Danger from the Euro, Malpractice from the Fed
That’s the title of my inaugural piece at the Washington Times. An excerpt:
Note the pattern over the last decade: Instead of giving us a painful but standard recession, Alan Greenspan gave us the illusion of a quick recovery in the early 2000s. When the housing bubble burst, it was no longer a mere recession we faced, but the collapse of major investment banks. Once again, the Fed intervened to spare Americans such a catastrophe.
Two years later, it was now not banks but small governments that were at risk of going bankrupt. But as usual, the central banks rushed to the rescue, apparently solving economic woes by creating dollars and euros out of thin air.
Then a year later, the problems resumed. Now it wasn’t just small governments at risk, but large governments and a major currency.
The pattern is clear: Printing up money (or more accurately, creating electronic reserves by purchasing assets and expanding the central banks’ balance sheets) can kick the can down the road, but it doesn’t solve the underlying structural problems with the economy. By delaying the needed adjustments and allowing consumers to persist in their delusions of prosperity, these interventions actually allow the problems to fester.
Elizabeth Warren’s Blank Check
Judging from the number of Facebook “likes,” this is the best column I’ve ever written. It seems libertarians are more excited about someone trying to take their money, than about the finer points of capital theory. An excerpt:
Warren is right: there is a widespread view that really wealthy people are very fortunate — that they have been blessed. And that’s precisely why so many wealthy people give very large amounts of their fortunes to charitable causes. Warren simply asserts that the government should be the recipient of this understandable urge for the wealthy to share.
Besides philanthropy, another social practice is that parents take care of their children. Then, when the children become adults, they in turn take care of their offspring. This is exactly what Warren has in mind with her talk of “pay forward for the next kid who comes along.” That’s exactly what society expects of people, and that’s what most of us do. Here again, we see Warren injecting the government into the mix, without any justification.
The final major principled problem with Warren’s position is that the government gives the rich little choice in accepting the alleged benefits of its activities. It’s not as if a factory has a choice between getting products via government highways or privately run highways. And CEOs in Boise — who don’t think they are at serious risk of an al Qaeda attack — don’t have the option of rejecting the US government’s “helpful” foreign policy with its tremendous price tag.
To see just how absurd Warren’s view is, imagine a Soviet-era party official chastising workers who thought they had labored long enough in a Siberian work camp: “You ungrateful wretches! Don’t you realize that the bread your wives wait in line three hours for comes from the government? There is a social contract here, where we give you food and shelter, while you give us work and respect.”
One Bible Contradiction Cleared Up
I know my frequent critics here won’t believe this, but I do think that it is rational to believe in the Bible and Jesus. I haven’t spelled out the full story of my conversion from atheism here, but it’s accurate to say that I eventually concluded that the hypothesis of Jesus’ divinity was the best explanation for the facts.
Since I actually think religion should “make sense,” I want the Bible to be historically accurate and logically consistent. For those reasons, one thing that has long troubled me was that Jesus (in three of the gospels) says (e.g. Luke 9: 27), “But I tell you truly, there are some standing here who shall not taste death till they see the kingdom of God.”
I am pretty sure (though not positive) that this statement (and perhaps there were others) prompted some of the early Church to think that Jesus’ return was imminent. Up until today, I had never seen a good explanation of this, and it bothered me a lot more than some of the other “contradictions” in the Bible that atheists tout. It clearly sounds as if Jesus is saying, “Just hold on for a few more decades at most, and this world will end.” I couldn’t see any way to get around the plain meaning of His words. Sure we could say He was being metaphorical, or that He meant “believers are born again” and in that sense the sting of death is removed, but in that case maybe we’re totally misunderstanding all of His other promises too?
Well today in church the assistant pastor covered this and cleared it up to my satisfaction. In retrospect this seems pretty obvious to Biblical scholars but for whatever reason, I had never heard it before.
If you read the context (Luke 9: 27-36) we see that Jesus wasn’t being metaphorical at all. He was presumably referring to this:
27 But I tell you truly, there are some standing here who shall not taste death till they see the kingdom of God.”
28 Now it came to pass, about eight days after these sayings, that He took Peter, John, and James and went up on the mountain to pray. 29 As He prayed, the appearance of His face was altered, and His robe became white and glistening. 30 And behold, two men talked with Him, who were Moses and Elijah, 31 who appeared in glory and spoke of His decease which He was about to accomplish at Jerusalem. 32 But Peter and those with him were heavy with sleep; and when they were fully awake, they saw His glory and the two men who stood with Him. 33 Then it happened, as they were parting from Him, that Peter said to Jesus, “Master, it is good for us to be here; and let us make three tabernacles: one for You, one for Moses, and one for Elijah”—not knowing what he said.
34 While he was saying this, a cloud came and overshadowed them; and they were fearful as they entered the cloud. 35 And a voice came out of the cloud, saying, “This is My beloved Son.[a] Hear Him!” 36 When the voice had ceased, Jesus was found alone. But they kept quiet, and told no one in those days any of the things they had seen.
This placement–where Jesus says some who are hearing His words will live to see the kingdom of God, and then the very next event is the transfiguration on the mount–occurs in all three gospels (Mark 9: 1-13 and Matthew 16-17 are the other two spots). So it seems the gospel writers themselves interpreted this event as fulfilling Jesus’ prediction.
Tom Woods Having Another Field Day With Small-Big Government Conservatives
I particularly liked this part:
Throughout the Cold War, Soviet capabilities were consistently, almost ludicrously, inflated. It is hard to believe that so-called conservatives could in effect have shared the rosy view of Soviet productive capacity put forth by the likes of John Kenneth Galbraith and Paul Samuelson, but share them they did. It is as if they didn’t actually believe the free-market rhetoric they otherwise used. They expected a gigantic, socialistic basket case to conquer the world. What it wound up doing was accumulating basket cases in Africa and elsewhere that in no way helped and surely intensified its own economic backwardness.
But [Jeffrey] Lord, never one to question the bipartisan foreign-policy consensus – we heretics, on the other hand, dissent from every bipartisan consensus – takes Truman, a middle-of-the-road Democrat, to be a model statesman. Question Truman and his grandiose statements and strategy? What are you, some kind of commie?
I realize that in questioning the Cold War consensus I am violating one of the long list of unforgivable sins in the official conservative movement. The Cold War, like Ronald Reagan, is one of those topics on which mainstream conservatism will admit no dissent. There is the Official Version of Events, and there are the heretics who question it.
The Cold War apparatus gave birth to a military-industrial complex that is evidently impossible to rein in, and which is constantly in search of further justifications for ever-greater levels of spending. (There’s no fat to trim from the $1.2 trillion annual defense budget!) This is the one government program conservatives may never question. This one is run by omniscient angels who don’t need to be audited. This one has no entrenched interests of its own that it might pursue at the expense of the common good. That’s true only of the farm lobby and the education bureaucracies. This is the Department of Defense, citizen. Trust them. USA! USA!
Update on My Inflation Bets
I know that a while ago I made two inflation bets, one with Bryan Caplan and a much more serious one with David Henderson. Here are the terms with Caplan:
At any point between now and January 2016, if there is a year/year increase in seasonally adjusted CPI that is at least 10%, then [Caplan pays Murphy] at that time $100.
If we get to January 2016, and there has not been any 12-month stretch in which the above happened, then [Murphy pays Caplan] $100 at that time.
Then David R. Henderson wanted in on the action, and he exacted far harsher terms:
At any point between now and January 2013, if there is a year/year increase in seasonally adjusted CPI that is at least 10%, then [Henderson pays Murphy] at that time $500.
If we get to January 2013, and there has not been any 12-month stretch in which the above happened, then [Murphy pays Henderson] $500 at that time.
BTW, please spare me a lecture on the fact that I would be winning diluted dollars. I KNOW. Feel free to say I can’t tell when it’s coming, but please believe me when I say I know what price inflation is.
I made the above bets in December 2009. Things are obviously not progressing on the timetable I had thought (as has been well documented on these pages), but I’m still confident in my bet with Bryan and would make it again. The one with David is obviously looming much more menacingly. If it weren’t for the crisis in Europe (which is pushing people to flock into dollars), I would still be fine with it, but it may turn into a nailbiter.
Speaking of the euro, Bryan linked to his bet with Jeremy Rabkin who predicted (in 2007) that the currency would collapse by the end of 2010. What’s hilarious is this confident comment left by Barkley Rosser (written in January 2007):
[Bryan, the] odds are way in your favor. This has been one of the favorite fantasies of a subset of libertarians and conservative economists in the US, that first the euro would never get off the ground (they lost that one big time) and now that it will surely fail. Do these people go to Europe at all? The only country that has mumbled at all about getting out was Italy briefly under Berlusconi, who is now out and the talk has loudly stopped. If you lose, it will be Italy, but nobody else.
The euro is here to stay. Heck, it is the world’s strongest currency right now, with the possible exception of the UK pound, although it has been dipping recently. Even if Italy were to depart, it is slowly joining the US dollar as a main international reserve currency. The people predicting its demise are living in fantasy land, big time.
Reading List in Austrian Economics and Libertarianism
People occasionally tell me that they are new to Austrian economics, and want a reading list. Well if you want the actual books there’s the year-long Home Study Course I developed, but if you’re broke here’s a cheaper way to jump in:
Free-Market Economics with an Austrian Flavor
* Lessons for the Young Economist. My textbook-ish introduction to free-market economics, aimed at the junior high level. However, even if you’re an adult, if you’ve never read these kinds of ideas before, I think you should still start here. I put a spin on certain things that you probably won’t get elsewhere, at least not without a lot of study.
* Economics in One Lesson. This is Henry Hazlitt’s classic. Contains modern statements of the Broken Window Fallacy, explains why machinery doesn’t throw us all out of work, etc.
* The Politically Incorrect Guide to Capitalism. Because this was put out by a commercial publisher, there’s no online version of this book. But most Barnes & Nobles still have a copy in stock, so next time you’re at the store you can peruse it if you want. Anyway, in this book I tried to summarize a defense of the free market, and critique of State intervention, on a variety of topics. If you want to order it, click on the ad on the left.
Actual Austrian Economics
* Choice: Cooperation, Enterprise, and Human Action. This is arguably the most important book I’ve written to date. I distill Mises’ Human Action down to a 300-pageish book that an undergrad econ major would be able to follow. The link gives you a detailed summary, plus you can see blurbs from other economists saying the book accomplishes its purpose. You will definitely understand the Austrian approach to money, banking, and the business cycle if you get Choice.
* Economics for Real People. Before he turned to the dark side, Gene Callahan wrote a very nice introduction to Austrian economics. So the difference between this book, and the ones in the previous section, is that Gene is here distinguishing Austrian economics per se from generic free-market economics.
* Man, Economy, and State. If you are going to call yourself an Austrian, there’s no getting around it–you have to take a month (or more) and just read MES from cover to cover. However, Rothbard is a fantastic writer and he covers just about everything in terms of economic principles in his magnum opus. Be sure to have my study guide when you go through MES.
Readings in Libertarianism
* Liberalism. I can remember when I was in undergrad and soaking up the wisdom of Ludwig von Mises in this little booklet. I had already read his Human Action by that point, but that was a very intimidating and difficult book. In contrast, Liberalism was crystal clear and gave a view of the interaction of ideas, violence, and property rights that was one of the seminal foundations of my current worldview.
* Chaos Theory. Once you have been warmed up, you’re ready to take the plunge and read some nutjob (me) advocate the total elimination of the modern State. In other words, don’t just privatize the Post Office, privatize the police and army too. (Yes, I am serious. And don’t call me Shirley.)
* For a New Liberty. Rothbard here paints a comprehensive portrait of the free society, meaning one in which there are no systematic violations of property rights. He argues that just about every modern “social problem”–whether it’s traffic congestion, pollution, police brutality, or nuclear war–is caused by, or at least greatly exacerbated by, government meddling.
Concluding Remarks
Obviously my above list is skewed toward just a few authors, including myself. In my defense, I set out to write a book to fill a gap, so it’s not shocking that afterwards I recommend the book I just wrote…
Tom Woods has a much more extensive program here. Don’t tell Tom–since he’s already arrogant enough–but I bet he’s read more “classics” in economics than I have.
More Sumner Spawn
Matt Yglesias is refining his new idea, after reviewing the list of demands from the Wall Street protestors:
My view is that the best demand of all, somewhat in the spirit of item number 1 but more radical, is “free money for the rest of us.” There are a lot of different specific ways this can be implemented, but the basic shape of things is that the Powers That Be are great believers in the importance of the credit channel to economic recovery and thus have been willing to provide all manner of free money to players in the banking system. Debt cancellation is a form of free money for the indebted. But why give free money only to banks? And why give free money only to the indebted? Why not free money for everyone? “Everyone,” of course, includes the indebted. But it also includes ordinary people who didn’t happen to avail themselves of the credit binge. It’s an idea so good that it sounds almost silly. “Everyone knows” that you can’t just hand out free money to everybody. Except actually you can. Most of the time it wouldn’t be advisable to do this. In the long run money is neutral, and making more money can’t make you more prosperous. But in the short term, free money for everyone impacts prices. Most of the time it would do so in a dislocating bad way, but under today’s circumstances, it would do so in a useful way. I don’t know what the best way to turn this into a slogan is, but the point is that if the different institutions that together constitute “the government” worked together, they could put more dollars into our hands. Creditors won’t like it because doing this will devalue their existing debt claims, but so what.
It’s late and I am just shell-shocked by this. I’ll let you readers suggest reasons that this might not be such a hot idea, in the comments.
Scott Sumner, Yglesias won’t listen to me. Only you can end this madness.
Report From Greece
Matthew Nakas is a fan of the Austrians who was at the recent conference in Vienna. Then he visited his family in Greece. He sent me this email:
I am in Greece right now and things are really interesting to say the least. This nation is tense and at some point there will be a breaking point where either the existing government will collapse or there will be massive riots or both. The government just imposed a new tax on the home owners which is a $10.00 tax per square meter. My friends for example are paying an extra 3,000 euro. This comes on top of the many additional taxes they are already paying!! This should be an object lesson for the world if they care to take notes.
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