Today Rush Limbaugh was going nuts over President Obama’s “surrender to the UN” when the rest of the world “didn’t fire a shot.” He said something like, “You know who should really be worried, folks, are our traditional allies. The Brits [and I forget the other countries he listed--RPM]. The people who depend on this country for their security and economic assistance, they oughta be alarmed that Obama just threw them under the bus.”
And here I thought Rush was against people being dependent on Uncle Sam?
Before, the pundits had merely been asserting that there was little threat of price inflation because of high unemployment. But now Matt Yglesias has upped the ante (HT2 Bob Roddis):
Germany business and policymaking elites seem pretty uniformly convinced that the government has been preventing an unemployment explosion through unsustainable measures…and that in winter 2009-2010 unemployment is going to explode. They think that recent growth is a minor rebound from a very low level, and that future growth will be sluggish or possibly even feature a “double dip.” Nevertheless, they think we need to be very worried about inflation!. The one person who bothered to face up to this contradiction at all said that in his opinion there’d been a reduction in Europe’s growth potential, comparable to what happened during the oil shocks of the seventies.
Wow. So now it’s an actual contradiction to worry about price inflation at a time of high unemployment.
Yglesias goes on to give a history lesson and explain that Hitler’s rise to power had nothing to do with the German hyperinflation, which had ended five years beforehand. I’m not sure what Yglesias’ explanation is for the 1970s stagflation in the US, or the hyperdepression in 2008 in Zimbabwe, but I’m sure deregulation has something to do with it.
Gary North reports that one of the leading deflationists has defected to our side. (“Us” meaning North and me.) It reminded me that I meant to blog an email exchange I had recently (with permission of the correspondent). Craig had emailed me to say I was still missing the point in my critique of Mish. I wrote back:
Thanks for the email. I have to be brief. Do you know that since December, the unadjusted CPI is up 3.7%? And I’m sure you know that gold is hitting (nominal record highs.
At what point is this credit deflation going to result in falling prices? There was a brief spell of falling prices in 4q 2008, but prices have steadily risen in the eight months since then.
I thought (like Darth Vader), “All too easy.” But then Craig fired back:
I’m looking at the unadjusted CPI and it is up 2.7% since December, but DOWN 1.9% since its peak in July 2008. Moreover, the CPI understates deflation due to the owners-equivalent rent number. If actual housing prices were used (substitute Case-Shiller) you would already see price deflation. Just like the CPI understated inflation on the way up in housing it is understating deflation on the day down. So despite the absolute greatest amount of monetary and fiscal stimulus human civilization has seen over the past year (there is a reason there are so many hyperinflationists), the CPI is still down (even with bogus housing measures) and gold is right back to where it was in March 2008, i.e. flat since Bear Stearns failed and unprecedented stimulus was unleashed (and not much above where it peaked in 1980 for that matter). Moreover, T-bills are barely yielding above 0% and TIPS certainly don’t look very scary. Stocks and housing are down over 30% and oil down over 50% from their peaks.
I see bargains everytime I walk into any store—EVERYTHING is on sale—cars, shoes, you name it. The official CPI index will plummet once credit really begins to disappear. So far, it has basically just stagnated. The Fed’s Flow of Funds report released yesterday demonstrated the 1st decline in total debt in the U.S. since the data began in 1952—from $52.87 trillion to $52.81 trillion, oh wow (that’s sarcasm). Government borrowing has helped to offset the destruction of private credit so far. In a year’s time, I’m sure it will be much different after this bear market rebound ends. Nothing has changed from a year ago, in fact everything is much worse thanks to the government’s actions. Last fall will look like child’s play for what’s upcoming soon. No matter what, 2010 will settle the inflation/deflation debate either way. Unfortunately, we are losers either way.
So anyway, I think that was the best, succinct statement of the deflationist camp that I’ve seen. And I really like how Craig concludes, “No matter what, 2010 will settle the inflation/deflation debate either way.” However, I think Craig is overlooking the fact that we could both be proven wrong–CPI could stay roughly flat over 2010, in which case Scott Sumner and Paul Krugman end up looking good.
* Great Lew Rockwell article about Afghanistan. He gives four links to Mises Daily articles that warned about the debacle back in 2001.
* I haven’t listened to him with Scott Horton yet, but I’m sure Daniel Ellsberg is very interesting. I heard him on NPR commenting on the Afghanistan assessment, and he said something like, “I can’t believe that the military commanders are actually telling President Obama that if they get 40,000 extra troops, they will be able to achieve anything that we could call success.” Ellsberg made a very interesting point in his book Secrets. He said that after the nightmare of Vietnam, the conventional wisdom was that the political leaders were out of the loop, that the “reality on the ground” was getting filtered at each level as it went up the chain of command. So (according to the conventional wisdom) the president foolishly pressed on, thinking a few more bombing campaigns and a few more thousands troops would turn the corner. But that was completely false, Ellsberg says. He says that the presidents (JFK and LBJ) would go on TV and say what the generals were telling them, and they would simply be lying through their teeth.
* Speaking of Scott Horton, here I am, speaking with Scott Horton.
* Finally! Jeff Hummel politely tells Scott Sumner he’s nuts.
* Robert Wenzel must have just given himself a paper cut or something when he read this Arthur Laffer piece, which I thought was really good. Sure, Laffer doesn’t subscribe to the Austrian theory of the business cycle, but I bet most people would have predicted that Laffer would be praising Bernanke’s liquidity injections. Not so.
In reference to the 1933 – mid-1937 period, when CPI rose about 15% despite double-digit unemployment, Laffer says: “Inflation can and did occur during a depression, and that inflation was strictly a monetary phenomenon.”
At first I thought he was being coy, by ignoring the Keynesian trump card that things seemed to be going swimmingly when FDR first took over. But Laffer really is making a very good point here: According to the Keynesians–and indeed, according to the WSJ reporters, financial analysts, and the Federal Reserve itself–we are in no threat of rising price inflation now, because of “spare capacity.” So how they heck do these people explain the CPI increase from 1933-1937? Isn’t that supposed to be impossible?
I’m being dead serious. Sure, they can say, “Give me a break, I’d take plummeting unemployment rates in exchange for 5% inflation any day,” but that’s not the tradeoff they’re saying we face right now. They’re saying there is no threat of inflation with a bunch of spare capacity. Are they instead going to refine the argument and make it about second derivatives?
I love it when the faculty member teaching in classroom the class before mine leaves the board unerased. It gives me a great chance to talk about negative externalities, including why they arise and how they do or do not get resolved. (Last year, I got so pissed with one colleague that I almost snuck in the room before HIS class and filled the board with writing as a way of getting him to think about the problem, but I didn’t.) But here’s a question to think about: are economists more or less likely than faculty from other disciplines to leave their boards unerased? Does our knowledge of economics and negative externalities give us some empathy toward potential cost-bearers that others might not come by as easily?
I commented thusly:
I can imagine some economists leaving it up there and, if challenged, saying, “It’s a stupid system. The administration should dock our paychecks if they want us to erase the board. It’s self-enforcing if we all have to erase the board once in the beginning.”
In fact, I almost convinced myself just now! How do you justify your sucker’s equilibrium, Steve?
In this post I quoted this sentence from (Michael Jordan’s agent) David Falk’s book:
The second person was Mark Dowley, who also worked for me at ProServ and went on to run the marketing department for a large Hollywood agency called Endeavor, which is run by my very good friend Ari Emanuel, the younger brother of Rahm, who is now a congressman from Illinois.
Apparently Ari Emanuel was the inspiration for Ari Gold, the epitome of a type-A personality in the HBO show Entourage. There are a bunch of great compilations of “Ari’s Best” on YouTube, but the following was the best I could find that was of manageable length. (The mismatch between video and audio is annoying at first, but you adjust pretty fast.)
Man those Emanuels must be something. (Read about the steak knife incident if you haven’t already heard of it.)
If you can overlook the use of vulgarity and the failure to use reflexive pronouns, this is pretty sweet. At first you might think, “Oh it’s just some punk kid who hates rules,” but it’s actually pretty sophisticated. (HT2LRC)
[The American Express commercial featuring Duke coach Mike Krzyzewski] came about due to a combination of people. One was a local consultant named Gary Stevenson, who had attended Duke and later worked for me in marketing at ProServ. The second person was Mark Dowley, who also worked for me at ProServ and went on to run the marketing department for a large Hollywood agency called Endeavor, which is run by my very good friend Ari Emanuel, the younger brother of Rahm, who is now a congressman from Illinois. (Falk p. 191)
Who knows the interesting trivia regarding Ari Emanuel, besides the fact that his brother is now Obama’s chief of staff?