I'm not sure if this will even work, but several weeks ago I made a dumb mistake and switched the RSS feed for my blog. We couldn't undo the mistake, but it occurred that maybe if I try making a post through Blogger (instead of the new Wordpress platform) people who are still using the old RSS feed can see this message.

Soooo, if you haven't seen the new blog posts, please manually go to the same URL and update your RSS feed. Send me an email if you have trouble.

* At MasterResource I tut-tut Robert Frank's NYT column on climate change that scared the children. I use the latest Economic Report from the President (as in Obama), as well as a chart from the latest IPCC report (aka "the scientific consensus"), to show that the world is not ending, at least according to our trusted government and association-of-governments documents.


* At Mises I show the hidden paradox in standard free market arguments for drug legalization and against union thuggery. Specifically, a typical economic case for drug legalization will blame gang violence on the lack of contract enforcement (e.g. a drug dealer can't call the cops if he gets robbed), and free market economists will also usually say that unions can achieve above-market wage rates because the government doesn't intervene to protect "scabs" from picketers.

On the face of it, aren't these odd positions for a rabid free marketeer to take? In other words, s/he is arguing that there would be less gang violence, and a more coordinated labor market, if only the government would use its monopoly of courts and police more.

I resolve the paradox in my article.

Over at MasterResource, Chip Knappenberger (who is a published climate scientist, though he is ABD I believe) has a great post documenting the IPCC Fourth Assessment Report's treatment of Antarctic sea ice. Here is the intro:

Some climate scientists have distanced themselves from the IPCC Working Group II’s (WGII’s) Fourth Assessment Report (AR4), Impacts, Adaptation, and Vulnerability, prefering instead the stronger hard science in the Working Group I (WGI) Report—The Physical Science Basis. Some folks have even gone as far as saying that no errors have been found in the WGI Report and the process in creating it was exemplary.

Such folks are in denial.

As I document below, WGI did a poor job in regard to Antarctic sea ice trends. Somehow, the IPCC specialists assessed away a plethora of evidence showing that the sea ice around Antarctica has been significantly increasing—a behavior that runs counter to climate model projections of sea ice declines—and instead documented only a slight, statistically insignificant rise.

How did this happen? The evidence suggests that IPCC authors were either being territorial in defending and promoting their own work in lieu of other equally legitimate (and ultimately more correct) findings, were being guided by IPCC brass to produce a specific IPCC point-of-view, or both.

I warn you that Chip's post is a bit long, and for full effect you need to read it carefully. But if you are at all interested in this issue--and you don't want to reflexively say "hoax! hoax!" just because you are a libertarian--I think Chip's post is well worth the effort.

Let me give one more hint: The post keeps getting better, the deeper you get into it, but you can't just skip to the punchline. You need to read the whole thing as it builds to the climax, and the noose tightens around the IPCC authors who were in charge of this particular section.

Krugman continues to outdo himself. In this article he somehow ends up saying: "In short, right now America has China over a barrel, not the other way around." Right, just like I have my credit card companies right where I want them.

Here's a fun experiment: Go through this Krugman column and replace "China" with "Iraqn," and "import surcharge" with "bomb the crud out of them." The Krugman op ed suddenly turns into a Max Boot piece.

[CORRECTION within post, below.]

Kevin Clauson gave an interesting talk at the Austrian Scholars Conference concerning the apparent (but spurious in his mind) tension between evangelical political views and Austro-libertarianism. During the talk he described government as a "necessary evil" and cited Romans 13 to show that God had instituted civil authority, but that the sinful nature of men meant that government needed to be very limited.

Norman Horn in the Q&A raised a question along the lines of, "I happen to disagree with you that government is necessary, but let's put that aside. I'm interested in your acceptance of the very concept of a necessary evil."

Clauson reiterated his points about the sinful nature of man (making government necessary but at the same time very dangerous) and once again cited Romans 13. But then Norman explained that he wasn't challenging the existence of government, but rather the concept of a necessary evil. Then he said something like, "But earlier in the book of Romans he says, 'What shall we say then? Shall we do evil that God may work good from it? By no means!'"

[UPDATE: The following is wrong, I picked up the wrong passage when I tried to find what Norman was alluding to. Please read the comments to see a much better debate.] I think he was referring to Romans 6, and the translation here is not exactly how I remembered Norman making his point. In other words, the translation here (and the ones I'm used to) are not as clearly in conflict with someone who thinks there is such a thing as a necessary evil, i.e. that Christians could use an admittedly evil thing (the State) to effect a good outcome.

Anyway I am not sure myself how I feel about all this. According to my own arguments on this very blog, I think I would have to agree that the world itself is a necessary evil in God's plan.

Note that Norman could still argue that humans shouldn't use evil things as a way to effect good outcomes, even though God does that (e.g. Joseph's betrayal at the hands of his brothers). But I think Norman was trying to argue that the very notion of a necessary evil is nonsense.

Case in point.

I actually don't have a problem with this lengthy review of New Deal revisionism (thanks to reader teqzilla for the tip), because the writer quotes me more than I think any other reviewer has done. I'm reading his stuff thinking, "Yep, yep, this guy Murphy makes a lot of sense." I don't recall "sniff"ing and being disgusted with things, the way the reviewer describes my book, but perhaps I need outside eyes to be objective.

I will probably write a response to this at some point, but it will have to wait for now...In the meantime, here's a good excerpt:

But since the mobilization effort mandated such measures as price controls, the draft, and rationing of scarce materials such as rubber and steel for war production purposes, the whole thing was the foulest of economic abominations. “So the carefully constructed measures of ‘inflation-adjusted gross domestic output’ during the 1940s are about as meaningful as the economic statistics reported by the Soviet Union,” Murphy notes in disgust. “The government effectively made it illegal for market prices to signal how much inflation the Fed was pumping into the system.”

And so it is with all the economic measures of the grotesquely defiled Forties. Sure, the poor saps drafted into the Army or the female workers who thronged into war production factories might have thought things were turning around. But they were blind to how the pure model of laissez-faire was being molested! After all, Murphy explains, “there are other goods and services that those scarce resources could have produced, but which humans will now never enjoy because they were devoted to government projects.” Think of all the miniature golf facilities, nylon stockings and radios senselessly sacrificed just for the liberal vanity project of defeating fascism!

Likewise with the erstwhile layabouts now caught up by the draft—how could anyone count this as a legitimate form of employment? Suppose, for example, “that FDR announced in 1940 that in an effort to fight the Depression, all able-bodied unemployed men would be shipped to African jungles (where they faced lions and disease). That policy would have brought down the official unemployment rate,” Murphy sniffs, “yet it obviously would not have promoted actual economic recovery. Had FDR suggested something this monstrous as a ‘cure’ for mass unemployment, citizens would have rightfully recoiled in horror.”

Indeed, one can almost picture Murphy himself, after typing up such infamies, smiting his breast, slumping alongside his laptop, lifting his head heavenward only to convulsively shout, “Unclean! Unclean!” After all, had the market approved of the war, it could by itself have instructed wartime production facilities where to allocate resources, by the magic of the price mechanism. “Precisely because World War II was an unprecedented event, there were no ‘experts’ on transforming civilian production to military production on this scale. When it comes to motivating millions of people to brainstorm and quickly come up with better ways to make a mousetrap (or tank), nothing beats the profit-driven market economy.”

Back in consensual reality, however, the Second World War doesn’t actually reduce to a perverse safari outing. There was a Japanese attack on a U.S. naval base, and a massive German effort to conquer the West and spread racial genocide. Oh, and the “pecuniary” stakes were far from negligible, as well, with a war-driven Nazi command economy curiously indifferent to the domestic production needs of Poland, France, Belgium, the Balkan states, and so on. A laissez-faire outlook among the Allied powers, in other words, would almost certainly have resulted in a fascist triumph. (Even more inconveniently, the killing blow to Nazi imperialism was delivered by the most hatefully statist command economy of them all, Stalinist Russia.)

Wow, you know I must be super busy if I forgot to blog my Mises Daily on Monday. It was "Trade Deficits and Fiat Currencies," showing the connection between the two. I both praise and critique the author of The Creature From Jekyll Island.

This morning I gave my talk at the Denver Petroleum Club. One of my opening slides talked about the IER D.C. office and how I didn't have a picture of it because we had recently moved, so instead I said this shot represented our efforts. I didn't get as big a laugh as I was hoping--perhaps because it was an older crowd--but other than that things went well.

Then I hopped on a plane to Atlanta, retrieved my car from the Economy lot, and drove down to Auburn. I'm about to crash and then tomorrow morning I give the Hayek lecture at the Austrian Scholar's Conference.

I think I actually get to sleep Friday night. I can't wait.

Lately I have tried to do a better job of "observing the Sabbath," meaning that I try not to work on Sundays. As a consultant, I never have a vacation. At any given time, there is always something I could be doing (or at least get the wheels moving) to bring in more revenue.

Currently my compromise is that I allow myself to read "worky" things, and I allow myself to work on the household budget, but I don't produce anything that someone else is paying me for. Eventually I will get to the point where I truly "don't work on Sundays."

Similar to the rule about tithing, the same holds for observing the Sabbath. Paradoxically, I have found that I get more done in a seven-day period, when I know during the week that I am not going to allow myself to do "real work" on Sunday. Presumably this has to do with the fact that you really can't go nonstop for a week without taking mini-breaks, and you use your time more effectively from Monday through Saturday if you know you are going to really take Sunday off.

Hey kids, just to let you know, I am swamped with "real work" for the foreseeable future. (I'm even busier than this guy.) Also, if it works out, I will be migrating the blog to Wordpress during my hiatus.

For anyone in the area, I am giving a talk at the Denver Petroleum Club on Thursday morning (will they be expecting a troll?), and then it's off to Auburn for the Austrian Scholars Conference [.pdf]. My intelligence sources indicate that there is a new karaoke bar in Auburn, which features karaoke every night of the week.

Lately people have been asking me how I get "so much" done. This always strikes me as funny since, at any given time, I'm usually behind on several projects.

One obvious thing is that we have not had a TV in our house since we left Hillsdale. (And even then, we didn't have cable and were on a lake so we had bad reception.) That literally gives you an extra two hours a day at least to get work done. Even if you're not watching it, someone else probably is. Imagine if one class of comparable students taking a test had a TV on in the background, while another had peace and quiet. Which group would score better?

When I had a TV in grad school, I used to wind down by watching Seinfeld and other reruns late at night after the long train ride from NYU to my apartment in New Jersey. Asking me at the time to give that up would have been like making me become a vegetarian.

But once you go through withdrawal, you will be amazed at how ridiculous TV is. If you have had one all along, you probably haven't noticed just how ludicrous it has become. I only see it now when I visit someone's house or stay in a hotel, so I see it in short samples spread out over weeks.

I'm not saying this as a prude, just making an observation: Modern American cable television is literally pornographic. If you flip through the channels, you will see cleavage or a sexually suggestive scenario (like a crime show where the victim is a stripper or a prostitute or something) on about every 5th channel, depending on the time of day. Fueled by FOX, every news show has to have a really attractive person on the camera at all times if possible.

And don't get me started on what's happened to wrestling since my younger brother used to watch Macho Man Savage and the Undertaker.

* This blew me away: Joe Salerno discusses Murray Rothbard's call for anti-statists to pull their money out of the commercial banking system. OK, so let's suppose Austro-libertarians agree that they should stop the inflating Fed in its tracks by boycotting the commercial banks. But what is the free market alternative? (Don't think tax-qualified retirement plans.) It would be nice if it already existed, in a time-tested financial product that Austro-libertarians already have an affinity for. Well we can dream.

* Sometimes even Joe Romm has to backpedal. Debate! Debate!

* Why I read EPJ: The real explanation for the fate of Charlie Rangel.

* Here's the audio of my talk at Jekyll Island, titled, "Only the Austrians Can Explain Depressions." Some jokes in the beginning, and then Scott Sumner bashing in the middle.

* I don't believe in Profile updates and all that jazz, but Vijay Boyapati had a cool Gandhi quote the other day: "The ideally non-violent state will be an ordered anarchy. That State is the best governed which is governed the least."

This made me chuckle three separate times, and that's good enough for government-bashing work. (HT2 Viresh Amin)

This is hilarious. Lew Rockwell sends along the Cleveland Fed's latest video in its, "Really bad drawings, real simple explanation" series (check the link if you think I'm making up the title). It's 9 minutes long so maybe that's too much for you, but at least watch it through 3:55 to see the graph of how the Fed maintains a stable purchasing power of the dollar from 1 - 10 years out.



If someone has a lot of free time on his or her hands, it would be hilarious to do a parody of this, explaining how the CIA works.

In closing, I must say that the tone of this video intrigues me. You get the sense that the actual Fed staffers know full well they're participating in something shady. For example listen in the beginning when they introduce Ben Bernanke, or at the very end when they say, "However you feel about the Fed..."

Reports of the imminent collapse of the monetary base have thus far been greatly exaggerated... I'm not saying that Bernanke was lying when he claimed the base would start shrinking real soon, I just want to point out that it wouldn't be the first time.

Paul Krugman links to Mark Thoma who in turn cribs from the Federal Reserve Bank of San Fran to give us...



The definition of "potential GDP" comes from the San Fran bank:

Potential output is not a measure of maximum output that can be achieved, but instead maximum sustainable output. As such, it is the level of real GDP that is consistent with stable inflation. When actual real GDP is running higher than potential GDP, the economy is said to be producing above full capacity.

Now look back at that chart, to see if we like the implications of this typical macro way of looking at things. Actual GDP was higher than potential GDP during the recession of 2000-2001; isn't that a bit weird?

Then, at no time whatsoever during the housing and stock market boom (except maybe a little blip in 2006) was actual GDP higher than potential. According to the CBO's calculation (which is where SF got the potential GDP number), the US economy in the year, say, 2005 was in a perfectly sustainable configuration. We could have repeated the experience of 2005 indefinitely, if only we had implemented the proper policies.

And now, of course, there is no reason for output to have fallen in the current recession. It's just that aww shucks aggregate demand collapsed for some nonsensical reason, and now we're stuck with a trillion dollars less in output per year than we ought to be enjoying.

There are two lessons from all this:

(1) Mainstream macroeconomists have a very very crude notion of the structure of production. Their models literally cannot handle the possibility that an unsustainable boom from 2002-2006 could have physically necessitated a drop in measured output from 2007-2008.

(2) As the persistent von Pepe keeps reminding me, the mainstream focus on CPI as the measure of "inflation" is wrong. As the chart above shows, people who think the economy is in great shape so long as CPI grows at a moderate pace can often fall flat on their faces.

I want to give a quick summary of my views on violent resistance to a tyrannical government, in light of the Austin plane attack and the (possible) attack on a Utah IRS facility.

* There is a big difference between arming yourself and saying, "If they come onto my property, it's show time" versus, "I am going to fly my plane into a government office." If you're trying to win converts, the former is a lot more likely to garner sympathy than the latter.

* Proponents of violent resistance have in mind the idea that if we could just get x million fellow citizens to think like us and stand up to Big Brother, we'd eventually win after they killed y million of us. Well OK, but if we had x million fellow citizens who thought like us, then I submit it wouldn't take violence. They could just stop paying taxes and see what happened. The results would be the same--eventual crumbling of the empire--but with a lot less bloodshed.

* People (like the Austin pilot) who think it's smart strategy to provoke the government into doing something awful because then the people will rise up, are being awfully optimistic about the mass of Americans they otherwise refer to as "the sheeple." Remember Waco? How much more awful would the government have to be? But did the average American go buy a long gun and renew his membership in the John Birch society? Of course not. Most Americans just needed to hear a TV anchor give the official explanation. "Oh OK, yeah I guess that makes sense. If I were in charge of rescuing a bunch of children from abusive parents, I'd probably send in chemical weapons and tanks too. Too bad those kids had religious nutjob parents and got burned up."

Last point:

* People often invoke the Founding Fathers. Yes they were brave and they fought a war to free the country. And yet, many of the same people who love the Founding Fathers go on to chastise present-day Americans by saying, "Our nation of wimps now have a level of taxation far higher than the colonists endured under King George." Hmm there are two ways to interpret this. One is to say, "It's time for another bloodletting!" Another is to say, "Hmm maybe the violent American Revolution wasn't such a hot idea after all."

This is a pretty uppity article by Matthew Lynn on Bloomberg (HT2 Jeff Tucker):

The U.K. has been in Keynes overdrive for the past 18 months. The budget deficit is already more than 12 percent of gross domestic product, on a par with Greece. And while the Greeks are cutting spending, the British deficit is widening. Figures for January showed another fiscal blowout. At the same time, interest rates have been slashed to 0.5 percent. And the pound has slumped in value, which is supposed to boost demand for British goods, and help close the trade gap.

Just about everything possible has been done to encourage consumption. The results have been miserable.

Retail sales excluding gasoline in January fell 1.2 percent from the previous month, twice as much as economists forecast. The number of people receiving unemployment benefits jumped to 1.64 million in January, the highest level since April 1997. The yield on U.K. government debt is now higher than on Spanish or Italian bonds, a sure sign that investors are losing faith in the country’s ability to pay its debts. The inflation rate has also accelerated to 3.5 percent.

Triple Whammy

In reality, Britain has the worst of all possible worlds: a stagnant economy, a crippling budget deficit and rising prices.

The Keynesian consensus is that things would have been far worse without the stimulus provided by government. And if the economy isn’t pumped up with inflated demand, it will collapse back into recession. If it’s not working, that just proves the stimulus should be even larger.

It is the argument quacks always push: If the medicine isn’t working, increase the dosage.

Viresh Amin sends this very interesting snippet. Does anyone know what the official response to this is?

Incidentally, I did a decent amount of research over the summer and concluded that there was more than one shooter. I'm not saying I have a theory as to who shot JFK, just that I am confident the official story is bogus.

I will write up my case at some point, but it will take a lot of my time. I have to get someone to take a diagram from a book and translate it into a computer shot, etc.

Details are still sketchy, but apparently two people were carried out on stretchers from an IRS facility and a Hazmat team was called in.

If this turns out to be another attack, let me reiterate my position: This is foolish. Ask yourself this: Why does it even make sense for the government to engage in "false flag" operations (whether or not you think it actually does this)? Because this allows the government to expand its power over a terrified citizenry.

I grant you, average people are less scared from attacks on the IRS as opposed to, say, the subway. But violence is the government's game. I strongly disagree with the strategy--let alone the morality--of those who think it's time to fight the US government.

[UPDATE below.]

This is an esoteric piece, but is actually one of my personal favorites. I was struggling with this notion of an "inventory bump" in GDP growth for a while, and I resolved the issues (at least to my own satisfaction) in this article. So if you have always been vaguely uncomfortable with people attributing percentages of GDP growth to inventory adjustments, this one's for you. From the conclusion:

The textbook GDP equation is not false; it is a tautology and so of course it is true. Nonetheless, it is a destructive framework for thinking about macroeconomic events. Abuse of the equation leads economists and pundits to blame savings and praise reckless consumption, to hate imports and love exports, and (in principle) to attribute a doubling in the flow of goods coming out of factories to a nonchange in the level of a nonexistent stock of inventory.

The part I've just underlined is the contribution of the article; I came up with an easy numerical illustration showing that the standard GDP logic leads to that absurd possibility.

UPDATE: David R. Henderson has a good piece on "GDP fetishism" at EconLib today. Something isn't quite clicking for me in his example of the government paying $10 billion to workers who dig holes and then fill them up. David argues that if the workers get paid $10/hour for work that they would only have been willing to do for at least $6, then only $4 billion of "well-being" has been created on net, once we take into account the loss of leisure. But isn't this too an overstatement, since the workers only value the wages because of the actual goods and services they will be able to buy (and hence redistribute away from everyone else)? Maybe David is capturing that in his categories of price inflation or future tax hikes. Anyway, it's a good article.

I caught a really bad cold on Jekyll Island so I am going to make this a brief post. After the festivities last night, some of the young LvMI aficionados offered to buy me drinks if I didn't go back to my room. I considered the offer and texted my wife, "I believe the children are our future..."

Anyway, one of them was an atheist and asked me what made me convert. (I too had called myself a "devout atheist" in undergrad, and now I call myself a born-again Christian.) People ask me this a lot, so let me give the very quick summary of how my beliefs evolved.

(1) I can't go into the details here, but I went through a very powerful experience in which I experienced firsthand how much one's beliefs can influence perception. I had always known corny stuff like, "If you want to win the championship, you have to visualize success" or, "The guy who gets the girl is the guy who knows he's getting the girl." But I'm talking about much stronger stuff here, like having huge hives on your skin if you're worried about something.

(2) This newfound knowledge about how much you "create your own reality" made me really understand how it was possible that if a devout Jew truly believed the Messiah had just healed him, that he would actually be healed (of his lameness, leprosy, etc.). Note that at this point I was still an atheist. I just thought that I had figured out the trick. I no longer had to assume there was some guy Jesus who said some neat things, and then his followers invented a bunch of stories to make others pay attention. No, now things made a lot more sense: I thought there had been this guy Jesus who was earnest but had been raised in an unscientific culture, and he really believed he was God. Since he was so confident, he convinced a bunch of other people too. And you can't blame them; he was literally healing people on the spot. But it wasn't a miracle or magic; it was all due to the power of the human mind over the physical body, which I had only recently discovered.

(3) At some point (there's a lot more to the story) it occurred to me that if there were a God and He were to become incarnate as a man etc., that things would appear exactly as my atheistic investigations had revealed. In other words, what more do you want than a guy who goes around healing people, preaching the good news of the kingdom of God, etc.?


I don't expect the above to persuade anybody who thinks psychomatic medicine is some New Age touchy-feely thing, and that, "If you're sick you need some good drugs and maybe a CAT scan." But for whatever it's worth, it was the path that led from my atheism to theism.

I believe it was the acerbic von Pepe who said to me over email that Scott Sumner was right--the focus on money was an illusion. (This was a backhanded compliment, to say the least.) I tweaked it a bit for my title...

Lately Scott has been giving us sneak peeks at his book on the Great Depression (e.g. here). Scott's big thing is that the Fed needs to keep nominal GDP (NGDP) growing in order to stave off calamities. Scott admits there are other "real" shocks that can occur, such as a giant tax hike. But he's saying that in addition to all that, if the Fed doesn't print enough money to offset a huge increase in the demand to hold cash (for whatever reason it occurs), then that will be an additional kick to the economy. In particular, Scott thinks it was the Fed's timidity that caused the Great Depression, as well as the financial crisis of the fall of 2008.

So step 1, I went to the old Austrian workhorse, the depression of 1920-1921. Based on a site that a reader kindly dug up, we learn that the drop in nominal GDP from 1920-1921 was (almost) 17%. That was as big as any single-year drop during the Great Depression, except for the catastrophic year 1931-1932.

So the question is, would anybody say that the economy in 1931 was better than it was in 1921? According to Scott's theory, you might think that would be the case, since nominal GDP had fallen more sharply from 1920-1921 than from 1929-1930 (down 12%) or from 1930-1931 (down a little more than 16%). Unemployment was 8.7% in 1930, and had risen to 16.3% by 1931. In contrast, unemployment was 11.7% in 1921, but then it dropped down to 6.7% by 1922 and then 2.4% by 1923.

Now in fairness to Scott, he could say it is a cumulative matter, and in fact the figures above support his story. In other words (he could say) the reason unemployment in 1931 was higher than in 1921 (16.3% vs. 11.7%) was that nominal GDP had fallen a cumulative 26% from 1929-1931. So even though the one-year drop in NGDP from 1920-1921 was bigger than any single year drop up through 1931, it was the back to back drops of 1929 and 1930 that broke the back of the economy.

OK in and of itself, that's plausible enough. But how does Scott explain our current crisis? Assuming my late night calculations from the hotel room are correct, nominal GDP fell about 1.3% from 2008-2009. So how in the heck does that give us a ~10% unemployment rate? (You might ask, "What about the cumulative fall from 2007-2009?" But don't, because GDP in 2008 was higher than in 2007.)

Now maybe Scott would come back and refine the growth rates, and show that something happened in the 3rd quarter of 2008 that my annual figures above are smoothing out of existence. OK fine, but I don't think there's any way Scott is going to generate a recent fall in nominal GDP anywhere close the (almost) 17% one-year drop from 1920-1921. And yet, assuming the stats are measuring the same thing, the unemployment back then was just a point or two higher than it has been in our time.

Now let's move on to the decisive issue. Over email I asked Scott about these things, and he said (reproducing with permission), "Yes, there was a huge drop in NGDP in 1921, but I don't see where you are going with this. I agree with the Austrian view that a sharp fall in NGDP is a bad thing, and 1921 certainly supports that, as does 1929-33, when NGDP fell in half. I'm curious to hear your take on it."

So I said, "OK, I'm saying why did the economy escape a decade of depression in the 1920s--in fact had the Roaring 20s--when in the beginning, the 1920-1921 crash was worse (according to your theory) than the Great Depression crash? Did the Fed start targeting NGDP in 1921?"

Then Scott replied:

Bob, The 1921, 1930 and 1938 depressions were almost equally severe, as my theory predicts. The reason 1929-33 was far worse than 1920-21, is that NGDP fell in half between 1929 and 1933. Even by 1931, NGDP had fallen more steeply than in 1920-21. I think 1920-21 fits my theory perfectly, and make that argument in my book.

And yes, Strong was basically targeting NGDP in the 1920s. He said he was concerned about fluctuations in both prices and real output; that's essentially NGDP targeting. NGDP grew fairly steadily between 1921-29, which is why the economy did well. When it fell in half after 1929, the economy did poorly. If NGDP had kept falling after 1921, as it did after 1930, the 1921 depression would have been much worse.

The 1921 depression was short, but deeper than our current recession. It ended quickly because NGDP recovered strongly in late 1922.

(Hang on kids, we're almost to the finish line.) I came back with this gem: "But wait a second, of course if the economy recovers from a depression (whether because of wise Keynesian stimulus, Sumnerian Fed policy, or Austrian chanting) NGDP will recover. But I'm saying, can you point to what the Fed did to cause NGDP to recover in late 1922?"

Scott explained: "The [monetary] Base fell sharply in 1921, and rose sharply in 1922."

OK for those who are still with me, let me show you how difficult it is to square the numbers on monetary base growth to fit Scott's narrative from above.

In the chart below, I have taken the St. Louis Fed's "Adjusted Monetary Base" series, the non-seasonally adjusted one. The data is monthly, which made it hard to see broad trends. So what I first did was construct quarterly averages out of the monthly data.

Then, I constructed 6-month growth rates for each quarter. So for example, the entry for 1920 1Q is 16.3%. What that means is that the average monetary base level in the 1st quarter of 1920 was 7.86% higher than the level in 3Q 1919. Since the base by 1st Q 1920 had grown 7.86% over the past 6 months, that works out to an annualized growth rate of monetary base of 16.3%. OK?

Now that you understand what the growth rates mean, check out this table:



I've put the significant money tightening periods in red, and the loosening periods in green. Now pretend for a minute that you knew nothing of the time periods, and you were applying Scott's theory. You want to predict which periods have the worst recessions.

OK the biggest reduction in monetary base occurs in 1921. It's true, the drop in 1937 is bad, but clearly the 1921 drop is worse. And the drop in 2008 is...oh wait, there was no drop in base. You just saw a slowdown in its growth.

Now at this point, we would expect the worst depression in US history to be in 1921, the second worst to be in 1937, and the third worst in 1930. We wouldn't even expect there to be a depression in 2008. (You can't see it in the excerpts I've given you, but there were other periods post-WW2 where monetary base actually fell or grew very anemically, and yet I don't think [off the top of my head] there were bad recessions in those periods. Clearly not "the worst Depression since WW2" which is what we are currently experiencing.)

OK let's be fair to Scott. He could argue that we need to look at the Fed's rescue of the economy in 1922, when (per Scott's email) monetary base grew rapidly. So we should expect to see the most phenomenal growth in monetary base in 1922, in order to counteract the huge restriction in the base in 1921. Otherwise, it would remain a mystery how the economy bounced back so quickly in 1922.

Uh oh. My measure of base growth was negative through the first half of 1922. And then even when it picked up, the highest it hit was 11.1% in the 4th quarter of 1922. Remember, unemployment had dropped about five percentage points--falling about in half--from 1921 to 1922.

So if the second-half spurt in 1922 explains the dramatic recovery--and indeed paved the way for the Roaring Twenties--then what was the problem in late 1931? The growth in monetary base then was much bigger than in late 1922. And yet we all know that unemployment continued to rise.

A similar puzzle occurs when we look at the huge, and consecutive, growth rates in 1938 and 1939. But unemployment was 19% in 1938, and was still 14.6% in 1940. Scott can give a story about "long and variable lags" to blame the spike in unemployment in 1938 on the monetary contraction in 1937, but how can he explain the post-1921 recovery by monetary base spurts that are pipsqueaks compared to the huge injections frmo 1938-1940?

Up till this point, Scott could maybe get by with a story that involved judicious use of cumulative effects etc. But look now to the green cells in late 2008 and early 2009. !!

I submit that Scott has fallen prey to a money illusion. Of course it can screw things up if our fractional reserve system allows a huge contraction in the money supply when other things are falling apart in the real economy. But just look at the 1920-1921 episode compared to 2008-2009. It is unreasonable to say the basic cause of our current malaise is that the Fed tightened up in 2008 and then didn't open the spigots enough after the crisis set in. The numbers aren't even in the right ZIP code for that explanation.

Back to you, Scott.

(NOTE: I am writing this from a hotel room. I reserve the right to change the numbers above in case I googled the wrong unemployment rate for a certain year, or screwed up the division for computing nominal GDP losses.)

If the international bankers are smart, they will have added a secret ingredient to the catered lunch on Saturday. A bunch of us rebels are at Jekyll Island, where the blueprints for the Federal Reserve were designed--and they definitely fell into the wrong hands, namely, the hands of the guys who wrote them.

The classic work on all this stuff is The Creature from Jekyll Island: A Second Look at the Federal Reserve. I heard that it was a kook book (not to be confused with a cook book) but I'm about halfway through and I'm waiting to hit the crazy stuff. Of course, it could just be that I'm crazy.

If I didn't know any better, I'd say this was a conspiracy theory involving high-ranking US government officials, so it can't possibly be right... But anyway check out this amazing 1998 interview of Zbigniew Brzezinski that Brad DeLong dug up:

Interview of Zbigniew Brzezinski, Le Nouvel Observateur (France), Jan 15-21, 1998, p. 76*

Q: The former director of the CIA, Robert Gates, stated in his memoirs ["From the Shadows"], that American intelligence services began to aid the Mujahadeen in Afghanistan 6 months before the Soviet intervention. In this period you were the national security adviser to President Carter. You therefore played a role in this affair. Is that correct?

Brzezinski: Yes. According to the official version of history, CIA aid to the Mujahadeen began during 1980, that is to say, after the Soviet army invaded Afghanistan, 24 Dec 1979. But the reality, secretly guarded until now, is completely otherwise: Indeed, it was July 3, 1979 that President Carter signed the first directive for secret aid to the opponents of the pro-Soviet regime in Kabul. And that very day, I wrote a note to the president in which I explained to him that in my opinion this aid was going to induce a Soviet military intervention.

Q: Despite this risk, you were an advocate of this covert action. But perhaps you yourself desired this Soviet entry into war and looked to provoke it?

Brzezinski: It isn't quite that. We didn't push the Russians to intervene, but we knowingly increased the probability that they would.

Q: When the Soviets justified their intervention by asserting that they intended to fight against a secret involvement of the United States in Afghanistan, people didn't believe them. However, there was a basis of truth. You don't regret anything today?

Brzezinski: Regret what? That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want me to regret it? The day that the Soviets officially crossed the border, I wrote to President Carter: We now have the opportunity of giving to the USSR its Vietnam war. Indeed, for almost 10 years, Moscow had to carry on a war unsupportable by the government, a conflict that brought about the demoralization and finally the breakup of the Soviet empire.

Q: And neither do you regret having supported the Islamic [integrisme], having given arms and advice to future terrorists?

Brzezinski: What is most important to the history of the world? The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?

Q: Some stirred-up Moslems? But it has been said and repeated: Islamic fundamentalism represents a world menace today.

Brzezinski: Nonsense! It is said that the West had a global policy in regard to Islam. That is stupid. There isn't a global Islam. Look at Islam in a rational manner and without demagoguery or emotion. It is the leading religion of the world with 1.5 billion followers. But what is there in common among Saudi Arabian fundamentalism, moderate Morocco, Pakistan militarism, Egyptian pro-Western or Central Asian secularism? Nothing more than what unites the Christian countries.

* There are at least two editions of this magazine; with the perhaps sole exception of the Library of Congress, the version sent to the United States is shorter than the French version, and the Brzezinski interview was not included in the shorter version.

I am quite sure that if some "nutjob" posited this theory in 1980, he would be denounced as a paranoid pinko: "Yeah right, as if the US provoked the Soviet Union. Do you believe everything the Russkies tell you? I'm sure. Next you'll be telling me the Soviets felt threatened with all those nuclear warheads pointed at them. Like the US would ever nuke people. That's something Iranians would do, not us. We're the good guys."

Robert Barro has a pretty interesting WSJ op ed today, in which he uses his historical analysis of government spending and tax multipliers to evaluate the Obama Administration's stimulus package of 2009.

In a nutshell, Barro first estimates a spending multiplier of 0.4 (in the first year) and a tax multiplier of -1.1. So if the government spends $100 billion and doesn't touch taxes (i.e. borrows and spends an extra $100 billion), then GDP goes up by $40 billion. What that means is that there is 60% crowding out. The expenditure of $100 billion directly raises GDP by $100 billion, but then other components of GDP (private consumption, investment) fall by $60 billion. Hence, the net effect on GDP (in the first year) from an additional $100 billion in deficit-financed spending is only $60 $40 billion, according to Barro's analysis of periods of big spurts in military spending.

On the other hand, Barro finds that if the government raises $100 billion in new taxes (while holding spending constant), this lowers GDP by $110 billion.

So putting the two effects together, Barro estimates the 5-year impact of the stimulus plan. The idea is that the government "buys" some output on the front end (because the spending multiplier is above 0), but then has to forfeit output (relative to the baseline) on the back end because the higher debt requires more taxes. Barro concludes:

We can now put the elements together to form a "five-year plan" from 2009 to 2013. The path of incremental government outlays over the five years in billions of dollars is +300, +300, 0, 0, 0, which adds up to +600. The path for GDP is +120, +180, +60, minus 330, minus 330, adding up to minus 300. GDP falls overall because the famous "balanced-budget multiplier"—the response of GDP when government spending and taxes rise together—is negative. This result accords with the familiar pattern whereby countries with larger public sectors tend to grow slower over the long term.

The projected effect on other parts of GDP (consumer expenditure, private investment, net exports) is minus 180, minus 120, +60, minus 330, minus 330, which adds up to minus 900. Thus, viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake.

OK I wanted to test whether I really understand the Keynesian mindset. So I honestly haven't looked yet to see what DeLong and Krugman have to say about this. Here's my guess:

My Guesses as to the Keynesian Response to Barro's Op Ed

(1) Barro is a liar, second only to Russ Roberts in his lyinghood.

(2) Barro's spending multiplier is way too low. He admits that he derives it from studying wartime periods, but that's absurd. During such periods, the government enacts strict rationing measures to ensure that private consumption and investment stay suppressed, freeing up resources for the war effort.

(3) Barro's use of the 2008 baseline is absurd. If the government had sat back and done nothing, unemployment would have continued climbing, perhaps it would have been 15% right now. That would mean lower tax revenues and more spending on social welfare programs. In essence, all the stimulus does is concentrate that unavoidable government debt increase into the beginning years, when it might obviate much of the later spending. Barro has done the equivalent of looking at a patient just diagnosed with cancer, and comparing the medical expenses of early intervention against a "baseline" of a perfectly health person's medical costs.

(4) Barro's spending multiplier makes no sense, both in theory and in terms of empirical evidence. In an economy with 10% unemployment and 0% interest rates, running a fiscal deficit doesn't cause any crowding out. We would see the telltale signs if it did. So right now, when the government spends an extra $100 billion with borrowed money, that doesn't cause a $60 billion reduction in spending elsewhere. How could it? What is the mechanism? And not only does the $100 billion raise GDP directly by that amount, with no $60 billion offset, but in fact we get further GDP gains because of the further spending by people who would otherwise have been unemployed. Barro casts aspersions on Christina Romer's estimates of a multiplier greater than 1, but he doesn't explain what her mistake was. He just says he can't understand her figures and asserts his own. What pseudoscientific nonsense. Why oh why can't we get right wing economists who know more than discredited views from the 1930s?

OK kids, go look. I promise this was off the top of my head. How did I do?

Here's the rest of his email:

A bad one? Just saw this ad:



So, here's the script-- a government take-over of a major auto manufacturer, who happens to be dabbling in onboard vehicle "safety" technology that allows the company's vehicles to be controlled from a central location, and the competition is being brought down by legislative and executive agency inquiries and hearings, and a police force that is increasing militarized and has been indoctrinated to see civilians as game to be hunted and dominated. A psychological thriller exploring the psychosis of the hunters and the fearful desperation of the hunted as they try to escape the fast-enclosing walls of a terrifying police state. oh, and they're being RFIDed, too.

Submitizen, coming December 2010, tag line "Nowhere to run, nowhere to hide."

I mean seriously, any idiot should be able to see "Hmm, if the cops can get my stolen vehicle back that easily, I also can be easily detained, say if they suspect me of drunk driving, running drugs, etc. and then proceed to be harassed" but of course, they won't.

(Not three cheers, mind you.) The intro:

Ever since someone in grad school deviously introduced me to the concept of "irrational" debt aversion, I have been carrying credit-card balances that are far too high. Believe me, I understand the tricks these companies pull, like the clause in fine print where you unwittingly pledged away your firstborn.

I have had credit-card employees explain matter-of-factly to me that it was in my interest that they apply payments to the balances with the lowest interest rates first, and I was once driven to vulgarity on the phone by a representative who got philosophical with me when I was trying to close an account with a zero balance.[1] So believe me when I say that I get it when people complain about credit-card companies.

Yet in the present article I want to describe some of the benefits of these seductive tools of a modern financial economy. Although many critics would argue that credit cards show the flaws of capitalism, they also showcase its strengths.

And if you want to see what's good about credit cards, you'll have to read the article.

In a recent blog post titled, "More on Disinflation" Paul Krugman comments on the headlines trying to interpret the recent CPI announcement:

As Mark Thoma recently suggested...it’s odd that most macroeconomic forecasts show inflation remaining stable or even rising despite continuing very high unemployment. Both history and logic suggests that this is wrong.

And declining inflation is clear using any core measure. The Fed, I happen to know, tends to focus on the core personal consumption expenditure deflator:



There are some strange bobbles in this measure, suggesting that it’s not as good a measure of inertial inflation as advertised, but leaving that aside we see, once again, serious disinflation as a result of the recession.

I still think there’s a real risk we’ll turn Japanese.

If you want to see me tackle the claim that both theory and history support Krugman's belief that high unemployment ==> low price inflation, see my recent Washington Times op ed.

Also of relevance is the fact that Krugman focused on an odd time frame. Here's the full picture:



Now is it really jumping out at you that the Price Index of Personal Consumption Expenditures--stripped of food and energy--go down during recessions?

And even in the periods where it does seem to work, is the mechanism really the Keynesian one about recessions being caused by a fall in aggregate demand? Couldn't you just as easily explain it by saying that people have to buy food and energy, and so when their prices spike--especially if it's during tough times--then the prices of everything else tend to fall?

In other words, my point here is that people say, "Oh we're stripping out volatile food and energy to look at the underlying trend." But since people care a lot more about food and energy than a lot of the remaining purchases, that's closer to throwing out the trend and looking at the residual.

The comments on my first attempt got swamped. (Hey kids, can we please drop the potty talk?)

The problem is that people started arguing about something that was irrelevant--I could say "orthogonal" to impress you--to my criticism of Bryan Caplan. So let me state it again. Maybe I'm wrong, but none of the critics (in particular Gene Callahan) in the comments of my original post addressed the crucial issue.

There are at least three similar questions revolving around this discussion:

(1) Is there a useful distinction between selfish and altruistic actions? Yes I think there is. Bryan and Gene agree with me.

(2) Do most people exhibit predictably selfish actions in many aspects of life? Yes I think this is probably true, depending on how we define "selfish." (E.g. is it selfish if I would choose to give my newborn one bottle of milk instead of giving three babies in Australia a bottle each?)

(3) To be useful in understanding the world, does economic theory need to assume that people are selfish? I say NO, Bryan says YES, and I'm not sure Gene understood that this was the point I was making in my first post.

For example, it doesn't matter how selfish or altruistic people are, price ceilings (if placed below the market-clearing level) will generate a shortage. Bryan's post would have you believe that this textbook outcome only occurs if people are selfish, but Bryan is wrong (I claim).

Bryan says, "Rent control leads to shortages and/or declining quality - if landlords are selfish. If they loved their tenants as themselves, it's a different story."

I want Bryan (or his defenders) to spell this out a bit. It only makes sense to talk about price controls if there is a market with an equilibrium price in the first place.

I think if Bryan thought it through, he'd end up saying that the supply curve of rental units would be a horizontal line at $0, going over to the right and stopping at the total number of units in existence. But then in that case, the rent ceiling wouldn't be below the equilibrium price.

OK so Bryan says, "Right, that's basically what I meant. The theory could be true technically, but vacuous, in a world where everyone is totally altruistic."

But hold on just a second. What if a parent allows a college dropout to move back home, but charges the kid rent? Does that prove the parent is selfish and actually doesn't love the child?

More generally, what if we have a landlord who does indeed have an upward sloping supply curve, because he is familiar with the Misesian calculation argument and believes property and prices help coordinate the use of material resources? And then he ekes out a very humble existence, and donates the vast bulk of his after-tax income to charities around the world? Is that guy "selfish" and do we conclude that he loves himself more than the tenant whom he charges rent?

I am stressing all this because I think Mises was correct to argue that economic theory is a subset of a theory of human action. I think economic principles do indeed shed light on all human interactions, and don't require an assumption of selfishness in the everyday sense of the word.

I am prepared to debate this; maybe Bryan is right. But his post seemed a bit too quick to me, and I wouldn't want to misunderstand the foundations of our entire discipline because of a hasty mistake.

==========

I am actually running this post on a Sunday, which is reserved for religious posts, because for a while I have been toying with the idea that the anti-capitalists are right when they deride the "philosophy of scarcity" of bourgeois economists. If everyone really followed the commands of Jesus, it's entirely possible that society would be so incredibly transformed that humans would live on a different plane of existence.

Please don't say, "Even if we had spaceships, there would still be tradeoffs." You're narrowly focusing on technological things here. Imagine if there really were a world in which not only were there no wars and taxes, but there were also no insults or hurt feelings. Ever. The people growing up in such a world wouldn't know what it was like to be excluded from a game of tag, let alone would they know about the draft and fiat money.

I submit that we can barely conceive of what a relative paradise such an existence would be, compared to our current hell--designed by the prince of this world to fulfill his own agenda and unleash as much suffering on us as he can trick us into imposing on each other.

In a world where everyone truly lived as Jesus commanded, it is possible that the writings of free-market economists would seem naive or very limited. However, it's important to note that even in that scenario, it's not that the libertarian tenets would be violated. For example, people wouldn't take from the rich to give to the poor (even though those terms probably wouldn't mean anything at that point); the rich would voluntarily give to the poor.

Remember that "Thou shalt not steal" was in the 10 Commandments, as well as "Thou shalt not covet thy neighbor's goods." It's not that Jesus was overturning property rights, He was pushing us beyond them.

[UPDATE below.]

The well-read von Pepe has been sending me links from Charles Rowley. I will have more to say on them in the future, but this one on stagflation got me excited. At first I was very pleased that Rowley's arguments were so similar to my own. But then I got a little concerned.

Here's an excerpt from my Washington Times op ed of February 19:

Prices rose 2.7 percent during 2009, according to the Bureau of Labor Statistics' recent update of the Consumer Price Index (CPI). This is a worrisome fact because last year's unemployment rate averaged more than 9 percent. This trend may signal a return of "stagflation," a merger of stagnation and inflation.
...
To underscore that the U.S. economy has not been in deflation for some time, consider this: In the past decade, there were five years in which prices rose less than they did just last year. Does that sound as if the U.S. is still balanced on the edge of a deflationary cliff?
...
Some readers may remember the "misery index," the sum of the unemployment and inflation rates. The official unemployment rate in 2009 averaged 9.3 percent, for a total misery-index rating of 12.0. This is the highest misery rating in 26 years, going all the way back to 1983 when it was 13.4.

Compare with Rowley's blog post on February 20, the very next day:

For the time being the world sleeps, as money exerts its slow influence in the manner identified by Milton Friedman. First, monetary expansion will impact on real output, as already is the case. Then it will impact on the price level, slowly at first, but then with increasing venom. The first signs are already evident: the CPI rose 2.7 per cent in 2009, according to the recent update by the Bureau of Labor Statistics, and it did so against a backcloth of 9.3 per cent unemployment. This is a first green shoot of stagflation. A 2.7 per cent rate of price inflation is above the rate achieved in 5 out of the past 10 years in the United States. It does not signify a nation teetering on the edge of deflation.

Do you still remember the Misery Index that became such a central feature of economic evaluations during the stagflation era? This Index is the sum of the unemployment and the inflation rates at any point in time. In 2009, the Misery Index is measured at 12.0. This is the highest level of the index over the past 26 years, going right back to 1983, when it was 13.4, immediately before Paul Volcker’s monetary refrigerator conquered inflationary expectations.

OK not a smoking gun, I grant you. And I don't even believe in intellectual property; I don't own the idea of looking at the last decade to see how many years CPI rose less than in 2009.

But I'm not exactly a household name, Mr. Rowley. If indeed you had read my op ed before writing your own post, how 'bout a little something for the effort?

UPDATE: Actually there is a smoking gun. Rowley's post came out on February 20, when the BLS the day before had registered the January price level.

So in my op ed, I refer to the 2.7% CPI increase during 2009 as due to the "recent" release from the BLS, but that was because I actually wrote the first draft of that op ed in late January. It just took a long time for my colleagues at PRI to vet it etc., and then place it in a newspaper.

So I'm pretty sure that's conclusive heavy lifting of my piece, right?

Like I said, no big deal, I'm glad Rowley liked my points. There's no "I" in Internet.

Glenn Greenwald documents the contradictions in the Establishment's use of the word "terrorism"--which it denied to Joseph Stack, the Austin plane crasher:

Contrast the collective hesitance to call Stack a Terrorist with the extremely dubious circumstances under which that term is reflexively applied to Muslims. If a Muslim attacks a military base preparing to deploy soldiers to a war zone, that person is a Terrorist. If an American Muslim argues that violence against the U.S. (particularly when aimed at military targets) is justified due to American violence aimed at the Muslim world, that person is a Terrorist who deserves assassination. And if the U.S. military invades a Muslim country, Muslims who live in the invaded and occupied country and who fight back against the invading American army -- by attacking nothing but military targets -- are also Terrorists. Indeed, large numbers of detainees at Guantanamo were accused of being Terrorists for nothing more than attacking members of an invading foreign army in their country, including 14-year-old Mohamed Jawad, who spent many years in Guantanamo, accused (almost certainly falsely) of throwing a grenade at two American troops in Afghanistan who were part of an invading force in that country. Obviously, plots targeting civilians for death -- the 9/11 attacks and attempts to blow up civilian aircraft -- are pure terrorism, but a huge portion of the acts committed by Muslims that receive that label are not.

In sum: a Muslim who attacks military targets, including in war zones or even in their own countries that have been invaded by a foreign army, are Terrorists. A non-Muslim who flies an airplane into a government building in pursuit of a political agenda is not, or at least is not a Real Terrorist with a capital T -- not the kind who should be tortured and thrown in a cage with no charges and assassinated with no due process. Nor are Christians who stand outside abortion clinics and murder doctors and clinic workers. Nor are acts undertaken by us or our favored allies designed to kill large numbers of civilians or which will recklessly cause such deaths as a means of terrorizing the population into desired behavioral change -- the Glorious Shock and Awe campaign and the pummeling of Gaza. Except as a means for demonizing Muslims, the word is used so inconsistently and manipulatively that it is impoverished of any discernible meaning.

(BTW GG gives hyperlinks to the claims above; I'm too lazy to copy them all in.)

I have a couple more thoughts on this:

1) The reason I think this was legit, rather than a false flag operation, is that the government isn't immediately calling it terrorism and using it to round up militia groups etc. I think they were caught flat-footed, and so their immediate response was to downplay it until they could figure out how they were going to play it. Fortunately for them, it's fine if they call it terrorism and pass the Building Protection Act of 2010 in a few months (in which all owners of private jets must donate a kidney to the federal government). Nobody will remember the initial reaction and think twice.

2) I was having lunch with someone who pointed out another reason that the government and major media weren't instantly labeling this a terrorist attack: It might cause too much cognitive dissonance among Americans who look like Stack. In other words, it's very convenient to whip people up into a frenzy over brown guys named Mustafa who worship Allah and think the US government is evil. But a white guy named Joe who (it seems) is secular and thinks the IRS is evil...well, people might not reflexively hate that kind of person so much. So the government might not want to taint the wonderful word "terrorist"--which they've built up over the last few years through careful conditioning--by applying it to the latter guy.

Carlos Lara is a businessman in Nashville who contacted me out of the blue back (I think) in late summer 2008. He was a student of Austrian economics and saw on one of my books that I also lived in Nashville. It was Carlos who introduced me to Nelson Nash's concept of "infinite banking," in which a household uses whole life insurance policies as a personal bank. In particular, Nash says that individuals should finance their car and (once they are really into it) home purchases through policy loans, rather than relying on loans from auto finance companies or mortgages.

Carlos and I are writing a book on this, due out in early summer. The more I learn about it, the more I think it's a no brainer for every household where at least one person is still in prime working years to buy at least one whole life policy, as early as possible. In particular, a whole life policy gives people who run their own businesses a lot of flexibility because of the way the tax code works. (Yes, Carlos and I both have whole life policies.)

Given our intentions, it's appropriate that I start laying the groundwork now. Not only will this help introduce you to the (initially odd) idea, but it will also make it easier for me to write my portions of the book.

As this series progresses, I'll tackle specific topics in more depth, and handle some of the typical objections (like "buy term and invest the difference" and "the rate of return on a whole life policy is awful--are you nuts?!"). At this point, let me just paraphrase a point that someone at the IBC conference made to me (and yes I think he sells policies for a living): If Dave Ramsey is right and whole life is such a stupid place to put your money, then why did the government cap how much cash you could put into a particular policy before the tax exemption phases out? If the government wanted to prevent something from being used by super rich people, doesn't that make you a bit curious to explore this thing?

In the next post I'll discuss what a whole life insurance policy actually is. But if you can't wait, try this.

* If you want to be a Summer Fellow and join the elite club, look here.

* Chip Knappenberger argues that it is far from obvious that late 20th century warming is mostly due to human activity.

* Krugman made the point I could not (for reasons of truce). Namely, people recently were making fun of the economists who had predicted the Eurozone was not a stable arrangement. And then, well, you know.

* Bob Roddis sends this Detroit News article on asset forfeiture policies. There is a bill afoot to say police can't seize your property if they admit no crime occurred. (And this is news, mind you.)

* Jeff Tucker has some great one-liners in this blog post on medical costs. (I originally wrote "medical prices" to be more accurate, but c'mon it's a blog post. I may type out "ain't" before the day is done.)

* Jeff also gushes over the Hayek/Keynes rap video. OK OK, I had no idea it would get that many views. It is obviously a success. My initial reaction was totally totally wrong.

* Speaking of Russ Roberts, did you know he was the lyingest economist alive? (HT2 von Pepe)

* Just when you thought you'd nailed down Silas Barta's position on climate science...

* About a week ago all the gold bugs were going nuts over this Tyler Durden discussion of a 1995 article on economic history (!!). The thing that I don't get is, why did the Bank of England pressure the Fed to cut rates in 1927? That's the theory I endorsed in my Depression book, thinking that the BofE was hurting because of the overvalued pound and so wanted the Fed to weaken the dollar by cutting US rates (thus fueling the stock market boom in the late 1920s). But if this prof whom Tyler Durden has found is right, then the Bank of England was actually suffering from a massive inflow of gold. So what's the deal? Sure, it's great to get new evidence that central bankers are naked liars, but Austrians need to do some soul-searching if they want to endorse this guy's paper.


Conspiracy Section

* Imagine a dystopian novel where the government sends laptops home with kids, and then remotely activates the camera to spy on them and their families, and then punish the kids for things they were doing in their house. Oh wait, that's the allegation in a lawsuit filed in Pennsylvania. (HT2 Tony G)

* Did you know that the Fabian Society's stained glass window features a coat of arms with a wolf in sheep's clothing?! Griffin in The Creature from Jekyll Island claimed this, and so I went to the Internet to confirm. I found a bunch of conspiracy websites saying it, but this site seems pretty neutral and there it is, bright as day.

* I was watching a documentary that was talking about how the bankers rammed through the Federal Reserve Act with as little fanfare as possible, in fact doing it two days before Christmas. Yep, checks out: The Act was enacted on December 23, 1913.

* The Georgia state senate recently passed a bill outlawing the involuntary implantation of microchips. Maybe you're thinking it has to do with cattle or something. No, it's humans. And you should be very relieved, only two people voted against the bill. (Not sure if they opposed bans on involuntary microchip placement, or if there were something odious tied to the bill.)

* I also tried to verify this inconceivable (I don't think that word means what I think it means when the speaker is David Rockefeller) quotation I saw in a documentary. I don't know how airtight this procedure is, but Wikiquote says it is sourced (whereas some other quotes attributed to Ben Franklin on fractional reserve banking were undocumented according to Wikiquote):

We are grateful to The Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now much more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries. --David Rockefeller

These media hits accumulated in my PRI inbox while I was at the Infinite Banking seminar. The op eds ran on different days, and hence do not constitute a true triple play--I know some of you are purists.

* In this Townhall article I talk about lessons from Hugo Chavez' price control experiment.

* In this Buffalo News piece I talk about the "surprise" job losses in December (I wrote this a while ago), and the possible connection to the health care bill. (I think a version of this op ed may have also been published someplace else, and I had to paste it in to a blog post because there was no online version.)

* Whoa! My first op ed in the Washington Times. (The topic is stagflation.) If I get any more mainstream they'll let me host the Grammys.