15 Jun 2011

Fighting Fire With Fire

Health Legislation, Krugman, Ron Paul, War on Terror 13 Comments

One of the things that most amused me about the recent MMT flare-up was that to blow me up, they cited the identity of my boss at IER, and then simply quoted from my article.

So, since I’m rushed for time this morning, I’ll do the same with Krugman. Those who share my worldview don’t need me to spell out why the following is rather ironic and humorous:

Rick Perlstein sends me to Sam Husseini asking Paul Ryan why, if he’s so concerned with government spending on health care, he doesn’t support single-payer. Ryan’s response is pure gobbledygook: he never answers the question, cites irrelevant facts (Medicare costs are rising! But what about private insurance, which is rising even faster?), and in general stonewalls and runs out the clock.

This is not a serious person, even if he’s a Serious Person.

Argh I can’t help it, I have to offer some analysis: By the same token, Ron Paul doesn’t explain why, if he’s so concerned with troop levels in Afghanistan, he doesn’t support nuking Kabul. And he calls himself antiwar.

OOPS that first analogy actually made too much sense. Let me try again, to more accurately mirror Krugman’s post:

By the same token, Ron Paul doesn’t explain why, if he’s so concerned with blowback from our aggressive foreign policy, he doesn’t support nuking Kabul. And he calls himself antiwar.

13 Responses to “Fighting Fire With Fire”

  1. AP Lerner says:

    To be fair, I do not understand why anyone would refer to an IER article to critique Mr. Murphy, when all you need to do is link to this article.


    Explain to me again why banks require reserves before lending, when in fact the reserve requirement is always met at some point in the future, and can always be met in the funds market? Explain to me again how banks are constrained by reserves, and not capital? Explain to me again why we should take for granted Austrian economits actually understand the banking system (legitimate question, but meant tongue and cheek…)

    • RS says:

      I am not a fan of reserve requirements and I don’t buy into the idea that FRB creates money out of thin air but I do believe a bank is restrained in its lending decisions by real market forces (assuming they are allowed to function), which apply to a market of funds just as much as they apply to a market of borrowers.

      In other words, no matter how much capital a bank has or the status of its reserves, it cannot lend out more in the long term than it can expect to be able to recover in the short and its creditors (e.g. its depositors and shareholders) are the “market force” that is primarily responsible for making that determination.

    • Beefcake the Mighty says:

      Explain to me why all this (assuming you’re accurate here) is relevant.

      • RS says:

        AP stated stated that a banks reserves “can always” be met in the funds market.

        My response is, no, not always. Only so long as there are people willing to extend funds to an overextended bank.

        • Jon O. says:

          The fed conducting OMOs makes the point moot.

          • RS says:

            Austrian Economics is based on the premise of individual choice so a “banking system” under that context means one that operates without interference from outside parties (i.e. private contract), which precludes both the FED and any RR.

            • Jon O. says:

              I thought we were talking about reality and not the ideal Austrian world?

              • RS says:

                We are talking about reality. Austrian economic theory is about how production and trade are affected by individual choices. Artificially manipulating those choices will have certain logical effects, in reality.

                That’s not an “ideal world” it is a basic theoretical framework that allows one to interpret “real” facts and make logical inferences on their effects.

                Trying to interpret how facts such as the Fed and RR effect production and trade without any such framework is like trying to fly to the moon without understanding anything about physics or astrology.

              • RS says:

                lol. i meant “astronomy”.

    • Jon O. says:

      I thought I’ve read articles/posts by Bob where he makes the point that banks aren’t contrained by reserves.

      The funny thing is that technically banks are, in a way, constrained by reserves, even though credit demand drives oustanding money/credit. If a bank wants to issue more credit it goes to the interbank market exactly because it’s constrained by the RR. In theory if there are no excess reserves in the system and banks bid for funds the eff rises, and the fed brings it in line with the target, increasing reserves in the process.

      Of course none of it really matters anyway as the banks effectively have a 0 RR.

      • RS says:

        The 0 RR is an “additional” constraint, an artifical constraint imposed by law and manipulated by the Fed. Its not a real market constraint but is effectively a price cap that redistributes wealth from taxpayers (or savers) to borrowers.

        • RS says:

          correction, I meant to write “any” RR. A zero RR would NOT be a constraint.

          • Joseph Fetz says:

            Shoot, you’re all thumbs in this debate. Don’t worry, I understand; there are no delete/edit options. I’ve been there.