20 Jan 2016

The Connection Between the Stock Market and the Fed

Federal Reserve, Financial Economics, Shameless Self-Promotion 3 Comments

I notice that Roger Farmer has been following this. The below is the chart I put into my article in the September 2015 issue of the Lara-Murphy Report. I was pointing out how the S&P500 had big drops whenever a round of QE ended, and then again in August when (at that point) people were expecting the first rate hike the following month.

SAP500 vs Fed



That particular hike was postponed, of course, but since we’ve had the actual hike last December… Market is down 9% YTD as of the close on January 20.

20 Jan 2016

A Nice Review of The Primal Prescription

*The Primal Prescription* No Comments

I’m not sure who this reviewer is; it looks like he writes a lot about health care / ObamaCare at this website. Anyway, a nice review of my book (co-authored with Doug McGuff), The Primal Prescription.

An excerpt from the review:

The Primal Prescription is written in a conversational style, avoiding jargon, and brims with anecdotes illustrating the authors’ contentions. It would probably be worth the price for either the history of government interventions into the healthcare system or the guidance on improving one’s health (even if one doesn’t subscribe to the primal lifestyle) and navigating the system; the pairing makes it even more valuable. It is precisely what one would expect from a doctor: diagnosing the problem — in this case, with an economist on board for a second opinion — and discussing treatment options. For the ailing American healthcare system, the cure, the two men conclude, is “freedom and independence.”



19 Jan 2016

Pareto Big Macs

Economics 50 Comments

David R. Henderson has a nice post hitting on the sunk cost fallacy in typical discussions over drug pricing. You can see in the comments though that I think this is a trickier topic than perhaps David realizes. (Or, alternatively, David doesn’t realize how much clearer his thinking is on this than the average person’s.)

Let me elaborate on a puzzle I alluded to in the comments. I’m curious to see what you guys think. (BTW, I don’t mean to exclude both of the women who follow this blog; “you guys” is a generic term.)

There’s a general principle from intro to microeconomics that says in a competitive industry, in equilibrium P=MC. So how would we actually apply that in practice to the fast food industry? At the point at which the burgers are already made and sitting on the back warmer, what’s the marginal cost to the firm of the worker picking up the burger and handing it to a customer? 5 cents?

So, in an efficient fast food industry, burgers should be priced at 5 cents. Don’t you dare say that the firm needs to charge at least enough to cover average costs, because (as David points out) that involves a sunk cost fallacy…

Something is obviously not right in the above. But I’m curious to see how you guys would unpack it. If you want to say, “I don’t trust them there textbooks with their funny graphs!” OK fine, but ideally I’d like you to solve it within the world of standard textbook micro, since presumably that can be done.

19 Jan 2016

World Doesn’t Need US “Leadership” on CO2 Emissions

Climate Change, Shameless Self-Promotion 16 Comments

My latest article at IER. A nice graphic:

2016.01.13 US Leadership Emissions Figure 2

18 Jan 2016

My Take on “The Big Short”

Economics, Shameless Self-Promotion 1 Comment

Since there was a lag before this review would run, I focused on the role of the ratings agencies. An excerpt:

The Big Short leads viewers to believe that shortsighted greed is the ultimate explanation for why the ratings agencies gave their blessing to dangerous products. In one scene, a woman working for a major agency says that if her company doesn’t grant a triple-A rating, the Wall Street bank (which is their customer) will simply take the financial product in question down the street to a competitor to get a high rating from them.

This can’t be the full story. After all, why doesn’t every financial product get a triple-A rating? Why doesn’t every company bring its corporate bonds to, say, Moody’s, and demand a triple-A rating or else they’ll walk down the street to Fitch?

17 Jan 2016

Did Jesus and the Early Christian Church Renounce Violence Against Non-Believers?

All Posts, Religious 34 Comments

Bryan Caplan is sure that they didn’t. In a recent post at EconLog, he first quotes Nathan Smith who wrote:

The Old Testament, to be sure, contains some hair-raising passages that seem very much opposed to religious freedom, but that’s part of the Mosaic law, which St. Paul’s epistles clearly and insistently establish is not comprehensively binding on Christians, but has been superseded, fulfilled, replaced by the higher ethical teachings of Jesus. The early Church never used violence.

Bryan disagreed. In fact, Bryan didn’t merely say, “I think this is slightly inaccurate.” No Bryan said, “Nathan grossly overstates the incompatibility between Christian doctrine and religious violence,” and then went on to write:

Yes, St. Paul did “clearly and insistently establish” that the Mosaic law “is not comprehensively binding on Christians.” But he focuses almost entirely on dietary requirements, circumcision, and the like. If Paul (or Jesus) meant to spearhead a culturally novel rejection of religious violence, he would have explicitly said so. And to make “The early Church never used violence” true, you would have to torturously gerrymander both who counts as “the Church” and when counts as “early.” [Emphasis in original.]

I must admit I was surprised by Bryan’s reaction, especially how confident he was with his claims. I’m going to list a bunch of Bible passages referring to the views of Jesus and Paul, but first I like how Joseph Porter in the comments responded to Bryan’s claim about the early Church:

…I am not aware of any violence perpetrated by any Christian—Orthodox or not—between the time of Jesus’ death (AD 30/33) and the rise of Constantine almost 300 years later. (The earliest Christians, in fact, certainly sound quite opposed to violence.) And I’d say “any self-identified Christian” and “almost 300 years” aren’t tortuous construals of “the Church” and “early.” Of course, my knowledge of the early Church is not encyclopedic—do you have some particular act (or acts) of violence in mind committed by “the early Church”?

Regarding Jesus, there are a bunch of things I could cite, but just some obvious ones:

==> From the Sermon on the Mount He taught, “Blessed are the meek,” “Blessed are those who show mercy,” “Blessed are the peacemakers,” and let’s quote this one in full: “Blessed are you when people insult you, persecute you and falsely say all kinds of evil against you because of me. 12 Rejoice and be glad, because great is your reward in heaven, for in the same way they persecuted the prophets who were before you.”

And then we must quote in full starting at verse 38:

38 “You have heard that it was said, ‘Eye for eye, and tooth for tooth.’[h] 39 But I tell you, do not resist an evil person. If anyone slaps you on the right cheek, turn to them the other cheek also. 40 And if anyone wants to sue you and take your shirt, hand over your coat as well. 41 If anyone forces you to go one mile, go with them two miles. 42 Give to the one who asks you, and do not turn away from the one who wants to borrow from you.

43 “You have heard that it was said, ‘Love your neighbor[i] and hate your enemy.’ 44 But I tell you, love your enemies and pray for those who persecute you, 45 that you may be children of your Father in heaven. He causes his sun to rise on the evil and the good, and sends rain on the righteous and the unrighteous. 46 If you love those who love you, what reward will you get? Are not even the tax collectors doing that? 47 And if you greet only your own people, what are you doing more than others? Do not even pagans do that? 48 Be perfect, therefore, as your heavenly Father is perfect.

Does Bryan really think Jesus needed to say, “By the way, if you encounter someone who doesn’t proclaim that I am Lord, I don’t want you to stab him”?

And in one of my most favored Bible passages, where we see the combination of Jesus as both merciful and an irresistible force, He rebukes Peter for drawing his sword when the mob assembled by the chief priests comes to arrest Him (after Judas led them there). Here’s what Jesus had to say about Peter using violence to try to prevent this injustice:

52 “Put your sword back in its place,” Jesus said to him, “for all who draw the sword will die by the sword. 53 Do you think I cannot call on my Father, and he will at once put at my disposal more than twelve legions of angels?

If you’re just skimming and the above didn’t do anything for you, you need to stop and re-read it. That passage makes my eyes water.

Now you might say, “Well that’s not really fair Bob, because sure Jesus can call down angels but we can’t. What did Jesus tell His followers to do when they encountered non-Christians?”

Try this passage:

16 “I am sending you out like sheep among wolves. Therefore be as shrewd as snakes and as innocent as doves. 17 Be on your guard; you will be handed over to the local councils and be flogged in the synagogues. 18 On my account you will be brought before governors and kings as witnesses to them and to the Gentiles.

And how is the world to identify a follower of Christ? “By this everyone will know that you are my disciples, if you love one another.”

But here’s the clincher. Jesus did do exactly what Bryan wanted. Look at this story from Luke 9:

51 As the time approached for him to be taken up to heaven, Jesus resolutely set out for Jerusalem. 52 And he sent messengers on ahead, who went into a Samaritan village to get things ready for him; 53 but the people there did not welcome him, because he was heading for Jerusalem. 54 When the disciples James and John saw this, they asked, “Lord, do you want us to call fire down from heaven to destroy them?” 55 But Jesus turned and rebuked them.

Is it any surprise to the reader of the book of Luke by this point that Jesus would have rebuked James and John for such a ridiculous suggestion? Would it not have been monstrously out of character for Him to agree with their idea?

* * *

As far Paul, read this one-and-three-quarters chapters on what he thinks about the people of Israel who have not accepted Christ. It’s too long for me to quote, but it’s impossible to read that and think violence is acceptable against non-believers.

For one thing, if you believe in Christ and are saved, you can’t be proud of yourself (according to Paul). You deserved hell as much as anybody who rejects Christ. So it would be weird to think that gives you the moral authority to kill somebody on that account. In any event, though you should click the link to get the full spirit of it, here’s how he wraps up. In context he is explaining how God is letting (some) Gentiles come to Christ to be saved, in order to goad the Israelites to come home:

Just as you who were at one time disobedient to God have now received mercy as a result of their disobedience, 31 so they too have now become disobedient in order that they too may now[t] receive mercy as a result of God’s mercy to you. 32 For God has bound everyone over to disobedience so that he may have mercy on them all.

So if you want to argue about the existence of hell and how arbitrary you think this system is, OK we can have that discussion, but there’s no way you could think Paul has left the door open for followers of Christ to spread the gospel with the sword.

UPDATE: It’s possible by “early Church” Bryan meant once the Catholic Church was up and running and had some earthly power. I could understand someone saying, “Oh sure, the Christians were all meek and humble when they were helpless, but once they had the ability they used violence to get their way.” Right, but my point is that just proves how humans are awful hypocrites. It doesn’t mean Jesus, Paul, or other writers in the New Testament were vague on using violence against non-believers.

16 Jan 2016

Being a Liberal Means Never Having to Say You’re Forgiven

Contra Krugman, Krugman 6 Comments

[UPDATE below.]

Now that Tom Woods and I have a hugely successful podcast analyzing Paul Krugman’s columns, I have hardly been paying attention to his blog posts. So while I was killing time today waiting for the Texas Tech parking lot to clear out after their heartbreaking buzzer-beater loss to Baylor, I got caught up on the Conscience of a Liberal. It reminded me why I’m not the man’s biggest fan.

In order to make sense of his Jan. 15 post, I need to give you the screenshot:

Krug the Merciless

So to be clear, Krugman is quoting Ted Cruz, then he’s posting a screenshot of a June 2009 Wall Street Journal column from Laffer predicting high inflation and interest rates, then Krugman comments, “But being a conservative means never having to say you’re sorry for predicting inflation.”

Now you know what’s funny about that? Two things. First, Ted Cruz was invoking Arthur Laffer’s authority on supply side tax cuts. That has absolutely nothing to do with monetary policy, and there is no one in human history more qualified to tell Republican voters which candidate’s plan is best from a supply-side perspective.

Second, Arthur Laffer did publicly acknowledge that his inflation predictions were way off, such that he would rethink his model. In other words, he did exactly what Krugman has been demanding such people do. And you can’t say, “Well, maybe Krugman missed that,” because Krugman publicly praised Laffer for doing so–in a blog post titled, “In Praise of Art Laffer,” and it was only two years ago. So you’d think Krugman might remember that one.

It’s because of stuff like this that it’s clear to me Krugman is completely insincere in his moral posturing and pleas for intellectual honesty. Yes, if writers (like me) made erroneous predictions about price inflation or anything else, we should be honest with our readers about what we think happened and how we’re trying to avoid such mistakes going forward. But the point certainly isn’t to curry favor with guys like Krugman. The only way to get on his good side is to switch to his policy prescriptions, which is why Kocherlakota is a good guy now.

UPDATE: After I posted the above, I saw at EconLog that David R. Henderson had similar remarks, though he pointed out Krugman’s (with Larry Summers) own warnings of an inflation time bomb (the actual phrase they used) in the early 1980s.

16 Jan 2016


Potpourri 2 Comments

==> For those in the Houston area, I’m going to be at the Mises Circle on January 30. Other speakers include Ron Paul, Lew Rockwell, and Jeff Deist. Details here.

==> Speaking of the Mises Institute, they’re trying to get updates from any alumni who have been through Mises U.

==> A lot of people were passing around this FEE piece by Daniel Bier on Powerball, which was fine as far as it went. Yet it too overlooked the pretty simple (but important!) point I made: That if the pot gets so big that “now it’s a good bet,” everyone else can do the same arithmetic and would also buy a ticket, if that were actually the full story. In other words, the probability of splitting the pot with someone else goes up, the bigger the pot gets. And sure enough, there were three winners. If you look at the history of Powerball jackpots–assuming I’m interpreting the results correctly–the jackpots with multiple winners tend to be large. For example, in 2015 the biggest jackpot was the only one that was split (three ways). In earlier years the pattern isn’t perfect but it’s pretty close. Of course, ideally you’d really want to test to see how many tickets were sold, as a function of jackpot size, but I think looking at the actual splits is pretty good to make the point that the probability of splitting is clearly not independent of the size of the pot.

==> This was a really good–and hilarious, near the end–Glenn Greenwald piece on the U.S. media’s treatment of the Iranian government seizing American sailors.