Mises >> Krugman
Jonathan MF Catalan decided I had too much time on my hands, and so claimed on his blog that Krugman is hands-down a better economist than Rothbard, and is indeed comparable to Ludwig von Mises. At Mises Canada I provide part 1 of my response, dealing with Mises vs. Krugman. Later I’ll do Rothbard vs. Krugman.
An excerpt of my response:
Mises solved the technical problems with the Mengerian approach–at first blush it seemed like a circular argument to explain the value of money by reference to its utility–which included his now-famous regression theorem. But he also had to build up a theoretical edifice of classifications and terminology, in some cases rejecting the moves made by Böhm-Bawerk (who had considered money as a “production good” while Mises thought it more appropriate to use a new category of “media of exchange”). By showing that a single value theory could explain all market exchange ratios–even when regular goods traded against units of the money good–Mises united micro- and macroeconomics in this book. That alone is far, far more significant than Krugman’s contribution of refining our understanding of international trade patterns.
==> MONEY & BANKING THEORY. In TOMC, Mises also provided a new classification scheme for thinking through the problems of banking. This involved terms such as “money in the broader sense,” “money in the narrower sense,” “commodity money,” “credit money,” “fiduciary media,” and “money certificates.” It’s not that Mises invented these ideas. Rather, he surveyed the extensive literature and provided a theoretical framework for understanding money and banking with the aim of explaining the purchasing power of money but also to allow economists to accomplish the next major task…
==> BUSINESS CYCLE THEORY. After refining monetary and banking theory, Mises then–almost as an afterthought–explained what we now call the Austrian theory of the business cycle. (This is a topic about which Krugman is very ill-informed.) Because banks could issue fiduciary media, the interest rate could temporarily fall below the “correct” level and invite an unsustainable boom. Once the credit expansion ended, interest rates would rise and the bust would ensue. This explanation relied on the rich Austrian understanding of the capital structure bequeathed by Böhm-Bawerk, the idea of a “natural” rate of interest developed by Knut Wicksell, and also the credit theory of the trade cycle provided by the English Currency School. It is merely through his elaboration of the Misesian business cycle theory that Hayek won the Nobel (Memorial) Prize. Finegold acknowledges this in his post, but it’s still rather amazing to me that someone could think explaining the business cycle is merely comparable to refining Ricardo’s understanding of international trade.
Incidentally, I think a lot of the up-and-coming libertarians really don’t get why so many older folks like Mises so much. If that describes you, no need to be embarrassed; maybe nobody ever explained it to you. But, you’re totally wrong, and you should read my post to see why.
A Post Having Absolutely Nothing to Do With Level Targeting of NGDP Growth
I have been somewhat astonished by how much Scott Sumner has transformed the economics blogosphere (and even serious academics and policymakers) in favor of his views, which were almost universally considered absurd back in early 2009. It’s not just progressive Keynesians who have come around to his way of thinking, but even many free market fans have said that they used to be Hayekian on business cycles, but were persuaded by Sumner.
My frontal assaults on Sumner do not seem to have resonated with the people on the fence. So let me use completely circumstantial evidence to get you to reevaluate exactly why you find Sumner to be so persuasive.
In a recent post Sumner gives “The case for 80% tax rates on the rich.” He’s not being ironic; that is actually what he does in the post. Some excerpts:
Recall that in recent posts I argued that the baseline assumption should be equal taxes on current and future consumption…In my view the strong presumption of sharply decreasing marginal utility at high levels of consumption means that the baseline tax policy is highly progressive, and to deviate from that assumption conservatives need to make arguments based on second order effects…I don’t really have any idea what the top rate should be, but for extremely high levels of consumption it’s certainly plausible that an 80% rate might be appropriate. I’d support that rate in a deal for a pure consumption tax and abolition of income taxes. A $40 million dollar yacht will motivate a financier just as well as a $200 million yacht, in a world where financiers mostly care about how they are doing relative to other rich guys. And they’d still be able to put expensive paintings on their walls—prices would fall and who else would buy them? But fewer artists will be able to live in Brooklyn or Chelsea.
Of course I still think the top income tax rate should be zero, but high MTRs on ultra-high level consumption are fine.
…
Think of it as a big Monopoly game. If the developers of Monopoly had required the owner of Boardwalk to share 40% of their profits from Boardwalk with the other players, that would have been just one more rule. Even if the current rules are justified on efficiency grounds (and they are not all justified), that doesn’t make the beneficiaries of the rules “deserving” of their good fortune. Trump could have just as easily been born as a one-armed beggar on the streets of Dhaka. Progressive taxes are just one more arbitrary rule in the game of life, like 20 year patent protection for some inventions but not others, or get-out-of-jail free cards for people that can’t pay back millions in debt.
…
Yes, let’s have progressive taxes, but do it sensibly and don’t exaggerate the problem. That’s all.
…
If you ever convince me that I’m wrong about “deserve,” I won’t conclude that Donald Trump or Donald Sterling deserve their money. Rather I’d tax it and give it to that more deserving mom. Indeed I’d take most of the money we spend on welfare and move it overseas. [Bold added.]
Incidentally, he links “Donald Sterling” to the stuff about the phone calls with his mistress; it’s not a link to an article explaining why Donald Sterling used illegitimate means to obtain his wealth. So, Scott Sumner has one-upped Al Sharpton: So far as I know, Sharpton just thinks Sterling’s comments mean he should be forced to sell his property. Sumner thinks “we” can just take it from him. I mean, why should a racist get to keep so much wealth? How does that maximize utility?
Now you might say, “Give me a break Murphy, you’re just sore because Sumner has crushed your views on money and banking so decisively.” And it’s true. I confess, I am having trouble grappling with someone who has seduced so many of my colleagues by blaming our current woes on the “tightest monetary policy since the Herbert Hoover Administration” when the data look like this:
P.S. Since I have no doubt opened up Pandora’s Box with the Sterling remarks, I might as well get these two links out now: Here’s Kareem on the situation, and here’s a hilarious article on the fact that in 2014 Sterling was to receive his second lifetime achievement award from the NAACP. Awwwwkward.
Bob Murphy Explains “Rio 2” to Stefan Molyneux
Please forgive the third-person title but I thought it was too funny to omit. Anyway, here’s Stefan’s review, which right now has 54,000 views. Since I think Stefan is unbelievably, inconceivably wrong-headed in it, I naturally respond.
Tom Woods Interviews Norman Horn on Christian Libertarians
This is a neat interview that I just finished. Near the end, Norman and Tom make (separate) points that I heartily endorse. (Note that in the below I am paraphrasing and might make the points the way I typically do, but they are definitely consistent with what Norman and Tom said.)
==> Around 15:15, Norman says that even though he’s not an outright pacifist, he does think that people give violence too much credit for achieving social change. For example, when you bring up the idea of violent resistance to the State, people take it for granted that it “worked” when the American colonists used it against King George. But hold on a second–why are we debating right now how to push back a tyrannical government, if the violent American revolution was such a smashing success?
==> Around 18:00, Tom makes the exact same point that I was trying to make with my blog post yesterday: Atheist libertarians get huffy with the Christian libertarians, as if we from scratch came up with a theology intending to make things uncomfortable for Rothbardianism. Well no, we didn’t make this stuff up; we encountered a tradition of belief in the divinity of Jesus Christ etc. etc. that we believe is true. We actually believe that the God described in the Christian Bible exists. In the face of such a possibility, it’s a bit petty to be fretting over Romans 13.
George Clooney Doesn’t Know How to Hedge His Portfolio
I realize there are non-pecuniary reasons to engage in wagering, but still:
Well if George is singing another tune now [he just got engaged–RPM] he could have to pay out to Michelle Pfeiffer and Nicole Kidman. She previously told Jonathan Ross they had a $100,000 bet over whether George would tie the knot.
“He’s just a great guy, great with kids,” she said in 2007. “I bet him he would get married and he keeps inflating the bet – from $100 to $100,000 (£50,000). I still think he will, he’s a handsome devil.”
Nicole Kidman also famously bet with George he’d wed before 40 and when he didn’t she sent him a cheque, which he then returned. They then re-set the bet for 50, but it’s not known if now at the age of 52, Kidman will finally win out.
It’s funny, just the other day I was hanging out with Nicole and Michelle, and they were like, “Bob, you silly goose, we’re in a deflationary trap. Let’s bet on CPI.” And I was just like, “No ma’am.”
Ralph Raico on Liberalism
With all the talk of liberalism lately (spurred by Kevin Frei and Dan Klein’s project) I thought it relevant to post a standard topic that historian Ralph Raico would give at Mises University. I don’t know if he’ll say it in this version, but I know I’ve heard him say he doesn’t even like to use the qualifier “classical.” When he uses the term “liberalism,” Raico means what Ludwig von Mises meant when he wrote a whole book on it.
(NOTE: If anybody cares, I didn’t sign the statement. I agree with the sentiment behind it, but I’m not sure the strategy makes sense.)
RBC Bask
I am very surprised I can’t find a good example of this, and yet I can’t…. I have read at least two popular Keynesian bloggers (of the fame of Karl Smith and Matt Yglesias, I’m not talking about You-Know-Who) critique the standard Real Business Cycle account of recessions along these lines:
“OK, let’s assume for the sake of argument that the housing bubble years were characterized by mass illusion, and that everybody thought he was richer than he really was. Then in 2008 reality sunk in, and everybody realized with horror that he consumed way too much (saved way too little) during the last 5 years. OK great, so then the optimal response to this new information would be to enjoy LESS leisure and work MORE. So how the heck does this kind of story explain why millions of workers are sitting on their couches?”
Does the above ring any bells? I tried emailing Karl about it, but haven’t heard back.
God’s Existence Is Pretty Important When Considering Religion
On Good Friday I made a tongue-in-cheek Facebook post about Christianity, which of course led to some atheist libertarians wondering how I could be so irrational. One guy was being fairly courteous about it, so I responded in kind, pointing him to some of the Sunday posts here, to at least get him to see where I was coming from. In an effort to assure him of my own sympathy with his astonishment, I said something like, “Hey, I used to call myself a ‘devout atheist,’ so believe me when I tell you that I realize why you think Christianity looks like statism on steroids.” He Liked that comment, we hugged it out, we sang Kumbaya, etc.
But another atheist libertarian was not so merciful. Our hugging and singing bothered him greatly. He quoted my steroids comment and told me, “If it looks like a duck, walks like a duck, and quacks like a duck, it’s a duck.” etc.
Now the thing is, we can go back and forth about this stuff all day (and some of you would no doubt enjoy that), but it’s a big waste of time. If you are an atheist, then OF COURSE seeing “organized religion” is going to horrify you, and appear as a gigantic scam designed to subjugate people and bilk them of their money.
In contrast, if you believe in the type of God depicted in the popular monotheistic traditions, then OF COURSE you are going to be able to excuse away any odd behavior by human beings done in the name of religion. Not only is that consistent with belief in a perfectly just God, but it actually flows quite naturally from it: Humans are going to do a horrible job in trying to give God the respect and adoration He deserves.
I think this fundamental difference in worldview explains why it’s so difficult for atheists to get my point, about why God isn’t a murderer in the same way a human ruler would be, who does the sorts of things God does in the Old Testament (like telling His subjects to slaughter babies). To refresh your memories, my response on this type of stuff is, “God controls everything that happens in the universe. If you die from a heart attack at age 96, then God killed you. If you die at age 2 from a sword wielded by a Hebrew following God’s command, then God killed you. They are either both murder or neither is.”
Yet that type of response rings hollow to the atheist. I suspect it’s because he doesn’t actually believe in an omnipotent God, and so doesn’t take the premise seriously even to spin out the implications.
You also see this in the debates over evolution. Arguments that seemed unbelievably compelling to me when I was an atheist, suddenly appeared as ridiculous non sequiturs when I believed in God. (NOTE: I have no problem with the claim that all life shares a common ancestor. I’m talking about the metaphysical baggage that often comes with standard Darwinian theory.) What happened, I realized in retrospect, was that back when I was an atheist, the answer just had to be a certain thing, because otherwise we would be incapable of finding an explanation.
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