Chapman Should Re-Read Sumner
I saw David R. Henderson link to this piece by Steve Chapman, and Bob Roddis posted it in the comments here as well. I am at “Porcfest” this week and would rather drink alcohol than think about my $500 bet. But some quick reactions:
==> I realize this might sound petty, but doesn’t there seem to be an asymmetry here? Chapman writes:
Inflation hawks have been predicting a severe outbreak for years. But David Henderson, an economist at Stanford University’s Hoover Institution and the Naval Postgraduate School, has been skeptical enough to put his money where his mouth is.
In December 2009, he publicly bet economist Robert Murphy of the Pacific Research Institute $500 that by January 2013, there would not be a single point at which the CPI would be up 10 percent or more from a year before. So far, it hasn’t been, and it shows no sign it will.
First and most obvious, why is David getting credit for putting his money where his mouth is, but I’m not? We both have money on the line. Second and less obvious, Chapman is making it sound like it was David’s idea to bet, when actually he just piggybacked on a wager that Bryan Caplan and I had concocted.
Third, the very reason I agreed to these bets was that I wanted to put some meat behind my warnings of a severe outbreak. I was aware of the non-falsifiability of just saying, “Uh oh, this is bad, get ready, it’s a comin!” for years on end. So yeah, it looks like I will probably lose my bet to David, but something about Chapman’s description bothers me, like I’m somehow Bugs Meany to David’s Encyclopedia Brown.
==> If I now put aside my own ruffled feathers, I find Chapman’s discussion of Scott Sumner to be quite bizarre:
Another economist who thinks inflation is the least of our worries is Scott Sumner of Bentley University in Massachusetts. He says the increase in the money supply has not unleashed inflation because the demand for dollars has risen as well.
When banks or individuals hold on to cash, he notes, the effect is the same as if the Fed were shrinking the money supply. By refusing to spend or invest, they stifle economic activity.
…
The Fed’s past quantitative easing programs have helped, but they haven’t been big enough or lasted long enough. Sumner argues the central bank should commit to sticking with that tactic as long as it takes to get growth back to a healthy pace — backing off only if inflation gains a real foothold.
I realize that I’m in a bad mood because I used to read Chapman when I was in high school and now he’s pointing to me as a warning for his readers, but I really think his discussion of Sumner is pretty bad. There’s nothing of Scott’s signature idea–targeting NGDP growth as opposed to just dumping in more money–and the stuff about backing off if inflation gets too high, is just flat out wrong. If there is a supply shock and real GDP falls 10%, then with a 5% NGDP target Scott would want to see 15% price inflation. Anything lower than that, and Scott would say the Fed is engaging in too tight money.
Was Hayek Really a Sumnerian?
I know that some people use the term “Sumnerite” to refer to disciples of Scott Sumner, but I think Sumnerian sounds like something Indiana Jones would study.
Now when trying to convince free-market economists of the wisdom of his views, one of Scott’s arguments has been to claim Friedrich Hayek as one of his own. I don’t want to get into the weeds of what Hayek may have written in the 1930s about the theoretical ideal of stabilizing MV blah blah blah. Go ahead and have that argument in the comments.
Instead, what I want to do is quote from a Hayek article that the hospitable von Pepe showed me while I crashed in his apartment. The Hayek piece has been given (by an editor?) the title, “Choice in Currency: A Way to Stop Inflation,” based on an address Hayek gave in 1975. I really don’t think a Sumnerian says this kind of stuff:
The chief root of our present monetary troubles is, of course, the sanction of scientific authority which Lord Keynes and his disciples have given to the age-old superstition that by increasing the aggregate of money expenditure we can lastingly ensure prosperity and full employment.
…
It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathized. He had attempted by a succession of new theories to justify the same…intuitive belief: just as there cannot be a uniform price for all kinds of labour, an equality of demand and supply for labour in general cannot be secured by managing aggregate demand.
…
The claim of an eminent public figure and brilliant polemicist to provide a cheap and easy means of permanently preventing serious unemployment conquered public opinion…
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[Hayek quoting himself from 1939:] [I]t has…never been denied that employment can be rapidly increased…by means of monetary expansion…All that has been contended is that the kind of full employment which can be created in this way is inherently unstable, and that to create employment by these means is to perpetuate fluctuations.
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One of our chief problems will be to protect our money against those economists who will continue to offer their quack remedies, the short-term effectiveness of which will continue to ensure them popularity.
I like to think Hayek somehow had Sumner in mind when he wrote that last sentence.
Two Views on Government Loan Guarantees
Somebody once observed that if you laid all the economists end to end, they wouldn’t reach a conclusion. We see this stereotype epitomized when it comes to government loan guarantees. Back on May 12, an economist who was quite a fan of the program wrote this about the DOE’s loan guarantees for renewable energy projects, to show that the critics who went on and on about the “scandal” of Solyndra were really going overboard:
I haven’t weighed in on the JPMorgan stuff….But an interesting parallel struck me here: I wonder whether the people who go on and on about the much smaller loss at Solyndra, the case that launched a thousand hearings, will get comparably worked about on this case (actually I don’t wonder — they won’t).
The obvious objection is that the government lost money on Solyndra, but hasn’t (yet?) on JPMorgan. But that’s less true than meets the eye. Solyndra was a small part of a broad program of loan guarantees, which inevitably ran the risk of loss — otherwise those guarantees wouldn’t have been worth anything, would they? And it was the only loss.
And JPMorgan is also part of a broad program of guarantees, explicit on deposits, implicit through the general aspect of too-big-to-fail. There have been government losses on these programs, and will be in future — and misbehavior like what seems to have happened here feeds such losses. And as best I can tell, JPMorgan’s story looks a lot more like actual malfeasance.
But of course JPMorgan wasn’t doing do-gooder liberal stuff like solar, it was just engaging in financial tricks of little or no social value. That makes it all OK.
In contrast, on June 15 we can quote from this economist, who is quite wary of the abuses introduced by government loan guarantees:
George Osborne, the architect of Britain’s austerity policies, has just done an about face (without, of course, admitting it). Jonathan Portes has the goods: he points out that the assumptions under which the UK government’s new policy of subsidizing private investment — including infrastructure investment! — through loan guarantees makes sense are exactly the same assumptions under which debt-financed government spending on, say, infrastructure makes sense.
So why funnel the money to private corporations via loan guarantees rather than simply doing the obvious and restoring the huge cuts that have recently taken place in public investment?
One answer, of course, would be that doing that would be an implicit admission that the Cameron government has just wasted two years doing exactly the wrong thing. It has, of course, and apparently realizes its mistake; but presumably the government hopes that privatizing the process will confuse enough people that it can escape blame.
But let’s also note that funneling funds through the private sector offers an opportunity to lavish favors on friends. Now, to be fair, so does government contracting; but that’s a familiar enterprise, with well-established rules and safeguards in place. This will be something new, which may make it possible to slip in some big giveaways that nobody notices.
So as you can see from the title of this post, it sounds to me as if Osborne has come up with a new wrinkle in policy that I hereby dub Crony Keynesianism — doing policies whose logic calls for government spending, but take the form instead of incentives to favored private-sector interests.
From a macro point of view, even crony Keynesianism is better than continued destructive austerity. But we should be aware how basically strange it is, and how subject to abuse.
With such divergent views, it’s no wonder people don’t trust economists…
Clarifying the Fine-Tuning Argument for a Designed Universe
Two weeks ago we had quite a healthy discussion of the “fine-tuning” argument for a designed universe. In today’s follow-up post, I want to try to clarify some of the issues of framing. Some of you were bringing up standard arguments or analogies whenever these types of debates occur, but I think a lot of you were using them inappropriately.
First of all, many of you immediately jumped to, “Well you still need to prove there’s a God.” Right, of course. The fine-tuning argument by itself just claims that there is a designer or designers. For all we know, we could be living in The Matrix, or maybe this is the real deal (HT2 Daniel Kuehn).
Incidentally, this is why I think it’s so funny when people automatically say that the “intelligent design” movement, or the fine-tuning argument, are by their nature “unscientific.” Suppose we really did live in The Matrix. Surely our scientists would be involved in discovering this truth about our empirical observations. If Morpheus tried to tell them to revise their cosmological explanations, they wouldn’t dismiss his claims as being outside the bounds of science per se.
Second, let’s work through a different analogy just to clarify the issues of probabilities and framing. Suppose a guy has trained his dog to go in his garage and fetch a bottle of beer. The guy has 1,000 bottles in his garage, and the dog goes and grabs one. The guy throws it back and keeps watching his sporting event on the television.
The crazy thing is, it turns out that the beer distributor has to recall the batch of beer bottles, because somehow poison found its way into the last shipment leaving the plant. Scientists go and test the remaining 999 bottles in the guy’s garage, and they are all poisoned. It turns out that the 1 bottle, of the whole 1,000 in the garage, that wasn’t poisoned, was the one the dog grabbed.
This seems like a pretty interesting coincidence. The scientists try to come up with theories to explain how the dog could have known. E.g. maybe he smelled the poison, or maybe the poison masked some smell that the dog liked in the normal beer, etc. But try as they might, the scientists can’t come up with any reproducible explanation for what happened.
Now: Would it be satisfactory to just say, “Well, it was a freak thing. The guy just got lucky.” ?
I think if this is the whole scenario, most people would say, “No, that’s not a very good theory. We don’t have to cite a miracle, but we can’t simply say, ‘Hey the guy lived, so it must be he got lucky.’ Prima facie, if there were only a 1/1000 chance of that happening, then it is unlikely that ‘sheer luck’ is the explanation. There must be something else we don’t know about.” (If you don’t see that, change it 1 out of 1 million or 1 billion beer bottles. At some point, surely you see that “dumb luck” is a terrible theory.)
But wait a second. Suppose I give you more information. It turns out that there are 1,000 guys who each bought 1,000 bottles of beer from the tainted batch. They all sent their respective dogs out, and 999 of those guys died. The one guy we first learned about, is the only one whose dog grabbed a safe beer. Scientists go out and determine that for each of these guys, 999 of the bottles of beer in their garages were tainted, while 1 was safe. (This result itself isn’t due to randomness. There is a specific reason that the beer plant specifically sent out batches that had 1 safe and 999 tainted bottles. I am not going to bother inventing a story for this specific part of my analogy.)
Now in this new scenario, I think everybody would agree that it’s perfectly fine to explain the one guy living, by reference to “dumb luck.” There’s no reason to keep searching for the hidden explanation of how his dog somehow “knew” what the safe beer was, because 999 of the other dogs didn’t know. Given that we had 1,000 guys in this situation, we would expect 1 of them to survive just through dumb luck.
I hope we can all agree on the above handling of the two scenarios. I’m sure in the comments people will tweak my story in order to get across what they want to stress, regarding the fine-tuning argument. Sure, that’s fine. But I claim that some of you weren’t obeying the above, obvious precepts when dealing with the argument. In particular, some of you didn’t seem to realize just how crucial the many-worlds theory is, if you want to cite the anthropomorphic anthropic principle for explaining fine-tuning.
Anatomy of the Fed–Summer Pricing!
Oh boy kids, here it is: Another session of my blockbuster Anatomy of the Fed online course starts at Mises Academy on June 25. And special summer pricing: Only $79 for an 8-week course. If you do the math, that works out to…like, a really inexpensive course.
Full details are here. There’s also a screen shot of the syllabus.
Prison Break From the Historical Narrative of Webster Tarpley
I don’t even want to post the YouTube here, but if you are curious here is the link to “PrisonPlanet” host Alex Jones’ interview with Webster Tarpley. I am commenting on this because different people emailed me asking me for a reaction, since Tarpley shares their views that an elite group of bankers is taking over the world, but yet Tarpley also hammers Austrian economics and the gold standard.
Here’s my quick answer: I had to stop it by the 10:00 mark, because it was causing me physical pain. This guy has a PhD in history, and yet he was botching basic historical facts. Let me just give you two whoppers.
First, he says that the “wave of deregulation”–which he associates with the Austrian School–began under Richard Nixon. (!) This literally could not be more wrong. Richard Nixon instituted wage and price controls, and took the dollar off the gold standard (which was just barely hanging on at that point, in its weakened form under Bretton Woods). Indeed, Ron Paul went into politics to undo the monetary policies of Richard Nixon. So for Tarpley to say that Richard Nixon instituted a wave of deregulation that is associated with the Austrian School, is kind of like saying the Joker works hand-in-hand with the Justice League, because after all he helped a young Bruce Wayne become Batman.
Second–and this is the one that made me stop the video–Tarpley says that the very term “Austrian economics” is a misnomer, because the School wasn’t really from Austria. Instead, Tarpley claims that the ideas of Mises and Hayek (yes he says both of their names) come from the London School of Economics.
This is just so wrong it’s hard to know how to respond. Go look at Mises’ Wikipedia entry. The term “London School of Economics” only appears once, and that’s in reference to it saying that Mises’ friend was Lionel Robbins at the LSE. Contrary to Tarpley, yes indeed the term “Austrian School” comes from the fact that–wait for it–the School was founded by Austrian guys in the country of Austria. Carl Menger was the founder of the school, and his disciple Eugen von Bohm-Bawerk was indeed a famous finance minister in Austria (among his academic contributions). Mises’ famous seminar, where he influenced Hayek and many others, was held in Vienna.
Now it’s true, after Hayek had absorbed the teachings of the Austrian economists, Hayek then brought these ideas to the English-speaking world by taking a position at the LSE. But to make an analogy to Tarpley’s description, would be like saying: Yeah, a lot of people think the actor and filmmaker Roberto Benigni is Italian. Yet this is a misnomer; Benigni’s most famous movie, “Life Is Beautiful,” had an English title.
Last point: For all of Tarpley’s claims about how wonderful Alexander Hamilton’s “American System” of tariffs and government investment spending are, see Tom DiLorenzo’s book Hamilton’s Curse.
Guest Post: Turning the Atheistic Flavor of Evolutionary Biology on Its Head
[I saw an intriguing post by Gene Callahan at his blog on this topic, and he wrote a longer version here.–RPM]
by Gene Callahan
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“Like most summer activities, the frogs’ vocal signaling requires an impressive expenditure of energy, and therefore presumably has an advantage.” — Bernd Heinrich, Summer World, p. 40
So, here is a prominent biologist stating a general rule for evaluating traits: if the trait is expensive in terms of energy required, by default we should assume it provides something important to the species in question. And, of course, the more widespread the trait is, the more we should suspect it is adaptive: it might pop up in one individual or a small group as a fluke that will disappear soon, but if we find that trait surviving in many, many groups across long stretches of time, the odds greatly increase that it confers some advantage.
So, someone who believes evolutionary biology is the cat’s meow, and who finds a widespread human practice, so widespread that we have never encountered a single culture where it is absent, and one into which a huge amount of energy is poured, would have to say it is most likely adaptive, right?
Wrong! Not if the practice is religion: Then this universal, high-energy consuming activity turns out to be a social pathology! (This link is only intended to be representative of the genre: you can find plenty more examples with a little search.) Religion is ubiquitous in human life not because it has helped us to survive, but because it kills us! It is very telling that, when it comes to their bête noire, the rules of evolutionary thinking are suddenly reversed.
Now, it is worth qualifying these remarks in several ways, especially since a 300-comment discussion thread follows the Sunday posts at Free Advice. First of all, there are many non-religious scholars who work from an evolutionary perspective and who do not suddenly abandon the principle Heinrich stated when they turn their attention to religion. (Hayek is a good example.) It is generally only the religion haters who lose their minds on this one topic.
Secondly, to conclude (correctly, I contend) that religion must offer some evolutionary benefits certainly does not mean that any particular religious beliefs are true. The process of evolution is a machine that grinds out survival-enhancing traits, not necessarily truth-finding traits. To see how, at times, it might be adaptive to believe a falsehood, let us consider an animal that needs to defend its young against a large predator. It might be quite adaptive for the animal to have a wildly over-optimistic belief in its own chances of surviving a fight with that predator, because perhaps the fierce but hopeless fight it puts up will give its offspring a chance to escape. A non-believing evolutionary scientist could coherently have just such a view of the role of religion: it’s all a bunch of poppycock, but it’s poppycock that aids human survival by creating hope and fortitude, and enhancing social harmony. And that view is out there, and is much more compatible with evolutionary thinking in general than is the “social pathology” one. But, of course, true beliefs can be survival enhancing as well, so it might well be that the belief in something transcendent helps our survival because it is true.
Three More Views on Rand Paul
I was getting some pushback from some libertarians in the comments of my Rand Paul post, who apparently think evidentiary rules are for Guantanamo prisoners, not U.S. senators. Anyway, lest I be accused of not airing the more widespread libertarian reaction to the event, here are three videos that I enjoyed very much. [UPDATE: Tom Woods points out in the comments that actually, the video from him was from a couple weeks before Rand Paul endorsed Romney. I.e. Tom isn’t reacting to the endorsement.] (HT2 “Dan” in the comments here for the Star Wars one, and to Robert Wenzel for the other two.) P.S. If I point you guys to Dan McCarthy explaining why Rand Paul did this, will you bite his head off too? In that case, don’t follow the link.
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