Blessed Are the Peacemakers
OK kids, this broken window stuff is really getting out of hand. The problem here is that we’re not even arguing over economics anymore, we’re arguing over who said what and getting really huffy. (As usual, I am totally right and everyone who disagrees with me is either stupid and/or lying, but I’m used to that by this point in my life…)
Here are some possible positions that people might have. Note that in the following, I am going to assume for the sake of argument that it makes sense to quantify “economic benefits” to particular individuals in dollar terms, and that these benefits/harms are interpersonally comparable. I don’t want to argue about the legitimacy of such a move (feel free to do so in the comments); I’m just trying to clarify everybody’s arguments so we can resolve this dispute, and let Miller Time commence.
POSSIBLE POSITIONS ON DESTRUCTION AND THE ECONOMY:
(A) It is good on net. E.g. an earthquake wrecks a $1 billion building, this causes the owners/insurers to spend $1 billion repairing it (so they are that much poorer). However, because there were originally unemployed workers, they benefit $800 million from that round of spending–they valued their leisure at $200 million but now have $1 billion more in income. However, there are further rounds of spending and income generation because of the famous multiplier. When all is said and done, the original $1 billion in extra spending generated $1.84 billion in extra income in the economy. When you subtract out the 20% because of lost leisure, the gain (disregarding the loss of the building) is $1.47 billion. Subtracting the original loss of the building, there is still a $470 million net social gain. The economy truly is that much better because of the earthquake. Some people lost and some people benefited, but in general people are richer–all things considered–because of the mild earthquake.
Note that this approach isn’t susceptible to exaggeration. If the earthquake had caused $10 trillion in damage, the effect would flip, because once we hit full employment the multiplier would drop to 1 (instead of 1.84), and also because the opportunity cost would jump to 100%, not 20%. (I’m not sure if these are two sides of the same coin, or two separate considerations. I’m going on 5 hours of sleep and 9 hours in the car today, and remember, I’m not a Keynesian. But I think a Keynesian could fix up the above to be “right.”)
(B) It is bad on net, but because of originally unemployed resources, it isn’t as bad as the original gross damages would suggest. E.g. an earthquake wrecks a $1 billion building, this causes people to spend $1 billion repairing it, so the owners/insurers are $1 billion poorer. However, after all the rounds of new spending, the originally unemployed workers gain (say) $300 million over and above their foregone leisure. So society on net is worse off–by $700 million–but it’s not out the gross tab of $1 billion as a libertarian would have naively thought.
(C) It is bad on net, just as the gross damages would suggest, because the economy was originally at full employment. (This should be obvious; the economy is down $1 billion because of the earthquake.)
(D) It does $1 billion in gross damages, and net damages, even though there were initially unemployed resources, because the Keynesian “multiplier” is goofy. (This is the position I was arguing for in my Mises article and in the comments here at this blog.)
So I claim that tons of casual statements in the media fall under (A) above. Further, I claim that Krugman has been slippery and it’s not at all clear whether he agrees with (A), or the weaker claim (B). For sure, if Krugman thinks (B), then (A) should just be a matter of empirical case studies; there’s no theoretical reason to think (B) is possible but (A) is not.
The Broken Window Fallacy
At Mises.org today I start from Bastiat and go through this whole thing. However, after the preliminaries I take on the “idle resources” argument too. After all, doesn’t Gene Callahan have a point, that (under the right circumstances) a hurricane might lead to more jobs and GDP in a certain area, than would otherwise have been the case?
Yes, that’s right, but in that case “employment” and “total output” aren’t signs of economic goodness. (This is the position that Silas Barta has been taking all along when arguing in the comments.) Here’s the fable I used to try to illustrate the point:
[S]uppose Jim sees his neighbor sitting in a lounge chair, sipping a martini on a Saturday evening. Jim then decides to set his neighbor’s house on fire. Obviously, the neighbor jumps up out of his chair, and spends (let us say) the next hour putting out the fire and minimizing the damage the best he can. Would anyone in his right mind say of this scenario, “Sure, Jim caused some physical destruction of wealth, and that is a bad thing; however, let’s not lose sight of the upside: the neighbor used more of his labor than would otherwise have been the case”?
Then the only mopping-up operation is to go from “Jim’s neighbor” to “the whole economy.” (There’s a subtlety because some construction workers etc. really might benefit on net from the hurricane; i.e. they would be happy to give up their leisure in order to get a job.)
All in all, I think the Austrian/libertarian types are 99% right, and the Keynesians/nitpicking Callahans are 1% right. There’s no “upside” to natural disasters, alien invasions, terrorist strikes, etc., in terms of the economy. Maybe those events remind us of the truly important things, maybe they bring you closer to God, etc., but they don’t “boost the economy” in any meaningful way.
Salvation Through Faith or Works?
I’ve written on this controversial topic before, and I tried to resolve it by saying that faith is a work, meaning that it is a conscious action on your part to accept Jesus as your personal Lord and savior. (Note, I am technically not disagreeing with staunch Calvinists here. You can still think you were predestined by God from before you were born to “choose” Jesus. In fact I believe that too. I think we have free will, and God is sovereign over everything that happens, simultaneously. I have tried to deal with this apparent paradox in a different post.)
In the present post I just want to relay a neat perspective that literally came to me in a dream the other night. I’m not saying it was divinely inspired, but I’m not making it up when I say this occurred to me in a dream.
Suppose that just before dying, everybody is visited by Jesus Himself. He makes His presence known; the person understands full well that there is a God of the universe, Who created everything and has observed the person’s entire life. Then Jesus asks the person, “Do you want to join Me in paradise?”
Now at that point, born-again Christians are going to answer, “Hallelujah praise the Lord! This is what I’ve been waiting for! Take me home!”
But what about someone who vaguely believed in God, and yet lived a very sinful life? He might be filled with such shame and guilt, that he can’t forgive himself and allow himself to be with Jesus in paradise. He might say, “No, I can’t accept your offer. I don’t deserve to spend eternity in heaven with those who led good lives.”
Finally, what about the hardcore, confident atheists? The people who thought they had logically and scientifically demonstrated that there was no God, or at least, nothing like the God of the Bible?
Rather than being relieved at their colossal error–there is an afterlife after all! Woo hoo!–they might be furious. “Why did you remain hidden until now?!” they might demand. “I reject you! What sort of sick sense of humor do you have?!”
Now if something like the above were the case, it would answer a lot of questions. It would neatly handle all the objections about what happens to people who haven’t heard about Christ before they died. (Answer: there are no such people because Jesus Himself communes with you right before you expire.) It would also justify the passages suggesting that faith in Christ alone is sufficient for salvation.
Yet it would also make sense of all the passages where even Jesus Himself suggests that you need works for entrance into heaven, e.g. Mt 25: 31-46:
31 “When the Son of Man comes in His glory, and all the holy[a] angels with Him, then He will sit on the throne of His glory. 32 All the nations will be gathered before Him, and He will separate them one from another, as a shepherd divides his sheep from the goats. 33 And He will set the sheep on His right hand, but the goats on the left. 34 Then the King will say to those on His right hand, ‘Come, you blessed of My Father, inherit the kingdom prepared for you from the foundation of the world: 35 for I was hungry and you gave Me food; I was thirsty and you gave Me drink; I was a stranger and you took Me in; 36 I was naked and you clothed Me; I was sick and you visited Me; I was in prison and you came to Me.’
37 “Then the righteous will answer Him, saying, ‘Lord, when did we see You hungry and feed You, or thirsty and give You drink? 38 When did we see You a stranger and take You in, or naked and clothe You? 39 Or when did we see You sick, or in prison, and come to You?’ 40 And the King will answer and say to them, ‘Assuredly, I say to you, inasmuch as you did it to one of the least of these My brethren, you did it to Me.’
41 “Then He will also say to those on the left hand, ‘Depart from Me, you cursed, into the everlasting fire prepared for the devil and his angels: 42 for I was hungry and you gave Me no food; I was thirsty and you gave Me no drink; 43 I was a stranger and you did not take Me in, naked and you did not clothe Me, sick and in prison and you did not visit Me.’
44 “Then they also will answer Him,[b] saying, ‘Lord, when did we see You hungry or thirsty or a stranger or naked or sick or in prison, and did not minister to You?’ 45 Then He will answer them, saying, ‘Assuredly, I say to you, inasmuch as you did not do it to one of the least of these, you did not do it to Me.’ 46 And these will go away into everlasting punishment, but the righteous into eternal life.”
In light of my dream, I would interpret the above as Jesus telling people that if they don’t lead proper lives, they are setting themselves up to make the wrong choice when He asks them whether they want to be with Him in paradise.
In other words, the single most important decision–the one on which your soul hangs–is whether or not you accept Jesus as your Savior. Everything else you do is conditioning, to build up good habits so that you will make the right decision on that crucial question. Every time you sin, you make it that much harder for you to open yourself to receive God’s gift.
In closing, let me reiterate that my speculations above are just that–speculations. However, I hope people can admit that if that’s how things really worked, it would be pretty fair. (At the very least, it would be a lot fairer than some of the scenarios depicted by others.) As a born-again Christian, I don’t really know what happens to serial killers, three-month-old infants, or really “nice” atheists who honestly don’t think the evidence points to the existence of God.
What I do know is that God will deal with all such people with infinite justice and mercy. Once I am with Him, His plan will make perfect sense. I will say, “Of course You did it that way. Thank you, that makes perfect sense. You couldn’t have done it any better. I love You.”
A Dark Day in Soccer Lore
My son’s soccer coach was out of town, so he asked me to coach today’s game. It was a tough one: We only had 5 guys show up (my own son was sick), meaning there was just 1 sub. It was about 90 degrees out, the game starting at 11:45. Plus the field was much bigger than what the boys practice on.
In the first half I was coaching to win. By the second half I was coaching to avoid a lawsuit over heatstroke. I resisted the urge to yell, “C’mon! You guys are playing like a bunch of 6-year-olds!”
The other team won, 8 to 6. I ride off into the sunset with a career record of 0 and 1, the losingest coach in HYSA history.
A Puzzle About Demand Deposits
Whenever I graph M1 at FRED, it zig zags. I have just been taking that in stride, not really thinking about why it looks like that.
For my recent “inflationary big one” article, I charted demand deposits, which exhibit the zig zag pattern. So I finally decided to think through why the graphs look like that.
Since the zigging and zagging happen on a monthly scale, I figured it had to do with workers’ paychecks. For example, at the start of a period businesses pay workers with checks, and a lot of the workers literally “cash their paychecks.” So demand deposits go down, and currency held by the public goes up. Then during the course of the month, as the workers spend their cash, currency holdings go down while demand deposits go up.
Yet if this were the explanation, I would have expected the charts of currency and demand deposits to zig and zag in opposite directions, which doesn’t seem to be the case:
So is my theory right, and FRED’s aggregate of “Currency Component of M1” counts currency held in the hands of the public and in bank vaults? (In that case, it wouldn’t move around when being shuffled from the workers into bank holdings.) Or is my theory wrong?
A Question for the Quasi-Monetarists
Oh man, now I know how Krugman feels about those dastardly Austrians gaining more influence… That’s what I think every time National Review and now The Economist start running Sumnerian agit-prop.
Joking aside, help me out here guys (especially Bill Woolsey if you’re tuned it). The Economist piece says: “For all its theoretical merits, a switch to NGDP targeting would throw up some new problems—and old ones. The Fed has not exactly sat on its hands since the financial crisis began in 2007, so it is far from clear it could easily reach the new goal.”
So please clarify for me: Are you guys saying that the Fed needed to expand its balance sheet more than Bernanke actually did? Or are you saying he went about it the wrong way? I.e. if the Fed had been targeting NGDP all along, then it wouldn’t have needed to expand its balance sheet as much as Bernanke did (to little avail)?
If the latter, then why does your approach give a bigger bang for the reserve buck? Is it purely because of expectations, or is it because you’d have the Fed acquiring different assets?
(I think I know the answers to the above questions–I read Sumner almost as much as I read Krugman–but I want to hear a true believer explain it.)
Sauce for the Goose Should Be Eaten By the Gander
…or whatever that saying is.
Paul Krugman two days ago, complaining about the hoaxster: “Apparently some people can’t find enough things to attack in what I actually say, so they’re busy creating fake quotes.”
Krugman today, on Jackson Hole:
John Maynard Keynes:
But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
Ben Bernanke:
These are tempestuous times, but when the storm is long past the ocean will be flat again.
OK, not a literal quote, but pretty much what he said.
Careful, Dr. Krugman. People might pick up that fake Bernanke quote. As you yourself said about the hoax incident:
Also, the gullibility on display was impressive. All these right-wing hacks knew it must be a genuine quote, because they all knew that I’m a terrible person — based on past distortions!
And I’d be willing to bet that this fake quote will continue to pop up on right-wing blogs and talk radio for years to come.
OK kids, don’t flip out in the comments. I’m making a funny Friday post. Of course there’s a world of difference between pretending to be Paul Krugman, versus inventing a quotation for Ben Bernanke in order to mock him, but admitting in the same blog post that that’s what you did. But it’s a small world, like Mercury–not Jupiter.
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