A Nuanced Point in the Outrage Over Cyprus
I meant to remark on this a few days ago, but I’m a busy guy…
When the Cyprus bailout-plus-tax-on-depositors was first announced, most people flipped out, saying it was stealing money from the average Joe in order to rectify the bad investment decisions of the fat cats. I myself took this tack in the March issue of the Lara-Murphy Report.
Yet here the critics (including me) were unwittingly buying into the very problem: People have been conditioned by governments (and the financial elites) that there is something sacrosanct about depositing your money in a bank. If you put your money in Bank A, and it lent those funds to the Greek government which then defaulted on the loan, then why shouldn’t you take a hit? It’s partly your fault for giving your money to an institution that makes such dumb decisions.
I first saw Richard Ebeling make this point on Facebook, and then I saw Lew Rockwell write up a version at his blog. Their arguments completely flipped me around; I had been looking at the situation too simplistically.
Now, the actual proposal in Cyprus really did involve genuine theft, because (I believe) every depositor (at least based on levels of the deposit) was going to get hit with the fee, regardless of how his or her particular bank performed. Also, there would possibly be different haircuts given in an actual bankruptcy proceeding, depending on when somebody (effectively) lent his money to a given bank.
Nonetheless, I just wanted to draw everyone’s attention to Rockwell’s short post, because (as I said) many people–including me–were too quick to classify this as the rich bankers screwing over the little guy, when our own recommendation would amount to effectively the same thing in many respects.
Stockman-Bashing Is Seriously Getting Out of Hand
This is really amazing. I had coffee with a young finance guy (just graduating) today and I remarked, “I can’t believe the treatment David Stockman is getting, the proportion of ridicule to actual examination of his arguments. The only analogous thing I can remember is how people treated Ron Paul.”
Seriously, this is insane. Look at this example (HT2 Bob Roddis). Law professor (and apparent expert monetary theorist?) Robert Hockett devotes the majority of his Salon critique to analogizing Stockman to a guy you meet on the subway who casually mentions that he was abducted by aliens. Let me give you a taste, but keep in mind, I’m condensing it; in the original, it’s almost inconceivable how much time the guy spends, developing his goofy analogy.
We’ve all had the feeling: You fall into conversation with some stranger on the subway or bus. Or perhaps you are seated beside him at a concert or some other event. Whatever the venue or circumstance, the conversation goes pleasantly for a while. Your interlocutor makes various interesting observations about this subject or that. He shows himself to experience the world much as do you and most others you’ve known. He might even say something arrestingly perceptive or thoughtful at some juncture during your chat. Then, without warning, it happens: In the middle of a perfectly good sentence he throws in, as a sort of throwaway line or aside, some such observation as, ‘like that time the Venusians performed those experiments on me up on Telos Nine, before taking me back to the Bryant Park carousel and then flying home. (They still call me, you know.)’
Suddenly you feel a bit awkward. Vaguely swindled, even. Your whole conversation, you now realize, has been predicated on a dreadful mistake. And now you don’t know what to do…
Something much like this happened to many of us recently, I suspect, upon reading former Reagan Budget Director David Stockman’s lament in the New York Times. Stockman said much that’s worth saying, especially when said by Republicans. There were denunciations of crony capitalism, for example, and of how ‘too big to fail’s’ become ‘too big to jail.’…
‘Amen, brother,’ I am sure many of us thought, as we read lines like these.
But then it happened. Suddenly Stockman denounced ‘fiat money’ and cursed Nixon for ‘taking us off of the gold standard.’…He cursed Milton Friedman for having preached even disciplined monetary policy. He cursed Social Security and other staples of the good – or at any rate better than savage – society we’ve taken for granted for decades and decades. He cursed public debt like the tribe of austerians now busily dismantling Europe. Then, finally, he called for a complete ‘divorce’ of ‘the market’ and ‘government.’
And so, ‘uh-oh,’ we thought, ‘gotta go … don’t catch his eye.’
This is hard – I don’t want to ‘otherize’ Stockman altogether. But when you hear ‘austerity’ during a debt deflation you hear an idiot. And when you hear ‘gold standard’ you’ve heard as bad as ‘Ayn Rand.’ And when you hear ‘divorce of “the market” from “government”’ you’ve heard … Ayn Rand. You have heard nonsense – complete, utter nonsense.
What then to do?
Maybe you can write an article that focuses on your objections to his arguments? Instead of spending hundreds of words on a hypothetical alien abduction, maybe you can explain why I should listen to a law professor who writes the following as a “truth” that Stockman overlooks?
There is, and can be, no alternative to managed currency (‘fiat money’) – unless we can live with decades and decades of deflation to the point of subsistence-level production, with all of the decades of double-digit unemployment that will entail.
At first I was tempted to ask, if this guy realized that the US has only had a “managed currency” since 1971 (or 1933, depending on how you clock it), at which point we weren’t starting with a subsistence-level economy. But he has to know that, since he’s allegedly schooling Stockman, who of course pointed to these dates as being really bad.
Seriously, just re-read that gem. Not even Paul Krugman would say that switching back to the classical gold standard would lead to subsistence-level production, and I’m not sure he would even agree that it would yield “decades” of double-digit unemployment. And this guy is telling us that Stockman is the analog of a guy claiming to have been abducted by aliens?
For those mainstream-esque economists who never agreed with Ron Paul’s monetary views, and couldn’t understand his popularity with average Joes, this is part of it. Regular people get very suspicious when there is a humongous, apparently orchestrated campaign to remove certain ideas from polite discussion. Or, as this ridiculous Salon article announces to us in its very title: “Reagan aide disqualifies himself from the conversation.”
Market Monetarists, Like Ogres, Have Many Layers
(In the title I’m referring to this.)
You know, I really have tried over the last few years to make sense of a guy who says the fundamental explanation for our economic malaise, is that Ben Bernanke has implemented the tightest monetary policy since the Hoover Administration. But it’s tough. In a recent article in the New Yorker the author states, “But, if you look at the U.S. economy, you don’t see any of the signs you’d expect if the Fed were acting recklessly: the money supply is not growing rapidly, and inflation is trivially low.” Scott Sumner was interviewed for the article, and on his blog praised its excellent fact-checking. This puzzled me, since the monetary base has risen 206% since September 2008, while M1 is up “only” 70%. (The Austrian Money Supply as defined by Rothbard and Salerno is up 37%.) You’d think at the very least the article would say, “By some measures, money is rising at an extremely rapid rate, while other measures are more benign.”
Anyway, the point of my current post is to wonder aloud about Scott’s blog concerning Japan. It has the sarcastic, self-congratulatory title, “Nothing to see here folks, move along,” and–as long-time Sumner readers will recognize–the point of the article is to say that the unfolding events in Japan perfectly vindicate the Sumnerian worldview. Scott opens up by declaring, “While many of our famous macroeconomists, pundits and bloggers insist we need fiscal stimulus because the Fed and BoE and ECB are out of ammunition, Japan continues to prove them wrong,” and then quotes from a news article that states:
Kuroda’s first policy meeting since taking office on March 20 was seen as a big test of his ability to steer the BOJ towards unorthodox measures to meet the inflation target it adopted in January, and markets liked what they saw.
Government bond futures soared and the benchmark 10-year bond yield hit 0.425 percent, its lowest ever. The yen, which had been creeping up in the run-up to the meeting, plunged, driving the dollar up by more than 2 percent to around 95.25 yen from around 92.90 before the decision.
The Nikkei stock index unwound losses of more than 2 percent to end up 2.2 percent, just shy of a 4-1/2 year closing high hit last month.
The BOJ will buy 7.5 trillion yen of long-term government bonds per month, roughly 70 percent of bonds sold in markets. It combined two bond-buying schemes, its asset-buying and lending program and the “rinban” market operation, to buy longer-dated government bonds, including those with duration of 40 years. [Bold added.]
Later Scott goes on to say: “Some people will discuss whether the policy will “work.” It’s already worked. The yen plunged on the news. That’s not supposed to happen when you are stuck in a liquidity trap.”
So we all get the picture, right? The events in Japan happened exactly according to the Sumner playbook, while traditional Keynesians should be troubled.
Yet hold on a second. Look again at that sentence I put in bold, from the news article. When the BoJ announced it would create new yen out of thin air in order to buy massive amounts of government bonds, those bonds rose in price, driving their yield down to record lows.
Is this what Scott Sumner told us would happen? When the Fed pushed down longer-term yields, didn’t Scott say that was the exact wrong thing to do? Hasn’t Scott repeatedly cited the legacy of Milton Friedman, in order to tell us (Scott’s words) that “near-zero interest rates are an almost foolproof indicator that money has been too tight”? Didn’t Scott take Sheldon Richman (and me) out to the woodshed, when we had the audacity to say that the Fed pushes up the price of bonds when it buys them?
Don’t get me wrong, I’m sure Scott can come up with some story to reconcile the record-low 10-year Japanese yields with his view that the BoJ is finally doing the right thing, by opening up the monetary spigots. But prima facie, he has some ‘splainin to do. That aspect of the market reaction to the BoJ contradicts a major element in what Sumner has been preaching the last 5 years. The fact that Scott quotes from that news article, as if it’s self-evident that he just hit it out of the park, is further evidence of my claim that today’s major economics bloggers see what they want to see, when they look at the data. It is confirmation bias of the highest magnitude. Why, it’s comparable to the amount of money that Bernanke has added since the crisis unfolded–and that’s a lot!
For Krugman, the Size of a Deficit Depends on the Point He’s Trying to Make
This is barely worth blogging about, since I know exactly what Krugman’s apologists will say, but what the heck? I love it when Landsburg criticizes Krugman, so this post is for his psychic enjoyment…
In a March 28 post, Krugman wrote: “Back in the Reagan years two unprecedented things began happening to the US economy. For the first time ever, we began running large peacetime budget deficits; and for the first time ever we began running large trade deficits.”
OK, so mark that down: Whatever the budget deficits were in the Reagan era, Krugman is saying they were (a) unprecedented (for peacetime) and (b) “large.”
Now, I am not even going to bother finding quotes to back this up, but I hope no one will challenge me when I say that Krugman has referred to Herbert Hoover’s ill-fated presidency as an example of fiscal austerity, the kind of tight-fisted budgeting that we want to avoid.
In that context, it is interesting to look at the budget deficits (as a share of GDP) of Hoover vs. Reagan. This compilation, in my opinion, is one-year off in their apportionment of presidential responsibility in the 1930s (because of differences in when presidents were sworn in and when the fiscal year began). So note I am actually hurting my case, by taking (what they claim is) Hoover’s biggest deficit and giving it to FDR. Anyway, here’s how I assign the fiscal year deficits:
Hoover FY 1930 Surplus 0.8% GDP
Hoover FY 1931 Deficit 0.6% GDP
Hoover FY 1932 Deficit 4.0% GDP
Hoover FY 1933 Deficit 4.5% GDP
Reagan FY 1982 Deficit 4.0% GDP
Reagan FY 1983 Deficit 6.0% GDP
Reagan FY 1984 Deficit 4.8% GDP
Reagan FY 1985 Deficit 5.1% GDP
Reagan FY 1986 Deficit 5.0% GDP
Reagan FY 1987 Deficit 3.2% GDP
Reagan FY 1988 Deficit 3.1% GDP
Reagan FY 1989 Deficit 2.8% GDP
Note that Hoover’s final year–the one suffering the brunt of Krugman’s ire, when Hoover tried to balance the budget through massive tax hikes and (very modest) spending cuts–the budget deficit as a share of the economy was higher than in 4 out of Reagan’s 8 years.
Like I said, I know full well what the response is going to be: “Bob you moron, can you possibly be this ignorant, after you’ve read Krugman for this many years? The economy was still awful in 1933, so obviously Hoover was running woefully inadequate deficits. In contrast, Reagan’s deficits were unjustified given the conditions in the economy. Contrary to popular belief, Krugman isn’t always for deficits; he’s for them, but only when the situation demands it.”
Great, I get it. My point is, it is extremely unhelpful to a debate over economic policy when comparable fiscal records can simultaneously be described as monstrous austerity versus unprecedentedly large deficits.
This is a similar beef I have with Scott Sumner. If he said, “Yes, Bernanke has engaged in unbelievably loose monetary policy, but I think conditions require that it be even looser still,” then fine let’s talk. Yet when he defines tightness or looseness in a way that crucially depends on his policy proposals being right–the very thing under discussion, after all–then it’s almost impossible to have a rational discussion. It would be like physicians arguing over whether a patient needed a higher dosage of a certain drug, and quantifying the units of the dosage on the basis of the patient’s symptoms (as opposed to the volume of liquid that had been injected so far).
Lara and Murphy Presentation in Nashville
Tonight, April 2, 2013, my co-author Carlos Lara and I will be giving a talk in the Brentwood Public Library on our view of the US economy (it’s bleak) and what households can do. Much of what we will discuss comes from our book, if you are curious but want to get a sense of the material before driving out there.
People are encouraged to show up at 6:45pm and we start promptly at 7. It’s scheduled for 2 hours.
Potpourri
==> Jack Hunter argues that even though he’s in favor of gay marriage personally (thinking it should be decided legally at the state level), he strongly objects to the rhetoric of saying it is akin to the Civil Rights movement for blacks. I still think Gene Callahan has the best observation on this whole issue (I’m possibly paraphrasing): “Religious types who are against sodomy should be for gay marriage, so that homosexual couples stop having sex just like heterosexuals who get married.”
==> I encourage you to read this David Stockman essay in the NYT, and the accompanying slideshow of Sound Money Heroes and Villains. (Whoever thought the NYT would have a slideshow on heroic defenders of sound money?!) Why do I encourage you to read it? Because David R. Henderson has a post titled “David Stockman Screeches” (in which he quotes Martin Anderson saying Stockman’s earlier book has the “tone of a screeching bluejay”), blogger “Angus” has a post titled “David Stockman wants to pee in your cornflakes,” Scott Sumner says, “I do agree with Krugman’s view that the recent David Stockman column was a sort of mindless rant. And I’m an expert on rants,” Mark Thoma awards Stockman “wingnut of the day,” Jared Bernstein calls it a “horrific screed.” As Paul Krugman summarizes, “the verdict among everyone who knows anything is that Stockman’s piece, mysteriously given star treatment, was pathetic and embarrassing.” (Who talks like that? Why, Krugman does.) So even though I liked Stockman’s piece anyway–because he is warning people about mushrooming government debt and fiat money–the natural defense lawyer in me would really be taking a second look when he receives this much vitriol. It doesn’t mean he’s right, of course, but it’s odd how much of the commentary involves making sure you know Stockman is a whining crybaby. There are two parts where Stockman’s 4-page NYT essay was misleading in the presentation of correct facts–and Angus and Henderson busted him on this–but those were really the only legitimate objections I saw. Suppose we strike those two paragraphs, and look at the rest of his 4 page essay. If even half of what Stockman is warning about is correct, then yeah, I can see why he might be concerned. (I don’t know the guy personally, and he’s trying to sell copies of his new book, but I’m just saying the proportion of criticism to assertion seemed off for the blogosphere’s excoriation of the guy.)
==> Art Carden linked to this hilarious Garett Jones tweet (for those who follow the climate change policy debate): “One upside of the minimum-wage debate: it’s thrilling to watch progressives reject the precautionary principle so thoroughly.”
==> An interesting post from Steve Landsburg on the ambiguities on choosing legal rules to maximize efficiency.
==> Oops meant to relay this on Sunday: Apparently Easter is not named after Ishtar, though my atheist Facebook friends would beg to differ.
==> The erudite Von Pepe sends this funny MR post on the young John Stuart Mill.
==> Yes it’s true, I’m in talks with Warren Mosler on a debate over MMT/Austrian economics. It’s an exciting time to be alive. This is the first time Tom Woods and Mike Norman have agreed on anything related to economics.
==> Some kids have too much time on their hands.
Brad DeLong Makes a Refreshing, Yet Ironic, Confession
UPDATE below.
Brad DeLong has a post up (HT2 Scott Sumner) where he has the courage to announce: “What I Got Wrong: Batting 2 for 8.”
Long-time Free Advice readers can appreciate why this piqued my interest. But it gets better. If I understand the indentation of his bullet points (showing which predictions were right and which were wrong), DeLong says he botched this one:
“* I thought higher inflation would follow rather than precede a strong recovery.”
So in summary, DeLong himself is admitting that his political/economic model of this crisis was 75% wrong, including a specific prediction about how inflation interacts with a weak economy.
I don’t want to discourage DeLong (or any other Keynesians for that matter) from self-flagellation in the future, but am I wrong for finding this latest post somewhat ironic?
UPDATE: Daniel Kuehn reports in the comments:
This just in to me from Brad:
The “I thought higher inflation would follow rather than precede recovery” is one of the 2 of 8 that I think I got right…
Yours,
Brad DeLong
So, it’s still ironic that DeLong admits he was 75% wrong about the crisis, and yet (as far as I know) hasn’t done anything remotely like what he expected me to do regarding my ideological views, but I wouldn’t have blogged about this had it not been for my erroneous inference that DeLong’s inflation call was one of the things he admits he got wrong. (In case you’re wondering, I thought DeLong was referring to the fact that price inflation has been higher than what a simple Keynesian model would have suggested. Even Krugman has blogged about the fact that CPI is rising faster than he would have predicted in early 2009. Krugman’s explanation was something like [I’m paraphrasing], “This just shows that sticky wages are more powerful than we imagined. If some wages want to fall but can’t, and others want to rise, then you’ll get a gentle drift upward, even at the zero lower bound.” So I thought maybe DeLong was referring to something like that.)
Thoughts on Luke’s Resurrection Account
In church today we covered Luke 24: 1-12:
24 Now on the first day of the week, very early in the morning, they, and certain other women with them,[a] came to the tomb bringing the spices which they had prepared. 2 But they found the stone rolled away from the tomb. 3 Then they went in and did not find the body of the Lord Jesus. 4 And it happened, as they were greatly[b] perplexed about this, that behold, two men stood by them in shining garments. 5 Then, as they were afraid and bowed their faces to the earth, they said to them, “Why do you seek the living among the dead? 6 He is not here, but is risen! Remember how He spoke to you when He was still in Galilee, 7 saying, ‘The Son of Man must be delivered into the hands of sinful men, and be crucified, and the third day rise again.’”
8 And they remembered His words. 9 Then they returned from the tomb and told all these things to the eleven and to all the rest. 10 It was Mary Magdalene, Joanna, Mary the mother of James, and the other women with them, who told these things to the apostles. 11 And their words seemed to them like idle tales, and they did not believe them. 12 But Peter arose and ran to the tomb; and stooping down, he saw the linen cloths lying[c] by themselves; and he departed, marveling to himself at what had happened.
I have just two thoughts:
==> It’s hilarious how all of His disciples were so sure that Jesus was forever gone, when (if we “get into” the gospel accounts, even if just as literature) they had seen Him perform hundreds of miracles, including raising people from the dead. Moreover–as the angels above point out–Jesus had specifically told them in precise detail what was going to happen to Him, and that He’d come back on the third day.
It’s a great lesson for modern-day believers, because we do the same thing. No matter how many times something happens in my life that literally takes my breath away because of the sheer improbability of it–and which makes me even more confident that there is a God who is in control of the situation–I will go right back to fretting about money, work deadlines, my son’s health, etc.
==> This observation will probably upset even other Christians, but oh well: My pastor talked about the elaborate ritual preparation of Jesus’ body for burial, involving something like 100 pounds of spices, and bandages like a mummy. I have always wondered if the “arbitrary” Jewish customs, laid down long before, were actually dictated because they would facilitate the miraculous resurrection of Jesus after His crucifixion.
As I have written before on this blog, I don’t think it even makes sense to say that a miracle violates the laws of physics. But I go even further and say that I think physicists are on the right track, and that the laws of nature really are pretty close to what they currently think, at least under the conditions we have thus far observed. (In other words, future advances in physics will only “overturn” our current laws in the way that relativity overturned Newtonian mechanics. It’s not as if people had been systematically mis-measuring the acceleration from Earth’s gravity in the late 1800s.)
So, I think that if modern scientists somehow went back in time and directly observed the events detailed in the gospels, they would see the “miraculous” things reported there. But, if they were atheists, they would be able to “explain” them all away. For example, a bright star would indeed have guided the wise men to the manger, but it would have been a supernova. Jesus would indeed have healed people, telling them that their faith did it, but the scientists would have determined that the scope of psychosomatic conditions was much larger than anyone realized; once these “sick” people truly believed they were well, they were.
And when it came to the death and Resurrection, these atheist scientists might say, “Oh, well his body was only punished on the outside (except for the spear); they didn’t actually break any bones, and he died of suffocation. Then the body was immediately taken down and doused with all sorts of special spices and wrapped, in such a way that prevented normal physical decay. It also helps that it was placed in a sealed tomb. We’re not exactly sure what made it spring back to life, but this was no “miracle.” Give us a few months and we’ll come up with a decent hypothesis.”
It should go without saying that by offering the above, I am in no way denying the miraculous events recorded in the gospel. I’m trying to show that there really isn’t a dichotomy between science and religion. The people who say the events in the gospels “violate the laws of physics” are bluffing. Mark never writes, “And behold, the Lord violated the conservation of energy.” John never claims, “Then He taught them, saying, ‘The kingdom of God is like a man who measured the position and momentum of an electron perfectly.'” There’s nothing in the gospel accounts that literally violates the laws of physics as we currently understand them. It’s just that it would be a remarkably unlikely set of conditions that would allow these events to occur. Almost as if, some intelligent Being had deliberately designed the universe from the beginning so that these things would happen…
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