09 Nov 2015


Gene Callahan, Potpourri, Tom Woods 28 Comments

==> This is an unexpectedly good episode of the Tom Woods Show. He debates Matt Zwolinski on a basic income guarantee. I went into it thinking it would be like debating whether Kevin Spacey was a better Lex Luthor than Gene Hackman, but actually it was very entertaining.

==> An Austrian tries to assert her property rights when it comes to monetary policy, but the central bank laughs at her desires. A funny story, but I’m also being serious.

==> Gene Callahan concludes that the Messiah can find an arbitrary number of primes.

08 Nov 2015

Dr. Charles Stanley on Victory Over Anger

Religious 20 Comments

I really think [EDIT: that many] people who are very hostile to Christianity don’t understand what a typical sermon is like. They are like this:

Of course the primary purpose of “going to church” isn’t to make people better members of society and family, but my goodness people going and hearing stuff like this week after week is extremely healthy.

07 Nov 2015

Contra Krugman Episode 8

Contra Krugman 20 Comments

We have special guest Gene Epstein on this one, to help evaluate Krugman’s arguments about Democratic economic growth.

07 Nov 2015

Explaining the Parable of the Thermostat

Scott Sumner 26 Comments

At first I was getting really frustrated with Craw and then Gene in the comments of this post. I couldn’t believe they were accusing me of misrepresenting Scott Sumner’s views; I thought I was almost literally quoting him, with the exception of translating the discussion into the world of a household thermostat (which of course was the analogy he had used to take me out to the woodshed).

But now I totally see what is happening here:

1) OBVIOUSLY Scott wins the debate in the analogy as he set it up. He puts ridiculous arguments into my mouth, and he puts obviously correct arguments into his own mouth, when it comes to a discussion of household thermostats. In that setting, I look ridiculous and Scott looks obviously correct. In fairness, Scott explicitly said that I don’t hold the view about thermostats. But the implication is that I do hold analogous views when it comes to monetary policy, whereas Scott still holds the obviously correct view.

2) But no no no; Scott has not adequately translated our respective monetary views into the world of the household thermostat. That was why I wrote my own post. I was saying (though perhaps I should have been clearer) that if you want to take the monetary discussion into the world of thermostats, my dialog was a lot closer to everyone’s (including Bernanke, Krugman, etc.) views than Scott’s dialog.

[Now one aside before I begin: As Tel pointed out, it actually doesn’t make much sense to talk about thermostats because a thermostat keeps a constant temperature. Rather, it would make more sense if Scott had talked about a furnace with settings from 1 to 10, indicating the power level at which it blew hot air into the house.]

For example, in the thermostat world, Scott says:

Bob Murphy’s theory of temperature would be that when people are frequently turning up the thermostat, you can expect houses to be relatively warm. And when people are frequently turning on the AC, you can expect houses to be cool. The Sumner theory is that when people are most frequently turning up the thermostats, houses will be relatively cool, even though that action makes them warmer. Bob Murphy’s theory is that houses are relatively warm in the winter, because people frequently turn up their thermostats in the winter. Sumner’s theory is that houses will be relatively cool in the winter, despite the fact that people turn up the thermostat more frequently in the winter, and despite the fact that turning up the thermostat does in fact make houses warmer, ceteris paribus. Bob Murphy will claim that Sumner contradicts himself on house temperatures.

No no no, that is totally wrong, if we’re using this as an analogy for monetary policy. Watch: If I translate the “Sumner theory” above into a theory about monetary policy, it would mean this: “The Sumner theory is that when central bankers are most frequently cutting interest rates, economies will be operating below full employment and price inflation will be below target.”

Yes that’s right, but who doesn’t believe that? That’s why the central bankers keep cutting.

Where Sumner differs from other people is that he says ultralow interest rates are a sign that money has been too tight. And that the Fed’s actions since 2008 have been the tightest monetary policy since the Hoover Administration.

Those type of statements aren’t analogous to the “Sumner theory” above. Instead, they would be analogous to someone saying, “A lot of people assume that when the homeowner has continually pushed up the thermostat until it finally hits 80–the maximum setting–that he is engaged in a deliberate policy of warming. But actually, this is usually a sign that the homeowner has engaged in a cooling policy.”

Ben Bernanke, Paul Krugman, Brad DeLong, and 90% of the economics profession think that the outside got really cold, that Ben Bernanke pushed the thermostat up to 80 in a deliberate WARMING policy, but gosh shucks it wasn’t enough to offset the exogenous outside forces of nature.

That is precisely the view that Sumner wants to blow up; it’s why he started blogging. Sumner thinks that we should DEFINE the stance of heating policy not with reference to the objective actions the homeowner takes (like pushing the thermostat up to 80, or running higher utility bills in one month than in the previous decade), but rather by looking at the temperature of the house compared to the desired temperature. If the homeowner realizes that his actions will not make the house as warm as he wants it to be, then by definition he has engaged in a cooling policy–even if he pushed the thermostat up to 80.

I am saying that’s a nutty approach, which no normal person would adopt when it comes to houses and thermostats. Amongst its problems, it assumes the very thing under dispute. If our economy doesn’t in fact need looser money in order to recover, then Scott’s proposal (to make “tight money” mean the same thing as “an economy the NGDP of which does not grow sufficiently”) would make it very hard to realize he had misdiagnosed the problem.

Likewise, if we’ve let the furnace blast for a month straight, paying exorbitant bills, and yet we’re still shivering with sweaters on, it’s not very helpful for someone to define that situation as “inadequate furnace exertion.” Maybe there are a bunch of windows open, or maybe we all have pneumonia, or maybe there’s a crazy weather pattern and the optimal thing would be to turn off the furnace and go to Florida for a week. But to literally define any undesirably cold house as “inadequate furnace exertion” would be crazy.

04 Nov 2015

Star Trek and Economics

Economics, Shameless Self-Promotion 33 Comments

My latest at FEE. C’mon click it, they put up a cool photo of Kirk & Co.

04 Nov 2015

Murphy at Brave New Books

*Choice*, *The Primal Prescription* 1 Comment

The courage to be written!

I forget that some of you may not follow me on social media. (Good for you.) I’ll be doing a book signing at “Brave New Books” in Austin tonight, November 4, starting at 7pm. Then karaoke party in the store. (For real.)

03 Nov 2015

Reader Survey

Capital & Interest 35 Comments

There are no tricks here, I genuinely want to know: What do you teeming masses think Tyler, DeLong, and Krugman mean when they all refer to the “positive marginal product of capital” (in reference to possibly negative natural rates of interest)? For example, here’s DeLong, who in turn link to Tyler.

I’m going to write on this, but I want to know what you econ blog readers think they mean by that phrase.

03 Nov 2015

Monetary Policy Views Applied to a Thermostat

Austrian School, Economics 36 Comments

If you’re trying to understand why I made this post, all I can say is that Scott Sumner went down this road. You wanna get nuts!? Come on! Let’s get nuts!

* * *

The curtain rises, showing six nerds in a house, all shivering and breath visibly coming out of their nostrils.

BEN: While you clowns were sitting around yapping away, I alone had the courage to push the thermostat all the way up to 80–as high as it would go. Furthermore, our utility bill this month will be higher than all previous utility bills combined. I clearly did as much as could be expected of me, and the house is indeed getting warmer, we just need to give it some more time to heat up.

PAUL: Yes, good job Ben. There’s no one I would have preferred to be manning the thermostat. However, you really were dealt a bad hand, because it is just so darn frigid outside. As you note, the thermostat is only capable of being pushed up to 80. But since my thermometer says it’s 43 degrees in here, ideally what we’d like is to set the thermostat to about 95, to really get that furnace blasting for a few hours and warm this place up. But for now, we just have to grin and bear it, because for technical reasons we simply can’t push the thermostat above 80. I just wish we erroneously thought someone was trying to break into the house–then we’d all run around, checking that the windows and doors were locked. The exercise would warm us up so that the thermostat being set at 80 would actually work out fine.

BOB and SCOTT: Riiiiiight.

JOHN: I’m thinking maybe you guys are making a huge mistake here. Doesn’t it seem weird to you that the one time in the history of this house that we’ve got the thermostat pushed all the way up, we also are shivering like crazy? Maybe there’s some weird mechanism where the furnace is bouncing around so violently that it knocked open a hole outside and all the heat is escaping–?

PAUL and SCOTT: Riiiight.

PAUL: Yeah that’s cute John, but everybody knows that Ben has done what he could. Look at how high he’s pushed up the thermostat. That’s a heating policy if ever there were one–not one that could be responsible for the freezing house.

SCOTT: Whoa whoa whoa, let’s not reason from a thermostat change. As a general rule, a high thermostat setting means that the owner has engaged in a cold policy.

JEFF: Good point Scott. So guys, this policy is clearly not working. We’re running up huge utility bills, and I’m concerned that we’re doing permanent damage to the furnace. So let’s turn the thermostat down a notch–

SCOTT: Whoa! That would be a disaster! Why would we suddenly implement a cooling policy?

BOB: Huh? Didn’t you just tell us to never reason from a thermostat change?

SCOTT: *sigh* Obviously any given turn down of the thermostat makes things cooler than they otherwise would be.

BOB: Right, and every HVAC guy thinks the same thing. So why do you keep lecturing us on committing some type of fallacy?

SCOTT: Because you guys think that the thermostat being set to 80 somehow indicates “a heating policy.” No it doesn’t, if anything it indicates that the thermostat policy has been incredibly cold.

BOB: That’s a really weird way of looking at it. In any event, shouldn’t your lecture then be, “Never reason from the level of the thermostat,” rather than “a thermostat change”?

SCOTT: I can’t continue with this basic stuff. Go brush up on a Lee manual.

BOB: *sputtering* I was studying Lee before it was cool!

PAUL: Hey hotshot, what do *you* think we ought to do with the thermostat? You seem to have all the answers.

BOB: Well I don’t know; nobody can know what single temperature is right for millions of people in the house. I think you should let people go live in their own houses, and set their own thermostats.

PAUL, SCOTT, BEN, JOHN, and JEFF: Riiiiiiight.