The Science Is Settled on the Threat of Man-Made Price Change
In a recent post I reproduced this funny excerpt from Cliff Asness’ thoughts on his 2010 open letter to Ben Bernanke warning of (price) inflation:
At the risk of enraging a whole different group (I promise I’m not denying anything I’m just making an analogy, and one I know is very far from dead on) I’m amazed that a Paul Krugman can look at 15+ years of the earth not warming and feel his beliefs need no modification or explanation, but 4 years of the CPI not inflating is reason not simply to declare victory, but to decry those who disagree with him as “Knaves and Fools.” In fact, rather than also anger Mr. Gore and Steyer, I hope they find this paragraph supportive as I’m saying these debates are rarely settled in either direction in short time frames. Now, if I were cheekier (cheek is not denial!) I’d ask if perhaps our letter was right and the inflation we predicted is in fact occurring in the depths of the ocean? Or, maybe we should ex post relabel our letter a warning of the risk of “extreme price action” including of course the extreme stability we have experienced in CPI these last few years.
As I was hoping would occur, a critic tried to respond to me that yes the climate models have too been right, since the warmest x years on record have occurred in the last 10 years. (The profanity-containing comment didn’t actually make it onto my post, incidentally.)
Indeed this is a standard move by the people defending the popular computer models predicting large increases in temperature if emissions do not slow significantly. OK great, then by the same token let’s look at the CPI:
Wow look at that! Yes, there was a one-off interruption in the constant evidence of man-made price change–which the inflation deniers called a “pause,” those dirty rotten anti-scientists–but the last three years have had the highest consumer prices on record. QED.
OK, ha ha, I’ve made my point. I’m not here arguing, “The climate models are all utterly insane and are funded solely by George Soros.” No, I’m just pointing out that if you’re the type of person who thinks the “warmest years on record” argument cinches it for the global warming warnings–even though the models predicted much warmer temperatures by now, given how much emissions have been–then you really can’t in good conscience love Paul Krugman for mocking the “derp” of analysts who still think we are in store for large-scale price inflation. Just be consistent, is all I’m asking.
macroeconomics : liquidity trap models :: climate science : ocean heat sink
What’s frustrating about Asness is that unlike the ocean heat sink explanation the liquidity trap explanation was already on the table before the odd behavior really began, and he didn’t seem aware of it and he still doesn’t seem aware of it.
I think it’s generally acknowledged that the pause needs to be explained. People are understandably loathe to toss the model in both economics and climate science until we know that there aren’t specific mechanisms like liquidity traps or heat sinks that make more sense to explain it. When the anomalies pile up we might change the whole model of course.
“The model” here is general quantity theory expectations btw. Few are proposing we toss that just like few are proposing we toss mainstream climate science. And that’s good in both cases.
1. Challenge to Keynesians: Prove Rising Prices Provide an Overall Economic Benefit:
Sure, those with first access to money benefit (the banks, the already wealthy, and government bodies via taxation). But that is at the expense of everyone else.
The absurd underlying notion behind the battle cry for inflation is that if prices fall people will stop buying things and the economy will collapse.
http://globaleconomicanalysis.blogspot.com/2014/10/challenge-to-keynesians-prove-rising.html
2. It’s now been several years since I asked Mr. Kuehn to prove that “market failure” caused the 1920 depression in light of his paper showing that it was caused by cutbacks in government war spending.
Let me guess how this will proceed;
1. Some quote clearly misunderstood or taken out of context.
2. An absurd definitional argument that has nothing to do with your point.
3. The issue improperly re-framed to draw you into a tangent of whats his names choosing.
4. A crude and derogatory remark regarding your intelligence.
5. A comment chain 50 posts long that winds up addressing nothing that you have said.
6. My finger growing ever so tired from scrolling through all of that to see what anyone else wrote.
I’m glad you get something out of this Roddis, I’m just not sure how you manage to put up with it.
In their essence “The Great Deformation” by David Stockman and „Economic Calculation in the Socialist Commonwealth” by Ludwig von Mises are treatises on the same subject, or, better, on the same issue. While Mises argued the impossibility of rational economic calculation within the economic system lacking private property of the means of production, Stockman’s treatise could well bear the subtitle “Economic Calculation in the Fiat Paper Money System”, as its key argument states the impossibility of rational economic allocation within the framework of fiat paper money deprived of any anchor in gold, where the interest rate is discretionally determined by the Central Bank via open market operations characteristic of the „war economy” – with all its consequences.
“From Adam Smith to David Stockman” By Jerzy Strzelecki
http://davidstockmanscontracorner.com/on-the-impossibility-of-rational-calculation-under-a-keynesianfriedmanite-central-banking-regime/
You could sum up all of Hayekian, and much of Misesian economics in one sentence:
A free price system is a necessary but not sufficient condition for the rational allocation of resources.
btw, I don’t know how Krugman responded to the heat sink research that provides a possible explanation for the pause without denying mainstream climate science, but DeLong (who I think Asness would count as a “collectivist” and a Krugman “back-up dancer”) did not denounce and deny it. It seems like he thinks it’s a reasonable explanation of some (previously [and perhaps still]) puzzling data:
http://delong.typepad.com/sdj/2014/06/evening-must-read-robert-kopp-et-al-american-climate-prospectus-economic-risks-in-the-united-states.html
It would have been nice if Asness knew the liquidity trap argument before writing the letter. But at the very least after the fact he could have followed DeLong’s lead and linked to the Krugman and Eggertsson QJE paper and called it a “must read”.
Daniel, you are missing the forest for the trees. That paper is confirming what DeLong’s pre-existing views were. It would be like Asness linking to Peter Schiff as a “must read” for saying, “Thousands of years of data confirm that monetary inflation leads to rising prices, with a coefficient of XYZ. In recent years interest on reserves has caused a lag, slowing the effect on CPI. Continued monetary inflation will fuel ever dangerous rises in CPI.”
IOR as a reserve hoarding argument would be lovely. Obviously I think liquidity trap would be lovelier.
I don’t see what’s relevant about whether it confirms pre-existing views or not. Is there some inherent value in changing prior views?
Explaining *just* with IOR would be a tough case, obviously – but at least it’s sniffing in the right direction.
He’s still wrong of course to say that nobody thought this would happen. There were excellent predictions about how this would happen and very well laid out reasons for expecting it were provided.
Krugman has accepted that monetary inflation leads to rising prices, just not immediately, and not by much in the current climate.
Krugman regularly encourages the Fed to do more to produce inflation, so he must believe it is possible.
I don’t remember Krugman explaining what the “exit strategy” was going to look like, once those lurking excess reserves float up out of the deep ocean, but he can always change his mind about that later.
An unexpectedly large and continued decrease in V (unexpectedly large demand to hold money) and an unexpected large absorption of heat by the ocean are not analogous, and in any case have very different implications for the future paths of P and Temperature.
In the first place, the unexpectedly large decrease in V is observed fact. Unexpectedly large absorption of heat by the ocean is a mere conjecture. In the second place, money stuffed under a mattress today is not incapable of bidding up prices tomorrow. But heat sunk into the ocean permanently raises the temperature of the deep ocean (by a negligible amount) and is never available to raise air temperatures again. While the trajectory of P is not necessarily permanently lowered, the trajectory of air temperatures permanently is.
I thought they measured the heat sink but I could be wrong. The V drop is fact, but it’s a bit of a tautology. The interesting thing is not saying ex post that V dropped, it’s saying ex ante that there’s a good reason to think V will drop.
re: “money stuffed under a mattress today is not incapable of bidding up prices tomorrow.”
I’m confused – does anyone think it’s incapable? Has anyone said it’s incapable? What is the relevance of this comment.
The point of mentioning the heat sink is that in all sciences – economics and climate science included – surprises in the data need to be addressed. Either they need to be predicted before hand if we have the wherewithal too, or they need to be addressed afterwards by adjusting our understanding of the mechanisms at work.
Mainstream climate scientists do this. Asness doesn’t.
Of course liquidity traps aren’t the EXACT analog to heat sinks, but why in the world would they have to be?
With regard to whether the heat sink is measured: Yes and no. There is very extensive measurement of the upper ocean. The problem comes when we talk about deeper levels, which are much more sparsely measured, if at all. And it is precisely those levels, deep in the ocean, where the much of the heat is thought to have gone.
With regard to predicting surprises before hand, it’s an oxymoron: if you predict them, they aren’t surprises.
Mainstream Climate Science (TM) has not really addressed their over forecasting of Temperatures adequately IMAO. It’s not enough to find excuses, you need to work those excuses into their implications for your forecasts. This has not been done, because if it was done, it would force an admission that It’s Not As Bad As We Thought.
“I’m confused – does anyone think it’s incapable? Has anyone said it’s incapable? What is the relevance of this comment.”
The relevance is that it makes a direct parallel, and shows that it breaks down. Try this phrase:
“Heat stuff deep in the ocean today is not incapable of warming the atmosphere tomorrow.”
That statement, while it looks like the statement about money and mattresses, has a key difference: The statement about money was true. The statement about heat is false.
NASA recently published an article saying that to the limit of current measurement there has been no deep ocean warming, and the “heat hiding under the ocean” idea should be abandoned.
I can’t resist quoting Delingpole:
Hey, prices are only up around 40% since January 2000. If things didn’t cost 40% more than they did when I was a kid, we’d all starve somehow. I know, because Keynes said so, and he couldn’t have been wrong. Except for that bit about refuting Say’s Law, but needing it for an aggregate demand explanation to make any sense. (No seriously, the fact that people demand less when they lose their jobs is quintissential Say’s Law – you can only demand by producing.)
I think we may have definitely stumbled across a contradiction here, not just a Kontradiction.
If only there was some way humans could adapt to the environment instead of the environment needing to adapt to us. What if it was feasible to live in deserts. We could live in homes with some kind of atmospheric modification device, perhaps such a device could be attached to a window opening or somehow installed in a central location. Maybe fresh water could be transported from areas more hospitable to human life via some type of hollow cylinder running for many hundreds of miles. If there was a big enough extension cord we could get electricity from perfectly habitable places to our desert metropolis. It seems people could do almost anything, except move to a more genial region of the globe.
Without any real expertise on the inflation issue it seems to me that a number of factors are delaying or even mitigating the effects. US dollars in existence vs. actual physical currency in circulation. The money supply roughly doubling every ten years vs. population growth and the 2/3rds of US dollars being held over seas. These are some of my guesses as to why the dreaded price inflation hasn’t reached the cantankerous heights that one would expect. Of course the near exponential gains in productivity must account in some amount for balancing this out. I am a bit surprised that some intrepid Austrian economist hasn’t published a treatise on why the hampered market produces this or that effect based on this or that policy. My guess is that it is to difficult to effectively account for the convoluted machinations of the state and its malefic banking apparatus.
While your point seems fair enough is it really right to ask a Krugman for consistency? You are talking about stripping a man from all he has ever known, all he will ever be. Standing safely behind his shield of hypocrisy the Krugman is free to lunge forward and impale his foes with his lance of hedged stupidity. You are asking him to leave himself utterly defenseless.
The reason certain time horizons are chosen cannot be established scientifically. Nothing in nature tells us “Only use 10 year moving averages.”
Subjective factors determine it.
Major, it is of little shock to me how the incentive of helping oneself to an ever growing pile of government swag has resulted in scientists doing remarkably little science.
It seems all the funny money encourages needless carbon output. Just look at all the cement in China. All those buildings are sitting empty now, yet the carbon is out there for ever.
I think it is normal to feel that there is too many emissions considering all of the fiat and redistribution going around. True capitalism would be much more efficient believe it or not.
It is also a normal human response to want to steward the earth. The Bible does demand we take care of this planet but not the worldly systems put in place by the Devil.
In conclusion, I think many *Christians* and * free marketeers* are on the wrong side of this battle. Excessive consumption and carbon release. on is just plain silly. When people value what they have earned, the use it incredibly wisely, unlike what we have today.
I do side with so called libs, greeneies and eviro whakos on this battle, however their solution of more collectivism and redistribution will only add to their concerns.
End the Fed. Sound money will solve nearly every problem we face. Why do think satan has implemented global digital fiat. Think about it.
I’d have to say this is a perfect analogy (for Bob’s relevant purpose). Of course, nobody (possibly, not even Sumner) thinks the absolute price level matters one whit. Mexico has a price level hundreds of times higher than that in the 1970s, yet, it’s not Zimbabwe (just Portugal). But there is no question that absolute temperature levels do matter.
Your comparing apples to oranges. Austrians have been making short-run theoretical predictions on inflation due to specific Fed policy over the past 5 years. Climate scientists have been making empirical observations of climate change dating back decades. To put it another way, its religion vs. science.
Advancing the debate – internetz style. So am I in this post, by the way.
SOME ( a few??) Austrians have been making short-run theoretical predictions on inflation due to specific Fed policy over the past 5 years. Others, like me, have not predicted much CPI inflation.
I’m amazed that a Paul Krugman can look at 15+ years of the earth not warming and feel his beliefs need no modification or explanation
So I went and looked, and according to NOAA, the surface temperature anomaly from 15 years ago (September 1999) was 0.4C. The most recent anomaly (September 2014) was 0.72C, an increase of 0.32C.
No warming?
Here Josiah you can explain to NOAA that they themselves don’t know how to read their own charts.
(I understand you are asking a simple question Josiah but this isn’t something Asness is inventing. Off the top of my head I think what it happening is that the really big spike in temp happened in 1998 so you are measuring a “last 15 years” against a trough that happened a year later.)
Bob,
The folks at NOAA know how to read their own charts. But they also know that a decade is not 15+ years.
BTW, skylien, it’s amusing to be accused of cherry picking when the only way the “no warming for 15+ years” thing works is if you are very selective in how you measure it (surface temps only, annual temps not monthly, make sure your start point is 1998, etc.)
If you knew a bit about the discussion, then you would know that it was warmists claiming that only a time frame of at least 15 years was meaningful.
That means it was warmist picking that cherry.
“Two years before Mr. Whitehouse’s article, climate scientists were already admitting in emails among themselves that there had been no warming since the late 1990s. “The scientific community would come down on me in no uncertain terms if I said the world had cooled from 1998,” wrote Phil Jones of the University of East Anglia in Britain in 2005. He went on: “Okay it has but it is only seven years of data and it isn’t statistically significant.”
If the pause lasted 15 years, they conceded, then it would be so significant that it would invalidate the climate-change models upon which policy was being built. A report from the National Oceanic and Atmospheric Administration (NOAA) written in 2008 made this clear: “The simulations rule out (at the 95% level) zero trends for intervals of 15 yr or more.””
http://online.wsj.com/articles/matt-ridley-whatever-happened-to-global-warming-1409872855
skylien,
There hasn’t been a zero trend for 15 years or more. Maybe it’ll happen in the future, but it hasn’t happened yet.
Someone doesn’t know how to do statistics.
(Hint, the person who that is, is you)
You don’t find a trend over a period by comparing the endpoints. You find it by computing a best fit linear trend, and then testing if the slope is significantly different from zero.
Come back when you know how to do that, and then show us your work.
The trend for the last 15 years is 0.06C/Decade.
Now compute test statistics. .06 degrees per decade is almost certainly not significantly different from zero.
Andrew,
As it happens, 0.06C/Decade is also the trend for 1880-2012. Is it your position that the warming trend over that period hasn’t been significantly different than zero?
Thank you for confirming you don’t know how to calculate statistical significance.
So now you switch the debate instead of admitting that you were wrong with attributing cherry-picking to sceptics, you now claim that sceptics are just wrong with the zero trend…
Whatever, so you say this chart is a lie?
http://www.climatedepot.com/wp-content/uploads/2014/09/1711years.png
I am not saying that sceptics never do cherry-picking. I only refer to the possibility of having a zero trend for at least 15 years.
It says the temperature change is “mean.” I don’t like things that are mean.
Bob,
I see what you ‘mean’, given Josiah‘s allegations:
“BTW, skylien, it’s amusing to be accused of cherry picking when the only way the “no warming for 15+ years” thing works is if you are very selective in how you measure it (surface temps only, annual temps not monthly, make sure your start point is 1998, etc.)”
Not only did warmists find that cherry of the no warming trend themselves (Phil Jones), additionally this chart doesn’t start in 1998 but 96, it is land and ocean temperatures and even monthly.
This indeed seems to be very mean.
Bob,
I see what you ‘mean’, given Josiah‘s allegations:
“BTW, skylien, it’s amusing to be accused of cherry picking when the only way the “no warming for 15+ years” thing works is if you are very selective in how you measure it (surface temps only, annual temps not monthly, make sure your start point is 1998, etc.)”
Not only did warmists find that cherry of the no warming trend themselves (Phil Jones), additionally this chart doesn’t start in 1998 but 96, it is land and ocean temperatures and even monthly.
This indeed seems to be very mean.
Josiah, the title of their post said “decade” but the first line said “decade or so.” Later it was more specific by saying:
“The “pause” in global warming observed since 2000…”
So NOAA itself agrees there has been a pause for (now) 14 years (assuming 2014 didn’t have a big jump over 2013), and presumably they weren’t cherry picking to hurt themselves.
So you should agree if Asness had said “14 years” he would be fine.
To get 16 years you go back to 1998, which is a true statement.
For a throw-away line that was mostly in jest, which would be airtight for 14 years, and which is true as he wrote it, I am going to say Asness is fine on this one.
Bob,
2000 was actually a colder year than 1999. Given that, I’d say the best read of the sentence you cite is that “since 2000” means “starting after 2000” rather than “starting in 2000.”
Is this the biggest deal in the world? Not really. But I do think that when the average person hears that there’s been no warming for 15+ years, they think that implies there’s been no warming for the past 14 years, etc.
“when the average person hears that there’s been no warming for 15+ years, they think that implies there’s been no warming for the past 14 years, etc.”
What is this to prove? You can turn that around as well. If the average person hears there was warming in the last 20 years, they might think this to be true for any shorter period as well.
If they think that, then they are just wrong, in both cases. And it means they don’t understand very basic statistics.
The point of this is that warmists claimed that their models basically ruled out the possibility of ANY 15+ years period with a zero trend.
“A report from the National Oceanic and Atmospheric Administration (NOAA) written in 2008 made this clear: “The simulations rule out (at the 95% level) zero trends for intervals of 15 yr or more.””
Josiah,
You are my cherry picker of the week.