Potpourri
==> Saw this floating around on Facebook. There was a similar horror story here in Nashville about a family with a special needs child who really hated going to this particular new school, and eventually an employee broke down and told the family that their kid was being isolated for hours at a time, because the staff just didn’t know how to deal with him/her (can’t remember if boy or girl). This is a hidden downside of having the government “take care of everything”: When a certain school is required to accept kids with learning disabilities etc., and they don’t have the resources/training to deal with the kid, they can’t simply tell the parent, “Sorry, your child needs to go elsewhere.” Instead they may end up doing stuff like this.
==> I’m being serious, what is going on in this HuffPostLive clip on secession? Start listening around 8:50 or so, and they showcase one of my Tweets. I think they think I’m making fun of Texans. (Of course, in reality I was making fun of Daniel Kuehn for saying secession would cost the rest of us money.) Do you agree that that’s why they’re chuckling?
==> This guy is tearing into The Theory of Money and Credit. He’s lucky I’m busy.
==> Read Steve Landsburg’s commentary for all the links in the latest Brad DeLong smackdown. (I see Brad and Gene and Daniel and all my Internet friends.) Everybody needs to listen to David Gordon explain Kant’s synthetic a priori. (Can anybody find the relevant Mises University lecture?) If you could eat a non sequitur, this discussion from DeLong’s fans would make you fat. (However, in the comments I point out that I think Steve overstepped.)
==> The alarming von Pepe sends this chart.
==> Max Raskin, our man in Iran.
==> This guy feels my pain when reading FB commentary. In particular, #3–when people explain my own jokes back to me. Thanks, everyone.
David Beckworth vs. His Critics on the Market for Apples
David Beckworth (here and here) is taking on the hard-money enthusiasts by challenging one of their central claims. David emailed me about this–and by the way he has a good sense of humor–so I’m pretty sure he wants me to rip him. Kind of like when Terry Gross had Don Rickles as a guest on “Fresh Air,” and she begged him to insult her. Okay David you asked for it; I will treat you like Scott Sumner, which I gather is your goal in life…
Let me focus on a subset of the arguments in this dispute. For brevity, I will boil them down into two representative statements by the generic Critic and then Beckworth’s reply (the words of course being mine).
CRITIC: Man I can’t believe how nakedly the Fed is propping up the apple market! Apples are in a bubble; their price would collapse if the Fed weren’t buying so many apples. In fact, last year the Fed bought 100% of every apple produced!
BECKWORTH: What are you talking about? The fact that the Fed bought 100% of every apple produced last year, has nothing to do with whether the Fed is “supporting the apple market” as you claim. Rather, let’s look at the real price of apples. They are at historic highs. If in fact the Fed were propping up the apple market as you claim, then why would apple prices be higher than they were before? You can’t explain that.
Another major problem with your conspiracy view: Last year the Fed began specifically targeting Macintosh apples, and it stopped buying Golden Delicious. Yet the apple growers stopped planting Golden Delicious, and switched to planting record amounts of Macintosh. If the Fed were really acting to subsidize the apple growers, then wouldn’t the two be acting in concert? Yet instead, you’ve got the Fed buying massive amounts of Macintosh apples, and the growers planting record amounts of Macintosh, rather than Golden Delicious. Your theory just doesn’t fit the facts, man.
In fact, it’s not merely that I disagree with you. Your views are so at odds with the data, that I have to stop having this conversation.
Now, to be clear, I made a few substitutions in the above. I wanted us to forget we were talking about monetary policy, because for some reason market monetarists seem to think the laws of economics change all of a sudden in this realm. Can we all agree that the hypothetical Beckworth above is making no sense at all?
OK, if so, change “apple” to “Treasury,” “100%” to “77%,” and “Macintosh” to “long-term Treasuries.” I have read his stuff a few times, and I’m pretty sure the above is a fair summary of some of his arguments. Not all of his arguments, but some.
Making Pete Leeson the Scapegoat for My Humor
I used to think Steve Landsburg’s “More Sex Is Safer Sex” essay was the perfect example of how Swift would mock neoclassical economics…except that Steve was serious. But now Pete Leeson leaves Steve in the dust:
Abstract This paper develops a theory of rational human sacrifice: the purchase and ritual
slaughter of innocent persons to appease divinities. I argue that human sacrifice is
a technology for protecting property rights. It improves property protection by destroying part of sacrificing communitiesíwealth, which depresses the expected payoff
of plundering them. Human sacrifice is a highly effective vehicle for destroying wealth
to protect property rights because itís an excellent public meter of wealth destruction. Human sacrifice is spectacular, publicly communicating a sacrificial destruction
far and wide. And immolating a live person is nearly impossible to fake, verifying
the amount of wealth a sacrificer has destroyed. To incentivize community members to
contribute wealth for destruction, human sacrifice is presented as a religious obligation.
To test my theory I investigate human sacrifice as practiced by the most significant
and well-known society of ritual immolators in the modern era: the Konds of Orissa,
India. Evidence from the Konds supports my theory’s predictions.
Someone sent this to me over email and said, “C’mon, somebody needs to blog about this, this is going too far.” I replied, “Wouldn’t it be more efficient just to kill him?”
Last thing: I am closing the comments on this, because although the above was too funny not to post, I don’t want to break the GMU/Auburn ceasefire accords brokered under Jimmy Carter back in 2010. Also, let me say that Pete Leeson and the late Fr. James Sadowsky were the only two people who really had me sweating when I presented my critique of the pure time preference theory of interest (once at GMU, once at NYU).
Regression Bask
[UPDATE below.]
I’m seeing someone do something in a paper that strikes me as odd. So let me ask some of you stats guys what you think:
Suppose I run a regression to see what effect independent variables X1, X2, …, Xn have on Y. I come up with my regression coefficients on each of them. The coefficient on X3 is (say) 5.
Then I take out X3 from my list, and run the regression again. Obviously the coefficients on the other variables change.
The thing is, the R-squared in both regressions is about the same. I.e., when I took out variable X3, the “fit” of my predicted curve to the actual curve, is about the same.
Would it be correct for me to say, “According to my regression analysis, X3 has no effect on Y”?
UPDATE: I didn’t want to say what the regression was initially, because now politics will get involved. But it’s from this paper (Tables 2 and 3 at the end). My obvious concern with the economics of it, is that “refiner margin” is closely related to the implementation of Tier 2. I.e. the way Tier 2 regulations would (possibly) raise gasoline prices, is by first reducing refiner margins.
Romer vs. Romers?
Earlier this year, Obama’s former head of the Council of Economic Advisors, Christina Romer, weighed in on the tax debate:
AT least since Calvin Coolidge, politicians have trumpeted the supply-side benefits of cutting marginal income tax rates. Lower rates will unleash economic growth and the cuts will largely pay for themselves — or so it’s often said. Yet careful studies find little evidence of such effects. Perhaps it’s time to reform tax policy based on facts, not worn-out assumptions.
…
History shows that marginal federal income tax rates have varied widely….If you can find a consistent relationship between these fluctuations [in tax rates] and sustained economic performance, you’re more creative than I am. Growth was indeed slower in the 1970s than in the ’60s, and tax rates were higher in the ’70s. But growth was stronger in the 1990s than in the 2000s, despite noticeably higher rates in the ’90s.
…
Where does this leave us? I can’t say marginal rates don’t matter at all. They have some impact on reported income, and it’s possible they have other effects through subtle channels not captured in the studies I’ve described. But the strong conclusion from available evidence is that their effects are small.
…
Given the strong evidence that the incentive effects of marginal rates are small, opponents of such a move will need a new argument. Invoking the myth of terrible supply-side consequences just won’t cut it.
—–Christina Romer, NYT op ed, March 17, 2012
I wonder if she forgot about this paper? It was published in a respected journal:
“Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent. Our many robustness checks for the most part point to a slightly smaller decline, but one that is still over two percent….Third, investment falls sharply in response to exogenous tax increases. Indeed, the strong response of investment helps to explain why the output consequences of tax changes are so large. Fourth, the output effects of tax changes are highly persistent.”
——Christina Romer and David Romer, “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks,” American Economic Review (March 2007 draft).
I agree that the above two quotes aren’t a literal contradiction like “I am fair to my opponents” and “I am not fair to my opponents” would be. But after reading Romer’s initial description of the literature, isn’t the follow-up quotation a bit surprising?
Paul Krugman Boosts LMR Circulation
Wow, just when Carlos and I interview Peter Schiff in the November Lara-Murphy Report, Krugman rips into him here:
Some readers may recall the “Peter Schiff was right” campaign of 2009, a sort of public-relations blitz claiming that Schiff, an Austrian-oriented commentator, had foreseen everything correctly. It wasn’t really true even then…
What the heck?! I understand the stuff about inflation since 2008. But how could Krugman say “It wasn’t really true even then”?! If you’ve never seen this, watch:
It’s over-the-top stuff like this that makes it hard to take Krugman seriously when he runs victory laps and accepts Academy Awards on behalf of IS-LM analysis. I would never say, “Nouriel Roubini wasn’t right about his predictions during the housing bubble.” Rather, I HAVE been saying things like, “Roubini saw how bad things were going to be, but I think his recommendations would sow the seeds for an even bigger crisis. Therefore I think his underlying model or worldview is inferior to the Austrian one.”
ONE REQUEST: *Don’t* just say, “Schiff was wrong about the dollar post-2008.” I am admitting that’s a serious charge, and we asked Schiff about that in the newsletter interview. I’m talking about Krugman denying that the “Schiff was right” campaign ever made sense in the first place.
We Already Went Over the Fiscal Cliff
My latest article at The American Conservative. Some excerpts:
The hemming and hawing over the looming “fiscal cliff” is akin to passengers fighting over who gets to sit in the first class seats in a jumbo jet that just ran out of fuel. The U.S. government already sent the country over the cliff years ago; it’s just taken this long to (possibly) acknowledge reality. Legislators may strike a “compromise deal” that will postpone the crisis yet again, but soon enough it will return and with greater vengeance.
…
Another way of assessing our current, unsustainable trajectory is to look at the Congressional Budget Office (CBO) forecasts of the official Treasury debt/GDP ratio. As time passes, the unofficial indebtedness of Social Security and Medicare will show up as “official” debt when Uncle Sam has to enter the bond markets to cover the shortfall between beneficiary payments and incoming payroll taxes. When CBO plugged into its model the assumptions that the federal government would continue with its recent behavior in terms of maintaining tax rates, continually exempting large groups of Americans from the Alternative Minimum Tax, postponing reductions in reimbursement rates for doctors, and so on, then the federal debt held by the public exceeds 200% of GDP in the year 2038.
…
In all of this debate, there are those like Paul Krugman who claim the fears of a debt crisis are fantasies of right-wing idiots or liars….[E]ven if Krugman were right and the falling dollar did give a boost to US exports and thus reduced unemployment, it’s not as if world investors would suddenly become bullish on dollars right when the economy recovered….
…Even if Krugman were right, and a moderate dose of (price) inflation is just what our economy needs right now to knock off two percentage points of unemployment, he still can’t control the fact that once that genie is out of the bottle, suddenly Americans will have to tolerate much higher price inflation just to avoid a new recession.
This insidious logic of how an inflationary spiral feeds on itself is what Hayek dubbed having “a tiger by the tail.” The U.S. government is insolvent—bankrupt—according to standard accounting principles. Rather than heeding the advice of Krugman and others to simply print our troubles away and/or raise taxes on “the rich,” the responsible thing to do is cut spending. This is the best solution to a government debt crisis, as the Canadian experience in the 1990s showed, and as mainstream surveys of numerous case studiesdocument.
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