An Excellent Question From Steve Landsburg
When he’s not working on the great American novel, Steve Landsburg poses some excellent questions to his readers:
Scientists at CERN have found apparent evidence that neutrinos can travel faster than light.
Suppose that tomorrow historians at Harvard find apparent evidence that the South won the American Civil War — not in some metaphorical “they accomplished their goals” sense, but in the literal sense that it was actually Grant who handed his sword to Lee at Appomatox and not the other way around.
Question: Of which conclusion would you be more skeptical?
Of course your answer might depend on exactly what this new “apparent evidence” consists of. So let me reword: As of this moment, which do you think is more likely — that neutrinos can travel faster than light, or that the South won the Civil War?
This is indeed a “big question.” I encourage you to think about the implications of this, especially if your own gut reaction (like mine) is to be more confident about the War Between the States. Steve has put his finger on something really important here.
In principle, the “fact” that particles can’t go faster than light is supposed to be embedded in the very nature of the universe. I remember when I was younger, first reading about relativity, how the pop authors would all stress: “We are not talking about limitations on our technology here. Einstein showed that even in principle it’s impossible to travel faster than light. A million years from now, humans might have invented all sorts of neat gadgets, but they won’t have a spaceship that can travel faster than light.”
And yet, as Steve’s question brings to the surface, the caveat to all this was “…assuming we know the right laws of physics.”
I’m not sure why, but for some reason Steve’s question seems analogous to mathematical economics versus Austrian economics. The former is incredibly precise and rigorous, subject to the initial assumptions. Austrian analysis, in contrast, is a lot more loosey-goosey, but I’m more confident in its conclusions than in the things popping out of mainstream models.
(It should go without saying that none of my discussion really hinges on whether the CERN scientists “disproved Einstein” or not. Even if it turns out they didn’t, the point is–we are prepared to believe it. In contrast, if rogue historians announced that they had “disproved DiLorenzo” (by showing that it was the tyrant Lee who subjugated the North) then nobody would wait with bated breath to see what other historians had to say about it. We would all “know” the rogue historians were either crazy, liars, or relying on goofy definitions.)
A Whiny Student
Once I had a student Stevie Seasburg who slept through intro micro. Then he slept through intro macro. Then he slept through intermediate micro. Then he slept through intermediate macro. In his senior year, as an econ major with a C+ average (he was a very clever kid who could bluff his way through the exams I had to give), he signed up for my elective in Game Theory. Well he got crushed. After he bombed the first test he came into my office complaining, “What are you doing in this class? I can’t even make sense of what you are asking, let alone figure out the answer. I have no experience deciphering ‘utility functions’ and finding ‘equilibria.’ This is so hard!”
I think I should try to dig up Stevie’s contact info, and tell him to begin reading the blog of a prominent economist. It will cheer him up to see a kindred spirit.
Meeting My Brothers and Sisters in Slovakia
Due to an email introduction that frequent commenter Brian Shelley made a while back, over the past few days I have been staying in Slovakia with Jozef Abrman, a missionary working with a Christian church in Trencin, Slovakia. Jozef holds a lecture series in which he brings in Christians from all over the world who speak in their areas of expertise. Obviously I gave my perspective on the global financial crisis, whereas past speakers have (for example) talked about how they found redemption after incredible personal tragedy, or about the corruption of science they witnessed in their fields.
It was funny because when I told people I was going to Slovakia (piggybacking it on the Mises Institute event in Vienna), they said, “Who do you know there?” My honest response, “Nobody.” Not wanting to stir panic, I didn’t elaborate by saying that I was introduced to my host through a guy I “met” on the Internet…
Anyway, the three days I spent with the Abrman family were very pleasant. Jozef referred to me as “Brother Bob” and spent his waking hours trying to spread the gospel. He didn’t hop up on a soapbox on the street corner, preaching that the end was near. (That was my job during the Sunday presentation!) Instead, he (and his wife) would try to be as helpful as possible to people in their community. Obviously they didn’t make their faith in Christ a secret, but they sought to serve others and let their deeds speak for themselves, as Jesus did Himself.
Jozef has an amazing personal story, some of which I will briefly summarize here. He grew up under communist rule in Czechoslovakia. When he was 15, the government denied him permission to study at the schools near his home, so he had to go the capital city. Eventually he defected at age 19. He eventually came to the United States as a political refugee and became a U.S. citizen. Then he moved to Monte Carlo (I think?) to work for a group that beamed Christian radio into Slovakia. (They needed a Christian who could speak the language, so he was perfect.)
Naturally I asked Jozef all sorts of questions about living under communism. He said that in Slovakia at least, they had no problem with entrepreneurship per se. The one thing you couldn’t do was hire somebody else. (Later I pushed him further and he agreed that they wouldn’t let any private citizen own a large amount of property either.)
Another interesting theme from our talks was that the communist government persecuted Christians. For example, there was no way that a child from a known Christian family would ever get permission to study to become a doctor or a teacher. Those careers were barred to them. It’s an obvious point, but this anecdote shows why it is so dangerous to give “economic” powers to the State. The officials can and in practice do use this leverage to achieve non-economic objectives. I’m not kidding when I say that I opposed “ObamaCare” if for no other reason than it gives government tremendous leverage over individual opponents. “You don’t want to play ball? Oops, looks like Aunt Cheryl won’t be getting that kidney transplant after all. Let us know if you change your mind.”
As far as my own talk, I think it went well and I didn’t put anybody to sleep. During the Q&A when I suggested people should acquire some physical gold and silver, a lady in the back said so-and-so said the same thing, and the crowd approved–I can only assume she was referring to the Slovakian Glenn Beck.
I didn’t make my talk very political or ideological at all; I mostly blamed the financial crisis on greed, fraud, and hubris. I included politicians and central bankers of course, but I also said that the “smartest guys in the room” were to blame for thinking they were very clever and had found a very safe place for their accumulated riches. I ended by saying that the great lesson was not to put your faith in riches.
The Biblical background for my remarks comes from Luke 12: 13-34:
The Parable of the Rich Fool
13 Then one from the crowd said to Him, “Teacher, tell my brother to divide the inheritance with me.”
14 But He said to him, “Man, who made Me a judge or an arbitrator over you?” 15 And He said to them, “Take heed and beware of covetousness,[a] for one’s life does not consist in the abundance of the things he possesses.”
16 Then He spoke a parable to them, saying: “The ground of a certain rich man yielded plentifully. 17 And he thought within himself, saying, ‘What shall I do, since I have no room to store my crops?’ 18 So he said, ‘I will do this: I will pull down my barns and build greater, and there I will store all my crops and my goods. 19 And I will say to my soul, “Soul, you have many goods laid up for many years; take your ease; eat, drink, and be merry.”’ 20 But God said to him, ‘Fool! This night your soul will be required of you; then whose will those things be which you have provided?’
21 “So is he who lays up treasure for himself, and is not rich toward God.”Do Not Worry
22 Then He said to His disciples, “Therefore I say to you, do not worry about your life, what you will eat; nor about the body, what you will put on. 23 Life is more than food, and the body is more than clothing. 24 Consider the ravens, for they neither sow nor reap, which have neither storehouse nor barn; and God feeds them. Of how much more value are you than the birds? 25 And which of you by worrying can add one cubit to his stature? 26 If you then are not able to do the least, why are you anxious for the rest? 27 Consider the lilies, how they grow: they neither toil nor spin; and yet I say to you, even Solomon in all his glory was not arrayed like one of these. 28 If then God so clothes the grass, which today is in the field and tomorrow is thrown into the oven, how much more will He clothe you, O you of little faith?
29 “And do not seek what you should eat or what you should drink, nor have an anxious mind. 30 For all these things the nations of the world seek after, and your Father knows that you need these things. 31 But seek the kingdom of God, and all these things[b] shall be added to you.
32 “Do not fear, little flock, for it is your Father’s good pleasure to give you the kingdom. 33 Sell what you have and give alms; provide yourselves money bags which do not grow old, a treasure in the heavens that does not fail, where no thief approaches nor moth destroys. 34 For where your treasure is, there your heart will be also.
The most encouraging part of the trip for me was talking with people from the crowd afterward. Some of them came up and thanked me for my talk, but not because they had been burning with curiosity about credit default swaps. Rather, they were saying things like, “Thank you for reminding me to keep this life in perspective. We have greater things coming.”
Caitlin Long Surprises Talking Heads By Suggesting Low Interest Rates Could Be Bad
Caitlin Long works at Morgan Stanley and was at the Mises event in Vienna. She doesn’t really get a chance to say much in this clip. I mostly find it funny that the smartest guys in the room (well I don’t know if the camera person is a man) have never heard the idea that low interest rates could screw things up. They remind me of Guiliani in the 2008 debate with Ron Paul: “I’ve never heard that before.”
Mises Rolling Over in His Grave
The glib blurb from The Economist’s blog:
About Free exchange
In this blog, our correspondents consider the fluctuations in the world economy and the policies intended to produce more booms than busts. Adam Smith argued that in a free exchange both parties benefit, and this blog’s aim is to encourage a free exchange of views on economic matters.
“The Good One Versus the Evil One”
Such is the title given to this Mises Institute of Sweden article on my debate with Karl Smith. And here’s the accompanying photo:
(I can’t read it, but Klaus Bernpaintner assures me they were otherwise respectful to Smith.)
Operation Distract
Whoa! Everybody is getting all bent up about the bond duration aspect of Operation Twist, but I just noticed this in the Fed’s official statement:
To help support conditions in mortgage markets, the Committee will now reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.
This is new, right? (I’ve put the significant word “now” in bold.) It was my understanding that up till now, the Fed was maintaining its overall balance sheet by rolling maturing assets into Treasuries.
Do you concur? And if so, do you approve?
Arnold Kling Being Too Kind to Scott Sumner?
Arnold Kling has mood swings on his posts over at EconLog. When he wants to blow somebody up, it’s best to duck and take cover because he can really let the guy have it, especially if it involves housing and mortgage finance (since Kling really knows what he’s talking about).
On the other hand, Kling will often be unnecessarily conciliatory to people, like when he forgave Krugman for his unfortunate phrasing when quoting Paul McCulley on the housing bubble.
Case in point, lately Kling has been almost-congratulating Scott Sumner for a job well done in explaining our financial crisis de la semaine (sic?). Kling hasn’t totally thrown in the towel on his own Recalculation story (which is far more compatible with my Austrian views than Sumner’s calls for money printing), but Kling says we can’t definitively know one way or the other:
1. If you believe that aggregate demand matters, then monetary policy is too tight.
2. We won’t know whether or not to believe that aggregate demand matters until we see higher inflation. If we see 3 percent inflation or more for six months and no improvement in unemployment, then those of us who are skeptical of aggregate demand can say “told ya so.” But as long as inflation is as low as it is, it remains an open question.
I have two responses:
First, I think Kling hasn’t fully grasped the post-modernist, Copenhagen interpretation of Sumner’s views. I am not kidding, I am pretty sure that Sumner says we can’t look back at the data (ten years from now) and decide if a particular burst of monetary inflation “worked” or not. Or rather, the only thing we would be looking at, is the change in things like the stock market, TIPS yields, etc., that occurred immediately upon the new policy announcement. So there’s no need to wait.
Second, unless I am misunderstanding Kling’s chosen benchmark, the question is already settled: Sumner is wrong. Over the last six months, the (seasonally adjusted) CPI increased 1.8%, for an annualized increase of 3.6%. So we’ve just had Kling’s desired (price) inflation.
So what happened to unemployment over the last six months? The official rate increased from 8.9% in February to 9.1% in August. (Those are the same start/end months as for the CPI calculation.)
So, price inflation ran at a 3.6% annualized rate over the last six months, while unemployment increased. Time to kick Sumner out on the curb, Dr. Kling?*
* Again, it’s possible that Kling meant, “…starting now!” or that I have misunderstood his test in some other way.
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