Murphy Twin Spin
(We also would have accepted, “Murphy Double Play.”)
Sometimes life can get you down. Your kids are misbehaving, your car breaks down, you throw your back out, you root for the Buffalo Bills….
But then, every once in a while, a Monday rolls along featuring new Murphy articles in two different venues. And somehow, you find the strength to keep on going.
Today at Mises.org, I pick apart Alan Blinder’s high- and low-brow defenses of the Obama stimulus.
Over at EconLog, I have the article of the month–which is sort of like being the Employee of the Month, except I didn’t have to be courteous to anyone. An excerpt:
Despite its importance, the stock market remains a bit of a mystery, even to many otherwise staunch champions of the free market. People who have no problem defending the actions of advertising executives or payday lenders, often fall short of defending the stock speculator or “corporate raider.” Yet these popular villains actually perform vital services, and government policies against “hostile takeovers” actually make us poorer.
Was the Messiah Supposed to Have Been Divine?
In my Bible study class when I was a professor living in Hillsdale, MI, the (assistant) pastor matter-of-factly told us that it was understandable that the Pharisees were outraged at Jesus’ statements. Even if Jesus were the Messiah, he explained, he still shouldn’t have claimed he was one with the Father. In other words, my pastor explained, the religious Jews waiting for the prophesied Messiah not only were expecting a military/political ruler, but they were expecting a man.
I am currently reading Jared Wilson’s Your Jesus Is Too Safe, which I’m enjoying a lot and for which I’ll write up a proper review when I’m finished. But for right now, I just want to comment on this same issue. Jared writes (and I know him, hence the first name usage):
It wasn’t so much that [Jesus] was teaching so many people about love and peace and grace, but that he was teaching so many people that he was the long awaited ruler while simultaneously making himself out to be God. That second part was not expected. The Messiah was anticipated as God’s messenger and deliverer of the people, but an incarnate YHWH was beyond the realm of Jewish messianic belief. [Wilson, p. 199]
Now I absolutely love this kind of stuff, where people were misreading the prophesies and hence didn’t recognize Jesus. (Even if you think this is all a myth, I’m saying that it is very “neat” in purely literary terms.) For example, some devout Jews didn’t understand how Jesus could be the guy, because he came from Nazareth, and the prophesies clearly said the Messiah would come from Bethlehem. (So the trick there is that Jesus was born in Bethlehem, but grew up in Nazareth.)
But for today’s misunderstanding, I don’t see what the problem was. At least according to my translation (which perhaps benefits from being written by Christians!), here is the prophesy in Isaiah 9:
6 For to us a child is born,
to us a son is given,
and the government will be on his shoulders.
And he will be called
Wonderful Counselor, Mighty God,
Everlasting Father, Prince of Peace.7 Of the increase of his government and peace
there will be no end.
He will reign on David’s throne
and over his kingdom,
establishing and upholding it
with justice and righteousness
from that time on and forever.
The zeal of the LORD Almighty
will accomplish this.
Look at the parts I’ve put in bold. Am I missing something? Doesn’t that clearly say the Messiah and God the Father are the same?
Joseph Sobran, R.I.P.
I missed this, but Joe Sobran died on Thursday. He always struck me as a very wise man. You believed him when he talked about what the politicians would do, because it seemed like he’d seen it all before. (Although he was actually not that old.)
Sobran used to be a conservative who wrote for National Review. Then they parted ways (shall we say) after he opposed the first Gulf War.
I remember hearing Sobran give a funny talk (I think it was titled “The Reluctant Anarchist”) at the Mises Institute. He was talking about the silly, Ivory Tower justifications for the State. After describing all the horrors of modern warfare etc., Sobran said something like, “And yet we are told we need a State with its powers of eminent domain. So we are subject to income taxation and terror bombing, in order to have roads–or should I say, straight roads.”
I’m probably butchering the delivery, but it was pretty funny.
Here’s a quote that Anthony Gregory posted on Facebook:
“If you want government to intervene domestically, you’re a liberal. If you want government to intervene overseas, you’re a conservative. If you want government to intervene everywhere, you’re a moderate. If you don’t want government to intervene anywhere, you’re an extremist.” — Joe Sobran
The Second Sign of Insanity: I Agree With DeLong on Money Demand
Uh oh, I think you guys may need to organize an intervention. First I say that a general overproduction is possible. Now, even more alarming, I was reading DeLong (from a Krugman link), waiting to pounce, and found myself saying, “Yes, yes, I like what you’ve done here…” (That’s a Mike Myers quote from Wayne’s World 2, I believe, but I can’t find it on YouTube.)
DeLong is criticizing David Beckworth, who had claimed that the economy currently suffers from an excess demand for money, and therefore the Fed just needs to create more money to fix things. Here’s DeLong’s answer:
The hole in David’s argument is, I think, where he says “the Fed adjusts the money supply” without saying how. Suppose that we have a situation–like we have today–where people are trying to cut back on their expenditure on currently-produced goods and services in order to build up their stocks of safe assets: places where they can park their wealth and be confident it will not melt away when their back is turned. They switch spending away from currently-produced goods and services and try to build up their stocks of safe assets–extremely senior and well-collateralized private bonds, government securities, and liquid cash money. Now suppose that the Federal Reserve increases the money supply by buying government securities for cash. It has altered the supply of money, yes. But it interest rates are already very low on short-term government paper–if the value of money comes not from its liquidity but from its safety–then households and businesses will still feel themselves short of safe assets and still cut back on their spending on currently-produced goods and services and the expansion of the money supply will have no effect on anything. The rise in the money stock will be offset by a fall in velocity. The transactions-fueling balances of the economy will not change because the extra money created by the Federal Reserve will be sopped up by an additional precautionary demand for money induced by the fall in the stock of the other safe assets that households and businesses wanted to hold.
So, yes, Beckworth is right in saying that there is an excess demand for money. But he is wrong in saying that the Federal Reserve can resolve it easily by merely “adjust[ing] the money supply.[“] The problem is that–when the underlying problem is that the full-employment planned demand for safe assets is greater than the supply–each increase in the money supply created by open-market operations is offset by an equal increase in money demand as people who used to hold government bonds as their safe assets find that they have been taken away and increase their demand for liquid cash money to hold as a safe asset instead.
Increasing the money supply can help–but only if the Federal Reserve does it without its policies keeping the supply of safe assets constant. Print up some extra cash and have the government spend it. Drop extra cash from helicopters. Have the government spend and. by borrowing to finance it, create additional safe assets in the form of additional government debt. Guarantee private bonds and make them safe. Conduct open market operations not in short-term safe Treasuries but in other, risky assets and so have your open market operations not hold the economy’s stock of safe assets constant but increase it instead.
These are all ways of increasing the money supply or of decreasing the effective demand for money by shifting some of the precautionary demand for money-not-as-liquid-but-as-safe-asset over to newly-created other safe assets.
Now don’t flip out on me, everyone. I am NOT saying that I follow DeLong to the end, and that I think the Fed ought to start dropping money out of helicopters.
But I DO think that the Keynesians have put their finger on a different aspect of why it doesn’t “fix the economy” to have the Fed do its normal open-market operations.
Think of it like this: Scott Sumner says that our current problems are the result of Fed timidity. That is crazy to me; like saying the problem with Michael Jackson is that he wasn’t willing to be weird enough.
So I think the Keynesians actually can talk about the specific problems with normal Fed “easing” operations, in a way that Austrians don’t normally catch. The Keynesians are thinking about this specific problem more than the Austrians. Again, the Keynesian solution is wrong too, but their critique of (some) monetarists is still valid.
One more analogy: It’s like when you read the Donald Rumsfeld memo asking whether US actions are creating more Al Qaeda than they’re destroying. There’s a certain credibility or authenticity that comes from reading it in his memo, compared to reading it on an antiwar blog. But it doesn’t mean you want to hear what Rumsfeld thinks US forces should do.
Ahnold Decriminalizes Marijuana
You know, sometimes I freak myself out with my spot-on predictions. Brownie points for anyone who links to the earliest post in which I said that we would move toward drug legalization (which allows the government to tax it) as this depression lingers:
California Governor Arnold Schwarzenegger signed a bill Friday morning that decriminalizes possession of marijuana in the state.
Those caught with less than an ounce of marijuana will still receive a maximum penalty of $100. However, Senate Bill 1449 reduces the legal categorization of marijuana possession from a misdemeanor to a civil infraction. This means that those caught will not have to appear in court, pay court fees or receive a criminal record.
Schwarzenegger opposes Proposition 19, a pending referendum that will provide a legal framework for the sale, cultivation and taxation of marijuana. However, despite this opposition, Schwarzenegger signed the bill into law. In a letter to the California Senate, Schwarzenegger stated that “less than an ounce of marijuana is an infraction in everything but name. The only difference is that because it is a misdemeanor, a criminal defendant is entitled to a jury trial and a defense attorney.” He further stated that “In this time of drastic budget cuts, prosecutors, defense attorneys, law enforcement, and the courts cannot afford to expend limited resources prosecuting a crime that carries the same punishment as a traffic ticket.”
Potpourri
* Some of my thoughts on the recent gold news.
* A student in my private law / private defense class wrote up a post on some new technologies/strategies.
* Pete Boettke links to an exchange between Paul Krugman and Raghuram Rajan. RR destroys Krugman. It’s actually embarrassing.
* Gonzalo Lira made me once again return to the claim that the Fed is allowing banks to earn riskless profits by buying Treasurys. I have gone back and forth on this issue. It always sounded plausible, and explained a bunch of the facts, but certain things didn’t quite fit. Well, now I think I have it all worked out. I think I see how the banks can take excess reserves and buy Treasurys with them, then the government can spend the money on tanks and food stamps, and yet the whole time these are excess reserves just getting shuffled around. I wasn’t quite seeing that before. This will actually be the topic of my article in the October’s Lara-Murphy Report, where I’ll delve into the numbers and actually document that this is happening. (If indeed it is; I haven’t verified it myself yet.)
* Dick Clark (the younger) is actually teaching for a week at Harvard. Can you believe that? I need a better agent. Anyway, Dick is going to be a guest lecturer in this guy’s class.
Email List Topic: Why Are We Not in Hyperinflation?
[UPDATE below.]
On a private list of Austrian economists, someone asked about Krugman’s recent back-patting on the issue of interest rates and CPI inflation. Here’s what I said:
(1) I regret that I have been one of the Austrians most guilty of prematurely sounding the (price) inflation alarm. In my defense, I first started going nuts in late 2008, when M1 did indeed rise significantly. Then in early 2009, after Obama was inaugurated, there were prominent lawmakers saying the banks had a duty to make loans to small businesses etc. to justify their TARP bailout. So at that point, we had every reason (except to always expect the opposite of what politicians are claiming a program will do…) to expect M1 and M2 to continue growing.
(2) Even after the slowdown in M1 and M2 growth, I didn’t back off my “call,” because I thought it perfectly obvious that the Fed had no exit strategy, that once the $1 trillion in excess reserves started leaking out, the Fed wasn’t going to destroy the banks by selling off all of the Fed’s MBS etc. I thought if it were obvious to me, it would be obvious to everyone on Wall Street, and they would price this into things, the dollar would fall, etc. etc. I blame my study of backwards induction at NYU.
(3) I think one big thing going on in all this, is that we are seeing Cantillon effects to the Nth degree. This is probably an oversimplification, but think about it: The economy is in a shambles, and Bernanke gives a trillion dollars in new money to investment bankers. What’s going to happen? They’re not going to rush to the store to buy milk and eggs. No, they’re going to buy financial assets, and indeed we saw the stock market go up 40% after Obama got in, which makes absolutely no sense. We have also seen gold setting records, which makes perfect sense too. But we haven’t seen CPI go up. In retrospect, is that really surprising? The people who buy milk and eggs are still broke; they didn’t get the trillion dollars. So there’s no reason to expect CPI to spike in the near future, and thus the Wall Street traders were right not to bid up [UPDATE: the implied price inflation expectations derived from] TIPS yields etc.
(4) Krugman has a decent point: Not so much the Austrians, but the standard “free market” Chicago School types have been blasting the Fed and Obama from Day One, claiming that the money printing and stimulus packages will drive up interest rates and CPI. In contrast, Krugman (and DeLong) have been saying, “No, we’re in a liquidity trap, people want to hold money and Treasuries, etc.” So in terms of that narrow debate, Krugman can understandably feel like he won.
I intend to flesh this stuff out–it will certainly be a topic in the near future in the Lara-Murphy Report, if you want to see a carefully-researched analysis–in the coming months. But those are my quick thoughts.
I should add that the bookish von Pepe has been urging me for literally more than a year to stop focusing on the CPI as a measure of price inflation. For some reason I recently “got it” and have begun reading Gerald O’Driscoll’s excellent work in this area, such as this and this. [UPDATE: Duplicate link fixed.]
Something About This Seems Familiar…
Lew Rockwell sends this along. Two comments: (1) Sure, governments don’t create jobs, but don’t casinos? and (2) The true zombie speaks in single-word sentences.
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