Ron Paul Endorses Krugman Debate
Briggs Armstrong tipped me off to this; it comes up at the 4:40 mark:
If you haven’t made your pledge yet, what the heck is the matter with you?
BTW more generally, how amazing is it that CNBC is showing a picture of his book, and he’s openly talking about these matters? Krugman et al.* must be aghast at the “insanity.”
* And by et al. I mean Megan McArdle.
Krugman Castles
I’m going to be pretty busy for all this week, so posting will be sparse. Meanwhile, check this out: Seeing the danger posed by my Knight, Krugman retreats to safety–for now. (See item #3.)
Is Scott Sumner Working on His Own Documentary?
Sometimes I really think Scott Sumner is the Deep Throat to my Bob Woodward. He leaves really obvious clues on his blog, but because of his prestigious position at Bentley he can’t connect all the dots. Yet he knows that I am out here, reading, and won’t let him down.
For example, Sumner starts off this recent post by expressing outrage at the hatchet job that his former professor, Frederic Mishkin, suffered at the hands of the documentary “Inside Job”:
I’m not happy about having to criticize Frederic Mishkin’s money textbook. He was my teacher at Chicago and he seems like a great guy. I’ve used his text for roughly 20 years and it’s a fine book. Even worse, he was recently victimized by an unfair and misleading ambush interview. But I must pursue The Truth wherever it takes me.
Now, if you haven’t seen the short clip, you really should. Just click on Scott’s link and watch; it’s under 2 minutes (though I had to watch a 30 second ad for a smart phone). The video alleges three misdeeds on Mishkin’s part:
(1) He naively went along with his colleagues by giving the benefit of the doubt to central bankers in Iceland that they knew what they were doing.
(2) He was paid $124,000 by the Icelandic Chamber of Commerce to write a 2006 paper–titled “Financial Stability in Iceland”–but didn’t disclose in the paper itself that he was paid.
(3) He lists the paper on his resume with the title, “Financial Instability in Iceland.” (For people who don’t get it, note the slight change in title, and remember that Iceland’s financial system crumbled after Mishkin gave it a clean bill of health in this 2006 paper.)
Of the three alleged sins, I am not sure how to rate (2). Before this episode with Mishkin, I would have said that of course any self-respecting economist would note organizations that funded a particular research paper, either as a courtesy to them (i.e. to make sure the sugar daddies see all the good work that their checks are producing), or as a statement of possible bias to the reader. (To take an exaggerated example, if a medical doctor did a study of mouth cancer and said cigarettes don’t cause it, and he were paid $124,000 by tobacco companies, most people would think he should acknowledge, “This research was made possible by a grant from the Virginia Slim Foundation” or something. It doesn’t mean the guy’s research is wrong, it’s just a standard disclosure.)
Now in Mishkin’s case, I don’t really know what the norm would be for something like this. As some of his defenders have pointed out numerous times, it’s not like this was a refereed article he published in the QJE. Since it was put out by the Icelandic Chamber of Commerce, and since Mishkin is obviously not their direct employee, then maybe it would have been superfluous to say in a footnote, “By the way, I didn’t write this paper because Iceland is my hobby; they paid me.” So like I said, I could go either way on alleged sin (2).
However, alleged sin (1) seems worse, and falls in line with the main theme of the “Inside Job” documentary: that there is an incestuous revolving door network among big businesses, academia, and central banks/governments. It doesn’t mean everybody involved is laughing evil laughs behind closed doors, but at the very least that they are in a bubble and don’t see that their policies are wrecking things.
Finally, alleged sin (3) is outrageous if it were intentional (and of course assuming it’s true). Now we can never know for sure, but that is a VERY convenient typo to have on one’s CV.
Now that we see the type of nefarious behavior of which the documentarian thinks Frederic Mishkin is capable, let’s turn to Scott Sumner’s assessment of some recent changes in Mishkin’s textbook. I have to quote him extensively but I think it’s worth it:
One of my favorite things about Mishkin’s text was that it presented aggregate demand curve in two ways. At the beginning of chapter 22 it developed what is sometimes called the “monetarist” version of AD, which shows the curve as a fixed level of nominal GDP, i.e. a rectangular hyperbola in P-Y space…
Thus I was very disappointed to see Mishkin drop the monetarist AD curve from the new edition….
If I was a conspiracy buff, I would note that this change occurred right after the biggest fall in NGDP since 1938. If one used the monetarist framework, it might lead students to ask uncomfortable questions about why the monetary policymakers allowed M*V to fall so sharply. But I’m not a conspiracy buff.
Another thing I really liked about the 7th edition was the following question (on p. 368) about IOR [paying Interest On Reserves–RPM]:
“10. The Fed has discussed the possibility of paying interest on reserves. If this occurred, what would happen to the level of e [the excess reserve ratio]?”
I loved this question. And when it actually happened, I couldn’t wait to show my students how Mishkin’s book predicted the dire consequences of the Fed’s October 2008 decision to adopt IOR.
So you can imagine how disappointed I was to find the question mysteriously deleted from the 8th edition. If I was a conspiracy buff I’d wonder whether Mishkin was trying to hide something. Surely students who did this question would be inclined to ask why the Fed did a highly contractionary policy in the midst of the biggest fall in AD since 1938 (that is if they still understood that AD=NGDP, which is doubtful.)
…A year ago I did a long post discussing how Mishkin’s text provided a template for my critique of the conventional wisdom circa October 2008. I specifically cited 3 of the 4 key principles that Mishkin identified in his summary of the monetary policy transmission mechanism (pp. 610-11):
“1. It is dangerous always to associate the easing or the tightening of monetary policy with a fall or a rise in short-term nominal interest rates.
2. Other asset prices besides those on short-term debt instruments contain important information about the stance of monetary policy because they are important elements in various monetary policy transmission mechanisms.
3. Monetary policy can be highly effective in reviving a weak economy even if short term rates are already near zero.”
I had thought that all economists accepted these propositions, as they are taught in the number one undergraduate money text. And not just taught; they are the summation of the most important chapter in the text. And they also happen to be true. But I found out in late 2008 that very few economists accept these propositions.
I was anxious to get Mishkin’s new text, where he could take a sort of victory lap. He could show how the Fed made a huge mistake allowing all sorts of asset prices to crash in late 2008, which signaled ultra-tight money. But before I got the new edition, I read some articles where Mishkin seemed to be defending Bernanke’s moves. I guess I shouldn’t have been so naive. Mishkin and Bernanke are both center-right New Keynesians. Both served on the Federal Reserve Board. And of course Bernanke had also held similar views in the early 2000s, when he insisted that BOJ policy was far too tight, despite low rates. So if Bernanke did a complete flip flop, why should I be surprised if Mishkin did as well?
Still, there was the question of how he would reconcile his views of the 2008 crisis with those three key principles of monetary policy. I know what you are thinking—he dropped the key principles. No, those are far too important to eliminate. Did he refrain from discussing the crisis? No, how could he do that? Instead, he stated his view of the crisis just one page before the three principles that completely conflict with his view of the crisis. That takes chutzpah!
Here’s what he says about the crisis on page 609:
“With the advent of the subprime financial crisis in the summer of 2007, the Fed began a very aggressive easing of monetary policy. The Fed dropped the fed funds rate from 5 1/4% to 0% over a fifteen-month period from September 2007 to December 2008.”
Wait a minute; doesn’t he say just one page later than low rates don’t mean easy money—that you have to look at other asset prices? Yes, but perhaps Mishkin didn’t know about all the other asset markets (TIPS, stocks, commodities, forex, commercial real estate, etc), which all started screaming that money was too tight in late 2008, as rates were gradually cut from 2% to 0%.
After discussing the crisis, Mishkin continues (p 610):
“The decline in the stock market and housing prices also weakened the economy, because it lowered household wealth. The decrease in household wealth led to restrained consumer spending and weaker investment, because of the resulting drop in Tobin’s q.
With all these channels operating, it is no surprise that despite the Fed’s aggressive lowering of the fed funds rate, the economy still took a bit [sic] hit.”
So I guess he did know. But perhaps there is nothing more the Fed could have done once rates hit zero? Surely I can’t seriously claim that monetary policy can be highly effective once rates hit zero? Go back and read Mishkin’s third principle.
If I was a conspiracy buff, I’d say that Mishkin followed almost every other famous economist in assuming that Fed policy was easy during late 2008, despite plunging stock and commodity prices, soaring real interest rates on 5-year TIPS, plunging inflation expectations, a soaring dollar, and plunging real estate prices. And he assumed there was nothing the Fed could do about it because they had already cut rates to zero.
If I was a conspiracy buff, I’d wonder if he knew there was a contradiction, and erased any passages of the book that might alert students to the possibility that the Fed policy was actually tight (such as the IOR question) or that the sharp fall in M*V was the big problem in 2008–i.e. the monetarist view of AD.
Do I need to point out that the things Sumner brings up, are eerily similar to the behavior that the “unfair” documentarian alleged?
Notice how Sumner tries to throw off the scent by constantly making jokes about conspiracy theorists. Nice, Scott, I get it. Blue Horseshoe loves Frederic Mishkin.
Murphy Triple Play
* I wrote this a while ago, but it slipped through the cracks. The people at Campaign for Liberty wanted me to rough up Greg Ip and his “myths” about QE, which I was only too happy to do. (Incidentally, I know some readers thought I had been unfair to Ip when I blogged about him here. Just be aware that I had already submitted the article before your gnashing of teeth.)
* Whenever the liberty movement starts gaining momentum, I find it wise to thin the herd by lopping off a subset of those who disagree with the inner core of Austro-libertarians. To that end, in this piece I outline what I consider the Chicago School’s Achilles Heel. Here’s the intro:
In a recent post “Triumph of the Austrian Economists,” David Frum laments the displacement of the respectable Chicago School as the economists of choice among the political Right. Frum fails to see that conservative Republicans are justified in switching their allegiance to the Austrian economists, because supply-side monetarists have a glaring blind spot when it comes to the Federal Reserve.
* After severing links with Chicago School monetarists, I next turn to the antiwar activists who are boycotting Amazon and I explain why I think they are mistaken too. (It’s hard work being this exclusive.) Two excerpts–one silly, the other serious:
A silly Star Wars analogy may help: The boycotters presumably liken Amazon to Lando Calrissian, who sold out his friend Han Solo in a deal with the Empire. But this isn’t at all accurate. Amazon didn’t deliver Assange over to the authorities; his jilted lovers did. Amazon’s “betrayal” merely meant that the WikiLeaks site was down for a few hours, and all Amazon did was end its business relationship with the pariah organization. It would be as if the Millennium Falcon needed to refuel, and the first planet they stopped at told them to keep moving because they were on Vader’s blacklist. Now if that had happened in the movie, and then after hitting the next depot (three hours away) the rebels circled back and starting firing on the first place for not selling them fuel, the audience would have been quite perplexed. That’s not what the good guys do. The good guys study the schematics of the Death Star; they don’t figure out which groups of non-combatants they should punish next for not joining the rebellion.
and
# If you want peace, then you should renounce threats, property destruction, and of course violence. Those are the techniques of the government.
…
# The American empire of military occupation and surveillance ultimately rests on American public opinion. I am ashamed to say that I once was, what we would now call, a “neo-con” (though the term was not in usage at the time). But as I delved deeper into the works of Austrian economists and Old Right conservatives, I realized my intellectual confusion. It made no sense to oppose the welfare state and government meddling in the domestic economy, while supporting the trillions the U.S. government spent on foreign adventures. Since I personally was convinced of the poverty of militarism, I know that others can be likewise converted.
…
# The truth is on our side. That is why WikiLeaks poses such a threat to the ruling class; they scurry like cockroaches from the light. Those who desire peace need not resort to hostility and aggression. They simply need to bravely speak the truth.# In the long run, the truth will out. Good will eventually triumph over evil.
Slick Willie Reads Bob Higgs, But Not Rothbard
John C. alerted me to this… Check out the video of Clinton when Obama passed him the baton at the press conference. Start watching it at the question asked at 11:00. I let Clinton go until about 15:30. If you’re interested enough to do the same, you’ll see:
(A) Clinton understands full well “regime uncertainty.”
(B) Clinton understands full well how fractional reserve banking works, and he likes what he sees.
Also, if you let the tape keep rolling, you’ll see that Clinton has his eyes on the cash reserves of major corporations. I have heard analysts refer to that at least 3 times in the past few days. If I were a major U.S. corporation sitting on $10 billion in cash, right now I’d feel like a guy with a Giant Slim Jim amidst a group of starving shipwrecked sailors.
Economists Are Funny, Episode VI
Jim Manzi continues his discussion with economist Karl Smith. Manzi has repeatedly asked Smith to explain why Manzi should have any faith in economists’ claims that fiscal/monetary stimulus will boost economic growth etc.
I am going to do a Mises.org on this, but for now I just want to excerpt from what Smith himself describes as a “defense of economics.” I think the term “lol” is used with reckless abandon nowadays, but I literally laughed out loud when I read this:
The second line I offer [in defense of macroeconomic models] is that of experience. That when economists had the helm we really were able to produce results. In the 1980s Central Banks were largely turned over to their economists who produced low inflation and low unemployment by manipulating the overnight lending rate.
Indeed, the two major failures in that period, Japan and the current recession, coincided with the overnight lending rate hitting zero and thus no longer being under the economist’s control. So our basic argument was that we can steady the economy so long as we have control over the overnight rate seems to be validated.
Hypocrisy Check
I don’t have any particular people in mind–otherwise I would have busted them–but I bet there are lots of people, both on the (conventional) left and right, who have had a different attitude to leaks during the Climategate and WikiLeaks discussions.
In other words, I bet there are lots of left-wingers who were outraged at the betrayal of trust, etc. etc. of the leaking of the Climategate emails, yet those people are defending Manning/Assange as heroes.
On the other hand, I bet there are lots of right-wingers who were buying rounds at the bar after the brave souls leaked the Climategate emails, since after all the public was being duped and science was being abused. But these same people are now demanding Assange’s head.
Those Are Some Educated Shepherds
Something had always not sat right with me about the gospel accounts of the birth of Jesus. E.g. Luke 2: 1-15:
1 In those days Caesar Augustus issued a decree that a census should be taken of the entire Roman world. 2 (This was the first census that took place while[a] Quirinius was governor of Syria.) 3 And everyone went to their own town to register.
4 So Joseph also went up from the town of Nazareth in Galilee to Judea, to Bethlehem the town of David, because he belonged to the house and line of David. 5 He went there to register with Mary, who was pledged to be married to him and was expecting a child. 6 While they were there, the time came for the baby to be born, 7 and she gave birth to her firstborn, a son. She wrapped him in cloths and placed him in a manger, because there was no guest room available for them.
8 And there were shepherds living out in the fields nearby, keeping watch over their flocks at night. 9 An angel of the Lord appeared to them, and the glory of the Lord shone around them, and they were terrified. 10 But the angel said to them, “Do not be afraid. I bring you good news that will cause great joy for all the people. 11 Today in the town of David a Savior has been born to you; he is the Messiah, the Lord. 12 This will be a sign to you: You will find a baby wrapped in cloths and lying in a manger.”
13 Suddenly a great company of the heavenly host appeared with the angel, praising God and saying,
14 “Glory to God in the highest heaven,
and on earth peace to those on whom his favor rests.”15 When the angels had left them and gone into heaven, the shepherds said to one another, “Let’s go to Bethlehem and see this thing that has happened, which the Lord has told us about.”
So what had always seemed odd (though I don’t remember if I had put my finger on it exactly) was that it seems everybody in the story–not just the “three wise men” but also the blue collar guys in the fields working the graveyard shift–knows all about the prophecy of the Messiah.
This makes sense if the story were just fiction; it’s not as if, say, Peter and Lucy would stumble upon an animal in the forest of Narnia who had no idea who Aslan was. (I really hope that never happened in the story, thus blowing up my “observation.”)
But in real life, I would have guessed that even token religious people weren’t up to speed on the predictions of their ancient seers. In our times, suppose the events described in Revelation started happening this Thursday. How many guys cutting lawns–even church-going Christians–would say, “Do you know what this means?!”
(BTW I include myself in this group. Without looking it up, I can’t remember exactly what the opening stages of Revelation would look like to us.)
Anyway, at church today our pastor addressed this point. He said that these shepherds weren’t just any old shepherds, but in fact were the people responsible for raising the animals that were used for sacrificial purposes (unblemished lambs, etc.). So in addition to an angel explicitly telling them what was going on, they also would have been better equipped to process it than, say, a Roman soldier.
Do any readers know how my pastor could have known such a thing? I mean, it doesn’t say that in the gospels.
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