Murphy Lecture on (Rothbardian) Bank Mechanics
For the Mises Academy, we have incorporated “pre-recorded” lectures* to make the experience that much cooler for the paying students. (I.e. if you miss the weekly “live” lecture, you can watch this HQ version to get caught up.) Below is a sample, where I walk through the balance sheet basics of banking, from a Rothbardian perspective. Note that you actually don’t need to have the PowerPoint show, because Chad Parish did a great job flipping back and forth between my shiny, angelic head and the slides.
If you haven’t yet taken the plunge at Mises Academy, check out the current course offerings. There’s something for everyone (who occupies a small band of the ideological spectrum comprising 2.4% of the population).
* Carlin is rolling over in his grave. “‘Pre-recorded?’ Does that mean you recorded them before you recorded them? They’re recorded lectures! And I’m not getting on the plane, I’m getting in the plane.”
Kalling All Keynesians
From my favorite Krugman blog post of all time:
I’ve already pointed out the problems, both logical and empirical, with the claim that workers are unemployed because they have zero marginal product. But there are many more problems with the notion of a recession as a supply shock.
A short sample: If inflation is a case of too much money chasing too few goods, why aren’t slumps associated with accelerating rather than decelerating inflation, as the supply of goods falls? Why is there such a strong correlation between nominal and real GDP? Why is there overwhelming evidence that when central banks decide to slow the economy, the economy does indeed slow? And on and on.
I think I understand all of his objections, but the two I’ve put in bold above, I’m not 100% sure I get what he is saying. So let me paraphrase what I take to be his argument, and then the Keynesian sympathizers in the crowd can either confirm or deny my interpretation:
Krugman’s Logic
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(1) Austrians think the boom and recession are “real” phenomena; it’s not about spending or money.
(2) This is what the RBC people say too; they view recessions as a supply shock.
(3) Therefore the Austrians view recessions as a supply shock.
(4) If recessions were purely “real” phenomena, then we wouldn’t see nominal GDP fall when real GDP does. A recession would correspond to a drop in real GDP, of course, but it would be entirely possible for NGDP to keep rising at the normal rate, and for price inflation to make up the gap. But in reality, NGDP collapses when real GDP does, and then during the recovery, it’s not simply that price inflation falls (so real GDP catches up to NGDP) but rather, both real GDP and NGDP rise together. A purely “real” story has no explanation for this, so it’s more fruitful to think that the changes in NGDP are pulling down, or pulling up, real GDP with them.
(5) As a specific example of this point, central banks should have no ability to influence the “real” economy (and hence real GDP) if recessions were actually all about supply-side shocks. It doesn’t affect how many tractors there are, or the skills of computer programmers, if the Fed decides to slow the growth in the monetary base. But clearly, the research shows that monetary policy has real effects. Unless your model incorporates a transmission mechanism from money to the real economy, you can’t possibly explain the recessions we have lived through in modern times.
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Is this about right?
I Can Die Now
Here. I am not even going to read this now. I feel like Winston when he gets his hands on the book that explains everything in 1984, and he only wants to sip it in small doses.
Krugman Winning Hearts and Minds
When Krugman finally debates me, reporters and innocent bystanders will be rooting for me. Not because they have studied Hayekian triangles, but because of posts like this:
Jonathan Chait bemoans the wonk gap:
One of the unusual and frustrating aspects of the health care debate is the sheer imbalance of people who understand the issue at all from a technical standpoint. Even the elite policy wonks of the right make wildly incorrect claims about the issue.
First of all, I don’t think this is unique to health care, or especially unusual. Monetary policy, fiscal policy, you name it, there’s a gap, although not quite as large as on health.
Second, I’m surprised that Chait doesn’t refer to Upton Sinclair’s principle: it’s difficult to get a man to understand something when his salary depends on his not understanding it. In fact, in general right-wing think tanks prefer people who genuinely can’t understand the issues — it makes them more reliable.
Doesn’t this apply to both sides? Not equally. There was a time when conservative think tanks employed genuine policy wonks, and when asked to devise a Republican health care plan, they came up with — Obamacare! That is, what passes for leftist policy now is what was considered conservative 15 years ago; to meet the right’s standards of political correctness now, you have to pass into another dimension, a dimension whose boundaries are that of imagination, untrammeled by things like arithmetic or logic.
Wouldn’t the right be better served by better wonks? No. For one thing, they’d be unreliable — they might start making sense at an inappropriate moment. And, crucially, the media generally can’t tell the difference. I’ve had long exchanges with reporters over the doc fix; let me tell you, it’s very, very hard to get the point across. People like me tend to think in terms of simple thought experiments, but reporters keep wanting to dive into the political ins and outs, no matter how many times you try to say that those are irrelevant.
Or maybe the simplest way to say this is, Ignorance is Strength. And why tamper with a winning formula?
Plosser Rocks the Bernanke Boat
Wow is this as unusual as I think it is? I’m going to reproduce Jerry O’Driscoll’s full post (from ThinkMarkets):
Philadelphia Fed President Charles Plosser gave a major speech on Monday at the Central Bank of Chile. In the polite language of central bankers, the speech constitutes a systematic criticism of not only current Fed policy but of the Fed’s entire response to the financial crisis.
Plosser’s speech updates Milton Friedman’s 1967 presidential speech to the AEA and quotes from it. “…We are in danger of assigning to monetary policy a larger role than it can perform, in danger of asking it to accomplish tasks that it cannot achieve, and, as a result, in danger of preventing it from making the contribution that it is capable of making.”
In Friedman and Plosser’s analysis, the sole contribution monetary policy can make is price stability. What, in the current context, can monetary policy not achieve? Plosser enumerates impossible goals of monetary policy.
- Short-run stabilization of the real economy is “beyond the scope of monetary policy.”
- Attempts at short-run stabilization are likely to provide stimulus when not needed and vice versa.
- Stabilization policies “risk distorting price signals and thus resource allocation, adding to instability.”
- “…Monetary policy cannot reverse the sharp decline in house prices when the economy has significantly over-invested in housing.”
Plosser calls for a monetary rule, not just in normal times but also in crisis times. The lender-of-last resort function should be rules-based and not involve credit-allocation or bailouts of particular firms. He correctly identifies both as fiscal policy not monetary policy. He repeats his call for the repeal of section 13 (3) of the Federal Reserve Act, the so-called emergency-lending provision. He also wants the Fed’s balance sheet limited short-term U.S. government securities. These last two policies would have prevented the Fed bailouts of the last two years.
It is radical speech by a Fed president and (this year) voting member of the FOMC. Plosser is, of course, an accomplished economist and founder of real business cycle theory. The speech echoes not only well-known monetarist themes but also Austrian ones (the distortion of relative prices by monetary policy). It is well worth reading.
There’s No Such Thing as Bad Publicity
This is good, I was going to go streaking if I didn’t start getting more links…
In response to my critique of David Beckworth, Bill Woolsey, Josh Hendrickson, and Beckworth himself (here and especially here) triple-teamed me.
I will digest their responses and probably post another Mises Daily on all this. Let me say one thing though: I was not inventing positions and attributing them to Beckworth. I quoted what he wrote, and then responded. (You can see my comment to Woolsey to get a sense of what I mean.)
Beckworth and I agree about one thing: The picture the Mises guys made of him for my article, was much cooler than my article. I can’t control that.
The Wait Is Over–The Zombie Blooper Reel
Chad Parish did a good job editing this. I seem to recall that Tom and I had a funny conversation when we were pretending to talk for the opening of the real thing (and I was drinking coffee), but it probably wouldn’t have flowed.
BTW, in this video I am referring to the fact that Tom and I were schooling some Mises youngins in Bocce ball the night before, but I think I was the MVP.
Is There a Conservative Case for QE?
I say no. An excerpt:
And there you have it, clear as a bell. Paul Krugman couldn’t have said it any better. According to Beckworth, the problem with our economy is that people aren’t spending enough.
This simple idea is very powerful; it permeates our financial press when they wring their hands and wonder if “the consumer” will buy enough Tinkertoys this holiday season “to pull the economy out of recession.” But of course, if spending were really the trick to having a growing economy, then the world would have eliminated poverty long ago. No, it’s production that is the real obstacle; consumption can take care of itself.
As I mentioned in the introduction, this is why intellectually consistent conservatives are defecting to the Austrian camp. They can’t listen to their favorite AM radio hosts or TV pundits blast away at the stupidity of Keynesian deficit spending, and then turn right around and champion Bernanke’s attempt to stimulate aggregate demand. Now, maybe the Austrians are completely wrong, but if so they are at least consistent: They say that fiscal pump priming just makes things worse, because it redirects resources away from private-sector uses and into politically directed channels. Well, Fed inflation does the same thing, except that it also directly distorts the credit market as an added bonus.
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