Potpourri
==> Totally off-topic, but I would change my gender if I could be Christina Bianco.
==> Nick Rowe strikes back on the definition of “inflation.” I know this isn’t the point Nick was making–and I don’t even disagree necessarily with anything in his post–but let me say this: If we let Scott Sumner get away with calling Fed policy since 2008 “the tightest since the Hoover Administration” because it doesn’t make NGDP grow enough for his liking, then I think we’ve blinded ourselves to the ability to even tell what is happening. Like I’ve said before, that would be like quantifying how much of a drug you’ve put into somebody by checking his heart rate (rather than measuring the volume of the liquid injected).
==> Imagine that? If you raise the total costs of hiring full-time workers (through ObamaCare), then the demand goes down. I don’t understand; there’s a liquidity trap and everything right now.
==> David R. Henderson screws up but shakes it off.
==> Tom Woods gets to interview Pat Buchanan. It’s a good thing they didn’t let me guest-host, since I could not have restrained myself from saying, “What number am I thinking of? Pat Buchanan!”
Dead on with Sumner.
This conflation of mechanisms with outcomes is a really strange side of market monetarists that just closes the discussion of all the interesting and important questions.
The Austrian (well some Austrians’) definition of inflation’s only real fault is that it’s confusing for people. Sumner’s distorts the whole course of the debate.
The problem is that an economist “predicts” cutting the Fed Funds rate to .25% will cause inflation and then when the CPI shows low inflation for 5 years, the economist claims he was making a tautological statement rather than a prediction.
One thing for sure In 2016, if the CPI is not stuck above 5% and there has not been some kind of asset crash (stocks, bonds, housing), Rand is going to sound pretty silly relying on the Austrian school to guide his policy proposals.
Okay, so what causes inflation? Well in the current economic climate there are several factors.
First there is devaluation of currency in a world market place, this is what SHOULD be occurring and causing energy and other prices to ramp up, except every where else in the world is suffering as well. If everyone is devaluing their currency ( or like the Chinese thy peg it to the dollar ) then there can be no inflation until others stop devaluing their currency OR stop playing nice with the dollar… So bullet dodged there lol.
Second, There is inflation occurring but the deflationary pressures from SOME goods have been enough to offset the inflationary pressures of ‘the basket’ from whence CPI springs… This is part of the fear of rapid inflation growth when the deflationary pressures disappear and are replaced with nominal inflation.
Third, Are you trying to tell me that the equities markets are not inflated lol, CPI is simply a consumer index. This is typically the last thing to rise barring increased competition.
Now as far as the next ‘crash’ Look the problem with when a bubble bursts is that they are difficult to predict when the ‘pop’ will happen. Basically here is the scenario as I see it… The Fed is pumping in money far too quickly right now… Maybe they can pull out before they over inflate. Things are going to get looking REALLY good in about 1 – 3 years. The attitude of NOTHING can go wrong will prevail and every day the market will go up and investors will get a great return on their money. The Fed will stop propping up the equities market and begin the process of slowly shifting the funds back into the reserves however about 2 – 4 years of this something will happen, the economy will again begin to fold in on itself. The Fed will try to prop it up but now a larger crash than the last one will occur. Everyone will be waiting for a massive injection of cash by the Fed ( 100 Billion or so a month )… Deficits will again be in the Trillion plus mark. Jobs will be lost due to the lack of true private sector jobs that were created on SOUND economic feasibility.
My guess is whomever is elected President in 2016 will have this occur. To be honest I hope it is a Democrat this time. I am tired of Democrats being in office during the build ups and Republicans being in during the Crashes. But that is just my Preference not that the policy is really THAT different between the two.
What’s a mechanism and what’s an outcome? Interest rates are often treated as a “mechanism”, even when they’re just the result of OMOs. Targeting inflation is common enough to rival interest rates as a “mechanism”, and once you accept that it’s not such a leap to treat NGDP the same way. Even Friedman advocated targeting M2 rather than M0, but nobody bothers with either these days.
Hey Bob, how’s your version of Human Action going? Any hope of a Kindle version before Christmas?
I don’t know about Christmas Ken B. Depends on how fast the reviewers get back to me, what they want changed, etc.
Hi Mr. Robert Murphy:
This is reviewer A, and i think the book looks just dandy. It is ready to be published, I don’t want anything changed, and I think it should be ready to be published both in Hardcover and for the Kindle by Christmas of this year. So long and best regards,
Reviewer A Mr. Simon Jeffreys
Bob, Daniel,
I strongly disagree with both of you. I think you are missing the boat.
The goal is whats important. A patient is in cardiac arrest. He needs a given amount of epinephrine, atropine, or lydocaine. His system is severely weak. You don’t measure how much to give him by what has been given before! (This is what drives me and Scott Sumner CRAZY about whiners about the Fed’s “unprecedented” monetary injections!) You do whatever it takes based on the needs of the patient in the present moment. By the standards of the desired outcome can your efforts be judged
Right, except to make the analogy more accurate: You have just given the patient more epinephrine than you’ve given to the last 50 patients in cardiac arrest combined, and you’ve also got a bunch of other medical doctors–some Nobel Prize winners–saying they think epinephrine is actually the wrong thing to administer in this situation. So we should not describe this by definition as “a policy of sucking epinephrine out of the patient’s body.”
The reason this analogy isn’t working for Edward is that epinephrine is useful SOMETIMES, and Edward thinks that monetary injections can be helpful.
You have to use an analogy where the thing you’re “treating” him with can have zero hope of helping.
Edward sees the activities that the injections are stimulating as worth saving, as opposed to what it really is: inherently destructive of wealth.
“The goal is whats important. A patient is in cardiac arrest”
>> No, Edward. You’re framing the argument using a horrible analogy. The economy is not on its deathbed, in that if it doesn’t get what you or Scott consider the necessary amount of drugs into the body, it will die and never resuscitate. Instead, the body is sick and you or Scott aren’t satisfied with the body’s natural recuperative powers to become healthy again in a time period to your satisfaction.
The better analogy is where you seem to advocate an artificial adrenaline boost to immediately get a baseball player out of a slump (i.e. inject a non-market nominal demand into the market) rather than allowing him to gradually hit his way through it or take some time off to relieve any physical soreness. You see the baseball player’s average dip 10 points below their career average and panic, even though we know because of the natural ability of the player’s swing, they’re bound to revert back to their average soon. The player is not on his deathbed. The player didn’t suddenly forget how to swing the bat or forget how to play. Let a player play, Edward! You can’t be completely sure how the extra juice is going to impact the player physically.
And Daniel makes a good observation here: “This conflation of mechanisms with outcomes is a really strange side of market monetarists that just closes the discussion of all the interesting and important questions.”
And by “do whatever it takes” what you mean is you have no idea what is required so you are going to poke around experimentally and if this extremely weak guy dies you will shrug and say, “We did all we could have done so stop whining.”
I’d be interested to hear you approach as a driving instructor.
“How hard should I accelerate for this hill?”
“Do whatever it takes.”
“What would be an appropriate speed to enter this intersection.”
“Whatever it takes.”
“How about reverse parking, I’ve always found that tricky.”
“Reverse parking is easy, just do whatever it takes, and stop whining “
And the driving instructor case is really too generous because there is not a lot of disputing what pushing on the gas pedal does when you’re on a hill! Confusing the outcome and the mechanism is relatively benign in that case (although still confusing).
Except the fed isn’t a doctor. It’s a predator at the bar who keeps spiking everyone’s drink.
The goal IS what’s important, Edward. It does not follow that you ought to conflate the goal and the mechanism. When you do that you have no way of assessing the efficacy of the mechanism.
Right. This is just basic language. It’s an abuse to say “oh that dose doesn’t count as medicine because by medicine I mean something effective.”
And then apply the definition retrospectively.
Bette Midler = Bawbwa Wawa
She is lovely AND awesome, isn’t she?
“So we should not describe this by definition as “a policy of sucking epinephrine out of the patient’s body.”
Okay I give you that. Still, the needs of the present outweigh what you did in the past.
“you’ve also got a bunch of other medical doctors–some Nobel Prize winners–saying they think epinephrine is actually the wrong thing to administer in this situation. ”
You’ve also seen those same noble prize winners descend into a peculiar form of madness, abandoning their earlier training, and inventing implausible excuses on the spot as to why the “epinephrine” wont work.
It would be like serious Doctors named John Taylor, Allan Meltzer, John Cochrane, and Eugene Fama wer to start saying about a patient who’s heart rate and blood pressure as seriously low, that no, we don’t need epinephrine, we need muscle relaxants, or worse, saying that epinephrine is inappropriate in this situation because the patient once he gets better, might be “misled” into thinking that epinephrine is appropriate ALL the time, and would get addicted.
Thats how insane it is.
Serious, Nobel prize winning economists, descending into a doctors equivalent of medieval bloodletting.
If you pay for someone to do economically destructive tasks, then that job and the resources used to perform it must be liquidated in order for the labor and resources to be used productively.
The unemployment was caused by the very thing you’re prescribing to fix it.
Edward,
Please understand that WE GET that you see the activities that the monetary injections are stimulating as helping the economy.
You think that if there’s just enough output from these stimulated companies that the inventiveness of people will find a profitable way to make use of the output.
But what we’re saying is that the activities being stimulated are inherently destructive of wealth.
How can we know this, you ask, seeing that there does, in fact, exist SOME kind of demand for the products that are being stimulated? Surely, if people find these goods desirable on some level, then there’s obviously a way to employ people making these goods, you think to yourself.
The reason we know that these activities that are being stimulated are inherently destructive of wealth is because: 1) the stimulus requires destroying people’s purchasing power, and 2) “wealth” can only be defined by the individual.
You can’t decide what is wealth for someone else – this is why aggregates are a meaningless concept. There’s no such thing as “society’s wealth”. There is only the wealth of the individual.
The more individuals who are free to make VOLUNTARY trades, the more wealth is created; And the more that legislation is used to make people function as if they were supposed be united in their economic goals, the more wealth is destroyed.
Economic crashes are the effects of consumer preferences working AGAINST government interventions.
Edward, would you mind watching this?:
The Birth of the Austrian School | Josep T. Salerno
[WWW]http://www.youtube.com/watch?v=dZRZKX5zAD4
My hope is that this video will show how all economic activity begins with individuals attempting to fulfill their preferences.
One of the things that is addressed is how, even though producer goods result in finished goods, it is the individuals’ valuation of the finished good that determines the cost at which another individual may profitably produce that good.
So, it would be a waste of resources to produce something for which there is insufficient demand from individuals. And printing money to stimulate that production won’t make it produce more wealth – all it does is pay people to destroy wealth, even as output continues.
And while printing money will transfer purchasing power to those who undertake projects that are being stimulated, others will have to save that much more in order to get what THEY want; They will pull back on THEIR consumption/investments to offset the increase in the cost of living caused by the stimulus.
Not to mention that giving people artificial purchasing power is cronyism.
It would be like serious Doctors named John Taylor, Allan Meltzer, John Cochrane, and Eugene Fama wer to start saying about a patient who’s heart rate and blood pressure as seriously low, that no, we don’t need epinephrine, we need muscle relaxants
Actually, it would be like those very same doctors saying “we’ll, historically, patients who have been happy and ambulatory (‘walking’) have been healthier, so if we target patient happiness and hang them on something so it looks like they can walk, then that will cure whatever underlying medical problems they have.”
After all, if you swap out “happy/ambulatory” with “5% NGDP growth”, then you pretty much have the standard justification for market monetarism n
What you did in the past (and studying what other people did in the past) is the only way you can be sufficiently experienced to know what the needs of the patient even are.
It’s like saying that the needs of the patient outweigh the need to have doctor with any clue, so just everyone should do as much surgury as possible.
“Still, the needs of the present outweigh what you did in the past.”
Except the present is a function of the past. What you perceive to be the needs of the present are wrong because you don’t have an understanding of how the present (sluggish economy) is a function of the past (inflation).
Yesterday’s price are what guide you in making intelligent plans today. If yesterday’s price have been distorted by funny money, you will tend to make distorted plans today.
I’m still waiting for the reason why society requires fake, fraudulent, distorted and unsustainable “nominal” prices.
I’m blind. In each case the word “price” was supposed to have been “prices”.
You just change your understanding of coercive monopolies from “fake, fraudulent, distorted and unsustainable” to “real, honest, clear and sustainable”.
You do this by finally accepting the state as your lord and savior. Then you will be able to criticize the state from a statist perspective, the way one thief complains to another thief that he isn’t being nice.
Wow Christina really is nearly as amazing as Bob!
Wow! Christina Bianco is great! Thanks for sharing.
My lord, so many analogies.