Producer Prices Up 5.5% For the Year; Krugman Draws a Line
Again kids, I acknowledge that the official price inflation measures are not behaving as I was warning last year. Even so, let’s also realize that we are not on the verge of a deflationary spiral. The latest PPI report shows that producer prices for Finished Goods in April were up 5.5% from 12 months earlier.
Speaking of price deflation, Paul Krugman has solidified the line in the sand. So fortunately one of us is going to be wrong:
Ever since the economic crisis began there have been two schools of thought about inflation prospects. One school basically has a Phillips curve, aggregate demand view: because major economies are operating far below full employment, we should expect disinflation, and possibly deflation. The other is basically monetarist with a touch of Austrianism: look at all the money central banks are printing and governments are borrowing, it says, inflation — maybe even hyperinflation — is just around the corner.
…
What about the US? Well, various measures of core inflation — like the Dallas Fed trimmed-mean deflator, the Cleveland Fed median CPI, and indexes excluding food and energy have all fallen from 2.5-3 percent inflation at the start of the crisis to around 1 or lower. If the trend continues — which it will unless the recovery is stronger than I fear — deflation is in our future, maybe next year.
So there you have it. If we have stagflation in the next few years–which I am still predicting–then Krugman is unambiguously wrong. There is no way he can hedge himself out of what he wrote above.
On the other hand, if we have a Japanese-style slump with very modest price inflation, then I am unambiguously wrong.
If we have rapid economic growth and high price inflation, Krugman can claim victory and I can say I was half right.
If we have rapid economic growth and low price inflation, Krugman and I will have to find other jobs.
Glenn Greenwald Sounding Like an Economist
From this blog post:
It really is the case that every new Terrorist incident reflexively produces a single-minded focus on one question: which rights should we take away now/which new powers should we give the Government? We never reach the point where we decide that we have already retracted enough rights. Further restrictions on rights seems to be the only reaction of which our political and media class is capable in the face of a new attack. The premise seems to be that if we keep limiting rights further and further, we’ll eventually reach the magical point of Absolute Safety where there will be no more Terrorism. For so many reasons, that is an obvious myth, one that ensures that we’ll reduce rights infinitely and with no discernible benefit. We’re not the target of Terrorist attacks because we have too many rights; we’re the target because of our own actions, ones that we never reconsider in light of new attacks because we’re too busy figuring out which rights to erode next.
Another Move Towards Complete Lawlessness
This is really ominous:
The Supreme Court ruled today that convicted sex offenders can be imprisoned even after their sentences expire if they are determined to be mentally ill and sexually dangerous.
In a decision by Justice Stephen Breyer, the Court upheld a federal law that allows dangerous sex offenders to remain in prison if the federal government proves by clear and convincing evidence they would have “serious difficulty in refraining from sexually violent conduct or child molestation” if released.
I am not going to comment on the constitutionality of the measure, since I have no idea. What I will say is that this is an incredibly dangerous path to go down.
The essence of this ruling says that the government can lock you up not for what you have done, but for what you might do.
Of course, a lot of people would say, “Huh??! What are you defending sex offenders for! These people have been convicted of crimes!”
Right, and so if we want them to be locked up and kept away from kids, then we should bump up the sentences for whatever they did. It’s not as if this is politically difficult. Can you imagine a congressman saying, “Darn it, I voted to bump up the sentencing guidelines on molestation because I thought it was the right thing to do. Now I’m going to get killed in my re-election campaign for being too tough on pedophiles.” ?
This is a classic example of the government gaining an Orwellian new power, and using a group of pariahs as the wedge.
Believing Is Seeing: Free Banking Controversy
[Three UPDATEs below…]
Joe Salerno launched a provocative assault on the Austrian “free bankers” (an unfortunate term since of course people who disagree with them are not in favor of unfree banking). In reply, both Steve Horwitz and Larry White offered quotes from Mises which they thought proved that the issue was at best ambiguous, and at worst showed Salerno was full of it.
The thing that’s hilarious (to me at least), is that I’m reading every single quotation they offer up (four in total) from Mises, and they are all perfectly consistent with what I took Salerno to be arguing.
Here’s what my own position is:
[Bob’s position on FRB.] Fractional reserve banking is inherently “weird.” It just doesn’t make sense that you can create money just by lending it out and then crediting both sides of the bank’s balance sheet. I’m not saying it’s necessarily fraudulent, I’m saying it’s weird. And it is intimately tied to the boom-bust cycle. The problem with central banking is that it eliminates the market’s normal checks on FRB. In a truly free market in banking, there would be a natural feedback mechanism that would severely limit “credit expansion,” which means an increase in the amount of loans when new commodity money hasn’t been produced.
Now with that understanding in mind, go look at all the “counterexample” quotes offered by Horwitz and White. Not a single one contradicts the above understanding which Salerno has convinced me, is what Mises’ position was.
At first I was tempted to say, “OK Horwitz and White just happened to pick poor examples, but surely they can’t be wrong when they say Mises was really ambiguous on this.” But I’m not sure, because in reference to his offered quotations White says: “These passages are plainly inconsistent with Salerno’s claim that “Mises looked with great disfavor upon the creation of fiduciary media by banks, whether ‘free’ or not, and strongly urged its elimination.””
Not only are they not “plainly” inconsistent, I don’t even think they’re subtly inconsistent. I don’t think they’re inconsistent at all.
The only possible confusion here, is if White thinks “strongly urged its elimination” means “wanted the government to make FRB illegal.”
But if instead we consider the possibility that Mises hated fractional-reserve banking per se, and thought a regime of “free banking” would curtail it, then Salerno’s story makes perfect sense.
And Mises isn’t ambiguous at all.
UPDATE: Let me add some balance to this post, so people don’t think I’m just picking favorites. In one essay (I forget where), Rothbard is ripping Hayek a new one on this stuff. He then tries to say that Mises agrees with his (Rothbard’s) position, and not Hayek’s nutjob private-fiat-money stuff, by saying, “One of Mises’ favorite quotes was from Tooke, who said ‘free trade in banking is free trade in swindling.'”
(I am paraphrasing, I might not even have the quotation-within-the-quotation exactly right.)
Now that borders on intellectual dishonesty. First, it wasn’t Tooke’s quote, Tooke was quoting a wag. And secondly, in Human Action if you look that part up, you’ll see Mises is mocking the sentiment. Mises is pointing to this quotation as something a layman would say, who has no understanding of how competitive entry into banking would work.
OK I purposely laid it heavy on Rothbard here, because I want Horwitz to really take me seriously when I say I think he is totally missing the boat on this one.
UPDATE 2: OK here’s the quotation from Human Action that I had in mind (p. 446 here):
It is a mistake to associate with the notion of free banking the image of a
state of affairs under which everybody is free to issue banknotes and to cheat
the public ad libitum. People often refer to the dictum of an anonymous
american quoted by Tooke: “Free trade in banking is free trade in swindling.”
However, freedom in the issuance of banknotes would have narrowed
down the use of banknotes considerably if it had not entirely suppressed
it. It was this idea which Cernuschi advanced in the hearings of the
French Banking Inquiry of October 24, 1865: “I believe that what is called
freedom of banking would result in a total suppression of banknotes in
France. I want to give everybody the right to issue banknotes so that nobody
should take any banknotes any longer.”
So two things jump out from the above passage:
(1) Rothbard was kicking Hayek below the belt when he cited that quotation about swindling to “prove” that Mises wouldn’t have endorsed Hayek’s plan for fiat money.
(2) Mises wants freedom in banking to eliminate the issuance of banknotes. Since Mises’ big problem with the Peel Act was that it failed to see that banknotes and demand deposits were economically equivalent, and since in the above quote he clearly wants free banking in order to suppress the issue of banknotes… Horwitz do you now see it?
Now in fairness to Horwitz et al., they can come back and say, “Huh? Did you just ‘prove’ that Mises doesn’t even want 100%-backed banknotes? Of course not. And by the same token, Mises isn’t against fiduciary media, he’s just against over-issuance of fiduciary media above the optimal level.”
So then to deal with that, we’ve got the juicy quotes Salerno dug up, about FRB being the seeds of its own destruction etc.
UPDATE 3: OK finally someone has supplied Mises quotes that appear to support the Horwitz/White position as much as the quotes Salerno dug up appear to support his position. Ironically, it was neither Horwitz nor White who supplied these quotes, but Nicolas Cachanosky in the comments at Coordination Problem. So I am now prepared to say that Mises was definitely ambiguous on the subject, at least in that he recognized there were costs and benefits of banks issuing fiduciary media.
In closing on this exhausting subject, let me just say this: My own position is that fractional reserve banking is like shoplifting: the “optimal” amount is zero in one sense, but actually the economically optimal amount is actually positive when you take into account the institutional constraints. For sure, it would be absurd to empower the government to tax people in order to pay a monopoly police force to crack down on shoplifters; this would cause more theft (if you count taxes) per year than the alternative. In particular, if you just let the market deal with it, store owners would install security cameras etc. and minimize theft. They wouldn’t literally drive it down to zero theft per year, but we could say, “The problem of theft from stores in this society has been solved by the free market.” It would be wrong to read such a statement as saying, “Aha! So we see it’s not really theft per se that is a problem, but excessive theft fueled by government intervention!”
Post-Game Show From Iowa
I’m back at my office after the Campaign for Liberty shindig in Des Moines. (Remember, I am the hardest working man in Austro-libertarianism: This weekend I’m in Manhattan for a Mises Circle.)
This was my first C4L event and these people were impressive. One young guy had his Bohm-Bawerk shirt on (not something you often see on the street), and they were also a clever bunch, bordering on cheeky. Tom Woods was the MC for the Saturday panels, and of course his sarcastic putdowns of the New York Times had quickly won over the hearts and minds of the assembled masses.
So when Tom first introduced me, I decided to shamelessly repeat my favorite Tom Woods story, in which an attractive young woman at a Mises U event was gushing over how awesome my books were. She then went to get one for me to autograph, and came back and said, “I’m so sorry, I thought you were Tom Woods.” Absolutely killed the crowd. I could have said, “Let’s hear it for open borders!” and gotten a standing ovation at that point.
So anyway, after our panel Tom and I are signing books at the same table. One girl comes up to me and says, “Is this the line for Tom Woods?” Zing! (She had my Capitalism book for me to sign.)
Then another guy later on was so deadpan I wasn’t even sure he was kidding. We were both in line for the cash bar, and he says, “Oh, I’m glad I caught you! Would you mind signing my Politically Incorrect Guide?” I said sure, and he pulls out this book. Wiseass.
Beyond the prospects for reclaiming liberty, this conference was also significant because we discovered that you can simulate a karaoke bar from the comfort of your own hotel. They had reserved one of the conference rooms to host the cash bar reception on the final night, and my reputation had preceded me. So they hooked up a laptop and a microphone to the room’s PA system, and we were good to go. Obviously it wasn’t as good as an official karaoke setup (with monitors so you can get feedback on your sound), but it worked.
Unfortunately, as always people decide to record me on my first song when I’m warming up, and cut it off before I hit the good part at the end of the song. Ah well.
UPDATE: Just to clarify, there are plenty of karaoke arrangements at YouTube. They didn’t have a few “obvious” songs like a standard karaoke bar would, but they had enough for a good time. In fact things got so crazy I went there. You’ll have to ask Tom if I pulled it off.
Analysis of the Lord’s Prayer
I know Catholics refer to it as “the Our Father,” because e.g. in confession you can be assigned, “Say two Hail Marys and three Our Fathers,” but I think the more general term is to refer to it as “the Lord’s prayer,” because after warning how not to pray, Jesus then gives us a model to follow.
In the next few weeks I’ll go over the lines very slowly. When I say this prayer, I really try to not rush through it as a memorized string of syllables, but to reflect on the meaning of each phrase. After all, if this is the model of how the Lord Himself told us we should pray, then it shows what the most important things are when you approach God.
So here’s the opening line (NIV translation):
“Our Father in heaven,
hallowed be Your name.”
I would be curious to see what others think of that very first description. Is Jesus saying “in heaven” simply to distinguish the heavenly Father from earthly fathers? Or is it deeper, meaning that God the Father’s home base or kingdom is in heaven (more on this a bit later in the prayer), and in a sense He is more “in heaven” than He is “on earth”? On the surface this seems wrong, since God is omnipresent, but I can’t help but think there is something really deep about Jesus right off the bat locating God in heaven.
The next line is also interesting. Had Jesus not said it, it would never have occurred to me to pause and point out that the name of the Lord is itself something to be hallowed. This aspect of Christianity (as well as some other religions) was not something I even was aware of until fairly late in life.
In fact, I regret to say that when I was younger, I thought the worst swear word was the f-word, whereas to take the Lord’s name in vain wasn’t as big a deal. My college roommate asked me if I could stop playing the Beatles song “The Ballad of John and Yoko” for this reason (when he was around), and I couldn’t believe how uptight he was over a “minor” swear word.
But anyway, for those who don’t know, there is a tradition in which God’s name itself has power. For example, people will cast out demons “in the name of Jesus Christ.” I realize this sounds all completely arbitrary and somewhat Dungeons & Dragons-esque to agnostics, but if you are going to go down the route of believing there is an omnipotent being who created the universe, then it makes sense that His magnificence is such that His very name is hallowed.
The Neo-Cons Are Consistent!
While listening to Ron Paul’s talk to the Campaign for Liberty crowd tonight, he said that not only would a scale back of the U.S. empire save a lot of money, but it would also make us safer. (Wait for applause.) Then he said it was absurd to claim that “we were attacked because they hate our freedom and wealth.”
But then it occurred to me! All along I’ve assumed that the neocon strategists were lying, and had some hidden agenda. But what if they actually believe what they’re saying?
In that case, their recommended policies make perfect sense; they are eliminating the root causes of terrorism! Brilliant.
Paul on the Brain
I am getting ready to turn in, here at the Campaign for Liberty event in Iowa. Ron Paul’s plane was delayed, and Tom Woods had to give an impromptu speech in front of several hundred people to fill the void. What was really tricky was that Tom didn’t even know how long he had to go; he was just supposed to keep the natives happy until Dr. Paul was in the building. That’s qualitatively harder to do. It’s one thing to say, “Hey Tom, in five minutes we’re going to need you to get up on stage and talk about nullification for 8 minutes.” It’s another to say, “Yeah, his plane is on the ground but we don’t know exactly when he’ll get here. Tom get up there and say something about liberty. When we signal you, wrap it up.”
Anyway Tom did well. It was a friendly crowd but it was a good showing. I actually got to talk to him for about five minutes in the reception room before he was mobbed. I remember the Beatles during an interview one time said, “Everyone wants to be rich and famous. Trust us, you just want to be rich.”
Speaking of Pauls, Bob Roddis sends this tribute from David Frum. What’s awesome is that every single comment on the first page was pro-Paul. It is hilarious to see these “experts” like from actually come out and say, “C’mon Republicans, let’s be adults and accept that the bailout was a good idea. You know you love fiat currencies, admit it. Let’s stop all this ‘we need to balance the budget’ nonsense.”
What is Frum going to do if Rand Paul ends up getting elected? That has been the single biggest point from Frum, that Republicans needed to stop being such purists because it was bad politics. So how does he explain the people getting gonged because they voted for the bailout?
(BTW I’m not predicting anything about the Kentucky election or even in general. If I can’t predict bond traders’ behavior, I certainly don’t want to say anything about American voters. I’m just saying it is going to be hilarious to read Frum’s sermons if there are a bunch of Tea Party types who get elected.)
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