30 Sep 2011

Jake Tapper vs. Jay Carney on President Killing U.S. Citizens

Big Brother, War on Terror 44 Comments

Really, stop what you are doing and just watch this. It’s short. Even though you know what the ultimate position is, try to forget that for a minute and listen with fresh ears. This is simply astounding.

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30 Sep 2011

Notes From the Six-Year-Old on Social Choice

Humor 4 Comments

On two possible stories (one involving porcupines and one involving bears) that I might tell in the car:

Clark: Let’s decide which story we want to hear. If we pick the same story then that’s the one we’ll tell. If we pick different stories, then we’ll tell the one that I picked.

Bob: Whoa, if we pick the same story then that’s the one, but if we pick different stories, we end up doing the one you said?

Clark: No, if we pick different stories, then we’ll just do the best one.

Then a little later he mentioned that he had voted for the kids on the 3rd-grade council.

Bob: So how do you pick the kids you voted for?

Clark: Well we only had to pick 3 kids.

Bob: Right, but how did you decide how to pick them?

Clark: Well we had to put an X next to their picture.

Bob: Right, but how did you figure out which kid you put an X next to? Like, were some of them your friends so you put an X next to their pictures?

Clark: No, I didn’t know them. They said some nice words. Guess what?! There was one kid who said, “If you vote for me, I’ll make your dreams come true.” Isn’t that funny? So I put an X next to his picture.

30 Sep 2011

Nick Rowe, Kung Fu Master

Economics 21 Comments

I’m not sure what to make of this guy Nick Rowe. I picture him as a veteran Kung Fu master, who declined to help when I told him my clan was going to battle the evil Keynesian duke. But then when some of the women and children in our town got ambushed, Master Rowe appeared out of the shadows to lend assistance. Yet before I could properly thank him, he disappeared once again.

Anyway check out this post, which a reader sent me. Some excerpts:

The Lucasian map is not the Hayekian territory

In defence of Lucas ’72.

Take any macroeconomic model of a market economy with inefficient aggregate fluctuations. In fact, take any economic model where something bad might happen.

Assume that model is literally true.

The people in that model are idiots.

This conclusion follows immediately. If they weren’t idiots, the people in the model would appoint the economist modelling the economy as central planner, who would tell them all what to do, and make them all better off.

The people in Lucas’ ’72 model are complete idiots for producing less because they don’t realise there’s a recession on.

The people in New Keynesian models are complete idiots for waiting for the Calvo fairy to give them permission to cut prices in a recession.

All models suffer this same problem. If the world really were as simple as the economic model of that world, people would figure it out, and wouldn’t let bad things happen.

The map is not the territory. All models are simplifications of reality. They leave masses of stuff out. That’s what makes them models. That’s what makes them (potentially) useful. But it’s also what makes any model of a market economy self-contradictory. If the economy really were that simple, people wouldn’t need markets to resolve the Hayekian problem of the coordination of the changing plans of multiple people, each with their own local knowledge.


Suppose recessions lasted 1 week. If they did, I think most economists would have a very different view of Lucas ’72. “It takes people 1 week to figure out there’s a recession on and how to react? Sounds plausible.”

Suppose recessions last 100 weeks. “It takes people 100 weeks to figure out there’s a recession on and how to react? Sounds totally implausible.”

But maybe real world markets are 100 times more complex than the simple demand and supply model. And maybe the signal-processing problem is 100 times more complex than in that simple model. And maybe it takes people 100 times longer to figure out how to react, when one person’s reaction depends on everyone else’s reaction. That sounds plausible to me.

We draw a supply and demand curve and point to where the two curves cross. We shift the supply and demand curves and point to where the two new curves cross. The only people who talk about the process of getting from the first point to the second point are: teachers of Economics 1000; Austrian economists.

Maybe it takes time to get from the first point to the second point. Not because people are idiots, in not changing their prices, or not figuring out what’s going on and how to react. But because the territory is a lot more complicated than the map.

And it’s always going to be hard to build a map of how the territory is more complicated than the map.

30 Sep 2011

Paul Krugman, Pet of Big Government

Climate Change, Conspiracy, Economics, Krugman, Shameless Self-Promotion 4 Comments

That’s my latest post at the IER blog, in response to Krugman’s shrugging off of the Solyndra scandal. An excerpt:

To repeat, the Solyndra scandal is not simply a matter of the federal government wasting money on bad business ideas—the government does that all the time. Rather, Solyndra is “special” because the government managed to lose half a billion in taxpayer money even when its own analysts had given clear warnings beforehand. What is being investigated is whether the Department of Energy ignored its own protocols because of the special treatment given to Solyndra (which had made large campaign contributions and visited the White House many times).

So let’s go back to Krugman’s Pets.com analogy: If it turned out that Pets.com officials had raised money from outside investors on false pretenses, and had given sweetheart contracts to (say) suppliers of kitty litter at above-market prices, and then it turned out that Pets.com analysts had warned management that these contracts would blow up the company, yet the executives did it anyway because of kickbacks from the kitty litter vendors…then yes indeed, this would have been grounds for a lawsuit, and the government would start an investigation.

This isn’t a hypothetical supposition on my part. The public was shocked to learn that Goldman Sachs analysts internally referred to mortgage derivative products as “sh*tty” that they were selling to some of their clients, and in fact the government launched an investigation. So Krugman’s flippant analogy is wrong in multiple dimensions.

29 Sep 2011

Murphy Does Bratislava

Economics, Shameless Self-Promotion 1 Comment

I don’t know how to embed the videos here on the blog, but if you go to this link you can see my presentation (to a crowd of about 300) from Monday night in Bratislava, Slovakia and then the Q&A afterward. I’m being particularly demonstrative with the opening jokes to make sure everyone was with me; some of the people in the crowd were wearing headphones and listening to the translation.

My talk was titled, “Money and Banking: State versus Market.” (And just to warn you, no, I haven’t altered my talk in light of the anthropologist Graeber’s recent critique of my views. I am getting his book though and will review it for The American Conservative soon.)

29 Sep 2011

Theory and History

Humor 11 Comments

From my article on the grocery store:

In light of the above, let me offer a tip: When buying something from the dairy department, don’t just grab the first unit on the shelf. Often if you look two or three rows back, you will find a fresher one.

Besides the officially stamped expiration date, there is another reason to heed my advice: When shoppers put something in their cart and then change their mind, the item eventually finds its way back to the proper location. But if we’re talking about a carton of eggs or a package of string cheese, keep in mind that for all you know, that item may have been sitting out in room temperature for hours before an employee from the front of the store ended up putting it back. (In principle that shouldn’t happen, but c’mon we’re dealing with teenagers!) So that’s another reason it’s best not to grab anything perishable from the very front of the case.

In the comments to this article, “Jeff” wrote:

I am pursuing a career in supermarket management. (I figure that supermarkets aren’t going to go out of style, and if they do, we’ve got bigger problems). Any refrigerated item found laying around goes back in the cooler only if it is still cold. Otherwise it is immediately segregated and marked as unsalable.

You know those stereotypical cop movies, when the rookie joins the force and has all kinds of naive ideas that he learned in the Academy, only to be quashed by the street-smart veteran who knows how things really work on the job? Well it looks like Jeff and I have to make such a movie.

Coming this Christmas: Two hard-nosed grocery store workers. One dairy cooler with a lock. And one teenager who’s about to pass his expiration date.

29 Sep 2011

George Clooney Stars in New Movie About Ron Paul

Humor, Ron Paul 1 Comment

Man Jon Stewart has pull. He lets Hollywood know that Ron Paul is all right, and BAM a major motion picture.

29 Sep 2011

Murphy Twin Spin

Economics, Federal Reserve, Shameless Self-Promotion 22 Comments

On Monday I shared my thoughts on grocery stores, and yesterday I discussed Operation Twist. Some excerpts from the latter:

Just the fact that it’s an “operation” is disturbing. Ever since the crisis began, officials have deployed the military metaphor since their only solution to social problems is to start blowing things up. We have a war on poverty, a war on drugs, a war on terrorism, and (since 2008) we’ve had an undeclared war on the recession.

The military metaphor is crystal clear whenever analysts discuss the Fed’s options to “help” the economy, since interest rates are already at zero. Typically these analysts reassure their readers or viewers by declaring, “The Fed still has plenty of ammunition.” Don’t worry kids, we won’t end Operation Enduring Inflation until every last unemployed person is eliminated.

and

So for my non-Austrian economics colleagues, I have to ask, Don’t you think the term spread on interest rates does something? In normal times, if one economy has a spread of 5 percentage points between 1-year and 30-year bonds, while another economy has a spread of 8 points, do you think that difference is meaningless?

If not, then how can you support Operation Twist? Won’t the Fed be screwing up, whatever role you think the term spread serves in a market economy? For example, if you think the term spread relates to people’s “liquidity preference” and their aversion to being stuck with long-term bonds should interest rates move up, then does the Fed’s mere creation of dollars really address that underlying preference?