Tom Woods Keeps Krugman’s Feet to the Fire
Tom Woods has posted another video, this one on Krugman’s rhetorical questions about Austrians and MMMF:
A few points:
==> I totally forgot to be snarky about this, but Tom’s video reminded me: I thought Krugman said he wouldn’t debate me, because he didn’t want to give a platform to Austrian views? So now we have to revise Krugman’s value system again. It’s OK to debate Ron Paul and his “goldbug” views to sell your (Krugman’s) books, it’s OK to debate George Will every week on TV even though you think he’s a moron, it’s OK to make fun of Austrians on your blog when you’re bored and want to ridicule something…but debating the guy who penned what you yourself said was the “best exposition I’ve seen yet of the Austrian view that’s sweeping the GOP” for an hour in order to thereby send $75,000 to a food bank in NYC…is completely beneath your principles.
==> If you haven’t visited yet, I encourage you to visit KrugmanDebate.com. I know I pick up new readers over time, and perhaps some of you never saw the funny videos as well as the serious articles. (Krugman actually referred to me in print and gave me some pushback, in case you didn’t realize.) Let me emphasize that if the pledge total rises above $100,000, I think I can “do something” with it, like get local press to pick it up or get the Food Bank to make a statement. In particular, I know there are people who haven’t pledged because they say, “Bob, Krugman’s never going to debate you, get real.” Right, so that’s why you shouldn’t be afraid to pledge $50, because in your mind your credit card will never get charged. (The money doesn’t come from your card until the event happens.)
==> A lot of people ask me, “Bob, why does Tom Woods keep plugging you so much? You don’t have any money, and he’s way more famous than you. What gives?” The answer is that what happens in Freedomfest, stays in…Bob’s smart phone memory. (Or does it? Tom?)
Explainer: Why I Claim Scott Sumner Is Insane in the Brain
I often say that I think Scott Sumner is “insane.” Now, on the one hand I’m obviously just joking; as I’ve mentioned a few times, Scott has a good sense of humor and I think he (mostly) appreciates my jabs (though not of course my policy recommendations).
On the other hand, though, I choose the term consciously, as opposed to some generic insult like “Scott Sumner is a fool / an idiot / a jerkface” etc. A lot of people think someone who is “insane” is a babbling idiot, unable to follow a logical argument. But on the contrary, I’m thinking of a guy in the psych ward who is (say) perfectly calm and collected, and in fact quite eloquent and intelligent. The thing is, he keeps insisting that he is Napoleon, and no matter what argument you use against him, he will bat it away with mild annoyance because he’s “already dealt with these objections a million times in the past.” What’s really interesting is, you can’t prove that he’s not Napoleon; the guy makes a surprisingly good case. But whenever you leave the conservation and take a walk in the park, you come back to your senses and remember, “No, the guy isn’t Napoleon, he’s insane.”
So that’s a good analogy for what I think of Scott. But add the caveat: The guy who thinks he’s Napoleon is a really cool guy, and you like spending time with him. But, you would never in a million years want him influencing government or central bank policy.
For those who want to explore the validity of my accusations, you can filter my blog posts for the Market Monetarism tag. Below, I’ll give two recent examples of the kind of thing I mean. So to reiterate, what I’m showing you here isn’t why I think Scott is wrong, but why I think he’s insane. There’s all kinds of bloggers making mistakes all the time, but what Scott does is special. Let me show you what I mean.
In this post from today, Scott first quotes from an Economist magazine description of the Jackson Hole monetary conference:
IMAGINE that the world’s best specialists in a particular disease have convened to study a serious and intractable case. They offer competing diagnoses and treatments. Yet preying on their minds is a discomfiting fact: nothing they have done has worked, and they don’t know why. That sums up the atmosphere at the annual economic symposium in Jackson Hole, Wyoming, convened by the Federal Reserve Bank of Kansas City and attended by central bankers and economists from around the world*. Near the end Donald Kohn, who retired in 2010 after 40 years with the Fed, asked: “What’s holding the economy back [despite] such accommodative monetary policy for so long?” There was no lack of theories. But, as Mr Kohn admitted, none is entirely satisfying.
Now I and most other self-described Austrian economists would say, “Oh, the reason this isn’t working, is that you guys are dumping poison, not medicine, into the system! So you shouldn’t be surprised that it’s not ‘working.'”
But that’s of course not what Scott says. Here’s how he responds to the above excerpt:
I’d like to solve the mystery that perplexed the greatest minds of monetary economics. Money has been ultra-tight since mid-2008.
The real mystery of Jackson Hole is why the greatest minds in monetary economics fail to recognize this fact. Milton Friedman understood. Ben Bernanke explained in 2003 that neither interest rates nor the money supply were reliable policy indicators, and ultimately only NGDP growth and inflation could tell you whether money was easy or tight. By those indicators (averaged) money’s the tightest since Herbert Hoover administration.
I’d like to offer a conjecture. If the monetary economists understood that monetary policy since mid-2008 had been ultra-tight, they would have a very different view as to what sort of policy is appropriate today.
Lots of economists have offered rebuttals to the market monetarist claim that easier money would help right now. For instance, George Selgin and Eli Dourado offered critiques of the sticky wage explanation for persistently high unemployment. But I’ve yet to see a single economist take on my claim that money’s been very tight.
It’s the last sentence above, which I put in bold, that led me to make this post. Of course lots of economists have told Scott that he’s nuts for saying that money has been very tight. It’s not just me, it’s also Brad DeLong. I mentioned this back when he said it, but for the record, here’s DeLong in November 2011 chiding Scott for saying the Fed has been tight since 2008:
Well, I would say that not just “modern Keynesians” but a lot of people believed that monetary policy was expansionary in 2008.
They believed so not just because (safe) nominal (and real) interest rates were falling, but because the money supply was expanding. Indeed, since 2007 the Federal Reserve has tripled the monetary base…
This episode of monetary expansion is surely the largest monetary expansion in the United States in a long, long time…If expanding the monetary base to three times its previous size is not “expansionary”, what could possibly be?
Now what Scott meant in his post from today is that not a single economist has convinced him that his own preferred measure of monetary tightness–namely, NGDP growth–is the wrong one to look at. But surely lots of economists have thought that, say, a monetary base tripling in 4 years and short-term interest rates being pushed down to zero, might reflect “loose money.” Maybe they’re right, maybe they’re wrong, but in Scott’s insane world, not a single economist has even argued the point with him.
We see further evidence of Scott’s insanity in a post from two weeks ago, when Scott criticized a Garett Jones post like this:
You probably already know what I’m going to say here. I always dredge up the Friedman quote that low rates usually mean money has been tight. Garett may have anticipated that objection, as he referred to the Taylor Rule benchmark when arguing money was easy. But even that won’t work, as the Taylor Rule is highly unreliable. For instance, John Taylor has a recent post showing that (according to the Taylor Rule) money was too easy during 2008. That’s right, even though 2008-09 saw the biggest drop in NGDP since the Great Depression, the Taylor Rule says money should have been even tighter! And the rule also implies money is too easy right now!! I wonder how the stock market, and the global economy, would react to a tightening by the Fed at this afternoon’s meeting. (Hint: Check out 1937.)
Do you see what’s going on here? First, this is yet another economist (Taylor) who is taking on Sumner’s claim that money has been too tight. Taylor is showing that, according to the “Taylor Rule”–which was totally standard up through the advent of Scott Sumner’s blogging–money has been too loose.
Rather than argue with that, Scott now uses that output to demonstrate that the Taylor Rule must be a bad gauge of monetary policy.
This is a crucial point, so let me walk everyone through the progression here:
(1) Back in 2007, most economists didn’t even parse the world in terms of “NGDP.” Indeed, I wouldn’t have even known what those four letters meant if you asked me.
(2) Back in 2007, if you asked economists how to tell if the Fed had “easy” or “tight” money, most of them probably would have said various combinations of, “Look at how quickly they are creating new money,” “look at at how low they cut interest rates,” and–if they were sophisticated, they might say, “Use the Taylor Rule to see if interest rates are appropriate in terms of inflation and unemployment.” Very very few would have said, “See what NGDP growth is.”
(3) Back in 2007, if you asked economists, “Suppose the Fed triples the monetary base in a few years, pushes short-term nominal rates to zero and even negative in fleeting moments, and creates all kinds of credit facilities to bail out banks, do you think this is tight money?” then most of them probably would have punched you in the face.
(4) Now, because he is so sure that NGDP is the right metric to use to evaluate monetary tightness/looseness, Scott thinks not a single economist has even challenged his position, and that any other measure that says “money has been easy since 2008” is so obviously wrong that you can safely remove it from consideration. That is how clear it is to Scott, that money has been tight since 2008.
There is a word for such a viewpoint: insane.
Last point I want to make: There is something very very disturbing about Scott’s choice of NGDP as the metric of monetary policy. In particular, Scott thinks it’s obvious that if NGDP isn’t growing, then the Fed isn’t doing enough. The problem here is that NGDP is composed of price inflation and real GDP, and real GDP growth is sluggish when “the economy is bad.”
Consider this analogy. It’s a little unfair to Scott, because he has a plausible story to explain how nominal levels affect real factors, but it gets my point across quickly:
Suppose there are a bunch of doctors trying to get a guy to wake up from a coma. They have already pumped him with unprecedented amounts of a new drug, that the producer says should cure comas. Yet for some reason, the guy is still laying there, comatose.
Dr. DeLong says, “Well, I guess we just need to stimulate his body some more. His heart rate is too low, so clearly we haven’t done enough. In the last four years of this coma, we’ve already pumped in 200 mLs, which is twice as much of the drug as we’ve ever administered to another patient over a lifetime. Still, it’s not enough–clearly–so I say we are even more liberal with our treatment.”
Dr. Murphy says, “DeLong no way! That drug is poison. What more evidence do you need that it won’t work? Let’s stop injecting the drug, and let the guy’s body clear that stuff out. Maybe he will recover if we allow it time.”
Dr. Sumner says, “Of the two of you, Murphy is dangerous–his advice would kill the patient–while DeLong is just looking at it wrong. Contrary to Dr. DeLong, the patient has been suffering from you sucking those nutrients out of his body. I don’t know why you guys have been engaged in this policy of starving the patient of this drug. My measure is not to look at the volume of liquid you have injected into his body, but rather at his heart rate. Right now his heart rate is the second lowest I’ve ever seen in a patient, so clearly you have had a stingy medication plan. Now don’t get me wrong, if you pump in the drug and then the heart rate starts racing at 250 beats per minute, clearly you’ve pumped in too much. But right now, the heart rate is consistent with a comatose patient, so clearly you haven’t pumped in enough. Your measures relying on volume of liquid are obsolete. I have an analogy with an ocean liner if you don’t believe me.”
Porcfest 2012: The Roast of Chris “Ron Paul’s Freaking Giant” Lawless
Oh boy I am naughty. It’s Friday afternoon, almost quitting time (depending on which time zone you’re in), and you’ve got just that one last project to wrap up so you can enjoy your weekend. But, it’s been a while since that last cup of coffee and you’re dragging…
In this context, I drop the following on you. You think you’ll just watch a little bit, “Just a taste!” you tell yourself. Next thing you know, you’ve moved the pointer through to see all of my material, and you’re a half hour late for dinner.
WARNING: This thing is definitely rated R. My material is pretty clean but I can’t control what other people do.
In all seriousness, if you know at least some of the people involved with our jokes, this isn’t half bad of a show.
TIPS Breakeven Bask
Hey kids, I just want to make sure I’m interpreting these Bloomberg charts right. As usual, please be clear when you chime in, if you actually know what you’re talking about, or if you are just guessing. Guessing is welcome, but just be clear if that’s what you’re doing, please.
So I think this chart shows that the average expected price inflation over the next 5 years was about 1.9% in the beginning of the month, then surged to about 2.4% right after QE3, and then fell back to about 2.17% as of right now.
This chart, in contrast, shows that the expected rate of price inflation in 2017 (i.e. not the average, just the one-year rate five years from now) was about 2.4% in early September, then surged to about 2.85% after QE3, and now is about 2.80%.
Am I reading these charts right? In particular I’m worried that the number reported for these securities, actually translates into the percentage price inflation rate. Is that the right way to read them?
(Also, I’m aware of all the pitfalls in these methods of calculating “the market’s expectation of price inflation.” But I just want to make sure I’m reading the charts right.)
Potpourri
==> Joe Salerno replies to George Selgin regarding Krugman’s challenge to the Austrians on MMMF. I actually think both Joe and George are wrong: They both use the phrase “could care less” when, in context, it is clear that they meant “couldn’t care less.” (Joe uses it in the post, George in his second reply, which I can’t seem to link to specifically.)
==> Oh, if you wanted a serious comment, all I have to say on this stuff is my treatment in the Liberty Fund paper linked here. If you go to the section on maturity mismatching, I summarize the Austrian arguments on both sides of the issue, without taking a stand on on it myself because I’m really not sure about it. (I am definitely in the 100%-reserve camp, but I’m not sure yet if that translates into an objection to maturity mismatching in general. So that’s where I personally am, which is not a comfortable position.) For sure, Joe (Salerno) is definitely right that Krugman (and DeLong!!) aren’t genuinely curious about the Austrian position on this. They aren’t asking in the way I might say, “What do physicists think about multiple universes?” No, they are asking in the way I might say, “Was DeLong born being this unfair to his opponents, or did it take years of practice? I really want to know.”
==> He obviously doesn’t come out against fractional reserve banking, but Larry White has a surprisingly forceful call to End the Fed in this Mercatus video.
==> Earlier this month the Freeman ran my tribute to the 50th anniversary of Rothbard’s Man Economy and State. However, you may want to read the “reprint” that Mises.org did, because they put in an image of Figure 41 that I spent several paragraphs discussing (it’s hard to see what I’m talking about without the diagram in front of you). Also, Joe (Salerno) gave some additional commentary on my article, so read that to get a better picture of what Rothbard thought he was doing. (I never got to meet Rothbard even once, so obviously Joe and others need to tell us little nuances like this before the “history” is written down…)
==> Krugman has clarified and dug himself deeper in an op ed on the iPhone 5 thing. Now I am quite sure that he has things bass ackwards.
ECON MOMENT QE3
Still got a lot of tweakin’ to do, but the foundation is now here (new camera and lapel mic). Thanks to Josh from Blimey Cow for helping me get going again, and of course to Tom Woods for bugging me periodically.
Potpourri
==> Here’s my American Conservative article from a week or two ago, talking about the myth of British austerity. If I do say so myself, my second chart (the third in the article) is a really good rebuttal to Krugman on this topic. I think it deals well with the “they have austerity relative to their growth path, Murphy you dolt!” type of response I normally get on this from Keynesians.
==> Here’s the ebook sample of the book I co-authored with Brian Lee Crowley for the Macdonald-Laurier Institute (MLI) in Canada. I was mostly response for summarizing the current US fiscal situation (which was worse than I realized, even according to official sources) and then showing how both the Bowles-Simpson and Ryan Plans are far less aggressive on paper than what the Canadian federal government did in practice in the late 1990s.
==> Here’s the AEI event launching the book for the US audience (I wasn’t present, it was a panel of Canadians talking about what they did), and here’s an op ed on the topic.
==> My podcast interview on the Index Investing Show.
==> Lew Rockwell being interviewed by Bob Wenzel. I liked in particular their discussion of Rothbard’s promotion of the work of Etienne de la Boetie. Rockwell argues that libertarians don’t need to use violence against the State, because that is the State’s tool. This dovetails with what I tell people about, “How do we get there?”: Clearly we need more liberty-lovers on our side, before any kind of revolution would be successful. So we need to educate, to get more people to actually believe that our ideas are better. That educational effort moves people from the statist side to the liberty side. But, even at the point when it looks like we’re strong enough to win a fight, we don’t need to actually fight. We just keep using education to convince more people to come over. As de la Boetie showed, the State only exists because of the power the great majority hand over to it. To topple an unjust regime, people merely need to withdraw their consent. No shots are necessary.
David Frum Tells Us Exactly How Awful He Used to Be
UPDATE below.
UPDATE #2 below.
Listening to lectures about evil right-wingers from David Frum (passed on gleefully by Brad DeLong et al.) is like listening to Rush Limbaugh praise the virtues of marriage. Here he is, commenting on the Mitt Romney tapes:
Romney has been reshaped by this campaign. The dread to which Romney gives voice in his Boca Raton speech – that “makers” are about to be electorally overwhelmed by “takers” – is a dread expressed again and again by conservative media and conservative thought-leaders. “Democracy is two lions and a lamb voting on what’s for dinner”: how often have we heard that old country-club quip repeated these past four years? Only this time, the quip is repeated not as a joke, but with real fear.
The background to so much of the politics of the past four years is the mood of apocalyptic terror that has gripped so much of the American upper class. Hucksters… free enterprise is under attack… Obama is a socialist, a Marxist, a fascist, an anti-colonialist… by donating to my think tank, buying my book, watching my network, going to my movie, can you – can we – stop him before he seizes everything to give to his base of “bums,” as Charles Murray memorably called them.
And what makes it all both so heart-rending and so outrageous is that all this is occurring at a time when economically disadvantaged Americans have never been so demoralized and passive…. The only radical mass movement in this country is the Tea Party, a movement to defend the interests of elderly incumbent beneficiaries of the existing welfare state.
Just skim the preface of Frum’s 19945 book Dead Right. Are you kidding me?
Now it’s true, if you go read the preface, you’ll see not so much that Frum used to espouse the things that now (apparently) horrify him. Rather, back in the 1990s (and through the early 2000s, actually) Frum would tweak his message to appeal to these people since that’s apparently where the action was, in his judgment at the time. And that’s actually worse than just outright flip-flopping a la Romney.
NOTE: I’m not saying a guy can’t change his mind. I’m saying I don’t take Frum seriously when he acts disgusted by the environment in which he used to thrive, without him at least giving a nod every once in a while to the fact that, “Hey, maybe these people aren’t actually aware of what they’re doing. After all, when I was a speechwriter for George W. Bush, I didn’t get up for work every day thinking I was helping to launch an illegal war. So maybe I can cut current Republicans some slack too.”
UPDATE: Check out the first review of Frum’s book, which got the maximum number of stars. It is more succinct than the Preface, and you can’t see what looks like the juiciest part of the preface with Amazon’s search feature anyway. So here’s the opening of a guy who loves Frum’s book:
David Frum is a conservative not afraid to give blunt, constructive criticism to his fellows. In “Dead Right”, he questions whether the Republican coalition has actually made any progress toward reducing the size and scope of the federal government. In spite of good intentions, he determines very little progress has been made because the GOP is unwilling to incur the pain of telling people what they don’t want to hear, which is that moving from a self-reliant nation to a welfare state has damaged our national character.
The contrast between self-reliance and welfarism is the key insight of the book. Frum points out that negative behaviors like divorce, single parenthood, promiscuity, drug abuse, and chronic unemployment are now subsidized by the state and therefore have ballooned to nearly unmanageable proportions.
Everyone get that? In this book Frum is wagging his fingers at conservatives for not being aggressive enough in trying to roll back the culturally decadent welfare State.
UPDATE #2: Oh. My. Gosh. I just clicked the Frum link, since above I had merely pasted in what DeLong did in his own post. Frum does mention that he wrote a book on this stuff–but he points to a novel where (I guess) he had his current take on things. He didn’t point to his earlier book where he told the conservative movement they needed to push harder to roll back the welfare state, which was responsible for so much cultural decay.
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