European Budget Bask
For my class on the sovereign debt crisis, I’d like to look at the budgets (absolute money units of both expenditures and receipts, not just deficits as % of GDP) over the last few years from the PIIGS. Any ideas on where I can get this stuff, besides wading through the websites of the various governments? (I tried that for Spain, for example. Although their latest budget has an English pdf, the earlier years don’t–or at least I can’t find them. And no hablo espanol.)
Daniel Kuehn: We Keynesians Have Always Been at Peace With Bastiat
I realize I should be more selective in my blogging. I shouldn’t keep focusing on some guy’s blog who just started in a PhD program three days ago. A man of my prominence… heh a little Friday humor for you all.
I’m not going to take the time to bring everyone up to speed on this Broken Window debate. Suffice it to say, the more I thought about it, the more I thought that if you believed that there are currently idle resources, and you believed that there is a “multiplier” effect from additional spending when we are in a liquidity trap, then you just might have to agree that a small disaster (so long as nobody got hurt and everything that was destroyed could be replaced) was good on net, in economic terms. It would be an empirical matter, relating to the size of the premium placed on leisure versus the size of the spending multiplier.
So here’s how I made my case to Daniel Kuehn on his blog:
Daniel, let me try it this way. (I’m not trying to trap you, I’m really trying to think this through.)
Suppose John Boehner was visited by the ghost of Keynes Past and realized he was being a jerk. So he capitulates and lets the government run a $1 billion higher deficit this year, by building (say) a bunch of bridges with a market value of $1 billion.
However there is an additional $840 million in economic activity. Let’s assume it creates $840 million worth of new cars.
(I know it’s unrealistic to say it’s all in durable stuff; just trying to keep it simple.)
The only real opportunity cost here–assuming no crowding out–is the forfeited leisure of the unemployed workers.
So it seems to me that if the extra $1 billion in government investment is due to Boehner’s guilty conscience, then society is $1.84 billion richer.
So, if it takes a $1 billion disaster to get Boehner off his duff…aren’t we still up $840 million?
The crucial thing (to me) are the twin Keynesian ideas that there are (a) currently idle resources and hence no opportunity costs in eliciting output from them, and (b) multiplier effects from an initial burst of spending.
Then in the next comment I tried to boil it down even more:
So I guess what it comes down to (possibly) is yes, it’s an empirical matter, but I think the issue is, should the penalty due to forfeited leisure be higher or lower than the gain from the multiplier?
If workers didn’t care whether they were idle or not, and if there were no multiplier, then a disaster would have no effect on society. It would just be a wealth transfer from the victims of the disaster to the previously unemployed workers. After the disaster, the victims would be out the amount of the disaster, but the workers would be up that amount. Total wealth would be the same (because the workers would have repaired the actual damage).
In reality, of course, the workers on net wouldn’t have benefited from the full amount of their paychecks, because it’s a hassle to have to actually build stuff. But if you think that there are sticky prices blah blah blah, then the new spending by the victims has spillover benefits. Thus other unemployed workers can be mobilized, creating net new wealth over and above just replacing the destruction. So if the spillover effect is bigger than the construction workers’ preference for leisure…net gain.
Right?
Now here’s Daniel’s response from two comments (here and here). I’m combining the two things and editing out a lot, to show you (what I consider to be) the crucial rhetorical move. By all means, click the links to see if I’m leaving out anything important. But I think most of you at least will see what Daniel has been forced to do, to continue insisting that disasters aren’t good for the economy:
So if a store owner has to spend money on his window rather than shoes we all agree there’s an opportunity cost, right?
The same is true today. If my stuff got wrecked in a disaster I would have to divert money from other uses to replace it. Sure we’ve got idle resources, but that doesn’t mean people have a billion dollars sitting around – we’re still purchasing things….
No, [your accounting Bob] seems to miss Bastiat’s whole point.
1. You have a reduction of wealth due to the disaster itself.
2. As you say here, workers who do the rebuilding get more income, but
3. The shoemaker gets less income.
2 presumably cancels out 3 when there’s no multiplier (which you stipulated), and then you still have this big gaping hole from 1.
So no, I would not say it’s “just a wealth transfer” in the absence of the multiplier. As Bastiat points out – it’s a loss.
So, to do my best impression of Matt Yglesias, let’s review the argument:
(1) Keynesians say that a natural disaster might do “some economic good” when there are idle resources.
(2) Austrians say that’s nuts, it ignores Bastiat’s Broken Window Fallacy.
(3) Keynesians say Austrians don’t understand Bastiat; he was talking about a case of full employment. When there are idle workers, there isn’t full crowding out, and in fact the disaster’s gross damages are mitigated. However [Kuehn adds] no Keynesian ever said that the disaster would lead to net benefits.
(4) Bob argues that it’s an empirical matter, and that with multipliers (touted by the Obama Administration on food stamps) of 1.84, it sure does seem that a disaster would yield net benefits, so long as it didn’t push us up against full employment.
(5) Daniel Kuehn argues that this is wrong, because we have full crowding out, as Bastiat taught us.
OK I have to leave this now, and go prepare for the Fight of the Quarter. Speaking of which, this Karl Smith guy is very clever–check out this post.
Obama Voter Now Supports Ron Paul
This guy’s enhanced clarity resonates with me. I didn’t vote for him (I’m pretty sure I had decided by that point in my life that I was done with voting), but I remember really really hoping late on election night, 2000 that George W. Bush would beat Gore. You know why? I didn’t know (or care) much about foreign policy. No, the thing that worried me was…Al Gore would interfere with business!! So I was very relieved indeed when that free-market conservative George W. Bush ascended to the White House.
Anyway, here’s Anthony Anderson on Huffington Post:
I truly believe that I speak for so many young progressives that would be proponents for peace, clean food and water, and a government that actually helps and cares for its citizens.
After 8 years of GWB and the lies about WMDs, 9-11, Monsanto, Iraq…etc…anyone coming from the other party looked like a better choice. I was somehow still under the illusion that the Democratic Party would work for the people and not corporate/banking/defense industry interests.
I cried when Obama won. I really thought it was a new dawn for the US and the world as a whole. I was so ashamed of the Bush administration… all the violence and greed just made me ashamed to be from the US. Somehow though I still thought that there was a difference between the two parties.
I have to thank Mr. Obama for waking me up to this truth. When he showed support for Monsanto and big agribusiness, the continued (and escalated) warmongering, and even the continued selling-out of the American taxpayer to the Federal Reserve, the lightbulb went off in my head — they are all simply employees.
On the other hand, Dr. Ron Paul seems to be the only candidate that is talking about the big pink elephant in the room. The money wasted on war, the fact that our nation has been sold to international banks, and that the federal government is becoming a monster overtaking state autonomy.
I never would have thought that the day would come where I would actually consider voting for someone else than a democrat. I want the world to be clean and healthy paradise planet for the next generations and for those that are living here now. I want the freedom to be able to buy clean food and drink unfluoridated water. I feel that its not asking too much, but the current administration continues to take away these rights.
Ron Paul seems to be the only option, and the furthered bashing of him by the mainstream media shows that they see him as a threat. I seriously hope that his time will come in 2012.
Peace and Prosperity to the US and EVERY person on the planet! Here is to sanity in 2012.
Talk About Chutzpah
So Steve Landsburg totally busted Paul Krugman’s bogus critique of Eric Cantor. Specifically, in order to show that Cantor’s insistence that any disaster spending be offset by other cuts violated “basic economics,” Krugman had to initially assume that government fiscal policy was optimal. Neither Krugman nor Cantor thinks that. It is a bit like saying, “Cantor is an idiot! Suppose aliens showed up and said that if we ran a $1 billion higher deficit, then they’d cure cancer. Clearly any reasonable person can see we need higher deficit spending now.”
So what did Krugman do? He could have ignored it, but Landsburg’s blog post is picking up traction and it would have been a glaring omission in the eyes of the free-market econ bloggers (all 6 of us). So instead Krugman very lightly acknowledges the point–without conceding any wrongdoing on his part of course–and then spins it so that Landsburg is a defender of blackmail (hey that’s Walter Block’s job!):
Landsburg points out, correctly, that the proposition that a spending increase should be offset with a little bit of pain everywhere and everywhen — that is, with higher current and future taxes and lower current and future spending on many things — follows from assuming that the government starts from a position of doing the right thing. If you think the government’s priorities are all wrong, then theory doesn’t tell you much about what should happen.
But wait: Eric Cantor is the one claiming that there’s a principle here, that any spending rise on disaster relief must be offset with current spending cuts. I’m critiquing that assertion; there is no such principle. I should have been clearer on that.
Where Landsburg really goes where he shouldn’t, though, is by comparing Cantor’s proposal to denying someone goodies unless he shapes up elsewhere — he uses the example of a teenager who won’t be allowed to go to the prom unless he does his chores. Is that really a good metaphor for what’s happening here?
Remember, Cantor isn’t denying something called “the government” the right to do something it wants to do. He’s denying disaster relief to people hard hit by a hurricane. That is, he’s holding suffering Americans hostage to his goal of smaller government. And the whole point of his offsetting spending cuts thing — his invention of a nonsense principle — is to obscure the ruthlessness of the blackmail involved.
Is this really a tactic you want to defend?
I’ll let Steve defend himself, but I just want to point out that no, Dr. Krugman, Steve wasn’t so much defending Cantor’s political move. He was pointing out that your critique of it–in which you attempt, as always, to cast your opponents as complete idiots who are violating “basic economics”–was a total non sequitur, relying on an initial assumption that neither you nor Cantor believes.
Steve, if you read this first…just collect yourself. Rather than firing off some quick blog post repeating the back-and-forth, try to think of a really good analogy or illustration of Krugman’s diversionary tactic here.
Last point: The post title is a reference to the fact that Krugman routinely guffaws at the “chutzpah” of others. I don’t personally drop Yiddish bombs myself.
Have Anthropologists Overturned Menger?
My sources say no. And one of my sources is Radford’s classic article on the economic organization of a POW camp. Even if you’ve read it before, I encourage you to skim it again. His description of how cigarettes quickly became money in his camp fits exactly the standard Mengerian account.
Anyway here’s an excerpt from my article:
Last week the popular blog “naked capitalism” ran an interview with David Graeber, an “economic anthropologist” whose new book allegedly destroys the standard account of the origin of money. If correct, Graeber’s views would prove embarrassing to the Austrian School, because it was none other than Carl Menger who developed the first systematic explanation for how people went from barter to a full-blown monetary economy.
…
First of all, let’s be more specific about what Graeber thinks he would need to find. One of the standard disadvantages of barter is that it requires far more prices than a system using a single medium of exchange (i.e., a money). For example, if there are just 20 goods in the economy, then a board showing all the relevant price ratios in a system of direct exchange would need (20 x 19) / 2 = 190 unique prices. In contrast, if an economy with 20 goods were using money, then a board at the marketplace would only need to show 20 unique prices. So is Graeber really that surprised to not find evidence of traders dealing with 190 prices for a small economy, as opposed to discovering the advantages of money and then posting money prices?
This leads to a related point: Mises believed that economic calculation (for which money prices are necessary) was a pillar of economic rationality and civilization itself. So again, it’s not surprising that Graeber and his colleagues haven’t found evidence of civilizations with bustling markets and written records that were still relying on barter pricing.
Finally, we have actual case studies of communities developing money prices from scratch: namely, prisoners who end up using cigarettes as the common medium of exchange. The classic work here is Radford’s 1945 article, “The Economic Organization of a P.O.W. Camp.” There is nothing in Radford’s account that conflicts with the standard economists’ story about the origin of money. The prisoners certainly weren’t giving each other things from their Red Cross kits as gifts or as loans. No, they first were trading (in a state of direct exchange) and cigarettes quickly became the money in their community for all of the reasons that economists typically cite.
And to reinforce the point we made earlier, Radford explains that the prices (quoted in cigarettes) of various items were posted on a board. If Graeber and his colleagues stumbled upon the ruins of this P.O.W. camp, they would presumably conclude that there was never a preexisting state of barter, because they only found boards listing prices quoted in terms of cigarettes. There were no boards listing the thousands of pairwise permutations of direct-exchange ratios, and so clearly the Mengerian story must have been wrong — so would go the erroneous reasoning of Graeber.
To see the merits of the Mengerian account — and to understand just how fast economies can evolve from barter to the use of money — the reader should look at Jeff Tucker’s whimsical account of children exchanging Halloween candy in his dining room. (Hint: Neither Tucker nor his wife swooped in to provide a unit of account for the children.)
The Early Blogger Gets the Worm
In this case, the blogger being Steve Landsburg (and the worm being…).
Recently Krugman wrote a post ripping Eric Cantor, which purported to show that standard economic reasoning rejected Cantor’s calls to pay for disaster spending with budget cuts elsewhere. What jumped out at me right away was that Krugman’s blog post relied on an assumption that two weeks ago, government spending and taxing policies were optimal. That was a pretty funny assumption for Krugman of all people to be making.
I was going to wait for unexpectedly good economic news (there are 8 such stories per day on CNBC, along with 8 such stories of unexpectedly bad economic news), link to the story, and then write up a fake Krugman post where he claims that now we can reduce unemployment benefits and other transfer programs, in order to reduce the deficit. This is because the day before the unexpectedly good news, the marginal benefits and costs of government policies were just right, and so after the good news the marginal costs of deficit spending were higher than the marginal benefits, etc. Thus basic economics, according to Nobel laureate Paul Krugman, demanded fiscal austerity on the margin.
But, no need to do all that now. Steve Landsburg beat me to the punch.
Quotable Quotes
“If money is redirected because of damage, it sure as hell results in less money somewhere else, regardless of the unemployment situation. [The Broken Window Fallacy] holds. (Even if the loner was hoarding the money as part of his cash balance, it means the loner now has a lower cash balance, which presumably would mean he considers himself less wealthy.)” —Bob Wenzel
“The boilerplate Keynesian position is to increase spending and lower taxes during a downturn. So there is no proposal of taking money from anybody. The point is to create money or other safe, liquid assets (like, say, Treasury debt) for which there is an excess demand.” —Daniel Kuehn
Uh Oh, I’d Better Go to Bed Early on Thursday
Yikes! I knew this guy was no punk, but I didn’t realize he had this in him:
I’m debating Bob Murphy on Friday at 6pm. This is a web debate and its pay-per-view. Which means, of course, that both Bob and I will be in the Octagon, battling to submission.
This is the econ web cage match of DEATH.
So what’s the backstory?
Well, the Austrians at Mises.org challenged Paul Krugman to a debate. Krugman demurred. Seeing no champion to oppose them the Austrians declared victory and a pall was cast over the land.
Wickedness rose up and all that was just and right was driven into the shadows. Flowers wilted. Virgins cried. Cats couldn’t find a comfortable sleeping position. It was a time of unimaginable peril.
But just as things seemed their darkest, a new hope emerged. A hero came forth who could save what was good and decent about the world. A man who could give the people a reason to believe. I speak, of course, of myself.
Now on Friday that hero – me – will vanquish the great evil and send the demon Austrians back into the hellfire from whence they came.
What I humbly offer you, dear reader, is to be a part of this great event. To be present at the Quickening. To see light triumph over dark. To see good banish evil. To see a final resolution to the Manichean struggle that has gripped mankind since time before time.
Is this not worth but a small fee (that you could probably charge as a business expense, we are using cisco “web-conference” software) to witness a turning point in human history.
Tales of this event shall the good man teach his son. Yearly on the anniversary they will feast this day. Then will he pull forth his credit card receipt and say . . . this charge I made on that day.
Old men forget, yet all should be forgotten but he’ll remember with advantages what arguments we made that day.
Hayekian Triangles, Keynesian Crosses and fiscal multipliers shall be in their cups freshly remembered. And, economics debates shall ne’er go by from this day ‘til the ending of the world, but Bob and I will be remembered.
Will you join us dear reader? Will you be a part of this day?
If so, register now [here].
As I once said of Scott Sumner (quoting from a cheesy movie): “At last, a man worth killing.”
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