I am stunned. John Cochran (note a different guy from the defender of the EMH!) alerts us to this WSJ op ed championing Ludwig von Mises’ warnings in the 1920s, and saying we face a similar credit bubble today.
Whoa this was a good exchange. I read Krugman’s blog post on people abusing MV=PY and totally understood where he was coming from. But then I read Scott Sumner and he destroyed Krugman. The only parts I objected to in Scott’s response were:
(1) Scott says that he doesn’t even understand what Krugman is talking about in the beginning, when I for one certainly “got” Krugman’s take on people using MV=PY inappropriately. Not only did I get it, I was nodding my head in agreement.
(2) Scott maintains that the Freako guys were not trying to cast doubt on climate models by bringing up the global cooling scare in the 1970s, when of course that’s what they were doing. (And I don’t necessarily fault them for it, by the way. I just wish they’d stop pretending that that’s not the impression they were trying to convey.)
Anyway if you are not a trained macroeconomist and are lost in the details of this exchange, let me summarize: Krugman keeps pointing to his 1998 work and his “aha!” moment when studying the case of Japan. He keeps telling us (now) that he realized monetary policy doesn’t work in a liquidity trap, and that’s why you need more fiscal stimulus.
But as Scott points out, Krugman is full of it. If you go and actually read the 1998 paper, it’s not an argument for running budget deficits–it’s an argument for promising future inflation! And I actually heard Krugman give a talk at NYU on this very topic. (I don’t remember the exact year, but I think 1999 or 2000.)
And I can confirm that Krugman’s moral was this: He told the Bank of Japan that it could fix its problems by credibly promising to cause future price inflation. Because nominal interest rates were stuck at the 0% lower bound, the “answer” (Krugman said) was to raise the expected future price level, so that the real interest rate could be pushed more and more negative, where it needed to be in order to restore full employment.
I don’t remember Krugman saying one word about budget deficits. Of course he may have discussed them, but that was clearly not the point of the talk. No, the whole point was that the model showed him something he hadn’t thought of: that the monetary authorities had more options at their disposal once the target hit zero, because they could promise to inflate in the future and thereby affect the current expected real interest rate.
And so to repeat, Krugman keeps pointing to this eureka moment as proof that he’s known since 1998 that monetary policy doesn’t work when interest rates hit zero. (!!!!!)
I don’t remember who wrote it, but someone conjectured that the Soviet Union ultimately collapsed when the ruling members stopped believing in communism. I think future historians will say the same of the United States and its version of capitalism.
Rob Bradley sends this absolutely charming video from 1948. I kept thinking I was going to turn it off in a few seconds, but it kept getting better. If you’re important and/or have a short attention span, just get it going and listen while you do other stuff. I think you’ll be really impressed with the second half in particular, but I encourage you to listen to the whole thing rather than skipping ahead.
A reader from the comments of another post alerts us to this story:
In a significant decision today , a judge found Nicholson’s views on the environment were so deeply held that they were entitled to the same protection as religious convictions, and ruled that an employment tribunal should hear his claim that he was sacked because of his beliefs.
The judgment could open the door for people to take their employers to tribunals over their stance on a range of issues, from animal rights to feminism.
Earlier this year, Nicholson, 42, claimed that his beliefs had put him at odds with senior executives at his former employer Grainger, the UK’s largest listed residential property company. When he was made redundant in July last year, he launched his legal action.
He alleged that while the firm had good written policies on the environment it had refused to abide by them, and claimed that when he tried to encourage the company to become more responsible, he was obstructed by his bosses. Dickinson, in particular, had shown “contempt” for his beliefs, Nicholson told the employment appeal tribunal…
This is bad on so many levels. Not only will it fuel ludicrous lawsuits, but it will also become a new talking point on Sean Hannity etc. “Ha! First they threw out Al Gore’s documentary, and now the British courts agree that belief in global warming is a religion.” Argh.
I elaborate on my views of the Superfreakonomics spat. This is mostly the same stuff, but I take the time to explain exactly what Levitt and Dubner discussed in case you’re new to “geoengineering”:
[Levitt and Dubner] argue that if global warming really is a threat, then it does not follow that governments need to enforce draconian cuts in carbon dioxide emissions, which would cost many trillions of dollars over the next few decades.
Instead, a “geoengineering” solution could be adopted to keep the earth cool despite increasing concentrations of greenhouse gases in the atmosphere. Perhaps the most fanciful idea is to suspend a hose using helium balloons, in order to pump sulfur dioxide into the stratosphere. This would reflect some of the incoming sunlight and arrest (or even reverse) global warming, just as occurred after the eruption of Mount Pinatubo in 1991. Best of all, this particular approach would only cost about $250 million total — less than what Al Gore’s foundation is spending just to “raise awareness” about climate change.
Over at MarginalRevolution Mr. Cowen goes to the Treasury. In his post-game show Tyler said, “Tim Geithner is very smart and he was conceptually stronger than one might have expected.”
In the comments Joseph Lawler said, “I assume that by “conceptually stronger than one might have expected” you mean “didn’t literally hand bags of cash to his friends right in front of us.”
Daniel Lewis, chairman of the Davidson County Libertarian Party (which includes Nashville), is one hot tamale when it comes to the City’s plan to spend (they say) some $635 million on a major new convention center called “Music City Center.” (Nashville’s nickname is “Music City.”)
Since I already am surely on a federal list, I agreed to Daniel’s request to go on record opposing the project. Unfortunately the camera Daniel used was apparently in the Phantom Zone, but the music is catchy and if you get bored you can try to identify the books on my office shelves.
I’m surprised it took this long to make the WSJ op ed page–i.e. I thought the window was gone by this point–but the “Numbers Guy” takes up Ahnold’s recent potty mouth veto message. (See here if you don’t know what I’m talking about; the wussy WSJ doesn’t even reprint the letter.)
Anyway the Numbers Guy goes through and talks about the different ways mathematicians try to determine the probability that the “hidden message” was really just a coincidence. I realize there are a million different points you could raise, but I think they overlooked two of the most important issues:
(1) Ahnold’s word choice was unnatural. In particular the last paragraph:
“Yet another legislative year has come and gone without the major reforms Californians
overwhelmingly deserve. In light of this, and after careful consideration, I believe it is
unnecessary to sign this measure at this time.”
That “overwhelmingly” seems as if it’s quite clearly in there just to get the “o,” and “unnecessary” seems like the wrong word there.
Whether you agree with my opinion on the above wording, surely we can agree that if something just “reads funny” and then “happens” to spell out a naughty word, that that is a smoking gun. Yet the WSJ op ed just talks about general analysis of letter frequencies.
(2) We have to generalize the type of event that occurred. I.e. we are shocked by the “F— you” message, but we also would have been shocked had the first letters of each line spelled out “Eat me” or “Up yours” etc. So if we ask, “What are the odds that Schwarzenegger’s veto letter could have contained a hostile message due to dumb luck?” then our answer has got to be at least 20x whatever we come up with for the specific example of “F— you.”
This latter point occurred to me when I was younger and learned all the spooky July 4 coincidences. I don’t remember the exact details–someone please enlighten us in the comments–but it was things like one of the Founder’s birthday was on July 4 and then two of the Founders died on the same day, or something like that.
So at first that sounds amazing, but then you say: Well they didn’t sign the Declaration by throwing darts at a calendar. Maybe it was close so they decided to get smashed on whoever’s birthday at happy hour (drinking Sam Adams’ summer brew), then go back to the log cabin, dip the quill in blood and sign their John Hancock’s. (I am a product of private schools, by the way, so be afraid, be very afraid of the future of our country.)
And about two Founders dying on July 4, again you have to not just compute the probability of those two guys but of other events that would have seemed equally amazing to us.