Old Statistics for Data Geeks and History Buffs
It took me a while to track it down, but here (pdf) is an online version of the US statistical information from colonial times. The link I have given takes you to the federal government’s stats, but you can use the left-hand navigation to get at all of the information.
In particular, check out page 38 of the pdf. The bottom table lists the federal budget from the 1890s through 1939. Tell me your opinion of Calvin Coolidge doesn’t go up a few notches.
DeLong Draws a Line in the Sand
Commenting on Fama’s critique of fiscal stimulus, Brad DeLong writes:
What is extraordinary is that these mistakes are being rederived today, at the end of the 2000s–without any consciousness of their past or of the refutations of them made by past theory and history.
I think it is time to draw a line in the sand: no more economists who know nothing about the economic history of the world or the history of economic thought.
I am in the process of writing my book chapter dealing with Herbert Hoover. Let’s just say, if you wanted the poster child for a liberal Democratic response to the stock market crash, Hoover would have been your guy. (Seriously, I don’t want to sound like Glenn Beck who couldn’t shut up about his Christmas Sweater show for 6 months, but you loyal readers are going to be stunned at some of the stuff I’m digging up for my book.)
For now, just check out page 12 of this DeLong paper (HT2 Greg Ransom), and then go reread his quotation above.
I am very amused. It will be a fun year.
Fama vs. DeLong
Von Pepe has been peppering me to address the skirmishes generated by Eugene Fama’s critique of fiscal stimulus. Fama wrote:
There is an identity in macroeconomics. It says that in any given year private investment must equal the sum of private savings, corporate savings (retained earnings), and government savings (the government surplus, which is more likely negative, that is, a deficit),
PI = PS + CS + GS.
…
The quantities in the equation are not predetermined from year to year, and government actions affect them. The goal of government policy is to expand current and future incomes. When I analyze the auto bailout and the stimulus plan below, I judge them on whether they are likely to achieve this goal.Government bailouts and stimulus plans seem attractive when there are idle resources – unemployment. Unfortunately, bailouts and stimulus plans are not a cure. The problem is simple: bailouts and stimulus plans are funded by issuing more government debt. (The money must come from somewhere!) The added debt absorbs savings that would otherwise go to private investment. In the end, despite the existence of idle resources, bailouts and stimulus plans do not add to current resources in use. They just move resources from one use to another.
Now this sounds very compatible with my critique of the “idle resources” argument for stimulus, but actually I don’t think it is the same. (I should note that I didn’t read Fama’s whole post, just the beginning.) In my article, I was making the point that even if government deficit spending pulled resources into use that would otherwise have remained idle, it still makes the economy poorer because it locks them into inferior uses, when they eventually would have found a new home in the truly productive private sector.
In contrast, it seems that Fama is making an argument from accounting, rather than making an economic point about the “social function” (if you will) of idle resources in a market economy. He is literally saying that deficit spending can’t make unemployment budge, whereas I am saying that if it does, it is a bad thing. (I.e. the goal is not to reduce unemployment per se, but rather to get those unemployed people into useful occupations.)
It is with great sadness, then, that I must side with Brad DeLong. (My endowment of honor is second only to Optimus Prime’s.) When Greg Mankiw politely disagreed with Fama (by conceding the possibility of short-run Keynesian effects), claiming that Fama was wed more strongly than him (Mankiw) to a classical model, Brad DeLong was outraged:
No, Greg. It’s not an endorsement of any model. It’s just a mistake. Fama mistakes the NIPA savings-investment accounting identity for a behavioral relationship that constrains the behavior of investment: when the government deficit goes up, Fama says, private investment must go down by the same amount.
When the government deficit goes up, private savings could go up by more–and private investment could increase. Private savings could go up by less–and private investment would fall by less than the rise in the government deficit. Private savings could remain unchanged. Or private savings could fall. Determining which of these is most likely to happen would require a model of the economy of some sort–and Fama does not have one: all he has is an accounting identity that he does not understand.
To this, Mankiw gave the cool cat reply:
This post reflects a fundamental difference between Brad’s approach to the world and mine. When I read others’ work, I try to read between the lines and put it in the best possible light. In particular, when I read the work of an economist as distinguished as Eugene Fama, I am reluctant to jump to the conclusion that I am vastly smarter than he is.
But as I say, as hilarious as this is (for those of us who are not members of the Brad DeLong fan club), I think DeLong is right in his analysis, though not his manners perhaps. I basically had the same reaction when a guy at National Review took the opposite tack, and argued that accounting identities proved that the government needed to run a deficit in order to allow private households to save. (If you aren’t familiar with that one, you should check it out. I had forgotten how nuts the guy was, and I am still amazed “conservative” NR ran the piece.)
Potpourri
* Here is David Henderson’s funny disassembly of Peggy Noonan’s Obagaga.
* In bad news for David and others who advance the savings glut hypothesis, Chinese bankers call them gangsters. (HT2 Tim Swanson)
* Peter Schiff rips stimulus.
* John Whitehead uncovers some apparent math mistakes in the job creation calculations for the Obama-Biden stimulus plan.
Romanian Interview on Financial Crisis
Available here, though I think they misquoted me.
Filling the Holes in Krugman’s Analysis
You may be getting sick of Krugman-bashing, and in fact so am I. (My next Mises Daily will be a critique of Robert Lucas.) Yet I couldn’t let this one go:
So what I’ve come to realize is that in these last few months Krugman has implemented his own private-sector stimulus plan. He has been working furiously, cranking out fallacious articles and blog posts, which then provide work for people like Bill Anderson and me, as well as thousands of other bloggers who still can’t understand why it’s bad for families to save more. A clever chap, this Dr. Krugman, no?
Today my make-work will fill in two holes in a recent Krugman blog post. The first flaw is his belief that output generates employment (rather than vice versa), and the second is his belief that government spending is a measure of real output.
Two-Minute Hate on Brad DeLong’s Discussion of Modern vs. Classical Liberalism
UPDATED.
Wow, this guy is by far my favorite to read in order to wake up in the morning. I will come back and update this post, but for now just enjoy DeLong’s explanation of why classical liberalism (today we’d call it soft libertarianism) failed.
UPDATE: I don’t have too much to say, but I promised to come back to this. I will focus on just two issues:
It is not completely true that it is from the self-interest and not the benevolence of the butcher that we expect our meat. Self-interest, yes, but benevolence too: a truly self-interested butcher would not trade you his meat for your money but instead slaughter you and sell you as long pig. So this opens up a gap between the libertarian view and the world.
That said, and modulus this basic human–well, call it “sympathy” as Adam Smith did–modern liberal economists were very happy for a long time with classical liberalism.
Do you see what DeLong has done here?! He first distorts Adam Smith’s position, then he follows with a false claim, and finally he “fixes” it by reiterating what Smith’s position really was all along–and he doesn’t even bat an eye when using Smith’s own term to do the heavy lifting in the statement of Smith’s original position!!
Yes it IS true, Prof. DeLong, that we can’t expect mere benevolence to motivate the butcher to give us meat. Nobody would devote much of his waking day to preparing fine cuts of meat for others, unless there were something in it for him. However, if you want to understand why most butchers ALSO wouldn’t slaughter people for the chance of turning a few extra bucks (let’s put aside issues of retribution), then you can certainly bring up the fact that people have a default sympathy for each other. What I have said is completely compatible with Adam Smith’s writings.
The modern Ametican liberal economist’s view of libertarianism is much the same: libertarianism is false in theory, but it is very much worth figuring out a set of limited, strategic interventions that will make the libertarian promises roughly true in practice.
As I said over at MR, here DeLong is saying something akin to, “Protestantism is wrong, but the Pope can approximate it.”
Wenzel vs. Murphy
Over at his blog, Robert Wenzel recently made the “Case for Optimism (Sort of),” in which he predicted that Bernanke’s showers would soon bring apparent growth back to the traditional indicators. Wenzel’s momma didn’t raise no fool; he isn’t saying this will be a good thing, since he shares my concerns about price inflation in the medium-term.
Even so, I disagree with even the case for short-term optimism. In the comments I wrote:
Well good, since you and I normally enthusiastically agree with each other, I’m glad we finally have a way to separate the man from the boy. I think the economy over the next 3 years is going to be absolutely awful. The government has literally taken over large chunks of the financial sector, and now the Fed is engaging in discretionary injections of hundreds of billions of dollars to specific firms. The gross federal debt already went up by over $1 trillion in 2008, and we’ve got an incoming president who openly called for wealth redistribution and just nominated an explicit socialist to oversee the nation’s energy markets.
And you’re saying what again? “Sure, but Bernanke is flooding the system with a bunch of paper money.” 🙂
In a follow-up post Wenzel clarified:
I think what is going on is that I am being a little more specific than Murphy. That is why I put “recovery” in quotes. The “recovery” will show up in the numbers most watch, such as a reversal in the downward trend in unemployment and an uptick in GDP, while brewing underneath will be a vast inflationary fury that will ultimately cause major, major havoc for the economy,—inflationary havoc, not recessionary havoc….So Bob, over to you. Let’s see how close, or far apart, we are. What do you see happening to unemployment over the next 6 to 12 months?
Now folks, this is not based on a formal study or anything like that, but here goes: I would be very surprised if there is net job creation in the private sector in the next six months. Unfortunately, it would be tricky to do this right, since we can quibble about whether a new job making solar panels is really “private sector” if it’s dependent on massive subsidies. So fine, let’s just keep it simple and say that I predict the official unemployment rate in both 6 months and 12 months will be higher than it is right now.
Also, I predict that there will be no net growth in real GDP during 2009.
Finally, I predict that–barring some major methodological change that any neutral observer would agree is completely BS–the CPI (urban one) will rise at least 8% over the course of 2009.
Go ahead, Mr. Wenzel.
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