This Is What It Looks Like When Scientists Don’t Understand Something
Tyler Cowen linked to this Nature article, which I find unintentionally hilarious. The first sentence alone is magnificent: “Physicists are growing ever more frustrated in their hunt for dark matter — the massive but hard-to-detect substance that is thought to comprise 85% of the material Universe.”
I beseech you, please do not lecture me in the comments about how much more physicists know about cosmology than economists know about economic growth. I am not disputing that. (Here’s an earlier post I did on this stuff.) You would be hard-pressed to find someone on social media who mocks economists more than me. (Latest example: For a long time I didn’t know exactly what “total factor productivity” was supposed to be, but now I realize it means, “The portion of output that economists can’t explain.”)
National vs. Individual Consequences of Sin
The book of Leviticus lists a string of punishments or curses that will befall the nation of Israel, if they violate the covenant they’ve made with God. (On the flip side, it also lists a string of blessings if they obey God’s laws.)
I was talking with my study partner about the subtle relationship between righteous actions and worldly success. On the one hand, it’s certainly true that bad deeds “eventually catch up with you,” but on the other hand, bad things can happen to good people–just look at Jesus. Furthermore, Jesus Himself refuted the notion that if someone is suffering, it must be because that person (or his/her parents) committed a sin:
9 As he passed by, he saw a man blind from birth. 2 And his disciples asked him, “Rabbi, who sinned, this man or his parents, that he was born blind?” 3 Jesus answered, “It was not that this man sinned, or his parents, but that the works of God might be displayed in him. 4 We must work the works of him who sent me while it is day; night is coming, when no one can work. 5 As long as I am in the world, I am the light of the world.” 6 Having said these things, he spit on the ground and made mud with the saliva. Then he anointed the man’s eyes with the mud 7 and said to him, “Go, wash in the pool of Siloam” (which means Sent). So he went and washed and came back seeing.
Yet flipping back the other way, I have no problem with Christians (or atheists, for that matter) who warn that Americans’ hubris and violence will spell the downfall of their empire, just as has happened with every other wealthy, militarist hegemon in world history.
I speculated with my Bible study partner that perhaps we can reconcile all of these threads by appeal to tendencies, rather than strict one-to-one mappings. So for example, robbing a bank is definitely a “bad idea,” even if we disregard abstract notions of morality. But any individual might be able to get away with it, with no apparent downside in terms of earthly consequences. Yet surely if a whole society started condoning bank robberies, there would be unavoidable and drastic consequences.
With that in mind, I was pleasantly surprised to see a similar take from Matthew Henry, who wrote in his commentary on Leviticus:
26:40-46 Among the Israelites, persons were not always prosperous or afflicted according to their obedience or disobedience. But national prosperity was the effect of national obedience, and national judgments were brought on by national wickedness. Israel was under a peculiar covenant. National wickedness will end in the ruin of any people, especially where the word of God and the light of the gospel are enjoyed. Sooner or later, sin will be the ruin, as well as the reproach, of every people. Oh that, being humbled for our sins, we might avert the rising storm before it bursts upon us! God grant that we may, in this our day, consider the things which belong to our eternal peace.
(By the way, Matthew Henry wrote in the early 1700s.)
A Machine Puzzle (3 of 3)
Earlier I asked how it could be possible that one cryptocurrency appreciated at 10% a year while another appreciated at 20%, and several people in the comments correctly said that the dollar-price of a coin could adjust accordingly. So the rate of return *measured in dollars* for the two different cryptocoins could be equal, even though one of them grew at twice the rate of the other.
Then I asked how it could be possible for US Treasuries to yield 2% while Japanese government bonds yielded -0.1%. Nobody officially gave the right answer. The answer is that the purchasing power of the USD and the Japanese yen are changing at different rates, so that the exchange rate between the USD and the yen is changing over time. In a simple model where you hold a bunch of other stuff equal, “no-arbitrage” requires that differences in nominal interest rates are explained by counterbalancing expected changes in the exchange rate. So again, the return *measured in dollars* to an American investor is the same, whether he buys Treasuries or Japanese bonds, even though one bond grows at 2% while the other shrinks at 0.1%.
Finally, for our present post: Suppose Machine A can be used to make 10% of itself per period, while Machine B can be used to make 20% of itself per period. Is this possible in equilibrium? Wouldn’t investors dump Machine A and buy up Machine B, until the rates of return were equal?
But as we should realize by now, this way of thinking is faulty, which demonstrated the danger in reasoning from a physical conception.
Because the price of Machine A (and its products, like apples) can change relative to the price of Machine B (and its product, bananas) over time, the rate of return to investors *measured in dollars* can be equal, even though Machine A can make 10% of another Machine A while Machine B can make 20% of another Machine B.
NOTE: There might be more we can deduce about equilibrium conditions in a steady state, but the mere condition of “no-arbitrage” doesn’t pin things down as much as some of you were suggesting in the comments. And I’m not picking on the people who chimed in here on the comments; I think 95% of professional economists would have been falling into the same traps, because they use one-good models as their workhorses in this arena.
A Sovereign Bond Puzzle (2 of 3)
Don’t worry kids, I’ll give you the punchline after this one. But I can see in the comments here that you people still aren’t getting what this has to do with Krugman on Kapital.
So, not a trick question: The 5-year Treasury yield right now is about 2%. The 5-year Japanese government bond yield is about -0.1%.
So how can this be possible? Do investors really think the US government is that likely to default? Why aren’t investors all over the world dumping Japanese bonds and buying US Treasuries, until the yields are equalized?
Or is there some other factor involved that would help explain why the rate of return could be different on different assets like this?
Tom Woods Interviews Me About My New Liberty Classroom Course
Interview here.
And if you want to order the course, use this link to stick it to The Man. (The Man being Tom.)
A Crypto Puzzle
Developers come up with a new cryptocurrency that doesn’t involve “mining.” Instead, holders of the coins enjoy the creation of more coins, at the rate of 10% per year. (So you can use it to buy things, but if you just hold it, the number of coins you hold grows at 10% per year. The rate is instantaneous though.) They name it GrowCoin.
Inspired by the discussion at this post, their rivals enter the market and release FasterCoin, which is very similar to GrowCoin except FasterCoin reproduces at the rate of 20% per year.
Two questions:
(1) Is it “obvious” to you that nobody would ever hold GrowCoin once FasterCoin is released?
(2) Does that mean that no such cryptocurrency could ever be developed, since obviously a competitor could always just release a coin that has a slightly higher rate of reproduction?
Two Approaches to Criticizing Krugman on Kapital
Nick Rowe and I have both known that something was unsettling in Krugman’s recent posts involving capital theory and the corporate income tax. (BTW this isn’t ideological: I would’ve written the same thing about Steve Landsburg’s diagram except he had too much extra stuff going on, and it would have distracted from my point.)
So Nick writes a really long post that is very polite.
In contrast, I wrote a short, snarky post that has so far gained me 3 emails, all negative. (They were all along the lines of, “I agree that Krugman can often be annoying, but no you messed this one up, Murphy.”)
So you be the judge.
P.S. I’m writing the current blog post tongue-in-cheek, but I am actually wondering what the best approach is. I worry that Nick’s post will fly under the radar, whereas my provocative claim was *so* provocative that nobody believes me–even allies.
Saving’s For Suckers
I was trying to find more recent data for the items I dug up in this post, and stumbled across the following fairly ominous FRED chart. There might be something going on with capital gains that arguably distorts things (which a Chicago School person would no doubt argue), but for what it’s worth here is the chart:
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