The Bush Doctrine in an Aquarium

This is pretty neat, if you’ve got 3 minutes to spare:

Wait a Second, a “General Glut” Is Conceivable

Recently PhD-minted Gene Callahan has been reading Thomas Sowell on the classical economists. Following Sowell’s lead, Gene thinks that modern free-market economists misrepresent the argument that Malthus (and Sismondi, with whom I’m unfamiliar) had with J.B. Say.

In particular, the dispute has to do with the possibility of a “general glut.” In other words, is it possible for the economy to have produced too much of everything? To the layperson, it might seem as if this is what happens during a depression. Oops, businesses got too aggressive during the boom, and then ended up making so much stuff that the inventory can only be cleared at a loss. So all the businesses lay people off, blah blah blah. If only the government would pick up the slack in demand…

Now most modern, free-market economists would dispose of this “silly” claim by referring to Say’s “law of markets.” In a neat section of his treatise, Say explained that ultimately, the way the baker (e.g.) “demands” shoes from the cobbler isn’t by spending money, but rather by supplying bread to the market. This is the germ of truth leading to the (fallacious) rendition of Say’s Law as “supply creates its own demand.”

Say went on to point out that the reason the people of his time were far wealthier than the people of an earlier century, is that production per capita was much higher. (I’m of course paraphrasing into modern terminology. Plus, Say wrote in French.) So far from being the mark of a depression, an increase in production in all lines was a mark of progress.

So what happens during a depression? Well–the typical free-market economist would say–it’s not that every firm produced too much. Rather, it’s that some firms produced too much, but others produced too little. So resources weren’t properly allocated across industries, and that’s why the resulting mix of output is “wrong.”

The way to fix things is for prices to move. If businesses consistently hold too much inventory, and can’t hire workers, the problem is that the price of the inventory is too high, and wages need to fall.

But Gene Callahan has blown all this up, and worse yet, I think he’s right. (I hate when that happens.) Worse still, I disagreed with him at first, but upon reflection I think he was right and I was wrong. (I really hate when that happens–fortunately it’s rare.)

Gene gives a good analogy here. But let me generalize it:

The free-market economists who argue that “a general glut is impossible” are overlooking the fact that the economy might not exploit every resource to its fullest potential in a given period. For example, laborers don’t usually work an entire year at their maximum physically sustainable level. Instead, they typically choose to consume large amounts of leisure.

By the same token, industries never extract all the oil, natural gas, and other minerals from our stockpiles in a given year. Instead, far less is devoted to current production, and the vast majority of it is carried forward into the next year.

Once we take these elementary facts into account, we see the weakness in the claim that “a general overproduction is impossible.” The only way to salvage the claim would be in a tautologous sense in which a worker always uses every hour of labor to “produce” the maximum amount of output, but where often times many hours a day are devoted to the production of “leisure.” And likewise, we could formally say that every last known barrel of oil is always “used up” in this year’s production process, but that typically 99% of the barrels don’t go into “refined gasoline” but instead go into “production of a barrel of crude oil next year.”

It should go without saying that none of the above is meant to endorse Keynesian prescriptions for depressions. But the point is, “a general glut” actually has a very sensible meaning, once you take leisure and depletable resources into account.

More Goofy Headlines from CNBC

But at least this one relies on a faulty theory, not ignorance of a definition.

Gold Breaks $1300

I was wrong about gas and milk prices, but if you stocked up on gold and silver coins back in the fall of 2008 when I first started going nuts…you’re up about 40%.

Labor Union Nailed on Daily Show: I Am Stunned

Is this for real? I mean, when someone from the Daily Show wants to do an interview with you, don’t you know you’re dead? Seriously, what the heck is this? (HT2 LRC)

Scott Sumner Doesn’t Know What Income Is

No, I’m not saying he doesn’t know what his income is. I’m saying, Scott Sumner doesn’t know what the concept of income is. Check it out:

Income: A meaningless, misleading, and pernicious concept

And I bet you thought I was exaggerating.

No need to pick apart this post right now; it deserves a full-scale assault on Mises.org. In addition to the above quote, you might also like the following excerpts:

Unlike most libertarians, I think a progressive payroll tax is desirable for simple utilitarian reasons.  I don’t buy the “I worked hard for it, it’s my money” argument, for two reasons…

Because of diminishing marginal utility, it’s better to share your wealth with one other person…

The beauty of the progressive consumption tax is…

By all means, follow the link to see if I’m quoting Scott out of context.

Hooray, the Recession Is Over!

I’m not the first to poke fun at the NBER for saying the recession ended (15 months ago), but I haven’t seen anyone stress this point:

…I just want to point out that the NBER’s techniques implicitly justify big government. For example, suppose the Austrians are right, and that the Fed’s massive interventions — coupled with the federal government’s absurd “stimulus” programs and other power grabs — at best will postpone the economic correction, and in fact they will make the crash that much worse.

Well, according to the way the NBER works, nobody would ever know this. Instead, “history” will record that Bernanke and Obama did indeed manage to end the awful Great Recession — specifically, in June of 2009 — but then something else came along and inexplicably wrecked things. Maybe Christine O’Donnell.

David Friedman’s (Partial) Defense of Christine O’Donnell

David R. Henderson pointed out David Friedman’s series of blog posts looking into the “common knowledge” that Christine O’Donnell is a nut. This is the best one, in my opinion.

Let me be clear: I think I speak for both Davids, as well as myself, when I say that the point here isn’t to say, “Christine O’Donnell is one smart cookie. In fact, if she loses the election I’m going to hire her to tutor my kid.”

No, the point is that there are all sorts of positions being attributed to O’Donnell, the evidence for which is very weak. For example, until I read Friedman’s post (linked above), I had thought O’Donnell thought the government should ban masturbation. Didn’t you think that–and after all, you probably heard it from three different sources, so it must be true?

Well, Friedman tried to find out the basis for that claim, and this is what he came up with:

Getting curious, I followed up on some of the other evidence offered that she was a nut. One repeated claim was that she was, in Moynihan’s words, “opposed to the sinister habit of masturbation,” which makes it sound as though she had been campaigning against it. Another story describes her as the “masturbation hating candidate” and links to another informing us that “One of the most notable things on her political résumé is her well-publicized position against masturbation.”

All of this seems, as far as I can tell, to be based on a single comment made in the course of an MTV program on sex in the nineties. O’Donnell asserted that the bible says that lust in your heart is to commit adultery, and that you cannot masturbate without lust—both, I think, correct statements. As best I can tell, that is the sole basis for the claims of “well publicized position” and “masturbation hating candidate.”

That’s about 2,000 km away from the view being painted in the media–by both “right” and “left,” incidentally. Far from conjuring up a Big Brother program putting chastity belts on everybody, this is something that is quite standard for anybody who thinks the Bible is a source of moral instruction.

It’s funny, because I have had this “revelation” a few times, and yet I keep forgetting it. For example I have seen firsthand how people out to trash writers that I know personally, can cherry-pick stuff from their past to paint the person as an ogre. For most of the things, it’s not an outright fabrication, but the point is that if you actually know the person, then the image being painted by the critics is completely misleading.

Take another example: We all know that Dan Quayle is a moron, right? I mean, the guy doesn’t even know how to spell potato! Ha ha!

But do you know the context of that infamous event? Quayle was doing a photo op at an elementary (I think) school spelling bee. The teacher had written the words on index cards. So Quayle is flipping through index cards, asking kids to spell words and checking them against the key that the teacher had written.

Well duh, the teacher wrote “potatoe” on the card. Yeah, that’s pretty dumb, but it’s not in the same category as taking a bath with a transistor radio. After all, the plural is potatoes.

But my point is, Dan Quayle didn’t volunteer his opinion that it was spelled “potatoe.” It was written that way on the answer key. So he’s the vice president, probably thinking about what he’s going to ask the Secret Service to get him for lunch, and maybe he’s got gas he’s trying to hold in because there’s 50 people in the room, and the little kid is spelling “potato” differently from how the teacher wrote it on the index card.

Is it really so crazy that in this context, Quayle didn’t go out on a limb and say the teacher was wrong? Can you imagine what the late-night talk show hosts would have done, if Quayle were wrong? “Vice President tells teacher how to do her job!!” “Quayle apparently against education after all!” etc.

(Incidentally, just to prove my point of this post, you should go independently confirm my story of Quayle and the potato. I truly believe that it was happened, but I must confess right now I have no idea what makes me think so. I.e. I can’t remember where I read/heard this version of events. Trust no one, not even me…)