Potpourri
==> After reading my scathing critique, David Frum will wish he had added another axis of evil.
==> My interview on MMT matters. I am tough, but I am fair. (?)
==> Jerry O’Driscoll catches something that I noticed too: The Fed’s announcement seems to turn a ceiling into a floor. (HT2 the eagle-eyed von Pepe.)
==> David Beckworth follows my lead and tries to pick a fight with Krugman.
==> I said I wouldn’t post any more on the Cantillon Effects stuff. Let me just say, Nick and Scott still think I’m an idiot. (I dispute this in the comments of their respective posts.) And here’s a good summary by JP Koning.
Bank of England & Carney: This Doesn’t Sound Good
Scott Sumner links to this article from the Financial Times. I’m feel queasy. Take a look:
The [UK] Treasury opened the door to a more aggressive monetary policy on Wednesday, as aides to the chancellor welcomed the next Bank of England governor’s radical views on stimulus measure for flagging economies.
In a speech on Monday, Mark Carney suggested setting targets for the overall size of the economy, or nominal gross domestic product, rather than inflation. While Treasury officials said there were currently “no plans” to ditch the BoE’s 2 per cent inflation target, a spokesman for George Osborne added that “there’s quite a lot of interest in what he has to say … It reaffirms the fact that he is the central banker of his generation.”
You’re probably thinking I’m going to snicker at the “central banker of his generation” line. Nope, I’m still in shock that they equated NGDP with “the overall size of the economy.” But it gets worse. Scott quotes from another FT article:
In an August interview for the BBC, Mark Carney was definitive about the Bank of England governorship. “So is that a ‘no’ or a ‘never’”? he was asked. The reply came: “It’s both”.
Public denials of interest were reinforced in private by Mr Carney and his aides. Such was the certainty that the question on Monday was how did “never” become “yes”.
That affirmative took Westminster and the City of London by surprise when Mr Osborne announced that the Canadian would take over from Sir Mervyn King at the British central bank, in preference to an array of domestic candidates, with a mission to shake up the bank as it assumes sweeping new powers.
Announcing the appointment of the first foreigner to the post in the BoE’s 318-year history, Mr Osborne told the House of Commons that the ex-Goldman Sachs banker was “quite simply the best, most experienced and most qualified person in the world to do the job.”
. . .
But come the summer, Mr Osborne was a disappointed man. The Financial Times story in April, saying Mr Carney had been approached for the governor’s job, had forced the Canadian to issue ever more vehement denials. The Treasury believed them and was told “no” definitively, so officials believed.They insist Mr Carney was not lying because his denials were true at the time.
Oh wait, I know the answer to this one: When they asked Carney before, and he said he would “never” take the job, that was simply his forecast of his future actions. And heck, if you looked at him right that second, he was right on target. That’s all you can ask of a central banker. To wait and see if his policy “works” is to ignore the insights of Market Monetarism.
Let’s put the economics aside. Does it worry anyone besides me just a teensy bit that this guy hasn’t even figured out where the BoE coffee pot is, and his people are already lying for him? Far be it from me to distrust an ex-Goldman Sachs banker, but still…
Do Libertarians Have a Problem With Authority?
My article today at The American Conservative. Here’s the opening:
A silly episode on Facebook recently underscored one of the tensions in the liberty movement: many people are attracted to libertarianism because they simply don’t like rules. This attitude stands in contrast to conservatives who also disdain big government but who don’t reject authority per se — their problem is with illegitimate authority. Although many types of individuals are united in their opposition to military empire abroad, the drug war at home, and confiscatory taxation, their underlying philosophies of life are vastly different.
A debate on all these matters started innocuously enough. I had put up a frivolous Facebook post telling my “friends” (most of whom are fans of my economic and political writing) that my office phone number was only one digit removed from that of a local pizza shop, and that the people erroneously calling me were “lucky my alignment was Lawful Good.” This was a reference to the role-playing game Dungeons & Dragons, which has an elaborate scheme to classify the ethical and moral views of its characters.
I was surprised to receive a fair amount of pushback, with many people surprised that I had described myself as “lawful.” They thought this meant I endorsed the actions of the U.S. government and that I was letting others tell me how to live my life. How could someone who had written a booklet on “market anarchy” be placed in such a category?
Sumner Believes in Government-Created Bubbles and Ticking Time Bombs
This is kind of an inside baseball post, so if you don’t “get it,” just move on with your life. Anyway, those who read Scott Sumner closely, especially his incredulous responses to Austrian critics of the Fed, should be puzzled by his latest post in which Scott writes:
Back in the early 1990s lots of liberals I knew argued that the S&L fiasco showed the need for “re-regulation.” And so we re-regulated banking. I argued that the fix would not work, as it didn’t address the core issue—moral hazard. I suggested that Fannie and Freddie were time bombs waiting to go off.
You’ll have to take my word for all that. But not for my 2009 prediction that Obama’s policy of pumping up FHA was another time bomb waiting to go off. His solution to the financial crisis caused by reckless sub-prime lending was to try to use government levers to inflate another sub-prime bubble. The bubble has not arrived yet, but three years later even the New York Times is worried about FHA…
Back in the 2000s lots of market monetarists I knew argued that the Great Recession showed the need for expansionary Fed policy. As so Bernanke inflated more than all previous Fed chairs combined. I argued that the fix would not work, as it didn’t address the core issue–government tinkering with interest rates. I suggested that Bernanke’s inflation was a time bomb waiting to go off.
You’ll have to take my word for all that. But not for my 2009 prediction that Bernanke’s policy of pumping up housing was another time bomb waiting to go off. His solution to the financial crisis caused by reckless monetary policy was to try to use reckless monetary policy to inflate another sub-prime bubble.
Remember kids, Scott Sumner doesn’t believe in bubbles. Except when he does. And then he snaps at you for not reading him carefully.
The Fed’s New and Improved (!) Exit Plan
This Bloomberg article on the Fed’s possible need for a new “exit plan” is eerie; it is the financial analog of reading the NYT calmly discuss the Administration’s “secret kill list” (their headline).
When I read this, I was perplexed: ““They have to find ways of unwinding the balance sheet without dumping all of it in the marketplace,” said Memani… What does that even mean? How do you unwind your holdings of assets without selling them? I thought maybe Memani was just talking about the timing–letting the assets mature over time, rather than selling them upfront. And it does seem like that’s the plan, with a special twist (in fact a reverse twist):
The Fed could ask to swap longer-term Treasury debt for short-term bills and notes, thus reducing the maturity of its portfolio to accelerate the runoff. The Fed and Treasury could do this partly in a one-time swap, and partly by allowing the Fed to bid on new issues and pay with its holdings of long-term Treasuries, Crandall said.
Because the Fed would have less debt to sell to return its portfolio to a normal size, it could be “more aggressive in the liquidation” of housing-agency securities, he said, which was a priority for Fed officials when they announced the exit strategy.
I haven’t thought this through too carefully, but the above makes 0% sense to me. It’s similar to the platinum coin magic trick: The only way it “works” is if the Fed/Treasury take other offsetting actions that defeat the original purpose.
Can you guys spell out the logic of this proposal? I realize some of you may not endorse it, but perhaps you at least see the superficial thinking here.
Caplan’s Parental Experience
Bryan opens a recent post by saying:
My eldest sons just turned ten, which means I’ve been a father for ten years. Ergo, it’s time to inventory the top things I’ve learned from my decade of experience. In no particular order:
Now in his list, some of the items make sense to me, while others don’t. But I want to focus on a few for which I wonder, “What in the world does Bryan mean when he says he learned these from a decade of experience?”
To show you what I mean, first let’s look at two examples that do make perfect sense:
7. Mild discipline, mechanically enforced, deters bad behavior far more effectively than harsh discipline, arbitrarily enforced. Idle threats, no matter how lurid, (“I’ll sell you to the gypsies if you don’t eat your dinner” “I’ll turn this car to Disneyland right around”) do not improve behavior at all.
…
9. Expressing anger at your children is counter-productive. It undermines your authority and gives wayward children hope of besting you.
So sure, I can believe that Bryan has learned from first-hand experience what he is expressing above in #7 and #9. But now look at these:
1. Kids are a consumption good, and always have been.
2. Have kids to create beloved companions, pay forward the gift of life, and see the world anew, not to get a person to mold or boss around.
…
4. You have little effect on your child’s intelligence, success, or even character….
…
6. Don’t use discipline to turn your kid into a good person when he’s an adult. It won’t work. Use discipline to turn your kid into a good roommate when he’s a kid. It won’t work miracles, but it’s way better than nothing.
I submit that the four “lessons” above aren’t things Bryan learned from his decade of parenting, as he claimed. (Did Bryan spend the first three years teaching a kid to be honest, then the next three teaching the kid to lie?) Instead they are things he believes because he did a lot of research writing a book on children.
It’s Cool to Believe in a Soul, Just Don’t Use the J-Word
One of my Facebook friends is clearly a “cool kid” at the lunch table (even though she’s a grown woman she plays it off well). She is not a religion-basher so much but it’s clear that many in the crowd that hangs out with her make fun of Christians at the drop of a hat.
Yet even so, she can easily get away with posting a Facebook photo showcasing a quote from Carl Jung referring to our “souls.” Nobody batted an eye (as far as I saw) or said, “Science has disproven that” or “I can’t believe in this day and age, there are still people who believe in souls.”
You see this pattern a lot. For example Bill Hicks absolutely excoriates religious believers, but he in turn was quite spiritual, and I think many of his fans probably liked that aspect of his worldview the most.
So what’s going on here? Well I have a few explanations:
(1) Deep, out-of-the-box thinkers aren’t necessarily atheists, they just can’t stand organized religion. For example, Hicks mocks Christians for sure, but I don’t remember him ever mocking the actual teachings of Jesus. (Though maybe I just missed a bit where he does.)
(2) For people who pride themselves on being educated, there is a lot of apparently irrational stuff in the Bible, so they can’t endorse those well-defined doctrines held by most theists. In contrast, a vague, “hey man there’s something bigger than me Out There” vibe can’t be demonstrably refuted.
(3) For the partying libertarians who populate my Facebook News Feed, a vague spiritual Oneness with the Universe is fine, since they can keep doing what they want. But if there is an actual sentient Being who–yikes!–is even remotely related to what those preachers are talking about, then that’s a serious buzzkill, so let’s not even get in the same ZIP code as that notion.
So Simple! We Just Need to Create Two Platinum Coins Worth $1 Trillion Each
This is a real news article:
If President Obama wants to avoid an economic calamity next year, he could always show up at a news conference bearing two shiny platinum coins, each worth … $1 trillion.
That sounds wacky, but some economists and legal scholars have suggested that the “platinum coin option” is one way to defuse a crisis if Congress cannot or will not lift the debt ceiling soon. In theory.
The U.S. government is facing a real problem. The Treasury Department will hit its $16.4 trillion borrowing limit by February at the latest. Unless Congress reaches an agreement to lift the debt ceiling, the government will no longer be able to borrow enough money to pay all its bills.
Last year, Republicans in Congress resisted raising the debt ceiling until the last minute — and then only in exchange for spending cuts. Panic ensued.
What happens if there is another showdown this year?
Enter the platinum coins. Under current law, the Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.
Under this scenario, the U.S. Mint would make a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.
And then my favorite part of the article, immediately following the above: “I like it,” said Joseph Gagnon of the Peterson Institute for International Economics. “There’s nothing that’s obviously economically problematic about it.”
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