31 May 2013


Daniel Kuehn, David R. Henderson, DeLong, Krugman, Potpourri 16 Comments

==> A cool page on meteorite strikes; just watch it. (HT2 Daniel Kuehn)

==> On the Krugman/Reinhart-Rogoff exchange, unfortunately I suspected that there might be something fishy going on with their shocked, shocked reaction to claims that they didn’t share their data. I’m not completely certain of the true situation, but this Joe Weisenthal gloating seems plausible, based on what I’ve read.

==> But don’t think I’m letting Krugman off the hook. In addition to being uncivil, he’s also totally wrong in how he’s “explaining” foreign countries and “austerity.” Alan Reynolds walks through Ireland and Iceland, where Krugman’s narrative is crazy. (HT2 David R. Henderson)

==> Ah but when Reynolds takes on Brad DeLong, I think Reynolds misfires. Reynolds clearly had been pointing to the apparent oddity (he didn’t use the word “paradox” I don’t think, but the scent of mystery was certainly in the air). Reynolds keeps framing the puzzle as: How can Keynesians think (a) the government issuing more debt in exchange for dollars and (b) the government absorbing more debt in exchange for dollars, are both stimulative, when they seem to be the opposite policies? And yet the Keynesians think that monetary and fiscal action can both stimulate a depressed economy. (These aren’t his exact words, but I think they are accurately capturing the alleged puzzle Reynolds wants to raise.) But the problem is, the Keynesian actually doesn’t claim that issuing more debt per se is stimulative. What is stimulative (according to the Keynesians) is spending more money that is financed by borrowing. If the Treasury merely issued more bonds and then buried the auction proceeds–in the form of actual $100 bills–in the ground, I think DeLong would say that that would be contractionary or at best neutral.

==> This has to be a hoax. Not even economists would be myopic enough to try something like this.

==> Somebody asked me my thoughts of Steve Keen. I dug this up from the period before Yoko broke up Callahan/Murphy.

16 Responses to “Potpourri”

  1. Ken B says:

    Is there an account somewhere, The Tale Of Gene’s Awakening?

  2. Yancey Ward says:

    I dug this up from the period before Yoko broke up Callahan/Murphy.

    Tears of laughter.

  3. Tel says:

    This has to be a hoax. Not even economists would be myopic enough to try something like this.

    Seems reasonable that if you can make a career out of buying and selling journal papers without ever having to write one yourself, then you must know something about economics.

    • Bob Murphy says:

      Yes Tel, I agree that if it worked without a problem for 50 years, then it would work. I’m saying, I don’t think it would work.

      • Ken B says:

        All this raises the question, who wrote Bob’s stuff? I mean, who really wrote his promised reply on OLG? Oh yeah, no-one .

        • Bob Murphy says:

          In the fulness of time Ken. This generation shall by no means pass away before your refutation comes to pass.

      • Tel says:

        Well the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” was started in 1969 and can be pretty accurately summed up as economic “science” demonstrating the use of money for the purpose of buying prestige from the physical sciences and thus obtaining a “Nobel Prize” status symbol to pin onto the chest of various economists.

        It’s been almost 50 years, and I suppose that “worked without a problem” is a bit of a loaded phrase, but hey, people still show it respect.

  4. Tel says:

    I like your critique of Keen by the way.

    You criticize him because he treats labour as a unique resource, but if you think about it there are only three things in economics: labour, money and natural resources. All technology is someone’s labour, in a crystallized form. Some capital wealth (e.g. land, iron ore) is just there by nature, but everything else (e.g. farmed land, forged iron, etc) is labour.

    The true cost to an individual of any activity is how much of that individual’s life is consumed by the activity. Even the hypothetical bond trader must be using some time for her economic activities.

    However the problem comes from the Labour Theory of Value when we attempt to add up all those individual hours of labour into one continuous commodity. I’ll note that even accurate accounting for labour is difficult, if you have a great idea jump into your head while walking to the park, is that only a moment’s work to note it down on the back of a bus ticket in your pocket? Should you count the time spent walking through the park that day? Should you count all the other times you walked through the park and didn’t have a great idea?

    Of course it is worse when adding up the labour of multiple people, with different skills. Karl Marx tried to insist that all people are equal in the value of their labour, Keynes said it is OK for people not to be equal, but we can use fixed ratios appropriate to each skill and thus get “Aggregate Supply” but the Austrians (and also Steve Keen) rightly point out that such aggregates are dodgy. The thing is Steve Keen still ends up with macro-aggregates even after pointing out they are wrong. So do the Austrians for that matter, we discuss GDP and interest rates all the time here.

    This kind of comes back to the “society is more than the linear sum of individual members” which is probably reasonable enough. Let’s go with the basis that society exists as an entity in its own right. OK, I want to decide whether central banking is a good idea, I know, I’ll go ask “society” for an opinion on the matter. Since this entity is big and powerful and clearly exists, I just ask it a question and receive some wisdom. But how? We could have a vote… like the Irish had a vote on the Lisbon Treaty. Then after the Irish voted “No” they had another vote and voted “Yes”. So “society” might give us the answer that central banking is sometimes good and sometimes bad… that’s not terribly useful.

    A vote is also an aggregate of individual preferences, and we don’t know how strongly each individual felt about each preference. Even if each individual was asked to state how strongly they felt, it wouldn’t be meaningful because none can fairly compare personal feelings with the guy next door. But we still vote right? I mean most of us do, because the only other choice is doing nothing and not having a say at all.

    Let me go one step further, money also is an aggregate entity, because the value of money is floating on all the many transactions where money acts as an intermediary. Thus, money collapses the multi-dimensional space of individual preferences into a single linear space of dollar value. But that has to be false, just like LTV and GDP and all the other stuff, right? Money is a convenient entity, but it must be destroying information in the process… indeed the whole idea is to destroy information, because that makes difficult economic calculation problems more tractable.

    That’s the core problem of all economics: aggregates are broken, but we use them anyway. After that it’s just your choice of what sort of broken you want, Marxist broken, Keynesian broken, or “money is the ultimate arbiter” kind of broken. Steve Keen hasn’t escaped this, he just uses it to have a go at other economists.

    • Major_Freedom says:

      “All technology is someone’s labour, in a crystallized form.”


  5. skylien says:

    There is a very interesting recent official FED paper (Fed’s Advisory Panel minutes)?

    Some gems:
    “Uncertainty about fiscal and monetary policy is deterring business investment that would spur growth, and despite policy accommodation, economic growth has remained sluggish and uneven. While some believe monetary policy may not be accommodative enough in light of current government fiscal policy, others believe that constant injections of new reserves have not returned the economy to the vibrant upbeat model it used to be and that current monetary policy is ineffective.”

    “There are potential risks associated with current policy. The Fed’s securities purchases have reduced mortgage yields and, to a lesser extent, Treasury yields. Current low bond yields are disruptive to management of fixed-income portfolios, retirement funds, consumer savings, and retirement planning. They may encourage unsophisticated investors to take on undue risk to achieve better returns.”

    “There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.”

    “Further, current policy has created systemic financial risks and potential structural problems for banks. Net interest margins are very compressed, making favorable earnings trends difficult and encouraging banks to take on more risk. … banks seeking additional yield have had to turn to investment options with longer durations, lower liquidity, and/or higher credit risk.”

    “Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws from the market. It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses. Given the Fed’s balance sheet increase of approximately $2.5 trillion since 2008, the Fed may now be perceived as integral to the housing finance system.”

    Everything from the last two pages. So they admit that the FED at best created an “uneven” recovery, moral hazard and excessive risk taking, systemic risk/structural problems, possible bubbles in equity markets, destroy retirements plans (in other words they create more future old people who will be poorer than they otherwise would be), a painful reevaluation process Uhm another recession???..) when the FED is finally exiting, and last but not least possible risk of inflation…

    Unbelievable the FED confirms my own bias…

    • skylien says:

      Sorry for the wrong question-mark (should be a dot) at the beginning and the missing parenthesis (before “Uhm”) at the end.

  6. Tel says:


    Off topic (unless the topic is “potpourri” or something) but rah rah Austrian School.

  7. Wonks Anonymous says:

    So R&R shared data, which is why people could attempt and fail replication, but didn’t share the code which contained the excel error until recently.

  8. Major_Freedom says:

    “If the governments had never interfered with money and banking, it would be possible to leave every citizen free to issue his own banknotes. I want to give everybody the right to issue his own banknotes. The problem then would be to get other men to accept such private banknotes; maybe nobody will take them. I am not against banknotes as such; I am only against banknotes that are protected by some government privilege. I want the banknotes issued in the past to retain their privilege, but no more legal tender banknotes and no more credit expansion!” – Ludwig von Mises, Marxism Unmasked, 7th Lecture, “Money, Interest and the Business Cycle.”

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