15 Aug 2015


Potpourri 19 Comments

==> How do you guys feel about this geologist who predicted the EPA spill?

==> Richard Ebeling on John Stuart Mill.

==> I thought I would write on this, but I just don’t have time. For a while, Paul Romer & Friends were criticizing the modern Chicago School for being lawyers rather than scientists when it comes to macro. As Scott Sumner pointed out here, when you read how Romer is describing Lucas’ defenders, it is astonishing. In particular, and I’m going to paraphrase here, there was a guy saying, “Paul, Robert Lucas may have done what you say in that particular paper, but I don’t know that he did it intentionally to mislead anybody, and he’s more open than 99% of the profession.” Romer then summarized this by saying the guy was defending the practice by saying “everybody does it.” No no no that’s totally misleading.

==> Someone on Facebook (I don’t know if he wants me mentioning this) pushed back on my criticism of this Krugman post. Specifically, he said that Krugman singled out Trump’s prediction of 9% unemployment because of ObamaCare, and that was in fact wrong, so who am I to object? Well, if I were advising Trump, I’d tell him to respond to Krugman by pointing out that “some predictions matter more than others,” and that a botched unemployment prediction clearly has no bearing on someone’s economic model.

(I’m just kidding. If Trump actually wanted to respond to Krugman’s post, he would kick Krugman in the crotch and say, “Whoa! Guess you didn’t predict that, did you Mr. Pointy Head?” Way more effective than my gotcha.)

==> John Cochrane has a phenomenal response to Larry Summers’ silly column on minimum wages and other regulations. (HT2 Nick Rowe)

==> Believe it or not, I actually like Scott Sumner’s recent series (1, 2, 3, and 4) using empirical data to discuss the quantity theory of money.

19 Responses to “Potpourri”

  1. E. Harding says:

    Also, another rare occurrence: Sumner’s most recent post (on China) is the second of Sumner’s posts so far which brings Sumner-Harding disagreements to the forefront.

  2. Andrew_FL says:

    Is it bad that I would pay to see Trump do that? Probably bad.

    Anyway I liked Scott’s post series too, even if I did get into some arguments with his commenters. (His commenters are terrible)

    Also it made me think, that commenter on Nick Rowe’s post about the minimum wage argument of Summers’ who suggested, jokingly, a reverse anti-usury law: would that cause a higher inflation rate by increasing the velocity of money? Please discuss.

    • Tel says:

      In the great American tradition, “Guns or knives Butch?”

      Here’s a preview of the upcoming election:


    • Levi Russell says:


      I enjoyed your comments on post #2 (haven’t read 3, 3b, and 4 yet), especially your comments on wage stickiness and the data from measuringworth.com.

      Do you have some other sources to blog posts/articles/journal articles/etc making the case against wage stickiness? I understand the concept well enough and have certainly had the arguments for it beaten into my head during grad school, but I haven’t heard the other side of the argument.

      Thanks in advance for any sources you have.

      • Andrew_FL says:

        Levi-to be clear, I believe that market clearing wages require the same entrepreneurial discovery process as all other prices. They don’t behave like prices would under the direction of a Walrasian auctioneer.

        So I wouldn’t say I’m against “Wage Stickiness” per se, and I regret that I gave that impression. My position consists of two or three points I think are obviously true:

        First, to the extent that wages are sticky in modern economies, in the sense that they don’t fall in nominal terms during a recession, even if that would clear labor markets and prevent unemployment, that partially reflects the fact that people expect the central bank to generate inflation in the future and thus always want their nominal wages to rise, and not fall. If you take a lower wage now, and the central bank inflates later, you got suckered a bit, didn’t you? In contrast I think when the price level was stable in the long run under a gold standard, people would have been more willing to accept the occasional wage cut. That’s just rational behavior.

        Second, there are many policies in place today which encourage people, on the margin, to hold out for a higher wage (unemployment compensation) or which discourage or outright prevent wages from clearing markets-especially the minimum wage, which I sometimes call “the mother of all sticky wages.” This may even be true in more skilled labor markets, to the extent that unions demand their contracts scale their wages relative to the minimum wage.

        From the two above, it seems to me you could conclude, wages were probably more flexible in the past than they have been recently. I think Scott actually agrees with this view: he actually responded to me suggesting this with:

        “Andrew, I’d say they got stickier after the election of 1928.”

        My third point would be this: I believe the concept of wages as “sticky” fundamentally misconceives the way markets are supposed to work if they’re working correctly. People who find themselves unemployable at the wage they currently ask for, in employment they currently deem themselves qualified for and able to do, are not faced with the question “should I cut my wage, or should I stay unemployed because I don’t understand that I’d be better off even with a lower nominal wage rate, than unemployed.” Instead, the worker in question is faced with a much more daunting information problem: he has to figure out the market clearing wage in the labor market he wants to go into, and then he has to weigh the costs and benefits of accepting that wage cut versus remaining unemployed, and he has to be alert to the possibility of better opportunities in different labor markets. This is not as easy as saying “his wage is sticky because he has money illusion” makes it sound! He’s not omniscient, and acquiring the information in question itself has significant costs of various kinds.

        (To make these even more confusing on our poor unemployed worker, market clearing wages in some markets may have risen rather than fallen, especially if we’re talking about an Austrian-style bust. Or at least, risen relative to other prices.)

        With regard to additional data: it’s hard to find good wage data, especially going further back in time. An interesting series I just found is FRED series M0861CUSM336NNBR an index of composite wages. It is perhaps constructive to compare it with FRED series AHETPI Average Hourly Earnings for Production and Non-Supervisory Employess, Total Private: while the two series are not directly comparable they should be at least somewhat similar, I would think. Took percent changes from a year ago and, just to get an idea whether wages were moving with inflation/deflation, I plotted up the changes in the CPI, too. One thing jumped out at me: in the wage index, sharp changes in the rate of inflation over the period 1919-1946 are associated with sharp changes in the growth rate of wages. In the average hourly earnings series, this really isn’t true: temporary changes in the inflation rate don’t see synchronized changes in wage growth, whether up or down. Wages look much more countercyclical, even during the Great Depression, before about 1950 than after.

        Now, maybe the data aren’t directly comparable. But what’s interesting to me about this (I hadn’t looked this up before) is that it seems to support my First argument much more strongly than the second: wages rose and fell, accelerated and decelerated when the Fed was relatively constrained by the gold standard (even if only a gold exchange standard) roughly in sync with changes in the rate of inflation/deflation. With inflation becoming an essentially permanent feature of the economy after we permanently left the gold standard, wages basically track the long term rather than contemporary inflation rate-meaning that if inflation suddenly decelerates, real wages spike upward, and if inflation suddenly accelerates real wages fall downward. Workers are in the position, if they want to avoid unemployment, of negotiating wages in a manner that tries to successfully predict inflation. Which, in the long run, they appear to be good at doing, but not perfect at predicting in the short run.

        I think I want to do more research on this topic, though, to see if I can’t find even more data on the subject.

        Also I wanted to see if anyone had published on the topic, since I couldn’t recall anything specific at the moment: I stumbled on a vintage paper by Jeffery Sachs from 1978 which says:

        “In a second section of the study, econometric evidence is provided that also strongly supports the hypothesis of increasing rigidity of wage and price Inflation over the business cycle.”


        I don’t think I agree with his explanations (for one thing, pre-78 countercyclical policy was far from “successful”) but it shows the hypothesis that wage rigidity is not a strict physical law, but depends upon specific features of time and place. Thus sticky wages belong to what Mises calls “history” and not per se to “theory” (well, to some extent they belong to theory, but their specific “stickiness” is a feature of historical circumstances.)

        • Levi Russell says:

          Thanks, Andrew!

          This is great stuff… you should have a blog.

          • Andrew_FL says:

            I’ve been thinking about setting up a blog on economics topics, actually. One of the things holding me back is struggling to think of a consistent theme and/or something good to call it. Although thanks to your encouragement, I think I might have to! I’ll let you know when I have something up, if you want.

            • Levi Russell says:

              Please do!

              Check out this page for free publicity from Tom Woods. http://tomwoods.com/publicity/

              I almost wish I’d waited 6 months to get the publicity. But then, taking Krugman, Quiggin, Thoma, and Noah Smith apart was worth it.

      • Andrew_FL says:

        I found two other studies which might be relevant:

        Calomiris and Hubbard, looking at the US during 1894-1909 argue that, at least at the time, prices were too flexible for sticky prices and aggregate demand shocks to explain the business cycle.

        Calomiris, Charles W., and R. Glenn Hubbard. “Price flexibility, credit availability, and economic fluctuations: evidence from the United States, 1894-1909.” The Quarterly Journal of Economics (1989): 429-452.

        In addition, Bordo, Lane, and Redish argue that the short run aggregate supply curve was much steeper in the 19th century:

        Bordo, Michael D., John Landon Lane, and Angela Redish. Good versus bad deflation: lessons from the gold standard era. No. w10329. National Bureau of Economic Research, 2004.

        In English, that’s just another way of saying that increases or decreases in the supply of money relative to demand to hold it it manifested more as price changes than quantity changes, which implies relatively small relative price distortions which implies prices more quickly adjusting to changes in demand which implies less nominal price rigidity.

  3. Z says:

    The geologist was clearly behind he spill. That’s how he knew ahead of time. He probably poked some holes in the waste barrels.

  4. Major.Freedom says:

    Re: Romer,

    It is like what you said way back when Murphy: What people say they see in others is often a reflection of themselves.

    This Romers are a political lot after all, more concerned with power based intellectualism than freedom based intellectualism.

  5. Major.Freedom says:

    Re: the EPA,

    There is a growing preponderance of evidence they polluted the river intentionally. I think this “hands on geologist” is nothing but a stool, whose task is to convince people the event was due to mistakes and incompetence.

    • Tel says:

      If it was any private person, they would be in jail already.

      So who’s keeping a book on this one… I bet no one gets punished in any way whatsoever.

    • Tel says:

      Mark Steyn pretty much sums it up:

      The lesson of the IRS is that if you said to the IRS what they say to their congressional investigators, you’d go to jail. In other words, if you were to say to them, “Well sorry, I lost all the paperwork and accidentally deleted it and the server’s broken and there’s no way I can get it back”, you’d go to jail if you were to say to the IRS what the IRS said to congressional investigators… Now we learn it’s exactly the same thing with the EPA: what happened to British Petroleum is not gonna happen to the guys who run the EPA. And that’s the way it is with every government bureaucracy. They impose rules on you that they don’t live by.


    • khodge says:

      I think that the whole lesson of the EPA spill has been totally missed by all interested parties. The EPA is busy writing new laws (“regulations”) addressing climate change, coal, and fossil fuel and everything except what is expected of it. Whatever the reason or fore-knowledge of the spill, it has stopped the public discussion of renewable energy.

  6. von Pepe says:

    Major, I believe in the original letter dated 7/30/15 the geologist posits the case where the EPA is intentionally going to cause the spill.


    • Bob Murphy says:

      Thanks von Pepe. I should’ve linked that one too.

    • Major.Freedom says:

      Yeah I saw that the day it was linked.

      What I am saying is that the geologist likely had a spoken to, and then changed his wording. He chose to be a stool.

  7. Tel says:

    Hey speaking of the ZeroHedge links, this is an interesting speech.


    There’s a lot of stuff to discuss there, but it gives you an insight into a certain point of view, and someone who has been deeply involved with Washington. I had to laugh when he started talking about “competent climatologists” and their doom predictions but even though I don’t take that stuff seriously, obviously this guy does, and a lot of other powerful (and professional purveyors of violence) also take it seriously.

Leave a Reply