Invasion of the Purchasing Power Snatchers
Scott Sumner is a tragic hero. Check out his awesome FAQ (which he confusingly calls “FAQs”); so much brilliance and yet it goes awry because of his obsession with NGDP (nominal gross domestic product) growth.
Let me give you a good example. In a recent (and characteristically awesome) post, Scott goes through and documents just how nuts some economists were before Milton Friedman learned us all that inflation is always and everywhere a monetary phenomenon. Seriously, check out this insane quote from Joan Robinson:
“An increase in the quantity of money no doubt has a tendency to raise prices, for it leads to a reduction in the rate of interest, which stimulates investment and discourages saving, and so leads to an increase in activity. But there is no evidence whatever that events in Germany followed this sequence.”–Joan Robinson, circa 1938
Now this is important for our story, look at Scott’s (perfectly correct) reaction to this insanity:
So easy money couldn’t possibly have caused the German hyperinflation because German interest rates were not very low. And everyone knows that easy money is associated with low interest rates. I won’t insult the intelligence of my readers by explaining what is wrong with her reasoning.
But perhaps we shouldn’t be too hard on poor Joan Robinson. Unlike some of the more wimpy Keynesians, she at least had the courage of her convictions. If interest rates are the right indicator of monetary policy; then doggone it money must have been really tight in Germany during the early 1920s. Let’s not be distracted by a few wheelbarrows full of cash.
Great stuff, Scott, but of course it seals your doom. Note, everyone, that Scott did not say, “Let’s not be distracted by million-percent nominal GDP growth.” No, in order to slap Robinson upside the head and prove to her that the German central bank was engaging in very loose policy, he pointed to the (possibly apocryphal) wheelbarrows of cash.
Later on in the post, Scott says:
This morning I noticed that I was linked to by a blogger way over in England. It seems he wanted to find an economist who was crazy enough to think that Fed policy has recently been tight, despite the low interest rates, and I was the only one he could think of. You’ll have to admit that it would be odd to cite an authority as obscure as me, if there were more famous economists making the same point.
Yes Scott, you are indeed crazy for thinking it was tight monetary policy in the fall of 2008 (!!) that caused all of our recent problems.
But perhaps we shouldn’t be too hard on poor Scott Sumner. Unlike some of the more wimpy Friedmanites, he at least has the courage of his convictions. If nominal GDP growth is the right indicator of monetary policy, then doggone it money must have been really tight in America the last 10 months. Let’s not be distracted by two FRED graphs.
The Policeman Is Not Your Friend, Part 187
The below picture is from Monday’s WSJ article about unions and Wal-Mart:
So, should we be concerned that the jacked officer’s uniform appears to have “SMASH” under the badge?!
Final Fulminations From FreedomFest
I flew back from FreedomFest Sunday, but believe it or not I actually have to work to earn money, and so I haven’t had time to blog about the festivities till now. Some remarks:
* Tom Woods and Gene Epstein absolutely destroyed John Fund and Warren Coats regarding their Friday debate, “Fed Up With the Fed: Should We Abolish?” Tom gave a good opening, and at the end the crowd erupted into applause. Then Coats got up to give the opening speech for the “No” side, and he started out by saying, “Yes, the Federal Reserve has made mistakes. Alan Greenspan held rates too low for too long. After the crisis hit, Ben Bernanke committed the dangerous precendent of buying mortgage-backed securities and hence politicizing the markets…” and he just keeps listing all the way the Fed stinks. And then he ran out of time and had to sit down!! (I’m not kidding.) John Fund opened with a line of Shakespeare and did some damage control, such that I imagine the people in the crowd who always longed to sit at the cool table in high school may have been swayed. But all in all, Tom and Gene just owned their opponents. (Of course, it was a lopsided event; the crowd was packed with Ron Paul fans.)
* Earlier that day, Rob Bradley (full disclosure: the guy who recruited me for IER) was in a debate (on “Conscious Capitalism) against John Mackey, founder of Whole Foods. It was interesting; I was watching the founder of the organization that gives me a bunch of money, debate the founder of an organization that takes a bunch of my money. But it was a big lovefest; all four people in the debate agreed 99% with each other, and I think they even used that number themselves. One very interesting disclosure was that Mackey said environmentalism had nothing intrinsically to do with his management philosophy, and that if someone were a skeptic on climate change then that was fine. I’m going to bring that up the next time the Whole Foods clerk asks me to start using their “green” bag.
* You won’t believe this, but see for yourself on the left side of page 11 [.pdf] of the conference schedule. On Saturday 10:30 am, I was slotted to speak on my book, and at the same time in the main arena, Mr. Schiff from Euro Pacific Capital was speaking. And you know what? I managed to pack out my room, with a good 35 people or so. I’m serious. (You need to follow the link to get the joke.)
* I caught most of the talk by Thomas Krannawitter, who is Tom DiLorenzo’s arch nemesis on the topic of Abraham Lincoln. TK was hired by Hillsdale during my last year (I think) teaching there, and I immediately liked him because, despite the PhD, he is a normal guy. During his talk he said something like, “So where is this alleged right of state secession coming from? As Lincoln pointed out, if a state could secede from the Union, then what about a county from the state? A neighborhood from the county? Indeed, followed to its logical conclusion, a secessionist would need to be an anarchist.” Later TK and I were both near each other signing books. I asked Tom something like, “Suppose you were confronted with an anarchist who didn’t like Lincoln. Would you have anything to say to him, besides your view that anarchy wouldn’t work?” And I think Tom basically said, “Yeah, there’s no logical contradiction there, I just think he would have a hard time proving that it would be a workable society without the rule of law.” I’m pretty sure Tom didn’t know my background [.pdf] on this, and I’m also pretty sure he didn’t know who David Friedman was, sitting two spots to my left. Tom could have held his own debating us, but I’m just saying it was ironic because I don’t think he realized he was within ten feet of the Hall & Oates of anarchist theory. (Calm down, I’m Oates in that analogy.)
* Regarding the above point, no I didn’t get to talk to David Friedman. In between us was Quee Nelson, who was kind enough to give me a free copy of her book criticizing postmodern philosophy. I only read about 40 pages on the plane, but it was really good. If you are a secular rationalist and yet think freight trains really exist, I highly recommend the book.
OK back to the coal mines… (Speaking of which, after Waxman-Markey saves the planet from destruction, will wise alecks say, “OK back to the solar panel factory”?)
Waxman-Markey Causes Civil War on the Left
The head of NASA’s Goddard program Institute for Space Studies, James Hansen, was one of the first climate scientists to raise the alarm over global warming. He has recently written [.pdf] that unless we reduce atmospheric concentrations of CO2 to 350 ppm (they’re currently at 387 ppm), we may be handing our descendants a climate system with a runaway greenhouse effect. So this guy is no softie on climate change action.
Yet I have to respect him, because Hansen has come out strongly against Waxman-Markey, or in his words, “the counterfeit climate bill known as Waxman-Markey.” To clarify, I’m not endorsing Hansen’s critique; the reasons he hates it are much different from my own objections. But I respect him because there is obviously a lot of pressure on environmentalists to go along with W-M rather than give points to the Republican “deniers.” So unless there is something even more devious going on behind the scenes, it looks like Hansen is actually taking his own rhetoric seriously. In other words, if the world really is going to end without drastic and immediate cuts in emissions, then you can’t support Waxman-Markey. Here’s my favorite part of Hansen’s article:
Some leaders of big environmental organizations have said I’m naïve to posit an alternative to cap-and-trade, and have suggested I stick to climate modeling. Let’s pass a bill, any bill, now and improve it later, they say. The real naïveté is their belief that they, and not the fossil-fuel interests, are driving the legislative process.
In case you’re wondering whom Hansen has in mind, here’s a hint. Ahh it’s amusing to watch the fireworks. Joe Romm is actually driven to defend speculators!
Mish Should Ditch His Deflation Fears
So I argue in today’s Mises Daily:
Whatever happens to the absolute levels of various prices, certainly the relative prices of hard commodities and staples will rise, compared to the prices of mortgage-backed securities and commercial paper issued by a coal-based utility company. Even if the “debt deflation” scenario is generally right, the absolute effect could be swamped by the relative effects, meaning that retirees on fixed dollar incomes could still get wiped out when their standard monthly expenses rise. The deflationists like Mish might be right, but they need to make a much stronger case.
Two Audio Suggestions
* Here is my talk [.mp3] to Christ Presbyterian Church (in New Braunfels, TX). The topic was the Great Depression, then and now. I think this was the biggest crowd I have given a talk to, except for my high school graduation. There were more than 250 people at this thing, I believe. Also, hands down this was the best reaction I have received. People weren’t just saying, “Hey I liked your talk,” they were saying things like, “You are a great teacher. I have never heard economics explained like that before.” So anyway, if you haven’t yet listened to one of these things, this particular example is probably the best sample so far.
* Here is the link to listen to Scott Horton’s recent interview with Daniel Ellsberg, the guy who leaked the Pentagon Papers. (Ellsberg is also an accomplished game theorist.) Even though I read Ellsberg’s book Secrets, I had forgotten just how much the government lied about the Gulf of Tonkin and other matters regarding Vietnam. Also, if you do decide to follow the link and listen, pay attention near the end of the interview. I swear Ellsberg comes right up to saying, “The Vietnam hawks took out JFK,” but he stops just short. See if you agree.
Pussyfooting Around Evil
In a recent post on John Calvin, Tyler Cowen wrote something that caught my eye: “Here is one reason why there is “evil” in the world…”
If you go read it in context, Tyler isn’t (I don’t believe) putting “evil” in quotation marks to mean “evil as Calvin defines the term.” No, I think Tyler is trying to be very non-pushy, and doesn’t want to impose his own views on his readers, who after all may not share Tyler’s theory of morality.
I think this is a very dangerous habit. The reason it jumped out at me is that in grad school I once wrote in a LewRockwell.com article something like, “Even though I agree the world would be ‘better’ if heroin had never been invented, even so it doesn’t follow that armed men from the State should go around punishing heroin users.”
And I know for me (at the time in my super rationalistic worldview), the reason I put “better” in quotation marks was that I was a scientific guy and knew the is/ought distinction. I believed it was just a convention of language to say some state of the world was “better” than another, let alone to label a particular action as “good.”
This is dangerous stuff. I don’t recall Tyler ever putting “social welfare function” in quotation marks, to denote the fact that some non-economist readers might object to its very existence, and yet he seemed to deny this commonsensical existence to evil.
One of my favorite lines from The Usual Suspects was, “The greatest trick the devil ever pulled, was convincing the world that he didn’t exist.”
(Note to readers: It was an accident that the post on salvation came out on a Saturday. I clicked on the Post Options and changed the time to early am, and I thought I had changed the date to Sunday. But I must have forgotten to adjust the date. So sorry for any atheist readers whose eyes were seared with the J-word.)
Krugman: "Bob Murphy’s Novel Thesis Is Right!"
OK that’s not quite what he said, but look: In this post Krugman argues that, heh heh, if you naively look at the data, heh heh, it seems that the Fed cutting interest rates actually hurts the economy. And so the Chicago School monetarists are being hypocritical when they condemn fiscal stimulus, because their own arguments would “prove” that monetary stimulus doesn’t work either.
That of course is the main contribution of my Depression book, and I crystallized the counterintuitive point in this article, “Banks Should Raise Prices In a Recession.” So did Krugman buy my book, or just read the Mises Daily article?
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