Whenever I travel, I am reminded of how awful TV is. Like a bag of circus peanuts, TV would be great if you had the willpower to just sample it. But no, I eat the circus peanuts until I want to jump off a bridge, and I flip through TV stations in a hotel room until my IQ breaks below 70.
During my recent trip to Memphis for ALEC’s Spring Task Force, all of the “political” shows were in a tizzy over Joe Biden’s alleged gaffe on swine flu, and Miss California’s alleged bigotry.
On Biden: Does it matter that the question was, “What would you tell your family?” If the question had been, “Are you recommending that all Americans stay in unless absolutely necessary?” then OK you could get mad if what he said contradicted the views of objective medical experts. But that wasn’t what the question was. Yeah yeah, I know that our country interpreted the answer in the same way, but that’s a reflection on what a bunch of fools live in this country. Do you really care what Joe Biden tells his family about anything? “Hey Mr. Vice President, my daughter is writing a paper for her law school class. What tips would you give your kids in comparable circumstances?”
I think it is always best to assume that government officials tell you the EXACT OPPOSITE of the truth. So, the Obama Administration is telling us: (a) this is a potentially serious worldwide emergency, and (b) it is too late to close the border with Mexico because there are already some U.S. cases.
That leads me to suspect: (a) This is not a potentially serious worldwide emergency, and (b) if it were, it would make a lot of sense (from a medical perspective) to close the border with Mexico.
The other big thing was the flap over Miss California. (Of course I think the main reason for the story was that all the shows–including those sympathetic to the exploitation of women like Keith Olbermann–showed clips of her in a bikini before going to commercial break.) I promise you I do not follow this stuff; I actually thought “Perez Hilton” was Paris Hilton, and that the bloggers were intentionally misspelling the name to be hip like “teh.”
But this particular quote (if accurate) coming from Keith Lewis, who runs the Miss California pageant, was absurd:
I am personally saddened and hurt that Miss California believes marriage rights belong only to a man and a woman….Religious beliefs have no place in politics in the Miss California family.
So if a contestant said the biggest social problem in the world was the human trafficking of girls in Africa, and then later on it turned out she thought everyone was a child of God and hence deserved freedom, would Lewis have been upset?
Actually he probably would be, now that I think of it. Basically, the little box in which religious beliefs are now permissible has shrunk even more. We already know you can’t bring God into science, but now you can’t bring him into your views of politics either. It’s fine if you nutjobs want to go to church every Sunday, but that’s where the madness stays.
I am a pacifist when it comes to interpersonal relations, but not when there is a showdown between humans and the lower creatures. We have these ginormous carpenter bees that find our wooden house delectable. So last Sunday I took a tennis racket and slew 15 of them (as well as a wasp that chose its flight path poorly).
Today I was packing the car for my short trip to Memphis (for the ALEC Spring Task Force). A carpenter bee moseyed on up to me. Alas, my trusty weapon was 15 feet away, and behind a door to boot. (Otherwise I just would have used the force to retrieve it.)
So what did I do? Did I run into the house squealing like a little girl?
No sir, I cupped my right hand and served that bee right into the concrete. BAM! That’s what I’m talking about. A light tap from my sandal put the reckless insect out of its misery. Let that be a lesson to other carpenter bees.
OK I had an epiphany. I recently watched the clip of Winston in Room 101 (it had to do with the Bush torture memos and how they basically were trying to do Room 101 for their prisoners–i.e. come up with “the worst thing in the world” after a psychological profile).
So I was trying to think if it were possible that Winston could have extricated himself from that predicament without giving in. And I know it’s a long shot–it actually would probably work for one rat, not sure about two–but hear me out:
When they lift the partition and the rats come at your face, you offer them your tongue. I think that would be a nice fleshy thing for them to sink their teeth in. Then once they’re latched on, you retract your tongue back into your mouth and CRUNCH you bite their heads as hard as you can at the neck, decapitating them if you can but at the very least killing them.
If you did that, I think even Big Brother might be tempted to let you go. Or at the very least, he’d have the decency to shoot you.
WW comes out of the closet at Cato. I know I know, this raises an obvious question for me as another prominent blogger who can sway public opinion: For the record, I have never smoked pot with Will Wilkinson.
* During the debate over cap and trade, there was a lot of gnashing of teeth–including a “worst person in the world” designation from our national moralist–about the Republicans’ use of an MIT study to say the average American household would pay $3100 per year, once the program really kicked in. The MIT professor said that was crazy, and you can guess what ensued. I was the lead author in this American Energy Alliance piece explaining the controversy. (And yes, some other members of the team jazzed it up for Beltwayese.)
* I meant to blog this a few days ago when it ran… The WSJ had a great editorial showing just how underhanded Paulson and Bernanke were with Bank of America.
* If you are interested in the torture debate, here’s Glenn Greenwald teeing off on David Broder. Sometimes GG is a bit shrill for my taste, but when he’s in the zone he really hits it out of the park. (Or if you prefer, “he’s on fire.”) I think GG missed two of the most outrageous elements of Broder’s piece however, which I put in bold in the excerpt below:
Obama is being blamed by some for unleashing the furies with his decision to override the objections of past and current national intelligence officials and release four highly sensitive memos detailing the methods used on some “high-value” detainees.
Again, he was right to do so, because these policies were carried out in the name of the American people, and it is only just that we the people confront what we did. Squeamishness is not justified in this case.
But having vowed to end the practices, Obama should use all the influence of his office to stop the retroactive search for scapegoats.
This is not another Sept. 11 situation, when nearly 3,000 Americans were killed. We had to investigate the flawed performances and gaps in the system and make the necessary repairs to reduce the chances of a deadly repetition.
First of all, since when does something become “what we did” just because the people doing it claimed to be acting “in the name of the American people”? If you want to say, “The American people re-elected George Bush, knowing full well what his policies entailed, and so it’s a bit self-serving to now indignantly claim to be shocked! shocked! by it all,” then OK that would be a decent argument. But that’s not what Broder is arguing above. He smoothly flows from “done in our name” to “what we did.” Huh?
Second of all, look at the sheer monstrosity of the second part in bold. Broder doesn’t spell it out, but what he’s saying is, “After 9/11, we needed a commission because those were some serious mistakes–American people died, for heaven’s sake. But this stuff with the torture, well, it was just a bunch of Arabs getting tortured, so no big deal. If it happens again, well, we’ll all have to feel bad again for a few months.”
That sounds eerily similar to the infamous dialog that got Huckleberry Finn banned from some schools.
Taylor Conant emailed me his post bringing up a quote from Rothbard regarding “hoarding.” It raises a good point that I had originally meant to discuss regarding Mankiw’s negative interest rate column, but I ran out of room in my Mises Daily.
Anyway, the point is that people are increasing their demand for cash balances (or “velocity is falling”) for a reason. People are uncertain about the future, and so they are (trying to) stock up on their liquid purchasing power. Money provides a service when it is “idle” in your wallet or under your mattress.
So both the grad student’s suggestion (to deactivate 1/10 of the cash every year*) and Mankiw’s preferred technique of debasing the money with future inflation, are designed to reduce the ability of cash to serve this purpose. Mankiw doesn’t care why people are stocking up on cash, he just throws out ideas to get them “spending” again. For an analogy, it would be as if Americans kept buying cars from Japan. In order to get Americans spending money back on Detroit autos, Mankiw’s student suggests putting a venomous snake in every tenth import from Japan. Mankiw, the wizened veteran, thinks that idea shows promise but is a bit impractical. Instead, he suggests a 10% tariff. (Sure, the free market is nice in theory, but in the real world Detroit car prices wouldn’t fall quickly enough to clear the market, hence the need for government action.)
* Paul Nelson emailed me this, and I must confess I’m stumped. As a good Austro-libertarian economist, I favor the removal of all legal tender laws. So why am I mad at the grad student’s suggestion, which strictly speaking wasn’t to destroy 1/10 of the cash at the end of the year, but rather to remove its legal tender status? In other words, I (and the student and Mankiw) were assuming that taking away legal tender status for particular dollar bills was the same thing as literally seizing and destroying them. But is it?
On a completely unrelated matter, Taylor also asks me if there is any way to order signed copies of the new book. Sure, if you email me we can arrange it. I guess I would need to charge $25 per book to cover my shipping etc. (Obviously I’m giving the answer here in case anyone else wanted to know.)
Here’s a depressing article…Some excerpts:
The U.S. economy contracted at a surprisingly sharp 6.1 percent rate in the first quarter as exports and business inventories plummeted.
The drop in gross domestic product…was much steeper than the 4.9 percent annual rate expected by economists and followed a 6.3 percent decline in the fourth quarter.
GDP…has now dropped for three straight quarters for the first time since 1974-1975.
…The Fed, which has cut interest rates to almost zero and pumped about a trillion dollars into the economy to try and break its downward spiral, is expected to leave policy unchanged at the meeting.
The advance report from the Commerce Department showed business inventories plunged by a record $103.7 billion in the first quarter, as firms worked to reduce stocks of unsold goods in their warehouses.
Exports collapsed 30 percent, the biggest decline since 1969, after dropping 23.6 percent in the fourth quarter. The decline in exports knocked off a record 4.06 percentage points from GDP.
Investment by businesses tumbled a record 37.9 percent in the first quarter, while residential investment dived 38 percent, the biggest decline since the second quarter of 1980.
…The Commerce Department said the government’s $787 billion rescue package of spending and tax cuts…had little impact on first-quarter GDP.
A separate report showed U.S. home loan applications fell last week to the lowest level since mid-March, even as mortgage rates clung to record lows.
I’m sure that medieval physicians had conversations like this too.
“How’s the patient doing?”
“Not well. He’s even weaker than when his wife brought him in. In fact, I’ve never seen someone this sick.”
“Hmmm. You’ve tried bleeding him, right?”
“Of course, that was the first thing we did. In fact, I’ve taken more blood out of this guy than any of my previous patients, but this is the toughest disease I’ve ever seen. He’s not responding to unprecedented treatment.”
Scott Sumner asks some great questions about the Austrian view of the financial crisis. I’ll do my best to balance brevity against comprehensiveness in my answers.
1. Why did NGDP collapse late last year?
I’m not saying this is the whole story, and someone might plausibly say I’m confusing cause with effect, but I think the following were all involved:
(a) People panicked because they were told by “the authorities” that the entire world financial system was on the brink of collapse. So the demand for cash shot way up.
(b) The real economy was due for a serious correction after the housing boom. In this article written in September 2007 (which itself was based on an analysis I made in July 2007), I was calling for the worst recession since the early 1980s. That clearly hadn’t “hit” as of last summer, so I was not surprised that things finally started falling apart. I don’t know why it happened late last year, except to say that the Fed and Treasury had been doing unprecedented things (TAF etc.) to keep the plates spinning. Once people realized that Paulson and Bernanke were bluffing, and that they had no clue what they were doing, panic set in and people understood that there would be no magic undoing of the malinvestments of the boom years by “injecting liquidity” or other such crankish schemes.
2. Could a suitably expansionary monetary policy have stopped NGDP [nominal Gross Domestic Product] from collapsing?
Of course. What was the growth rate in Zimbabwe’s nominal GDP? (I actually don’t know but I’m assuming >> 0%.)
3. Wouldn’t Hayek have favored enough monetary expansion to keep NGDP from collapsing?
You mean Friedrich, right? If so, I’m not sure. I believe the mature Hayek thought the Fed should have prevented M1 from falling during the Great Depression, but that’s not the same thing as propping up NGDP. The best single paper on Hayek (and Robbins’) changing views of “liquidationism” in the 1930s I’ve seen is this one [pdf].
4. Hayek originally thought that the Depression was a needed corrective for the excesses and misallocations of the late 1920s. He later changed his mind and argued that the Fed should not have allowed NGDP to collapse. Was he right to change his mind?
No. Read the book.
5. If monetary policy could not have prevented an NGDP collapse, what is your story? Is it the Keynesian liquidity trap? (I assume the answer is no.)
I do not fear NGDP collapses. I eat units of food, not dollar bills.
6. If a suitably expansionary monetary policy could have prevented an NGDP collapse, should the Fed have tried to do this?
No. Please don’t ask me again.
7. If the answer is no, why not? Wouldn’t that have prevented the collapse in manufacturing in Asia late last year? What is the structural imbalance corrected by having 10s of millions of Chinese loose jobs making stuff like shoes? (Presumably there was no shoe bubble.) Are Austrians worried about the U.S. trade deficit?
Are you comparing shoemakers to prostitutes?
The world economy was in an unsustainable configuration during the boom years of 2002-2005. The flow of consumption goods (including durable goods like housing) coming out of the capital structure pipeline increased, but at the expense of necessary maintenance. See this article for a very simple, yet numerical, model of what I’m talking about.
I think he sometimes overshoots into too much “commonsense” simplicity, but I think Peter Schiff is dead right when he ridicules the notion that Asia needs US consumers to fuel their economic growth. The idea seems to be, if Asia didn’t have fat lazy Americans grabbing iPhones and plasma screens, then the Asians would be thrown out of work. That’s the crudest of…well something, I don’t know what. I wanted to say Keynesianism but I think it’s older and more primitive than that.
During the boom years, the Chinese and other net exporters were willing to ship Americans consumption goods, in exchange for a growing stockpile of claims on future income. This was clearly unsustainable. So yes, the expansion of Chinese export sectors–to the extent that they were catering to purchases made by Americans who were falsely believing themselves to be rich because of rising house and stock values–was indeed a “bubble.” If American real estate had grown at a “proper” rate, then those Chinese exporters wouldn’t have seen their demand grow so quickly.
People often ask me, “OK so what sectors were starved for capital, if you think housing, Wall Street quant departments, etc. expanded too much?” I don’t know, but if we believe in scarcity and moderately full employment of resources during 2002-2005, then there must have been such sectors. I’m a lover, not an applied economist.
I get why we needed housing to decline for eight straight quarters from mid-2006 to mid-2008, but I don’t get why we then needed to violate Hayek’s maxim to keep NGDP from falling, and let NGDP fall sharply—causing massive output declines in sectors completely unrelated to the housing bubble. Recall that those non-housing sectors held up well during the first two years of unwinding the housing bubble–so we are not just talking about manufactured goods like rugs and furniture.
I’m not sure if this answers your question, but here goes: If in August 2007 the Fed hadn’t starting cutting rates (the discount rate at the time, following next month by fed funds target rate cut), and if the government had said, “Well we live in a profit and loss economy, boys, I guess you’ll all be filing Chapter 11,” then there would have been a horrendous quarter or two. But all of the remaining assets owned by the insolvent banks and other financial institutions would have been sold off to the highest bidder, we would have had functioning asset markets, and there would have been no “credit crunch” because everybody would know exactly what the derivatives were worth, and who was holding what.
But that’s not what happened. The government made bolder and bolder moves every month, leading the insolvent firms to believe that if they could just string their investors and creditors along, eventually they would be bailed out. And they were right.
So the Austrian business cycle theory explains why there needs to be a depression following an unsustainable boom. But if the government minds its own business (or better yet, cuts spending and taxes) then the economy can recover fairly quickly.
For example, during the 1920-1921 depression, the government cut the budget outrageously (at least 30% in one year, and I believe even more from 1919 to 1920 I believe) and the NY Fed jacked its discount rate up to a record high for the 1913-1931 period. (I think the record would extend beyond 1931 but I know the above is true for sure.) You had prices fall more than 15% in one year.
So if the Keynesian or monetarist explanation of the Great Depression is right, the 1920s should have been a decade of stagnation.
And yet they weren’t; they were the Roaring Twenties. That’s because Harding didn’t do squat, and so unemployment peaked at 11.7% in 1921 and then was down to 2.4% in 1923. (See this article for more.)
I think Friedman and Schwartz were totally wrong in blaming the “inaction” of the Fed for the 1930s. Was the Fed more inactive then, compared to when it didn’t exist pre-1913? How could it possibly be that the worst depression in US history was the fault of a timid Fed, when there were several bad (but not “Great”) depressions that occurred before the Fed was created?
Oh, and one other question: As you know I am completely contemptuous of those (mostly Keynesians) who use interest rates as an indicator of monetary policy. Interest rates were very low in American in 1931; and very high in Germany in 1923. I believe that interest rates tell us precisely nothing about whether money is too easy or too tight, especially short term rates. The key variable is NGDP growth (which I believe Hayek also favored targeting.) Do you agree with my view that the 1% (short term) interest rates of 2003 were a totally meaningless indicator of the stance of monetary policy?
I agree that interest rates need not indicate the tightness or looseness of monetary policy. But since prices were falling more quickly in the 1920-1921 depression than in any single year from 1929-1933, I think the NY Fed’s discount rate of 7 percent in the first period, versus 1.5 percent in the second period, shows that the Fed was halting money growth in the first period while at least being more liberal in the second. (I didn’t have access to a consistent series on monetary aggregates for the whole period.)
So yes, the mere fact that
Bernanke Greenspan brought the target down to 1% (in June 2003) by itself doesn’t prove anything, but I have argued that he allowed the base to grow at rates that were almost as high as any point in the 1970s. So if we think that the Fed was too loose in the 1970s, then I think we can agree the Fed was too loose in the early 2000s.
Also, if we adjust for actual price inflation, then the real fed funds rate went negative in the early 2000s, something that hadn’t happened since the 1970s. (See here.) Since I don’t think the technical productivity of roundabout processes went negative (on the margin), this is a clear indication to me that Greenspan was pushing rates down, rather than passively responding to real changes in the supply and demand of loanable funds.
My old college / grad school buddy Jason Osborne is producing a series on the Tea Parties. Here is the first episode. Note: I’m not embedding it here, because if you go to YouTube and click the HD in the bottom right corner, you get a much nicer picture. I had recorded some audio comments on the event, and they worked a few into the episode.