Two Murphy Audio Clips
* Here (mp3) is my 14-minute commercial for the Human Action study guide at the 2009 Austrian Scholars Conference (pdf). For what it’s worth, I had several people tell me this was the best presentation I have ever given. (Note that that is not necessarily a compliment.) What happpens so often (at least in my life) is that I wasn’t prepared to give such a long talk. I thought all of us authors would be sitting at a long table and would give a few remarks about our books and then throw it open for Q&A. It was only when I got in there and saw the podium on the stage with the video camera set up, and Mark Thornton told me, “You’ve got 15 minutes, I’ll signal you when your time is running out,” that I realized, “Whoa! I’ve got a half hour to come up with some jokes!” Fortunately Tom Woods (mp3) made a fool of himself in the opening talk, and thus provided me with a few easy opening lines. (Note this would probably translate better if you could see the video rather than listen to the audio; I don’t know if they will ultimately put that up on the website as well.)
* Here (mp3) are two phone interviews I did with Scott Horton on the economic crisis.
Follow-Up On Krugman the Anti-Economist
In the previous post I was rendered without speech by Krugman’s analysis. However, I tried to deal with several problems that I perceived, and thus may have given readers the wrong impression. His last confusion of the post had nothing to do with politics. In this post, I want to isolate that particular absurdity to make sure everyone here sees just how bad it was.
Recall that Krugman said:
Plus, who is “the government”? It’s basically us, you know — the government spends money providing services to the public. Demanding that the government tighten its belt means demanding that we, the taxpayers, get less of those services. Why is this a good thing, even aside from the state of the economy?
His mistake here is so bad and so basic that we shouldn’t even worry about the political naivete. Suppose someone had said that there were too many houses built during the boom years, and so that sector needs to shrink. Now Krugman might say, “I disagree with that analysis”–and in fact he has. But suppose the way he disagreed was to write:
[Satirical Krugman quote:] Plus, who are these “homebuilders”? It’s basically us, you know — the homebuilders spend money on lumber, nails, and workers providing houses to the public. Demanding that the homebuilders scale back their operations means demanding that we, the consumers, get fewer houses. Why is this a good thing, even aside from the state of the economy?
Do you folks see it now? Back when I was teaching, if a business major had put this down on a short-answer for an Intro to Macro exam I would have read it to my wife so she could chuckle. (“Laugh” is a strong word; my wife is not the geek I am.)
And this guy won the Nobel (Memorial) Prize in economics. Oh my gosh.
Krugman’s Naivete
I am a walking violation of rational expectations theory, because I do not learn. I continue to be shocked by Krugman’s blog. Check out this one:
So I read this:
Boehner said Americans want government to practice the same financial restraint they have been forced to exercise: “It’s time for government to tighten their belts and show the American people that we ‘get’ it.”
and I wonder if this country can handle the crisis we’re in. Remember, John Boehner is, in effect, the second-most influential member of the GOP (after Rush Limbaugh)….
So the fact that Boehner’s idea of economics is completely insane matters.
What’s insane about Boehner’s remark? He’s talking about the current economic crisis as if it were a harvest failure — as if we faced a shortage of goods, so that the more you consume the less is left for me. In reality…we’re in a world desperately short of demand. If you consume more, that’s GOOD for me, because it helps create jobs and raise incomes. It’s in my personal disinterest to have you tighten your belt — and that’s just as true if you’re “the government” as if you’re my neighbor.
OK up till now it’s just standard “scarcity doesn’t apply when unemployment is above 6 percent” nonsense. The first time I read it stated so nakedly (months ago), I was stunned, but I’ve gotten over it. Yet Krugman continues, and makes a qualitatively worse mistake, that has all the political sophistication of a 7th grader:
Plus, who is “the government”? It’s basically us, you know — the government spends money providing services to the public. Demanding that the government tighten its belt means demanding that we, the taxpayers, get less of those services. Why is this a good thing, even aside from the state of the economy?
Again, this is what the leaders of a powerful, if minority, party think. Can this country be saved?
OK first of all, if the government is “basically us,” then Krugman’s blog post just proved that Krugman doesn’t understand Keynesian economics. After all, Boehner is part of the government, Boehner doesn’t understand Keynesian economics, the government is us, Krugman is part of us…you get the idea.
But second of all, notice that Krugman says “even aside from the state of the economy.” Let that sink in for a second. Krugman is actually saying that it is NONSENSE for anyone to suggest that there exists even a THEORETICAL DRAWBACK to more government spending, EVER.
Seriously, am I misreading him here? Isn’t that what he’s saying?
How in the world did we get to a point where a Nobel economist can say that even in normal times, government spending is costless? Can I* be saved?
* You see what I did there?
Jon Stewart vs. CNBC (Cramer), Round 2
I think the lesson here is, if Jon Stewart rips you on his show, just enjoy the attention and let it go. Hey, do any of you parents out there watch Dora the Explorer? Is that really the voices at the end of this clip?
Animal Action
Ludwig von Mises’ magnum opus is Human Action. One of the hardest/easiest things to get across to newcomers is Mises’ notion of “action,” which is simply purposeful behavior. One of the questions we get a lot in Mises University is, “Can animals act?”
From now on I’m using the chimp Santino as an illustration that some of them clearly do. (HT2 Aristos)
Romer Adds to the Near-Lying About the Hoover Record
What is it about these Keynesians? Why can’t they just admit that Herbert Hoover ran unprecedented (peacetime) deficits, and then claim they didn’t work because they were too little? That would be a decent argument.
Instead, they keep repeating the myth (“lie” is a strong word, since it implies that the people realize the facts) that Hoover ran balanced budgets. Here is Obama’s head of the Council of Economic Advisers Christina Romer (pdf) in her just-released paper, “Lessons from the Great Depression for Economic Recovery in 2009” (HT2 Greg Mankiw):
One crucial lesson from the 1930s is that a small fiscal expansion has only small effects….The key fact is that while Roosevelt’s fiscal actions were a bold break from the past, they were nevertheless small relative to the size of the problem. When Roosevelt took office in 1933, real GDP was more than 30% below its normal trend level….The emergency spending that Roosevelt did was precedent-breaking–balanced budgets had certainly been the norm up to that point. But, it was quite small. The deficit rose by about one and a half percent of GDP in 1934. One reason the rise wasn’t larger was that a large tax increase had been passed at the end of the Hoover administration. Another key fact is that fiscal expansion was not sustained.
Again, it would be difficult to be more misleading without actually lying. Her statement sure as HECK makes it sound like Hoover ran a balanced budget (or very close), and that he jacked up taxes to keep it balanced, doesn’t it?
Well go again to my new favorite website and check out the Hoover record. Note in particular the column saying Deficit as a % of GDP.
Now here’s the really fun part. Look back up there again. Romer pooh poohs Roosevelt’s “unprecedented” deficit spending because it only bumped up the deficit as a percentage of GDP from 4.5 to 5.9 from (fiscal) 1933 to 1934.
Hmm. Budget-balancing, arch conservative, liquidationist Herbert Hoover increased the deficit by 3.4 percentage points from 1931 to 1932. So on Romer’s own measure of wild-spending Keynesian, Herbert Hoover was twice as bold as FDR.
I’d like to say she stopped looking at the data at 1933, and so didn’t know what Hoover had done with the deficit after the stock market crashed… But then how could she responsibly inform us that balanced budgets had been the norm before FDR?
P.S. I stopped reading Romer’s paper at this point. If she clarifies later on, someone please let me know and I will apologize for my strong words.
Dr. Doom Ups the Ante
I can’t believe this isn’t getting more coverage. According to the financial wizards at CNBC:
Roubini, who is also known as “Dr. Doom,” told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through “a death by a thousand cuts.” He also said that “most of the U.S. financial institutions are entirely insolvent.”
…
Earlier in the day, Roubini spoke to the CBOE Risk Management Conference and said he believes total losses could peak at $3.6 trillion in the financial system, with half of that being borne by banks and bank dealers and the other half borne by hedge funds and pension funds, among others.He said that while U.S. GDP next year could be zero, global GDP could dip into negative territory.
I haven’t seen anyone else claim US output will be zero next year, and I don’t even know what it would mean for global GDP to become negative. Would barbers go around chloroforming people and giving them awful haircuts? This recession is serious!
Yet More Evidence on the Harm of GDP Figures
Oh man. While promoting his new book (at least two weeks on NYT bestseller list, btw) on a radio show, Tom Woods fielded a caller who said Smoot-Hawley was in effect only for a year. Tom asked if this were true, I said I had no friggin idea, and I resorted to my trusty source of economic knowledge, Google.
This site says Smoot-Hawley was effectively repealed in 1934, and since the author hates free trade, I have no reason to doubt him. But check this out:
No, there is practically NO evidence that Smoot-Hawley hurt our economy. The US was already in a Depression when Smoot-Hawley was enacted. Prior to Smoot-Hawley, the 1929 Trade Surplus was +0.38% of our GDP. In other words, it contributed less than 1/200th to our economy.
What happens if we focus on exports alone? Exports were $5.9 billion in 1929, and had declined to $2.0 billion in 1933, for a -$3.9 billion decline. This $3.9 billion decline was roughly 3.8% of our 1929 GDP, which had already declined by a whopping 46% over the same period of time. Thus, of the -46% GDP decline, only 3.8% of it was due to a fall in exports.
But the effects on trade must also include the reduction in Imports, which ADDS to GDP. (A decline in imports increases GDP). If the import decline is added back to the GDP total (to measure the net trade balance), the “loss” becomes only -$0.2 billion from our GDP — or less than ½ of 1% of the total GDP decline. In other words, the document-able “loss” from the Smoot-Hawley Tariff — the “net export” loss — contributed less than ½ of 1% of our our -46% GDP decline.
Oh man. This is the problem with the whole mainstream macro approach. People assume that if you tinker with one variable in the Y=C+I+G+(X-M) formula, the other stuff remains the same.
Suppose we have a small island (think of Manhattan or Hong Kong if you want) that has millions of people who are utterly dependent on importing food, gasoline, etc. The island has no natural resources to speak of, and there’s not enough room for farming. There are big skycrapers and the people are all software engineers, novelists, musicians, and other things that are exported electronically to the rest of the world.
Suppose further that it just so happens that year after year there is a no balance or deficit in the trade accounts. The islanders import, say, $100 billion a year in food, gasoline, compact cars, etc., and they export $100 billion a year in electronic goods and services.
Now there is a war, and the island gets surrounded by warships that completely seal off incoming cargo ships. Further, the enemy has airplanes flying overhead that scramble communications so they islanders can’t send emails abroad.
According to our author, this should have no effect on the island real GDP, since X=$100 billion and M=$100 billion right before the enemy forces reduce both values to $0.
UPDATE: Just to make sure you folks really “see” it, let me elaborate: Before the war, the islanders’ real GDP was $100 billion, and the macro guys at Harvard would tell you the following breakdown:
C = $74 billion
I = $10 billion
G = $15 billion
X = $100 billion (exports)
M = $99 billion (imports)
Right so doublecheck: Y = C+I+G+(X-M) = $100 billion. The people spend 74% of their income on private consumption, they invest 10% back into their economy, and the government takes its cut of 15%. International trade “contributes” 1% of GDP.
Now after the blockade is imposed, the Harvard economists come back and report the following:
C = $15 billion
I = $0
G = $5 billion
X = $0
M = $0
A lot of idiot free market economists blame the depression on the blockade, but that’s crazy talk. See, GDP dropped 80% in one year, from $100 billion down to $20 billion. But of that drop, only 1/80th of it is attributable to the blockade. The rest is due to the enormous fall in private consumption and investment, as well as the government’s stupid decision to slash its own spending. What idiots! These people need to call up Krugman pronto. If the government simply borrowed and spent $80 billion more, it could close the output gap.
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