Krugman Krushed
I’m going to do two blog posts (this is the first), then I might be quiet for a while. I am still trying to catch up on various things…
Von Pepe sends this great article explaining how Krugman was getting owned (I refuse to use the hip term) by his commenters. It got so bad that Krugman took action.
Incidentally, the guy writing the article (Fred Douglass) apparently reads Krugman even more than I do. But he singled out a particular comment that had caught my eye too; it’s been sitting on my Firefox browser since July 28. It is in reference to Krugman’s continued bashing of the Rogoff-Reinhart piece (on the connection between debt and GDP stagnation), and it is hilarious:
No it is not “all, repeat all, the postwar demobilization” [as Krugman had claimed–RPM]. The lie has now been told twice; one more time, and it will enter the Krugman canon of anti-science.
Here is some unsolicited advice to PK’s bloggers: Read Rogoff’s paper. Do not rely on an ideologue whose sociopolitical agenda is destroyed by Rogoff’s analysis to represent to you what Carmen and Ken have said. Here is the link.
http://www.economics.harvard.edu…
Rogoff’s conclusion (that very high debt is bad for an economy) is supported in Rogoff’s paper, by PK’s own admission, in six different countries on three continents in a range of macroeconomic environments spanning five decades. Belgium. Japan, Italy, Canada, and the United States. Actually more, but let us just take as fact what PK stipulates. Just one (repeat “one”) example is at the end of the Second World War. Just one (repeat “one”) example can be attributed to postwar demobilization.
Now, PK’s repeated claim that it was Reinhart and Rogoff’s “own choice to highlight US data” at the end of WWII is a crude effort to distract. Read the paper to decide for yourself whether this alleged “highlighting” exists, let alone whether its “highlighting” undermines the conclusion from six different countries on three continents spanning five decades in a fine example of economic science.
The accusation that Carmen and Ken “falled to notice” what they clearly noticed and failed “to think about what that means” what they clearly thought about it will not survive your spending five minutes with this paper. What is clear is that PK has “thought about” what the Reinhart-Rogoff economic science “means”. It means that his proscription [sic] for perpetual deficits is a prescription for disaster.
How Privatized Banking Really Works
The wait is over! Here is the pdf of my new book with Carlos Lara, How Privatized Banking Really Works. Learn it, live it, love it.
If you want to purchase a hard copy, please visit Carlos’ site. (The book is also available on Amazon through our bulk distributor, but it helps us more if you buy from our site. The price is the same.)
Murphy Triple Play
Ah, a true triple play, when all three articles literally run on the same day. (Sometimes I merely blog them on the same day, but this is the real deal. Let us pause for a moment of silence.)
* At Mises.org I tackle James Galbraith’s glib defense of deficit spending.
* At MasterResource I show how the climate alarmists punt the IPCC whenever Jim Manzi quotes from it.
* At EconLib I have this month’s featured article, inspired by the Rand Paul witch hunt. A sample:
Our analysis leads us to conclude that people who oppose “discrimination” really have in mind employers who treat some job applicants differently based on irrelevant characteristics. For example, if an accounting agency didn’t hire a CPA because he was black, then most people would say this definitely does qualify as “bad” discrimination that should be punished by law. The difference between this case and our fanciful example of Will Smith reading for the role of Obi-Wan is that there’s no good reason a black person can’t be an accountant. If an employer thinks so, then he is acting on a baseless prejudice or stereotype, and that’s just the type of practice that anti-discrimination laws are designed to eliminate.
…
Yet, in a free market, it is precisely this kind of discrimination that is swiftly and automatically penalized. If an employer discriminates against a job applicant on the basis of factors that are truly irrelevant to job performance, then the employer necessarily incurs a financial penalty. Even better, the penalty is directly proportional to how much the employer’s decision was based on prejudice, rather than on merit.
Potpourri
* For a while I’ve been meaning to comment on non-Austrians who have been arguing against ultra-low interest rates, but I’m a busy guy. Mario Rizzo finally had to do it.
* Glenn Greenwald discusses the massive WikiLeaks leak on the war in Afghanistan. Quick take: Your leaders have been lying to you. (I hope you were sitting down for that.)
* Economists have been talking about this for weeks (or even months), but in case you missed it: check out how high the duration of unemployment is now, compared with previous recessions. And some of you doubted me when I said this was the big one.
* Want to see someone link Sumo wrestling and chocolate bars to the need for government financial regulation? You’re thinking Levitt, but no, it’s my favorite blogger.
* Arnold Kling takes Ezra Klein out to the woodshed. He actually uses the line, “When I was Klein’s age…” Ohhh, that’s gotta hurt.
(Nobody pointed this out, but I think one issue with Klein’s commentary is that he apparently thinks macroeconomics is the same thing as macroeconometrics. No, they’re not. To give one example of the difference: By the time I graduated NYU, I understood what you were supposed to put in the test booklets in macroeconomics to get full credit.)
Austro-Libertarianism & Christianity
I have many new readers because I plugged the blog at the recent Mises University. So first, let me explain my policy: I blog on secular matters 6 days a week, but on Sundays I only post on religious themes. I am a born-again Christian and do not shy away from this, but I also understand that many readers don’t want to wade through that type of discussion. So, if the J-word makes you uncomfortable, then don’t read this blog on Sundays.
At Mises University, one student asked me to comment on the relationship between my extreme libertarian views and my Christianity. After all, there is an undeniable streak in the latter that says we should obey the ruling authorities. (The most famous example is from Paul.)
So here are some of my thoughts, some of which I have gleaned from deeper theological thinkers:
* Paul spent a good deal of time in prison himself, and so did Jesus (and John the Baptist, a bunch of prophets, etc.). So there is also a strong tradition in Judeo-Christianity of speaking truth to power and defying the authorities when they oppose the will of God. According to my views on property rights (derived from Austro-libertarianism), I think State officials in our modern world are a gang of robbers and murderers. Therefore, I oppose them.
* Having said that, I do NOT advocate violent rebellion. I am NOT trying to overthrow the government. I am merely trying to persuade anyone who will listen, to withhold his or her consent from the State. I still pay my taxes, for example, and pull over when a cop turns on his lights. So in that respect, I am not directly defying the ruling power structure, just as Jesus didn’t attack Rome the way many thought He would/should.
* Even though I call myself a philosophical anarchist, I do not “reject authority.” I have submitted to Jesus Christ as my personal Lord and Savior. I serve a King. (I never was fond of Paul’s language of being a “slave to Christ,” because what type of slave has the master’s permission to leave? God doesn’t force you to serve Him, He asks you to and teaches you that it is in your long-run interest to do so.)
* As far as American evangelicals, most of them are inconsistent when they lecture radical libertarians by saying the governing authorities are put there by God, and so you have a duty to obey them. If they really thought that, then why did so many of them support the invasion of Iraq? After all, if Saddam’s political opponents had behaved correctly, he wouldn’t have needed to kill them, right? Saddam was just God’s arm of justice in Iraq, right? (To belabor the point: Once the typical American evangelical starts explaining why it was just for Iraqis to disobey Saddam, then we’re back on secular political grounds: The libertarian and the evangelical are now disagreeing on what a just government is, not on what God wants us to do with respect to political leaders.)
* To switch focus: I know a lot of atheist libertarians think the idea of spontaneous order shows how wrong-headed Christians are. I can summarize their frustration like this: “After all, we don’t need a central planner in the economy, and we don’t need an intelligent designer in biology, so how in the world can libertarians of all people cling to the irrational belief in a God??”
But I view these things the way (I believe) that the Scottish moral philosophers originally did. The reason we have spontaneous orders is that an orderly, benevolent Creator designed the structure of the universe and the human mind. If the world is just a big coincidence, then there is no reason to expect all of the beauty we see in higher mathematics, cell biology, or international trade.
Let me put it like this: What capitalism does, is take the most greedy, power-hungry people–if only they will respect the Ten Commandments and don’t steal or kill–and lead them to unwittingly serve their fellow men. Isn’t that just the kind of world the Christian God would design? The Bible is full of examples where God takes sin and transforms it into salvation. An obvious example is Joseph being sold by his brothers into slavery, and of course the prime example is the murder of Jesus being, at the same time, the defeat of Satan.
Murphy Interviewed on Our Banking System
The interview will be broadcast at 1pm central time. You can get it here. It is Mike McKay’s “Radio Free Market” show, with a guest host.
Fight the Power! Online Class on Private Law and Defense
Starting August 24, I will offer a 4-week online course at the Mises Academy on private law and private defense. The total cost is $150. Details here.
(For a screenshot of the syllabus, click this and put the “magnifying glass” over the image if your browser doesn’t expand it automatically.)
OK Dr. Krugman, Here’s a Possible Problem With Lower Longer Term Rates
[UPDATE below.]
In a previous post I expressed incredulity at this passage from Krugman’s blog:
We don’t know how well the Gagnon plan would actually work — but there’s no harm in trying, and large potential benefits. The only possible reason for the Fed not to be more aggressive now is fear of embarrassment, of not getting big results.
The Gagnon plan involved things like the Fed aggressively buying 3-year Treasuries to bring their rate down from 90 basis points to 25 bp.
What stunned me wasn’t so much the fact that Krugman was in favor of the plan, but that he saw no possible downside.
Well, I was talking with a woman today who works at a major investment firm. She explained that defined-benefit corporate pension plans are in trouble because of the drop in interest rates. Consider a company that promised an employee $1 (in present value terms) of pension benefits back in 2000. Suppose it was a responsible company and fully funded the pension plan, so that it set aside $1 in assets at the same time.
But since interest rates have collapsed since 2000, and since assets have underperformed, the pension liability is much higher (because the discount rate is lower) while the counterbalancing assets have not risen nearly as much.
I brought up the fact that many economists are saying that the Fed ought to engage in “unconventional” policy by buying longer term Treasuries to push down those rates too. She said matter-of-factly that it would render every corporate pension plan insolvent.
UPDATE: Let me make sure you see the big picture here. Krugman is so sure that more aggressive policy can’t possibly hurt, because Krugman does his analysis in terms of a very crude model that has a central bank, aggregate demand, “the” interest rate, “the” price level, and some other components. In that model, there’s not even corporations, let alone corporate pension plans, so it wouldn’t even occur to Krugman to worry about the possibility that his recommendation might bankrupt every pension plan in the country.
Indeed, whenever economists express timidity about lowering interest rates, the only thing (except from the Austrians) that you hear is, “Retired people live on bonds and they could be hurt.” That is the only thing you get. Non-Austrians otherwise think the only flaw with reducing the price of borrowing money, is that it might lead to higher prices at some point. They typically see nothing else wrong with the Fed wildly moving certain prices away from their current values.
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