last one is great.

            • Daniel Kuehn says:

              I mean seriously – if you’re going to accuse me of a double standard, at least don’t pick an example that I am on the record as agreeing with you on in several posts, like the fact that the theoretical implications of your bet have been trumped up!

              • Major_Freedom says:

                Don’t forget DK, that “list” of deflation warnings is a google search.

                It isn’t Wenzel’s organized list. The fact that you had to go 2 or 4 posts down, doesn’t mean much.

                Google “Austrian Hyperinflation site:krugman.blogs.nytimes.com/”, and you’ll probably have to go to page 9 or 10 to get an actual quote of an Austrian predicting hyperinflation in 2012.

                Yet PK is constantly insinuating to his readers that Austrians all predicted hyperinflation, and that the entire theory has been discredited because of it.

              • Daniel Kuehn says:

                I know it was a google search, but he still promises deflation mongering in the titles to those posts. He’s clearly overly eager to accuse Krugman of this just like Krugman is overly eager to talk about how awful “freshwater” economists are.

              • Daniel Kuehn says:

                Haha! You should test your suggestions first MF!

                He provides a quote in the very first link that came up for me! No need to go to post 9 or 10 much less page 9 or 10.

                Look, this is getting tiresome. I point out when Krugman is being unfair to you guys all the time. I point out when Krugman makes bad claims about “the state of macro” or consumptionism all the time too and that’s not even him attacking you guys.

                You’re just bent out of shape I still think he’s got good points to make. Fine – if that bothers you then you make better, more convincing points then him. But don’t give me this trash that I’m somehow giving Krugman a pass. That’s insulting.

              • Bob Murphy says:

                He provides a quote in the very first link that came up for me! No need to go to post 9 or 10 much less page 9 or 10.

                I haven’t been following the full exchange between DK and others here, but for what it’s worth, I spent 5 minutes on the experiment to see if I could find Krugman accusing someone of hyperinflation-mongering when that exact word didn’t appear in the link, and I couldn’t find a smoking gun (analogous to what DK was complaining about in Wenzel).

                I still think you have a double standard Daniel, but I admit I can’t find Krugman doing the particular thing about which you are complaining right here.

              • Major_Freedom says:

                And how overly eager Krugman is to talk about Austrian inflation mongering and predictions of hyperinflation. That’s the hypocrisy that brought this whole thing on.

              • Daniel Kuehn says:

                re: “And how overly eager Krugman is to talk about Austrian inflation mongering and predictions of hyperinflation.”

                But, but, but….

                You challenged me to flip through nine or ten pages to find Krugman quoting someone predicting inflation and I found it on the very first post!

                How is this proving your point?!?!?! Am I taking crazy pills?

                People that get spots on TV and radio shows are saying that the Fed is wrong to do the QEs because of the risk of currency crises and inflation.

                These people with spots on TV and radio turn out to be wrong and Krugman turns out to be right.

                Krugman quotes them and points out these mistakes lead to bad policy and a public hell-bent on belt tightening.

                Why is Krugman wrong here?

              • Major_Freedom says:

                He provides a quote in the very first link that came up for me! No need to go to post 9 or 10 much less page 9 or 10.

                Uh DK, that first quote is not a prediction of hyperinflation. it is a contingent claim of the form If A, then B.

                “It will happen if we don’t change policies. There is still time to change.”

                Bernanke has not increased the base in 2010-2012 the way he did in 2008, so policy was changed.

                Speaking of more double standards, this is equivalent of you denying that Krugman called for a housing bubble in 2002, because he was only talking about contingencies of what the Fed COULD do.

                I am not bent out of shape that you think PK has some good things to say. I honestly am not concerned with that. What I am concerned about is how you behave here. It isn’t charitable the way it is for PK’s statements.

                Too often your complaints against those against PK, are complaints about forms of argument that you defend PK for using himself. PK had to go back to 2009 to find some stuff on Schiff, and Wenzel had to go back to 2010 to find some stuff on Krugman.

                Yet you complain about Wenzel for doing that, but you don’t even stop to consider that PK is doing the same thing, and then, to top it off, you make it seem like Wenzel is being unfair to PK for going back to 2009! Where is the “PK is being unfair while going back to 2009 to find stuff on Schiff”?

                Crickets.

                This is what I take as a double standard. Again, maybe you can’t see it, but there you go.

                I’ll hand wave at your claim to being “insulted”. That is plainly an insincere rhetorical tactic to act as a guilt mechanism in those who are just saying what they think.

              • Major_Freedom says:

                You challenged me to flip through nine or ten pages to find Krugman quoting someone predicting inflation and I found it on the very first post!

                DK, as I wrote elsewhere, Schiff did not predict hyperinflation in that first post.

                He said IF the fed continues with what it is doing, THEN he expects hyperinflation. That isn’t a prediction of “We will have hyperinflation by 2012″.

                Are you so wedded to the narrative that you can’t even read the English language now? I mean come on!

              • Tel says:

                I think it might be fair to say that linking to a google search (which changes from day-to-day and might not be the same for each person) is not ideal for citation purposes.

                Having said that, poorly linked citations don’t prove the article wrong, but I agree it is a PITA for the reader. If it helps, I’ve found that both Murphy and Krugman do provide direct links to their citations, usually quite easy to follow.

                There’s a WebCite service that can be useful for those belt-and-braces enthusiasts, who don’t want to give their detractors the slightest foothold in the rock.

              • Tel says:

                PK had to go back to 2009 to find some stuff on Schiff, and Wenzel had to go back to 2010 to find some stuff on Krugman.

                Let’s all revisit that 2003 classic:

                With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

                http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html

          • Major_Freedom says:

            I don’t have double standards.

            DK, it is very difficult for someone with double standards to KNOW they have double standards. It’s because they are using the same double standard on themselves, and so cannot pick up any discrepancy between the concept of double standard, and their own standard. It all gels together.

            It usually takes an outsider’s perspective to notice when someone has a double standard. From my outsider’s perspective, you definitely without a shadow of a doubt have a double standard. Bob Murphy’s judgment is credible, and he says you have a double standard.

            Maybe instead of repeating “No I don’t”, try reimagining all these blog posts by switching the names. You may see it then. It’s blatantly obvious!

            Note that I am criticizing you because you have hope. If I didn’t have hope, I wouldn’t bother.

            • Bob Murphy says:

              Bob Murphy’s judgment is credible, and he says you have a double standard.

              Well, I am biased too, if the claim is “Is Daniel unfair to Bob vs. Krugman”? I.e. Daniel thinks “no,” and I think “yes.”

              • Major_Freedom says:

                I feel a little bad for having to say to DK that he has a double standard. Not just because nobody likes to hear something like that, not just because I think he does have one, but also because deep down I am probably engaging in a double standard myself, somehow, somehow, which would make me a hypocrite.

              • Christopher says:

                deep down I am probably engaging in a double standard myself

                You don’t say!

                Haha. Seriously folks, is there anyone who doesn’t have a double standard?

            • Tel says:

              You might have just invented the concept of trial by jury.

      • Dan says:

        And in the very next link you have Krugman warning about “severe deflation” a little more than a year ago.

        “In particular, market expectations seem to assume that the ECB will remain utterly indifferent to its responsibilities. The German breakeven rate, an implicit forecast of inflation over the next 5 years, is just 1 percent. That’s a disaster level, implying severe deflation in the debtor nations — or, more likely, a euro breakup.”

        • Daniel Kuehn says:

          Yep.

          The CPI figures are hard to track down, but Greece is certainly headed in the direction Krugman suspected (disinflation right down to zero inflation)… we’ll see if that pans out. Like I said above, he definitely uses the word “deflation” carelessly, although he might be vindicated in the European debtor nation case.

          I’d take a deflation in 2013 bet for Greece a lot sooner than I’d take 10% inflation in the U.S.!

  4. JFF says:

    The discussion generated by Tom Woods’s Greenbacker article is particularly fun. I’m always glad to see those “The Money Masters” devotees show up and reassert their claims, believing they stand as proof they have ultimately refuted their objectors.

  5. The Existential Christian says:

    Well, maybe you can still win your bet with Caplan: http://finance.yahoo.com/news/pimcos-gross-warns-investors-looming-164905487.html?l=1

    At least one investor is worried.

  6. Lord Keynes says:

    ” I stumbled across this a few weeks ago (honest! This isn’t about the Krugman debacle) and thought it was interesting. Russ Roberts quotes from a Keynesian apologist explaining what went wrong with the WW2 forecasts “

    And yet Keynes in 1943 was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes’s reply is significant:

    “Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.” (Colander, D. C. and H. Landreth [eds], 1996. The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, E. Elgar, Cheltenham, p. 202).

    Furthermore, if you bother to read Samuelson (1943: 37)* properly, he was quite clear that there were other Keynesian “optimists” who disagreed with him, and who thought that there would be a post war boom on the basis of “private demand alone.”

    *Samuelson, Paul A. 1943. “Full Employment after the War,” in Seymour E. Harris (ed.), Postwar Economic Problems, McGraw-Hill, New York and London. 27-53.

    See here:

    http://socialdemocracy21stcentury.blogspot.com/2012/05/what-did-paul-samuelson-really-say.html

    • Daniel Kuehn says:

      Thanks for the obligatory correction on this. At some point hopefully people will stop citing this.

      Russ marvels at the end: “It is remarkable how obscure the post-WWII Keynesian predictions had become until recently. They were forgotten. We’re trying to recover those memories.”

      What he never seems willing to consider is that they are obscure because so few Keynesians were worried about the things that Samuelson was!

    • Major_Freedom says:

      If Dr. F.A. Hayek Samuelson is proven wrong, then Keynesian theory has been discredited and “pretty much destroys the foundation of modern Keynesianism.”

  7. Ken B says:

    BLEG FOR DANIEL KUEHN: Since Bob is citing compilations now, were there any smart guys who liked Keynes or Krugman? Surely if there actually were any that would sway Bob?

  8. Ken B says:

    Just when I was reading the link on Greenbackers and FRB and money expansion, I got an error from my browser … overflow!

  9. Rick Hull says:

    Merrill on Richman’s Cantillon article:

    Richman > > “Since Fed-created money reaches particular privileged interests before it filters through the economy, early recipients—banks, securities dealers, government contractors—have the benefit of increased purchasing power before prices rise.”

    Merrill > Cross out “government contractors” from the above sentence and it is true. This is because contractors are paid out by the Treasury, which gets the vast majority of its funds from taxation and financing.

    I wouldn’t necessarily cross out the contractors, though they are decidedly lower on the food chain. Surely Merrill would agree that Treasury has a much easier time financing its behavior when the Fed loads up on Treasuries. Perhaps these aren’t proper Cantillon effects, but aren’t the PDs just temporary middlemen whereby the Treasury sells bonds and the Fed pays for them? Given Fed policy, the PDs rationally expect to offload onto the Fed any Treasuries they buy,, and Treasury rationally expects to be able to issue much more debt at a lower interest interest rate, and anyone who cashes Treasury checks rationally expects the gravy train to keep on rolling.

    Perhaps we just reclassify this as a fiscal effect — but not fiscal policy. Can we all agree that the Fed does not conduct fiscal policy but only monetary policy, and also that monetary policy very clearly may have fiscal effects?

    • Tel says:

      It depends on how much leverage those contractors have to push up their rates when selling to government, as compared to the price they would sell privately.

      Here’s an example from the recent “Building Education Revolution” project, which was part of the Australian Commonwealth Government stimulus package (mostly handouts to their mates in the building industry).

      The taskforce said NSW public schools were charged on average $3448 a square metre for all classrooms, halls and libraries delivered, compared with $2707 a sq m for Catholic schools and $2156 a sq m for independent schools.

      Victorian public schools were charged $3075 a sq m for buildings compared with $2406 for Victorian Catholic schools and $1975 for independent schools.

      http://www.theaustralian.com.au/national-affairs/recommendations-announced-to-improve-ber-scheme-delivery/story-fn59niix-1226124881391

      Note that the Catholic and independent schools were in a better position to negotiate terms than the public schools (who were just overruled from above). The result was lower prices on essentially the same work done. That’s about as close as you can get to a controlled experiment.

      • skylien says:

        Nice example.

        It’s a bit like you have Micheal Jackson in your store shopping for e.g some furniture. He just didn’t care (according to what I read about him). You could push up the price easily to double the price you could have sold it to a normal person.

        Of course Micheal Jackson had every right to do that, it was finally really his money…

        Milton Friedman’s explanation of the 4 ways to spend money comes to mind when reading this.

  10. Rick Hull says:

    Callahan’s Planck:

    > All matter originates and exists only by virtue of a force which brings the particle of an atom to vibration and holds this most minute solar system of the atom together. We must assume behind this force the existence of a conscious and intelligent mind.

    Gee Bob, given the arguments you hold dear (I presume) regarding spontaneous order, impotent directors, and other misattributions of the obvious greatness around us to central planners, it’s hard to understand why you (or Callahan) would be smitten by this sentiment. I assume no such thing.

    • Tel says:

      Not Sunday yet, but so far the best argument I’ve seen in favour of God is water.

      It’s looking increasingly like water is the answer to the whole Global Warming shenanigan because the nonlinear behaviour of the condensation / convection / evaporation cycle enforces stability in a system that otherwise would not be as stable (i.e. strong negative feedback imposed by water is more significant than the weak negative feedback imposed by fourth-power radiation law). Also, for what it’s worth, water causes most of the (badly named) greenhouse effect that warms the planet up (compared to water, the effect of CO2 is trivial).

      However, water does a lot more than that, it also redistributes the heat from the tropical parts of the planet (which otherwise would be too hot to live on) over to the temperate parts of the planet (which otherwise would be too cold). Thus widening the region of livable land on Earth. This redistribution does much more for humans than anything the greenhouse effect does. NOAA says:

      Without a natural greenhouse effect, the temperature of the Earth would be about zero degrees F (-18°C) instead of its present 57°F (14°C).

      This is of course complete crap. Without an atmosphere, the region around the equator would far hotter than zero degrees F during the day, and would plunge rapidly at night. The poles would also be far colder. Their figure is calculated by presuming a perfectly conducting ball model of Earth — i.e. rubbish.

      It is even more crap when you consider that the Earth at present is not 57°F but to get that number you must take some sort of global average using an arbitrary averaging formula, thus creating a meaningless answer which has no relation to anyone who lives on Earth. Many people live in warmer climates, many people live in colder.

      If you really wanted to calculate a global average temperature, you should include the core temperature so the global average would be much higher — still meaningless with regards to habitat, but at least it would be a true global average.

      Beyond that, water has all sorts of unexpected and illogical properties. For example the temperature at the bottom of a freshwater lake is always 4 degrees C, even when the lake has frozen on the top.

      Now with living creatures, people say that an eye must be the work of God because it is complex, but an eye can evolve bit at a time from a simple start. Doesn’t require any other explanation. Same with any living creature.

      Some say that the size and position of planet Earth is an amazing coincidence, but we know from the Hubble deep field photographs that the universe is very big, and the number of stars just within observable distance is huge. So that doesn’t really work as an argument because Earth is only a coincidence from the point of view of an observer already on Earth, an that’s hardly an unbiased perspective.

      However, when it comes to water, there are only a few hundred different atoms and only maybe a few million simple combinations of those atoms, and we have tried them all, and water is unique not just in one way, but in many ways. It cannot have happened by evolution, because atoms do not evolve.

      Water deserves to be called “the God molecule”, if anything does.

      • Rick Hull says:

        Excellent explication. But you might say similar things about pi, for example. The universe we’ve inherited is truly a marvelous state of affairs. I feel bad for not coming up with 7 paragraphs on the marvels of pi.

  11. konst says:

    @bob murphy

    Wouldn’t the fact that the Fed increased banks reserve re

  12. konst says:

    Wouldn’t the fact that after the Great Recession of 2008 the Fed increased banks’ reserve reserve requirements also explain why all that money printed isn’t in circulation and causing price inflation?

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