Wednesday, September 30, 2009


Ron Paul on The Daily Show

I was literally taking planes, trains, and automobiles today. There was a Fox Business Live spot for me to discuss a new IER study, so I canceled my outbound flight from Baltimore, caught the MARC train down to DC, did the interview, then a private car took me back to Baltimore for a later flight. Strangers would think I was important.

Anyway I'm back in Nashville and just now watched Ron Paul's appearance on The Daily Show. It went really well. Jon Stewart gave a very fair interview. He obviously was not totally sold on ending the Fed, but you can see he took Paul seriously, unlike some people.

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Ron Paul
Daily Show
Full Episodes
Political HumorRon Paul Interview

BTW I don't know if it will be on the above video, but the "moment of Zen" afterward was pretty funny.

Tuesday, September 29, 2009


A Quick Note From Baltimore

I'm in a hotel in Baltimore right now, getting ready to deliver a lecture to Tom DiLorenzo's "Capitalism and Its Critics" class, as well as a public lecture on the New Deal. So I won't be blogging much, if at all, until Wednesday.

In the meantime, look at this blog post from Brad DeLong regarding Edward Prescott's explanation of the financial panic (HT2MR): "He [Prescott] simply does not live in the consensus reality with the rest of us."

Is anybody else weirded-out by the term "consensus reality"? Have you ever heard of a more Orwellian phrase? Not reality mind you, but consensus reality. Prescott's sin is not being wrong per se, but rather that he disagrees "with the rest of us."

"What are you talking about, Bob?" you protest. "DeLong is just trying to be cute; he means Prescott is nuts and objectively wrong."

OK then why didn't DeLong say that? Now this "consensus" criterion has spread from climate change to economics?

I am not being flip. DeLong's use of the term "consensus reality" disturbs me far more than his endorsement of a Keynesian model. At least if he agrees that things are objectively right or wrong--and uses language accordingly--we can at least debate the merits of a Keynesian model.

But we have no hope of changing anyone's mind, if we fall into the dreaded minority viewpoint, in a world dominated by "consensus reality."

Monday, September 28, 2009


The Most Ridiculous Argument Against Auditing the Fed Yet...

...comes from Barry Ritholz, as relayed by Bruce Bartlett:
While I have been critical of the Federal Reserve (especially the Greenspan years), my beef with them has been their judgment and decision-making process. Congress, on the other hand, is a whole different matter. It[']s not their judgment, but rather, the fact they are owned not by the American people, but by lobbyists, and corporate interests. They have become structurally deformed.

How weird is it for me, who spent so many pages blaming the Fed for a lot of the recent crisis, to find myself in a position of defending them from outside political pressure? The choice we face is the recent Fed regime of secrecy, nonfeasance, irresponsibility, and easy money — versus something possibly likely to be a whole lot worse.

To be found in “contempt of Congress” would require an improvement in opinion of them.

If the Fed has been a major source of problems, Congress is much worse. They were the great enablers of the crisis, readily corruptible, bought and paid for by the banking industry. I find Congress to be the worse of two evils — lacking in objectivity, incapable of producing legitimate regulatory review.
So to summarize: The Fed has handed literally hundreds of billions of dollars created "out of thin air" to politically connected financial institutions. Congress asked Bernanke to tell them which institutions got how much money. Bernanke refused to say.

So Ron Paul and friends are pushing a bill that would force the Fed to disclose the recipients of such handouts of freshly printed dollars. And Ritholz says, "No, that's dangerous, because Congress is owned by the banking industry."

The Fed is a government-enforced cartel of private banks. It is literally owned by the banking industry. In contrast, Congress is merely rented by the banking industry.


Arnold Kling's Bizarre Monetary Theory

At EconLog Arnold Kling has been trading blows with Bryan Caplan. In his justified revulsion at Scott Sumner's views, Kling swings too far in the opposite direction when he declares:
There is a short run in which monetary policy cannot control nominal GDP, and there is a long run in which monetary policy cannot control real GDP. That is, there is a short run in which M affects only V and a long run in which M affects only P.

Suppose we measured GDP on a weekly basis. What can the Fed do this week that would affect nominal GDP next week? I say "nothing." Maybe Scott Sumner wants to say, "the Fed can change expectations," in which case we can start our argument there. I don't think that the expectations that matter for next week's nominal GDP are expectations that can be changed quickly. Or maybe Sumner will concede that next week's nominal GDP is given, so that for next week any big increase in M will result arithmetically in a big decrease in V.
I don't claim to speak for Scott--I think the Zimbabwean central banker does that just fine*--but I for one would not concede that "next week's nominal GDP is given."

Suppose Bernanke told his minions (the flying monkeys) to go out to every grocery store as fast as they could, and start buying everything in the store. A Fed official literally calls up the general manager of a large grocery store, and says, "I want to buy every item on your shelves."

The guy says, "Whoa, I bet you want a big discount, right?"

The Fed official says, "No, in fact, if you double all your prices before giving me the bill, that's fine with me."

But the catch is, it's an actual purchase. The store owner can't just send a bogus invoice and then sell the physical product to other customers. The Fed needs to take physical delivery of the items in the invoice, or else they cancel the (humongous) check written on the Fed.

You're telling me that if Bernanke made it his mission in life to acquire as many gallons of milk, cartons of eggs, pounds of butter, etc. etc., as fast as he could get his operation to start doing so, that all the grocery store managers would say, "Hmm, that's odd. Have you heard about what's happening at Wal-Mart and Kroger? Maybe at next month's board meeting we should bring this up." ? Are they going to continue selling down their inventories at the prevailing price?

Now maybe Kling means, the Fed can't change nominal GDP in the short run using only conventional monetary policy. But I think I've read all his posts on this topic, and I never see him giving such a caveat. No, he seems to be literally saying that the Fed can do nothing to alter nominal GDP in "the short run."

In fact, let's not even go to the trouble of the above. Suppose Bernanke goes on national TV and declares on a Monday, "Any store owner who can show me proof that his typical sales have increased by at least 10% this week as compared with his average weekly sales, will get a personal check for $1 billion, drawn on the Federal Reserve."

I'm not saying I know exactly what would happen after such an announcement, but I'm pretty sure nominal GDP would be different that week, and I'm also pretty sure expectations would change very quickly. The only possible intertia would be due to the fact that people didn't think Bernanke was actually serious. But once he started sending checks--that cleared--to business owners during the course of the week who had boosted their measured sales by buying their own inventory from their businesses, then I think people would get the hint and start brainstorming.

I suspect that eventually we'll find Kling admitting--just as Caplan has to with his bizarre claim that "parents don't matter"--that really he means, "If we tinker at the margins, and don't consider examples that obviously demonstrate my claim is completely false, then the Fed [/parents] matters a whole lot less than most people think."

* For newcomers to Free Advice, I should clarify that Scott understands my bizarre humor theory. I am 95% confident he would not be offended by the above salvos. (See fifth sentence here.)


Imagine if you had to rely on Paul Krugman to filter your information...

Hey kids, pop quiz time!

(1) Using this Paul Krugman NYT column from September 24, tell us how costly the CBO says Waxman-Markey's cap-and-trade plan will be, in the year 2050.

(2) Using this Paul Krugman blog post from September 27, tell us how costly the CBO says Waxman-Markey's cap-and-trade plan will be, in the year 2050.

(3) Calculate the maximum discrepancy between your answers for (2) and (1), in percentage terms of the answer for (1).

(4) Using Krugman's blog post, find the spot where Krugman explains the size of your answer for (3). (Hint: Don't spend too much time looking.)

(5) Relying on both Krugman's blog post and his NYT column, which side of the climate debate does Krugman think is full of ideologues playing fast and loose with statistics to bamboozle a gullible public?

UPDATE: Some readers point out in the comments that the same CBO report (pdf, pages 2-3) contains both the "1.2 percent of income" and "1.1% - 3.4% of GDP" estimates for the cost of Waxman-Markey in 2050. So that means we can't get too upset at Krugman for switching between these two stats from one article to another. However, my beef is now with the CBO: I think they must be doing things like saying, "The efficiency mandates will mean people will have to spend less on heating their homes etc.," but still, there should be an idiot check. How can it be that Waxman-Markey will reduce GDP by 1.1% - 3.4% by 2050, yet at the same time will only reduce household income by 1.2%? That just doesn't make sense.


Fed Bailouts Don't Simply Threaten "Taxpayers"

Tom Woods makes a point that I keep forgetting to make myself, in his LRC post-game show from his Congressional testimony:
Michele Bachmann (R-MN) graciously held up a copy of my book Meltdown, which she said she was reading and enjoying very much. She was likewise concerned about the extent of the Fed’s discretionary powers, and the extent to which the taxpayer winds up on the hook for things he doesn’t even know about. I took the opportunity to clarify a point she already understood, but which is sometimes obscured in the shorthand we use: the impact on the taxpayer is really an impact on him in his capacity as a holder of dollars. If the Fed’s arrangements with private firms leave the central bank with lower-quality assets than before, then its ability to carry out its policies while preventing price inflation from getting out of hand is impaired. The Fed’s ability to sterilize its injections – i.e., taking dollars out of one sector of the economy as it injects them into another – is compromised when there is a decline in the quality of the assets it intends to sell to withdraw the dollars. In other words, it can still inject dollars, but it’s now harder to remove them (since its assets no longer fetch as many dollars).
You see the mistake Tom is alluding to here, when people write denunciations of the bailouts and monetary base growth, then say, "Taxpayers are on the hook." But no, if we're talking about Fed operations, then it's not taxpayers per se, but holders of dollar-denominated assets, who are on the hook. For example, the Chinese central bank stood to lose a lot from Bernanke's inflationary activities. But it's understandable why Fed critics rally the troops with the cry of "taxpayers!" rather than "Chinese!"


Thomas Sowell Also Using the "But Loans Are Down!!" Argument

Bill R. sends along this interview with Thomas Sowell. Start it at the 5:00 mark, and you'll see that Sowell makes the same point regarding the alleged "rescue" of the credit markets as I did on Kudlow. From the timing, I'm guessing it was an independent discovery. I'm surprised more people aren't using this argument.


Bernanke Considers the Biddle Option?

In a fascinating article, Lilburne explained that Nicholas Biddle did what he could to wreck the US economy to prevent Andrew Jackson from de-chartering the Second Bank of the United States. Is Bernanke thinking of something similar? From Bloomberg (HT2LRC):
Federal Reserve General Counsel Scott Alvarez said audits of monetary policy by the U.S. Congress could lead to higher interest rates and reduced confidence in central bank policy.

Congressional audits of monetary policy could “cause the markets and the public to lose confidence in the independence of the judgments of the Federal Reserve,” Alvarez told the House Financial Services Committee today in response to a question from Representative Dennis Moore, a Kansas Democrat. Alvarez said in his prepared remarks the audits would probably “chill” the central bank’s discussions on interest rates.
Now this is interesting. When the "audit the Fed" movement first came on the scene, the Fed apologists warned, "This will cause the Fed to keep interest rates too low for too long. When the Fed decides it needs to raise rates to prevent inflation, Pelosi and Reid will butt their noses in and insist on prolonging the period of easy money."

Well the threat of inflation didn't scare off the villagers, so now the Fed is threatening us with higher interest rates if we don't mind our own beeswax and stop asking how many billions they shoveled out to particular financial institutions, foreign and domestic.

In fairness to the Fed apologists, these two threats aren't mutually exclusive, because nominal interest rates alone do not completely summarize Fed policy. Because of the loss of "independence," the Fed might pump in more money than it otherwise would, leading to higher dollar-prices. At the same time, because of world investors' loss of confidence in the Fed's ability to contain price inflation, long-term interest rates on dollar-denominated assets might be higher than they otherwise would be. So, it's not really a contradictory threat of "we'll have interest rates that are too low and too high simultaneously." Rather, the Fed officials could argue that the tradeoff between interest rates and (price) inflation will shift against the US--meaning the Fed needs to jack up interest rates to ensure a given level of price inflation--while the interference from Pelosi & Co. will force the Fed to err on the side of high inflation, on this new tradeoff.

Even though one could synthesize the two warnings in the above fashion, I think what's really going on is that the Fed officials like the current situation just fine, where they can literally write as many checks as they want, backed up by an infinite amount of money, and they don't even have to tell Congress (let alone CNBC) who got how much money.

Sunday, September 27, 2009


"My God, It's Full of Stars!"

Putting this down into words will not do it justice, but I wanted to share my experience late Friday night. While walking home from the open bar on Mackinac Island, I was struck by how many stars I could see. If you've lived in a big city your whole life, you might be amazed at just how many you can see on a clear night when you get away from big buildings.

So I'm marveling at it but then I realize my view is still being hurt by the occasional streetlight. Across the street from the Grand Hotel is a golf course. Right near the sidewalk is a big sand trap, and I realize that if I just walk to the other side of it, the hill will be blocking the light from the street and I'll be able to look up at a fairly uninterrupted view.

I stood there on the sidewalk wavering. It was about 1 in the morning, and it was cold out--I had come from Nashville and just brought a light jacket, so I wasn't really prepared for the upper Michigan weather--and I wasn't sure if it was worth sneaking onto the golf course just to see how many more stars were visible outside the blare of the streetlight. But something nudged me to go for it, and I don't think it was Richard Thaler.

I waited for some other pedestrians to get out of sight, and then I walked onto the course and down the first hill. My mouth literally dropped open. I could not BELIEVE how many stars I could now see. I have never in my life seen so many in the night sky. It looked like a planetarium show, except this was the real deal. Whereas humans can create a similar show of beauty by projecting light from a machine onto a ceiling 30 feet or so above your head, here was the Lord of the universe putting on a similar show, except He decided to use balls of gas undergoing nuclear reactions, some of which were millions of light-years away.

After testing to see just how wet the grass was, I laid down and just stared up. I had to turn my head from side to side to drink it all in; I couldn't capture it all without swiveling. I said "oh my gosh" and realized it wouldn't be cursing for me to say "oh my God." The second time I said it, I actually saw a "shooting star" the instant I said it, which was a nice finishing touch. (I don't know if I've ever seen a shooting star in real life before.)

It was an extremely pleasant way to finish the night. To (greatly) paraphrase Richard Feynman who was making a different point: There needn't be a tension between knowledge of the natural world and faith in God. In fact, the reason I was in such awe was that I had a (very vague) understanding of how far away the stars generating that light had to be. I don't imagine that the fishermen hanging around Jesus would have appreciated the night sky more than I did a few days ago, simply because it was more of a "mystery" to them.

Saturday, September 26, 2009


Reflections On Mackinac Island

I participated on an energy panel at the Republican Leadership Conference at Mackinac Island on Friday. (I was there in my capacity as an economist with IER. I'm pretty sure they would have me talk at the UAW convention if we were welcome, which we're not.) Some highlights:

* I met Jay Riemersma who is running for Congress. He had been a tight end for the Buffalo Bills so I had to text my brother and dad. (I grew up in Rochester, NY. The Bills lost the Superbowl every year I was in high school. That seriously affected the trajectory of my life. I'm not kidding.) The guy who introduced us said, "Yeah, Jay here used to play QB, and then he had to put on 30 lbs. for his new job as tight end." So I said, "That's funny, when I got hired as an economist I put on 30 lbs. too." He chuckled, but then again he was running for office.

* I've been to this event once before, in 2007. I love it because the guy running for attorney general will stand outside the ferry dock, shaking everybody's hand. If you explain you're not a Michigan voter, he'll say, "You can still vote with your checkbook." Hey it doesn't hurt to ask.

* I had a few hours to kill before my talk, so I wandered around the island looking at all the quaint shops. (BTW there are no cars allowed on the island, except some emergency vehicles. Otherwise it's horses and bicycles. And yes we made the obvious jokes about cap and trade 2 years ago.) The best sign I came across said, "The difference between inlaws and outlaws is that outlaws are wanted." Ba-DUM.

* When we lived in Hillsdale, MI my wife and I loved the ice cream from "Mackinac Island Creamery." Well, turns out there is no such thing. First Santa, now this.

* Some guy in the crowd tried to zing me during the Q&A. I was there to discuss the impacts of cap and trade on Michigan's economy. Now I really did give a big caveat and say, "Nobody knows what the impact of something in 30 years will be, but, the Heritage Foundation used a Global Insight model blah blah blah, and projected an average job loss of 40,000 between the years 2012 and 2030" or something like that. So this guy asks me if that's really a per year job loss figure. I can see where he's going--i.e. you're going to lose more jobs than there are people in Michigan--and so I try to clarify that no, what the figure means is that the model shows the number of jobs below a baseline (with no cap and trade), and that gap is, on average, 40,000 jobs. Then someone else on the panel [who was the local moderator, not an actual presenter] jumps in and says that he's seen estimates of cap and trade on a national scale, where the loss is 2 million jobs. So the heckler comes back and says, "That's per year?" and the other guy says, "Yeah." (I think it's actually what I was trying to say in reference to the figure I cited for Michigan.) Then the heckler says, "So over a ten-year frame, that's 10% of the entire US workforce you're saying will lose their jobs from cap and trade?" and the other guy just goes, "Exactly," and takes the next question. I think the other guy didn't really understand the distinction the heckler was making, but I just thought it was hilarious because the heckler was expecting him to slap his head and say, "You're right, we'll leave the room now."

* Apparently these Mackinac Island conferences have a reputation for being quite socially liberal in terms of alcohol. (There was a girl puking in a flowerpot when I walked back to the hotel Friday night from the bar.) Picture it: 2,100 enthusiastic Republicans invade a sleepy island for a weekend, with political groups having open bars all over the place. (And I mean, you go into the actual bar, and the waitresses serve you for free.) If only Robert Wenzel had been there! Then he could have approached two girls and said, "Do you ladies know my famous friend Bob? He corresponds with Glenn Greenwald..."

* Back in 2007, Rudy Giuiliani gave the keynote dinner address, and it truly was a good speech. I thought he had a good shot at being the nominee at that point. In contrast, my chaperone on the island--you can't let PhDs loose in an unfamiliar place; we might end up in a locker or something--referred to John McCain as "dead man walking" when his procession went by. So, we basically didn't predict the primaries very well. Anyway, this time around I left Saturday morning, so I didn't get to hear Mitt Romney give the keynote dinner talk. During the Friday dinner, one of the warmup guys had a good generic line deployed against some Michigan Democrat: "He reminds me of a slinky. He's not useful for anything, but he's fun to push down the stairs." Ba-DUM.

UPDATE: Oh man, I almost forgot to mention that I met Michael Lynch, occasional blogger for MasterResource. (See him take on "peak oil" here, where he defends himself from the critics of his NYT op ed.) Believe it or not, Lynch is a bigger wise*ss than me. (!!) Quick example: We were waiting to get on the ferry, and there was a big yellow school bus that pulled up. Out flowed about 30 kids, probably 10 - 12 years old. Of course they're all excited to ride the ferry, the chaperones are trying to keep them from jumping into the frigid water, etc. etc. So one girl comes up to us and goes, "We're here on a field trip. We all go to the same school." Lynch says, completely deadpan, "Oh, I figured it was either that, or you had all escaped from a prison for really short people." I'm not kidding, he didn't crack a smile or anything, he just let the girl process that for a moment and shrug it off as she told her friends they could cut us in line.

Friday, September 25, 2009


Ron Paul Shock Troops Storm Congress

But we're intellectual geeks so no tear gas was involved. I'm in a hotel right now in Mackinac Island, so I haven't had time to watch this stuff. But here's Tom Woods wielding a fiery sword of truth, and below is the only video I've found so far. When I get back to the room tonight I'll post some better stuff.

P.S. As I said, I haven't had time to watch the above. But I'm pretty sure I recognize the bald spot of the guy on the left of the witness table.

P.P.S. Off topic, but the TVs are blaring this stuff about a guy buying supplies in a beauty shop in order to make a "weapon of mass destruction." So, if you can build a WMD using Obsession, shouldn't we admit the War on Terror has as much chance of success as the War on Drugs?

Thursday, September 24, 2009


Bush's Third Term

We need to update that old joke: "People warned me that if I voted for McCain, we'd get another four years of Bush policies. They were right!"

Glenn Greenwald explains:
[W]hen it comes to uprooting ("changing") the Bush/Cheney approach to Terrorism and civil liberties...the Obama administration has proven rather conclusively that tiny and cosmetic adjustments are the most it is willing to do. They love announcing new policies that cast the appearance of change but which have no effect whatsoever on presidential powers. With great fanfare, they announced the closing of CIA black sites -- at a time when none was operating. They trumpeted the President's order that no interrogation tactics outside of the Army Field Manual could be used -- at a time when approval for such tactics had been withdrawn. They repudiated the most extreme elements of the Bush/Addington/Yoo "inherent power" theories -- while maintaining alternative justifications to enable the same exact policies to proceed exactly as is. They flamboyantly touted the closing of Guantanamo -- while aggressively defending the right to abduct people from around the world and then imprison them with no due process at Bagram. Their "changes" exist solely in theory -- which isn't to say that they are all irrelevant, but it is to say that they change nothing in practice: i.e., in reality.


How to Predict the Coming Bank Pay Regulation


How to Predict the Coming Bank Compensation Regulations
By Robert P. Murphy

In an article that convinced half my readers I was a genius, and half that I was completely insane, I argued that the way to predict the coming moves in currencies and other major financial events was to put yourself in the shoes of the extremely powerful elites who are running the show behind the scenes. Let's apply that general approach to the specific question of the promised "reform" of compensation at financial institutions. There are more recent articles, but this WSJ story from last week has some great quotes to illustrate my points.

First of all, we need to drop Ayn Rand's view that big businesses are a persecuted group. Yes, it's true that governments keep the best legitimate businesspeople from achieving the success that they would on a free market. But what that means is that the potential big businesses are persecuted. Precisely because of onerous government regulations, there is prima facie suspicion that huge businesses right now are using the government to enrich themselves and/or hobble their competitors.

One of the most eye-opening moments in my undergrad education occurred in a Public Choice lecture by Gary Wolfram. Gary (I worked with him later on, so I can call him by his first name now) explained to us that the federal regulations banning cigarette advertisements in many outlets (notice you don't see Marlboro ads during football games?) were supported by the big tobacco companies. Isn't that counterintuitive? Fresh from reading Atlas Shrugged, wouldn't you have guessed that the tobacco executives were throwing darts at pictures of bureaucrats when the new regulations went into effect?

Gary's explanation was that the tobacco companies had found in their research that advertising didn't bring in many new smokers, but mostly stole market share from other brands. So if all the tobacco companies could agree to cut back on their advertising, they would all make more money. But of course, that kind of cartel would be hard to police in a free market, especially since a new upstart brand could come in with a big advertising campaign. But the plan could work if the government punished any cheats with big fines. Hence the big tobacco companies benefited from these particular rules, while smaller tobacco companies--especially ones that had a better (in the relevant sense) product--were stifled.

Let's switch topics now to financial institutions. Let's suppose the CEOs [UPDATE: It makes more sense to say the major shareholders, not CEOs, have the below conversation, but I'll leave the dialogue in the original form.] of Goldman Sachs, JP Morgan, and a handful of the other big boys are sitting in a smoke-filled backroom talking shop. The conversation might go like this:

CEO A: "Boy, wouldn't it be great if we could cut the salaries we pay to our employees across the board? Man, that would be great. It's not like our top people would go into hotel management or start driving a cab. They'd stick with our firms."

CEO B: "Yeah, but we could never all agree on the rules and enforce them. Besides, if the public caught wind of it, we'd be toast. Remember the fiasco with the chartered jets?"

CEO C: "Well, what if we got the feds to impose the rules? We could spin it so that it was designed to protect the public from risky positions."

CEO B: "Give me a break, the public wouldn't go for that. What if the government proposed cutting teachers' salaries by 10% across the board in order to raise graduation rates? It's absurd. We need a better angle."

CEO D: "Nah nah, he's onto something there. We could make this work."

CEO B: "OK fine, let's assume for the sake of argument that the public buys it. Still, we'd lose our best talent overseas. The SEC and the Fed can't tell Deutsche Bank how much they can pay their top execs, at least not ones based outside the US."

CEO A: "Well, what if we got all the major governments on board? Our overseas friends would benefit from the arrangement just as much as we would. The only important thing, would be to install a system that keeps us all honest."

CEO B: "You guys are crazy. Look, part of our advantage is that we can recruit the best talent. If there is an industry-wide cap, some of our best people might switch to our competitors. How are you going to get people to move to Manhattan, if you can only pay as much as a bank based in Charlotte?"

CEO C: "I got it! We'll make the new compensation rules favor the big banks. So there will still be overall caps, but the biggest banks will still be able to offer the most lucrative compensation packages, relative to their smaller competitors."

Is the above a paranoid delusion? You tell me. Here are some choice excerpts from the WSJ piece of September 18:
Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions.

The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives.
The U.S.'s largest banks, about 25 in number, would get especially close scrutiny. The central bank intends to compare these banks as a group to see if any practices stand out as unusually dangerous to their firms.
The proposal will likely push banks to use "clawbacks" -- provisions to reclaim the pay of staffers who take risks that hurt their firms -- in certain pay packages, among other tools, to punish employees for taking excessive risks with their firms' money.
The Fed's planning comes amid an intensifying global debate about the way bank employees are paid ahead of the Group of 20 meeting of world leaders in Pittsburgh next week. U.S. and foreign officials worry that if they don't coordinate their rules, some countries could draw talent away from others.

On Thursday, European Union governments issued a communiqué urging the G-20 to adopt strict rules to restrict bonus payments. Speaking after the meeting of EU leaders in Brussels, French President Nicolas Sarkozy said he would support the idea of linking the size of bonuses at each bank to their level of capital.
My tip: If you want to anticipate how these new rules will shake out, just suppose that they are actually being designed by the world's richest bankers. Because they are.

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.


Stumped By Stavins

Dan Simmons alerted me to this WSJ article by Harvard's Robert Stavins. Now I respect Stavins, because he blasted the absurd economic analysis that the California Air Resources Board put out on its statewide cap-and-trade plan. So even though he is a proponent of carbon legislation, I think he's intellectually honest.

However, in this recent WSJ piece, he's got two different arguments that seem wrong on the face of them. First let's look at the iffy one:
Critics argue that we can afford to wait because the world of tomorrow will be wealthier and better able to absorb the costs. But acting sooner, such as by adopting the emission caps proposed in the U.S. House legislation, will lower the ultimate costs of achieving the target, because there will be more time allowed for gradual transition—which is what keeps costs down.
OK on the face of it, this is a bit weird. You keep costs down by giving firms more time to comply. But, I think we all get what Stavins is saying. He's got in mind a scenario where firms don't have to do anything for the next twenty years, and they don't anticipate they will ever have caps imposed in the future, and then Glenn Beck's coastal house gets flooded and everyone realizes Al Gore was right. So then the government imposes draconian cutbacks in emissions, and everyone slaps his head and realizes the government should have made the hard choices sooner. OK fair enough, but like I said, you need to assume the part about firms being surprised by the caps, or else it doesn't work.

But now this next one I'm really not sure I follow:
As for how much [the Waxman-Markey cap-and-trade] will cost, the best economic analyses—including studies from the U.S. Congressional Budget Office and the U.S. Energy Information Administration—say such a policy in the U.S. would cost considerably less than 1% of gross domestic product per year in the long term, or up to $175 per household in 2020. (That's the cost of one postage stamp per household per day.)
If you read it quickly, it sounds like the cost of Waxman-Markey will be a postage stamp a day. But wait a minute, he said (no more than) 1% of GDP per year. Surely the economy (especially "in the long run") will crank out more than 100 postage stamps per household per day. (In 2007 median household income was over $50,000. Note that $50,000 > $17,500.) So Stavins is giving two different answers here, saying (no more than) 1% of GDP in the long run, OR in the short run, the cost will be up to a postage stamp per day. I don't think it's a coincidence that he didn't actually spell out a concrete number, so that the reader could realize just what "1% of GDP" meant.

Also, there's the little problem that the CBO report that came out last week said Waxman-Markey would cost the economy anywhere from 1.1% to 3.4% of GDP, by the year 2050. (See Table 1 on page 13 of this pdf.)So I'm not sure how that range translates to "considerably less than 1% of gross domestic product per year in the long run."

Wednesday, September 23, 2009


The Worst Sentence I Read Today

From the poor man's Brad DeLong, Matt Yglesias, who writes:
And in economic terms, there’s really very little difference between spending down a reserve of accumulated cash and in taking advantage of an opportunity to borrow at an extremely low interest rate.
I think by "economic terms," Yglesias means, "If you stop thinking about it the way a household or company would."

I warn you, as patently false as you think that statement is, standing alone, if you click on the context you'll see it's much worse.

The problem here is that Yglesias thinks the one bad effect of deficit spending is a hike in interest rates. He completely ignores the growth in the federal debt. And what's worse, he "zings" someone (Michael Boldrin) who wasn't talking about crowding out, but instead was referring to people trying to save for the future and then having their actions offset by federal profligacy. So even if the government literally borrowed all its money at zero percent, that wouldn't affect Boldrin's argument against deficit spending as a means to "stimulate" the economy.


Brad DeLong Continues to Paint Hoover as Mr. Laissez-Faire

As Free Advice readers know, I have taken the Krugman/DeLong side in their debate with the Chicago School. In a nutshell, people like Cochrane and Fama are saying that in principle the government can't boost nominal spending in the present, as if it's a matter of accounting. That's just wrong, especially if you allow for the Fed. (E.g., saying "deficits just rearrange resources" could just as well "prove" that printing money couldn't possibly provide an artificial boom. The only way to make the argument work is to incorporate "idleness" as part of the legitimate market use of resources--which I do here--but that's not what Cochrane et al. seem to have in mind.)

But here I think Brad DeLong goes absurdly awry in his counter-counterattack (HT2PK). DeLong quotes Prescott who said:
"I don't know why Obama said all economists agree on [the need for a stimulus bill]. They don't. If you go down to the third-tier schools, yes, but they're not the people advancing the science..." and "the period of the '20s was one of healthy growth, until Hoover's anti-market, anti-globalization, anti-immigration, pro- cartelization policies were instituted, brought this expansion to an end, and created a great depression..."
Then DeLong supposedly corrects this historical caricature by saying: "Herbert Hoover was on the right wing of the American political spectrum and tried as best he could to follow pro-market, pro-globalization, pro-competition economic policies..."

In case you're wondering, not a word in there about how this pro-globalization guy signed off on the Smoot-Hawley tariff, which has a reputation as being anti-globalization. Less famous, Hoover also was proud of the massive turnaround in immigration during the early 1930s. (I don't remember if he enacted policies to promote this trend, or if it was purely due to the relative deterioration of US job prospects.)

If DeLong wants to challenge Prescott's statement, I think the onus is on him (DeLong). Oh, and jacking up the top income tax rate from 25% to 63% in one year is also not something that shouts "pro-market" to me. (Look at the rates in 1931 and 1932.) But again, you won't find any explanation from DeLong on why this is evidence of a hardcore right-winger.


Tom DiLorenzo Hosts Murphy

Details here. And if someone asks me, "Why do white people get paid more?" I'm going to say because they're blue-eyed devils.


Rush to Hypocrisy

Today Rush Limbaugh was going nuts over President Obama's "surrender to the UN" when the rest of the world "didn't fire a shot." He said something like, "You know who should really be worried, folks, are our traditional allies. The Brits [and I forget the other countries he listed--RPM]. The people who depend on this country for their security and economic assistance, they oughta be alarmed that Obama just threw them under the bus."

And here I thought Rush was against people being dependent on Uncle Sam?


Now Stagflation Is a "Contradiction"

Before, the pundits had merely been asserting that there was little threat of price inflation because of high unemployment. But now Matt Yglesias has upped the ante (HT2 Bob Roddis):
Germany business and policymaking elites seem pretty uniformly convinced that the government has been preventing an unemployment explosion through unsustainable measures...and that in winter 2009-2010 unemployment is going to explode. They think that recent growth is a minor rebound from a very low level, and that future growth will be sluggish or possibly even feature a “double dip.” Nevertheless, they think we need to be very worried about inflation!. The one person who bothered to face up to this contradiction at all said that in his opinion there’d been a reduction in Europe’s growth potential, comparable to what happened during the oil shocks of the seventies.
Wow. So now it's an actual contradiction to worry about price inflation at a time of high unemployment.

Yglesias goes on to give a history lesson and explain that Hitler's rise to power had nothing to do with the German hyperinflation, which had ended five years beforehand. I'm not sure what Yglesias' explanation is for the 1970s stagflation in the US, or the hyperdepression in 2008 in Zimbabwe, but I'm sure deregulation has something to do with it.


Deflation vs. Inflation

Gary North reports that one of the leading deflationists has defected to our side. ("Us" meaning North and me.) It reminded me that I meant to blog an email exchange I had recently (with permission of the correspondent). Craig had emailed me to say I was still missing the point in my critique of Mish. I wrote back:
Thanks for the email. I have to be brief. Do you know that since December, the unadjusted CPI is up 3.7%? And I'm sure you know that gold is hitting (nominal record highs.

At what point is this credit deflation going to result in falling prices? There was a brief spell of falling prices in 4q 2008, but prices have steadily risen in the eight months since then.
I thought (like Darth Vader), "All too easy." But then Craig fired back:
I’m looking at the unadjusted CPI and it is up 2.7% since December, but DOWN 1.9% since its peak in July 2008. Moreover, the CPI understates deflation due to the owners-equivalent rent number. If actual housing prices were used (substitute Case-Shiller) you would already see price deflation. Just like the CPI understated inflation on the way up in housing it is understating deflation on the day down. So despite the absolute greatest amount of monetary and fiscal stimulus human civilization has seen over the past year (there is a reason there are so many hyperinflationists), the CPI is still down (even with bogus housing measures) and gold is right back to where it was in March 2008, i.e. flat since Bear Stearns failed and unprecedented stimulus was unleashed (and not much above where it peaked in 1980 for that matter). Moreover, T-bills are barely yielding above 0% and TIPS certainly don’t look very scary. Stocks and housing are down over 30% and oil down over 50% from their peaks.

I see bargains everytime I walk into any store—EVERYTHING is on sale—cars, shoes, you name it. The official CPI index will plummet once credit really begins to disappear. So far, it has basically just stagnated. The Fed’s Flow of Funds report released yesterday demonstrated the 1st decline in total debt in the U.S. since the data began in 1952—from $52.87 trillion to $52.81 trillion, oh wow (that’s sarcasm). Government borrowing has helped to offset the destruction of private credit so far. In a year’s time, I’m sure it will be much different after this bear market rebound ends. Nothing has changed from a year ago, in fact everything is much worse thanks to the government’s actions. Last fall will look like child’s play for what’s upcoming soon. No matter what, 2010 will settle the inflation/deflation debate either way. Unfortunately, we are losers either way.
So anyway, I think that was the best, succinct statement of the deflationist camp that I've seen. And I really like how Craig concludes, "No matter what, 2010 will settle the inflation/deflation debate either way." However, I think Craig is overlooking the fact that we could both be proven wrong--CPI could stay roughly flat over 2010, in which case Scott Sumner and Paul Krugman end up looking good.

Tuesday, September 22, 2009



* Great Lew Rockwell article about Afghanistan. He gives four links to Mises Daily articles that warned about the debacle back in 2001.

* I haven't listened to him with Scott Horton yet, but I'm sure Daniel Ellsberg is very interesting. I heard him on NPR commenting on the Afghanistan assessment, and he said something like, "I can't believe that the military commanders are actually telling President Obama that if they get 40,000 extra troops, they will be able to achieve anything that we could call success." Ellsberg made a very interesting point in his book Secrets. He said that after the nightmare of Vietnam, the conventional wisdom was that the political leaders were out of the loop, that the "reality on the ground" was getting filtered at each level as it went up the chain of command. So (according to the conventional wisdom) the president foolishly pressed on, thinking a few more bombing campaigns and a few more thousands troops would turn the corner. But that was completely false, Ellsberg says. He says that the presidents (JFK and LBJ) would go on TV and say what the generals were telling them, and they would simply be lying through their teeth.

* Speaking of Scott Horton, here I am, speaking with Scott Horton.

* Finally! Jeff Hummel politely tells Scott Sumner he's nuts.

* Robert Wenzel must have just given himself a paper cut or something when he read this Arthur Laffer piece, which I thought was really good. Sure, Laffer doesn't subscribe to the Austrian theory of the business cycle, but I bet most people would have predicted that Laffer would be praising Bernanke's liquidity injections. Not so.

In reference to the 1933 - mid-1937 period, when CPI rose about 15% despite double-digit unemployment, Laffer says: "Inflation can and did occur during a depression, and that inflation was strictly a monetary phenomenon."

At first I thought he was being coy, by ignoring the Keynesian trump card that things seemed to be going swimmingly when FDR first took over. But Laffer really is making a very good point here: According to the Keynesians--and indeed, according to the WSJ reporters, financial analysts, and the Federal Reserve itself--we are in no threat of rising price inflation now, because of "spare capacity." So how they heck do these people explain the CPI increase from 1933-1937? Isn't that supposed to be impossible?

I'm being dead serious. Sure, they can say, "Give me a break, I'd take plummeting unemployment rates in exchange for 5% inflation any day," but that's not the tradeoff they're saying we face right now. They're saying there is no threat of inflation with a bunch of spare capacity. Are they instead going to refine the argument and make it about second derivatives?


Am I a Self-Loathing Economist?

Lately I've been ripping economists, such that critics of the free market (?) are quoting me. And then in response to Steve Horwitz saying this:
I love it when the faculty member teaching in classroom the class before mine leaves the board unerased. It gives me a great chance to talk about negative externalities, including why they arise and how they do or do not get resolved. (Last year, I got so pissed with one colleague that I almost snuck in the room before HIS class and filled the board with writing as a way of getting him to think about the problem, but I didn't.) But here's a question to think about: are economists more or less likely than faculty from other disciplines to leave their boards unerased? Does our knowledge of economics and negative externalities give us some empathy toward potential cost-bearers that others might not come by as easily?
I commented thusly:
I can imagine some economists leaving it up there and, if challenged, saying, "It's a stupid system. The administration should dock our paychecks if they want us to erase the board. It's self-enforcing if we all have to erase the board once in the beginning."

In fact, I almost convinced myself just now! How do you justify your sucker's equilibrium, Steve?


Ari Gold, Based on Ari Emanuel

In this post I quoted this sentence from (Michael Jordan's agent) David Falk's book:
The second person was Mark Dowley, who also worked for me at ProServ and went on to run the marketing department for a large Hollywood agency called Endeavor, which is run by my very good friend Ari Emanuel, the younger brother of Rahm, who is now a congressman from Illinois.
Apparently Ari Emanuel was the inspiration for Ari Gold, the epitome of a type-A personality in the HBO show Entourage. There are a bunch of great compilations of "Ari's Best" on YouTube, but the following was the best I could find that was of manageable length. (The mismatch between video and audio is annoying at first, but you adjust pretty fast.)

Man those Emanuels must be something. (Read about the steak knife incident if you haven't already heard of it.)


"I Own Me"

If you can overlook the use of vulgarity and the failure to use reflexive pronouns, this is pretty sweet. At first you might think, "Oh it's just some punk kid who hates rules," but it's actually pretty sophisticated. (HT2LRC)


Degrees of Separation

I read the following from David Falk's musings on being an agent (which I reviewed here) during one of my potty breaks today:
[The American Express commercial featuring Duke coach Mike Krzyzewski] came about due to a combination of people. One was a local consultant named Gary Stevenson, who had attended Duke and later worked for me in marketing at ProServ. The second person was Mark Dowley, who also worked for me at ProServ and went on to run the marketing department for a large Hollywood agency called Endeavor, which is run by my very good friend Ari Emanuel, the younger brother of Rahm, who is now a congressman from Illinois. (Falk p. 191)
Who knows the interesting trivia regarding Ari Emanuel, besides the fact that his brother is now Obama's chief of staff?


Mysterious CNBC Blurb on Treasury Auction

I am not being sarcastic, I want someone to explain what the heck this means. Below is the headline and blurb on the front page of CNBC for this story:


US Treasury debt prices held moderately positive after a record auction of two-year notes fetched strong demand but at a higher yield than might have been expected.
Am I missing something? It sounds like they're saying a lot of people wanted to buy Treasurys at a stable price, after the price was lowered. Am I being too cynical?


We Told You FDIC Wasn't Really "Insurance"

I could never work for the government. Besides my feelings of guilt, I would simply lack the creativity to come up with stuff like this:
FDIC May Ask Banks for a Bailout

Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.
“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”

Bankers worry that a special assessment of $5 billion to $10 billion over the next six months would crimp their profits and could push a handful of banks into deeper financial trouble or even receivership. And any new borrowing from the Treasury would be construed as a taxpayer bailout that could open the industry to a political reaction, resulting in a wave of restrictions like fresh limits on executive pay.

Any populist furor could be avoided, the thinking goes, if the government borrows instead from the banks.
So when you step back and look at it, what's happening is that the healthiest banks are pooling their money into a common fund to rescue their weaker peers, in order to keep the public happy with the industry as a whole.

Kind of like what used to happen before the Fed was created.


Glenn Greenwald 1, Bob Murphy 0

Dang, GG put the smackdown on me in the comments of this post.

[Bob Murphy wrote:] "I am going to go out on a limb and say that Glenn Greenwald has listened to Beck's radio program about as much as I listened to Al Franken's."

[Glenn Greenwald answered:] This is false. Over the past 6 months, I've watched Glenn Beck's show more than any other political talk show by far. That's true for numerous reasons, including the fact that I purposely expose myself to outlets with other views and don't make comments about things unless I'm certain I know what I'm talking about.

As for Beck's alleged small-government and anti-corporate sentiments, he was FOR the Wall St. bailout and argued it should be larger -- was FOR the Patriot Act and virtually every other policy of empire-building and civil-liberties infringement during the Bush era.

And here's the video GG linked to. It's pretty brutal.

I knew Beck had supported the war and Patriot Act, but I didn't realize he had championed the TARP at the time. (I only really started listening a lot about 9 months ago, I'd say.) That almost impresses me, that he could be so audacious with such a quick flip-flop.

Monday, September 21, 2009


Mainstream Macro's Ridiculous Apologists

I actually have a ton of "real work" today so this may be my last post (unless gold shoots up $50 or something). First, I wanted to alert you that Floyd Norris has approved a bunch of our comments; some good ones in there from all of you.

Second, Alex Tabarrok has a great post today clarifying the complaint that "economists failed to predict this crisis." Some big guns have come out and said that not only should they be excused for failing to predict the crisis, but they should be congratulated for predicting that they would fail to predict this and all future crises. (If you think I'm exaggerating to make a joke, read it yourself.) So Tabarrok calls this move for the obvious foul that it is. (Incidentally, Tabarrok is responding to this defense of macro by David Levine. But when I get more time, I have to write a full-blown article on it, it's so bad.)

For now, let me just alert you to some funny excerpts from a Minnesota economist's response [.pdf] to all this. Now in contrast to Easterly, Cochrane, and Levine, this particular guy (Kocherlakota) isn't being ridiculous; I think it's a fair response to Krugman. However, some of the excerpts are just plain funny:
Once you start using macroeconomic models with heterogeneous agents and frictions, government intervention is almost inevitable.
Some macroeconomists use calibration, some use econometrics, and some use both. There’s no real methodological debate left in the field on this issue. What is true is that most people outside of macro do not like calibration. I don’t know why. I spent seven years of my life thinking about whether econometrics was better than calibration … and pretty much decided that the answer is: “it depends”.
Why do we have business cycles? Why do asset prices move around so much? At this stage, macroeconomics has little to offer by way of answer to these questions. The difficulty in macroeconomics is that virtually every variable is endogenous – but the macro-economy has to be hit by some kind of exogenously specified shocks if the endogenous variables are to move.
As you can gather from this candor, this particular economist (Kocherlakota) isn't shouting the wonders of macro from the rooftops. I think he at least understands why someone could wonder if they've done anything useful in the last 50 years.


Murphy in Seattle, on Bickering Economists and Unemployment in the Depression

This is the 30-minute talk I gave at the Seattle Mises Circle. To understand one of the opening jokes, you need to know that before my talk, Walter Block gave his. He has distributed a small sheet of paper with a table of present-value calculations at various interest rates and maturities. (E.g. $1 delivered in 2050 would today be worth x cents at an interest rate of y%.) Block used the table to explain the Austrian theory of the business cycle, and how Greenspan's low interest rates stimulated long-term investments like housing.

Later in his talk, Block was ridiculing the theory that "greed" caused the recent financial crash. He said that greed has always been with us, and also pointed out that "greed is good," correctly interpreted. Then he said something like, "I mean, we all remember being a little kid and wanting stuff, and I was 6 years old learning about how much money I could have if I would just invest it."

So with that background, you can enjoy the opening jokes:

And for what it's worth, this guy thought it was funny.


Frank Rich on Glenn Beck

Apropos of my recent email exchange with Glenn Greenwald, I found this paragraph from a Frank Rich column (HT2LRC) interesting:
“Wall Street owns our government,” Beck declared in one rant this July. “Our government and these gigantic corporations have merged.” He drew a chart to dramatize the revolving door between Washington and Goldman Sachs in both the Hank Paulson and Timothy Geithner Treasury departments. A couple of weeks later, Beck mockingly replaced the stars on the American flag with the logos of corporate giants like G.E., General Motors, Wal-Mart and Citigroup (as well as the right’s usual nemesis, the Service Employees International Union). Little of it would be out of place in a Matt Taibbi article in Rolling Stone. Or, we can assume, in Michael Moore’s coming film, “Capitalism: A Love Story,” which reportedly takes on Goldman and the Obama economic team along with conservative targets.
Rich's discussion is particularly ironic, since Greenwald had quoted Matt Taibbi himself, explaining why all the tea party and town hall protesters were morons for ignoring the big-business influence in DC.

I am going to go out on a limb and say that Glenn Greenwald has listened to Beck's radio program about as much as I listened to Al Franken's. I know some of you are astounded that I even listen to Beck, because you've sampled Sean Hannity or Rush Limbaugh, and thinks it's the same thing.

But no, it really isn't. Now as I finally admitted to myself by this post, it's all an act. (Or let's say, 98.6% an act.) But the act is pretty interesting, for such a mainstream program. Yes, Beck spends a lot of time ranting about ACORN. But how GG can refer to it as the "ACORN 'scandal'" (i.e. with "scandal" in quotation marks) is beyond me; have you actually seen the video?! It's unbelievable. It's like when people flipped out about tax dollars funding that "art" of a crucifix submerged in urine. It's true, that artist didn't get as much money as defense contractors. But you can understand why taxpayers would flip out about that, and it would be ridiculous to accuse them of hypocrisy for doing so.

Back to Beck: Yes, he spends a lot of time ripping ACORN, and part of the reason (besides the comedy) is that ACORN is quite obviously an organization that will mobilize to elect Democrats in 2010--and Beck quite proudly says he opposes their agenda. (In other words, Beck's not making a secret of taking measures on his show to prevent the advancement of the Democratic leadership's agenda. Nothing hidden on that front.)

But Beck also spends a ton of time ripping Goldman Sachs (remember this?) and General Electric. In fact, anytime he mentions GE, they play a jingle that says, "GE...we bring e-vil to light."

And yes, GE owns Fox's competitors, duh. But Greenwald and Taibbi simply do not know what they're talking about, when they say Glenn Beck focuses his listeners' ire at poor minorities instead of big corporations.

Last point: What do I mean when I say Glenn Beck is not Sean Hannity + self-deprecating humor? Well, recently Glenn Beck was telling his listeners that it was getting close to the time when they should seriously consider engaging in mass civil disobedience, to go in the streets to protest the takeover of their government by special interests (which included big money guys like Soros, it wasn't a "codeword for black people"), but that it was essential they do it peacefully like Gandhi. Now OF COURSE you can say, "Oh he's just saying that for ratings." Right. But isn't it interesting that that's the way he is trying to get ratings, by telling people there comes a point at which they need to start breaking laws? This isn't the Excellence in Broadcasting Network.

Sunday, September 20, 2009


Caplan on Cowen

Bryan Caplan explains that a certain position is held by almost all GMU economists, and 75% of the analysts at Cato. Then he says:
It is not Tyler's take, as far as I can gather, because as usual Tyler rejects the standard libertarian view in favor of a complex, pluralistic story that satisfies no one but himself. It's not fair to think that libertarians share Tyler's view - or vice versa.


God the Father

I think I've blogged about this before, but it bears repeating: I understand our relationship to God a lot better, now that I have a child myself.

The most striking example is obedience. I get really frustrated when my son insists on doing something his way, even after I've just told him not to. The thing that's so annoying is that (of course) the reason I warned him about whatever he's planning on doing, is to help him avoid some calamity he doesn't anticipate. (It could be something serious, like me telling him to stop jumping in the bathtub, or something trivial, like me telling him we should put the electric toothbrush in his mouth before turning it on.)

Naturally, my son gets really mad at me and thinks I'm drunk on a power trip, issuing completely arbitrary commands. As a matter of principle, he goes ahead and does it his way, and suffers the outcome I had warned about. And obviously, I physically intervene to prevent him from "learning the hard way" about something really bad, like running in the street.

I think the connection between these points and our relationship with the God of the Bible is clear enough that I don't have to spell it out.

Saturday, September 19, 2009


Obama's Missile Shield Move

I wasn't sure that I should even comment on Obama's recent decision to scrap the Bush plans to place "defensive" missiles in Eastern Europe. (BTW, I actually don't think it was "Obama's decision" but I can't tackle too many things in one blog post.) I probably couldn't find Iran on an unmarked map of the world, and so I really have no business speculating on global thermonuclear war (besides pointing out the fact that no one wins, just like in tic-tac-toe). But now I've seen two blog posts that crystallize both sides of my ambivalence, and so I will at least share my agonizing with you, dear reader.

On the one hand, for those who don't like the US empire, it's obviously a good thing if the US government decides not to go ahead with an enhancement of its ability to wage war. Lew Rockwell sums up this view nicely.

On the other hand, I simply do not believe that Barack Obama is doing this--again, assume for the moment that the US president really enjoys the independence to do what he feels is "right for the country"--because he wants to reduce the power of the federal government. That flies in the face of all his other decisions thus far. The only way to make sense of Obama's political moves is that he is seeking to enlarge the power of the Executive, just as all his predecessors (except maybe George Washington on a good day).

So what gives? Robert Wenzel has a hypothesis:
The recent [announcement] that the Obama Administration has canceled plans for a missile defense system in Central Europe is causing careful observers to sit up and think about the global ramifications.

Keep in mind what those who were paying attention knew back in March. Ewen MacAskill at the U.K. Guardian summed it up best back then. He wrote on March 3:
Russia today signalled that it is ready to accept a secret offer made by Barack Obama to drop US plans for a European missile defence system in return for Moscow's help in dealing with Iran.
Friends say the help is going to be Russia just staying out of the picture when the bombs land on Iran.

Israeli Prime Minister Benjamin Netanyahu made a clandestine trip to Russia this past Monday, September 10. This is the second sit up and take notice chess move signalling that serious non-public planning is in the works, that needs the cooperation of Russia.

Speculation by careful outside observers is now on what trip wire has been designed to justify the attack. Do the players think they have enough to go in now, or will some type of false flag operation be launched to bring the boobsie on board cheering at their television sets when the inevitable pics of smart bombs falling in Iran make it to network television.
I realize the incentives are a little lopsided on things like this: if I make an apparently outlandish prediction and am right, then I look like a genius, whereas if I'm wrong, then it won't be a career ender, because my fans will just say, "Oh Bob was engaging in hyperbole." So I will admit right now that this isn't a formal prediction, and I won't do a literal, "I told you so" if it happens.

Now that the preamble's done, here goes: It would not surprise me in the least if Obama ends up using a (tactical) nuclear weapon against Iran. (I didn't pull that out of the clear blue sky when throwing down the gauntlet that Andrew Sullivan foolishly picked up.) If you think that's something only a warhawk Republican would do, you need to wake up. Woodrow Wilson dragged us into WW1, FDR into WW2, and Harry Truman is the only person in human history to use nuclear weapons against civilians. Lyndon Johnson gave orders that killed more than 185,000 civilians in North Vietnam.

In contrast, Richard Nixon, the ostensible free market warhawk, actually pulled US troops out of Vietnam, but also closed the gold window and enacted wage and price controls.

And let's not forget that rabid laissez-faire guy George W. Bush, who allowed his Treasury secretary to acquire ownership in major banks.

If war breaks out with Iran--and by "war breaks out" of course I mean "the US military is ordered to start bombing"--then Obama is going to be under serious pressure to shut Sean Hannity and Glenn Beck up. If he uses a tactical nuke or two, even Joe Wilson might salute the Commander in Chief.


An Alternative Viewpoint

A local guy is hosting a discussion on Austrian economics and the current financial crisis, and he invited me to come and sort of keep things rolling smoothly. The common element is that everybody at this gathering is a Christian who doesn't want the government taking more of his money. (I'm pretty sure it will be all men.) Anyway, he has been emailing reading material to everybody to prepare for it, and one of the guys passed along his review of Hazlitt's Economics in One Lesson. The conclusion is something I heard quite a bit (in various forms) while at Hillsdale College, so I will have to think about the best way to address these concerns.
To sum up, I really enjoyed and profited from this book, and plan to read further on this topic from other writers of the Austrian School. That said, I don't want to hold forth a generally glowing review without acknowledging that these guys do have their own blind spots and that those are not insignificant. As a Christian, I am bound to affirm that the fear of the Lord is the beginning of all knowledge and wisdom (Proverbs 1:7; 9:10; 15:33). That includes wisdom and knowledge in the area of economics. Through the mechanism of common grace, I believe that the Austrian Economists are generally right-on in their astute observations of how the economic aspect of the world works and are generally far less deluded than other competing schools of thought on the matter. However, their essentially secular viewpoint does leave them open to certain deceptions and shortcomings, the chief of these being the fundamental assumption that man is basically good and that his greatest problem is not sin but ignorance. In addition, I must also bear witness that true and enduring freedom and liberty—in all their various forms, including economic—are blessings that are only found in Jesus Christ. Any attempts to idolize individual freedom and liberty by abstracting them and attempting to construct a comprehensive worldview around them (e.g. Ayn Rand, a noted favorite of both the Austrian Economists and their Libertarian political chums) is just as much doomed to frustration, failure and wretchedness as any other false ideology.


Warn the Street, the Beast Is Loose

This is awesome. EPJ tips us off to the opening scene of Wall Street 2, when Gordon Gekko is released from prison:

As I explained in the comments, I haven't been this excited for a movie since Star Wars Episode I. If Jar Jar Binks show up in this, I'm going to be really upset with Oliver Stone.


Murphy Corresponds with Glenn Greenwald

In this state of mind, I sent a polite email to Glenn Greenwald with the subject line "a fan who disagrees strongly with you on tea parties etc." To his extreme credit, Greenwald not only answered me, but went back and forth twice. (That is far more than you'll get out of me, unless you pay a consulting fee.)

Let me reproduce our last exchange, since it was the best. In response to my original point, GG asked me why all these protesters suddenly got so mad right after Obama was inaugurated. I replied:
It's a good point, but my answer is: They've finally woken up. The tipping point of a single $700 billion injection into Wall St. was so ludicrous that people finally woke up out of their stupor.

Last point and I'll leave you alone: We both agree that right now, millions of Americans are for the first time really MAD about what the federal government is doing. But they're not political junkies, they don't have well-thought out views the way you and I do. So they're looking around for someone to help channel their frustration and above all, give them something concrete to do about it.

So in that void, you've got Glenn Beck and Rush Limbaugh coming in, saying, "I'm so proud of you folks. You are real patriots. Thomas Paine would have been proud. What you need to do, is march on DC on 9/12, and call your representatives and tell them to close the border and defund ACORN."

At the same time, you've got Keith Olbermann, Jimmy Carter, Janeane Garofalo, and Glenn Greenwald saying, "You guys are a bunch of racist hypocrites. Stop whining about 'oh I oppose socialist medicine.' No you don't. You know darn well you took your weekend off to to go to DC because you hate black people."

Is that really the right way for you to play this? Is this the way to help the guys who are still locked up in Gitmo, and the people getting blown up by Obama's cruise missile attacks?

[/melodramatic rant]

Bob Murphy

In response--and I'm assuming he won't mind if I quote him here--GG said:
I've never said the protesters are motivated by race. I've never said their anger is unjustified.

What I said is that their anger is WARRANTED, but is being misdirected and exploited by their leaders for purely partisan ends that have little to do with -- and are often directly at odds with -- the things they claim they're angry about.

You're generalizing about these protesters. Some are politically unsophisticated people who are angry -- though I need a better explanation for why they weren't angry during Bush -- but many, many, many are nothing more than Rush-Limbaugh-listening Republicans angry because they are no longer in power.
I think we both did a good job venting. I judge our exchange a stalemate.

Friday, September 18, 2009


Necessity Is the Mother of Nobility

I thought this was pretty funny from a WSJ article about the collapse of the financial sector:
Like nearly 30% of Massachusetts Institute of Technology graduates in recent years, Ted Fernandez set his sights on finance. Though he majored in materials science and engineering, he was wowed by tales of excitement from friends who went to Wall Street.

But when he stopped by an investment bank's booth at a job fair a year ago, it was eerily empty. The booth belonged to Lehman Brothers Holdings Inc., and the date was Sept. 18, three days after the 158-year-old bank filed for bankruptcy. Now Mr. Fernandez, 22 years old, is getting a master's in engineering at M.I.T. and aiming for a career in solar-power technology.

"Undoubtedly, I would have gone into finance if the financial meltdown hadn't occurred," he says. "Now I won't make as much money, but I can go home at night and feel good about what I do. That's worth more than any amount of money."
Interesting that Mr. Fernandez says he "undoubtedly" would have taken the high-paying job if it were available, but now that it's no longer an option, he would rather save the planet. It reminds me of my decision to not become the world heavyweight champ. I don't want to glorify violence.


Glenn Greenwald Goofs

Ah, I knew his perfect streak couldn't last. In this post Glenn Greenwald tells us that all the people who are protesting the government lately are mere dupes of Fox News. If you want the full context, you have to read his post itself; there's too much quoting of quoting going on for me to reproduce here in a coherent fashion. The quick version: GG quotes a NYT writer (Douthat) who compared the current right-wing anger to the furor over the 1994 crime bill, which contained funding for "midnight basketball" and the like. Douthat quoted GOP pollster Frank Lutz who said "Every day that the Republicans delayed the bill, the public learned more about it -- and the more they learned, the angrier they got."

Then GG says:
In other words, the 1994 fury over the crime bill was driven by the belief that the Clinton-led federal government would steal money from middle-class Americans and give it to "midnight basketball" programs, i.e., "welfare" recipients. The racial and class-war components of that fear-mongering campaign were manifest: Bill Clinton wanted to steal the money of "'middle-income Americans playing by the rules" and transfer it to the inner-city...

In that sense, Douthat (and Luntz) are correct when they say: "That’s exactly what’s been happening now." Just as was true for the 1994 crime bill, the right-wing fury over health care reform is motivated by the fear that middle-class Americans will have their money taken away by Obama while -- all together now, euphemistically -- "having someone else benefit." And this "someone else" are, as always, the poor minorities and other undeserving deadbeats who, in right-wing lore, somehow (despite their sorry state) exert immensely powerful influence over the U.S. Government and are thus the beneficiaries of endless, undeserved largesse: people too lazy to work, illegal immigrants, those living below the poverty line...

This is the paradox of the tea-party movement and other right-wing protests fueled by genuine citizen anger and fear. It is true that the federal government embraces redistributive policies and that middle-class income is seized in order that "someone else benefits." But so obviously, that "someone else" who is benefiting is not the poor and lower classes -- who continue to get poorer as the numbers living below the poverty line expand and the rich-poor gap grows in the U.S. to unprecedented proportions. The "someone else" that is benefiting from Washington policies are -- as usual -- the super-rich, the tiny number of huge corporations which literally own and control the Government. The premise of these citizen protests is not wrong: Washington politicians are in thrall to special interests and are, in essence, corruptly stealing the country's economic security in order to provide increasing benefits to a small and undeserving minority. But the "minority" here isn't what Fox News means by that term, but is the tiny sliver of corporate power which literally writes our laws and, in every case, ends up benefiting.
Hey Glenn, why are you giving Fox News the right to define what the tea party people are mad about? And why do a NYT writer and a GOP pollster get to determine what the public anger right now is "like"?

In most of his posts, GG does a great job of thoroughly documenting the views of his intended target. In particular, he is great when he rips the heck out of inane talking heads who mindlessly repeat the latest talking points, even when polls and other objective measures show that these talking points are completely bogus.

So if GG wants to document that the people in the tea party protests don't get that it was really Goldman Sachs and other investment bankers who benefited, he should, say, interview some of them, or give links to YouTube footage of the events. Maybe he can link to a comment board at Glenn Beck's site where 70% of the comments say, "More money for Goldman but none for working moms!"

I am NOT saying that racial and class stereotypes are absent from all this. Of COURSE if you are a racist Republican, you are going to get really whipped up into a frenzy when the first black president presides over a deficit of $1.5 trillion and tries to take over health care.

Also, of COURSE Fox News and Dick Armey are going to try to tap into this outrage and mold it to their ends.

But so what? Those two observations don't prove what GG and everyone else making these points think they prove. Obama really IS pushing fascism, if that term is to mean anything. And those tea parties were entirely opposed to BAILOUTS first and foremost. There weren't signs saying, "No more food stamps!" or "End PBS now!"

Remember, the thing that really sparked the tea parties was Rick Santelli's rant. He wasn't mad about investment bankers, it's true: He was focused on people getting their mortgages picked up by Uncle Sam. So it was largely middle-class people he was mad at. And the reason that so outraged people, was that they really understood the logic there; there was no plausible argument that, "The world will end if your neighbor doesn't get bailed out of his mistake in buying too much house."

Last point: The public was WILDLY opposed to the Paulson plan. So what the heck are Glenn Greenwald et al. talking about, when they say, "This is all just about a black man." ?!?! People didn't want that cracker Paulson giving $700 billion to his Wall Street buddies.

The feds went ahead and did it anyway, and people were fuming. But again, many modest Americans weren't quite ready to storm the Bastille, because after all really smart guys were telling them that this just saved the world financial system. But then the car companies, and mortgage relief, and a $787 billion stimulus, and on and on.


Floyd Norris Tries to Be Subtle?! Release the Internet Hounds!

Jeff Tucker found this:
A Great Honor

Anyone can write a bad article, but Robert Murphy of the Ludwig von Mises Institute argues that I really stand out:
Floyd Norris’s recent New York Times article on the greenback is hands down the worst economics article I have ever read. Not only is it jam-packed full of false history, but it uses the falsehoods to justify monstrous crimes, both in the past and present.
You can read the article here. The headline is:
Fiat Money: How Else You Gonna Kill 600,000 Americans?
If you agree with him, you might want to take advantage of this offer from the institute: An “End the Fed” mug is available for $10, down from $12.

As near as I can tell, they will even take fiat money.
Paultards,* unite! Norris' comment box must be filled with objections to fiat money and mass murder!

* And I use that term in the same way that black people can call each other the n-word.


"45, 45, 45, do I hear 40, 40, 40--the man in the Hazlitt t-shirt! Do I hear 35, 35, 35?"

Now that I've been slowly draining money from you through my clever Google Ads campaign, I decided it's time to give back to the community that made me rich and famous. I want to register with a "speaker's bureau" so that people besides Mises Institute donors can enjoy my after-dinner talks. But in order for the bureau to understand just how much of a diamond in the rough they have stumbled upon, I need to send them a DVD with some of my greatest hits.

Do any of you folks know how to do this? I would send you a bunch of YouTube clips and other online video, and ask you to splice and dice them, and maybe put a screen with text before each one to explain what it was.

In the comments (or in email if you prefer) please let me know what this would entail and how much you would charge. Note I'm not asking this "as a favor," tell me what I would have to pay to get, say, 5 DVDs of the finished product so that you and I would both feel good about the transaction.


Right-Wingers for Government Health Insurance?

Jeff Tucker alerts us to this Paul Craig Roberts piece where he declares:
What the US needs is a single-payer not-for-profit health system that pays doctors and nurses sufficiently that they will undertake the arduous training and accept the stress and risks of dealing with illness and diseases.
Now maybe you think I'm taking PCR out of context. Here's more:
A private health care system worked in the days before expensive medical technology, malpractice suits, high costs of bureaucracy associated with third-party payers and heavy investment in combating fraud, and pressure on insurance companies from Wall Street to improve “shareholder returns.”

Despite the rise in premiums, payments to health care providers, such as doctors, appear to be falling along with coverage to policy holders. The system is no longer functional and no longer makes sense. Health care has become an incidental rather than primary purpose of the health care system. Health care plays second fiddle to insurance company profits and salaries to bureaucrats engaged in fraud prevention and discovery. There is no point in denying coverage to one-sixth of the population in the name of saving a nonexistent private free market health care system.

The only way to reduce the cost of health care is to take the profit and paperwork out of health care.
To be perfectly honest, I have no idea what PCR is actually saying in this article. Is he "for" government health insurance / care? I don't know. I can't see how you're going to get a single-payer without some serious coercion from the feds, but naturally PCR doesn't focus too much on that; he just explains why everybody else opining on this topic is immoral and/or dumb. His arguments in this piece are similar to the debates we had over outsourcing.

Bob: Yes Dr. Roberts, I get it, you don't think Ricardo's argument about comparative advantage still holds in a world with mobile capital. OK, so are you saying you are for tariffs or capital controls?

PCR: No I never said that.

Bob: OK then what are you saying?

PCR: I'm saying Bush is in bed with multinational corporations who are screwing workers in the name of profits.

Bob: Okaaay, but is your newfound thinking on free trade causing you to change any of your policy recommendations? Now that the standard argument for free trade is shattered, what do you want to do about it?

PCR: I want to keep writing articles explaining how evil George Bush is, and how stupid libertarians are for thinking we have free trade.

And check out this:


"What Should I Read to Learn Austro-libertarianism?" bask

(This is not a "bleg," since I am not begging, I am asking.)

I get emails all the time from people saying they have just stumbled onto Austrian economics and/or libertarianism (in the Rothbardian tradition), and they want to know where to begin. They adore my writings, of course, but what's the next level of fanaticism?

So in the comments let me know what you think the best gateway drugs are in this arena. E.g. I know some people say, "It all started with Ayn Rand," whereas for me that wouldn't have worked at all. (I'm not ripping Rand, I'm just saying there's no way I would have agreed to read a humongous novel that someone handed to me if I weren't already a fan of the worldview.)

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