Potpourri
==> Jeffrey Rogers Hummel on backdoor reserve requirements via Basel. BTW, I don’t like the Alchian & Allen argument that Jeff quotes; I think it gets things backwards when it comes to the function of reserve requirements. But that quibble aside, Jeff is an encyclopedia on the details of central banks.
==> I can’t remember if I shared this already: Nick Rowe writes up a great post that explains where he is coming from; I answer in the comments with my gnome fable.
==> OK North Dakota has given the green light to weaponized drones on U.S. soil, but not lethal weaponry. But if the government ever deploys its flying killer robots on U.S. soil, then it will be time to start complaining about liberty.
==> I realized from Levi’s comment that people are genuinely misunderstanding what I was trying to say in that op ed. I’m not going to try to go through it all right now, but check this out. Back in 2013, Ryan Murphy (no relation) was teasing me in the comments here, saying that I should be rich if I know the Fed is driving the stock market. I brought up that guys like Mark Spitznagel made a boatload of money from the two previous crashes, and Spitznagel is heavily guided by Austrian capital and business cycle theory. (Disclaimer: I was a consultant on that book.)
Ryan then said well let’s see how he does in the future. OK, thanks to von Pepe, I see this WSJ story that Spitznagel’s Universa Fund made a billion dollars on Monday (up 20% for the year). Does that count as “profiting from a prediction”? And no, if I understand his portfolio construction, he didn’t give half of it back later in the week, because he didn’t short the S&P, instead he bought deeply out of the money put options. (Click through to the article if you want more details.)
To be clear, I’m not saying, “The scientific validity of Austrian business cycle theory rests on the shoulders of Universa’s 3q performance relative to a passive mutual fund.” And yes, maybe Spitznagel just keeps getting lucky. My modest point is that if you think you can dismiss my perspective with a one-liner, you’re really not even trying to appreciate what I’ve been saying.
Thanks for clarifying, Bob.
“My modest point is that if you think you can dismiss my perspective with a one-liner, you’re really not even trying to appreciate what I’ve been saying.”
Just in case this is referring to me, I wasn’t trying to dismiss you with any one liners.
Right I know, I kinda strayed in my train of thought there…
‘Train of thought’? I hope it’s a green solar powered groundwater safe train for your sake, Dr. Murphy. For your sake…
Rowe wrote:
“In recessions, it becomes harder to sell goods (including labour) for money, and easier to buy goods for money, relative to normal times.”
If buying goods becomes easier, then by definition selling goods has become easier as well, since every buy IS a sell.
Rowe goes on:
“A recession is a monetary coordination failure with a reduction in the volume of monetary trade. A monetary coordination failure probably means that output and employment will be lower than they would have been without that monetary coordination failure.”
Why would people choosing to reduce total spending be defined as discoordination as opposed to coordination?
How does Rowe know what the total volume of spending ought to be given it is not the owners of said money?
If people choosing to sell fewer hoola hoops and Ford Pintos are not examples of discoordination, why is it a recession if people chose to sell fewer dollars?
Seems like Rowe is starting with what he wants for others, NGDP targeting, and then defining a recession as others getting what they want that differs from what he wants for them.
If coordination looks like full employment, then really, why aren’t weekends considered recessions? Rowe said weekends don’t look like recessions, but he didn’t actually explain why it doesn’t look like one. If either buyers or sellers do not wish to trade at particular moments in time, and if Rowe agrees that people voluntarily choosing not to trade things does not constitute a problem, then why would unemployment be a factor that Rowe uses to label a recession a recession, when unemployment is a choice of people refusing to trade labor?
If people do not want to trade the existing supply of goods, why would Rowe call that a recession at all?
He is sneaking in a value judgment of his own because of a legal prohibition against individuals manifesting their own values concerning money.
Defining a recession as declining spending is an example of a self-serving definition.
“We should not blame the shock for the monetary coordination failure it causes under some monetary policies. We should blame monetary policy instead.”
Blame them for what exactly? For not reversing the effects of perfectly peaceful, legitimate activity?
If it isn’t a failure of capitalism when people choose to sell fewer goods, why is it a failure of central banking when those same people choose to sell fewer dollars?
I don’t blame central banks for failing to bring about monetary coordination defined as private property driven volumes of spending. I blame the flawed idea that they can know what only a market can enable people to know.
We ought to blame people like Rowe who not only define recession in a self-serving wY that denies the monetary liberty of billions of other people, but who also want us to blame the Fed for not doing what is impossible as if they are able to know in principle.
Socialism is dead. Accept it. Just because central banks exist, it doesn’t mean you have to pretend the idea of Socialism is in some respects valid and still capable of bringing about coordination if only they obeyed your rules this time.
My life would not be any better off or worse off by changing my stance and cheerleading for NGDPLT. I am not better off for advocating for what happens as opposed to advocating for what has not yet happened. All socialist activity makes me worse off. It makes me worse off because socialist activity by its nature and by its definition denies my values for the sake of the values of a select few “representatives” and their followers. And it does so backed ultimately by threats against my life itself.
Rowe wrote:
“But assume for the sake of argument ABCT is both coherent and correct. A collapse in foreign demand for your goods will (generally) require a change in the time-structure of production.”
This is incorrect. The class of “goods” includes both higher order capital goods, and final consumer goods. The scenario of a “collapse” in the demand from foreigners for domestic “goods” does not necessitate a larger decline in the demand for capital goods relative to consumer goods, or vice versa. A decline in the demand for goods means a decline in the demand for both capital and consumer goods.
And even if on a statistical basis the decline in demand for goods as such is composed of larger declines in one class of goods relative to the other, then yes that would require a shift in the time structure of production. But then how in the world is that being presented by Rowe as a problem? That is coordination! When there is a change in demand for goods across time, which is the label we attach to the scenario of people changing the relative demands of capital and consumer goods, then coordination requires the structure of production to accommodate that!
Thanks Bob!
MF: “If buying goods becomes easier, then by definition selling goods has become easier as well, since every buy IS a sell.”
Nope. See those crucial words I wrote “for money”? Buying goods *for money* is NOT the same as selling goods *for money*.
(And people who forget about money tend to get Say’s Law wrong too.)
“Why would people choosing to reduce total spending be defined as discoordination as opposed to coordination?”
It isn’t. See my word “probably”? That shows it is not a definition.
C’mon, raise your game.
Nick, work with me, man.
Buying goods *for money* is an exchange of goods for money.
Selling goods *for money* is an exchange of…goods for money.
When we think of an exchange from one perspective, we are still, whether we like it or not, referring to an activity of two parties, buyers and sellers.
If from one perspective you say the exchange has become easier, you are not actually divorcing the exchange into two realities, one of which becomes easier while the other becomes something else. If buying becomes easier, then selling has become easier by definition.
I can’t speak for people who forget about money, but what I can say is that those who put undue weight on money and not enough on goods, almost always get Say’s Law wrong. That the onset of trading goods not for other goods, but for money, somehow renders Say’s Law capable of being falsified by periods of rising cash preference, rising idle resources, etc. Say’s Law works as a counterfactual, where it is possible for relative underinvestment and relative over investment to look like a general glut.
“It isn’t. See my word “probably”? That shows it is not a definition.”
It shows it is lawyer speak.
Not good enough. That is an evasion. I ignore hedging phrases like “probably” when someone is telling me what I ought to think. Obviously there is a reason why you are saying X is “probable” as opposed to Y being “probable.”
That is what I was asking about and getting right to the fundamentals of your ideas. I don’t like beating around the bush.
I would have hoped that we be a little more eager to explain the whys, since your probably’s are to be backed ultimately by law. You need to step up your game if you are going to arm your ideas with guns.
Why should people choosing to reduce total spending “probably” be defined as discoordination as opposed to coordination? This gets to the heart of the difference between what Austrians actually mean by coordination versus what market mimickers want people to believe it means.
Coordination is ultimately grounded on individual subjective values manifesting in unmitigated and unhampered property, production and exchange activities. Coordination is coordination of subjective values, NOT full employment or full productivity.
Please explain how individuals deciding to hold on to their money earnings a little longer this quarter than they did last quarter, such that total spending in dollars falls somewhat, “probably” constitutes a monetary coordination failure.
Maybe you can’t see it yet, but when you work from “external” ideals of what the world ought to objectively look like, you are sneaking in your own personal subjective values in such a way that denies mine and everyone else’s. If people decide for themselves to spend less money, or produce fewer goods, or let machines sit idle for a little while longer, you don’t actually respect or recognize those preferences as rational. That because their preferences for themselves don’t match your preferences for them, that this is what “probably” constitutes a monetary coordination failure.
“If buying goods becomes easier, then by definition selling goods has become easier as well, since every buy IS a sell.”
You missed the part about “for money”! Which was the entire point.
And by the way, you haven’t gotten back to me with your contact info yet.
Anonymous:
Including “for money” does not change anything about exchanges defined as trading goods for money.
When you say “Selling” you are tacitly saying a bunch of things. You are also saying “Buying”, you are also saying “Buying goods for money”, and you are also saying ” Selling goods for money.”
If you as a buyer find it very easy to find sellers willing to accept your money, then guess what? By the very construction of what an exchange is, those sellers must be as equally fortunate to find you as a buyer willing to take their goods so easily!
The easier it is to buy stuff, then by definition the easier it is to sell that same exact stuff.
Saying Buying is easy or saying Selling is easy, is not saying Buying easy but Selling is difficult or saying Selling is easy, respectively. You are actually referring to exchanges as such being easy.
If exchanges as such are easy, then buying goods for money and selling goods for money mean the exact same thing, and it is wrong to claim they can move in opposite directions.
Anonymous gets it.
MF: ever heard the phrase “buyers’ market”?
Suppose it takes one minute for a buyer of apples to find a seller of apples, but one hour for a seller of apples to find a buyer of apples?
In recessions, it is easy to sell money, but hard to buy money.
Let’s try it this way: Suppose you asked Hayek: “If the central bank set the rate of interest above the natural rate of interest, would that cause a monetary coordination failure?” I would answer “yes”, and I think Hayek would too.
Nick,
“ever heard the phrase “buyers’ market”?”
Not in academic journals. On TV real estate shows maybe.
“Suppose it takes one minute for a buyer of apples to find a seller of apples, but one hour for a seller of apples to find a buyer of apples?”
If it is easy for a buyer to find a seller, then it is just as easy for that seller to have found the buyer. The seller found a buyer who only had to wait one minute. The buyer wanted to buy from a seller, and it took only one minute for that seller to have met that buyer since the buyer decided to buy.
And, similarly, if it took one hour for a seller of apples to find a buyer of apples, then it was just as difficult for the buyer as it was on the seller, since the buyer found a seller who had to wait an hour.
The easier it is for buyers to find sellers, the easier it is for sellers to find buyers to that exact same extent.
Think of it this way. Why is it easier for buyers of knick knacks to find sellers of knick knacks outside of Buddha temples instead of at the top of Mount Everest?
It is because it is easier for the sellers to find buyers outside of Buddha temples instead of at the top of Mount Everest!
“In recessions, it is easy to sell money, but hard to buy money.”
If it is easy to sell money, then it must be equally as easy to buy money, since you can’t sell money without there being a buy of money.
I think you are taking some pop culture references and ignoring the underlying reality of the situations here.
When pundits refer to a “Buyer’s market” they are not actually referring to a situation where it is easier to buy houses than sell them. They are referring to a trend in prices and spending. When we hear or read about a market being a “buyer’s market”, that means something like the market is trending in a way that appears to favor buyers more so than before, or what would otherwise be the case, such as prices falling, or not rising very much, or rising less than what a particular group of people expected.
What is not taking place in a buyer’s market is any notion that buying has become easier than selling, or that buying has become a better idea than selling, or that buying is easier now than it was before.
If buying was more difficult before, then so was selling, since sellers have a more difficult time selling the more difficult it is for buyers to buy what the sellers are selling. And vice versa.
Think of it this way,and I’ll try to set up this scenario in such a charitable way that I suspect is the strongest example to back your argument.
Suppose there is a man sitting at the top of Mount Everest, and he is selling the cure for cancer.
Suppose there are 100 million interested buyers of the cure for cancer sitting at the bottom of Mount Everest.
Now I ask you:
Is it more difficult to sell the cure for cancer, or is it more difficult to buy the cure, or, and this is where I hope the crucial point is expressed, is it difficult or is it easy for an EXCHANGE of money for the cure to take place?
The harder it is on buyers to make an exchange, it is that much more difficult on the sellers as well, since without buyers buying, the sellers can’t sell!
Now even if you tweak the above scenario and introduce 1000 new sellers of cancer at the bottom of the mountain, ask yourself if it would be more easy or more difficult for thr buyers if the seller at the top found a way to easily sell the cure he has in his possession?
Every buy is a sell and every sell is a buy. We are talking about exchanges that cannot be cleaved into two the way you are doing.
Typo:
“What is not taking place in a buyer’s market is any notion that buying has become easier than selling, or that buying has become a better idea than selling, or that buying is easier now than it was before.”
Should read
“What is not taking place in a buyer’s market is any notion that buying has become easier than selling, or that buying has become a better idea than selling, or that buying is easier than selling compared to before.”
I’ll use another scenario that perhaps is even more charitable.
Suppose there is a man who for the last 50 years has been trying to sell parachutes that open only on impact.
Suppose so far there have been no buyers.
Now suppose I hit my head on the bathroom sink by accident, and have developed the desire to purchase such a parachute.
Suppose it takes me 5 minutes of Google searching to locate the seller of these parachutes.
Question: Has it suddenly become easier to sell such parachutes compared to buying such parachutes?
It gets tricky because we risk doing the analogue of dividing by zero.
It does not make much sense to say it has become easier to buy such parachutes than to sell parachutes since there was no buy searching taking place prior. It also does not make much sense to say it has become easier to sell such parachutes than to buy such parachutes for the same reason.
So it only makes sense to say buying has become easier or selling has become easier (subject to particular prices which I did not mention) if buyers already know the sellers. So here, we don’t have enough additional information to make any other conclusion other than it would not take sellers longer to find buyers as compared to how long it would take for buyers to find sellers.
Or, start at time zero. If it takes one minute for a buyer of apples to find a seller of apples, then it cannot take anything other than one minute for the seller to have found the buyer.
If you put the seller at t minus one hour however, then you have to put the buyer there too, since there is nothing inherently different between a buyer’s search costs as such versus a seller’s search costs as such.
I think of activity the way I think of firm valuations, as ongoing concerns.
It is easy to imagine a one time scenario of a seller needing one hour to find a buyer, and a one time scenario of a buyer needing only one minute to find a seller.
But as ongoing needs? Not possible. If buyers continually need only one minute to find sellers, then sellers are not going to be continually waiting one hour. They will be waiting one minute themselves, very much like sellers won’t be waiting all day Sunday for customers when the store is closed.
When you use apples and waiting times an analogy to money and recessions, you should think of it in terms of prices, as exchange ratios.
Yes, it is true at a given matrix of hypothetical bid and ask prices, it is easier on the buyers. But it won’t be easier to buy than sell at those proces, not will it be easier to sell than buy. It will be as equally easy or difficult to buy and sell.
When spending declines, what has happened is not that buying money has become more difficult whereas selling money has become easier. What has happened is that both buying and selling both goods and money has become less frequent. People are putting more time into non-exchange activities as they used to.
It is not that money has become more dear. It is not that goods have become a glut. The same goods and the same money are being exchanged less frequently and activity other than exchanges is occurring more frequently.
Fewer goods in general is not a solution to this.
More money in general is not a solution to this.
What is a solution is to allow people to engage in such non-exchange activities, so as to come up with a better set of plans and projects with the world that they have found themselves now living in. The resulting exchange activities will be all the more coordinated.
The problem is not that people are setting the wrong prices and the central bank is setting the wrong money supply. The problem is that crucial information needed to coordinate is being destroyed caused by central banks and governments in genersl preventing unhampered non-exchange activities.
Economists are teaching the politicians that individual planning is at best an awkward nuisance, and at worst a national tragedy that must be eliminated and highly interferred with.
Bob can you elaborate more on your disagreement with Alchian and Allen? Where exactly do you think they are going wrong?
I’ll write it up this week.
Trouble is that EMH can still count this as a win, even after watching someone beat the market like that. See the thing is, EMH merely counts that as part of the market and if you want to beat “the market” you need to beat Spitznagel, Taleb, and all those guys as well as the rest of the market.
Hence the market just got even more unbeatable than it was before (which was already unbeatable). See what I did there?
Heads up, Austrians:
Austrian Economics Is Now Equivalent To Terrorism Thanks To Latest Islamic State “Gold Standard” Propaganda Clip
http://www.zerohedge.com/news/2015-08-30/austrian-economics-equivalent-terrorism-thanks-latest-islamic-state-gold-standard-pr
Helpful response resources (to the idea that Austrian Economics is terrorism):
Is Ron Paul Wrong on Money and the Constitution?
[www]https://www.youtube.com/watch?v=40MBdt1BQgE
Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
[www]https://www.youtube.com/watch?v=HAzExlEsIKk
Ep. 249 The Revolutionary War and the Destruction of the Continental
[www]http://tomwoods.com/podcast/ep-249-the-revolutionary-war-and-the-destruction-of-the-continental/
“What is Money?” with Joseph T. Salerno — Ron Paul Money Lecture Series, Pt 1/3
[www]https://www.youtube.com/watch?v=vowbrq_g5NM
What is Constitutional Money?” with Edwin Vieira — Ron Paul Money Lecture Series, Pt 2/3
[www]https://www.youtube.com/watch?v=k6gMkKmQSW4
“What About Money Causes Economic Crises?” with Peter Schiff – Ron Paul Money Lecture Series, Pt 3/3
[www]https://www.youtube.com/watch?v=npJ0CUT8d_Y
Assuming they actually do attempt to implement a gold standard I think they’ll find, like any state conceived as an entity in perpetual war with The Other, that it’s rather difficult to finance your efforts tied to something so restrictive against inflation.
Actually, more likely they’ll resort to old medieval monarchical tricks, like literal debasement.
Also I suspect that banking being “satanic” in their eyes has more to do with the Islamic prohibition against interest, or riba than it does with any concern with the legitimacy of fractional reserves.
IMHO the USA is already running an unofficial commodity standard currency, and has been for about four years. Bernanke started it, Yellen is riffing on the same. This is based on the Producer Price Index.
My conditional prediction is that if the PPI (all commodities) dips below 190, then Yellen will start QE4, and if it shoots up above 210 she will raise rates — data dependent you see.
If it sits somewhere in the middle she will deliver enigmatic waffle and do very little.
Bob,
You know where they aren’t allowed to use lethal drones? FEMA camps.
Just sayin’
Noted.