20
Jul
2013
Potpourri
==> John Nash’s PhD dissertation: 26 pages in the body of the paper, and a mere 2 citations, one of which was his own previous paper. (HT2 MR)
==> If somebody wants to wade through this post-game show of my debate with Warren Mosler, I would appreciate it. This guy Rohan is a careful thinker who means well, but I just don’t have the time to read his whole analysis.
==> Somehow Noah Smith manages to discuss asset price inflation without mentioning the classic Alchian and Klein paper on the topic (even though someone in a previous post had brought this up to Smith).
==> David R. Henderson dreamed a dream when men were kind.
==> Everyone say goodnight to the bad guy.
I’m pissed. I clicked on the link to the paper in your Mises article and their actual paper appeared.
I felt robbed.
From the HuffPo article: “These guys are Life Destroyers, pure and simple and should be banned from all social discourse and be sentenced to pick up plastic bottles from beaches till the end of their days.” (6 Favorites). That’s some pretty nasty rhetoric with at least some popular support.
There is also a comment on the HuffPo article that states
(5 Favorites). I wonder whether this was a deliberate allusion to the “Interview With A Zombie”, or just a coincidence. The most-Favorited pro-Murphy comment there has four Favorites (plus mine).
which would have been used in surnames based on location rather than occupation (in other words, for someone living near or at the smithy).
Rohan Grey goes off the rails on page two.
> Murphy’s non-response to Mosler’s claim that “the natural rate of interest on a floating fiat currency is zero” was, in my opinion, an implicit concession that the conventional Austrian Business Cycle narrative of government interference with otherwise “natural” interest rates is largely inapplicable to the current U.S. monetary system.
> Hence, when Murphy reframed the Austrian critique away from interest-rate distortion and towards a general objection to the government’s currency monopoly, he effectively pivoted the debate away away from monetary policy and the realm of political theory.
It sounds like Mosler, Carney, and Grey are all thinking “everyone knows interest rates are set by the Fed, therefore the distortions described by ABCT do not apply to today’s world.” Grey actually bolded your counter-argument to this line of thinking – prices and incentives still “work” even when people know they are being manipulated – but I don’t think he appreciated it.
“> Murphy’s non-response to Mosler’s claim that “the natural rate of interest on a floating fiat currency is zero” was, in my opinion, an implicit concession that the conventional Austrian Business Cycle narrative of government interference with otherwise “natural” interest rates is largely inapplicable to the current U.S. monetary system.”
Maybe he doesn’t feel that Murphy adequately responded to that position, but it doesn’t mean the position is sound. This position can be debunked by reference to arbitrage, no Austrian analysis required.
If in a system of floating exchange rates a central bank engages in inflationary money printing, there’s two possibilities: the currency can remain in the local economy and devalue it relative to local goods and services (inflation), or it can be exchanged with foreign countries and devalue the currency relative to other currencies (which aligns with Mosler’s claim). But it isn’t an either-or proposition; what happens is a combination of the two, because if it didn’t there’d be arbitrage opportunities. A positive increased local interest rate would necessarily occur even in the absense of all other government interventionism, therefore the Austrian critique is relevant.
And even if you don’t acknowledge that point, you can still perform an Austrian analysis of the situation through reference to some Monetarist theory:
Again, assume that all the newly-created monetary base goes straight out of the country and into the hands of foreign traders out of some kind of magical process, leading to a decrease in the value of the dollar. A decrease in the value of the currency increases supply for exports and decreases supply for imports. Since there is no corresponding change in demand for imports (saving patterns haven’t changed, nor did consumption patterns; remember, as if by magic this currency never touched the American economy), a shortage of local goods develops and prices for goods formerly imported now rise; the demand must be met either locally or with the now pricier foreign goods. In a sufficiently complex market, this ripples through the prices of everything else and a business cycle is created. Viola; a systemic devaluing of the local currency in relation to local goods and services, therefore there is a positive riskless interest rate due to financiers demanding they at least get back what they leant out.
This is exactly what is occuring in the U.S. right now and explains why the interest rate is less than the traditional Austrians expect but their claims of distortions are still relevant. There’s just as much distortion in the economy as in the traditional Austrian critique, just that part of it comes from interest rates and a (much larger, these days) part of it comes from exchange rates.