Greenspan’s Probability Skills as Good as His Monetary Policies
Most of you by now have already seen this, I’m sure:
(I saw that particular video linked from EPJ, but it’s all over the place.)
Now lots of people are (rightly) flipping out over Greenspan’s move into MMT territory. But what I want to focus on is his absurd claim that there is “zero probability” of default.
For one thing, countries with sovereign fiat currencies do default; Russia did when it blew up LTCM, for example.
Yet even if we focus exclusively on the United States, Greenspan is telling us that when we had about 2 days to go and no debt ceiling deal, that there was a 0% probability of default?! Does he know what “0%” means?
It’s one thing to say that the Fed has the technical ability to create an unlimited amount of dollars. It’s another to predict that that’s what will happen.
By the same token, I could say, “The federal government has more than $2 trillion coming in through tax revenues. So the government just has to cut spending to less than that, and interest payments are fine. There is therefore a 0% probability of default.”
My hypothetical analysis is only slightly less ridiculous than Greenspan’s.
Why Is the Stock Market Plunging?
Of course there are specific factors explaining the exact timing–notably the mess in Europe–but I offer a “big picture” explanation in today’s article at Mises.org.
It’s worth checking out just for the charts, which are pretty revealing if you haven’t been following that type of thing.
Do Not Worry
Somehow I think the following will be relevant in the next few months:
25 “Therefore I say to you, do not worry about your life, what you will eat or what you will drink; nor about your body, what you will put on. Is not life more than food and the body more than clothing? 26 Look at the birds of the air, for they neither sow nor reap nor gather into barns; yet your heavenly Father feeds them. Are you not of more value than they? 27 Which of you by worrying can add one cubit to his stature?
28 “So why do you worry about clothing? Consider the lilies of the field, how they grow: they neither toil nor spin; 29 and yet I say to you that even Solomon in all his glory was not arrayed like one of these. 30 Now if God so clothes the grass of the field, which today is, and tomorrow is thrown into the oven, will He not much more clothe you, O you of little faith?
31 “Therefore do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’ 32 For after all these things the Gentiles seek. For your heavenly Father knows that you need all these things. 33 But seek first the kingdom of God and His righteousness, and all these things shall be added to you. 34 Therefore do not worry about tomorrow, for tomorrow will worry about its own things. Sufficient for the day is its own trouble.
Is This Really His Lordship?
This is really Keynes, right? Since this is the only (alleged) footage I’ve ever seen of him, I have no idea. For all I know this is a particularly high-brow Monty Python sketch.
Interesting Reactions to S&P Downgrade
I’ve already mentioned Tyler Cowen’s surprising reaction…
But here is Brad DeLong making a refreshingly honest admission. (The same is true for me, Prof. DeLong.)
And here is Bob Wenzel making the most sense out of this that I have yet seen.
Christina Romer Is Much Cooler Out of Politics
I was never hip-deep into macro stuff (I’m an ideologue, remember), but I’ve heard from other free-market people that Christina Romer in the grand scheme was actually pretty cool. But once she went to the White House, things went downhill.
Anyway, check out her in the beginning of this video. She’s pretty funny. (Naughty words, watch out.)
I’m just puzzled by one thing: She seems to imply that the sky is a color other than green. I mean sure, when it’s cloudy out, you can’t see it, but we all agree that the sky is green, right? I’ve seen it that way ever since discovering Rothbard. (HT2 Brent)
The Great Cash Balance Debate of 2011: Answering the Critics
[UPDATE: I tweaked the example to have Bernanke pay Jim to perform a service, rather than giving an outright gift. I don’t want us to get bogged down over whether a gift should be counted as “income” since that’s not essential to the argument.]
We have made unbelievable progress. Major Freedom hasn’t thrown in the towel, but he has given an extremely conciliatory concession and admits that he can’t follow Wenzel down the path he has forged.
At this point, I think most people see the logic of my position on cash balances and saving. In a series of posts, I want to now disarm the critics who (I think) can’t follow me yet, because they have one or two apparently decisive objections to my approach. In other words, they can agree that my approach avoids some of the thorny tangles into which Wenzel’s leads, but it looks like I avoid those problems only to march us off a cliff.
So let’s take on the one that is rhetorically the most damning:
“Murphy, if you’re right that a person can “save” by hoarding more cash, then you have to admit that Ben Bernanke can increase someone’s “savings” by printing up money and handing it to him.”
Yes, I admit it–my position forces me to say that. But if we think it through, what else can we say? Consider the following:
Bernanke prints up $100,000 and hands it over to Jim as payment for the service of Jim singing “Sweet Caroline.” Jim takes the cash and buys a bunch of pizzas, goes on cruises, takes his lady friends (he’s got a lot now) out on the town, etc. etc. After a few months go by, Jim has blown through the $100,000.
Question: Did Jim really consume $100,000 worth of goods and services during the period in question? I think he most certainly did.
Question: Absent a libertarian revolution, with a Nuremberg Trial conducted by Walter Block, did Jim’s net worth go down as a result of these actions? They certainly need not have. (Assume Jim doesn’t do a bunch of cocaine and degrade his future earning potential, etc. You get what I’m saying.)
Question: When Jim’s accountant runs the numbers at the end of the year, how can he explain Jim’s $100,000 in consumption, coupled with no obvious reduction in his other assets or increase in liabilities owed to others? The accountant will have to say that Jim’s income was $100,000 higher, because of Bernanke’s $100,000 payment for the performance.
I see no way around this: If Bernanke prints up $100,000 and you spend it on consumption, then your income and consumption are both truly $100,000 higher. This is true even though it’s not morally legitimate (from a Rothbardian viewpoint), nor economically efficient (from various perspectives). In the same way, the mafia don’s accountant can run the books, and keep track of how much income they “earn” from fencing stolen goods, extortion, etc.
Now it’s true, if we want to be “macroeconomists” and step back, we can see that there is a sense in which Jim didn’t really produce $100,000 worth of services. So other things equal, the purchasing power of money has fallen. The $100,000 Jim spends on consumption isn’t the same batch of real goods and services that a legitimate (non-inflationary) $100,000 would have been. And of course, everybody else who holds dollar-denominated assets is a little poorer because of it. So the community hasn’t necessarily seen an increase in consumption (depending on how the hit is absorbed among them), but Jim certainly has.
If we are still with me, it’s an easy tweak to now say: Suppose Jim takes the $100,000 Bernanke gave him, and uses it to buy a factory. Jim clearly invested that money. As before, he clearly had $100,000 in extra income. So how could he have invested it? Why, he first saved it. Rather than buying pizzas, cruises, and nights on the town with his lady friends, he directed that purchasing power into the acquisition of a productive factory that will yield future income to Jim.
So yep, when Ben Bernanke gives you $100,000 and you sit on it, you have saved and invested in higher cash balances. This isn’t morally legitimate or economically equivalent to non-inflationary saving, but you did save in a nominal accounting sense.
Murphy on FreedomWatch
I really do look for opportunities to crack jokes, but they never seem to present themselves. A true comedic talent makes his opportunities, I guess.
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