21 Aug 2009

Two Men Enter, One Man Leaves: More on Krugman vs. Murphy

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Now it’s official: Krugman has definitively said we are in a recovery. (In his previous writing, he technically didn’t say we were, just that it seemed as if we were, and if we were it was because of Big Government.)

Now what’s ironic in all this is that even if unemployment is in double digits for 2010 through 2013–which it very well might be–Krugman would actually weasel out of the post I’ve linked to above. He would say, “Yes this is unfolding exactly as I predicted. Real GDP started rising again for a few quarters in the summer of 2009, and I said at the time that it would be a jobless recovery.”

So just to be clear, when I say we are nowhere near coming out of this, I mean it in the same way as an economist speaking in 1932. Yes, the official recession dating of the NBER shows that there were two recessions in the 1930s–one from 1929-1933, and another from 1937-1938.

But c’mon, that’s ridiculous. We all know that “the Great Depression” lasted from 1929 until at least World War II. (And readers of Bob Higgs know that it actually lasted through World War II.)

When it comes to dating business cycles, I am a man of the people. If a tenth of the labor force can’t find work, the economy is broken. Don’t let those MIT economists like Krugman fool you with their fancy jargon.

21 Aug 2009

Reader Contest! Who Can Predict Krugman’s Response?

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This is pretty exciting, as far as these things go. Usually the Wall Street Journal doesn’t allow an op ed writer to respond to somebody else’s op ed, except in the most indirect ways. But Alan Reynolds’ piece today opens as if it’s one of my Mises.org Daily Articles:

‘So it seems that we aren’t going to have a second Great Depression after all,” wrote New York Times columnist Paul Krugman last week. “What saved us? The answer, basically, is Big Government. . . . [W]e appear to have averted the worst: utter catastrophe no longer seems likely. And Big Government, run by people who understand its virtues, is the reason why.”

This is certainly a novel theory of the business cycle. To be taken seriously, however, any such explanation of recessions and recoveries must be tested against the facts.

Well, I actually take that back. My articles tell you what the punchline is, within the first two paragraphs.

Anyway, Reynolds does a good job explaining that there is basically no empirical support for the claim that deficit spending avoids (or cushions) recessions, or for the opposite claim that the Great Depression was caused by inadequate spending. My favorite part:

Proponents of Big Government can’t say we avoided the next Great Depression due to hypothetical stimulus money that is mostly unspent. So they argue it’s more important that the federal government merely continued spending and didn’t “slash” spending as in the early 1930s. But the federal government didn’t slash spending in the early ’30s. Federal spending rose by 6.2% in 1930, 7.7% in 1931 and 30.2% in 1932. Since prices were falling, real increases in federal spending were huge during the Hoover years.

As of 10:30 PM EST Friday night, Krugman hadn’t responded on his blog to Reynolds.

So let’s have another Reader Contest. Whoever can come up with the closest approximation to Krugman’s response (and it must be time-stamped before his answer, of course) will get a free copy of the book that made Reynolds’ case months ago.

Let me take up the two most obvious answers: (1) Krugman ignores Reynolds. (2) Krugman brings up the recovery with FDR’s inauguration (and slightly higher deficit spending), and then the collapse when FDR tried to rein in the deficit. I.e. Krugman might play the Romer card, demonstrating that he really needs to read the Mises Daily.

I’m actually not predicting that Krugman will do either of the above. In a clear violation of rational expectations, Krugman’s responses continue to surprise me. For example, when Barro wrote a WSJ article saying that the multiplier was very low during World War II, Krugman came back and basically said, “What are you talking about? No Keynesian ever claimed that wartime deficit spending got us out of the Great Depression.” Could anyone have predicted that?

21 Aug 2009

Limited Government In Post-Invasion Iraq

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In his last guest essay, Edward Gonzalez explained why post-invasion Iraq made him question the feasibility of Rothbardian free-market anarchy. In this post, Gonzalez describes a case where limited government–as opposed to brutal strongman rule–emerged out of the chaos after Saddam’s regime fell.–RPM


Limited Government in the al Anbar Province of Iraq
by Edward Gonzalez

In a deployment to Iraq, I served in a number of villages in the al Anbar Province of Iraq. All these villages were dealing in their own ways with the consequences of war. Organized crime, terrorism, murder and intimidation campaigns were just a few negative aspects I witnessed while on deployment. I also witnessed some very encouraging scenes in the form of communities uniting in order to provide for their security. Although there is obviously a very large difference between the modern day United States and a farming village in Iraq, I believe the actions I witnessed merit examination, for in my opinion they represent both community and government at its most basic level.

There was a village where I served that developed a system of limited government that I believed to be just. It was a small fishing and farming village along the Euphrates River. This village had a collection of honest, intelligent elders, the most senior of which was the Sheik. Although it was a farming and fishing village, the Sheik owned four rock quarries. He had been running the quarries since he was a young man. He was older; my best guess is early 70s, had four wives, seven children, over a dozen grandchildren, and was a natural leader and entrepreneur. This village was also thrown into chaos in the early months of the war. Al Qaeda cells had made a home in their small village and killed a great many people. I visited a mass grave site that used to be the favorite execution spot of the extremists. I don’t know at what point, but the Sheik did eventually take action.

He gathered the families together and convinced them it was time to retake their town. He outfitted every fighting age male with a rifle, and the Sheik’s eldest son, who was in his mid thirties, led the battle to throw al Qaeda out of their village. The town was retaken. Here, the community decided to take collective, violent action in order to protect their lives and property. That collective action was the birth of their government.

I arrived at this village almost a year later. The system the elders had set up was truly impressive. Every young man was a police officer. Once a week each man had the responsibility of one patrol which usually lasted three to four hours. Apart from that one duty, the rest of the week the young men did their normal jobs of farming, fishing, or working at the rock quarry. There were only three full-time police officers who manned the radio at the police station, a small building with no furniture at which the patrols met. The Sheik’s youngest son, who was 17, was the main radio operator. The people of the village paid no taxes, aside from the “time tax,” all the young men had to pay in a weekly patrol. The Sheik supported the only three full time police officers. The Sheik’s oldest son served as the Captain of the police, but his full time job was running the family rock quarries, and he only went to the police station to plan patrols and check in with his baby brother once in a while. However, in case of attack, every one knew he ran the show.

The elders of the village gathered at least once a week to discuss village business. In truth, they gathered almost every night to drink tea. During these meetings, if anything of importance needed to be decided all the men would give their opinion and a collective decision was made. There was no official vote per se, but the amount of people present made it easy to tell what direction the majority was leaning.

The Sheik was the village judge. When neighbors had disputes they went to see him. He was recognized as the wisest, shrewdest man in the village and people did accept his judgment. The Sheik did not accept money for the service he provided. He said it was his responsibility as an elder of the village. If he was away or sick, one of the other elders served as the judge. The Sheik had first established his leadership as a businessman and entrepreneur. He was certainly the richest man in the village, but people did not respect him for his money. They respected his judgment and decision making skills, which had as a great benefit also made him wealthy. Although the Sheik’s eldest son was Captain of the police force, I never witnessed nor heard any rumor of the Sheik’s judgments needing to be enforced. People abided by his judgments out of respect. Note that it was respect for his wisdom, not power.

This was their basic government: The elders of the community acting as leaders and decision makers, the young providing the brute force of police and military action, and the senior elder acting as judge.

The system had many great benefits. There was no divide between police and the people because everyone either was or lived with a police officer. Since every household had a police officer, if a stranger came to town, someone always noticed and notified the patrol. Although surrounded by violence on all sides, in my seven months in Iraq that is the only town where I could walk the streets without body armor and enjoy relaxing dinners without fear of being attacked.

There was a strongman directly to the north of the village who dominated his area as a tyrant extorting money from businesses and households. He never once made a move against this village. If he had attempted to extort money from one house or shop, every able-bodied man would have emerged armed with an AK-47 ready to fight.

As a result of the system in place, there was not a single attack while I was there so I did not see first hand how they dealt with murderers. However, speaking to the Captain of the police I learned how they handled it in the past. I also had a friend serving a few hundred miles away in a very similar village who witnessed it first hand. Two insurgents planted an IED that resulted in the death of a local man. The police captured the two insurgents immediately. The elders of the town and older police officers gathered in the center of town. They held court, had a vote, and the two insurgents were executed.

I also questioned the Sheik and his eldest son on how judgments were enforced and what repercussions a young man would face if he refused to conduct security patrols of the village. In both cases the answers were the same. All individuals were part of the community and had a duty to that community. This meant protecting the village in time of danger and abiding by the judgments of the elders in case of personal disputes. Those who chose to ignore this were shamed. Other individuals and families would look down upon them, refuse to do business with them, and give no assistance in case of need. Then the individual had one of two choices: Become completely self-sustaining and live outside the community or do his part. They both said that police enforcement in either of those cases would be a waste of time and energy. The Sheik also emphasized that forcing an individual to be part of a community that they did not wish to be apart of would be against God’s Law.

The village also had public roads. However, there were no taxes imposed on people for the construction. As security improved in and around the village, the market slowly started to see more people showing up for trade. One evening the elders decided it was time for a good road in and out of the village. The building of the road was decided on because it would provide a path for trucks to move large amounts of fish and crops from the village to the cities. The Captain of the police, the man running the rock quarries, got his trucks together and organized the construction of the road. All the men that stood to benefit financially from the construction of the road, which as far as I could tell was almost everyone, donated personal resources and lent a hand in the construction. It was finished in a single day.

This was also the time of the Awakening in the al Anbar province. Meetings were being called in the larger cities and representatives from villages were being asked to attend. I was not surprised that the Sheik was selected as the village representative. When representatives gathered for these types of meetings, the talks and discussions were on the overall security of the province and how security might be improved along the highways between the villages. The types of things discussed were: What tactics was al Qaeda using throughout the province? What police actions had been most effective in dealing with the threat? If an individual from one village commits a crime in another, how will he be tried? How will the police from one village coordinate with the police of another so there are not unintentional fights? What procedures will be abided by to make coordination more efficient? At no time in any of the meetings that I attended, were there laws established on how cities or villages were to handle their internal affairs. The focus was on coordination.

Although no taxes were collected from the villagers, tax money did come into play. American military personnel provided the towns with standardized police uniforms, a couple of ford pick up trucks painted as police vehicles, training and training ammunition for the young men.

From war and chaos this village, and many others like it, was able to emerge as a free society with a free market and an increasing quality of life. They were able to accomplish this not by treating the use of force and violence as a normal service to be provided by the free market, but by community decision and action. Please do not mistake my obvious concentration on the positive aspects of this village as an implication that everything was perfect. There were many hardships and problems both in the village and in the coordination with other towns and organizations. However, as a whole, this village I served in had the safest and happiest people I met in my time in Iraq.

I am certainly not saying that we should look to adopt this style of village government in the United States, but there are some elements in this style of limited government that I believe to be important to any free society.

First: The use of force was not treated like any other service in a market economy. Justice and police/military action were collective actions taken by the communities as a whole. The power of this government was not focused with a single individual but spread across the community. The process was intentionally inefficient so that no one individual would take hasty/emotional action that would have negative and dangerous repercussions for the community.

Second: Government only used force for community defense. They drew a distinction between what police/military needed to protect with violence and what community needed to enforce with shame. A violent assault on a person’s life or property was collectively defended by the use of force. A “crime” or broken rule of the culture was dealt with through shame and exile from the community.

Third: Government power was decentralized. When the Sheik, as the representative from the village, met with other representatives from other cities and towns, it was to discuss how the towns and cities might work together to deal with shared hardships. They established rules and procedures so that the individuals from neighboring villages and cities might deal more effectively with one another. There were no laws passed dictating to villages or cities how they must run their internal affairs.

Fourth: Government was not a money making, for-profit organization. They were all entrepreneurs who supported themselves. Government was a duty each individual had to his community. The fact that they were all entrepreneurs who supported themselves lent to decisions that were pro free market.

I will not launch into my full theory of limited government here. However, I do believe that certain fundamentals in a just society apply to all societies from a small farming village to a modern day nation.

Edward M. Gonzalez is a graduate of New York University and served on active duty in the United States Marines Corps from January 2004 to August of 2008. He is currently a Captain in the reserves and works for a private school in San Jose, CA. The views expressed in this article are not necessarily endorsed by the United States Marine Corps.

21 Aug 2009

I Finally Understand Matt Yglesias

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Tyler Cowen brings to our attention this revealing passage from Yglesias:

At the same time, I’ve come to be increasingly baffled by the high degree cynicism and immorality displayed in big-time politics. For example, Senators who genuinely do believe that carbon dioxide emissions are contributing to a global climate crisis seem to think nothing of nevertheless taking actions that endanger the welfare of billions of people on the grounds that acting otherwise would be politically problematic in their state. In other words, they don’t want to do the right thing because their self-interest points them toward doing something bad. But it’s impossible to imagine these same Senators stabbing a homeless person in a dark DC alley to steal his shoes. And what’s more, the entire political class would be (rightly!) shocked and appalled by the specter of a Senator murdering someone for personal gain. Yet it’s actually taken for granted that “my selfish desires dictate that I do x” constitutes a legitimate reason to do the wrong thing on important legislation.

Making it all the odder, the level of self-interest at stake isn’t all that high. Selling the public good down the river to bolster your re-election chances isn’t like stealing a loaf of bread to feed your starving children. The welfare rolls are hardly stocked with the names of former members of congress. [Emphasis in original.--RPM]

Wow. Where to begin?

First of all, Mr. Yglesias, it would be incredibly reckless to kill someone with your own hands, in order to obtain a pair of shoes. If a senator got caught doing that, his peers would be amazed all right, but only because of the ridiculous risk/reward judgment involved. (And yes, they would all say their moral sensibilities were ruffled, but that would be for show–just like everything else they publicly say.)

Second of all, Mr. Yglesias, the reason retired senators (and Fed chiefs etc. etc.) are loaded when they lose office, is that they played along while in office. That’s how the game works. When you’re, say, a Pentagon general in charge of procurement, you make sure Defense Contractor X (not naming names here) gets the $3 billion project to breed sharks with laser beams attached to their heads. Then when the general retires, he becomes a “consultant” and gets paid millions to show up on Fox News and CNN and explain that yes indeed, it would be very useful to deploy sharks with laser beams attached to their heads in the Mediterranean.

Ironically, Friedrich Hayek explained “Why the Worst Get On Top” in perhaps the most famous chapter of his gigantic political classic, The Road to Serfdom. You would think that Yglesias surely read such a book–especially since in this blog post Yglesias says, “But I’ve been back-and-forth on the main issues long enough that I’m pretty sure I could switch this blog’s point of view and do a credible job of offering critiques-from-the-right of the progressive liberal health reform movement and the progressive liberal approach to domestic policy generally.”

And yet we can’t be certain Yglesias has bothered to read something as crucial as Hayek’s slender classic, since in another blog post our commentator referred to it as a “nutty alarmist book”.

21 Aug 2009

Assessing the State of the Golden State

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Pacific Research Institute (PRI) has released part one of a new series called, California Prosperity Project. This particular study is, “Assessing the State of the Golden State.” In this one, we are just trying to get California citizens and policymakers to admit there is a problem.

21 Aug 2009

Best Evidence Yet That Recession Hasn’t Bottomed Out

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This is a two-part argument. First:

U.S. Federal Reserve chief Ben Bernanke on Friday said prospects for a return to global economic growth looked good “in the near term,” the clearest signal yet the world’s most powerful central banker thinks a recovery is at hand.

“After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Bernanke told an annual Fed conference here in the shadows of the Grand Teton mountains.

Now the second part of the argument:

Note: If you’re an important person and are rushed for time, just watch, say, the last minute of the above video. It never gets old.

21 Aug 2009

The FBI Looking to Hire More Bloggers?

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Jesse Johnson passed along this story–and he actually did it days ago, when it was fresh!–about the FBI hiring “right-wing” bloggers. I called them up, but they explained that I am serving their false-flag purposes just fine, for free. They assure me that several agents read my blog religiously.

All joking aside, here is the story:

A notorious New Jersey hate blogger charged in June with threatening to kill judges and lawmakers was secretly an FBI “agent provocateur” paid to disseminate right-wing rhetoric, his attorney said Wednesday.

Hal Turner, the blogger and radio personality, remains jailed pending charges over his recent online rants, which prosecutors claim amounted to an invitation for someone to kill Connecticut lawmakers and Chicago federal appeals court judges.

But behind the scenes the reformed white supremacist was holding clandestine meetings with FBI agents who taught him how to spew hate “without crossing the line,” according to his lawyer, Michael Orozco.

“Almost everything was at the behest of the Federal Bureau of Investigation,” Orozco said in a 45-minute telephone interview from New Jersey. “Their job was to pick up information on the responses of what he was saying and see where that led them. It was an interesting dynamic on what he was being asked to do.”

Bill Carter, an FBI spokesman, said in a telephone interview the bureau’s policy is “to neither confirm nor deny whether an individual has an association with the FBI.”

Turner’s alleged 5-year-long bureau stint ended sometime in 2007, Orozco said, the year the mischievous online group, Anonymous, briefly shuttered his site — turnerradionetwork.blogspot.com — with a denial of service attack. At the time, hackers also posted what appeared to be private e-mails between Turner and the FBI.

The e-mails are legitimate, said Orozco. The FBI approached Turner, now 47, in 2002, and he spewed rhetoric about politics, white supremacy, immigration, abortion and other hot-button issues for years in exchange for government cash.

Turner was arrested in June at his apartment in suburban New Jersey.

According to court documents, (.pdf) after a three-judge panel of the Chicago-based 7th U.S. Circuit of Appeals upheld a Chicago handgun ban, he blogged that the judges should be “killed.”

“Let me be the first to say this plainly: These judges deserve to be killed. Their blood will replenish the tree of liberty. A small price to pay to assure freedom for millions,” he wrote.

A day later he posted addresses, photos, maps and other identifying information about Chief Judge Frank Easterbrook and Judges Richard Posner and William Bauer, the authorities said. State charges are also pending in Hartford, Connecticut, where Turner is accused of inciting readers to “take up arms” against state lawmakers.

Though the alleged threats came after his FBI service ended, Orozco said Turner’s relationship with the FBI is relevant to his defense.

“It is not trivial that the very government that trained an individual where the line was is prosecuting him when he has not stepped over the line,” Orozco said.

If the guy really did get paid by the FBI–and elsewhere I’ve seen a figure of $10,000–then that is surely relevant. But this I thought a rather lame defense by his attorney: “It’s a protected political statement. He opined,” Orozco said. “He said they deserved to be killed. He did not say grab a gun and go out and do what is necessary.”

To be clear, I’m simply saying that the attorney’s argument deserves to be ridiculed. I am NOT saying, “Start your own blog and say the guy is a moron.”

21 Aug 2009

Is Amazon Making Some Kind of Purchasing Power Joke?

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So I want to read up on the German hyperinflation, what with that old adage about history repeating itself. I asked (who else?) David Gordon for a book recommendation, and he suggested Adam Fergusson’s When Money Dies.

But when I look it up on Amazon, there is one copy, priced at $761.29. Am I somehow missing the main selection, or is this some kind of publicity stunt to acclimate us to hyper-depression?