09 Feb 2016

Potpourri

Bryan Caplan, Humor, Tyler Cowen 28 Comments

==> This EconTalk with James Heckman is great.

==> John Goodman on Krugman on health care.

==> When I read this article about the Fed internally wondering whether it would be legal to charge negative interest rates, I imagined Bernanke like this.

==> I realize Bryan is ultimately disagreeing with Jerry Taylor, but I don’t like the way he did it. Look, do markets not work very well when it comes to books? After all, there can only be one true explanation of what caused the Great Depression, and yet Friedman/Schwartz still sell a lot along with Keynes. When you stop and ask yourself, “What does it mean for a market to ‘work’?” then I think the “market in ideas” works pretty awesome. I mean, the 18 people on earth who have my worldview can talk to me quite easily. That wouldn’t be true under other non-market social arrangements throughout history.

==> I have to be VERY careful when commenting on this post, in which Tyler responds to the fact that he lost a bet to Bryan. Let the following remarks suffice:

(a) Tyler is totally right about Krugman.

(b) If you’re going to bet Tyler, you should do it for a lot more than $10.

(In case I have newcomers, let me make sure I point you to this so you’ll understand the delicate situation we’ve got here.)

28 Responses to “Potpourri”

  1. skylien says:

    Regarding NIRP:

    Can anyone tell me if people like Krugman, Kuehn, Sumner, the Blogger LK etc think banning cash is either a good idea or/and no moral problem what so ever if some central banker thinks it is needed? And would they be consistent and honest enough to also already argue for stopping people in whatever way of jumping into precious metals instead? Does anyone know of any any statement yet on this subject at all?

    Obviously if you think the zero lower bound is a problem ( which it only is because there is the option of cash) then banning cash is the logical step to take etc…

    Of course those people may preferably speak for themselves if they read this..

    • skylien says:

      OMG, there already are posts up from Scott Sumner and Bill Woolsey. They don’t want to outright ban cash this is not “necessary”. No they just try to create some scheme that makes cash unattractive… talk about being honest and upfront. Like paying out only fivers in cash (Newsflash: Paying out only fivers is like banning all cash higher denominated than fivers. So you ban 100s why not 5ers as well, who do you want to fool?) or putting some discount on redemptions of deposits… Guys you are deceiving people intentionally. What you want is that people can’t use cash, so be honest about it and argue for a ban and not some crazy scheme!

      Bill Woolsey said: “However, the point isn’t to suppress the use of currency. It is rather to make sure that there is sufficient spending on output. If there is some spending of currency on output, then that is just fine. The goal is to make sure that total spending, mostly by check or electronic payment, is adequate. (For market monetarists, that is on the target growth path.)”

      So it is only a matter of spending that determines the steps, if all those schemes are put into place and it is still not enough, then of course I am sure they will be happy to argue for a total ban (and would still not rethink their preconceived economic ideas)! And saying it is not the point to suppress the use of currency is like a robber saying that it wasn’t the point to beat you down, but just to get your money… aha.

      I am sure Silvio Gesell will get a Nobel posthumously soon!

      • skylien says:

        Here is JP Koning’s post about Sumner and Cowen which also leads to Bill’s:

        http://jpkoning.blogspot.co.at/2012/10/no-need-to-ban-cash-to-avoid-zero-lower.html

        was already in 2012…

      • guest says:

        “OMG, there already are posts up from Scott Sumner and Bill Woolsey. They don’t want to outright ban cash this is not “necessary”. No they just try to create some scheme that makes cash unattractive …”

        The funny thing is since real money is a commodity, anyway, they can ban “cash” all they want – people can still use whatever real goods exist as the money.

        How are they going to “help” the economy *and* ban the use of goods, themselves, as mediums of exchange? They’d have to have an economy without goods, which doesn’t make sense.

        The trick is to try to abandon non-commodity monies.

        (Aside: This is also the answer to the question of “What if all the gold/money goes into the hands of only some of the world’s population?: How will they buy from those people?” The answer is that they can always pay a little more in labor to have those hoarders buy the goods for them.

        (And then once you’ve saved up enough in terms of goods, you can use the same process to get money.

        (Problem solved.)

      • Yancey Ward says:

        First, here is Skylien on the mechanism being proposed by Sumner and Woolsey for getting rid of cash:

        “Guys you are deceiving people intentionally. What you want is that people can’t use cash, so be honest about it and argue for a ban and not some crazy scheme”

        then here is Woolsey:

        “However, the point isn’t to suppress the use of currency. It is rather to make sure that there is sufficient spending on output”

        It is crazy schemes all the way down. Banning cash, or just making it less and less convenient follows directly from the first descent into crazy.

        • Yancey Ward says:

          That last part was me, I don’t know why the extra blocking happened.

          • skylien says:

            Yancey,

            So you would also argue that the poor robber really didn’t want to beat you down?

            It was just a necessity to reach some goal, right? Oh then it is fine of course..

            • Yancey Ward says:

              Relax!. I ain’t defending it, just pointing out that the crazy starts earlier than the ban on cash. The first error is the idea that there is some level of spending that must be enforced- the hook and crook soon follow on that.

              • skylien says:

                Sorry, I misunderstood you, thought you were sarcastic.

                This ban of cash (and logically PMs) is really working me up. Because I can see the noose tightening around me..

                So far I can say. Ok I have to accept that we have sane people following crazy ideas in CBs completely wrecking the capital structure which will affect me big time.

                However yet I still can decide if I want to trust them or get out at least with my wealth. And now they want to take even that option away from me step by step…

          • skylien says:

            BTW: Making a currency less convenient by design intentionally means you do make it less marketable. That goes directly against the purpose of money which is facilitating exchange of goods and services that are actually wanted!

            If you think that making money bad so that people rather try to get rid of it than actually trying to get the goods or services, and think this is “facilitating” genuine exchange then I really cannot help you.

            It is like making wheels more square…

  2. Tel says:

    This EconTalk with James Heckman is great.

    Yes, some very subtle concepts turn up on that show. Amazing how easy it is to be badly wrong about stuff that looks pretty much cut and dried.

    There was another EconTalk show a while back covering the verification of psychological results (the one where the majority turned out NOT to be verifiable). Also Planet Money did the same verification discussion and partway through they turn to the audience and say, “But we all know Global Warming is real!” and you think, “Yup, this is still NPR.”

    Nothing is as it seems!

  3. Tel says:

    You forgot to mention Schiff is in good spirits with gold hitting 1200.

    I agree with Schiff on a few points: the US economy is sliding into recession, the period of low interest rates must surely have allocated some mal-investment and created a few bubbles, and we necessarily need a period of deleveraging and bubble deflation to clean that up. I also agree that in the long term the US dollar is overvalued, but that somewhat depends on what the other crazy central banks do (hard to guess because they really don’t seem constrained by any rationality right now).

    Thing I don’t agree with Schiff is this: if the US economy goes into a deleveraging tailspin, I don’t think owning gold will help, at least not until all the rough stuff is over. Sure, gold is money, gold is a store of wealth… but if everyone else is broke and starving they won’t give their last crust of bread to buy your gold. The main benefit of gold (or any money) is when you have a good opportunity to spend it.

    Schiff would probably say, “Just hold onto it… ride the thing out to the end.” That will probably work, if you do make it through to the end of the bad patch, then when the economy is picking up again you can use that gold.

    Will Yellen allow the very necessary deleveraging to happen? Will she gently nuance it? Will she go the full QE4? I really hate the game of “double-guess the Fed”. I just don’t see that as real economics. That’s what we are doing though.

    You learn all this theory and then play “What’s in my pocket?”

    Clearly going into a recession with interest rates already rock bottom is going to be… problematic. Yellen might slap down the big red QE4 button and juice the money machine. She might just sit there are stare them all down. There’s no meaning to it, just a personal whim.

    • Darien says:

      I’ve never really understood the argument against gold that’s of the form “starving people won’t give you their only food for a gold coin.” I mean, that’s true as far as it goes, but is anybody suggesting otherwise? I think relatively few of us are anticipating economic trouble SO bad that literally all the existing capital stock will just vanish, and we’ll all be reduced for fighting over scraps in the dirt. Pretty sure there will still be farms and mills, and the people who own them will be comparatively well-to-do. So the solutions, it seems to me, are twofold:

      a) Become a farmer or a miller or something else that would be in high demand,

      2) Stockpile things the farmers and millers are likely to want in return for their produce, which, historically, have been gold and silver.

      • guest says:

        Darien is right.

        Tel said:

        “Sure, gold is money, gold is a store of wealth… but if everyone else is broke and starving they won’t give their last crust of bread to buy your gold. The main benefit of gold (or any money) is when you have a good opportunity to spend it.”

        There are going to be people who have more means than others, and these are the people who have sufficient savings in terms of goods to justify a pursuit of longer-term savings in stores of money.

        For those without money, they can trade with Darien’s farmers or millers for goods, directly, until they have enough goods to allow them to earn their own money.

        There’s a way out of the chaos, but you have to love the profit motive and understand that inequality is the reward for satisfying consumer preferences.

        As a laborer, you also have to understand your employment relationships as trade agreements rather than hierarchal ones. You don’t owe your employer your labor – you labor because you believe that what your employer offers you in compensation is greater than what you could get, elsewhere.

        No matter how low the compensation, as long as the above is true, it is just a fact that your employment is a mutually beneficial trade agreement.

        And remember that the government is often in your way preventing you from, say, homesteading on “national parks” or repurposing buildings that don’t happened to be “zoned” for such.

      • Tel says:

        The extreme example is a way of thinking about the trend for non-extreme situations. Gold is money, which is a medium for exchange and a store of value. Thus, the benefit of holding gold is equivalent to what you think you will be able to buy with that gold at some future time (either short term or long term). There is no point at all in just holding the gold for its own sake (same as any money).

        So what sort of situations are intrinsically linked to rising gold value?

        * commerce and exchange are increasing so a medium of exchange is needed to support this.

        * other choices of medium of exchange (e.g. USD) are going out of favor for whatever reason.

        * overall production is increasing so there are plenty of desirable goods you might want to buy

        * the production process is reconfiguring towards a more complex process with greater division of labor

        None of this relates to a deflationary and deleveraging environment. If we believe capital is poorly allocated (e.g. Facebook trying to build a self driving car, or Amazon opening up bricks and mortar book stores) then we expect a lot of values now are way overinflated, and a period of capital reallocation is coming up.

        It’s like the Murphy example with Krugman with the natives on that island. The fishing nets and boats are worn and badly in need of repair, but we have this huge refinery to turn coconuts into gasoline but the refinery does not work. Everyone expects any minute gasoline is going to start coming out, and they will all be saved. Thing is, they are wrong, nothing is going to come out. When they realize this they have to go back and rebuild the boats and the nets.

        In this scenario, the best position is to be a net maker or a boat builder. Having gold won’t fix those nets any faster.

        You see what I’m getting at here? A medium of exchange is more valuable in a highly complex and highly productive society. Any step backwards in the production process actually harms people holding money.

    • Maurizio says:

      Now that negative interest rates have been “invented”, why should we even think there is going to be a QE4? Isn’t it simpler to just set, say, -5% interest rates? How does this possibility affect the ABCT?

      • Maurizio says:

        (I mean negative interest on reserves.)

  4. SmartMuffin says:

    I get the “lol you think free markets are so great, so why can’t you accept that the market has embraced socialism and rejected libertarianism!” complaint from friends all the time.

    My usual response is that free markets are never static, and that advertisement/persuasion is constantly going on within them. When McDonalds gains market share over Burger King, analysts don’t say “Well, the market has spoken. McDonalds is better. Burger King immediately liquidate and all of its shareholders should invest in McDonalds instead.” Rather, the response is that Burger King should work harder on improving its product and/or messaging in order to re-gain some of its lost share.

    This logic may be the result of a population who has been indoctrinated since birth to accept the legitimacy of a “democratic” winner-takes-all sort of system. We have all been told repeatedly that the best way to decide on ideas is for two people to argue, the majority to pick a winner, and the winning side gets everything it wants and the losing side gets nothing. But there’s no real need for that to actually be the case.

  5. Guest says:

    “==> When I read this article about the Fed internally wondering whether it would be legal to charge negative interest rates, I imagined Bernanke like this.” Funny stuff.

    The Federal Reserve Act has been amended more than 100 times since inception. Yet they still don’t have it right, and they never will. Any person who claims the FedR and its banking cartel is independent and or private is a not thinking correctly…

    Think of a spinning top toy, every time you touch it, you will have to touch it again.

    FedR is no better than a dog chasing its own tail. How about 12 men standing around a small pond, each poking and slapping the water, hoping to make the water calm. IF you want a glass like pond surface, you have to stop touching it. The more you poke it, the more agitated the water becomes.

  6. Darien says:

    I don’t think it’s correct to assert that the product of the “market for ideas” is truth — rather, it is *ideas.* Just as the market for food supplies a huge range of all the foods people desire and not just those few “best” foods, the market for ideas supplies a range of ideas and not just the “best” ones. Sometimes there’s huge demand for lies. Sometimes people eat a lot of Big Macs. I’d suggest that this indicates that the market is working properly, since it’s supplying what people demand.

    Anyone who’s investing the market with some Marxoid notions of making man “better” is being a bit of a goof. It satisfies wants, for good or for ill.

    • Guest says:

      “It satisfies wants”

      That’s what makes it good.

    • Guest says:

      I must add, “It satisfies wants” in a non violent, voluntary manner. That’s what makes it good. Consider the alternative.

      1. Not satisfying wants.
      2. Dictating wants.
      3. Satisfying wants at the expense of others.
      4. Applying force and coercion to satisfy wants.

      • Tel says:

        Hey, smoking is bad, M’kay?

  7. trent steele says:
  8. Gene Callahan says:

    “After all, there can only be one true explanation of what caused the Great Depression…”

    Yes, and that one true explanation is “Every single event leading up to it.”

    All *theories* about what caused it are abstract and partial, but it is completely possible that more than one of them captures part of the truth. So Hayek may be partly right, and Keynes, and Friedman (for instance).

  9. Tel says:

    On the topic of “Potpourri”, both the article and comments are worth a scan.

    Brings up some interesting weirdness.

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2016/02/importing-people-is-not-like-importing-apples.html

    • John Dougan says:

      Many of the comments on that post are as excellent an illustration of the “economist autism” thst Nick writes about in that post as I’ve ever seen.

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