27 Aug 2018


Contra Krugman, Potpourri 19 Comments

Note, when I travel I end up saving multiple web pages in my phone’s browser. So I decided on my last trip that I need to clean these out when I’m back at a computer. That’s why some of the links below are pretty old.

==> I think two episodes of Contra Krugman have posted since I last updated you folks. In Ep. 152, Tom and I push back on Krugman’s praise for Nancy Pelosi. (Incidentally, I referred to Pelosi’s infamous “we have to pass the bill so you can find out what’s in it” remark. She did in fact say that, but a defender would argue that in context, it wasn’t as bad as it sounded.) In Ep. 153, I was on the road so Tom brought Peter Klein and Gene Epstein on, to discuss Elizabeth Warren’s proposal to make large corporations more socially accountable.

==> Alex Tabarrok explains how Airbnb is moving towards “smart property.”

==> Regarding the utterly over-the-top tributes to John McCain, check out this essay by Tom Woods. It’s one of the best things (word for word) I’ve seen from Tom.

==> Steve Landsburg has the best “hey this is unique” take on Sarah Jeong I’ve seen. He is exactly right. Jeong’s infamous “Are white people genetically disposed to burn faster in the sun, thus logically being only fit to live underground like groveling goblins?” tweet is not at all analogous to the Andrew Sullivan piece she was criticizing. In fact, if you were going to make something analogous, it would go like this: “Yes, white people are genetically disposed to burn faster in the sun, but–OF COURSE–this doesn’t mean they should be treated as lesser members of society. However, it would be counterproductive to try to deny this scientific fact about their skin, giving ammunition to people who wanted to treat them differently because of biology.” Of course, if Jeong had tweeted that, nobody would have called it racist against white people (since it wouldn’t have been).

==> Back in April, Steve Horwitz laid out the basics of Leland Yeager’s “monetary disequilibrium” framework.

==> John Cochrane has a very simple thought experiment to show that the conventional wisdom on stock buybacks is wrong. Yes, when a company buys outstanding shares of its own stock, there is one force that pushes up the stock price. But there is another force that pushes down the stock price–namely, the company’s available cash goes down. In the simplest analysis, those two effects should exactly cancel out. Since in practice it seems that the practice pushes up stock prices, it must be for a more subtle reason.

==> Don Boudreaux points out the absurdity of (one of) Nancy MacLean’s criticisms of Buchanan.

==> An interesting thought experiment from Nick Rowe that makes you think through your intuitions on immigration and wages.

==> Greg Mankiw back in December followed up with Krugman’s (and DeLong’s) continued claims that he and others had made a basic math mistake. No, he hadn’t; even the expert that Krugman/DeLong relied on, admitted Mankiw hadn’t done so.

==> Back in January, Scott Sumner said we should focus on building “unaffordable” housing. Even on his own terms, I disagree with his post. Does anybody care about this issue enough to want me to write it up?

==> David R. Henderson, commenting on Bryan Caplan’s wager against Tyler Cowen, points out something really basic that I had somehow never considered before: You can use arbitrage to rule out predictable movements in prices only in certain contexts. In particular, it’s not a violation of the EMH to say, “I predict that oil prices will fall substantially over the next few years.” The reason is that time only flows one-way. (To be clear, I myself have endorsed analyses about prices falling over time, but when I read Tyler challenging Julian Simon-esque logic using the EMH, the point David made didn’t immediately come to my mind.)

==> More attempts by Establishment Economists (TM) to make the official narrative that the financial crisis was due to timidity by the Federal Reserve.

==> In his own respectable, plausible-deniability sort of way, Tyler Cowen gives the blueprint for the decline and fall of the American empire.

19 Responses to “Potpourri”

  1. Transformer says:

    I think I see why you would disagree with Sumner’s theory on housing (and would probably agree with you) but would be interested in seeing you write it up if you have the time.

  2. Silas Barta says:

    Re stock buyback. Naive attempt to explain it:

    Holding cash has a low rate of return. When a venture dumps off unused cash, its remaining capital should have the effective rate of return of that venture’s core competence, which should be higher than savings interest. Thus, the venture’s rate of return on its capital should go up in expectation.

  3. Tel says:

    I don’t see John McCain as a bad man, but I suspect he spent his whole life fighting the Vietnam War and I doubt he ever found peace in this world. I wonder if he ever met Captain Larry Thorne, they had a lot in common.

    The first rule of war is “Don’t do it!” and the second rule is “If you insist on doing it, then do as little as possible and be highly effective at all times.” McCain failed on both counts, but not for lack of courage and conviction.

    Regarding the utterly over-the-top tributes to John McCain, check out this essay by Tom Woods. It’s one of the best things (word for word) I’ve seen from Tom.

    Tom overthinks the problem. The “Progressive” media want to annoy Trump and score a few cheap points before an election. These people are excessively shallow, they don’t care about consistency and if McCain can be enlisted after his death to serves their short term goals, that’s just fine. These guys couldn’t give a stuff about McCain, he is simply political fodder to them.

    • Andrew says:

      The “Progressive” media want to annoy Trump and score a few cheap points before an election.

      I disagree. The media would have been equally as tributary if Hillary were president. John McCain was a “maverick” who would frequently betray the Republican base to side with the Democrats. He was the establishment’s ideal Republican.

      • Matt M says:

        Agree with Andrew.

        McCain is the living embodiment of the establishment’s ideal politician. Supports the worst parts of the right (foreign intervention) AND the worst parts of the left (economic intervention). Nominally Republican but willing to betray the conservative base in a second to side with the Democrats on any important issue. Was a dignified loser in the most important election of his lifetime, while getting extra credit when he agreed with the establishment take that it was completely and totally all Sarah Palin’s fault.

  4. Nick Rowe says:

    A good Potpourri Bob. And not just because you include my old post (which I had almost forgotten about).
    I was especially pleased to read Steve Horwitz’s great post on Yeager, which is right up my street, but had missed. Useful intersection of monetarist and Austrian perspectives.
    Scott Sumner is right, I think (unless we live in a stationary economy where incomes never grow and houses never deteriorate).

    • Andrew_FL says:

      Have you read “Capital theory, inflation and deflation: the austrians and monetary disequilibrium theory compared.” and ” Monetary disequilibrium theory and Austrian macroeconomics” two papers of his? They’d be relevant to your interests.

      • Nick Rowe says:

        Andrew: I took a very quick look at the second of those papers last night. Because you are right, it did seem right up my street. But it also looked hard, and the print was too small, and I was tired. But mostly, because my head had got stuck on thinking about a short passage in Steve’s post that I think hits the nail almost exactly on the head:

        “When we understand money’s role as a routinely accepted medium of exchange, it’s also clear that the most effective way for individuals to bring actual money holdings up to their desired level is for money holders to restrict their consumption expenditures. It is the one thing that is completely under their control. Trying to earn more income or find a buyer for an asset requires that some other party is willing to part with money. Facing an economy-wide excess demand for money, finding such a willing partner will be nearly impossible (at least not without a dramatic price or wage reduction).”

        The one word I would quibble with there is “consumption”. Why just *consumption* expenditure? It could be any expenditure on anything. (But my guess is that that is not a hill Steve would want to die on, and he might even agree with me, on reflection.)

        • baconbacon says:

          I would change virtually the whole thing. First consumption expenditures aren’t within an individual’s complete control in meaningful ways. A person can choose to drive less, that is find a job with a shorter commute but this requires finding a willing employer, and starting an at home business requires finding willing customers.

          Of the things that I control it is often more accurate to say that I at one time controlled, but now am living with the decisions I made in the past. If I am a homeowner then consuming less housing means selling and moving or renting out part or all of the house. Again with all the same issues of finding willing partners. If I bought a car that gets poor fuel mileage then there are limits to reducing consumption in that area without finding a willing party to do business with. Some things are currently structured to be virtually impossible to reduce (prior education) in the present.

          The upshot is that if a person wants to reduce their total consumption by 10% they cannot reduce each category by 10%, what they typically have to do is eliminate some categories all together. You aren’t cutting your housing and cable and dining out 10% less each, you simply cancel cable altogether, and dramatically cut eating out.

          If you don’t explore this space you will miss major implications. A reduction in the demand for housing can end up in the statistics as a reduction in the consumption of subscription TV.

          “What we end up with here is a story that in many ways mirrors the Austrian business cycle story. If we understand the Austrian conception of prices as knowledge surrogates and the role they play in facilitating the entrepreneurial actions that lead to economic coordination, then we can see how both excess demands (deflation) and supplies (inflation) of money wreak their havoc by distorting individual prices. ”

          This is not the ABCT, the ABCT is functionally about how our options are limited by previous decisions on capital expenditures. If you build to many housing units there is no “price” adjustment that will clear the housing market. If there are a million empty units in a country with 100 million households there is no amount of monetary lubrication that will shrink each unit by 1%.

          The only way to fill the empty units without slashing consumption elsewhere is for real incomes to rise to the point where housing consumption will rise.

  5. skylien says:

    Bob, I’d like to see you on Joe Rogans Podcast. Is that some kind of a possibility?

    • Bob Murphy says:

      I intend to keep getting more famous and then, when Joe Rogan invites me on his show, I will enthusiastically say yes.

      • skylien says:


        Looking forward to see you getting officially into IDW (Intellectual Dark (or Dork?) Web)

      • Mark says:

        I’m doing my part, Bob. I just went to Rogan’s website, filled out the form and requested you to be a guest.

  6. baconbacon says:

    The DRH piece is probably the most important concept you have linked to since I have been reading your blog, but he needs to take it one step further.

    “But now consider what happens if people expect, with higher oil prices now, that there will be more production a few years later. Why a few years? Time to drill, time to explore, time to discover. So futures prices a few years hence fall. But arbitrage can’t go the other way. ”

    Rewrite that a little and you get “high oil prices now cause lower oil prices in the future”, without the current “high” price you don’t get the lower price. If you did manage to arbitrage away the gap then exploration and development would decrease and future prices would increase.

    This is why price controls don’t work and why stock market momentum is bogus.

  7. baconbacon says:

    I’m not seeing the value in Nick Rowe’s thought experiment. If we look at population centers historically you see them clustering in economically useful areas. Along the banks of rivers, near natural ports, and at the same time farm work has increased in terms of real wages, despite decreasing rural populations (or because of).

    The problem is in the original statement

    “If immigration always increases real wages (or well-being), do we end up in a “corner solution”, where everyone bunches together in one location leaving other locations empty? If so, that’s a reductio ad absurdam, because we do not observe everyone living as close together as is physically possible, like sardines in a can”

    Immigration is not the cause of higher wages, the higher wages are the cause of the immigration, and the immigrants are actors, so Rowe ends up asking the wrong question, and ignores one potential answer – that immigration can cause rising real wages in both places.

    For example: assume two factories each in a town 10 employable people but the factories are non identical, one has enough space and machinery to employ 11 people and one 9. If you restrict emigration/immigration then you get real wages based on 20 people producing from 19 jobs, if you allow movement then the movement of one person will increase the total real output from 19 to 20, the average per capital income goes from 19/20ths to 1. The real income (per captia, and possibly in aggregate with some additional assumptions) can in crease in both towns. This effect would prevent the whole “sardines in a can, or completely random distribution” outcomes.

  8. Clayton says:

    I would love to hear your thoughts on Sumner’s post. My economics professor – a devout Austrian, who assigns his students to read Mises, Hayek, Rothbard et al. – specialized in Urban economics and is a huge proponent of what he called the “housing ladder”. As an Austro-libertarian, he did not favor “unaffordable” housing as a government policy, of course, but he told us all that if we were private contractors who had the best interest of our cities at heart, then we should build housing for the upper end of the spectrum. His argument was that the nice houses of today become the low-income houses of 60 years from now, and any new housing introduced near the top of the ladder means everyone can move up a rung. New, “unaffordable” housing allows the process of trickle-down housing to continue. This obviously isn’t the *exact* same argument Sumner is making, but they have similarities. I always thought this seemed wrong, but never could figure out why. I’d love to hear your thoughts.

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