13 Mar 2018

The Worthy King

Religious 3 Comments

I’m sharing this on a Tuesday because I was traveling and don’t want to keep missing my “Sunday” posts…

In church, because of the lyrics of a song we were singing, I started thinking about the character of Jesus. (If you’re not a believer, you can still appreciate the “character of Jesus” as depicted in the gospel accounts.)

After the Last Supper, when a mob came out with clubs and swords to take Him into custody, Peter intervened with his own weapon in a misguided attempt to save Jesus. (Of course, Jesus saves Peter, not vice versa, in the grand scheme.) Everybody knows the famous line when Jesus says to Peter, “Put your sword back in its place, for all who take up the sword die by the sword.” (This has been adopted by popular culture as “live by the sword, die by the sword.”)

However, as I stressed in this essay, what Jesus said next is incredibly intimidating. He continued with Peter: “53 Do you think I cannot call on my Father, and he will at once put at my disposal more than twelve legions of angels? 54 But how then would the Scriptures be fulfilled that say it must happen in this way?”

As I commented in that essay:

Do you understand what a bad*ss Jesus was? He had the option of calling down heavenly slaughter upon His enemies, but refrained from doing so, electing instead to let these ignorant fools mock Him and torture Him to death. And why? Because that’s how much He loved them. That type of moral strength should make your jaw drop.

Now, was Jesus a sucker? Did people take advantage of Him? Did He not know how the world really worked? Did He not know what you had to do to “get ahead in life”?

Now what really struck me in church this week, wasn’t the stuff about the twelve legions of angels, but the line that came right after it. Jesus didn’t say to Peter, “Oh, I have to be arrested, tortured, and murdered, because otherwise humanity is lost.” No, instead His argument was that this needed to happen to fulfill the Scriptures. If God said it through His prophets, then it was going to happen, end of story. To suggest otherwise was talk from the devil. It’s always impressive if someone is willing to endure torture and death for a cause, but when the cause is, “The fulfillment of the Word of God,” it is extra admirable.

Just to top it all off, when Jesus was dying on the cross, it occurred to Him to look up to heaven and say, “Forgive them Father, for they know not what they do.”

* * *

As Bob Dylan says, you’re going to have to serve somebody. If you think you don’t serve any man (or woman), you might be right, but Dylan elaborates: It might be the devil, or it might be the Lord–but you’re gonna have to serve somebody. I choose the Lord.

07 Mar 2018

Fun With Graphs! Murphy vs. Erdmann

Economics, Market Monetarism, Scott Sumner 9 Comments

I don’t want to put too much stock in this post. My main point is to demonstrate that you can tell just about any story you want, if you play with FRED long enough. This is why Russ Roberts asks people when they present their slides showing p-values: “How many regressions did you run before you got this result?” (He talks about that in this interview.)

Anyway, in the comments of a recent post here, Kevin Erdmann rushed to defend the honor of Scott Sumner. Erdmann challenged my view (which is actually close to the conventional wisdom) of what happened with the housing crash. Among other points, he presented the following chart and commentary:

[Kevin Erdmann talking about the above:] “The funny thing is, if you look at Phoenix – the quintessential bubble city – construction and non-construction employment also both start to drop at the same time in mid 2006. And, in Phoenix, where you might think the drop in construction should have led the collapse, the drop in non-construction employment was actually a little sharper than the drop in construction employment.”

You can stare at Kevin’s chart for a bit and see if you follow his argument. (If you see Elvis, you’ve been staring too long.) Make sure you look at the units he uses.

OK, great. Now I’ll take the same variables Kevin chose, but I’ll pick different units. That gives me this picture:

I would argue that my picture corresponds pretty closely to the conventional wisdom on this one. Construction employment (expressed as an index, since after all there are way more total jobs than simply construction jobs) spiked and tanked far more severely in Phoenix than general employment. Contrary to Scott Sumner’s interpretation, you can clearly see that the collapse in construction employment slowed the rate of growth in total employment and “pulled it down”–it wasn’t that these construction workers were easily absorbed into other sectors, so long as the Bernank kept NGDP humming. (That was Scott’s theory, when he was looking at the stats on new housing starts.)

Before closing, one thing I’ll admit: I had expected the national unemployment rate to lag the Phoenix one, and that isn’t apparently correct. (It’s not on this chart I’m showing you–I wanted to just use Kevin’s variables–but I added it on my other browser tab to see.) So that might be a feather in Kevin’s cap.

Last point: Kevin says in his comment, “Yet, something caused all of that job growth and migration [in Phoenix] to suddenly break down in mid 2006.”

This observation is way more consistent with the Austrian story, than with Sumner’s story. According to Sumner, everything was fine until a self-fulfilling prophecy occurred in 2008, when the markets suddenly expected the Fed to fall asleep at the wheel and let NGDP growth collapse. The Fed said “Yep that is indeed what we’re going to do,” and then we had the worst recession since the 1930s, for no other reason than that the Fed stopped paying attention to TIPS yields. There was no “real” “structural” problem in the economy that would have required a recession. (Of course I’m somewhat caricaturing Scott’s position to make a point, but this isn’t made up.)

In contrast, the Austrian story says that the Fed slashed rates after the dot-com crash, brought them down to 1% by June 2003, held them there for a year, then started raising rates from June 2004 onward. So yeah, I agree that “tight money” caused the crash, but not in the way Scott means.

Note also that our disagreement on this is similar to how Krugman thought he blew me up (story here) by pointing out that central banks can influence the business cycle. Right, that’s key to the Austrian theory. Monetary disturbances cause malinvestments–setting in motion an unsustainable inflationary boom–which then necessitate a bust for “real” reasons. The Austrian theory is neither purely demand nor purely real.

07 Mar 2018


Contra Krugman, Don Boudreaux, Economics, MMT, Scott Sumner, Shameless Self-Promotion, Trade 8 Comments

==> The latest Contra Krugman tackles Modern Monetary Theory (MMT).

==> Wendy McElroy writes about privacy and the (modern) connection to cryptocurrencies.

==> A few people on Twitter were giving me a high-five for my old article on trade deficits and fiat currency. I re-read it and thought, “I agree. That *was* a good article.”

==> Hey kids, don’t let me forget: Check out Don Boudreaux’s pushback against Scott Sumner, on the issue of whether the people in a country have to “pay back” trade deficits. I think this is a really interesting issue, and I see where both Scott and Don are coming from. (I mean, they’re both coming from Fairfax, but you get what I’m saying.)

05 Mar 2018

Scott Sumner Slips

Economics, Federal Reserve, Scott Sumner 29 Comments

Long-time readers know that I am not a fan of Scott Sumner’s signature idea, namely that the Great Recession was caused by Ben Bernanke’s tight monetary policy. However, if you’re really an expert on my writings, you’ll know that I’ve said Sumner would be a very formidable debating opponent–much more than Krugman. Indeed, when I said Sumner was “insane,” I meant it as a (backhanded) compliment: Sumner can back up his “outlandish” (to me) views with all sorts of internally-consistent facts and arguments. It’s like you run into a guy who claims to be Napoleon, and you realize five minutes into the conversation that you can’t prove he’s wrong.

In that context, then, it’s refreshing to see Sumner slip. (This is just a re-hash of Sumner’s same slip back in 2011. I don’t know if he saw my response at the time.) It reassures me that he’s a man, and can be beaten…

Anyway, in a recent post, Scott is kinda-sorta taunting the people who warned of the housing bubble, last time around. Since a popular US housing price index is above its peak (in nominal terms) from the prior boom, Sumner wants to know if they think another crash is coming? (My answer is “yes,” and Scott at least concedes I am being consistent–he probably thinks I’m insane!)

Then to drive home just how goofy these bubble-theorists were, Scott asks them a bunch of provocative questions:

Is it possible that the housing boom was not a bubble? Is it possible that fundamentals (such as building restrictions and lower real interest rates) support much higher real housing prices during the 21st century than during the 20th century? Is it possible that the real problem was nominal, a fall in NGDP engineered by a monetary policy that (during 2008) held the Fed’s target interest rate far above the equilibrium interest rates? Is that why unemployment stayed low as housing construction fell in half between January 2006 and April 2008, and then soared when tight money pushed NGDP down in late 2008? [Bold added.]

Scott thinks he’s got a real zinger here. In fact, superficially it’s so good that Arnold Kling admitted defeat back in 2011 when Sumner made the same point. But as I pointed out at the time, Kling threw in the towel unnecessarily. Scott’s point blows up in his face once we pick better data. As with two of Krugman’s examples (here and here), the attempt to destroy a coordination-of-resources story (and replace it with a shortfall-in-demand story) actually turns against them. And since it was Sumner who picked this example, that gives it extra significance when it actually supports the Austrian (and Klingian) view.

First, let’s make sure we get what Sumner is doing. He’s saying that the casual association of the financial crisis of 2008, and more generally the Great Recession of 2007-2009, with the collapse of the housing boom, doesn’t actually work when you look carefully at the numbers. Specifically, between early 2006 and mid-2008, new home starts fell in half, while the national unemployment rate didn’t move up very much. See for yourself:

So, Sumner is arguing that *clearly* the slowdown in house construction has little to do with the onset of the Great Recession or the financial crisis that struck in September 2008.

Yet as I pointed out back in 2011, “new housing starts” isn’t the right metric. Clearly a much better test of the Kling/Austrian story–about workers needed to move out of construction and into other sectors, and this reallocation (or “recalculation” in Kling’s terminology) takes time–would be to look at *employment* in construction, and relate that the to the national unemployment rate. If you doubt me, here’s what Sumner himself said when he thought he blew up Kling back in 2011: “So housing starts fall by 1.3 million over 27 months, and unemployment hardly changes. Looks like those construction workers found other jobs, which is what is supposed to happen if the Fed keeps NGDP growing at a slow but steady rate.” So clearly, Sumner thought that the collapse in housing starts was a good proxy for construction employment.

But we don’t need to use a proxy for construction employment. We can use total construction employment itself. And when you compare *that* to the national unemployment rate…

…the fit is gorgeous. That’s exactly what Kling (or Murphy) require for their story. Not only does the story work for the crash, but the prior boom works too: The national unemployment rate falls, as more and more workers are sucked by the real estate bubble into construction.

If you’re trying to put your finger on the problem, it’s this: Sumner just assumed that a large drop in new housing starts went hand-in-hand with a large fall in construction employment. But as the data show, that’s not what happened. So no, there weren’t a bunch of “construction workers [who] found other jobs” because the Fed kept NGDP growth up.

If you want to offer various theories about why that should be, go ahead. It’s an interesting puzzle, presumably having to do with rates of growth, the fact that you build shopping centers etc. around new housing developments, that there is a lag for add-on work to newly constructed houses, etc. But, it’s not my job to explain *why* the collapse in new housing starts didn’t translate into a collapse in construction employment. Once we realize that, apparently, the one didn’t cause the other, then Sumner’s whole point falls apart. We are back to the original “common sense” view that it’s not a coincidence that the housing bubble collapsed, and then the financial crisis / Great Recession happened.

If you’re curious, the following sheds some light on it:

05 Mar 2018

An Ironic Slip of the Tongue for Jordan Peterson

Jordan Peterson 8 Comments

You guys think you’ve got me allll figured out. I’ve been pumping up Jordan Peterson, saying how great he is, and then his interview with Cathy Newman goes viral. You would expect me to share it with enthusiasm, yet I actually was underwhelmed by it (as I think I’ve said before on the blog).

Anyway, David R. Henderson and I were discussing it over email. (BTW, David has a nice post about JP at EconLog.) I said that even though Newman was obviously being combative, there were a few key parts where I thought JP was not trying to get his point across to someone who disagreed with him. Even though it was perhaps hopeless to try to persuade Newman herself, there could be sincere feminists watching who honestly would not have gotten his points.

David encouraged me to re-watch the video, and every time Newman said something, I should stop the video, and then jot down what I wished JP had said in response. Then, play the video to see how he did.

It was an instructive exercise, and David was right, JP did better than I remembered. It was actually only in two or three exchanges where I thought he missed an opportunity, and there were other places where he was amazing. So overall, he did fine. (And of course the “ha–gotcha” near the end will go down in Hostile Interview history.)

But, the one major goof I noticed: Start at 5:40 and JP clearly says, “…multivariate analysis of the pay gap indicate that it doesn’t exist.”

OK, we all know what he means by that. He takes “pay gap” to mean “a disparity in pay that can only be explained by irrational sexism.”

Yet later on, starting at 8:07, Newman says, “OK so rather than denying that the pay gap exists, which is what you did at the beginning of this conversation, shouldn’t you say to women…” and then she followed up on his nuanced position about being assertive.

At this point JP goofs. He says at 8:20–while he literally points his finger at her–“But I also didn’t deny that the pay gap existed. I denied that it existed because of gender.”

No, that’s not correct. He literally said the multivariate analysis indicated that it didn’t exist.

And then, to compound the problem, he then went on to lecture her about how he’s “very very very” careful with his words.

Anyway, we all get what he meant, and he had a very defensible, correct position on the substance. But this is a good example of what I mean, when I say that I actually don’t think he demolished her as much as some of his fans believe. And if someone went into this interview thinking he was slippery, they would see “confirmation” of that (incorrectly, in my mind, to be sure).

As I’ve said before, I think JP’s Biblical lectures are absolutely amazing; I can’t believe a thinker like him exists. I personally know people who have benefited from his work, as in, it’s helped them in their personal lives. So I’m mostly just posting this because it’s ironic.

04 Mar 2018

God Saves Us; We Don’t Save Ourselves

Religious 2 Comments

This is a famous blessing that comes out of Numbers 6:

22 The Lord spoke to Moses, saying, 23 “Speak to Aaron and his sons, saying, Thus you shall bless the people of Israel: you shall say to them,

24 The Lord bless you and keep you;
25 the Lord make his face to shine upon you and be gracious to you;
26 the Lord lift up his countenance upon you and give you peace.
27 “So shall they put my name upon the people of Israel, and I will bless them.”

Regarding the part I put in bold, here is what commentator David Guzik says: “To be kept by the Lord is blessing indeed. Some are kept by their own sin and desire, some are kept by idolatry and greed, and others are kept by their own bitterness and anger. But to be kept by the Lord insures life, peace, and success.”

As my cousin and I were studying this, it reminded me of Jesus’ prayer to His Father, from John 17:

1When Jesus had spoken these words, he lifted up his eyes to heaven, and said, “Father, the hour has come; glorify your Son that the Son may glorify you…

6“I have manifested your name to the people whom you gave me out of the world. Yours they were, and you gave them to me, and they have kept your word. 7Now they know that everything that you have given me is from you. 8For I have given them the words that you gave me, and they have received them and have come to know in truth that I came from you; and they have believed that you sent me. 9I am praying for them. I am not praying for the world but for those whom you have given me, for they are yours. 10All mine are yours, and yours are mine, and I am glorified in them. 11And I am no longer in the world, but they are in the world, and I am coming to you. Holy Father, keep them in your name, which you have given me, that they may be one, even as we are one. 12While I was with them, I kept them in your name, which you have given me. I have guarded them, and not one of them has been lost except the son of destruction, that the Scripture might be fulfilled. 13But now I am coming to you, and these things I speak in the world, that they may have my joy fulfilled in themselves. 14I have given them your word, and the world has hated them because they are not of the world, just as I am not of the world. 15I do not ask that you take them out of the world, but that you keep them from the evil one.a 16They are not of the world, just as I am not of the world. 17Sanctify them in the truth; your word is truth. 18As you sent me into the world, so I have sent them into the world. 19And for their sake I consecrate myself, that they also may be sanctified in truth.

20“I do not ask for these only, but also for those who will believe in me through their word, 21that they may all be one, just as you, Father, are in me, and I in you, that they also may be in us, so that the world may believe that you have sent me.

As you can see quite clearly from the parts I put in bold, Jesus is NOT saying, “Father, thank you for letting me set a bar of minimum goodness, and granting me fellowship with those whose sin fell below the veto mark.”

Even Judas is lost NOT because he is a “worse person” than Peter or the other apostles, but rather because he is the “son of destruction” (or “son of perdition” in some translations), i.e. he is of the devil, and his betrayal of Jesus and loss is necessary to fulfill the prophecies of the Old Testament. Even here, it’s not that Jesus was saying, “Well let’s see how this Judas guy turns out…YIKES he’s a bad one, he needs to go.”

03 Mar 2018

An Excellent Response To Dawkins’ Unusual Tweet

Humor 11 Comments

Original tweet here.

03 Mar 2018

Scott Sumner, Trade Deficits, and Dark Matter

Trade 3 Comments

Scott Sumner at EconLog pounced at the red meat I waved in front of him. (I had sent him Trump’s ludicrous tweet on trade wars.) One of Scott’s points was very interesting, and I want to make sure readers understand the claim.

Specifically, Scott wrote, “4. Most people assume that the US runs a persistent trade deficit. But if the trade deficit really were persistently negative, properly measured, then this time series should also be negative and falling. Instead, the US surplus on investment income is strongly positive and rapidly increasing. If this is what it means to be a “debtor nation”, then lets have lots more debt!”

He then presented a chart, but I’ll give a more comprehensive one below:

(So what Scott showed was more-or-less the green line in my chart above, although it’s not exact–perhaps his wasn’t seasonally adjusted?)

Another clarification: I think technically Scott should’ve been talking about the current account deficit, not the trade deficit.

Anyway, the basic idea is this: Over time, the flow of annual income that Americans earn from their foreign assets held abroad, keeps growing more than the flow of annual payments that Americans must make to foreigners on their U.S.-based (but foreign-owned) assets. This is not what you might have expected, since the U.S. has been running large and persistent current account deficits for decades. A current account deficit means that the amount Americans earn on their foreign assets PLUS their sales of goods and services to foreigners (i.e. exports), is less than the amount Americans spend on imports and on making payments to foreigners for their US-held assets.

So what Scott is saying is that there must be something screwy with how we measure current account (sic) deficits.

This is the “dark matter” thesis of Hausmann and Sturzenegger, from 2005. They argued that superior US know-how explains why American investors can earn higher returns on Foreign Direct Investment abroad, than foreigners can earn abroad. So effectively the foreign savers invest in the US at a low yield, and Americans then invest abroad at a higher yield, earning the spread. That seems fine when hedge funds or commercial banks do it, but in terms of the conventional trade accounting it looks “unsustainable.” Here’s an analogy I made back in 2007 (in an essay in which I made some unfortunate and snarky predictions at the end):

Suppose a stock speculator spies a company that is undervalued. He invests $100,000 in the company, waits one week, then sells the shares for $105,000. Then he uses the profit to buy his wife a necklace.

His wife…is quite furious. “How much did you earn selling your labor or merchandise last week?!” she demands. He thinks for a moment and realizes the answer is “None.”

The speculator’s wife continues with the interrogation: “And how much did you spend on assets this week?” The husband replies that he spent $100,000 on stock shares.

She then demands, “And how much did outsiders spend on assets that you owned during this same time frame?” After a pause—for he’s not used to thinking in these terms—the husband informs her that outsiders invested a total of $105,000 in assets that he owned.

The wife starts to tremble with rage. “Do you mean to tell me that you financed this $5,000 bauble purely by increasing your liabilities to people outside of this household??”

So to be clear, I’m not now saying, “Sumner is right, it’s dark matter, everything is fine.” I’m just clarifying the argument.

For example, I could flip things by imagining a guy telling his wife, “I’m a smart investor, babe. I borrowed $10,000 from credit cards at an introductory APR of 1.99%, and I invested $9,000 of it into 30-year bonds yielding 3%. Then I spent the remaining $1,000 getting you some new shoes and myself a new sport coat. Some people call this ‘living beyond my means’ but I call it leveraging dark matter. I mean, I’m only paying $199 in finance charges, while I’m earning $270 in interest on my Treasuries. It’s all under control.”