How Are Sujatha Reddy and Scott Sumner Alike?
Well, neither has been in my living room. But beyond that, they both have far more expertise in their respective fields than I do, and yet I confidently claim that they are being very misleading when they “debunk” conventional wisdom.
I’ve already complained about how Scott says that inflation poses no problem at all (or words to that effect). In a recent post he gave a hint as to what he could possibly mean:
Supply shocks aren’t bad because they cause “inflation,” they are bad because they reduce resources available to our society (often oil and food) and hence reduce real GDP, real living standards. Let’s start with a perfectly flexible wage price model, then add sticky prices. With complete flexibility, a supply shock that reduces real output by 3% might lead to 5% inflation and 0% RGDP growth (assuming a 5% NGDP target.) That’s unpleasant. But exactly the same reduction in real output and living standards would occur with any inflation rate, including the normal 2%, or even 0%. With perfect wage and price flexibility, the supply shock will immediately reduce real wages, so whatever the inflation rate is, wage growth will be even lower (relative to trend.) It makes no sense (in that case) to talk about supply shocks being bad because the cause “inflation;” they are bad because the are real shocks, they reduce real output.
I said in the comments:
OK Scott if you have time try this one: Let’s say we get a new Fed policy function. Every January 2, a computer randomly picks a number x, between 1 and 5. Then, the Fed raises NGDP that year by a factor of 2^x. (So some years NGDP doubles, some years it quadruples, etc.)
I claim that real GDP growth over a 25-year period will be lower for that economy, than under (say) a Taylor Rule. Now my questions:
(1) Do you agree?
(2) Would you say that technically, even here the problem wouldn’t be due to inflation or monetary shocks, but (by definition) the problem would be the lower standard of living implied by stagnant RGDP growth, which in turn was caused by shorter-term business planning etc.?
(3) If you answered “yes” to the above two questions, can you understand why I now want to take a hostage?
Now on to Sujatha Reddy, who says it’s a myth that cold weather causes you to catch a cold:
Well no kidding, I didn’t think that slower random molecular movement per se made your nose start running. What is at issue here is the policy rule–implemented by the chairwoman of the household, Mom–that says, “Don’t go outside without your hat and gloves, or you’ll get sick.” Is Reddy challenging that? If she has kids, does she say to them, “Don’t go outside without your hat and gloves, or else your skin will sting?”
There have been several times in my life when I was quite sure I got sick because I had foolishly been outside for an extended period without being properly dressed. I suppose that could be a string of coincidences, and that I’m not remembering all the times when I should have had a hat and didn’t get sick, but I don’t think so. I think there are various reasons that your body is more susceptible to being infected with a virus when it’s cold outside, and that you can help protect yourself by dressing appropriately.
I tried finding something definitive on this, and apparently
Douglas, R.G.J., K.M. Lindgren, and R.B. Couch. 1968. Exposure to cold environment and rhinovirus common cold. Failure to demonstrate effect. New Engl. J. Med. 279:743.
is a seminal paper in this area. But if I can’t get the paper on Google, it doesn’t exist.
Throughout the clinical literature of the last three hundred years there have been many reports that acute cooling of the body surface causes the onset of symptoms of common cold, and historically it has been generally accepted that acute exposure to cold is a direct cause of these symptoms.4,5
However, studies involving inoculation of cold viruses into the nose and periods of cold exposure have failed to demonstrate any effect of cold exposure on susceptibility to infection with common cold viruses.6–8 Although modern textbooks of virology dismiss any cause-and-effect relationship between cold exposure and common cold as erroneous folklore,9 the belief is so widespread and longstanding it is difficult to completely dismiss this idea as having no validity.
http://fampra.oxfordjournals.org/content/22/6/608.full
Okay, I’ll actually give you credit. Sumner is a vastly superior economist, so at least you realize and admit that.
Congratulations on responding to the man and not his ideas. Does it give you the warm fuzzies?
Actually, that’s all he can do because he has no intellect of which to speak.
I know this doesn’t quite stick to the subject, but since you’re already talking about inflation I just figured i’d pass it on. Take a look at this.
http://www.youtube.com/watch?v=GDHTvtkFZug
It almost makes me think that the true purpose of this was to entice spending and secondarily to teach them that inflation is good.
Agree with your annoyance, Bob. I’ve never been a big fan of those who say, “no, you’re completely wrong, it’s just that the data happen to be observationally equivalent to what you’re claiming for all matters of decision making”.
You see the same thing about the shaving/thick hair issue. They say it’s a myth that shaving body hair will make it grow back thicker than it was before, but admit that it looks exactly as if this were true! So, if you want to shave some body hair, but don’t want to have to keep shaving it, you are better off acting as if this “myth” were true!
To respond to your smaller, less consequential point, I recently had a conversation with a doctor friend who deals in more aesthetically targeted procedures. He said that hair does grow back thicker, because hair narrows as it goes from root to tip — therefore, when shaven, the root end becomes the new tip.
Oh, and to do my usual nitpicking:
Dagnabbit, Bob, how many times do I have to tell you? Temperature is a measure of molecular movement per effective degree of freedom!! 😉
Emerging economies are growing in real terms despite inflation being much higher than in the stagnant developed world, so in that sense inflation per se is highly irrelevant.
However I think what is important is how close actual inflation turns out to be compared to what the expected inflation was. Now if the expected inflation was 5% it doesn’t matter much if it turns out to be 4% or 6%. However, if expected inflation was 50% then it does matter if actual inflation is 40% or 60%.
“Inflation”, of course, will “stimulate” economic activity in the short run. Because it distorts economic calculation, that activity will be unsustainable.
It always matters that there is money dilution, which, most of the time, but not always, results in general price inflation in the long run.
I learned that in 1973 and some mysterious guy just wrote about it again this week.
http://mises.org/daily/5777/Fed-Policy-and-Asset-Prices
Because it distorts economic calculation, that activity will be unsustainable.
Predictable inflation doesn’t distort anything by definition. A concept that still escapes your understanding.
I think if the inflation is “even” and predicted by every actor (Angel Gabriel), then it probably won’t affect any real parts of the economy. [You’d need to tweak your debt to also be indexed, but their’s no reason you _wouldn’t_ do that if you can predict].
I’m fairly certain that uneven inflation, even if it’s expected, will redistribute wealth. The new money recipients will be able to bid away more goods and services than otherwise. They win. The marginal buyers priced out of markets due to the higher prices lose.
Also, NGDP targeting is only as predictable as the implementation. If it’s in the form of Brad DeLong’s “well, would buy ….”, then it seems that the money droppers could have lots of discretion in terms of what market to enter.
Inflation is never “even”. The intitial purchase with the funny money must be higher than it would have been without the funny money or else what was the purpose of the funny money in the first place? Since Mammouth can’t comprehend Cantillon Effects, let’s call them “injection effects”. I think I heard Boetke use that phrase on a podcast last week. It’s a better term because it’s descriptive.
There is no such thing as an initial purchase and Cantillon effects, which I understand better than you do, result from any kind of spending.
I still think that all us good guys have to do is to get average people to understand that inflation is purposeful government policy and not a mysterious force of nature. Once they understand that, they will easily understand the theft of their purchasing power that must always accompany creation of funny money. Understanding the distortions of economic calculation and malinvestments should then be easy to understand, but they are probably incomprehensible without understanding that inflation is purposeful government policy.
Just let the statists keep blabbing.
So, where’s the graph?
What do you mean? How can X be bought on the market unless X is bid away with a higher price?
Every time you buy a potato you have to pay a higher price than the rest of us?
Oh, I see your confusion.
The supermarket tries to price its potatoes so it can sell it’s stock by the end of the week. They don’t want surplus stock. They don’t want a shortage.
If a community increases its potato consumption, it can probably do so for a while (a few weeks) without any effect on price. However, the supermarket will eventually see the uptick in demand and raise their prices to reduce shortages.
Of course, if there is idle potato inventory further up the supply chain, they can just buy more potatoes from their supplier at the same price. But there is usually an active bidding market as soon as you move above the supermarket stage of production.
The effects are more pronounced in factor markets, where active bidding occurs. Have you every seen bid/ask pairing in a commodity exchange?
Good thing you realize it is all about aggregate demand.
It’s certainly “about demand.” In this case, the supermarket owner tries to adjust his price to the total demand for his stock. If he owned two stores and wanted to charge the same price at each, he would look at the “aggregate demand” for both stores and distribute his stock quantity, rather than set both price and per-store stock. Is this what you mean?
And demand increases are not some psychological “gosh, I really want more potatoes” thing. They’re “I’d be willing to trade more _money_ for more potatoes, or even be willing to buy the same number at a higher price.” Money injections will affect demand as long as potatoes units are marginally more valued than the new money units.
The “what do you mean?” is directed at MamMoTh. How could there not be Cantillon effects from purchase-based money injection? Exactly what “understanding” does one need to pretend they don’t exist?
“which I understand better than you do”
Talk of the arrogance of the completely ignorant!! This is a prime example.
” result from any kind of spending.”
Even if true, this does not negate the issue of Cantillon effects due to the injection of money into the system of production throughb credit expansion.
It is absolutely true. You can discuss it with your fellow ignoramus Roddis.
It’s possible that if you only analyzed things in functional terms, rather than marginal value terms that you would not see Cantillon effects. You would need to relate graphs about one store with graphs about another store and interpret how the graph changes as new money enters.
Is this “no Cantillon effects” a part of MMT? Maybe we’ve found another MMT confusion?
No, I mean the government literally saying “everyone who has $1 now has $2” … we interpret the $1 bills as $2 and double everyone’s cash balance. This is basically an accounting trick. It’s not a purchase-based injection of money.
The purchasing power of gold fluctuates in an unpredictable manner just like fiat currencies. Changes in the supply/demand for gold have the ability to distort economic calculation too; although less because you can influence the supply of paper currencies more. In any case, economic calculation isn’t the most important reason for going to gold. The most important reason is protecting the individual citizen from deliberate government policy aimed at secretly confiscating his purchasing power.
I thought I read somewhere that exposure to cold can, if prolonged (e.g., homeless people), depress the immune system.
Also, I wonder if exposure to cold can produce physical responses (e.g., runny nose) that look like a cold even when no cold virus is present.
Sorry for being dense, but I don’t get the reference to “hostage”.
The surest way I have found to catch a cold/flu is to make a habit of not getting any sleep. This I have done on occasion during my life (as a student cramming for exams or writing papers put off to the last moment, or partying out etc.), and at other times beyond my control. I think these kinds of stress are immune suppressors. I don’t think I have ever gotten a cold from being outside in cold weather, but here’s the thing- my ability to tolerate that is limited, and I doubt I have ever done it for more than an hour or two in my entire life, but I have gone weeks with less than 3-4 hours of sleep per night.
At this point, I don’t think there’s much you can do. The inflationists have gone off the deep end.
What can you possibly say to convince Sumner that we should _not_ do X? You need to show that X may have consequences that Sumner finds bad. But he’s happy to sit there, iterate through your “bad effects,” and say “I don’t care about that.”
I think there are a few possibilities:
(1) Either Sumner’s valuation criteria is asymmetric. It really disturbs him when people can’t find jobs. But it does not disturb him as much when people who have jobs can’t afford to buy stuff. Why does he feel this way? I have no idea.
(2) Sumner is so frazzled by the current economic situation that he’s completely discounting that things could get worse as a result of his actions. There are 3 possible outcomes: things get better, things get worse, and things stay the same. And he thinks that the odds in favor of “better” or “same.”
(3) Sumner has spent too much time drinking the Keynesian Kool-Aid and now thinks that aggregate demand is really THE measure of economic health. If you believe that NGDP is what matters, then “targeting NGDP” is just pushing this line of reasoning to it’s logical conclusion.
It’s number 3 for sure. I’ve read and commented on his blog a lot.
1. Has anyone ever noticed that the entire Keynesian program is based upon and calls for a giant injection effect to shift purchasing power to consumers so that they might purchase “wage goods” (or whatever they are trying to “stimulate”) that consumers allegedly lack the money to buy in their present state of impoverishment? How else might the Keynesian program be put into effect if not for specific injection effects? But then the Keynesian will go berserk and deny that there is any such thing as an injection effect.
2. There’s no debating Mammouth or any MMTer. It’s just always fun to watch as they tie themselves up in knots with contradictions, purposeful obliviousness and aversions to various self-evident truths.
Mammouth wants a “chart” to prove the existence of injection effects. What’s the purpose of a “chart” when plain English words will do? But I do have a cartoon that demonstrates the mental state of injection effects deniers:
http://www.flickr.com/photos/bob_roddis/4163003939/in/set-72157623413687847/
Very funny, but where’s the chart Roddis?
You produce a chart showing that when eat an apple, it’s no longer there for you to steal. Then, I’ll just use your preferred format.
Typo: I meant to say:
You produce a chart showing that when I eat an apple, it’s no longer there for you to steal.
I guess that means no chart?
Good like trying to convince average people like you.
I bet you will keep failing.
Yes, you are right. You can’t make the chart.
Ha ha after 40 years you still can’t provide the chart?
There must be a reason. Think about it.
How about the reason that the very attempt to make a chart and treat it as meaningful in an economic sense is utter idiocy? I guess that doesn’t strike the genius in you.
Utter idiocy is asserting something for 40 years and being unable to provide a chart supporting the assertion.
Ha Ha Ha!! Prize idiocy is insisting that the other person is engaging in idiocy by refusing to provide a meaningless chart that only insane people would find meaningful. Or is it insanity itself?
Even more idiotic (or I should say insane) is the notion that a few numbers plotted on a chart can prove or disprove a conclusion drawn through sound deductive reasoning drawn from extremely sound and indisputable premises.
It does take MMTers, whatever-Keynesians and all other sorts of insane people to say things like this and still expect to be taken seriously.
Even more idiotic (or I should say insane) is the notion that a few numbers plotted on a chart can prove or disprove a conclusion drawn through sound deductive reasoning drawn from extremely sound and indisputable premises.
Best introduction to the Austrian Cult I’ve ever read!
Hey genius!! Are you seriously saying that a few numbers can prove a conclusion drawn through sound reasoning from sound and indisputable axioms to be wrong?
This is definitely the best exposition of the insanity that is MMT.
Come on now, genius!!! Let’s see the numbers and the graphs that prove the action axiom to be incorrect.
Come! Bring it on, O wise one!!!
I am not interesting in going after every cult in the world, I am just grateful for your summary of the Austrian Cult.
And so am I for your brilliant exposition of MMT insanity.
When the prosecutor indicts a thief for stealing a diamond, he can get a conviction without a “chart”.
I have no need for nor interest in a “chart”. You apparenlty do have such a need and you suggest that such a chart might be produced to prove or disprove my statements. Produce a “chart” as requested regarding the apple and I will adapt it. If you can’t, just say so.
I have produced a graph showing that when I buy an application for my iPhone it’s still there for anyone to consume it.
Do you want it?
How about showing a graph proving that money you have already spent is still right there, available for you to spend?
Your sound reasoning sucks.
And your insanity scares!!
I have something I would like to add to the subject of catching a cold during cold weather. During the winter season, you get far less direct sunlight, which means that your body produces less vitamin D. Vitamin D has been shown to help your immune system, which will lead to less frequent colds. So if you are not taking a supplement with significant vitamin D, then the winter season will lead to more colds as your body’s immunity is not as strong.