In an irritable mood, I once penned an essay for Mises.org titled, “The Worst Economics Article Ever?” It was a critique of a plea to “buy local” that I read in New York’s L Magazine.
Well the young lady who wrote that particular piece–which made very infrequent references to Bastiat–can rest easy, because she has been demoted. This is quite clearly the worst economics article I have ever read. A fan of Mises.org, Alex, sent it to them, and they in turn activated the Bat signal. I will write up the full critique tomorrow, but for now, just revel in its stupefying ignorance and sheer evil:
Six months after the financial world seemed to be coming to an end, the world’s economies appear to be recovering. Banks that seemed to be on the brink of failure less than a year ago are now able to pay back investments made by the Treasury.
It is too early to declare victory, but the world looks much safer than it did only a few months ago. Credit markets are recovering…
If victory is to be had, it will owe a lot to the willingness of American policy makers to set aside cherished policies and simply create money. And that is one reason it is appropriate to pause and celebrate an unheralded bicentennial: The father of the greenback, Elbridge Gerry Spaulding, who was born 200 years ago, in 1809.
Spaulding was that rarest of creatures, a man who succeeded in both business and politics; a congressman who saw a problem coming and had a solution ready. It was he who, at the end of 1861, figured out that the American government simply needed to print money to pay for the Civil War. It was economic heresy then, but without it this country might not have survived.
Such an idea was then dismissed by some as “fiat money,” money that is money not because it is backed by gold or silver, but because some government says it is money.
That such currencies can fail to work is obvious, as those who lived in Weimar Germany or present-day Zimbabwe have found out. But notwithstanding those examples, the last 20 years deserve to be remembered as the age of fiat money. For much of that time, central bankers were revered as heroes for engineering long booms and short, shallow recessions.
[Bernanke] may have been slow to realize how critical the situation was, but when he did, he acted decisively. Like Spaulding almost 150 years ago, he showed a willingness to abandon the wisdom of an earlier time. The government lent money it did not have to financial institutions, and bought stock in them.
The Federal Reserve expanded its balance sheet to an unprecedented extent, and seemed to be guaranteeing almost everything in sight. Given how closely the Fed worked with the Bush and Obama administrations, it may not have reinforced its reputation for independence, but it was certainly a pioneer in innovation.
Today Spaulding is largely forgotten. Civil war generals are remembered with monuments and even colleges; Spaulding has a dormitory named for him at the University of Buffalo.
But some deem him a hero. “If Wall Street had saints, then the college of financial cardinals would surely canonize Elbridge G. Spaulding,” wrote T. J. Stiles…
Spaulding, wrote Mr. Stiles, “performed a true miracle: he conjured money out of nothing, and so contributed more toward the Union victory (and the future of New York’s financial sector) than any single battlefield victory.”
How did he do that? A congressman from Buffalo, and a banker before and after he was a politician, he was chairman of a House Ways and Means subcommittee when the government was in danger of running out of money to pay for the Civil War. He wrote a law that allowed the government to print money and declare it had to be accepted as legal tender.
Until then, the only circulating paper money was notes issued by banks. Those notes were supposed to be convertible into gold, although the banks had been forced to suspend such conversions at the end of 1861. There was no central bank.
To opponents, Spaulding’s plan was simply immoral. “It will infinitely damage the national credit,” warned Representative Justin S. Morrill of Vermont, adding that it was “a breach of the public faith” that would lead to rampant inflation.
The bill passed Congress not because anyone thought it was good policy absent a crisis, but because most thought it was necessary. Something very similar can be said about the government’s multiple bailouts during this crisis.
In the end, Spaulding was proved right. “It was at once a loan to the government without interest and a national currency, which was so much needed for disbursement in small sums during the pressing exigencies of the war,” he wrote years later in his book, “History of the Legal Tender Paper Money.”
He even created a floating currency. Gold dollars still existed, and were the only dollars that could be used for international trade. When the war appeared to be going badly for the North, the value of the greenback sank. Someone with first knowledge of a Union victory could gain a quick profit by selling gold for greenbacks.
Contrary to the expectations of Representative Morrill, paper money did not set off sharp inflation over time, and when the paper money eventually was made convertible into gold, there were no lines of people wanting to trade in paper for bullion.
Mr. Bernanke’s eventual reputation is likely to be determined by how well he succeeds in his vow to right the economy without prompting a major devaluation of the dollar.
Some doubt he can do it. “The Fed, which saw none of this coming, now asks us to believe that it will see clearly enough into the future to remove this massive monetary stimulus before it becomes harmful,” said James Grant, the editor of Grant’s Interest Rate Observer.
If Mr. Bernanke does manage to accomplish that, he, like Elbridge Spaulding, will have earned financial canonization.
Isn’t that impressive? If you had been given a weekend in a secluded cottage, a typewriter, and a bottle of Scotch, could you have written a worse article of comparable length? I don’t see how that would be possible.
This is a great post; here are some excerpts. Note that the links about US military operations need to be scrolled to be believed, and the bolding is mine:
There was a time…when the U.S. pretended that it viewed war only as a “last resort,” something to be used only when absolutely necessary to defend the country against imminent threats. In reality, at least since the creation of the National Security State in the wake of World War II, war for the U.S. has been everything but a “last resort.” Constant war has been the normal state of affairs. In the 64 years since the end of WWII, we have started and fought far more wars and invaded and bombed more countries than any other nation in the world…Those are just facts. History will have no choice but to view the U.S. — particularly in its late imperial stages — as a war-fighting state.
But at least we paid lip service to (even while often violating) the notion that wars should be waged only when absolutely imperative to defending the nation against imminent threats. We largely don’t even bother to do that any more. Consider today’s defense of the war in Afghanistan from the war-loving Washington Post Editorial Page. Here’s their argument for why we should continue to wage war there:
Yet if Mr. Obama provides adequate military and civilian resources, there’s a reasonable chance the counterinsurgency approach will yield something better than stalemate, as it did in Iraq.
Does that sound like a stirring appeal to urgent national security interests? Why should we continue to kill both Afghan civilians and our own troops and pour billions of dollars into that country indefinitely? Because “there’s a reasonable chance the counterinsurgency approach will yield something better than stalemate.” One can almost hear the yawning as the Post Editors call for more war.
[T]he luxury of viewing war “as an abstraction” — is a perfect explanation for today’s pro-war Post Editorial and for the more generalized willingness to continuously start and continue more and more wars, even in the absence of anything remotely approaching a “last resort” rationale…
There seems little doubt that a major political conflict over Afghanistan in imminent and inevitable. A newly released CNN poll yesterday revealed that opposition to the war is at “an all-time high” — with 57 percent opposing the war and only 42 percent supporting it. Even more notably, 75% of Democrats and 57% of independents oppose the war…
But as became clear with Iraq, the “mere” fact that a large majority of Americans oppose a war has little effect — none, actually — on whether the war will continue. Like so much of what happens in Washington, the National Security State and machinery of Endless War doesn’t need citizen support. It continues and strengthens itself without it. That’s because the most powerful factions in Washington — the permanent military and intelligence class, both public and private — would not permit an end to, or even a serious reduction of, America’s militarized character. It’s what they feed on. It’s the source of their wealth and power.
That, of course, is the trend that has been repeating itself over and over: while Obama has certainly deviated from what the GOP would do in the realm of domestic policy, he has embraced the core prevailing principles of Bush/Cheney in the areas of war fighting, civil liberties, “counter-terrorism,” and secrecy/transparency — i.e., in the full-throated continuation of the National Security State…
All of these issues can’t be separated from one another. A country that turns itself into a war-fighting state, a militarized empire, is choosing what kind of country it wants to be. And as long as that continues, everything else — wild expansions of executive power, the explicit rejection of the rule of law for elites, a continuous erosion of civil liberties, ever-expanding secrecy justifications, supreme empowerment of a permanent national security class whose power transcends elections — are all necessary and inevitable by-products. As Thomas Jefferson observed in an 1810 letter to Ceasar Rodney: “In times of peace the people look most to their representatives; but in war, to the executive solely.” Jefferson was assuming “war” was a temporary state of affairs; where, as with us now, it’s the permanent reality, the effect is far greater. As long as a President is waging wars and trying to control the world through military force, he desperately needs the CIA, the military, the entire National Security State apparatus, and thus cannot “change” policies of secrecy, civil liberties, privacy and the like — even if he wanted to.
That’s why being in a state of endless war doesn’t merely raise discrete questions of this policy or that; it changes the character of the nation. Whether to continue our massive National Security State and general imperial behavior (unsustainable in any event) is at least as important a question in the debate over Afghanistan as specific questions raised by the war itself.
UPDATE: See also: James Madison, Political Observations, 1795:
Of all the enemies of true liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few…. No nation can preserve its freedom in the midst of continual warfare.
My talk at the recent San Francisco Mises Circle. (Thanks to Chad Parish for putting it on YouTube.)
Dick Clark the Younger was IM’ing me about his crashing of a Moveon.org health care rally in Boston. Dick had an anti-government sign that is not appropriate for a family blog and somebody confronted him. Dick asked, “Why do you want the biggest murderer in the world running health care?” I guess the answer is that George Bush is out of power now, so everything is fine?
On Oct. 7, 2001, the United States launched one of the most stunningly successful military operations in its history. Just four weeks after terrorists directed from Afghanistan killed nearly 3,000 people on American soil, we struck Al Qaeda and Taliban government targets with aircraft missiles and Special Forces soldiers. By early December, the Taliban was out of power, Al Qaeda had fled into the mountains and victory was ours.
But that was eight years ago. Did anyone expect back then that we would still be in Afghanistan today, with more troops than ever? The war we thought we had won is not only dragging on but getting worse.
You know, I’m getting really sick of this “nobody could have predicted” garbage. Whether it’s WMD in Iraq, the housing crash, the Bush administration manipulating the terror alert levels, or the fortunes of the Afghanistan occupation, people who were pooh-poohing the defeatists or conspiracy theorists at the time are now saying, “It’s not our fault for missing this. All responsible experts agreed with us at the time.”
Well, as far as Afghanistan, Gene Callahan and I knew what was up. I grant you, we didn’t publish a joint op ed in the Wall Street Journal the day before the US invasion, but on September 6, 2006 I wrote:
Wasn’t THAT Mission Accomplished a Long Time Ago??
Two things struck me about this USA Today article. First, the “biased liberal anti-American” media led me to believe that everything was fine in Afghanistan; this insurgency sort of came out of nowhere, as far as major media coverage. Second, notice that the general isn’t saying, “We’re going to pull out in six months.” No, he’s just saying that if they don’t defeat the Taliban in 6 months, the locals won’t support them. But our troops will still stick around, shooting and liberating.
Then in the comments, Gene said:
As I recall, the US troop death toll has risen every year since the invasion. I recall Ann Coulter stupidly squawking about [how] the US military was so much better than the Soviet’s, because we “conquered” Afghanistan in a couple of weeks and they couldn’t in ten years. She didn’t seem to be aware that the USSR was not trying to conquer Afghanistan — their puppet government was already in place! They were trying to crush a rebellion — just like we are, and we’re halfway to their total years already.
However, Gene doesn’t get to take credit for this, as he elsewhere has disavowed any responsibility for his past writings (see comments here).
Last point: In that 2006 USA Today article (the link still works), the NATO commander said they needed to break the Taliban within 6 months if there were ever to be hope of winning. So, everyone’s coming home now, right? We just need to email this link to the Pentagon to remind them?
As longtime readers of Free Advice know, my two biggest critics (in terms of accusations, not necessarily weight) are Silas Barta and TokyoTom. They are members of the very tiny set formed by the intersection of “Extreme Libertarians” and “Global Warming Alarmists.” (And I believe they are the only two elements of the intersection of the prior set with “Readers of Free Advice.”)
Before proceeding with the main point of this post, let me mention two interesting tidbits about TokyoTom. First, I have dubbed him the Rosa Parks of cap-and-trade. (See the second-last paragraph here.) Second, drawing on my skills that were last deployed when cracking the German’s Enigma code, I have realized that “TokyoTom” is actually a subliminal activation code: “To Kyoto M”. I fear that “M” is the control name given to Barack Obama during his programming.
Now that we’ve dispensed with the introductions, on to the substance: In this Potpourri post, I linked to Chip Knappenberger’s discussion of a forthcoming Lindzen/Choi paper which estimates that the global climate’s sensitivity to CO2 is actually one-sixth the IPCC’s best-guess. To this, TokyoTom responded (and I post it here under the spotlight with his prior permission):
Bob, I gotta say that your comments on climate science are both overly eager and predictable.
As for Lindzen, the paper hasn’t even been published yet and already guys like Bradley and Knappenberger are – as they are paid to do – blogging it around like it’s gospel. Do you share a similar need to rush these things?
Furthermore, where is your common, real-world sense on the climate “sensitivity” (amount of average temp [increase] w/ a CO2 doubling)? The average temp has risen only 0.6 C in the last half century, to a peak we have maintained for the past decade, and the Arctic and all of the world’s glaciers are visibly thawing, and a host of other changes that affect human activities and ecosystems are underway – based almost wholly on emissions that occurred decades ago.
Regardless of what the temperature “sensitivity” to a doubling turns out to be – and recent emissions and those looming over the next decades are very likely to have a price – it should be crystal clear that the climate is exquisitely sensitive to even small AVERAGE temperature changes (which are more pronounced up North).
My quick responses:
(1) The Lindzen/Choi paper has been accepted for publication in a peer-reviewed journal. This is standard practice to discuss academic papers once they’ve been accepted, meaning the referees have signed off and the editor is happy. It can take months or even years for the thing to actually turn up in print. (For example, my Nordhaus critique was officially accepted by Bob Higgs’ journal I think last May or so, and I believe it’s not actually appearing until this month.) Since the fate of the global economy and climate hangs in the balance, I would think TokyoTom would want the latest, peer-reviewed arguments and data to enter the discussion.
(2) Note well the part I put in bold. TokyoTom doesn’t perhaps realize it, but what he is saying is, “Even if it turns out that the impact of CO2 emissions on global temperatures is one-sixth what the models current assume, nonetheless the observed warming of the 20th century is almost wholly due to CO2 emissions during the 20th century. And so that’s why emissions need to be capped–ideally by the market, but if not possible then by governments–before it’s too late.” I don’t think Tom’s position will hold up here.
(3) To anticipate one possible response, I believe Silas Barta’s own position is that large-scale CO2 emissions from industrial activities constitute a form of property rights violations on people around the world, and thus it shouldn’t matter to libertarians whether the climate sensitivity is 3C or 0.01C; aggression is aggression. However, the problem with this argument (if indeed Silas would go this route–I am NOT saying this is what he would say!) is that the whole reason we are classifying it as aggression in the first place, is because of the alleged contribution to climate change. After all, nobody is advocating a cap on how many times a day you can whisper in your own basement, since there is no demonstrable harm that this causes to other people. This is true, even though scientists could show (with sufficiently powerful equipment) that whispering in your basement has physical impacts on people in Bangladesh.
OK, let the tidal wave ensue… (And I’m referring to hostile comments, not my preferred climate outcome.)
Apparently Blood, Sweat and Tears work for CNBC:
Unemployment Jumps to 9.7%, But Pace of Layoffs Slows
The pace of U.S. job losses hit a one-year low last month but the unemployment rate jumped to a 26-year high of 9.7 percent, the government said Friday in a report showing a slowly improving labor market.
Suppose there’s another crash in September, and unemployment jumps up to 11 percent by the following report? I imagine we’ll see commentators discussing the decline in the third derivative of the 140-year moving average of the “improving labor market.”
In an extraordinarily rare occurrence, this week I have criticized both Paul Krugman and Tyler Cowen in separate blog posts. But last night I realized I was a bit too harsh. (I am not being sarcastic here, again another extraordinarily rare occurrence.)
This 8-page Krugman essay is actually really good, in terms of history of (mainstream) economic thought. (I had only had time to skim the first page when I ranted about it yesterday afternoon.) I don’t have any problem with his explanation of the battle lines in academia. Of course, the only flaw is that he totally ignores the niche in “theory-space” held by the Austrians. Krugman thinks you have to either believe that markets are flawless and bubbles are literally impossible, or you have to believe that capitalism is flawed and requires government oversight. Of course he is overlooking the possibility that government intervention can cause bubbles and other problems in market economies.
As for Cowen, in this post I flipped out because he first had said, “(By the way, some libertarians like to pretend that Milton Friedman blames the Fed for “contracting” the money supply by one-third in that period but in reality Friedman blames the Fed for having let the money supply fall by one-third and not having run a bank bailout.)”
But then in response to people who challenged this assertion, Tyler clarified by saying, “When I perused Friedman’s writings lately, I found that, as far as I could tell, he never discussed how to deal with widespread bank insolvency. I interpret him as believing that [lender of last resort] and loose money and the FDIC could deal with banking crises…”
As I say, I flipped out here, because it seemed Tyler’s interpretation of Friedman was precisely what the knee-jerk libertarians were “pretending” that Friedman believed.
However, I thought about it some more, and I realized that the case is not as open-and-shut as I originally thought. To say someone thinks the Fed should act in a crisis in its “lender of last resort” capacity can mean all kinds of things. Indeed, you could say that Bernanke himself (except for the outright purchases of some assets) is “bailing out” AIG and others through emergency loans. I think Brad DeLong was the first person I saw who brought up the point that the dividing line between an institution that is merely illiquid as opposed to insolvent is not as clearcut as we normally think. In our example, if the Fed is willing to give “loans” at 0% interest no matter the condition of the borrower, does that mean the Fed is acting as lender of last resort, or is it bailing out that institution?
Anyway, I still think Friedman did NOT advocate massive bank bailouts in the Great Depression, and I also think Tyler is contradicting himself when he says (a) Friedman DID advocate bank bailouts in the Great Depression but (b) Friedman never discussed widespread bank insolvency. (If [b] is true, how can [a] be true?) But my first reaction–where I accused Tyler of admitting that Friedman held precisely those views that Tyler had earlier chastised libertarians for attributing to Friedman–was unwarranted. It all depends on what activities we allow to the Fed when it’s wearing its “lender of last resort” hat.