Ron Paul on Iran
Wow I hadn’t seen this clip. (Lew Rockwell and Scott Horton referred to the Paul/Santorum exchange during an interview.) For those who can’t understand why people get so fired up about Ron Paul, it’s because of stuff like this. This is the furthest thing from a smooth politician, flattering the American public to win their votes. I still can’t believe he came out and said it like this.
Krugman Has Been Onto Us For Years
Here is a Slate article from way back in 1996. I didn’t think he could find Austria on a map back then. In an article trying to explain the persistence of supply-side economics, Krugman wrote:
The appeal to the intellectually insecure is also more important than it might seem. Because economics touches so much of life, everyone wants to have an opinion. Yet the kind of economics covered in the textbooks is a technical subject that many people find hard to follow. How reassuring, then, to be told that it is all irrelevant–that all you really need to know are a few simple ideas! Quite a few supply-siders have created for themselves a wonderful alternative intellectual history in which John Maynard Keynes was a fraud, Paul Samuelson and even Milton Friedman are fools, and the true line of deep economic thought runs from Adam Smith through obscure turn-of-the-century Austrians straight to them.
A Note on Emails
A lot of you occasionally send me emails through the blog submission form. That is great, and I welcome them. I read them all too (eventually). But I am in the (un)fortunate position where I just can’t justify using my scarce office time to answer them all.
So, if you send me something (like a link to an article saying, “Bob you gotta blow this guy up!!”) and I don’t answer, it’s not because you sent me something dumb. I mean, perhaps you did send me something dumb, but you shouldn’t conclude as much from my failure to respond.
Ozone, Krugman, and Landsburg
The White House recently backed off a proposal to tighten ozone regulations. (The proposal was really absurd. It would have required possibly 0.06 ppm, or 60 parts per billion–the equivalent of less than a cup of water in an Olympic-sized swimming pool. The EPA itself said that up to 96 percent of the monitored counties in the country would be in violation of the new rule. I saw others claiming [not sure if the EPA admits this] that there are areas in Yellowstone National Park that would be in “non-attainment” with the lower threshold.)
Paul Krugman was, naturally, aghast. He didn’t focus on kids suffering from asthma or other environmental issues, but instead looked at it from a liquidity trap perspective:
As some of us keep trying to point out, the United States is in a liquidity trap: private spending is inadequate to achieve full employment, and with short-term interest rates close to zero, conventional monetary policy is exhausted.
This puts us in a world of topsy-turvy, in which many of the usual rules of economics cease to hold. Thrift leads to lower investment; wage cuts reduce employment; even higher productivity can be a bad thing. And the broken windows fallacy ceases to be a fallacy: something that forces firms to replace capital, even if that something seemingly makes them poorer, can stimulate spending and raise employment. Indeed, in the absence of effective policy, that’s how recovery eventually happens: as Keynes put it, a slump goes on until “the shortage of capital through use, decay and obsolescence” gets firms spending again to replace their plant and equipment.
And now you can see why tighter ozone regulation would actually have created jobs: it would have forced firms to spend on upgrading or replacing equipment, helping to boost demand. Yes, it would have cost money — but that’s the point! And with corporations sitting on lots of idle cash, the money spent would not, to any significant extent, come at the expense of other investment.
It’s that last part in bold that puzzles me; it seems Krugman has made an elementary mistake. In basic economics, a firm will allocate its wealth among different outlets until the marginal benefit (MB) is equalized among them. So if a firm is spending, say, $1 million on its R&D budget, and $6.8 million on advertising, and yet is keeping $2 billion in the form of short-term Treasuries (“cash”), this is because on the margin the firm sees no gain from reallocating those dollars. To switch $10,000 from cash into advertising would make the firm worse off, from its narrow perspective.
Now, if the government comes along and imposes stricter ozone regulations, then the marginal benefit of spending on factory revamps goes way up. So how should the firm respond to the new situation? It seems to me that basic economics would say that the firm would cut back on spending across all areas, and it would also reduce its cash holdings a little. (I think Daniel Kuehn agrees with me.)
So it seems Dr. Krugman has forgotten a principle from basic economics. The new investment spending flowing from tighter ozone regulations would have largely come from cutbacks in spending in other areas, and only partially out of cash reserves. (The crucial point here is that cash reserves aren’t “idle”; they serve a function to the entity holding them.)
This is all the more interesting a mistake, since it was only a few days earlier that Krugman had (incorrectly) used the same apparatus to chastise Eric Cantor. Steve Landsburg explained why, in that context, using the idea of small changes to MB was not correct–neither Cantor nor Krugman would have conceded that the government’s spending priorities were initially in an “optimal” arrangement. Krugman admitted that Landsburg was right.
And yet it seems that Krugman took the lesson too much to heart. It’s true that “basic economics” doesn’t say anything how a government should respond to a change in spending priorities (such as the need to address a sudden disaster). But basic economics does shed light on how a private firm will respond to a change in its spending priorities (such as the need to address stricter ozone regulations).
Two Gospel Episodes That Always Puzzled Me
I recently read over these passages, and remembered that they had always puzzled me (for different reasons). First we have Jesus healing a blind man, as is His wont (Mk 8: 22-26):
22 Then He came to Bethsaida; and they brought a blind man to Him, and begged Him to touch him. 23 So He took the blind man by the hand and led him out of the town. And when He had spit on his eyes and put His hands on him, He asked him if he saw anything.
24 And he looked up and said, “I see men like trees, walking.”
25 Then He put His hands on his eyes again and made him look up. And he was restored and saw everyone clearly. 26 Then He sent him away to his house, saying, “Neither go into the town, nor tell anyone in the town.”
Do I need to spell it out? Isn’t that an odd story for an omnipotent, omniscient God? It reminds me of going to the optometrist, when he keeps flipping the lenses to figure out your prescription. “Better or worse? Better or worse? Better or worse?”
There are plenty of stories where Jesus draws out the healing, but there is usually an obvious reason He’s doing it (for the purpose of teaching a lesson). Yet I don’t see what the purpose of the intermediate step is here. Any theories?
A little bit later there is another odd one (Mk 9: 14-29):
14 And when He came to the disciples, He saw a great multitude around them, and scribes disputing with them. 15 Immediately, when they saw Him, all the people were greatly amazed, and running to Him, greeted Him. 16 And He asked the scribes, “What are you discussing with them?”
17 Then one of the crowd answered and said, “Teacher, I brought You my son, who has a mute spirit. 18 And wherever it seizes him, it throws him down; he foams at the mouth, gnashes his teeth, and becomes rigid. So I spoke to Your disciples, that they should cast it out, but they could not.”
19 He answered him and said, “O faithless generation, how long shall I be with you? How long shall I bear with you? Bring him to Me.” 20 Then they brought him to Him. And when he saw Him, immediately the spirit convulsed him, and he fell on the ground and wallowed, foaming at the mouth.
21 So He asked his father, “How long has this been happening to him?”
And he said, “From childhood. 22 And often he has thrown him both into the fire and into the water to destroy him. But if You can do anything, have compassion on us and help us.”
23 Jesus said to him, “If you can believe, all things are possible to him who believes.”
24 Immediately the father of the child cried out and said with tears, “Lord, I believe; help my unbelief!”
25 When Jesus saw that the people came running together, He rebuked the unclean spirit, saying to it, “Deaf and dumb spirit, I command you, come out of him and enter him no more!” 26 Then the spirit cried out, convulsed him greatly, and came out of him. And he became as one dead, so that many said, “He is dead.” 27 But Jesus took him by the hand and lifted him up, and he arose.
28 And when He had come into the house, His disciples asked Him privately, “Why could we not cast it out?”
29 So He said to them, “This kind can come out by nothing but prayer and fasting.”
What’s going on in this one? What does He mean by “this kind”? Is there a hierarchy of demonic spirits?
Also, what does Jesus mean when He says it can only come out by prayer and fasting? Throughout the gospel, Jesus tells people that they just need to have faith–in fact He says it in verse 23 in this very story. And indeed when He first hears that his disciples couldn’t perform this task, His conclusion is that they are a “faithless generation.” (I’m assuming He’s talking about the disciples who couldn’t heal the boy, right?)
So what is the story with His declaration in verse 29? Obviously Jesus didn’t engage in prayer and fasting to cure the boy.
Potpourri
* I don’t care if you’re a Keynesian, if you tell people they should read my blog, you’re very likely to get a link from me. Oh, it’s a post about the Broken Window. I think we’re almost done discussing it…almost.
* David R. Henderson posts a funny Samuelson anecdote. (Note: I was making a joke in the comments, but from what I’ve heard about him in his personal life, it wouldn’t shock me.)
* An oldie but goodie: Anthony Gregory makes the case that Obama is worse than Bush on war.
* Rob Bradley pays a tribute to Murray Rothbard (under whom he got his PhD), in the context of energy markets, and Roger Garrison follows suit.
* Tom Woods saw something, so he said something.
* Lew Rockwell reminds us that Gaddafi gave up his WMD program at the urging of the US government. That was one of the successes attributed to the Iraq invasion, you may recall. So if you’re a tinpot dictator with a budding WMD program, what would you conclude? (I pointed out in my critique of the Iraq invasion to the Hillsdale Liberals that the US had invaded a country where the dictator had apparently gotten rid of his WMD, while at the same time the US was giving aid to North Korea, where the dictator was conducting tests of his WMD in defiance of the West.)
* For a long time I’ve watched my emails and phone conversations, assuming they were being recorded. I don’t actually think I’m that important yet, but I figure at some point I will be and I might as well get into good habits. It’s too late for Justin Raimondo.
Doug French: An Angel or Devil?
I am very underwater on my house and I would like to believe Doug French when he says I should walk away, but I can’t help but feel that it would be dishonest if I did so. Doug has a bunch of good arguments explaining that the mortgage market is run by the government, that the lenders knew there was a risk, that they have the collateral of the house, etc. etc. Still, I kept coming back to, “If I am able to pay it, then I should continue to do so.”
At the end of the article Doug goes for the throat:
When asked about the morality of strategic defaults many people will respond that it’s okay to default if you can’t make the payment, but if you can it’s immoral — similar to the “ability-to-pay” argument of those who support progressive taxation….
How does one define ability to pay? Enough after-tax income with all adults working to service the debt and enough money left over to pay for groceries and other essentials? What if each adult can work two jobs making enough to service the mortgage? Or three jobs each?
Should homeowners have another family move in and have the families rotate to use the house, with the respective adults working opposite shifts (one set of adults working day shift, the other night shift)? Many Hispanic families did this in a 24-hour town like Las Vegas during the housing boom in order to afford housing. Builders catered to these buyers in the lower-priced northeast part of the city by constructing relatively small homes (under 2,000 square feet) that were carved into seven bedrooms.
What should a person give up in order to make their payments? Food, education, transportation, funds to live on in old age?
During Weimar Germany’s hyperinflation, middle-class wives and daughters engaged in prostitution to keep a roof over their families’ heads and food to eat. Is it a strategic default if the family females (or the males for that matter) do not sexually service clients for money in order to pay the mortgage? If not, one wonders why the default moralists draw the line there.
So yeah, Doug is right: There’s no bright line around “ability to pay.” Obviously, I wouldn’t sell my kidney (even if it were legal) to keep making my payments; at that point I would have no moral problem in throwing in the towel and saying, “I can’t keep this up.”
Where is the line? I agree with Dave Ramsey that it is wrong to stop making your payments once it becomes inconvenient. When you agree to do something, that should mean something.
Post-Game Show
Well Karl Smith and I entered the Econ Cage Match of DEATH (his term), and I’m here to tell about it, so…
In all seriousness, if you had meant to watch the debate live and just forgot about it (or if you actually have responsibilities or something), you can still register and watch the recording.
Karl was a good sport. My one major regret is that we were actually in agreement on a lot of issues, so I had to dig deep to find an argument. In any event, Karl was very brave for entering the Rothbardian Thunderdome. At the beginning of the debate, the poll showed something like 5 people agreed with his side, and 135 with mine.
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