Murphy Twin Spin (Kinda Sorta)
==> Here’s my recent IER post on the Fed and oil prices. And here’s a comparable one from David Beckworth.
==> I’m a scholar contributing to the marketplace of ideas. First Phil Magness and I get published, and now we get cited in another economist’s article! Quick somebody get me a pipe and a smoking jacket.
Potpourri
==> Are people criticizing Trump for the same reason that Bible-believing Christians speak out against the corruption of the world? I.e. just to say they officially tried even though the know it won’t change the (near-term) course of history? I’m being serious, I saw this HuffPo piece on Facebook and it has 110k views. It is simply a guy saying Trump is a racist and sexist, and shame on you for supporting him. What is the point of writing this? The guy can’t possibly think it will do anything except make Trump supporters possibly brainstorm about how they can vote twice for the guy on Election Day.
==> Likewise, these conservative pundits who are going after Trump with everything they’ve got. I’m baffled by it. They are only helping him. Suppose it turns out that Trump is only worth $300 million. You don’t think he can spin that to his advantage? “Wow, he’s had success and failure in the business world. He’s not an elitist billionaire after all.” The fact that MITT ROMNEY brought this up doesn’t help. To anticipate what I said on the latest issue of Contra Krugman (which hasn’t run yet): We see a similar phenomenon on the Left. Do you really think the rank-and-file Bernie Sanders supporters care that guys like Krugman and Austan Goolsbee say Gerald Friedman improperly used multiplier analysis in the out-years of his forecast? Are you kidding me?
OFFICIAL DISCLAIMER: I do not support Bernie Sanders or Donald Trump for president.
==> If you want to actually read an interesting analysis of the Trump phenomenon–which totally took me by surprise, I have no problem admitting–check out this very prescient post from last August by Scott Adams, the Dilbert creator. (HT2 Tyler Cowen)
==> Since I’m on a roll, let me go ahead and say I think Nick Rowe is being really slippery here too. (Just read our exchange and you’ll see what I mean by that.) But I give him the benefit of the doubt: I know it eats away at your mind when you start supporting NGDPLT. You end up denying the existence of objective truth. (NOTE: I’m still not sure if Scott Sumner actually embraces this position, or if he just flirts with it at the school dance.)
Potpourri
==> I tell people on The Hill how much they’ve painted us into a corner.
==> Krugman thinks you’re stupid (except not you, LK).
==> Carlos scares the )#(%)#(*$ out of people in this episode of the Lara-Murphy Show.
==> You can have a field day with this quotation from Hillary Clinton.
==> Imagine that, Krugman psychoanalyzes a guy and the guy gets mad. Krugman Lapdog then of course psychoanalyzes the guy some more. Others jump in to kick the guy in the fallout.
Why Does God Let Really Bad Stuff Happen?
I purposely worded the question in this way, to show what (I think) is wrong with the usual framing. People will often say, “Why would a good God have permitted institutional slavery, children dying from cancer, the Holocaust…etc.?” But nobody says, “Why would a good God have allowed me to stub my toe this morning?” unless the person is cracking a joke.
Now thus far it seems like I’m not contributing anything, but I’m being dead serious. If you go back and re-read the above, I think we have our answer. WHY would it be goofy for an atheist to demand, “Why would a good God let me stub my toe?” It’s because we easily recognize, “That’s a silly argument. In the grand scheme of things, stubbing your toe is no big deal, and so if a God existed we could imagine there is some reason that would trump you avoiding a toe stubbing.”
And there’s the answer.
P.S. Obviously, it doesn’t seem that way to me either. The first three things I mentioned are absolutely horrible, they’re some of the worst things of the human experience. But right–no matter how bad the absolute level of misery God permits to occur on Earth, those things (by definition) will be the worst things in history. They will horrify us. But it could be worse–remember what happens to people who cross Jabba the Hut.
C-3PO: You will therefore be taken to the Dune Sea and cast into the Pit of Carkoon, the nesting place of the all-powerful Sarlacc.
Han Solo: Doesn’t sound so bad.
C-3PO: In his belly, you will find a new definition of pain and suffering, as you are slowly digested over a thousand years.
Han Solo: On second thought, let’s pass on that, huh?
If you’re a parent, think of a typical American toddler who doesn’t get his way. He absolutely flips out; he is outraged that it’s time to leave the park (or time to turn off the DVD). That’s how we must look to people in the afterlife.
Questions for Keynesians and Market Monetarists
In my never-ending quest to achieve total magnanimity, I gently ask the following questions to make sure I understand how rival camps view the world.
(1) To the Keynesians: I understand the point that “Ricardian Equivalence,” even if true, would not undermine the boost to current Aggregate Demand from a large government budget deficit. For example, if the government increases the deficit by $1 trillion this year, yes that will make taxpayers increase their saving to pay the higher taxes necessary to finance the bigger debt. However, the taxpayers will spread this pain out over time. If the interest rates on government debt and what taxpayers earned on their own savings were identical, a good first approximation would say that the taxpayers would just save the interest expense of the new debt.
So if the government runs a $1 trillion stimulus this year (spending money on bridges and schools with borrowed funds), and the average interest rate on this new debt is 2%, then the taxpayers in a rational expectations model with no frictions etc. would save an additional $20 billion this year. So on net the stimulus plan would still add $980 billion to Aggregate Demand.
But hang on, that’s not the end of the story. We have now reduced Aggregate Demand by $20 billion forever. So don’t we at least need to take that into account? Or is the idea that there is some critical threshold, and as long as AD is above that, the market can fend for itself?
(2) To the Market Monetarists: You have said that the Fed is being unreasonable with its (price) inflation forecasts, and that the markets have known all along that NGDP would grow anemically. OK, well we’ve been like this for 8 years now. Haven’t most wage contracts been written in the present environment, and so shouldn’t most people now be operating on the basis of contracts that expected these levels of NGDP?
Potpourri
==> I’m not going to post it here every time, but check out Lara-Murphy.com because now I’m doing a daily financial post.
==> This cartoon by David Beckworth is pretty funny if you’re an econ geek.
==> An interesting post from Bryan Caplan on adultery.
Tyler Cowen Joins Murphy in Sumner Bashing
[UPDATE at the end.]
I really liked this recent post from Tyler, where he writes (all formatting in original):
[Tyler Cowen quotation:] To get more specific yet, I am very much a fan of the ngdp rule approach to monetary policy, but I am uncomfortable with one strand in market monetarist thought. I worry when low ngdp growth is blamed for low growth rates of real gdp.
Ngdp is an accounting summation, so I still want to know the real cause of the slower growth in real gdp. Let’s unpack at the most basic level whether the active cause was Fed tightening on the nominal side, or instead a negative real shock, followed perhaps by excess Fed passivity. That is one reason why I think of it as information-destroying to cite ngdp as a cause of developments in rgdp.
More fundamentally, if a central bank is doing anything close to price inflation targeting, mentioning low ngdp and low real gdp growth rates is simply citing the same fact twice, or almost so, rather than explaining one variable with the other. Angus once called the ngdp invocation a tautology; I’m not sure that is the right terminology, but still I wish to look for independent, non-ngdp measures of monetary policy when deciding how to allocate the blame for a recession, to real or nominal factors.
For further context, I was disquieted by some recent Lars Christensen posts on monetary policy and the American economy. I read him as “revving up” to blame a possible recession on tight U.S. monetary policy. I don’t think he provides much evidence that money is tight enough to cause a recession, other than citing the deterioration of some real variables.
I would encourage market monetarists to define — now — how tight or loose monetary policy really is. Then stick with that assessment, based on whatever variables you consulted.
A year from now, I won’t count it if you say a) “well, ngdp growth is down, money was tight, therefore real gdp growth rates fell. Tight money must have been the problem because low rates of ngdp growth are tight money.”
I have been making this point for years. For just one example, back in 2012 I wrote:
[Begin Murphy quote from 2012:] There is something very very disturbing about Scott’s choice of NGDP as the metric of monetary policy. In particular, Scott thinks it’s obvious that if NGDP isn’t growing, then the Fed isn’t doing enough. The problem here is that NGDP is composed of price inflation and real GDP, and real GDP growth is sluggish when “the economy is bad.”
Consider this analogy. It’s a little unfair to Scott, because he has a plausible story to explain how nominal levels affect real factors, but it gets my point across quickly:
Suppose there are a bunch of doctors trying to get a guy to wake up from a coma. They have already pumped him with unprecedented amounts of a new drug, that the producer says should cure comas. Yet for some reason, the guy is still laying there, comatose.
Dr. DeLong says, “Well, I guess we just need to stimulate his body some more. His heart rate is too low, so clearly we haven’t done enough. In the last four years of this coma, we’ve already pumped in 200 mLs, which is twice as much of the drug as we’ve ever administered to another patient over a lifetime. Still, it’s not enough–clearly–so I say we are even more liberal with our treatment.”
Dr. Murphy says, “DeLong no way! That drug is poison. What more evidence do you need that it won’t work? Let’s stop injecting the drug, and let the guy’s body clear that stuff out. Maybe he will recover if we allow it time.”
Dr. Sumner says, “Of the two of you, Murphy is dangerous–his advice would kill the patient–while DeLong is just looking at it wrong. Contrary to Dr. DeLong, the patient has been suffering from you sucking those nutrients out of his body. I don’t know why you guys have been engaged in this policy of starving the patient of this drug. My measure is not to look at the volume of liquid you have injected into his body, but rather at his heart rate. Right now his heart rate is the second lowest I’ve ever seen in a patient, so clearly you have had a stingy medication plan. Now don’t get me wrong, if you pump in the drug and then the heart rate starts racing at 250 beats per minute, clearly you’ve pumped in too much. But right now, the heart rate is consistent with a comatose patient, so clearly you haven’t pumped in enough. Your measures relying on volume of liquid are obsolete. I have an analogy with an ocean liner if you don’t believe me.”
I had another really good post on this, where I had a fictitious person targeting a ratio and somebody else targeting the numerator, but I can’t find it now. I just remember it because Steve Landsburg in the comments said something like, “God I wish I had come up with that line!” A guy remembers a compliment like that.
UPDATE: In his response to Tyler, Scott writes: “Let’s start characterizing unstable NGDP expectations as “reckless monetary policy shocks.” It doesn’t matter if it’s true or not, it’s useful.”
No, let’s not. Let’s use descriptions that correspond to the truth. I can’t believe this is where we are.
Krugman’s Climate Alarmism Is Juuuuust Right
My latest at IER. An excerpt:
Again I point to the tightrope Krugman is walking here: He wants his readers to get on board, cheerleading these “green” power sources because they keep getting so efficient. Yet on the other hand, if the government doesn’t support them, everybody dies. How does that make any sense? If they’re really like information technology, it doesn’t take government favors to lift off. Nobody ever said we needed a “calculator tax” to get people to start using computers.
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