26 Jan 2010

A Helpful Nag From Uncle Bob

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Hey kids, just to refresh your memory, I still think we are the opening stages of what will become known as the second Great Depression. (I think they will hold off on calling it “Great Depression II” because then people might get worried there will be a whole series.) On top of that, I expect large price inflation in the near future.

So in addition to cutting back on your spending in order to either pay down (variable rate) debt and/or invest in things that respond well to price inflation, I also strongly suggest that you start diversifying your income sources.

In particular, it’s important that you get your foot in the door now as opposed to (say) 6 months from now when everybody knows we are in this for the long haul. So if you want to start doing freelance writing, or want to start cleaning houses on the weekends, or start walking people’s dogs, or…whatever fits your skills and desires, then you should get going on that now. If and when the market crashes or the dollar tanks, every temp agency is going to be overwhelmed with new applications, and Craig’s List etc. is going to be overwhelmed with newly-laid off people looking for one-off jobs. So you want to get your foot in the door now, before the rush.

26 Jan 2010

What Is This Harvard Student Smoking?

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Mark Weber passes this NYT story along, explaining that Hayek is spinning in his grave. At first I didn’t see what a story about Mexican drug cartels had to do with Hayek, but then it hit me:

It may seem strange to examine this shadowy world with equations. But mathematics is transforming the social sciences. In the same way that physicists can predict the movement of atoms in space, we can use mathematics to model how individuals and groups will make decisions and interact in a society.

It used to be that social scientists relied on intuition to understand social problems. But human intuition can go wrong. It is difficult to keep track of every factor in the interaction of millions of human beings. Human logic can be deceived by personal points of view, and, as psychological research has shown, humans see false patterns even when randomness is the norm. Mathematics is cold-headed; it cannot go wrong.

So here I am, waiting at the border, on a mission to understand, with my equations, who is at risk of becoming a drug trafficker, how labor incentives affect crime rates and violence, why kidnapping and extortion and homicide have spiked in recent years.

But wait, it gets better, such that I looked back at the top to make sure this was a real article:

In this violent world, with the man in the blue Chevy whispering at me behind the window, math is my shield. Speaking up about drugs is in these parts a dangerous game. But not if you speak in the language of sigma and conditional expectations. Math protects me from the immediacy of the violence, and it protects me from them.

I don’t know what to say. Math has protected this writer from my wit.

26 Jan 2010

Telly Savalas Listening to Doug French?

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Oh no. I am putting in a Doug French lecture on money for the junior high curriculum, and there seems to be an oblong spheroid hovering in the lower right corner of the screen throughout his entire lecture…

26 Jan 2010

Murphy Twin Spin

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At LRC I have a revised version of my critique of Landsburg’s case against the existence of God. At Mises.org I have an article explaining why Haiti is not in anarchy:

If many Americans thought it was “just the right thing to do” to send guys with big guns to Haiti in order to make sure everyone played by the rules, then why did the US federal government have to get involved at all? The Americans who thought it was a good idea could have volunteered themselves, or paid for others to go and do this moral work. There was no reason Barack Obama had to chime in with his own thoughts on the matter, except to say that he was strapping on an M16 to cover Michelle as she handed out bottled water to orphans.

Obviously, I am being facetious. The reason the US federal government “had to” coordinate the rescue efforts in Haiti is that it would violently punish any private group that tried to field a comparable effort with adequate defense for its participants. If foreign arms dealers began trying to sell grenade launchers, tear-gas canisters, riot gear, and other equipment to nongovernmental groups in Haiti, the US Navy would almost certainly interrupt their shipments as wildly “destabilizing.”

Upon reflection, we see that there never was any hope for the blossoming of Rothbardian defense agencies in Haiti. For an analogy, if the US Air Force bombed any nonapproved Haitian farms while the US Navy intercepted any incoming shipments of food, then statists could “prove” that a free market in agriculture is a horrible idea that leads to preventable starvation.

25 Jan 2010

Economic Wisdom, Old School

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In preparing an economics curriculum for junior high / high school students, I was reminded of just how amazing Bastiat’s “The Petition of the Candlemakers” and Leonard Read’s “I, Pencil” are. If you have never read them and are interested in free market economics, I highly recommend that you print them out and sit by yourself at lunch.

25 Jan 2010

Hayek/Keynes Rap Video

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[UPDATE #2 below.]

[UPDATE below.]

I think my job requires me to blog this, much as I had to teach the multiplier theory to my macro students. What interested me most about this video is that the hotel receptionist apparently skipped work in order to get in the limo with Keynes. Now that’s a smooth economist.

I was tempted to make fun of this but apparently it worked in getting the message through to at least one person.

UPDATE: I should probably add that this video is amazing, for what it is trying to do. I am just surprised that they tried to do this. Perhaps it’s my checkered past of actually listening to rap music, but I am not sure the Beastie Boys actually pulled off white rapping.

UPDATE #2: OK in retrospect, I underestimated the potential benefits of this video. My first reaction, to be honest, was that I couldn’t believe how much money they must have spent on this, when it (a) isn’t really s study guide for people who like Hayek and (b) wouldn’t really convince a Keynesian to abandon his ideas. And since it is an intentionally goofy video of two geeky guys rapping, the video obviously wouldn’t win a layperson over, because its terminology and references would be way over his head.

However, I have read reactions elsewhere, and I forgot that grad students would be a great target audience for this. They would of course get the Keynesian C+I+G stuff, and they would at least be able to make sense of what “Hayek” says in the video. Coupled with the drunken imagery…It’s a crazy plan, but it just might work.

25 Jan 2010

Doug French on the Japanese Lesson

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One of the crazier aspects of our financial and economic discourse is that the Great Depression is cited as the result of laissez-faire, when in fact Hoover and then FDR intervened more heavily in a recession than any prior presidents in US history.

By the same token, we are told that the U.S. government needs to run huge deficits, and the Fed needs to provide easy money, in order to avoid the fate of Japan. From this “moral” you would understandably infer that Japan’s “lost decade” must have been characterized by balanced budget and super-high interest rates. Not so, as Doug French explains (HT2 Carlos Lara):

After the bubble popped in Japan, that government pursued a relentless Keynesian course of fiscal pump priming and loose fiscal policy with the result being a Japan that went from having the healthiest fiscal position of any OECD country in 1990 to annual deficits of 6 to 7 percent of GDP and a gross public debt that is now 227 percent of GDP. “The Japanese tried to cure an alcoholic with heroin,” writes Bonner. “Now, they’re addicted to it.”

Japan’s monetary policy was to aggressively lower rates to .5 percent between 1991 and 1995 and has operated a zero-interest policy virtually ever since.

Between 1992 and 1995, the Japanese government tried six stimulus plans totaling 65.5 trillion yen and they even cut tax rates in 1994. They tried cutting taxes again in 1998, but government spending was never cut. Also in 1998, another stimulus package of 16.7 trillion yen was rolled out nearly half of which was for public-works projects. Later in the same year, another stimulus package was announced, totaling 23.9 trillion yen. The very next year an ¥18 trillion stimulus was tried, and, in October of 2000, another stimulus for 11 trillion was announced. As economist Ben Powell points out, “Overall during the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession,” with Japan’s nominal GDP growth rate below zero for most of the five years after 1997.

Now of course, Krugman & Friends can come back and say, “Japan didn’t do enough!” But even if that were true, doesn’t this same cynical Krugman realize that no politicians are going to do exactly what his models suggest (thank goodness)? In other words, if Krugman & Friends know that the 85% Keynesian Solution pushed through by politicians will lead to the worst economic performance ever (in the 1930s in America and the Lost Decade in Japan), then maybe Krugman & Friends should stop pushing it?

25 Jan 2010

Murphy Interview

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Josiah Schmidt interviewed me on various economic issues. The platform is the political campaign of Gary Johnson, but I am not endorsing him. (I’m not condemning him either.) An excerpt:

Josiah Schmidt: Who is your biggest inspiration in writing your books and articles?

Robert Murphy: It’s a tie between Mises and his (unofficial) student Murray Rothbard. Mises was the greatest economist of the 20th century, but Rothbard was the best writer who could take these difficult ideas and teach the average reader.

Josiah Schmidt: Why, in your opinion, is the concept of a government stimulus a fundamentally flawed way to truly restore economic health to the country?

Robert Murphy: The government doesn’t create resources, it simply moves them around. The economy was in an unsustainable configuration in 2006, and workers and resources needed to move out of housing (and Wall Street) and go elsewhere. The government should have sat back and let this happen, instead of trying to prop up unsound enterprises. The longer the “stimulus” drags on, the longer the slump.

Josiah Schmidt: What is wrong with the notion that the correct response to a “liquidity crisis” is for the Federal Reserve to simply inject new credit?

Robert Murphy: The Fed doesn’t make us richer by printing up more green pieces of paper (or by adding numbers to someone’s checking account balance). Interest rates are prices that communicate important information to investors and entrepreneurs. When the Fed effectively wipes out that signal by pushing interest rates to zero, it makes it harder for people in the economy to recalibrate after the housing bust. It would be as if the Fed disabled everyone’s internet access and expected that to help the economy.