06 Mar 2009

Yet More on Hoover

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Assuming it doesn’t get zapped, I have the first (and snarky) comment at Krugman’s blog post invoking the tightwad Hoover to discredit fiscal conservatives.

06 Mar 2009

Brad DeLong’s Distortion of Hoover Record Reaches New High (Low)

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Folks, I really have been trying to avoid accusations of dishonesty. As someone who has made strong claims that he’s later come to regret, I know that it is always safest to merely attribute intellectual error to someone who is completely (and demonstrably) misleading his audience on an important point. (Note that one can mislead unintentionally.)

For example, here I defended DeLong against Eugene Fama/Greg Mankiw (even though it caused me physical pain) and in the comments here I tried to get Steve Horwitz to back off accusing Paul Krugman of deliberately lying about Hoover’s record. So I sincerely hope Prof. DeLong didn’t realize that he was misleading his audience as I am about to explain. He has read my blog posts before (presumably because he traces the links or has Google Alerts on) so I also invite him to clarify here in the comments.

OK, so go to this site and start the video at 12:00. DeLong tells us:

Now Prof. Boldrin is following a very old trail, all right, his trail was in fact the ruling theory behind the Hoover Administration’s policies in the 1930s. And to quote from President Herbert Hoover’s autobiography, during his administration economic policy was made by quote “the leave-it-alone liquidationists headed by my Secretary of the Treasury Mellon, who felt the government must keep its hands off the economy and let the slump liquidate itself.”

DeLong goes on to list the shocking things that Mellon advocated, such as liquidating the farmers and labor, and how the panic would be a good thing to purge the rottenness out of the system.

Then DeLong stops quoting from Hoover’s autobiography, and explains that this view is the same of the Austrian economists who were at the LSE at the time. DeLong then refers to Milton Friedman who agreed with DeLong that these guys were nutjobs.

OK, so what’s the problem? Well, DeLong didn’t invent that long quotation–it is right from Hoover’s autobiography.

HOWEVER–and this is a big qualification–Hoover did NOT say that these were the views that ruled his administration’s policies. In the sentence right before where DeLong started reading, Hoover says: “Two schools of thought quickly developed within our administration discussions. First was the ‘leave it alone liquidationists’ headed by…”

Hmm, already that’s a little different from the picture painted by DeLong. Then, if we go to a mere three paragraphs (in my edition you don’t even have to turn the page) after the Mellon money line about purging the rottenness out of the system, Hoover says:

But other members of the Administration, also having economic responsibilities–Under Secretary of the Treasury Mills, Governor Young of the Reserve Board, Secretary of Commerce Lamont and Secretary of Agriculture Hyde–believed with me that we should use the powers of government to cushion the situation.

(These quotations come from pages 31-32 of The Memoirs of Herbert Hoover: The Great Depression, 1929-1941.)

Last point: One might think that Hoover is merely trying to cover his butt in his autobiography, and that at the time he really did side with Mellon’s counsel. But not if we use deficit spending as a measure of interventionism. As this chart shows, Hoover completely reversed the trend of the 1920s–when there was a budget surplus in every single year–and ran the largest US peacetime deficits in its history following the stock market crash. There were plenty of other things he did too, making Hoover perfectly correct in his campaign against FDR in 1932 when Hoover claimed he had done more to fight the depression than any previous president in US history. This will all be documented in my forthcoming book.

UPDATE: Here is DeLong’s full response. Here is Steve Horwitz crying foul.

05 Mar 2009

Greg Mankiw Rises to the Challenge

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This is great… I’ve always thought Greg Mankiw’s blog was pretty useless, since he basically links to other things with one-liners. But lately he’s come out of his shell to foil the dark forces of the Obama economic team.

In this post I want to clarify exactly what Mankiw is saying regarding recessions and future economic growth. Predictably, Mankiw’s criticism of Team Obama’s economic forecast led Paul Krugman to use the term “evil” (though in fairness Krugman was trying to come up with a clever title) and, yet again, Brad DeLong is getting weary dealing with all these ignoramuses. (Also be sure to check out the comments at DeLong’s post; a good illustration of the tolerant liberals and their love of intellectual inquiry.)

Anyway, Mankiw’s original post was literally the coolest one I have ever read at his site. It is great stuff; I love it when a thinker does something like this. “Ah, you notice this correlation and think it supports your theory, but what I’m saying is blah blah blah, and notice that it too fits the data. So your smug confidence is a bit misplaced, old chum.” (Note that I am heavily paraphrasing, and for some reason I ended up talking like Adam West’s Batman.)

OK so let me first explain the original Team Obama claim and Mankiw’s nuanced critique…

The Claim From Team Obama (and Supported By Krugman and DeLong)
Right now we are in a recession; growth has been below average. This in large part is driven by higher than average unemployment. Hence, we can expect higher than average growth rates in GDP in a few years, and that’s why the forecasts of future deficits are so rosy.

Mankiw’s Literal Response:

In the [Council of Economic Advisors] document, Table 2 shows growth rates immediately after recessions end. It demonstrates that growth is higher than normal in most of the recoveries. Is this evidence against the hypothesis that Campbell and I advanced?
I don’t think so. The problem is that those numbers start at the end of the recessions, and we do not know when the recession will end. In other words, if God came down and told us the exact date the current recession was going to end, my forecast subsequent to that date would be for higher than normal growth. But absent that divine intervention, there is always some chance the recession will linger (remember the Great Depression), and an optimal forecast has to give some positive probability weight to that scenario as well. The forecast should be an unconditional expectation, not an expectation conditional on a particular end date for the recession.

Mankiw’s Response Translated By Bob Murphy
Mankiw is agreeing that if the current recession ends in late 2009 or 2010, then there will be higher than average GDP growth in 2011 and 2012. But what if the recession lingers on?! After all, aren’t Krugman & Friends telling us everyday that we are going to repeat the Japanese Lost Decade because we are foolishly ignoring his brilliant recommendations?

Incidentally, I am not necessarily endorsing Mankiw’s formal argument in the paper he co-authored with Campbell. What I am saying, though, is that Krugman and DeLong aren’t even addressing what Mankiw is saying (verbally) in his blog post. Perhaps that’s Mankiw’s fault for bringing up the obscure “unit root versus trend stationary” econometric dispute.

Let me clarify that last point a bit: I believe the academic dispute is like this: What is your forecast for actual GDP (not GDP growth, mind you, but the actual nominal dollar amount of GDP) in, say, the year 2020? OK great. Now we’re chugging along, and we hit a recession in the year 2013. What does that event do to your forecast? I believe the trend stationary people say it shouldn’t matter, whereas the unit root people say the loss in output during the recession years is gone forever.

So against that, Krugman and DeLong are miffed (and perhaps rightly so). They want to say that the level of GDP eventually catches back up to its long-run expected level by higher than average growth after the recession in 2013.

However–and this is Mankiw’s blogging point–if we hit a recession in 2013, and then you ask me for my GDP forecast for 2015 (not 2020), then it’s not nearly as obvious that this value will be unaffected.

03 Mar 2009

Tom Woods Spreads Scurrilous Rumors About Me

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I am frankly shocked by this video. The guy from Young Americans for Liberty asks Tom Woods if he will run for office, and Tom does the classic, “How bad do you guys want me?” And then he follows up with a completely fabricated tale. Everyone knows that I am a teetotaler.

P.S. If you are new to my blog, please realize that this post is what passes for deadpan humor on Free Advice.

03 Mar 2009

The Bogus Emancipation Proclamation

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Wow. I knew that the Emancipation Proclamation was a farce, but I don’t think I’d ever seen the whole text. Aristos (in response to a comment I left on his blog) reproduces it for us and spells out a few of its more maddening parts.

03 Mar 2009

It Pays to Write Well

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For those who need a little nudge to motivate them to write essays on liberty, we have the Mont Pelerin Hayek Essay Contest (HT2 von Pepe) and the Independent Institute’s Sir John M. Templeton essay contest.

03 Mar 2009

"Biggest Dose in History Failing, Proves Dose Was Too Small"

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I heard some guy on NPR’s “Fresh Air”–he used to be chief economist for the IMF and now teaches at MIT–talking about the alleged lessons of Japan’s lost decade. You guessed it, the problem was that they didn’t reform their banking sector. I am no expert on Japanese history, but I’m guessing they pumped in more tax dollars to the banks in that decade than ever before (or since). And yet the term “zombie banks” was coined in this period.

Naturally, the obvious conclusion is that the government didn’t do enough to reform the banking sector.

03 Mar 2009

Two Articles on Gold

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This post is mostly for my own bookkeeping… Tonight I will be penning a Mises Daily in response to this piece by Luskin (HT2 Tom Woods) which is mostly OK, except for his fear of falling prices. On the other hand, this Bloomberg piece (HT2 Dietwald Claus) is virtually pure nonsense.