Monday, August 31, 2009


Reflections on the San Fran Mises Circle

Over the weekend I was in San Fransisco for a Mises Circle. (Next stop: Seattle.) We had a surprisingly large crowd of around 175 (not an exact count), in an area that you would think would be slim pickings. A special surprise was that Edward Gonzalez showed up. I also met "Lilburne" (his secret identity will remain a secret, at least until you show me a power drill), Robert Blumen, and some Google guys who thought I was wrong in my debate with Mish. (Is it a debate if Mish ignores me?)

I won't dwell too much on the official proceedings, since the audio is already posted at, and I think even the video may be at some point. (?) Anyway, here are the talks, in order, and note these links are all mp3s: Walter Block, Tom DiLorenzo, Doug French, Bob Murphy, and all of us on a panel. If you're not sure whether to click on them, let me say that I had some pretty good jokes in my talk, and we were very anal about repeating the questions during the Q&A of the panel.

I flew in the day before (Friday) and hung out for several hours with Robert Wenzel (the man, the myth, the legend). He refers to the proceedings here, and perhaps he will grace us with more thoughts as he is so moved.

But the humorous event occurred Friday night. I'm ordering another round of gin and tonics (gins and tonic?) when Wenzel goes up to these two girls sitting at the end of the bar. I can hear him referring to me as "famous" and tells me to come over. This is really bad, because you would think I should be super confident since I'm married and no longer trying to pick up girls in bars, but actually it's even worse: Now I get the pleasure of being rejected when I'm not even trying to hit on girls, and to boot they think I'm a real scumbag for "hitting on them" while brazenly wearing a wedding ring. Suh-weet.

Anyway, Wenzel motions for me to swoop in as the wingman but here's how it went down:

Girl #1 [who looks like she actually doesn't hate men]: So why are you famous?

Bob: [inaudible]

Wenzel: He's a famous economist. He's been on Fox.

Girl #2 [who definitely hates anything that pees standing up]: You're on FOX?!

Bob: I don't work for Fox, I've just been on it.

Girl #2, informing Girl #1: He's been on Fox. (!!)

Girl #1 [who apparently spends more time trying to socialize with others rather than hating men and Sean Hannity in particular]: ??

Girl #2: FOX News, they like, defend the Evil Empire. [Telling Wenzel and Bob, without really looking at us.] You know, people in San Fransisco are really liberal, so that's not something to brag about around here.

At this point I went back to get the drinks that the bartender had mercifully poured by now. I was going to tell Girl #2 that I had probably done more to criticize the Iraq invasion than she had, but decided I didn't need to prove anything to her. I am not sure if this decision was based on self-esteem or humiliation.

Psychoanalysts, let me let you in on a little secret: I was no ladies' man when I was single. Are you surprised?


The Downside of Talk Radio

In a previous post, I praised Glenn Beck for getting the word out about what's going on regarding the open praise for communism by members of the federal government. On the other hand, let me relate a particularly ridiculous statement by Mark Davis--today's guest-host for Rush Limbaugh--that shows talk radio is only afraid of Democratic Big Brother.

Davis was talking about the recent allegations of interrogator abuse of detainees and said something like, "Give me a break, are these people serious? Now it's torture just to use the sound of a drill? V-v-v-v-v-v-v-v-v, did I just torture the audience?"

Something I've never heard when Limbaugh et al. defend torture--or should I say "enhanced interrogation techniques"--is that the government concedes that some people died during this hardball treatment. Such an admission wouldn't really play in with their "these ACLU types are a bunch of sissies" refrain.


Rep. Diane Watson (D-Ca) Praises Che Guevara, Fidel Castro, and Cuban Revolution That "Kicked Out the Wealthy"

Despite his flaws, Glenn Beck is doing a great job alerting Americans to the Marxist takeover of the federal government. You say, "Give me a break, Bob, just because someone wants everyone to have access to health care, doesn't make him a communist." That's true, but look at how many people in the federal government are now openly praising actual communism.

Beck played the following clip starting from about the 1:45 mark. This isn't mere, "Hey let's reform some of the abuses of naked capitalism."


Subjective Value Pricing Theory in the NBA

Based on this favorable review (and funny anecdote) by Robert Wenzel, I got David Falk's The Bald Truth a few months ago. It makes for great bathroom reading.

Falk is a sports agent, whose most famous client was Michael Jordan. (Jordan's ghostwriter did the foreword for the book.) This book is good because it shows exactly how Falk was able to negotiate such lucrative contracts for his clients; it doesn't just say, "And so then I went in there, and really drove a hard bargain." No no, Falk explains the back-and-forth, and how he got the teams to pony up what seemed at the time to be ludicrous sums of money.

Falk actually has a very good intuition about economics and game theory. When I hit the following passage, I knew that I had to stop reading and blog it, since I doubt there will be a better illustration of what I mean:
I was presented with extraordinary opportunities like these starting with James Worthy in 1982...then Patrick Ewing in 1985 and Danny Ferry in 1989. There were unique situations in the marketplace that demanded a unique response. I think the Ewing and Ferry deals, along with Michael's Nike deal, cemented my reputation not so much for being a hard-driving negotiator, but for being someone with a creative vision, or perspective on the value of players and where those valuations were going. Nobody ever believed Danny would be Larry Bird, and nobody believed Patrick would be Kareem, but Danny and Patrick made more as rookies than either Bird or Kareem was making at the time. And that's what was demanded in those situations.
A talented player on one team may not be worth as much as a less talented player on another team. James Worthy was a good example. He was a great player, one of the fifty greatest of all time, according to the league's experts. He was the first player selected in the 1982 draft, a remarkable performer in the playoffs, an all-star, a great teammate, and an extremely hard worker. Yet he was the third-best player on his team behind Magic Johnson and Kareem Abdul-Jabbar. James was probably one of the ten best players in the league. Another player, let's say the twenty-fifth best player in the league, might have been the best player on his team. Even though that player wasn't as good as James Worthy, without him his team would be in the lottery. On the other hand, the Lakers were going to be a great team with or without Worthy. Worthy's incremental impact wasn't as great on the Lakers as that of a lesser player on another team. As a result, the twenty-fifth-best player might have had a greater value to his team than Worthy did to the Lakers. (pp. 120-121)


Another Scott Sumner Money Illusion

I pick on monetary maverick Scott Sumner a lot, but only because I care. (In fact, Scott himself gets this; see the opening paragraph of this post.)

So it is merely in the spirit of loving correction that I bring to your attention a recent profundity from Scott. The context is (a very interesting) discussion of the difference between the quantity theory of money and the equation of exchange, which are often conflated.

The equation of exchange is the familiar MV = PQ, which is just the accounting tautology that the total money stock times the "velocity of circulation" must equal the "average price level" times the quantity of real output. Some people use different letters, and people like Rothbard get mad over the nonsense placeholders like "V" which only serve to complete the equation. But if we put aside such complaints, the equation is an identity and so has to be true.

In contrast, the quantity theory of money is just that, a theory, and so could be falsified in principle. Scott says that different people mean different things by the theory, and he lists four popular contenders:
1. The ratio of P and M is relatively stable.

2. The ratio of P*Y and M is relatively stable.

3. An exogenous, one time, permanent increase in M causes a proportional rise in P*Y

4. In the long run an exogenous, one time, permanent increase in M causes a proportional increase in P.
Does everyone see the difference? Just to give you an example, when Friedman famously said that price "inflation is always and everywhere a monetary phenomenon," he wasn't just relying on the equation of exchange. Yes, MV = PQ must always be true--it's an identity--but it doesn't mean that increases in M correspond to increases in P, or that a big jump in P must be due to a big increase in M. (For example, many economists right now believe that a big jump in M would cause a big jump in Q--this would also keep the equation in balance.)

So finally we can review Scott's illustration of the problem:
But I also think the quantity equation can get in the way of clear thinking. For instance, people worried that current Fed policy will lead to much higher future inflation sometimes cite the quantity theory. But this is a misuse of the theory. It does not imply that any increase in the money supply is inflationary, but rather that permanent, exogenous increases are inflationary. For instance, suppose the Fed adopted a policy of targeting the expected inflation rate at 2%. Assuming their policy was efficient, i.e. the errors were unforecastable, then there should be zero correlation between the money supply and inflation. Of course the Fed doesn’t have a precise 2% inflation target, but they certainly have some inflation target in mind. If so, then changes in the money supply are partly endogenous, and the [quantity theory] does not predict much correlation between the money supply and inflation.
I think Scott has here performed the classic economist trick of assuming his conclusion, but doing it in a such a jargon-laden way that few can see where the rabbit gets put into the hat. The easiest way for me to demonstrate is a physics analogy. So suppose a physicist at Bentley College started a blog called The Gassy Illusion and wrote:
We're all familiar with Boyle's law of gases, which states that for a gas at a fixed temperature, Pressure and Volume are inversely proportional. Now many people assume that if we started shrinking the size of this airtight room, that the air pressure inside would increase. However, what if Ben Bernanke could perfectly anticipate the rate at which the room's volume were decreasing, and cooled the room accordingly? Why, then there would be no observed correlation at all between Pressure and Volume. So people worried about the shrinking room need to be more careful when invoking Boyle's law.
So yes, Scott is right that if the Fed could commit itself to 2% inflation, and could do so without systematic errors, then...we would get on average 2% inflation, regardless of what happened to the money supply. But does that really help us? Note that Scott is NOT merely saying, "If the Fed commits to 2% inflation, then we'll get it." Because the Fed could commit and then be horribly wrong, year after year. So the real rabbit is where Scott innocently says, "Assuming their policy was efficient..."

By the same token, assuming central planning could work, then Lange whupped Mises in the socialist calculation debate.

Sunday, August 30, 2009


God Can Take Care of His Own Ark

In the comments to this post, "Magnat" reminded me of an episode in the Bible where my initial reaction was ridiculous. In I Samuel 4:1-11 we see that the Israelites have a setback against the Philistines, and so try to raise morale by bringing the Ark of the Covenant to the front lines of the battle. (The Ark housed the stone tablets on which the Ten Commandments were written, as well as other extremely significant items. It was incredibly holy and powerful. You may remember that the Nazis all melted when they opened it up in the first Indiana Jones movie.)

But this petulant move by the Israelites--in effect trying to force victory not by seeking God's counsel, but by bringing in the Ark--led to disaster:

 1 And the word of Samuel came to all Israel.   
Now Israel went out to battle against the Philistines, and encamped beside Ebenezer; and the Philistines encamped in Aphek. 2 Then the Philistines put themselves in battle array against Israel. And when they joined battle, Israel was defeated by the Philistines, who killed about four thousand men of the army in the field. 3 And when the people had come into the camp, the elders of Israel said, “Why has the LORD defeated us today before the Philistines? Let us bring the ark of the covenant of the LORD from Shiloh to us, that when it comes among us it may save us from the hand of our enemies.” 4 So the people sent to Shiloh, that they might bring from there the ark of the covenant of the LORD of hosts, who dwells between the cherubim. And the two sons of Eli, Hophni and Phinehas, were there with the ark of the covenant of God.
5 And when the ark of the covenant of the LORD came into the camp, all Israel shouted so loudly that the earth shook. 6 Now when the Philistines heard the noise of the shout, they said, “What does the sound of this great shout in the camp of the Hebrews mean?” Then they understood that the ark of the LORD had come into the camp. 7 So the Philistines were afraid, for they said, “God has come into the camp!” And they said, “Woe to us! For such a thing has never happened before. 8 Woe to us! Who will deliver us from the hand of these mighty gods? These are the gods who struck the Egyptians with all the plagues in the wilderness. 9 Be strong and conduct yourselves like men, you Philistines, that you do not become servants of the Hebrews, as they have been to you. Conduct yourselves like men, and fight!”
10 So the Philistines fought, and Israel was defeated, and every man fled to his tent. There was a very great slaughter, and there fell of Israel thirty thousand foot soldiers. 11 Also the ark of God was captured; and the two sons of Eli, Hophni and Phinehas, died. (1 Samuel 4:1-11, New King James Version)

Now the first time I read that, I had a ridiculous reaction. I was really worried, thinking "Oh no! How will the Israelites get it back? What if the Philistines desecrate it?"

But as it turns out, the Creator of the universe doesn't need a bunch of human bodies to protect His sacred objects. Here's what happened to the Philistines:

 1 Then the Philistines took the ark of God and brought it from Ebenezer to Ashdod. 2 When the Philistines took the ark of God, they brought it into the house of Dagon and set it by Dagon. 3 And when the people of Ashdod arose early in the morning, there was Dagon, fallen on its face to the earth before the ark of the LORD. So they took Dagon and set it in its place again. 4 And when they arose early the next morning, there was Dagon, fallen on its face to the ground before the ark of the LORD. The head of Dagon and both the palms of its hands were broken off on the threshold; only Dagon’s torso was left of it. 5 Therefore neither the priests of Dagon nor any who come into Dagon’s house tread on the threshold of Dagon in Ashdod to this day.
6 But the hand of the LORD was heavy on the people of Ashdod, and He ravaged them and struck them with tumors,both Ashdod and its territory. 7 And when the men of Ashdod saw how it was, they said, “The ark of the God of Israel must not remain with us, for His hand is harsh toward us and Dagon our god.” 8 Therefore they sent and gathered to themselves all the lords of the Philistines, and said, “What shall we do with the ark of the God of Israel?”
And they answered, “Let the ark of the God of Israel be carried away to Gath.” So they carried the ark of the God of Israel away. 9 So it was, after they had carried it away, that the hand of the LORD was against the city with a very great destruction; and He struck the men of the city, both small and great, and tumors broke out on them.
10 Therefore they sent the ark of God to Ekron. So it was, as the ark of God came to Ekron, that the Ekronites cried out, saying, “They have brought the ark of the God of Israel to us, to kill us and our people!” 11 So they sent and gathered together all the lords of the Philistines, and said, “Send away the ark of the God of Israel, and let it go back to its own place, so that it does not kill us and our people.” For there was a deadly destruction throughout all the city; the hand of God was very heavy there. 12 And the men who did not die were stricken with the tumors, and the cry of the city went up to heaven. 1 Now the ark of the LORD was in the country of the Philistines seven months. 2 And the Philistines called for the priests and the diviners, saying, “What shall we do with the ark of the LORD? Tell us how we should send it to its place.”
3 So they said, “If you send away the ark of the God of Israel, do not send it empty; but by all means return it to Him with a trespass offering. Then you will be healed, and it will be known to you why His hand is not removed from you.”
4 Then they said, “What is the trespass offering which we shall return to Him?”
They answered, “Five golden tumors and five golden rats, according to the number of the lords of the Philistines. For the same plague was on all of you and on your lords. 5 Therefore you shall make images of your tumors and images of your rats that ravage the land, and you shall give glory to the God of Israel; perhaps He will lighten His hand from you, from your gods, and from your land. 6 Why then do you harden your hearts as the Egyptians and Pharaoh hardened their hearts? When He did mighty things among them, did they not let the people go, that they might depart? 7 Now therefore, make a new cart, take two milk cows which have never been yoked, and hitch the cows to the cart; and take their calves home, away from them. 8 Then take the ark of the LORD and set it on the cart; and put the articles of gold which you are returning to Him as a trespass offering in a chest by its side. Then send it away, and let it go. 9 And watch: if it goes up the road to its own territory, to Beth Shemesh, then He has done us this great evil. But if not, then we shall know that it is not His hand that struck us—it happened to us by chance.”
10 Then the men did so; they took two milk cows and hitched them to the cart, and shut up their calves at home. 11 And they set the ark of the LORD on the cart, and the chest with the gold rats and the images of their tumors. 12 Then the cows headed straight for the road to Beth Shemesh, and went along the highway, lowing as they went, and did not turn aside to the right hand or the left. And the lords of the Philistines went after them to the border of Beth Shemesh.
13 Now the people of Beth Shemesh were reaping their wheat harvest in the valley; and they lifted their eyes and saw the ark, and rejoiced to see it. 14 Then the cart came into the field of Joshua of Beth Shemesh, and stood there; a large stone was there. So they split the wood of the cart and offered the cows as a burnt offering to the LORD. 15 The Levites took down the ark of the LORD and the chest that was with it, in which were the articles of gold, and put them on the large stone. Then the men of Beth Shemesh offered burnt offerings and made sacrifices the same day to the LORD. 16 So when the five lords of the Philistines had seen it, they returned to Ekron the same day.
17 These are the golden tumors which the Philistines returned as a trespass offering to the LORD: one for Ashdod, one for Gaza, one for Ashkelon, one for Gath, one for Ekron; 18 and the golden rats, according to the number of all the cities of the Philistines belonging to the five lords, both fortified cities and country villages, even as far as the large stone of Abel on which they set the ark of the LORD, which stone remains to this day in the field of Joshua of Beth Shemesh.
(1 Samuel 5-6, New King James Version)

Now for my own take on these things, I actually don't think the Ark was covered in germs, which is how one might explain these events (if he believed the stories). I think that if a modern doctor had taken the proper measurements and so forth back then, the various forces (such as a growing rat population etc.) would have been in motion in the Philistine population centers to yield such devastation, even before their warriors brought the Ark back from battle. (It's also possible that the slaughter of thousands of Israelites introduced some new germs on the Philistine fighters who then brought them back to camp.) So to an atheist epidemiologist who had access to all the facts, he would say, "No no, there wasn't some being in the sky zapping people. I can explain everything with our normal methods. It was just a coincidence that when the Philistines captured this box that had superstitious meaning attached to it, that that was also when the outbreak occurred. It's not as if all these people just suddenly dropped dead for no reason."

So for those readers who have grasped my view of God's design of the universe, the above is just a particular illustration. In the broadest sense, everything that occurs at any time in the universe, is "caused by" events that were set into motion beforehand, and ultimately can be traced back to the very beginning of time. (Even if you think quantum effects make the future indeterminate, it's still the case that the state of the universe at time t has a huge influence on what the universe can look like at t+1.)

So for me, it's a meaningless distinction to say, "Oh, did God actually punish the Philistines with His intervention, or was it just a natural outbreak?" (Notice that the Philistines wondered that too, and how much of a non sequitur their "test" was--after all, why couldn't the cows' decision of which way to take the cart also just be a coincidence?) Everything in the natural world is in direct accordance with God's will. Before our sun even existed, God knew precisely when the Philistines would capture the Ark and bring it to their camp. So He had that episode (as well as everything else that would occur in all of human history) in mind, when He designed the physical universe and its laws, and when He designed how cells work, how disease is transmitted, and so forth.

And His design was so incredibly complex and perfect, that it "just so happened" that the Philistine population was decimated when the Ark was in their possession.

Friday, August 28, 2009


Awful Abduction Case in CA

I was waiting for my connecting flight to San Fransisco (for tomorrow's Mises Circle) when I first heard of the awful Jaycee Dugard 18-year imprisonment story. (Here is an opinion piece with a bunch of new facets, both in the piece and the links on the sidebar. I don't know if they are accurate; I actually am not even clicking on them because this story really troubles me.)

The thing that I don't understand in this, though, is how did the guy keep someone prisoner for so long, in a regular neighborhood? I can understand if a fairly young child is taken, that the kid doesn't really get what's going on and might grow up thinking the abductor is his/her parent.

But this girl was 11 when she was taken. (I'm not using "alleged" since the guy admits he did it. And incidentally, his self-absorbed "this was really a heartwarming story about how I turned my life around" actually horrifies me almost as much as his behavior; it's another manifestation of the banality of evil.)

Readers, please don't freak out; I'm not blaming the girl for not running away. I'm just trying to make sense of this. Wouldn't she tell her children (presumably fathered by the abductor) what their situation was, and that if they ever had an opportunity, to make a break for it to get help?

So it seems that either this guy must have had a standing threat, like, "If any of you tries anything..." or that over time the original victim just accepted her fate.

But again, that just seems impossible to me, since she was in what, fifth or sixth grade when she was taken? Even though to adults, 11 seems tiny, think back to when you were that age. You certainly knew what a kidnapper was, and that if you were taken you would devote your life to killing the guy / escaping.

Well I just had to get that off my chest. I wonder if other people have wondered that too, but were hesitant to bring it up since, again, it sounds like I'm blaming the girl, when that's not what I'm doing.

This disgusting story just doesn't make any sense to me. I don't understand how this is even possible.


The Scariest Paragraph I've Read in a While

This is the first paragraph in a WSJ story--on page A4--from earlier this week:
WASHINGTON -- The CIA lacked clear safeguards to prevent abuses in some instances in its network of secret prisons for terror suspects, and some interrogators had inadequate training and oversight, a long-withheld 2004 report found, according to current and former officials who have read the document.
So what does this single paragraph tell us?

(1) The CIA had at least one prison for terror suspects.

(2) The CIA had a network of prisons for terror suspects.

(3) The CIA had a SECRET network of prisons for terror suspects.

(4) The abuses in said network of secret prisons were so rampant that there was actually a report issued on the matter.

(5) The report on abuses in the CIA's secret network of prisons has been suppressed for five years.

And Matt Yglesias says Hayek's Road to Serfdom was a "nutty alarmist book." Hey Yglesias, suppose we were on the road to serfdom? Isn't this what it would feel like?

Thursday, August 27, 2009


Praising Krugman on His Critique of Fama and Cochrane

In response to a reader request (who is probably now horrified), at the Mises blog I addressed an old Krugman post on what he called the "Dark Age" of macroeconomics. Here's the news you can use:
Krugman is totally right. (!!) Fama and Cochrane are wrong in spinning out what appear to be tautologies above. And I say this, knowing full well that plenty of free marketeers--myself included--critique deficit-spending using the exact same arguments when writing an op ed or getting interviewed on the radio.

To a first approximation, and especially if you're dealing with somebody who doesn't know the first thing about scarcity, then yes I think it's fine to say, "Every dollar the government spends just means one fewer dollar spent in the private sector." But that's actually not correct, at least not in the way most people believe. And it's also not literally true to say, "If the government creates a job in industry X with a subsidy, then there must be an offsetting job destroyed in industry Y because of higher taxes or interest rates."

This is actually quite simple: Suppose the government imposes a one-shot head tax on Bill Gates of $1 million, and then uses the revenue to hire 50 people at $20,000 each to work for a year scrubbing graffiti off bridges. Do Austrians really want to say that it's an accounting necessity that this causes Bill Gates to adjust his behavior such that precisely 50 other people lose their jobs, but only for a year? Of course not--it would be a miracle if exactly that happened because of the new tax on Bill Gates. In fact, no matter how many people are initially laid off because of changes in Gates' spending and investing, if wages adjust quickly enough, then that excess unemployment can be whittled away.

So does my concession to Krugman mean that he is right to champion government deficits as a way to prop up aggregate demand, to get "money circulating," to create jobs and start using idle resources?

Of course not. In contrast to the all-clearing-all-the-time view of markets held by Fama and other Chicago School believers in the "efficient markets hypothesis," Austrians know that it takes time for the market to adjust after the bursting of an unsustainable boom. So yes, during a deep recession, it's possible for the government to reduce the unemployment rate through various means, especially through printing money. But that doesn't mean it's a good thing. The idle period of spare capacity (in both capital and labor) serves a definite purpose in a market economy, and the government sabotages the cleansing process by forcing those resources back to work on any old project that's "shovel ready."

I elaborate on this point in some detail here, and Arnold Kling (with a nod to the Austrian School) comes to the same conclusion from a different angle here.

In conclusion, free marketeers shouldn't focus their efforts on trying to prove that the government is incapable of boosting "total spending." For one thing, that's a false proposition, so it's a bad move to try to prove it. But more important, it concedes that boosting "total spending" is a good thing. No, the important thing is for the economy to steer resources to their most efficient uses. If that process requires, say, prices in general to fall--and hence nominal aggregate expenditures--then who cares? You consume goods and services, not a flow of green pieces of paper.

Now what I didn't say at the Mises blog--for fear that my posting privileges would be revoked--is that Krugman's post was actually quite impressive. In other words, not only do I agree with almost everything he said, but I enjoy the way he said it (except for the arrogance). In particular, his analogy with international trade was great, and his chart title ("a case of mistaken identity") was pretty clever as far as econ jokes go.

*sigh* I don't think I'm turning into a commie, but I really do understand why leftists think they're so much more clever than their typical opponents: they are. If you doubt me, let me put it this way: Can you possibly imagine any right-wing production zinging its opponents the way Jon Stewart destroys Fox News in the clip below? Inconceivable.

And note that Krugman's not picking on some associate econ professor from Bob Jones University. No, he and DeLong tackle big guns, some of whom have Nobel prizes. As readers of this blog know, I think Fama and Friends really have said some pretty ridiculous things lately.

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Kroger Receipt From August 27, 2009

For some time now I've been meaning to document the prices I paid at the grocery store for some staple items. (At least, they're staples in our house because of our son.) For the record:

* Half-gallon of Silk "Very Vanilla" soy milk, $3.49 on sale for $2.99.

* 32 oz. of Stonyfield's "Banilla" (sic) yogurt, $6.79. (I had no idea that's how much those things cost!! They stock them on the bottom of the dairy case, so I've never bent down far enough to read the price tag. I think it's time to introduce the boy to the joys of Saltine crackers.)

* 12 oz. bag of Dole "American" salad, $3.29 on sale for $2.50.

I'm watching you, Ben.


I Want to Be Chris Martenson When I Grow Up (and BTW the Dollar Is Toast)

Wow. Chris Martenson was the guy who snooped around bond CUSIPs and realized the Fed bought up 47% of the freshly issued Treasurys from primary dealers the week after the auction. Now on his website he has made available a blockbuster report (that his paying members got a few weeks ago). (HT2EPJ) Really, if I hadn't been blessed with such a phenomenal ability to speak in public, I would have to work like Martenson and write analyses like this.

I am still checking on some definitions with various experts, to make sure I really understand all the capital flows etc. that Martenson throws around in this thing. But check out this graph and tell me if you aren't a little more concerned about the strength of the USD. (And note that right now, there is apparently a net outflow of capital from the dollar coupled with a current account deficit. I had thought this was an accounting impossibility, so that's one of the things I'm still checking on.)

Here are some salient excerpts from the report:
Since the start of 2009 and continuing through the month of May, private investors sold [on net] $364 billion dollars worth of US assets, while central banks purchased $50 billion dollars worth (source is a .csv file available here from the Treasury)...

Here we note that agency bonds peaked in October of 2008 at nearly a trillion dollars but have declined by $178 billion since then. Treasuries, on the other hand, have increased by over $500 billion over that same span of time. A half a trillion dollars! If you were wondering how the US bond auctions have managed to go so smoothly, here's part of your answer.

What is going on here? How is it possible that central banks are buying so many Treasury bonds, at the fastest rate of accumulation on record?

It would appear that foreign central banks have been swapping agency bonds for Treasury bonds, but that's not how the markets work. First, they would have to sell those bonds, before they could use the proceeds to buy government debt. So to whom did they sell those Agency bonds in order to afford the Treasury bonds?

Here we might recall that the Federal Reserve has been buying agency bonds by the hundreds of billions.
Martenson is my hero; he has solved the mystery (or at least a big chunk of it). I could not fathom how it was that anybody--even foreign central bankers--could allow CNBC to write a headline today, "Foreigners Snap Up Treasurys Even as US Debt Keeps Rising." I mean, it just didn't make any sense. Why would the Chinese and Russians be talking about a new global currency, if they intended to keep on stockpiling dollar-denominated assets?

Well, if Martenson's right, the answer is the Fed. (That's probably the only time you will ever see me end a sentence with those 5 words.) I'll save the punchline for Martenson, as he deserves the honor:
Shell #1: Foreign central banks sell agency debt out of the custody account.

Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.

Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction.
As I read Martenson's report, I was reminded of Ralphie's father from A Christmas Story when he beheld his prized lamp and declared, "It's indescribably beautiful."


People Hate Fed More than IRS!

Jeff Tucker passes along this story:
NEW YORK (Reuters) - Americans think the Federal Reserve is doing a worse job than even the much-maligned Internal Revenue Service.

Only 30 percent of Americans think the Federal Reserve's Board of Governors is doing a good job despite the central bank's unprecedented efforts to battle a crippling recession, according to a Gallup Poll released on Monday.

That makes the Fed the worst reviewed of nine key agencies -- including the tax-collecting IRS -- the Gallup poll of more than 1,000 Americans between July 10 and 12 showed. Twenty-two percent of Americans said the central bank was doing a poor job.
Wow, that's pretty impressive if you poll worse than the IRS. And what's funny is that the public is right: After all, it takes some effort for the IRS to steal your money. First of all they have to find out that you have it, and then they have to send you letters, make scary phone calls, freeze your bank account, contact your employer about garnishing wages, and finally they have to tap some scarce labor power by sending armed guys to your house.

In contrast, if Bernanke wants to steal half your wealth, all he has to do is press a few buttons.


Choose Your Own Blog Post

From CNBC:
Federal Reserve Chairman Ben Bernanke is one of hundreds of victims of an identity-fraud ring, according to Newsweek magazine.

The ring is run by a scam artist known as "Big Head," the magazine said on its website. The ring has been known for stealing more than $2.1 million from consumers and at least 10 financial companies around the U.S.

If you write a post saying "Big Head" is really running monetary policy, turn to page 48.

If you write a post arguing that Bernanke is the "Big Head" of the whole financial system, turn to page 87.

If you write a post wishing that Bernanke had only stolen $2.1 million from consumers, turn to page 95.

Wednesday, August 26, 2009


Krugman's Phony Congratulations to Bernanke

I have an unhealthy obsession with Paul Krugman's blog, and something I've noticed is that when he gives somebody a compliment, sometimes you can tell it's completely phony and political. For example, here's his tribute to Big Ben:
Generally, I’m pleased. Bernanke has done a good job in the crisis — he’s been far more aggressive and creative than almost anyone else would have been in his place, partly because he’s a scholar of the Great Depression, partly because he took Japan’s lost decade seriously and was therefore intellectually prepared for a liquidity-trap world.

I do have one qualm, though, which isn’t really about Bernanke, but rather about the broader symbolism of the reappointment...

...[Y]ou’re not considered serious about economic policy unless you dismissed warnings about a housing bubble and waved off worries about future crises.

That said, Ben Bernanke’s performance over the past year deserves praise, and there’s nobody I’d rather have in his position. Congratulations, Ben.
And in case it's not obvious, that link is to a very embarrassing 2005 Washington Post story reporting that Bernanke didn't think there was a housing bubble.

And as far Krugman's closing lines, c'mon, he obviously doesn't mean that. There's nobody on the entire planet that Krugman would rather have as Fed chair than Bernanke? Give me a break, everybody knows Krugman is insincere.

I googled "Bernanke" appearances in Krugman's blog to see how he's been in the past. And you see the same pattern. E.g. in this post, Krugman opens up by thanking his lucky stars that Bernanke is at the helm, but by the end of the post you realize Krugman is saying Bernanke doesn't realize his own impotence.

In this post, Krugman says deteriorating credit markets have undone everything Bernanke tried to do. True, he didn't rip Bernanke per se, but it's hardly a compliment to the guy.

In this post he refers to the wussy testimony of Bernanke, showing that he and Paulson don't have the guts to nationalize the banks and thus spare us a repeat of Japan's lost decade. The title of the post? "All the President's Zombies." Again, not exactly flattering.

In this post, "A $700 Billion Slap in the Face," Krugman says that Paulson and Bernanke are grasping at straws trying to justify their approach to the financial crisis. Again, not a single word of praise in here for Bernanke, except that Krugman credits him with at least coming with a theory (that Krugman then tells us is stupid) for the TARP.

At long last--near the bottom of my hits for the advanced Google search--I think I found a blog post from January 2008 where Krugman might actually be praising Bernanke. But go ahead and read it. You have to infer the praise; I had to click on Krugman's link to a news article to get the full context, in order to even offer my opinion that I think Krugman is actually complimenting Bernanke in this one (before going on to rip Bush and Paulson). Again, hardly flattering.

In this post, Krugman praises Bernanke for dropping his prepared remarks and letting the cat partially out of the bag concerning the "fundamentally disingenuous" line that he and Paulson had been pushing at the time. Again, to say someone slipped up a bit and admitted he had been trying to rob taxpayers, is not exactly congratulatory.

Well I reached the end of the first page of my Google search results. I'm sure we all see now why Krugman said that there is no one he would rather have at the Fed than Ben Bernanke. My gosh, it's bad enough when Krugman plays loose with the facts when ripping his enemies--but he can't even congratulate someone with sincerity?

If you want another example of a non-flattering "compliment," check out his post on Larry Summers. If I were Summers, I would have gone through the roof when reading that. Krugman did the equivalent of saying, "Now I want to draw everyone's attention to this claim I got emailed to me from a self-identified prostitute, saying that Larry Summers visits her weekly and has a microscopic wee wee. And folks, let me tell you, that is just crazy. We played racquetball once, and showered afterward, and I didn't need a microscope. If you want to say it was tiny, I'm prepared to talk. But microscopic? No ma'am, you are mistaken."

Does anybody trust Krugman?



* Another Murphy joint op ed with Jason Clemens of PRI, on the state of California's economy. (Warning: You will see a lot of teeth if you click the link.)

* David Hanson tells WorldNetDaily readers about the biggest threat to liberty, and it's not socialized health care. (Hint: It's a three-letter word that's not good for much.)

* David Kramer links to this story that illustrates my view of government perfectly: Government is an institution that gets to do things that would be criminal if anybody else did them. In this case, UK police take things out of unlocked cars. Yeah sure, they give the stuff back when you claim it, but still, that is stealing. If you don't think so, try implementing this program of "awareness raising" yourself, in your own neighborhood, and see what happens to you.

* David R. Henderson emailed me his own review [.pdf] of Jeff Madrick's case for big government.

* You know what ThinkMarkets is missing? Some Bohm-Bawerkian price theory. Oh wait, no it isn't.


There's No Such Thing as Bad Publicity

In response to a Wonk Room hit piece on young people trying to make a change in the world for the better--and if that's not a hit piece, I'm not sure what would be worthy of such a description--I was first going to use my rapier-like wit to issue a stinging rebuke. But then I counted to 500 and decided to go Rodney King on everybody. (Meaning "can't we all get along," not "I bet you pigs can't catch me.") Here are the last three paragraphs from my Kumbaya blog post:
Now that I'm preaching, let me generalize it a bit: Earlier I mocked Paul Krugman for actually claiming that senior citizens were rioting. But since then, I've come to realize that Krugman really doesn't understand the people at these Town Hall meetings, or the tea parties. After all, Krugman doesn't get goosebumps thinking about property rights or checks on government power. So when he sees a bunch of angry people mouthing such concerns, he is suspicious and thinks they're either a bunch of racists or paid stooges of the health insurers.

So, by symmetry, I think people on "our side" should realize that the great masses of Americans who are for health care reform and climate legislation (and it pains me to not put scare quotes around those phrases) aren't actually closet socialists who want to bring America to its knees. Don't get me wrong, it is still perfectly consistent to think the elites in Washington are power-hungry liars. I'm just saying that, as ridiculous as Krugman's paranoia over old people is, that's how ridiculous some of our side's rants against Obama fans must seem to people who know that they are really just trying to stem abuses they perceive in the health care system and so forth. They know they're not socialists, just like we know "our guys" aren't Nazis.

Ah, and the ultimate irony is that actual socialists (and the particular offshoot of Nazism) were real, and actually did seize control of governments and kill millions of people. Isn't life funny.
The author of the original hit piece, Brad Johnson, cross-posted it at Grist, and then added an update in light of my own post. He drew an excerpt from what I've reproduced above. Here is how Brad presented the new development to Grist's readers:
UPDATE: At Free Advice, Institute for Energy Research economist Bob Murphy writes that Paul Krugman doesn’t understand tea party protesters because he doesn’t care about checks on government power like they do, and continues:

So, by symmetry, I think people on “our side” should realize that the great masses of Americans who are for health care reform and climate legislation (and it pains me to not put scare quotes around those phrases) aren’t actually closet socialists who want to bring America to its knees.
Hmm, I'm not so sure that's fully in context. (That's what I told the IER CEO when his Google Alerts on "AEA" tipped him off and he emailed me saying, "Grist is linking to Free Advice.")

I'm curious to see how many hits that Grist link draws in, though. If it's pretty big, maybe I will go the Bruce Bartlett route. I see the light! Sure we can trust the DC politicians with saving the planet! They've done such a knock-up job on inner city poverty and Afghanistan.

NOTE: I am not accusing Brad Johnson of anything dishonest with his link to my post. I'm just saying, it was rather misleading.

Tuesday, August 25, 2009


Please Proffer Preemptive Pardon

I've been meaning to say this for awhile, but it's especially relevant now, since I'm hitting the Mises Circle circuit starting this weekend.

I read all emails, and I catch most comments on blog posts, but I really don't have the time to answer everything at this point. But if I tell you I will blog something, and then you don't see it for a week, feel free to pester me. I have allowed more emails to run off the front page of my inbox, than most people get by 9 am (or something like that).


Principled Leftists Realizing That Bush+Eloquence=Obama

Bob Roddis sends this encouraging video. Remember back during the Bush years, kids, when those of you who think like me were so mad at being lumped in with the "conservative" nation-building, deficit-exploding, Big Brother Bush administration. Well by the same token, we should give credit where it's due. There are a lot of leftists (whose preferred programs would be awful, don't get me wrong) waking up to the truth about Barack Obama. The below video is very well done, because it weaves in campaign promises that Obama is now completely ignoring. Also, I love how the host calls him "such a charming liar."

And she's right, he is. It's a very pleasant contrast to the cocksure lying of the last guy.


Libertarian, Free-Market Blog "MarginalRevolution" In Support of White House Torture

Yeah, their argument is that given that the feds are going to torture people to prevent American deaths--and really, can any libertarian be for American deaths? isn't it unlibertarian to blow up a building?--then it makes sense to allow trained professionals, under the direct supervision of the Cabinet, carry out the electroshocks, waterboarding, and mock child-execution. After all, if you're going to torture people, you want it to be in the open, with Hillary Clinton watching. You don't want some CIA goon doing it in a foreign country.

Ha ha, fooled you! Alex and Tyler would never advance such an argument. No, the closest you'll ever see is that in back-to-back posts, they support government bailouts of banks and government provision of health insurance. Man those guys are hardcore. It's great that we've got free marketeers in higher education, to combat the socialism being peddled in our elite universities.

Monday, August 24, 2009



You know, it would really make my life easier if all of you readers would get your brother to start reading. Then I could quit my day job and blog full time. As it is, I keep accumulating interesting tidbits until the width of each tab on Firefox bumps up against the Heisenberg uncertainty principle, and I am forced to issue another "Potpurri"...

* David Gordon saw my debate with Jeff Madrick, and sent along his review of Madrick's The Case for Big Government. Quick! Guess whether David liked the book.

* Robert Wenzel (who saw it on Mankiw's blog) emailed me this pretty funny description of publishing a negative Comment. People often ask me if I miss academia. Skim the link and guess my answer. BTW, I had formed some opinions about the type of guy who would write such a thing. I figured he had to be tenured, probably very well published, and also a bit odd on a personal level. Here's his homepage; you tell me.

* Yuri Maltsev actually lived under socialized medicine. No thanks.

* Scott Sumner proudly linked to this puzzle on opportunity cost, and explained that he (Scott) knew the "right" answer. But Scott, the answer is, cost is subjective and you can't make interpersonal utility comparisons. It doesn't make any freaking sense to ask how much something cost (in the opportunity cost sense) for Mary versus John. True cost isn't even realized, as Buchanan showed. Somehow I don't think that's what our Benthamite friend Scott had in mind. (Fortunately he is in China and so can't impose costs on me.) (And yes I know that you can't "impose costs" on somebody else.)

* Does Arnold Kling know he's an Austrian macroeconomist? Search your feelings, Arnold. You know it to be true. Join me, and together we will rule Jackson Hole.

* Not sure where to put your money? Stocks? Real estate? Gold coins? Postage stamps? I know, federally guaranteed green bonds! Woo hoo!

* Here's a great example of how you can prove anything you want in economics/finance, in order to make your boss happy. Incidentally, when I get suspicious of the BLS' inflation numbers, it's not that I'm imagining the analyst grunts doctoring numbers. No, I think they know what the "official story" is, and they (perhaps subconsciously) make decisions on how to adjust for hedonic changes, how many years back to look when calibrating the seasonal adjustment, blah blah blah, so that the answer is what their bosses want. You don't have to be pure evil to behave that way at work, and things (especially in economics/finance models) are so arbitrary that it doesn't even feel like lying. You don't view yourself as falsifying data, you rather view yourself as the hero who comes up with the best way to illustrate the story the team is working on. If you are shocked and don't have any idea what I'm talking about, then good for you. But I think anybody who has worked in an office knows what I mean.


PIG to Capitalism Audio Online

I'm thinking this isn't legal, so if your conscience bothers you buy a copy of the book. But anyway I just came across this online reading of my book, The Politically Incorrect Guide to Capitalism. If you have a colicky infant, I suggest playing this along with chirping birds. It soothes and educates at the same time.


Two Men Enter, One Man Leaves the Back Door Open

Earlier I was happy that Paul Krugman had "definitively" (you'll understand the quotation marks in a sec) said we were in a recovery, since I am predicting that the economy is going to be in the toilet for years. Just to refresh our memories, here's how Krugman opened his August 21 blog post: "Barara Kiviat asks, is this a recovery or isn’t it? The answer is yes."

OK, that seems pretty definitive, right? For most people it would be, but not with our Nobel laureate. The very next day he wrote:
Reading comments, I see that some readers think that by saying that we may be in a recovery by the usual definition, even though jobs are still being lost, I’m either (a) shilling for Obama (b) radically changing my views.

Um, no.
And just to reinforce his claim now that we may be in a recovery, Krugman says today (August 24):
Judging from comments I’ve received, there’s still a lot of confusion about how it’s possible to be in economic purgatory, aka a jobless recession. Also, a lot of readers seem to think that by saying that the recession is probably over I’m somehow changing my position from a few weeks ago — when actually something like this is what I’ve been expecting all along.
No Dr. Krugman, I don't think you're changing your position from a few weeks ago. I think you changed your position from the previous day.


I'm Starting With the Man in the Mirror

OK I must confess that this Wonk Room hit piece on my compatriots really ticked me off. I had originally wanted to blog it with the title, "Definition" and the comment, "If you want to know what 'ad hominem' means, just check out this Wonk Room piece on the AEA bus tour."

But then I calmed down a bit, realizing that the Wonk Room piece is really just the mirror image of what Glenn Beck did with Goldman Sachs, which I praised.

So if you truly believed that the Waxman-Markey bill was the last hope for averting global disaster, then yes I can understand that you would think the Wonk Room piece was just adding useful knowledge about your opposed to a complete hit piece that has no substantive arguments at all. Because I must admit, Glenn Beck's hit piece on Goldman didn't have any arguments at all; it was just giving the biographies of the various players. At other places Beck of course gave his substantive objections to TARP etc., but then again the Wonk Room people would say the same thing about cap and trade.

Now that I'm preaching, let me generalize it a bit: Earlier I mocked Paul Krugman for actually claiming that senior citizens were rioting. But since then, I've come to realize that Krugman really doesn't understand the people at these Town Hall meetings, or the tea parties. After all, Krugman doesn't get goosebumps thinking about property rights or checks on government power. So when he sees a bunch of angry people mouthing such concerns, he is suspicious and thinks they're either a bunch of racists or paid stooges of the health insurers.

So, by symmetry, I think people on "our side" should realize that the great masses of Americans who are for health care reform and climate legislation (and it pains me to not put scare quotes around those phrases) aren't actually closet socialists who want to bring America to its knees. Don't get me wrong, it is still perfectly consistent to think the elites in Washington are power-hungry liars. I'm just saying that, as ridiculous as Krugman's paranoia over old people is, that's how ridiculous some of our side's rants against Obama fans must seem to people who know that they are really just trying to stem abuses they perceive in the health care system and so forth. They know they're not socialists, just like we know "our guys" aren't Nazis.

Ah, and the ultimate irony is that actual socialists (and the particular offshoot of Nazism) were real, and actually did seize control of governments and kill millions of people. Isn't life funny.


The Innumerate Billy Ocean

I know this sounds impossible, but I actually don't like the radio stations in Nashville. And no, it's not because they play all country. Would you believe that there's not even a reliable Oldies station? Or how about this--in the entire time I've been here (since fall of 2006), I swear I've heard maybe three Elvis songs on the radio. I am not exaggerating.

Anyway, out of desperation I stopped my Scan last night when it hit Billy Ocean's "Suddenly." And this line jumped out at me:

Girl, you're everything a man could want, and more
One thousand words are not enough to say what I feel inside
Holding hands as we walk along the shore
Never felt like this before, now you're all I'm living for.

Say what? I've written Mises Daily articles that are a lot longer than that! One thousand words are not enough to say what I feel inside about Paul Krugman.

C'mon Billy, kick it up a notch. Other guys tell their sweethearts they'd walk a thousand miles for them--can you spit out a word per mile?! Or that they've been in love for longer than there have been stars up in the heavens. I get the honest approach, but c'mon. You're not going to hang on to that Caribbean queen at this rate.

Sunday, August 23, 2009


Finding an Actual Use for My Game Theory Training

Although my dissertation was in capital and interest theory, my "field exam" at NYU was in "theory," which basically meant micro/game theory. This was definitely an example of studying something for its sheer elegance, because I think whenever game theorists pontificate on the actual real world, they usually give horrible advice. (E.g., "Yes, sir, it would be a good idea to build hundreds of nuclear warheads for the U.S. government, but only if we deploy them according to this formula.")

But yesterday I actually benefited from my years of training. On the radio there was some goofy commercial with kids on a road trip. The kids are bored and the brother says, "Let's play 20 Questions" and the sister immediately agrees and throws out the first question. So there was no way the brother could have had time to think of his pick, before hearing the question about it.

So that got me to thinking: Would there be an advantage to either player, doing it this way? In other words, if someone says, "Let's play 20 Questions!" should you immediately blurt out a question, before the person can think up his pick? Or does it give an advantage to the other player, because then he can choose the thing based on your question (and then answer appropriately of course)?

At first, I thought there was no way to really answer this definitively. But then I realized that actually, the answer is straightforward, and all you have to do is make a very weak assumption that wouldn't even upset Murray Rothbard on a good day.

I leave it to the reader as an exercise.


Bible Contradiction?

In reference to my post on David vs. Goliath, Gary emailed to ask a riddle: What killed Goliath? Gary thinks it's obvious, but I don't. Here's the link to the chapter again.


Two Men Enter, One Man Leaves: David versus Goliath

This is one of those Bible stories that has spilled over into secular lore, but the original tale is pretty cool. So here it is, with some parts in bold that I will come back to at the end. Keep in mind that at this point, David is just a punk kid who plays the harp to soothe King Saul (the first king of the Israelites) when the latter is vexed. Not exactly the next Achilles, in the eyes of his older brothers or anyone else for that matter.
1 Now the Philistines gathered their armies together to battle... 2 And Saul and the men of Israel were gathered together, and they encamped in the Valley of Elah, and drew up in battle array against the Philistines. 3 The Philistines stood on a mountain on one side, and Israel stood on a mountain on the other side, with a valley between them.
4 And a champion went out from the camp of the Philistines, named Goliath, from Gath, whose height was six cubits and a span. 5 He had a bronze helmet on his head, and he was armed with a coat of mail, and the weight of the coat was five thousand shekels of bronze. 6 And he had bronze armor on his legs and a bronze javelin between his shoulders. 7 Now the staff of his spear was like a weaver’s beam, and his iron spearhead weighed six hundred shekels; and a shield-bearer went before him. 8 Then he stood and cried out to the armies of Israel, and said to them, “Why have you come out to line up for battle? Am I not a Philistine, and you the servants of Saul? Choose a man for yourselves, and let him come down to me. 9 If he is able to fight with me and kill me, then we will be your servants. But if I prevail against him and kill him, then you shall be our servants and serve us.” 10 And the Philistine said, “I defy the armies of Israel this day; give me a man, that we may fight together.” 11 When Saul and all Israel heard these words of the Philistine, they were dismayed and greatly afraid.
12 Now David was the son of that Ephrathite of Bethlehem Judah, whose name was Jesse, and who had eight sons... 13 The three oldest sons of Jesse had gone to follow Saul to the battle... 14 David was the youngest. And the three oldest followed Saul. 15 But David occasionally went and returned from Saul to feed his father’s sheep at Bethlehem.
16 And the Philistine drew near and presented himself forty days, morning and evening.
17 Then Jesse said to his son David, “Take now for your brothers an ephah of this dried grain and these ten loaves, and run to your brothers at the camp. 18 And carry these ten cheeses to the captain of their thousand, and see how your brothers fare, and bring back news of them.” 19 Now Saul and they and all the men of Israel were in the Valley of Elah, fighting with the Philistines.
20 So David rose early in the morning, left the sheep with a keeper, and took the things and went as Jesse had commanded him. And he came to the camp as the army was going out to the fight and shouting for the battle. 21 For Israel and the Philistines had drawn up in battle array, army against army. 22 And David left his supplies in the hand of the supply keeper, ran to the army, and came and greeted his brothers. 23 Then as he talked with them, there was the champion, the Philistine of Gath, Goliath by name, coming up from the armies of the Philistines; and he spoke according to the same words. So David heard them. 24 And all the men of Israel, when they saw the man, fled from him and were dreadfully afraid. 25 So the men of Israel said, “Have you seen this man who has come up? Surely he has come up to defy Israel; and it shall be that the man who kills him the king will enrich with great riches, will give him his daughter, and give his father’s house exemption from taxes in Israel.”
26 Then David spoke to the men who stood by him, saying, “What shall be done for the man who kills this Philistine and takes away the reproach from Israel? For who is this uncircumcised Philistine, that he should defy the armies of the living God?
27 And the people answered him in this manner, saying, “So shall it be done for the man who kills him.”
28 Now Eliab his oldest brother heard when he spoke to the men; and Eliab’s anger was aroused against David, and he said, “Why did you come down here? And with whom have you left those few sheep in the wilderness? I know your pride and the insolence of your heart, for you have come down to see the battle.”
29 And David said, “What have I done now?
Is there not a cause?” 30 Then he turned from him toward another and said the same thing; and these people answered him as the first ones did.
31 Now when the words which David spoke were heard, they reported them to Saul; and he sent for him. 32 Then David said to Saul, “Let no man’s heart fail because of him; your servant will go and fight with this Philistine.”
33 And Saul said to David, “You are not able to go against this Philistine to fight with him; for you are a youth, and he a man of war from his youth.”
34 But David said to Saul, “Your servant used to keep his father’s sheep, and when a lion or a bear came and took a lamb out of the flock, 35 I went out after it and struck it, and delivered the lamb from its mouth; and when it arose against me, I caught it by its beard, and struck and killed it. 36 Your servant has killed both lion and bear; and this uncircumcised Philistine will be like one of them, seeing he has defied the armies of the living God.” 37 Moreover David said, “The LORD, who delivered me from the paw of the lion and from the paw of the bear, He will deliver me from the hand of this Philistine.”
And Saul said to David, “Go, and the LORD be with you!”
38 So Saul clothed David with his armor, and he put a bronze helmet on his head; he also clothed him with a coat of mail. 39 David fastened his sword to his armor and tried to walk, for he had not tested them. And David said to Saul, “I cannot walk with these, for I have not tested them.” So David took them off.
40 Then he took his staff in his hand; and he chose for himself five smooth stones from the brook, and put them in a shepherd’s bag,
in a pouch which he had, and his sling was in his hand. And he drew near to the Philistine. 41 So the Philistine came, and began drawing near to David, and the man who bore the shield went before him. 42 And when the Philistine looked about and saw David, he disdained him; for he was only a youth, ruddy and good-looking. 43 So the Philistine said to David, “Am I a dog, that you come to me with sticks?” And the Philistine cursed David by his gods. 44 And the Philistine said to David, “Come to me, and I will give your flesh to the birds of the air and the beasts of the field!”
45 Then David said to the Philistine, “You come to me with a sword, with a spear, and with a javelin. But I come to you in the name of the LORD of hosts, the God of the armies of Israel, whom you have defied. 46 This day the LORD will deliver you into my hand, and I will strike you and take your head from you. And this day I will give the carcasses of the camp of the Philistines to the birds of the air and the wild beasts of the earth, that all the earth may know that there is a God in Israel. 47 Then all this assembly shall know that the LORD does not save with sword and spear; for the battle is the LORD’s, and He will give you into our hands.”
48 So it was, when the Philistine arose and came and drew near to meet David, that David hurried and ran toward the army to meet the Philistine. 49 Then David put his hand in his bag and took out a stone; and he slung it and struck the Philistine in his forehead, so that the stone sank into his forehead, and he fell on his face to the earth. 50 So David prevailed over the Philistine with a sling and a stone, and struck the Philistine and killed him. But there was no sword in the hand of David. 51 Therefore David ran and stood over the Philistine, took his sword and drew it out of its sheath and killed him, and cut off his head with it.

To correspond with the parts I've put in bold above, here are my comments:

v. 16: Goliath taunted the Israelites for forty days. Can you imagine how demoralizing that would have been, and how everyone on both sides would have known that the Israelites clearly had no match for Goliath?

v. 26: What infuriates David is not that his brothers and the other Israelite soldiers are cowards, but that the pagan ("uncircumcised") Goliath is insulting the living God.

v. 28-29: David has clearly been the runt of the family his whole life; this makes his courage even more impressive. It would be one thing if the eldest of a noble family thought he had what it took to square off with Goliath. But the youngest of eight brothers, who up till now has been in charge of watching the sheep while the "real men" wage war against Israel's enemies?

v. 33-37: This is actually a very sympathetic portrayal of King Saul, in contrast to later events. Initially he doesn't want to let a young kid get slaughtered by Goliath, but then David speaks so boldly that Saul gives it a shot.

v. 38-39: I love this part. Saul thinks he is helping by giving David his armor and other accoutrements of battle, but obviously David can't fight Goliath in the standard way; he'd get destroyed. David's advantage is that he can sling a rock while Goliath doesn't perceive any threat; he needs to be unencumbered when he lets it fly. (For an analogy, the Confederate States should have easily staved off Union attacks, had they relied on unconventional warfare like the colonists used against the British troops. But the Southern generals were trained at West Point and so knew the "proper" way to wage a war was to line your men up in neat columns and march them into the other side's cannons.)

v. 40: This is an interesting part too. David grabs five stones, even though he kills Goliath with the first one. So it shows that even though David knew the Lord would deliver him victory, he didn't know exactly how it would play out.

Saturday, August 22, 2009



OK my Firefox browser has accumulated far too many tabs. Time to clean house:

* Bill R. found another neat item in the WSJ from 1930. It seems that back then, they were comparing their slump to the 1920-1921 depression. But they recognized the important difference: "While the 1920-21 depression and stock market pattern has been cited as remarkably similar, some are pointing out that whereas now credit is cheap and market valuation still relatively high, in 1920-21 opposite conditions applied" (my emphasis). This is exactly the point I made in this essay.

* Tim Swanson sends along this very helpful New York Fed paper [.pdf] on excess reserves. The authors have a few numerical examples that are really good, if you want to truly understand the relation between balance sheets, loans, reserves, and excess reserves. However, I think the authors fail on their thesis. In particular, in both the intro and conclusion they say, "[W]hile the lending decisions and other activities of banks may result in small changes in the level of required reserves, the vast majority of the newly-created reserves will end up being held as excess reserves almost no matter what banks do." But this is only true if the central bank keeps ratcheting up the interest rate it pays on excess reserves; the authors' examples don't give any other reason (as far as I could tell) for a bank to refrain from lending out excess reserves. So their wording is a bit weird. They are making it sound as if banks can't really decrease excess reserves, just like banks can't decrease total reserves. But that's not right at all; the way you decrease excess reserves is by issuing more loans to bank customers. The authors' statement, quoted above, is incredibly misleading.

* For those of you who still think Abe Lincoln was a cool guy, let me ask: Did you know that in 1862 Union General Benjamin Butler issued an order to his men "decreeing that any New Orleans woman showing contempt for his occupying troops 'shall be regarded and held liable to be treated as a woman of the town plying her avocation' — i.e., the city's outspokenly Confederate belles were to be treated as prostitutes"? Honest Abe ignored calls to rescind the monstrous order. You do what you have to do, to save the Union.

* Orthopedic surgeon, free marketeer, and fellow Aquinas '94 alum Matthew DiPaola has started his own blog.

* I must confess, I like the way Mankiw deals with Krugman. And if you're a real punk, this is your treatment.

* I have been saying that rather than focus purely on theoretical issues, maybe the best way to anticipate what's coming is to see what the elites are up to. Well that's exactly what Daniel Estulin claims to have discovered, in his sleuthing around the Bilderberg meetings. Estulin reports that at the May 2009 meeting, the discussion involved a prediction of US unemployment hitting 14% by the end of the year. Unfortunately there were no clues in Estulin's article as to the direction of the dollar. (One interesting thing is that he talks about the Lisbon Treaty and the problem of my people, the Irish. I don't know whether to be reassured or horrified that the members of the Bilderberg group have a whole world full of malcontents that they need to knock into line.)

* And finally some comic relief: My wife passes along the following.


Anarchy, the Mafia, and Somalia: Clearing Up the Confusion

In an earlier entry I posted the concerns of a skeptical reader of my pamphlet Chaos Theory [.pdf]. The event turned into a proverbial town hall meeting, with 47 heated comments as of this writing, not to mention an old guy with a swastika declaring that God would judge me and my anarchist cronies in Auburn. I thought some of the points raised by critics Blackadder and Bobby1011 were worthy of this standalone essay. --RPM


Anarchy, the Mafia, and Somalia: Clearing Up the Confusion
By Robert P. Murphy

When confronted with a sketch [.pdf] of how a truly voluntary society might work, with private companies providing judicial and defense services along with education and Big Macs, the critic often replies, "That arrangement could never last in the real world. The mafia would take over and become the new government."

This typical view actually gets things backwards. Contrary to popular belief, the government doesn't hinder the mafia, it actually helps it. (Note that for this essay, I am going to use "mafia" as shorthand for "organized crime." I am not impugning Sicilians specifically in this post.)

Stop for a moment and consider which sectors of the economy the mafia occupies. Prostitution, gambling, loan-sharking, narcotics, labor unions, and of course simple robberies and homicides. What do they all share in common? They are activities that are either heavily regulated or downright prohibited by the State. In contrast, in sectors that are relatively free from government interference, the mafia has no foothold.

The classic experiment to show that we've put our finger on the true explanation, is alcohol Prohibition. When it was illegal to sell liquor, gangsters such as Al Capone engaged in bootlegging, and shot up other competitors in turf wars. Yet after Prohibition was repealed (in one of the few decent things that FDR did upon taking office), organized crime left the alcohol industry and focused on the remaining sectors that were still prohibited.

Now if the above analysis is correct, and the mafia (and violent gangs in general) thrives only in those areas infested with heavy State intervention, then it seems obvious that market anarchy would emasculate such criminal groups. To put it in other words, as the government legalized more and more sectors, the mafia would have to concentrate its activities in fewer and fewer businesses. In the limit, as everything were legalized (from a State legislative point of view), the mafia would have no special advantages at all. Just as the mafia can't withstand open competition with Budweiser, it would also lose market share to honest entrepreneurs in judicial and police services, if only the State would lift the ban on producing such services.

A Rival Explanation of the Prohibition Episode

In the comments of a previous post on Free Advice, critics Blackadder and Bobby1011 offered a rival interpretation to my theory above. They argued that I was wrong to interpret the repeal of Prohibition as a reduction in State intervention into the liquor industry. On the contrary, they viewed it as a resumption of government provision of property protection for the producers of alcohol.

I must confess that this alternate explanation took me by surprise; I thought my Prohibition example was airtight, but my critics did at least offer a plausible comeback. However, on balance I still think my interpretation is far superior. This is a crucial point so allow me to belabor it.

I am saying that the mafia benefited from alcohol Prohibition because the police effectively chased away legitimate businessmen from the industry. If the State were to literally declare that Al Capone had a monopoly in Chicago liquor distribution, and sent any competitors to jail, then the price of alcohol in Chicago would shoot up, and Capone would make exorbitant profits. This is obvious. So by the same token, I argue, when the State threatens to put any liquor distributor in jail--but then actually looks the other way when Capone pays bribes--that is economically very similar to the outright, legislated monopoly.

I am using Capone just to make an illustrative point. I haven't done any particular research on him, but it is certainly true that in modern times, big-time crime families regularly pay the police "protection money." If any reader doubts this, then he or she really doesn't understand the first thing about the drug trade. For a low-effort introduction, rent the movie Serpico, which is a great Al Pacino movie based on the true story of a NYC narcotics officer who didn't want to take dirty money. (Come to think of it, you can rent just about any Al Pacino movie to learn that big-time drug dealers routinely pay off the police.)

The Marginal Costs and Benefits of Violence in Markets

It should be quite obvious empirically that violence goes hand-in-hand with markets that suffer from extensive government prohibition. Again, the classic experiment is alcohol Prohibition. It would be inconceivable that executives at Budweiser would order a drive-by shooting of their rivals at Heineken. Yet when the State stamped out most producers in this industry, killings were common. This insight shows that the gangland turf wars in inner cities today are due to drug prohibition, and not to the intrinsic "craziness" of cocaine selling.

But even though most libertarians recognize the association of government prohibition and violence, its causes are rarely spelled out. Very briefly, the answer is simple: Government prohibition raises the marginal benefits and lowers the marginal costs of using violence against one's competitors in a particular industry.

Let's start with the cost side, since that's easier to grasp. Right now, if you are going to become a cocaine distributor, you are already breaking laws that could send you to prison for life. Moreover, if you're big enough, you regularly give bag(s) of money to the local police. So on the margin, the cost to you of killing a rival dealer is much lower than it would be if you ran a Thai restaurant. When you're a normal restaurateur, the worst that the government can do is audit your tax returns. But if you're a cocaine dealer, if you fall out of the good graces of the cops they can give you life. So it's really not such a reckless move to kill somebody, when you're a cocaine dealer, even though it would be insane for a restaurant owner to order a hit of the guy opening a sushi shop down the street. The cocaine dealer already has dirty cops on his payroll, who presumably would be willing to overlook a homicide too for an extra payoff, and the cocaine dealer also is a lot more connected and able to bribe judges should he ever go to trial.

On the other hand, the marginal benefits of violence are much higher for the cocaine dealer than for the Thai restaurateur. Drug dealers aren't (completely) reckless; they do it for the money. In order to compensate for the huge risk, the monetary returns on dealing cocaine must rise to astronomical levels. (If you like charts, when the government threatens to imprison cocaine sellers, the supply curve shifts way way to the left, whereas the demand curve shifts left but not nearly as much. So the equilibrium price of a kilo of cocaine skyrockets, far above the monetary costs of production.)

Because of the above considerations, the benefit of gaining market share in the cocaine business is huge. Every new customer might mean thousands of extra dollars per month in monetary profits. In sharp contrast, if the Thai owner "steals" a customer from the Japanese restaurant, that might add only $100 per month to the bottom line. This is because there's a much lower (monetary) profit margin in the restaurant industry. It might make sense for drug dealers to hang around schoolyards, selling their products to kids, or possibly even giving some of it away for free to newcomers (though I don't know if that really happens, outside of anti-drug commercials). But you never see representatives from General Mills hanging around the monkey bars, selling the single-serve boxes of Cheerios. Because of this huge difference, gaining additional customers means a lot more in the prohibited industry than in the free sector. That's why killing off a rival--and thereby gaining access to his customers--is so much more profitable in the prohibited sector.

So we see that when the State threatens to imprison the producers of a certain good, it alters the incentives so that violence is now much more lucrative in the industry. Naturally, people in the real world are not simply robotic utility calculators. It's not so much that the same entrepreneur will be either a hard-nosed businessman, versus a ruthless killer, depending on the DEA's policies. No, what happens is that people who are predisposed to being cold-blooded killers are allowed to thrive and grow very rich in a society with strict drug laws. So rather than being some isolated sociopath, who kills a guy in a bar for looking at his girlfriend and then goes to jail, instead the asinine drug laws allow this same sociopath to make millions per year selling cocaine, with which he buys automatic weapons and hires cronies, and also buys off the police so he stays on the streets.

Does the State Actually Protect Private Property?

What's really ironic about the rival theory of Blackadder and Bobby1011 is that it assumes that government is actually good at protecting property rights. In other words, their theory assumes that the honest folks at Budweiser couldn't compete with Al Capone in 1930, because he would threaten to kill them and the bootlegging people of Bud couldn't very well call the cops and complain. But once Prohibition was repealed, now all of a sudden the legitimate producers of alcohol could press charges against gangsters for wrecking their stores or for shooting their employees.

I suppose there is a grain of truth to this, but I stress that it really is a grain. We know that the government does a horrible job in every other enterprise it touches, be it education, road paving, electricity provision, and intelligence gathering. But we're supposed to believe that it does a really great job in protecting people from gangsters? If that's true, then why the growing reliance on private arbitration efforts? Isn't it obvious that government courts and police are just as inefficient and counterproductive as everything else the State does?

To truly test the different theories, we need to come up with an activity where the government (a) doesn't interfere with producers but (b) doesn't defend the property rights of those same producers. If such areas are rife with theft and violence, then Blackadder and Bobby1011 are right. But if those sectors are generally orderly and peaceful, then I'm right.

I can think of a few examples where I'm right. (Maybe in the comments my critics can counter with examples that suit their theory.) For example, commerce over the internet is hardly regulated. Sure, in principle if you bought a book from a third party through Amazon, and the guy never sent it to you, you could bring him to small claims court. But that's not what makes the system work. It's clearly reputational effects, not the threat of government lawsuits.

Other examples are the "Not So Wild Wild West" [.pdf], where prospectors in California respected the claims of earlier arrivals, even though there was (initially) no formal government establishing the property rights. And Ed Stringham has done great work (see his 2002 and 2003 papers [.pdf]) explaining how fairly sophisticated financial markets operated in the 17th century even without official law enforcement.

I can give a personal anecdote here as well. After I graduated a semester early from Hillsdale, I had to kill seven months or so before starting at NYU. So three of us rented an apartment in a very shady neighborhood west of Chicago. One morning I went outside and saw that my truck's window had been smashed and my CD player stolen. So I went back in, called the cops, and they said they'd send out a car. (I had to warn my one roommate to hide his pot.) But guess what? The cops never showed up. And I daresay no detectives were burning the midnight oil, trying to crack my case wide open.

So in this neighborhood, I think the police really didn't care too much about protecting the residents' property rights. And although I guess I can't really prove it, I'm pretty sure that the mob didn't run all the grocery stores in the area. Now it may be true that criminal organizations were involved with the bars, but guess what? You need a liquor license to run a bar. But when it came to something that was fairly wide open to competition, like a grocery store or a restaurant, I am pretty sure those were run by legitimate businesspeople, who didn't use violence to keep out would-be competitors. And this is true, even though I don't believe the police would have been rushing over to protect these businesspeople from mob harassment.

Confusing Correlation and Causation in Somalia

Besides claiming that the mafia (or insurance companies) would take over and become the new State, critics of my writings on market anarchy will often say, "Well why didn't your utopia rise out of the ashes in Somalia? History shows that when the State stops providing security services, chaos breaks out."

I need to wrap this essay up, so I must be brief. But a few quick responses:

* As far as the "lessons of history" go, yes it's true that a Rothbardian paradise has not developed and proved its stability. But by the very same token, we have not a single example in world history of a stable, limited government. The best attempt was the government set up by James Madison and friends, and we all know how that turned out.

* Somalia is not a fair illustration of what I described above, in terms of a State legalizing more and more activities. No, the government in Somalia fell; it didn't disband itself because the public became Rothbardians. This is also true in regions in Colombia where the government exercises no authority. It's not that the State ceded its power, but rather that it was beaten back by a rival gang. To give an analogy, suppose I say that lowering taxes as a share of GDP is good for the economy. Would it really make sense to say, "Well, I agree that after a certain point, if the government takes too much in taxes, that's bad. But if the government takes too little in taxes, that hurts the economy too. Why, look at Somalia, where central government tax revenues are 0% of GDP. That place is a hellhole. Yet according to your supply-side theories, Somalia should be booming!"


The proponent of market anarchy is making the simple claim that systematic violation of acknowledged property rights does not help a society. Standard economic theory tells us that monopolies enforced through violence (or its threat) lead to lower quality and higher prices; this analysis holds true even when the monopoly refers to judicial, police, and military services. Libertarians generally recognize that the government does a horrible job educating children, maintaining roads, and sending telescopes into space. Why in the world would we want to entrust politicians and bureaucrats with protecting us from thieves and killers? After all, they're the worst thieves and killers in the world!

Robert P. Murphy holds a Ph.D. in economics from New York University. He is the author of The Politically Incorrect Guide to the Great Depression and the New Deal (Regnery, 2009), and is the editor of the blog Free Advice.

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