Consulting by RPM || Free Advice Blog

Mosler Debate

Reminder that I’m debating Warren Mosler tonight at Columbia… Details here.

Counterfactuals to the Keynesian Rescue, Once Again

On the one hand, I appreciate the fact that Neil Irwin is at least dealing with the cognitive dissonance that the blogging Keynesians have set up for themselves, with respect to the allegedly slam-dunk empirical evidence against “austerity.” He writes:

This is the U.S. economy in a nutshell, as revealed in Tuesday’s news ticker: Housing prices rose faster over the past year than they have in the past seven. Consumer confidence hit its highest level in five years. The stock market rallied another 0.9 percent to hover near an all-time high, as measured by the Standard & Poor’s 500. And the national retail price of gasoline has fallen for six days straight and is down 16 cents a gallon since late February, providing nice relief to drivers.

Which all raises an obvious question: Whatever happened to the austerity economy?

Later he writes something that you would never read from Krugman:

[T]he direct evidence that tighter fiscal policy is damaging growth is scarce, so far at least; study the internal details of major economic reports, and even if you squint you don’t see a lot of concrete evidence of the squeeze.

But never fear, kids, Irwin does provide an escape hatch:

So was the impact of tighter fiscal policy oversold? Not necessarily; the models used by both private forecasters and independent agencies like the Congressional Budget Office and the Federal Reserve which show a significant economic drag from tighter fiscal policy do not necessarily imply a precise timing or the exact channels through which that drag will take place. It’s an exercise in counterfactuals, and what is happening now is essentially the reverse of what happened in 2009. Then, the economy contracted significantly even amid fiscal stimulus, with models concluding that the contraction would have been worse in its absence. Now, the economy is performing well even with higher taxes and spending cuts, suggesting that growth might be even stronger otherwise.

In case you aren’t seeing how funny the above is, here’s what’s going on:

==> When the passage of the Obama “stimulus” package coincided with the economy falling off a cliff, the Keynesians said, “Oh wow, good thing we passed that! The economy is even worse than we realized!”

==> When the implementation of “austerity” coincided with an economy improving according to the standard metrics, the Keynesians said, “Phew! We got lucky! The economy was doing a lot better than we realized.”

Now there’s nothing wrong with counterfactuals; they are in fact the only way to couch economic principles. It would just be nice if some of the more prominent Keynesian bloggers stopped running victory laps and claiming they have a monopoly on empirical support for their policy recommendations. No, they really don’t.

Potpourri

==> A cool page on meteorite strikes; just watch it. (HT2 Daniel Kuehn)

==> On the Krugman/Reinhart-Rogoff exchange, unfortunately I suspected that there might be something fishy going on with their shocked, shocked reaction to claims that they didn’t share their data. I’m not completely certain of the true situation, but this Joe Weisenthal gloating seems plausible, based on what I’ve read.

==> But don’t think I’m letting Krugman off the hook. In addition to being uncivil, he’s also totally wrong in how he’s “explaining” foreign countries and “austerity.” Alan Reynolds walks through Ireland and Iceland, where Krugman’s narrative is crazy. (HT2 David R. Henderson)

==> Ah but when Reynolds takes on Brad DeLong, I think Reynolds misfires. Reynolds clearly had been pointing to the apparent oddity (he didn’t use the word “paradox” I don’t think, but the scent of mystery was certainly in the air). Reynolds keeps framing the puzzle as: How can Keynesians think (a) the government issuing more debt in exchange for dollars and (b) the government absorbing more debt in exchange for dollars, are both stimulative, when they seem to be the opposite policies? And yet the Keynesians think that monetary and fiscal action can both stimulate a depressed economy. (These aren’t his exact words, but I think they are accurately capturing the alleged puzzle Reynolds wants to raise.) But the problem is, the Keynesian actually doesn’t claim that issuing more debt per se is stimulative. What is stimulative (according to the Keynesians) is spending more money that is financed by borrowing. If the Treasury merely issued more bonds and then buried the auction proceeds–in the form of actual $100 bills–in the ground, I think DeLong would say that that would be contractionary or at best neutral.

==> This has to be a hoax. Not even economists would be myopic enough to try something like this.

==> Somebody asked me my thoughts of Steve Keen. I dug this up from the period before Yoko broke up Callahan/Murphy.

Beatles Bask

I came across this Neil Irwin post about those dastardly rich people who don’t want the government taking the majority of their money. In contrast to people who would flee a country because of taxes, Irwin gives the example of the heroic Beatles:

Here’s an important thing to remember, though: There is, in these debates, nothing new. There once was a group of popular British musicians who chafed under Labour prime minister Harold Wilson’s 95 percent tax on the wealthy. Fortunately, the Beatles were able to lodge their displeasure in music: “If you drive the car I’ll tax the street/If you try to sit, I’ll tax your seat/If you get to cold I’ll tax the heat/If you take a walk, I’ll tax your feet. . .. Cause I’m the taxman.”

The question for the world’s governments as they look to reduce budget deficits is whether today’s millionaires will do more than lodge their protest through snappy pop songs– particularly when there is a private jet always gassed up and ready to go, and nations ready to host them at favorable rates.

Now at first I thought this was hilarious, because I had always filed it away in my mind that a major reason for the Beatles moving to the United States was the outrageous level of UK taxes. Yet I just spent about 15 minutes–an absolute eternity–using Google, and I can’t find a smoking gun claim about that. Yes, plenty of sites have quotes from the lads explaining that George was complaining about the Wilson tax, but I haven’t seen any interviews from them (or their manager, etc.) saying it was a reason for leaving England.

Can anybody help me out here? Is this just a case of supply-side wishful thinking bias on my part?

Caitlin Long: Vulnerability of Fed’s Balance Sheet

Caitlin Long, head of Corporate Strategies at Morgan Stanley, shared a report they have distributed to their clients. (She gave permission for me to quote from it.) Caitlin is a former student from my Mises Academy classes, and was one of the first people Carlos and I interviewed in our Lara-Murphy Report. Here’s Caitlin:

* Several companies have recently asked us for an analysis of the Federal Reserve tapering its quantitative easing programs.

* One factor that is not widely analyzed is the Fed’s own balance sheet, which could be a constraint on how far and how fast the Fed permits interest rates to rise in the US

* We calculate that a 143bp parallel rise in the yield curve would cause a drop in the market value of the Fed’s assets that exceeds the Fed’s own equity capital (as of May 15).
— economically, the Fed’s balance sheet is a leveraged portfolio of bonds whose value climbs when interest rates drop (and vice versa) — see chart below
— key facts (as of May 15):
* leverage: the Fed’s $55.2 billion of equity capital supports $3.4 trillion of assets, for a leverage ratio of 61:1
— adjusting for the Fed’s $214.5 billion of unrealized capital gains (as of 12/31/12), its market-value adjusted leverage ratio is 13:1
* duration mismatch: the Fed’s maturity extension programs have caused its asset duration to reach 5.91 years, compared to its liability duration that is mostly “on demand” (i.e., zero), for a duration mismatch >5 years
— our calculation used the market value of each bond in the Fed’s portfolio as of May 15, 2013 (sources: http://www.newyorkfed.org/markets/sysopen_accholdings.html, CapIQ)
— the Fed balance sheet’s capacity to absorb higher interest rates has deterioriated quickly, as the 143bp capacity is down from 185bp as of last October (owing to higher leverage and reduced unrealized gains since then)

Great Moments in Paradox History

“War Is Peace.” — George Orwell, 1984

“It became necessary to destroy the town to save it,” US military official quoted by Peter Arnett.

“I’ve abandoned free market principles to save the free market system.” — George W. Bush

“If you are worried about the dangers of an extended period of low interest rates, the worst possible thing the Bank of Canada could do would be to start raising them now.” — Nick Rowe

Potpourri

==> I realize this is childish, but these naughty K-Mart commercials (here and here) made me chuckle. (Thanks to Sam T.)

==> The CBO came out with a report last week, which many will think makes a slam-dunk case for a carbon tax. But using the very same CBO report, I can show how dubious the case is. David Kreutzer at Heritage does a similar feat, just using their Figure 1. (I wish I had seen the same implication from their figure as David did, ah well.)

==> Apparently the government only lets you kill endangered birds if you’re running wind turbines.

==> Since I’m on a roll, here’s a funny piece where Peter Gleick flips out over people accurately reporting temperature readings. (HT2 David R. Henderson.) Now Gleick’s main theme is that the statement “Global temperatures have remained steady for the last 10 years” is NOT the same thing as “Global warming has paused.” OK fine, if you want to make that distinction–even though that’s the very issue under dispute–but then Gleick himself slips up and returns to common sense, when he says at one point of a stronger “denier” claim: “What about the last 15 years? This claim, too, is false, in two important ways: First, it actually has warmed over the past 15 years…” You have to wade into Gleick’s article to see why that’s laugh out loud funny, but it is (if you have an odd sense of humor like me).

==> I was recently on Scott Horton’s show. Among other things, I discuss how free-market economists shouldn’t be naive when defending “capitalism” and think what we see in the US is it.

==> This Time Is Personal: Reinhart and Rogoff respond publicly to Krugman. An excerpt:

We admire your past scholarly work, which influences us to this day. So it has been with deep
disappointment that we have experienced your spectacularly uncivil behavior the past few
weeks. You have attacked us in very personal terms, virtually non-stop, in your New York Times
column and blog posts. Now you have doubled down in the New York Review of Books, adding
the accusation we didn’t share our data. Your characterization of our work and of our policy
impact is selective and shallow. It is deeply misleading about where we stand on the issues.
And we would respectfully submit, your logic and evidence on the policy substance is not nearly
as compelling as you imply.

==> I have a piece at The American Conservative documenting Krugman’s slipperiness on austerity. The stunning conclusion:

So there you have it folks: When European “austerity” leads to a rising unemployment, a double dip in GDP, and a collapsing budget situation, Krugman says he told us so; austerity is stupid. And when US “austerity” leads to falling unemployment, relatively strong GDP growth, and a vastly improved budget situation, Krugman says he told us so; austerity is stupid.

No wonder Krugman is so good with predictions.

Do Modern Evangelicals Oppose the Census?

[UPDATE below.]

In my nightly reading I came across this passage in 1 Chronicles 21:

21 Now Satan stood up against Israel, and moved David to number Israel. 2 So David said to Joab and to the leaders of the people, “Go, number Israel from Beersheba to Dan, and bring the number of them to me that I may know it.”

3 And Joab answered, “May the Lord make His people a hundred times more than they are. But, my lord the king, are they not all my lord’s servants? Why then does my lord require this thing? Why should he be a cause of guilt in Israel?”

4 Nevertheless the king’s word prevailed against Joab. Therefore Joab departed and went throughout all Israel and came to Jerusalem. 5 Then Joab gave the sum of the number of the people to David. All Israel had one million one hundred thousand men who drew the sword, and Judah had four hundred and seventy thousand men who drew the sword. 6 But he did not count Levi and Benjamin among them, for the king’s word was abominable to Joab.

7 And God was displeased with this thing; therefore He struck Israel. 8 So David said to God, “I have sinned greatly, because I have done this thing; but now, I pray, take away the iniquity of Your servant, for I have done very foolishly.”

So this is interesting that Satan moved David to take a census of Israel, and that this was so self-evidently sinful that neither Joab nor the narrator even bothers spelling out the problem. I did some quick Google searching and think this explanation makes sense:

As to why God was angry at David, in those times, a man only had the right to count or number what belonged to him. Israel did not belong to David; Israel belonged to God. In Exodus 30:12 God told Moses, “When you take a census of the Israelites to count them, each one must pay the LORD a ransom for his life at the time he is counted. Then no plague will come on them when you number them.” It was up to God to command a census, and if David counted he should only do it at God’s command, receiving a ransom to “atone” for the counting. This is why God was angry again with Israel and is also why David was “conscience-stricken” after he counted Israel. David knew it was wrong and begged God to take away the guilt of his sin (2 Samuel 24:10).

Here’s my question: Do modern American evangelicals ever bring this up when it’s time for the US government to conduct another census? I’ve never heard this before.

I’ve heard a pastor saying Christians should never swear an oath (e.g. if testifying at a trial). But I’ve never heard any Christian preacher saying Americans shouldn’t participate in a the Census, or even saying that the government shouldn’t really be doing it. Did I just miss that commentary, or is it pretty rare?

UPDATE: I’m not sure exactly what is happening, but it seems some evangelicals are shocked that I would even suggest such a thing. First, I consider myself a born-again, Bible-believing Christian. Second, plenty of famous Christians have no problem saying that the OT forbids homosexual marriage, or even (less often) that America is suffering some type of national tragedy because of our pagan ways. So I’m simply asking, has anybody ever heard a Christian pastor at Census time, bring up the fact that it’s prideful or whatever? I have never heard such a thing, and I’m guessing from the comments neither has anybody else.