Consulting by RPM || Free Advice Blog

Cheap Gucci Boots…

…are apparently ugg on sale now ugg.

Does anyone know how I can reduce the frequency of these spam comments, without inconveniencing you or me?

Obama Bask, Brought to You by the Letter K

OK kids two basks (blog asks):

(1) I am working on an op ed dealing with this “bank fee” nonsense. (Can you guess my take on the issue?) I want to make the point that if even the non-TARP-recipient banks have to chip in because they benefited, then so does the whole country. After all, the ostensible purpose of TARP all along had nothing to do with the banks per se–everyone from Paulson to Geithner wanted those rich fat cats to work at Wendy’s–but gosh we just can’t sit idly by and let Main St. get pulled down with the banking system.

I also know that at some point within the last 6 months or so, Obama and Geithner were raving about how successful TARP had been in rescuing the country. Can anyone dig up actual quotes with links? Note that this is for an op ed, so I can’t credit you. Your contribution will be done out of sheer duty to truth, justice, and my career.

(2) Tomorrow is “K” for my son’s show & tell class. For the life of me I can’t think of anything in the house that starts with a “K.” I’m not sending him in with Marx’s (Das) Kapital, nor with a Lenny Kravitz CD.* Any ideas?

* Just bluffing, I actually don’t own either of those.

More Marijuana Moves

Mark Weber alerts me to this story:

TRENTON — New Jerseyans suffering from debilitating diseases would be able to get prescriptions for marijuana to ease their pain under a bill that passed both legislative houses [January 11].

The Assembly approved the “Compassionate Use Medical Marijuana” bill 48-14; the Senate passed it 25-13. Gov. Jon Corzine has said he would sign the bill into law before he leaves office Jan. 19.

I don’t know the exact history, but I’m pretty sure these trends were well in place before the current crisis. What I’m predicting though is that with all of the busted budgets and extreme anger, the federal government will effectively legalize marijuana (and tax it). If I had to guess, I’d put it just in time for the 2012 elections.

Potpourri

* Steve Landsburg blows up Robert Gibbs on wind power. Now Landsburg accuses Krugman of being asleep at the wheel, but I hadn’t heard Gibbs’ comment, and I work for an energy think tank. So let’s give Krugman a pass; he was too busy not apologizing to Jim Manzi.

* A nice compilation of Roderick Long’s blog posts, filtered by theme.

* My former student Gennady has written up a bunch of study guides for actuarial exams. And you thought Bohm-Bawerk was dense material!

* GOP congressman wants to deport Iranians. If this administration weren’t so politically correct, it would stop letting men into this country. I mean seriously, haven’t the vast, overwhelming majority of terrorist attacks been committed by men? Let’s profile I say!

* Jeff Hummel passes along the “definitive” history [.pdf] of the crisis in money market funds.

* David Friedman is either talking about private legal systems or starting an ethnic joke.

* This story (HT2LRC) defies commentary, though you can try in the comments. Bonus points if you can do it without vulgarity.

Jon Stewart Busts Paulson and Geithner on the Bailouts

This is really top-notch commentary. In contrast, somebody like George Carlin was hilarious, but his condemnations of capitalism were often absurd. But Stewart is speaking common sense here:

Megan McArdle Coming Around to the Austrian View?

Bill R. writes to me:

I thought you’d appreciate this example of McArdle “growing” into her new perspective (h/t Instapundit):

[Megan McArdle:] The best explanation for the calamity that has overtaken us may simply be that cheap money makes us all stupid. The massive inflows of international capital, which Ben Bernanke has called the “global savings glut,” poured into our loan markets, driving interest rates lower—and, since most real estate is purchased with borrowed funds, pushing up the price of property in both the commercial and residential sectors. Rising prices, in turn, disguised any potential problems with the borrowers, because if they ran into cash-flow problems, they could always refinance, or sell. Everyone was getting bad signals from the market, and outlandish purchases looked almost rational.

That answer isn’t quite satisfying, especially in the face of another financial meltdown. We don’t want ambiguity and complex systems; we want heroes, villains, and a happy ending. But by now we should all know that real-estate markets are rarely the stuff of fairy tales.

[Bill R:] Compare this to her post blasting Austrians and their “Evil Man theory of Failure” post and the lambasting of the impact of “a smallish injection of short term capital”:

[Megan McArdle:] Here’s the problem: if markets are so great, how come the entire system can be brought low by a smallish injection of short-term capital?
…
Austrians: If the market does not price the injection of short term capital into its actions, why would we trust it to price anything else correctly? If the markets treat short-term capital as substantially equivalent to long-term capital, we have much bigger problems than Alan Greenspan.

[Bill R:] You’ve already critiqued her initial post here and here….Most of the key points have already been discussed. McArdle only adds to the polemical case against one part of the left’s narrative by invoking “sophisticated” commercial lenders so I guess that’s a plus.

I just thought it would be a good time to gloat a little…

What Bill doesn’t realize is that I am above gloating.

Me, Inflation, and Crazy Pills

[UPDATE below.]

One of my favorite Will Ferrell lines is from Zoolander when his character is exasperated that others can’t see that supermodel Dereck Zoolander’s “looks” are all the same. He screams, “Doesn’t anyone notice this? I feel like I’m taking crazy pills!”

It is with such an attitude that I read this piece from the WSJ (HT2EPJ):

Those looking to Wednesday’s “beige book” report for clear signs of a turning point in the Federal Reserve’s interest-rate policy might end up disappointed.
…
High unemployment is keeping a lid on wages, and manufacturers are operating less than 70% of their capacity.

Friday’s consumer-price report is expected to show that 2009 marked the first annual decline in consumer prices in 54 years.

The disappointing December jobs report, which showed the loss of another 85,000 nonfarm jobs last month and a 10% unemployment rate, is another reminder that even with vigorous GDP growth, the U.S. economy is operating well below capacity.

“The risks of tightening too early … still seem bigger than the risks of tightening too late and seeing inflation rise,” Goldman Sachs chief economist Jan Hatzius said in a recent client note.

As a result, Mr. Hatzius says he expects the fed-funds rate to stay put near zero this year, “and more likely than not, in 2011 as well.” Officials are unlikely to rethink that stance until inflationary gauges start showing persistent gains, economists say.

For now, with inflation running so low, even a much more bullish beige book wouldn’t mean rate rises are coming soon.

OK kids, I am going to feel like a serious moron if I turn out to be wrong since I’m harping on it so much, but WHAT THE HECK. I thought the whole lesson of the 1970s stagflation was that the standard Keynesian view–that there is a tradeoff between high unemployment and high price inflation–was totally discredited. That’s what I taught my macro students at Hillsdale College, and I thought the WSJ writers were on board with the story.

As far as the speculation that consumer prices in 2009 will register their first drop since 1954, well, go watch the Will Ferrell clip. I don’t have to go to ShadowStats to come up with the “real” inflation numbers, I’ll go to the St. Louis Fed’s website which compiles the BLS’ own numbers. Here are some interesting facts:

* Using the normal CPI without seasonal adjustment, prices from Dec 2008 through Nov 2009 (i.e. the first 11 months’ of price changes in calendar 2009) increased 2.9%.

* Using the seasonally adjusted CPI, prices in the first 11 months of 2009 went up 2.7%.

* Using the “core” CPI (i.e. taking out food and energy prices) but without seasonal adjustment, “prices” rose 2.0% in the first 11 months of 2009.

* Finally, using the seasonally adjusted core CPI, prices rose 1.7% in the same period.

Note that I am NOT bumping up the percentage increases to annualize the growth rates. No, the numbers above show the simple growth over the 11-month period.

Now you might say, “Oh, well people didn’t spend a lot this Christmas, so maybe word on the street is that prices fell up to 2 percentage points from November to December?”

Well, that’s technically possible, but even in 2008–amidst the world-is-ending panic–the biggest one-month drop in non-seasonally adjusted CPI was less than 2 percentage points (from October 2008 to November 2008). I’m not checking the other categories but I believe the drops would be lower for them, since (a) a big part of the drop was in energy, meaning the regular CPI would fall harder than the “core” CPI, and (b) prices normally drop in the 4th quarter, so the seasonal adjustment would take some of the actual fall out and smooth it across the year.

So I really don’t know what to tell you, kids. If people are expecting the CPI to be down for 2009, come this Friday’s announcement, they are going to be as “shocked” as the people forecasting job growth in December.

Someone please explain what I’m missing here. It can’t possibly be that I’m the only one to check the numbers through November before shooting my mouth off about what the numbers through December will look like. I even checked to see if maybe they are starting “price increases in calendar 2009” with the CPI number for January, even though that will yield only an 11-month increase. But nope, there’s still no way even that number could possibly go negative, unless prices dropped last month more than they did when people thought the world was ending.

UPDATE: Mystery solved. Robert Wenzel emailed the WSJ writer who referred him to an IHS Global Insight report. He called them up, and somebody explained that (barring a big surge in December prices which won’t happen) the average CPI in 2009 will be lower than the average CPI in 2008. Hence, one might describe this as saying, “Prices fell in 2009 compared to 2008,” an event that hasn’t happened in at least 50 years.

OK I’m glad we’ve at least resolved the mystery, but check out the chart of the CPI. You can see that the reason for this is that prices rose steeply into the summer of 2008, and then crashed in the final quarter. From that valley, they rose fairly steadily throughout 2009.

Well I guess that means the financial press might be able to contain the news that year/year price inflation will be near 3% come Friday’s announcement. They can, if they choose, go on and on about how this is an unprecedented collapse in prices. But keep in mind that this statistic is driven entirely by the fall in CPI from October through December 2008. Prices have risen throughout 2009.

FWIW, if you’re curious I took the raw CPI numbers and projected them forward, using the (arithmetic) average monthly increase for the first 11 months. By March the 12-month trailing average CPI will be higher than the average CPI in the 12 months of calendar 2008.

In Defense of Harry Reid and Jonathan Gruber

C’mon kids, what Harry Reid said was not only not racist, but it was arguably true. If using that particular word makes him a racist, someone needs to tell these people to hurry up and change their name before getting booted out of polite society.

It’s also absurd for radio talk show hosts to say that there is a double standard with Trent Lott. Now I’ve defended Lott in the past for this (I can’t remember where), because duh it was a guy’s 100th birthday party and he was a politician throwing out a generic slap on the back. It wouldn’t surprise me if Lott didn’t even think about what he was saying. But if you actually want to parse the words, then obviously Lott’s statement was more racist than Harry Reid’s.

This should go without saying, but here goes: Of COURSE if a Republican or conservative pundit had been caught saying what Reid did, his career would be finished. But that doesn’t mean it’s OK to engage in tit-for-tat witch hunts. If the pundits gave Reid a pass on this like George Will is doing, they would have a lot more credibility the next time a conservative says something “awkward” but truthful. Now they are just setting themselves up for a bigger blow up the next time a Republican says something “insensitive.”

As far as Gruber: I have dealt with too many “refutations” of my arguments on oil markets and climate change that simply refer to my position with a company that receives industry funding, in order for me to get worked up about this. I admit to being very surprised by the amount of funding Gruber got, but let me put it this way: Are we saying the government and media couldn’t have found someone to defend health care “reform” who was not getting money for it?

I would much rather focus on the flaws in Gruber’s testimony and analysis, rather than his funding.

In general, on both issues: The only way to end witch hunts is to stop burning the “other side”‘s witches.