22 Sep 2017


Shameless Self-Promotion 7 Comments

There are some old links on here, because Internet pages accrue on my iPhone when I’m traveling, and then I forget to post them on the blog when I’m at a computer. So this is a house-cleaning of sorts…

==> Obviously I’m biased, but something doesn’t sit right with me regarding Scott Sumner’s “I told you so” post regarding the Swiss franc. In general, take any government that is pegging its currency at a rate the market thinks is wrong. (Typically we imagine the government overvaluing the currency, but in this odd case the Swiss authorities were trying to undervalue the franc.) Some outsider could always take the position of, “If you throw in the towel, that will just make things worse. Trust me, just stick to the peg come hell or high water, and eventually speculators will back off.” Right? There’s no way to prove such an outsider wrong. Even if the government throws in the towel because of mounting concerns about the obvious downsides of the peg, the outsider could say, “You should’ve trusted me.”

I realize there is a subtlety with Scott’s discussion of the Swiss case in that he thinks he has another country (Denmark) that followed his advice, but it’s hard to know the relevant counterfactual. One might plausibly say to Scott, “The fact that our balance sheet is still growing even after we revalued, shows how insane it would have been to follow your advice.”

In other words, I think Scott is pulling a Krugman here, saying, “The stimulus would’ve worked if it had been bigger.” And since the authorities didn’t follow his advice, there’s no way to prove him wrong, but I think the evidence prima facie lines up with the people saying the original policy was unsustainable and risky.


==> David R. Henderson “reprints” a very prescient pre-9/11 column.

==> Back to Sumner: Again, something doesn’t sit right with me, in his discussion of Bitcoin and bubbles. I don’t think he packs it all into this post, but in conjunction with his other posts on this exact topic over the last year, I am pretty sure Scott’s position is this (paraphrasing of course): “Bitcoin was $300 at the end of 2014. A lot of people back then claimed it was in a bubble. Now, from that point to now, whether Bitcoin went up by a factor of ten, or crashed by 90%, all of that is consistent with the EMH.” OK fine. But Scott is also posting stuff along the lines of (paraphrasing): “A lot of EMH critics said Bitcoin was in a bubble. Let me look at the evidence…Nope! Turns out they were wrong. EMH is empirically validated yet again. Man I’m getting sick of winning. Don’t thank me, thank Fama.”

==> Someone on Twitter told me Dean Baker blew up the Austrian claim that easy money caused the housing bubble. Haven’t read it yet but I am curious to see the argument.

==> Don Boudreaux has a great point about the Hotelling model of businesses locating on a beach, and how that analogy is routinely applied to politics (median voter theorem). It’s a straightforward enough point but I never heard it before. (Fair warning Don, if you’re reading this, I stumbled on your old post because when I get the time I’m doing a quibbling critique of one of your anti-Trump trade posts.)

==> Another tour de force from Scott Alexander, this time on a viral article (posted after the Google employee controversy) claiming the differences between men and women have been exaggerated. A good excerpt:

Suppose I wanted to convince you that men and women had physically identical bodies. I run studies on things like number of arms, number of kidneys, size of the pancreas, caliber of the aorta, whether the brain is in the head or the chest, et cetera. 90% of these come back identical – in fact, the only ones that don’t are a few outliers like “breast size” or “number of penises”. I conclude that men and women are mostly physically similar. I can even make a statistic like “men and women are physically the same in 78% of traits”.

Then I go back to the person who says women have larger breasts and men are more likely to have penises, and I say “Ha, actually studies prove men and women are mostly physically identical! I sure showed you, you sexist!”

19 Sep 2017


Contra Krugman, Potpourri 20 Comments

==> In the latest Contra Krugman, Tom and I bring Scott Horton on the show to talk about foreign policy post-9/11.

==> Scott Sumner shows how no matter what, everything is just what the Efficient Markets Hypothesis predicts. This time, it’s about Bitcoin.

==> Ryan Murphy pointed out to me that in the past he’s come out in favor of ABCT versus Friedman’s plucking model, in the context of the housing boom and bust.

19 Sep 2017

Neeley vs. Murphy on Carbon Tax

Climate Change, Shameless Self-Promotion 9 Comments

We take our blog feuding to the big lights. An excerpt:

Suppose some mobsters go around killing people who owe them money on their gambling debts, and I point out to them, “Excuse me, fellas, if you just broke their legs with a baseball bat, more of them would be able to pay you off.” In this scenario, did I just admit that breaking people’s legs makes them more productive? Of course not. I was merely pointing out that breaking their legs hurt their productivity less than killing them outright.

14 Sep 2017


Potpourri 25 Comments

==> I was on Mark Edge’s show to talk about price gouging.

==> In the latest Lara-Murphy Show, we talk about tax implications from surrendering a policy with large outstanding policy loans. It’s inside baseball but make sure you listen, if you are interested in IBC.

==> I really loved this essay by Russ Roberts. Some excerpts:

I don’t know what depresses me more — the stupidities and dishonesty and tolerance of darkness that come out of the President’s mouth or the response from those that oppose him. Given that I don’t like the President, you’d think I find the response of his enemies inspiring or important. But the responses scare me too, the naked hatred of Trump or anyone who supports or likes him. And of course, it goes way beyond Trump and politics. The same level of vitriol and anger and unreason is happening on college campuses and at the dinner table when families gather to talk about the hot-button issues of the day. Everything seems magnified.

The media is part of the problem. I follow a lot of mildy left-leaning journalists on Twitter who write for major publications and outlets. They are not fringe players. Their employers aren’t either. These reporters aren’t ideologues. They’re just right-thinking people who lean left. Somewhere along the line, they stopped pretending to be objective about Trump. They have decided he is dangerous and a liar and they write about it openly on Twitter. They mock him in a way they didn’t mock previous presidents who they didn’t particularly like. They may be right about the dangers posed by a Trump presidency. But their stance which violates long-standing norms of their profession amplifies the feelings of Trump supporters that those supporters are under attack from mainstream American culture.

Now I’m well aware of the intellectual paradoxes of believing in a Creator and living one’s life according to an ancient set of precepts. Many of those make me uncomfortable. Many bring comfort. I fully understand how someone could reject them as irrrational or stultifying. What bothers me is that I don’t think many of those who are surprised or outraged at my leading a religious life could begin to explain its appeal to me. It is simply unimaginable to them that an educated person could be religious.


12 Sep 2017

Even Without Tom Woods, I’m Still Contra Krugman

Contra Krugman 29 Comments

Because of the hurricane, I had to host episode 103 by myself. The issue was Krugman’s column discussing Jeff Sessions’ statement about DACA. Some highlights:

6:00 From the media and pundit reactions, you’d think Trump announced women couldn’t vote anymore. But in truth, this was a 5-year-old policy that Obama himself said was a temporary stop-gap measure at the press conference unveiling it.

8:20 Krugman’s description of Sessions’ statement is “incredibly dishonest”–not a phrase I use lightly. Krugman outdid himself on this one.

14:45 I again explain why Trump says the US is the “highest taxed nation” when talking about tax reform.

16:00 I high-five Krugman’s ridicule of the notion that there’s a fixed number of jobs, in the context of the immigration debate. (Remember, I’m tough but fair.)

17:00 It creeps me out to view immigrants at tax cattle a la Krugman.

18:20 I critique the “secular stagnation” approach.

20:20 I flip the Japan example.

22:10 I give a backhanded compliment to comedian Dave Smith, who will be performing on the Contra Cruise.

23:00 At this point I put aside Krugman’s column and just start talking immigration, in terms of the economics and libertarian theory.

28:30 I criticize the slogan “open borders.”

30:20 “OK Murphy, given that we don’t live in your an-cap utopia, what should the federal government’s policy actually be?”

12 Sep 2017

Amplifying Oren Cass on a Carbon Tax, Part 2

Climate Change, Shameless Self-Promotion 11 Comments

Even professional economists, take note. Cass makes a great point that I haven’t seen stressed anywhere else. I’ll quote him first, then I’ll quote from my article to elaborate on his insight.

CASS: Nor does describing a carbon tax as “revenue neutral” do anything to improve its appeal. Promising to use the revenue for tax cuts or a rebate does not guarantee its best use or a net positive economic impact, nor does it make the policy somehow free. To the contrary, a revenue-neutral tax is guaranteed to be costly precisely because it holds government revenue constant while also increasing costs to private actors by driving them toward higher-cost energy technologies. The effect is most obvious in a world where the tax has driven emissions to zero, and government revenue comes from all of its pre-tax sources, except consumers also find themselves motivated by the tax’s existence to pay the full cost of electric vehicles and solar panels. In this respect, the tax operates much like the minimum wage; it imposes large and plainly government-created costs in the form of “off-budget” spending for which the government is never held accountable. [Bold added.]


And now here’s me, amplifying the above:

Suppose that the U.S. government implemented an outrageously high carbon tax—something like $2,000 per ton—and enforced it vigorously. The price of conventional gasoline would skyrocket some $16 per gallon, while electricity prices would soar because coal- and natural gas-fired power plants would suddenly have outrageous taxes to pay.

In this regime, the amount of U.S. carbon dioxide emissions would fall drastically, so that even with the very high rate of carbon tax, it’s possible that within a decade very little revenue would be coming in. (Remember, total carbon tax receipts per year are annualtons of emissions multiplied by carbon tax per ton.) In this scenario, the tax rates on labor and capital would have to be basically what they were before the new, draconian carbon tax, because of the assumption of “revenue neutrality.” In other words, if the draconian carbon tax isn’t bringing in much revenue since the carbon base gets driven to basically zero, then there isn’t much in the kitty to offset the pre-existing taxes.

So what can we say about the state of the conventional economy? It clearly isn’t benefiting from any “pro-growth” kick emanating from “Pigovian tax reform.” No, in this extreme scenario, the pre-existing distortionary taxes haven’t been cut at all.

However, the situation isn’t simply a wash. Even though it’s not bringing in new revenue, the massive $2,000 per ton carbon tax is definitely forcing Americans to alter their behavior. Nobody would be driving gasoline-powered vehicles, and all coal- and natural gas-fired power plants would be shuttered. Americans’ standard of living would have collapsed, as transportation and energy had become outrageously expensive.

It’s not enough just to observe, “Greenhouse gas emissions are a negative externality while we want to encourage work and saving.” The numbers matter. Even if “taxing bads, not goods” leads to a “win-win” upfront, it’s possible that the numbers move and cause the flipside to occur in a decade or two.

Let me make sure the reader understands the point of my exaggerated example. I picked a ridiculously high carbon tax of $2,000 per ton to make Cass’s point crystal clear. But even at a more moderate level, we still have to take into account the subtle mechanism at work: The more successful a carbon tax is at inducing people to alter their behavior, then the less revenue it raises. The impact of a carbon tax on the conventional economy is not necessarily directly proportional to the amount of revenue it raises, and so in general we can’t rely on catchy slogans like “tax bads, not goods.” To assess the economic cost of complying with a carbon tax—which could be compared to the ostensible benefits of avoided future climate change damages—we need to look at specifics. A very low carbon tax rate won’t raise much revenue, and so won’t allow for much tax reduction elsewhere, but on the other hand a very high carbon tax rate might not raise much revenue either.

11 Sep 2017

“That’s the Story of the Hurricane”

David R. Henderson, Economics, Scott Sumner 6 Comments

I am always happy to read a defense of the person receiving a Two Minute Hate, even if it’s a Fed official who seemed to subscribe to the Broken Window Fallacy. In that spirit, here is David R. Henderson defending William Dudley’s remarks about the hurricane. (Also notice Scott Sumner’s caveat in the comments.)

To try to minimize confusion in the comments here at Free Advice, this is what’s going on:

1) A kid breaks a shop window in 19th century France and normal people say, “That’s bad.”

2) A smug contrarian says, “On the contrary, the lad’s activity will provide employment for the glazier, who now has to replace the window. It stimulates economic activity and makes the community richer.”

3) Bastiat points out that this is shortsighted, and overlooks the employment that the storekeeper’s spending could have given to (say) the tailor who could’ve made him a new shirt. Total employment is the same either way, but now the community is poorer to the tune of one shirt.

4) (Hundreds of people commit the “Broken Window Fallacy” up through 2017, providing employment for smug libertarians to mock them and make our movement richer.)

5) William Dudley says the recent hurricanes will increase measured economic activity (i.e. official real GDP) because people will have to rebuild.

6) David R. Henderson clarifies that Dudley said “unfortunately,” and that there is no fallacy here. People are poorer, but they may indeed reduce the amount of leisure they otherwise would have enjoyed, in order to work more. Total measured real income will be higher than it otherwise would have been, but the community will be poorer, especially if we include “leisure enjoyment” in the measure of consumption. Note here that “poorer” means “lower wealth.” If someone takes away your house and your car, but then gives you a job offer giving you a $50,000 annual raise, the market value of your output is higher that year, but you still might end up “poorer” than you started.

7) Scott Sumner points out that even David’s defense of Dudley only works for small amounts of damage, because if the damage is too severe, then the reduced capital stock makes labor less efficient. So even if people work more hours, measured GDP might be lower until the capital stock is replenished.

8) Notice that points (1) – (7) do NOT rely on the Keynesian move of classifying “classical economics” as applying only to the special case of full employment. To see that discussion, read this old post where I gently push back against Matt Yglesias and Daniel Kuehn.

10 Sep 2017

A 500-Year Protest Event

Religious 13 Comments

(Like a 500-year flood event? Work with me people.)

At my church they are starting a Bible study on Luther. The news hook is that 2017 marks the 500th anniversary of the posting of the 95 Theses, which started the Protestant Reformation.

Having been raised Catholic but now being a Protestant, let me say that I think a lot of people on both sides are way too smug in their critiques of each other. (This isn’t really a reflection on Christians; I think it’s true of people. I notice the same pattern in politics and economics.)

For this post, let me just reiterate the single biggest difference in my personal experience, going through the two traditions. Every time I say this kind of stuff, people in the comments bite my head off and say I don’t know the first thing about Catholicism. OK fine, but I went to Catholic schools from kindergarten through senior year in high school (and was valedictorian in both schools), and I received the sacraments through Confirmation. And also, in conversations with other devout Catholics (who went to church every week) I heard similar viewpoints.

So here’s the difference: Before I encountered serious Protestants, I hadn’t seen someone use the Bible to argue a theological point. In particular, to argue about the source of your salvation. I thought that was ultimately something that was up to God, and you’d find out when you died if you made the cut.

In contrast, Protestant pastors every week will preach from the Bible–with people in the congregation pulling out a Bible to read along–and build a case for why it is faith in Christ alone that justifies you and washes away your sins. (Here are some standard passages, but FYI I think this guy’s handling of James is not great and I can totally get why a Catholic would think it was weak.) Even when they are going through books from the Old Testament, they will often wrap up by interpreting the events through lens of Jesus’ ministry and end by inviting people in the audience who have not accepted Jesus as their Savior to do so.

Here’s another difference, that is more “cultural” rather than doctrinal. When someone brought me to a Protestant service and introduced me to her acquaintances, this older woman shook my hand and asked, “Do you love the Lord?” I can’t remember what I said, but I remember at the time thinking that I didn’t even really understand what she meant by such a question.

Well, now I totally get it, and yes I love Jesus. (To be 100% clear, of COURSE I am not saying, “Catholics don’t love Jesus.” I really hope that’s not how this post is coming off in tone.) In fact, I think you could do a lot worse in life than if you lived it by often reflecting to yourself and others on how much you love Jesus. Just like, if you fall in love with someone romantically and it makes everything about your life better–not just “What will I do on the holidays?” but also sticking to your diet, dealing with your awful boss, or coping with a sick parent–all the more so, if you are in love with Jesus it transforms your life.

But I would never have discovered this perspective had I not started going to Protestant services.