If I Lived in England I Might Buy a TV Again
This is a neat game show clip I picked up from Scott Sumner. I will post my commentary (from Scott’s thread) as the first comment here. You should watch the clip first.
Former Fed Official Calls for Audit
William Barnett–who’s not the Fed-watching William Barnett of Loyola College, I checked–calls for an audit of the Fed in the NY Times (HT2 Jeff Hummel). Barnett made me feel less of an idiot when he wrote:
Consider the data the Fed presented last year on nonborrowed reserves. Nonborrowed reserves are total bank reserves minus money borrowed by banks and held as reserves. Clearly, the money borrowed cannot exceed the total reserves, so nonborrowed reserves should not be negative. Yet for a few months last year, the Fed reported banks’ nonborrowed reserves at billions of dollars below zero. In its calculations of nonborrowed reserves, the Fed included in borrowed reserves new forms of bank borrowing not being held as reserves. Such incompetent accounting would not survive an unconstrained, fully informed audit.
Phew! That screwed with some of your heads’ too, right? I mean, even if the Fed held 100% borrowed reserves, then “nonborrowed reserves” should have been zero, not negative. Here’s the chart:
What I don’t know is if the rapid “improvement” was due merely to injections of new reserves, or if the Fed changed its bookkeeping too.
Another interesting point:
The information the Fed releases on bank deposits is similarly biased and contaminates data on the money supply and thereby on the liquidity of the economy produced by Federal Reserve policy. In order to evade reserve requirements, which mandate that a certain fraction of deposits be held in reserve and not lent out, many banks sweep much of their checking account deposits into shadow money-market-deposit savings accounts before reporting those deposits to the Fed. Since such accounts have no reserve requirements, this allows the banks to decrease the amount of total reserves they’re required to have. But the liquidity provided to the economy from checking accounts is the pre-sweeps amount, not the reported post-sweeps amount.
This was something we had to deal with at Laffer Investments; i.e. we would report to clients on the “sweep-adjusted” M1.
In normal times, I wouldn’t think it was that big a deal, if you were just interested in rates of growth. But these aren’t normal times. If banks are now less (more) willing to sweep checking deposits into money market accounts, then that means the reported growth in M1 is higher (lower) than it actually appears. I’m not saying banks are less willing to do so, but they might be, in which case the stagnant monetary aggregates are actually concealing a shrinking money stock held by the public. It is entirely possible that looking at FRED for the M1 and M2 updates isn’t a great way to understand what’s really happening with the money supply.
Like I’ve said in the past, any of you sugar daddies who want to pony up the $$ for me to take a month and get to the bottom of all this, please feel free to email me.
British Satirists Discuss Banks, Bailouts, and Bonuses
The translucent von Pepe sends this link. The video is 9:52 long, and when I clicked it, I thought I’d just watch a few seconds. I kept thinking that until about 6:00, when I realized I was going to just watch the whole thing.
Who’s Being Dogmatic?
My op ed in the San Diego Union-Tribune generated some hate mail. The best was this:
Mr. Murphy, in your article published in the San Diego Union Sunday Oct. 25,2009 the first conclusion you come to is that the Obama economic stimulus was a failure and you use the predictions of the administration to support this conclusion. Predictions of anyone do not substantiate anything other that the predictions were wrong. Your second point was that TARP was not needed because business loan activity decreased after Oct 2008 when the rescue was initiated. Oct. 2008 was when the banking almost came to a complete halt whether tarp was introduced or not, so it seem obvious that loan activity would decline, that fact doesn’t tell us anything about TARP. I think you come to your conclusions from a dogma and no real interest in the truth. Any small understanding of the great depression will give you actual facts of what government intervention does. I get tired of reading editorials in the Union Tribune with no real facts to support the opinion.
I put the bold in the above. What’s funny is that in my op ed, I pointed out:
(1) After passage of the Obama stimulus package, unemployment is now higher than they predicted (a) with the stimulus and even (b) without the stimulus. In other words, we are now in a situation that is even worse than what Obama’s economic team used to scare people into supporting the stimulus.
(2) Even though TARP was pushed through with the promise of getting banks lending again, lending was at an all-time high when TARP was passed, and since has plummeted 12% in less than a year.
I didn’t mention this in the op ed, but since he brought it up:
(3) As far as the Great Depression goes, we see that the period of the greatest federal intervention into the US economy (at least during peacetime) was also by far the worst economic performance in US history.
So my question is this: What would the empirical evidence have to look like, in order for my pessimism about government intervention to be well-founded, rather than dogmatic?
And notice that for my correspondent, he uses a priori theory to explain away the ostensible failure of the stimulus and TARP. He relies on the trusty counterfactual: Even though the objective measures got worse after his programs passed, nonetheless he is confident that things would have been even worse had the government done nothing.
Maybe the guy is right; I’m certainly not knocking a priori theory in economics. But it’s a bit absurd for him to criticize me for clinging to dogma in this case.
Is the Recession Really Ending?
My answer is “no” in the San Diego Union-Tribune. I’ve gotten some hate mail on this one. My favorite so far was a guy telling me to read up on the Great Depression so I’d see the beneficial effects of government intervention. An excerpt:
The government and media analysts should stop talking as if the “success” of these programs [TARP and Obama stimulus] is self-evident. A simple look at the facts suggests that the interventions have been abject failures. Instead of cheerleading a bogus rescue, media analysts should tackle the obvious question: If this weak performance doesn’t cause proponents of massive deficit spending and corporate handouts to doubt themselves, what would?
Would a more free-market approach have yielded better results? Americans don’t know because neither the Bush nor Obama administrations considered that option. The next administration to tackle a recession should look to the market more than intervention. There is still time for the Obama administration, because the current recession, contrary to news reports, may not be over after all.
Elijah Speaks Truth to Power
Last week I noted that Solomon’s son tried to exact higher taxes from the Israelites, leading them to revolt and split the kingdom in two.
From there it was all downhill. The two Books of Kings just chronicle successor after successor who was even worse than the last guy. And I don’t mean they cheat on their wives and start wars; I’m talking about building shrines to pagan gods. Yikes.
(Incidentally, this is part of the reason for my prediction of a very bad decade for the US. In politics, things often cycle lower and lower. I remember when a lot of conservatives and libertarians thought Bill Clinton was just about the worst president imaginable. Still think so, guys? And after Republicans have festered during the Obama Administration, can you imagine how reckless they will be when their guy finally gets back in the White House? It’s not going to be pretty. George W. Bush may look like a camp counselor in comparison.)
Left to their own devices, the Israelites probably would have imploded. But there was always a prophet who would emerge from obscurity to tell the king what was up. Now you ask, “Well why would these awful kings give a flip what some self-righteous guy said to them? How many divisions did Elijah have?”
You don’t need earthly force when you are communicating the word of the Lord: “1 And Elijah the Tishbite, of the inhabitants of Gilead, said to Ahab, “As the LORD God of Israel lives, before whom I stand, there shall not be dew nor rain these years, except at my word.”” (1 Kings 17:1)
So Elijah is not too popular right about then, and the Lord tells him to get out of there pronto. He also tells Elijah where to camp so that he can drink from a brook, and reassures him that ravens will bring him bread and meat.
Later on, Elijah comes back to meet the king and remind everyone who brought their forefathers out of Egypt. If you don’t believe all this stuff, just appreciate it as a good story. This is pretty cool:
1 And it came to pass after many days that the word of the LORD came to Elijah, in the third year, saying, “Go, present yourself to Ahab, and I will send rain on the earth.”
2 So Elijah went to present himself to Ahab; and there was a severe famine in Samaria. (1 Kings 18:1-2, New King James Version)
…
17 Then it happened, when Ahab saw Elijah, that Ahab said to him, “Is that you, O troubler of Israel?”
18 And he answered, “I have not troubled Israel, but you and your father’s house have, in that you have forsaken the commandments of the LORD and have followed the Baals. 19 Now therefore, send and gather all Israel to me on Mount Carmel, the four hundred and fifty prophets of Baal, and the four hundred prophets of Asherah, who eat at Jezebel’s table.”
20 So Ahab sent for all the children of Israel, and gathered the prophets together on Mount Carmel. 21 And Elijah came to all the people, and said, “How long will you falter between two opinions? If the LORD is God, follow Him; but if Baal, follow him.” But the people answered him not a word. 22 Then Elijah said to the people, “I alone am left a prophet of the LORD; but Baal’s prophets are four hundred and fifty men. 23 Therefore let them give us two bulls; and let them choose one bull for themselves, cut it in pieces, and lay it on the wood, but put no fire under it; and I will prepare the other bull, and lay it on the wood, but put no fire under it. 24 Then you call on the name of your gods, and I will call on the name of the LORD; and the God who answers by fire, He is God.”
So all the people answered and said, “It is well spoken.”
25 Now Elijah said to the prophets of Baal, “Choose one bull for yourselves and prepare it first, for you are many; and call on the name of your god, but put no fire under it.”
26 So they took the bull which was given them, and they prepared it, and called on the name of Baal from morning even till noon, saying, “O Baal, hear us!” But there was no voice; no one answered. Then they leaped about the altar which they had made.
27 And so it was, at noon, that Elijah mocked them and said, “Cry aloud, for he is a god; either he is meditating, or he is busy, or he is on a journey, or perhaps he is sleeping and must be awakened.” 28 So they cried aloud, and cut themselves, as was their custom, with knives and lances, until the blood gushed out on them. 29 And when midday was past, they prophesied until the time of the offering of the evening sacrifice. But there was no voice; no one answered, no one paid attention.
30 Then Elijah said to all the people, “Come near to me.” So all the people came near to him. And he repaired the altar of the LORD that was broken down. 31 And Elijah took twelve stones, according to the number of the tribes of the sons of Jacob, to whom the word of the LORD had come, saying, “Israel shall be your name.” 32 Then with the stones he built an altar in the name of the LORD; and he made a trench around the altar large enough to hold two seahs of seed. 33 And he put the wood in order, cut the bull in pieces, and laid it on the wood, and said, “Fill four waterpots with water, and pour it on the burnt sacrifice and on the wood.” 34 Then he said, “Do it a second time,” and they did it a second time; and he said, “Do it a third time,” and they did it a third time. 35 So the water ran all around the altar; and he also filled the trench with water.
36 And it came to pass, at the time of the offering of the evening sacrifice, that Elijah the prophet came near and said, “LORD God of Abraham, Isaac, and Israel, let it be known this day that You are God in Israel and I am Your servant, and that I have done all these things at Your word. 37 Hear me, O LORD, hear me, that this people may know that You are the LORD God, and that You have turned their hearts back to You again.”
38 Then the fire of the LORD fell and consumed the burnt sacrifice, and the wood and the stones and the dust, and it licked up the water that was in the trench. 39 Now when all the people saw it, they fell on their faces; and they said, “The LORD, He is God! The LORD, He is God!”
40 And Elijah said to them, “Seize the prophets of Baal! Do not let one of them escape!” So they seized them; and Elijah brought them down to the Brook Kishon and executed them there.
41 Then Elijah said to Ahab, “Go up, eat and drink; for there is the sound of abundance of rain.” 42 So Ahab went up to eat and drink. And Elijah went up to the top of Carmel; then he bowed down on the ground, and put his face between his knees, 43 and said to his servant, “Go up now, look toward the sea.”
So he went up and looked, and said, “There is nothing.” And seven times he said, “Go again.”
44 Then it came to pass the seventh time, that he said, “There is a cloud, as small as a man’s hand, rising out of the sea!” So he said, “Go up, say to Ahab, ‘Prepare your chariot, and go down before the rain stops you.’”
45 Now it happened in the meantime that the sky became black with clouds and wind, and there was a heavy rain. So Ahab rode away and went to Jezreel. (1 Kings 18:17-45, New King James Version)
If you think Elijah was a formidable figure, just wait till we meet Elisha.
The Problem With Pigou
From an email I wrote to a group of colleagues who were arguing over whether it was really true that fossil fuel use only had negative externalities. (One of the guys was arguing that cheap energy confers benefits on society, just as surely as an opera house.)
Sorry I’m late replying to this; swamped with work. Consumer surplus
refers to the benefit consumers get from the availability of certain
markets, because presumably you keep buying units until the marginal
benefit of the next unit is lower than the unit price. So the idea is
that you gain a surplus on each of the inframarginal units. A lot of
people don’t see how a voluntary trade makes both people better off.
If a gallon of gas has a price of $2.50, then the consumer buys it and
at best is “even” because he swapped out $2.50 in cash for something
that is “worth” $2.50. But obviously that is wrong.A positive externality means your actions shower benefits on other
people who aren’t in the actual market transaction. Textbook examples
are things like schooling and vaccination. An individual presumably
decides to learn to read, and get vaccinated (or at least his parents
force him to do these things) because the personal benefits outweigh
the personal costs. But it’s in my interest if other people become
literate and vaccinate themselves. (Let’s stipulate that we’re talking
about an effective vaccine. I know a lot of people don’t like the H1N1
vaccine.)The problem with externalities is that if you push it, just about
every action you take has a million positive and a million negative
externalities. E.g. if I put on smelly socks before going to work,
that’s a negative externality and the government ought to fine me, in
principle. Oh but maybe the odor causes others to think about
workplace odor, causing 5 people to use anti-perspirant who otherwise
wouldn’t have. Thus my wearing of smelly socks confers a positive
externality, and the government should subsidize me, in principle.So [Mr. Colleague] is definitely right that there are positive externalities
from fossil fuel use, if only because I can dream up positive
externalities from any activity X.
Corporatists 237, Bob Murphy 3
Wow I’m sorry that I missed this, loyal readers. I really need to stop outsourcing my financial news gathering to places like CNBC. It was only after watching a video interview with “special master for executive compensation” (that’s actually his title, which is hardly less worrisome than “pay czar”) Ken Feinberg that I realized his “90% pay cuts” actually are only pro rated to November and December. (I believe Tokyo Tom in the comments of my knee jerk post was trying to point this out, when he said the decision wasn’t a clawback.) Furthermore, as Feinberg says in the video, everything is back on the table starting in January 2010. (However, some news reports have Feinberg saying the rules will be in place for 2010. The only thing worse than having a pay czar chop your pay by 90%, is not knowing if the pay czar will chop your pay by 90%.)
Don’t get me wrong, I still stand by the general theme of my first reaction: This is a horrible precedent, and will make it all the easier for the government to regulate all financial compensation packages down the road, so long as it gives some bogus finding of “systemic risk.”
But once again I was snookered by the progressive rhetoric, in contrast to the corporatist reality: Thus far 25×7 = 175 people have had two months’ of their salaries altered, after living large on the taxpayer’s dime the first ten months of the year.
This is the real danger of listening to Rush Limbaugh et al.: It’s not that it will turn you into a racist, but rather that it will make you actually believe the progressive rhetoric coming out of the White House. For example, Rush actually think Obama is getting ready to pull all the US troops out of Afghanistan. Riiiight.
Incidentally, I noticed at least three humongous lies in the short Feinberg video linked above. For example, he says there are no plans to move beyond this, and yet I have heard audio–on Rush’s show I believe–where Feinberg says his next task is to figure out the compensation for the #26 – #100 people in each of these companies. He also says that neither the White House nor the Treasury exerted any input at all into his decisions. Well (a) that’s obviously a lie and (b) it would be absurd if they didn’t! Do we really want to believe that Obama would allow one guy unfettered power over seven huge companies?!
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