David Lewis: Sleeping Beauty: Reply to Elga: "Researchers at the Experimental Philosophy Laboratory... Sleeping Beauty...
...On Sunday evening they will put her to sleep [P-]. On Monday they will awaken her briefly. At first they will not tell her what day it is [P], but later they will tell her that it is Monday [P+]. Then they will subject her to memory erasure. Perhaps they will again awaken her briefly on Tuesday... depend[ing] on the toss of a fair coin: if heads they will awaken her only on Monday, if tails they will awaken her on Tuesday as well.... We shall need to consider her credence functions at three different times.
Another Monday, and still a shortage of high-quality DeLong Smackdowns on the Internet that I can justify bringing to your attention.
But I can't face reading another Kindle screen from chapter 11 of David Graber's Debt right now.
So I am going to chicken out, and direct you to Danny Vinik on how Reason coors gasoline on its intellectual credibility and then sets it on fire.
Reason: as a magazine you have a choice:
You can give your megaphone to people like Peter Schiff in the hopes that money may drop from the pockets of the wingnuts he attracts, and you can then scoop it up.
You can participate in twenty-first century civil and political society.
You cannot do both.
I liked Matt Miller at lot when we worked on opposite sides of the White House during the early Clinton administration, but...
...when the phone buzzed was to meet with a publisher about a new book proposal—the next installment in what Jody lovingly mocked as my ‘one man government-in-exile’ series. The premise was that after two terms of a president seen by much of the country as a virtual socialist...
Note that Matt Miller does not, himself, endorse the assertion that Barack Obama is "a virtual socialist". But he does not qualify it either...
Wingnuts are supposed to think: Oh! Matt Miller gets it. Barack Obama is far-left!
Journalists with a clue are supposed to think: Well, he didn't tell a lie--even though Obama is not "a virtual socialist" and has tried to govern as a more-or-less old-style moderate centrist, "much of the country" does see him--because he has African-American, and because Rupert Murdoch's people have told them he is--"a virtual socialist".
But what are the voters of the 33rd congressional district of California going to think?
This is a district that gives Obama, Boxer, Feinstein, Brown something like 85% of their votes? The kind of person who would say, without qualification or explanation, that Barack Obama is "seen by much of the country as a virtual socialist" and has spent much of his time arguing for a Third Way to the right of today's Democratic and the left of today's Republican Party is not the kind of person who is likely to attract much grassroots support or raise much money in the 33rd congressional district of California.
And outside money-funded media-blitz campaigns are pushed as effective primarily by professional campaign consultants who get a cut from or are part of a reciprocal favor network funded by such media buys. Nevertheless:
and tell me what is going on here. Anyone have any plausible answers for me?
The lack of any public or even private willingness to mark one's beliefs to market is amazing. As is the inexorable and irresistible desire to call the pitch a strike before the pitcher has even walked to the mound.
It's not as though either Cochrane or Epstein has the confidence that would have been created by a lifetime of calling the balls and strikes more accurately than anyone else that might have motivated such hubris.
Nor do either of them have any standing other than that that comes from a perception of being smart. One would think one would guard that by trying really hard not to say things that are really stupid. And one would think that they would have matched outcomes to their ex ante subjective distributions enough in their lives to correct for the possession-of-knowledge syndrome fact that your subjective probability distributions tend to be much too tight when you know something about a subject.
Or perhaps I have gotten it wrong?
Perhaps both Cochrane and Epstein believe that their real standing comes from being not smart but both (a) really clever and (b) really ideological--that their standing comes from their auditors' confidence that their arguments and positions (c) won't necessarily be correct but (d) will conform to their expected ideology and (e) will not be prima facie, ludicrously, and easily and immediately seen to be wrong.
The problem is that the (e) part no longer seems to hold...
And I get that for Epstein the root animus is the status insult at being put into the same category as females--that community rating is a mighty infringement on his liberty because it forces him to buy gynecological care as part of his essential benefits package. But the root emotional animus has to be translated into arguments and thoughts somehow, doesn't it?
...taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone. More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.
The continued absence of high-quality DeLong smackdowns on the internet distresses me.
It distresses me because it means that today, once again, for our Monday Smackdown Watch, we must continue our death-march read (see the [backstory][c]) of chapter 11 of David Graeber's Debt: The First 5000 Mistakes.
By now I am desperately hoping that I will come across even a single kindle screen that does not have egregious errors of fact or analysis on it--one single screen in which what Graeber says is at least arguably right. We are talking Alexander the Great's army in the Gederosian Desert here.
But this is not that day.
Today I read only one kindle screen before collapsing into a fit of some sort:
For the next few months, perhaps even for a year or two, this may seem like one of the stupidest investing columns ever written. That's because I've been asked to answer the question "Can you get rich by buying an Internet stock fund?" and my answer is no.
Yes, I know that Google will serve me up odd ads occasionally.
But, while searching to see if there is a live performance of Lisa Arrington's amazing version of Nettleton/Come Thou Fount of Every Blessing from "Return to Nauvoo"...
...to serve me up "Concealed Carry" ads?
Via Felix Salmon:
"MS" is "Morgan Stanley". "TFG" is "Tim Geithner". "GS" is Goldman Sachs". "BHC" is "Bank Holding Company". "FYI" is "For Your Information". "PDM team" is "Public Debt Management team". "EVP" is "Executive Vice President"--the Federal Reserve Bank of New York has ten Executive Vice Presidents and one Principal Vice President.
The Dynamics of Political Language: Partisan Asymmetries Weblogging (Brad DeLong's Grasping Reality...): The Dynamics of Political Language: Partisan Asymmetries Weblogging Comment on Jacob Jensen, Ethan Kaplan, Suresh Naidu, and Laurence Wilse-Samson, 'The Dynamics of Political Language':
Let me pick up and expand on the line of discussion initiated by David Gergen's excellent comment.
I think this paper does an excellent job of documenting and helping us understand ideological polarization.
I think this paper does not do a good job of understanding partisan polarization.
Theodore Roosevelt in 1896 was a Republican attack dog, denouncing Democratic Presidential candidate William Jennings Bryan as a mere puppet of the Alien Communist Anarchist John Peter Altgeld. Bryan, Roosevelt said:
would be as clay in the hands of the potter under the astute control of the ambitious and unscrupulous Illinois communist... free coinage of silver... but a step towards the general socialism which is the fundamental doctrine of his political belief... He seeks to overturn the... essential policies which have controlled the government since its foundation...
That's language as extreme as any we hear today.
Situate it in its context: relative to the Anglo American economy, the Iberian economies, the pre-conquest era, and--recently--the Pacific Rim as an example of an economy that works well...
Before 1850, it was Latin America that was the prize: Mexico, Peru, the Silver Mountain, the Sugar Islands
It was Europe's most prosperous, civilized, and technologically progressive peoples that grasped that opportunity--Portuguese mariners, Aragonese merchants, backed by Castilian crusader steel.
Parliamentary liberties and freedom of speech considerably more advanced in the Castile of Isabella Trastamera and the Aragon of Ferdinand Trastamera than in the England of Henry Tudor.
Indeed, the Empire of Liberty had a better advocate in Simon Bolivar than in George Washington and his successors.
Simon Bolivar freed not just his slaves, but all the slaves of Venezuela.
George Washington freed his slaves--but only after his death. Thomas Jefferson freed his--if they were his descendants. James Madison and James Monroe did not free theirs. John Adams and John Quincy Adams had none, and the latter fought all his life for the petitions for freedom of the slaves in the United States to be heard in Congress. But Andrew Jackson spent his life trying to buy more slaves. Martin Van Buren's slave Tom ran away--and then, when he was found, Van Buren sold him for $50 to the slave-catcher. William Henry Harrison tried to turn Indian into slave territory when he was governor. John Tyler, James K. Polk, and Zachary Taylor--not until we get to Millard Filmore do we get another American President even close to as free-soil as the Adams's were: "God knows that I detest slavery, but it is an existing evil, for which we are not responsible, and we must endure it, and give it such protection as is guaranteed by the Constitution, till we can get rid of it without destroying the last hope of free government in the world..."
Indeed, look at U.S. politics in the first 20 years after the Constitutional Convention. Washington thought his own Secretary of State--Jefferson--was on the point of betraying the U.S, to France, and would gladly sacrifice liberty in America to advance the cause of the French Revolution. Jefferson was certain that John Adams was plotting to restore the British monarchy--and Adams would have, if the alternative was the coming to power of some American Robespierre--and that Alexander Hamilton was ready to become a military dictator. Hamilton was shot dead by Jefferson's running mate and vice president, Aaron Burr, whom Jefferson then tried for treason. Burr was not convicted solely because the Chief Justice, John Marshall, thought that if he set Burr free he might be able to cause Jefferson yet more trouble. A banana republic--the ideal type of a banana republic, in fact--save that they grew no bananas...
Living standards, natural resources, population densities, and rates of demographic expansion give Latin America an edge over Anglo America through the first quarter of the nineteenth century, at least.
The coming of the steam engine and then, a generation later, the telegraph ought to have brought the world together in terms of ironing out economic divergences.
The technologies of the Industrial Revolution? The first generation of industrial technologies circa 1780 were potentially profitable only in Britain, with its uniquely high real wages and uniquely low price of coal at the factory gate. But by 1850 steam engines, spinning jennies, power looms, and railroads were potentially profitable everywhere.
Yet the story of economic development is of a steadily-widening relative-income gap: a widening gap between Anglo America and the Southern Cone on the one hand and the rest of Latin America up until 1918 or so; then a widening gap between Anglo America and all of Latin America save Venezuela up to 1950 or so; and then relative stasis--average growth in Latin America at about the same pace as Anglo America, with on average neither widening nor closing of the relative gap (save Venezuela and, after 1958, the peculiar case of Cuba).
By 1950, down to perhaps a quarter of Anglo American levels...
No worse than rest of exNorth Atlantic world, but no better..:
Since 1950, relative parity is normal...
Theories of economic relative retardation and growth inevitably fall into two broad categories: "the rich are so good, and the poor are so bad" theories; and "the rich are so bad, and the poor are so good" theories.
International trade and the international economy in general as engines of extraction theories: comparative-advantage traps, debt traps, vulnerability to cyclical fluctuations traps. Escape from the trap via neo-mercantilist protection, inward focus on resource accumulation, and import-substitution industrialization--turn the global economy into your servant rather than your master through clever technocratic policies of one sort or another. Raul Prebisch. (Early) Fernando Henrique Cardoso. Immanuel Wallerstein.
Unorthodox Marxist class-structure-a-fetter-on-development theories: latifundia and neo-feudalism, but not just rural neofeudalism: the heyday of the PRI in Mexico as a "new class" bureaucracy variant of robber baronage and clientage, focused on extracting rents for political powerbroker and their clients from the most productive pressure points of the economy--natural resources, high-productivity export manufacturing, tourism. Hernando de Soto, The Other Path. Andrei Shleifer et al., "Legal Origins". Acemoglu, Johnson, and Robinson, "Comparative Origins". What makes these people unorthodox Marxists is that Karl Marx believed in progress, and so a "bourgeois revolution" as inevitable: superstructure could not indefinitely contain the pressures being generated by the economic changes of the base. In the end, all of the feudal and neo-feudal and aristocratic and caste and estate-based blockages to market capitalism--and thus prosperity--would be "steamed away". "All that is solid melts into air..." really does not do the German justice...
One-unfortunate-accident-after-another theories: The long nineteenth century required either fluency in English or an exceptionally-favorable geographic environment--which the Southern Code had--in order to successfully adapt and adopt the technologies of the Industrial Revolution. In the twentieth century bets on globalization crapped out with the coming of the Great Depression, Imperial Preference, and the Smooth-Hawley Tariff. Bets on import-substitution then missed the biggest expansion of world trade ever in the Thirty Glorious Years. The switch to "neoliberal" policies then got squashed by the oil shocks, the coming of monetarism, and more recently the rise of China. Plus collateral damage from the Cold War--the Cold War in Asia gave Japan and the rest of the Pacific Rim preferential access to Anglo-America's markets, the Cold War in Europe was fought on terrain where the propertied right that had bet on Naziism kept its head down, but the Cold War in Latin America was different...
But do we really have to choose? (17) can be evaded via clever technocrats pursuing state-led development--but, in Lant Pritchett's words, what can be worse than state-led development policies pursued by an anti-developmental state? The anti-developmental state that trapped Latin America in (17) and was the product of unfortunate early wealth concentration and frontier absence in history via (18) could have been surmounted except for the unfortunate accidents of (19)--which pre-dated the Cold War: it was FDR who said that while Somoza may be an SOB he is our SOB. And unfortunate accidents would not have had as large deleterious effects had the global economy of (17) been more genuinely open and stable.
From this perspective, Latin American relative retardation--even in the Southern Cone--from 1850-1950 looks overdetermined: it would have been a miracle had it not taken place.
Still, literacy, life expectancy, prosperity, etc. vastly better than in 1825--and, relatively, better than Africa, South Asia, non-coastal East Asia (for the moment?), and (perhaps?) Muscovy and its dependencies. Relative retardation is relative to the North Atlantic plus the Asian Pacific Rim only.
Nobody intelligent would say that they know the relative weight to be assigned to these different overdetermining factors. Only a strong desire to obtain tenure and to do so by publishing articles that establish or refute particular narrow theories could induce anybody sane to claim to do so.
Looking forward: But do the burdens of the past still lie on the future?
Chance of making the global economy your servant rather than your master? Here the news is bad: over the past two decades neither the North Atlantic nor the Pacific Rim has been able to master the global economy. Instead, episodes of policy disorder and macroeconomic stress that those of us who focused on the North Atlantic used to see as confined to Latin America are now global.
Class structure a fetter on development? As income inequality in the United States surpasses that of Brazil, and as rent-seeking in everything from Berkeley NIMBYism to the ability of a very narrow fossil fuel-complex interest group to block urgent action on global warming to the ability of the princes of Wall Street to extract their fortunes, it is not that Latin America has promise of attaining the kind of institutional successes seen in the post-WWII North Atlantic. Rather, the North Atlantic--plus Japan--appear to be copying institutional failure, or at least underperformance.
Could we pray for good luck? It is hard to see what else we can do.
God knows the North Atlantic broadly construed--extending to Tokyo and Moscow--has not been immune to history. But it was a history of grasping technological possibilities perhaps too well, and reactions to them. Now, perhaps, North Atlantic history is becoming more "normal"...
Understanding the career of William the Marshal, Comes Pembrokensis jure uxoris Isobel de Clare:
In the absence of even acceptable-quality DeLong Smackdowns this past week, what to do? Back to David Graeber! What do we have on the menu today? A continuation of our death march through chapter 11 of David Graeber's Debt, of course!
First we have:
Europe had a greater share of gold and silver mines than it had of population. That gave Europe a high price level, and so the things that Asia might have bought from Europe seemed to Asia to be too expensive. Europe produced little that the Middle East wanted to buy at the prevailing price level--but Graeber never bothered to acquire the literacy in economics he would have needed. So he does not grasp that...
As of 1500, the Portuguese and Spanish (and shortly thereafter the Dutch, and eventually the English and the French) had ships were better. A lot better. They could sail further in worse weather without sinking. Invention and technological change mattered. That mattered a lot.
Mediterranean naval wars were fought by Western Europeans, Egyptians with their ports on the Red Sea, and Turks--who by this time had ports on the Persian Gulf. What the Western Europeans learned, the Turks, Egyptians, etc. learned as well, with the Ottoman Muslims being rather better at Mediterranean oared galley-fighting up until the 1570s.
"The principle that the seas should be a zone of peaceful trade"? "Unarmed Indian Ocean merchants"? Why does Graeber say things like this that are simply not true?
This is depressing.
...During my travels, I often heard, ‘We know what the rest of the country thinks of us.’ It would become a point of pride, then, that in 2007, Mississippi was leading a race it wanted to win. That fall, a full year before Obama’s election to the White House put national health care reform on the agenda, the governor, Haley Barbour, called up the newly elected state insurance commissioner Mike Chaney, a Vietnam veteran from Vicksburg. The two Republicans had been friends since college; Chaney had been the rush chairman for Sigma Alpha Epsilon at Mississippi State University when Barbour pledged the fraternity. Now, the governor had an assignment for his old friend.
It is very hard to have a bubble in bonds because there is a date certain at which the principal is repaid. In year nine you cannot delude yourself into thinking that somebody will pay more than face value in year ten. And so in eight it is very hard to delude yourself into thinking that somebody in year nine will delude themselves into thinking that somebody will pay more than face value in year ten.
Nevertheless, Jeremy Siegel and Jeremy Schwartz think that we are in a bond bubble:
A correspondent chasing links emails me that the fever swamp that is National Review has thrown more of the links to its archives down the memory hole into the fire.
Neither "search" nor "find" appears on National Review's homepage these days--naughty, naughty!
So I am reduced to trying to find it via google, which directs me to: http://www.nationalreview.com/author/donald-l-luskin.
And then finally to the document--I like the attention to detail and typography in that interesting capitalization of the possessive "S" that nobody ever bothered to set right:
It’s official: According to the New York Times itself, what we’ve been carefully documenting for more than two years is true.... [Danny] Okrent could have gone much, much further in blowing the whistle on America’s most dangerous liberal pundit. He could have cited the dozens upon dozens of partisan distortions, uncorrected errors, deliberate misquotations, and flat-out lies that we’ve caught Krugman making over the years.
Franklin D. Roosevelt: Final Campaign Speech: Fenway Park, Boston, Massachusetts:
This is not my first visit to Boston. I shall not review all my previous visits. I should have to go on talking for several days to do that—and radio time costs a lot of money.
But I want to recall one visit, back in October, 1928, when I came here to urge you to vote for a great American named Al Smith.
And you did vote for that eternally 'Happy Warrior.'
The Commonwealth of Massachusetts—and your good neighbor, Rhode Island- both went Democratic in 1928—four years before the rest of the Nation did.
This year—and I am making no predictions, I just have a little hope—this year we would like to welcome into the family Maine and Vermont.
We have some complaints in email from correspondents with respect to what I call "talking points", to wit, things like:
et cetera. Here is the full set
[I]t is naive to suppose that the [Supreme] Court's present difficulties could be cured by appointing Justices determined to give the Constitution its true meaning,' to work at 'finding the law' instead of reforming society. The possibility implied by these comforting phrases does not exist.... History can be of considerable help, but it tells us much too little about the specific intentions of the men who framed, adopted and ratified the great clauses. The record is incomplete, the men involved often had vague or even conflicting intentions, and no one foresaw, or could have foreseen, the disputes that changing social conditions and outlooks would bring before the Court. Robert Bork, Fortune December 1968 p.140-1....
As I went further back into Mr. Bork's intellectual history, I discovered that the arguments in his most recent book followed a formula developed in his earlier writings... a lapsarian pattern.... A state of corruption and decay is identified in some institution or area of law. The rot is traced to a particular departure from the proper state of affairs, a willful violation of an authoritatively decreed scheme of things. A method is prescribed by Mr. Bork which will allow us to escape our current fallen state and return to a condition of righteousness. Mr. Bork speaks strongly in favour of his method, pronouncing it 'inescapable' or 'unavoidable.'... Eventually, he falls silent for a while, only to emerge in two or three years with some new, and newly ineluctable, redemptive method. The process then repeats itself... in the past he has been, successively, a libertarian, a process theorist, a devotee of judicial restraint, a believer in neutral principles, a 'law and economist' and an advocate of two distinct forms of originalism. At the time, each of these theories was offered as being the only possible remedy to the subjectivity and arbitrariness of value judgements in a constitutional democracy and the other theories he had held, or was about to hold, were rejected out of hand...
On October 28, 1793, Eli Whitney submitted a patent for his invention known as the cotton gin. Perhaps more than any technology in American history, this invention profoundly revolutionized American labor. Creating the modern cotton industry meant the transition from agricultural to industrial labor in the North with the rise of the factory system and the rapid expansion and intensification of slavery in the South to produce the cotton. The cotton gin went far to create the 19th century American economy and sharpened the divides between work and labor between regions of the United States, problems that would eventually lead to the Civil War.
David Frum: Don't Knock the Reform Conservatives: "Sam Tanenhaus profiled a group of self-described "reform conservatives"...
...in respectful praise. The art director went even further: The magazine photographed 11 of the profiled people in an 18th-century hall, crumpled papers at their feet, an homage to J.L.G. Ferris’s well-known painting of the drafting of the Declaration of Independence...
But... but... but... of the 11 people only six--Levin (mentioned in 19 paragraphs), R. Ponnuru (10), A. Ponnuru (4), Strain (2), Wehner (2), and O'Beirne (1)--are mentioned by Tanenhaus at all in the article. It's not a profile of a group, of an intellectual movement. Frum wishes it were--I wish it were. But it isn't.
...eighty miles south of Rome... founded in 529 by St. Benedict of Nursia.... Generations of scribes labored in the abbey’s library to copy texts and preserve artifacts.... From November, 1943, to May, 1944, the hill on which the abbey stood was at the center of one of the largest and bloodiest battles of the Second World War. Monte Cassino was a crucial part of the Gustav Line... ‘fortress strength.’... The Allied command, believing that the Germans were using the abbey as a garrison and ammunition dump, made the controversial decision to bomb Monte Cassino. On February 15, 1944, American B-17s, B-25s, and B-26s dropped more than four hundred tons of explosives on the monastery....
Every time I try to get out, they pull me back in. This Monday internet space is supposed to be for:
Self-improvement, correcting errors that I have made and raising to the front of consciousness smart alternatives to my views that my previous visualization of the Cosmic All had not given proper weight; and
In the process, maybe giving the spotlight to smart people who are not widely enough read.
But things keep happening.
Today we have Dianne Furchgott-Roth and James Pethokoukis, Dianne Furchgott-Roth, and Michael Strain. They really do have to decide to what degree they are going to try to maintain a toehold in the reality-based community, or simply give themselves over to total 100% hackdom:
Dear Mr. President:
I have received your letter of October 25.(1) From your letter, I got the feeling that you have some understanding of the situation which has developed and a sense of responsibility. I value this.
Now we have already publicly exchanged our evaluations of the events around Cuba and each of us has set forth his explanation and his understanding of these events. Consequently, I would think that, apparently, a continuation of an exchange of opinions at such a distance, even in the form of secret letters, will hardly add anything to that which one side has already said to the other.
...with Hillary Clinton as the presumptive nominee. An article that explained why and how a candidate could be preferable would be useful. Alas, Doug Henwood’s Harper‘s cover story is not that article. Some of the problems are conveyed even in the intro that isn’t behind the paywall:
As a follow up to Politico's embrace of BP, a correspondent reminds me of Politico from two years ago. Scott Lemieux does the garbage cleanup:
I’ve Had Enough Of You Water-Drinking, Air-Breathing Urban Elitists: [M]y favorite part of the Politico’s war on Nate Silver. As others have pointed out, [Dylan Byers's] botched hack cliche is comedy gold:
For this reason and others--and this may shock the coffee-drinking NPR types of Seattle, San Francisco and Madison, Wis.--more than a few political pundits and reporters, including some of his own colleagues, believe Silver is highly overrated.
Look, I knew those snooty elitists in Seattle and San Francisco looked down on me and my kind, but now you tell me that they drink coffee? No real American would ever be caught dead consuming this obscure product. I tell you, every election cycle it becomes harder to be a regular American. White wine, Lipton Green Tea, orange juice, Grey Poupon, coffee--every day you discover some product that my relatives in rural Saskatchewan would always have in their pantry that marks you as an out-of-touch urban elitist in the eyes of D.C.-based Ivy Leaguers.
Hoisted from the Archives from Four Years Ago:
Nevertheless, Jeremy Siegel and Jeremy Schwartz think that we are in a bond bubble:
Thursday, October 23, 2014
1:00 - 2: 30 p.m. ET
Economic Policy Institute
1333 H St., NW
Washington, DC 20005
A correspondent reminds me of this from a couple of years ago, that I now hoist from the archives:
Hoisted from the Archives:
Why oh why can't we have a better press corps?
This is really embarrassing, New York Times: really, really embarrassing:
The first joke comes in Casey Mulligan's first paragraph: the Fed does not lend money to banks on an overnight basis at the Federal Funds Rate. The Fed lends money to banks at an interest rate called the Discount Rate. The Federal Funds rate is the rate at which banks lend their Federal Funds--the deposits they have at the Federal Reserve--to each other. That's why it is called the Federal Funds rate.
The second joke comes in the second paragraph. Hansen and Singleton (1983) is 'new research'?
The third joke is the entire third paragraph: since the long government bond rate is made up of the sum of (a) an average of present and future short-term rates and (b) term and risk premia, if Federal Reserve policy affects short rates then--unless you want to throw every single vestige of efficient markets overboard and argue that there are huge profit opportunities left on the table by financiers in the bond market--Federal Reserve policy affects long rates as well. Note the use of the weasel word 'largely'.
The New York Times badly needs to clean house here.
There are lots of economists who would love to write for the New York Times for free, and who know the difference between the Federal Funds Rate and the Discount Rate:
Yes, I am happy that I am able to postpone reading further in chapter 11 of David Graeber's Debt: My First 5000 Mistakes for another week...
Amity Shlaes: What triggered Krugman’s pulling some kind of imagined rank on Asness was that Asness, along with me and others, signed a letter a few years ago suggesting that Fed policy might be off, and that inflation might result. Well, inflation hasn’t come on a big scale, apparently. Or not yet. Still, a lot of us remain comfortable with that letter, since we figure someone in the world ought always to warn about the possibility of inflation. Even if what the Fed is doing is not inflationary, the arbitrary fashion in which our central bank responds to markets betrays a lack of concern about inflation. And that behavior by monetary authorities is enough to make markets expect inflation in future...
I will react by asking, to the air, one and only one four-part question:
Consider whether one should line up with Amity Shlaes--along with William Kristol, Niall Ferguson, James Grant, David Malpass, Dan Señor, and the rest of that motley company--against Ben Bernanke. Suppose that one has no special expertise on the issue. Suppose that Ben Bernanke has studied that issue for his entire adult life.
Wouldn't anybody with a functioning neural network greater than that of a moderately-intelligent cephalopod recognize that such a lining-up was an intellectual strategy with a large negative prospective α?
Wouldn't--after the intellectual strategy's large negative-α returns have been realized--anybody with a functioning neural network equal to that of a moderately-intelligent cephalopod recognize that it was time to perform a Bayesian updating on one's beliefs, rather than doubling down and claiming that: it's not over--the inflationary pressures are building minute-by-minute?
Wouldn't--when thinking about how to double-down on one's negative-α intellectual strategy, and placing even more of one's mental and reputational chips on the claim that expanding and keeping the Federal Reserve's balance sheet beyond $1.5T generates excessive and dangerous risks of inflation, and that any such expansion ought to be stopped and reversed--anybody with a functioning neural network even less than that of a moderately-intelligent cephalopod recognize that phrasing one's doubling-down in the voice of John Belushi on a very bad day would be unwise, would be likely to call forth mockery and scorn on the same rhetorical level that one had chosen, and would make one a figure of fun and merriment?
And, when the readily-predictable tit-for-tat responses at the rhetorical level one chose do in predictable and due course manage to arrive, that to respond by whinging and sniveling and feeling offense would be unwarranted--would demonstrate only that whatever functioning neural network one does have was not fully connected to reality?
Responding to Krugman is as productive as smacking a skunk with a tennis racket.... Let's not be fooled by chicanery (silly Paul, you are no Rabbit).... An honest Paul Krugman (we will use this term again below but this is something called a "counter-factual").... Also remember, much like when the Germans bombed Pearl Harbor, nothing is over yet. The Fed has not undone its extraordinary loose monetary policy and is just now stopping its direct QE purchases.... Paul, and others, should by now know the folly of declaring victory too early....
This isn't a screed where I claim to have invented my own consumption basket showing inflation is rising at 25% per annum - though some of those screeds are interesting.... We have indeed observed tremendous inflation in asset prices.... If one counts asset inflation it seems we've indeed had tremendous inflation.... Where effects did show up, it actually caused rather a lot of inflation....
Mostly Paul is wrong, and twisting the facts, and doing so as rudely and crassly as possible, yet again. The rest of the JV team of Keynesians who have also jumped on board are doing the same thing, just with more class and less entertainment value than the master.... Paul will continue to be mostly wrong, mostly dishonest about it, incredibly rude, and in a crass class by himself (admittedly I attempt these heights sometimes but sadly fall far short). That is a prediction I'm willing to make over any horizon, offering considerable odds, and with no sneaky forecasts of merely 'heightened risks'. Any takers?
....For sixty years, he was one of my closest friends. My debt to him, both personal and professional, is beyond measure. Despite deep sadness at his death, I cannot recall him without a smile rising to my lips. He was as quick of wit as of mind. His wit always had a point, and was never mean or nasty — though some of the objects of his wit no doubt felt its sting. His occasional humorous articles — such as “The History of Truth in Teaching” — have become classics and demonstrate that had he chosen to become a professional humorist rather than a professional economist, he would have achieved no less fame in the one field than he did in the other. His death has left the world a far less joyful place for Rose and me, as for so many others.
...and thank you all for joining us here today. This is a special day for us at the Federal Reserve Bank of Minneapolis, especially at the Helena Branch. Dave Solberg, a member of the Branch’s board of directors, will complete his service at the end of this year. I would like to extend my personal thanks to Dave for his service to the Helena Branch and, more broadly, to the Federal Reserve. The time that our directors, and members of our advisory councils, devote to their work is truly valuable. Dave and his colleagues bring important insights about the economy from people on Main Street and on farms and ranches across the region. As I have said many times, we have no end of data at the Federal Reserve, but data are backward-looking, and we need all the information we can get to make judgments about the future course of the economy. So thanks again to Dave and to his colleagues on the board, as well as anyone else in the room who has served on a Federal Reserve board or council. We appreciate your service.
...is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity.... To the extent that opportunity itself is enhanced by access to economic resources, inequality of outcomes can exacerbate inequality of opportunity, thereby perpetuating a trend of increasing inequality.... Society faces difficult questions of how best to fairly and justly promote equal opportunity. My purpose today is not to provide answers to these contentious questions, but rather to provide a factual basis for further discussion.... I will review trends... then identify and discuss four sources of economic opportunity in America.... The first two are widely recognized as important sources of opportunity: resources available for children and affordable higher education. The second two may come as more of a surprise: business ownership and inheritances.... In focusing on these four building blocks, I do not mean to suggest that they account for all economic opportunity, but I do believe they are all significant sources of opportunity for individuals and their families to improve their economic circumstances...
Over at Equitable Growth: I am very happy to be here this morning to introduce the Oregon Economic Forum's Keynote Speaker, Doug Elliott of the Brookings Institution, and to set the stage for his talk.
To do that, let me ask all of you to cast yourselves back to 2006, to the end of Alan Greenspan's long tenure as Chair of the Federal Reserve, and to the days of what was then called the "Great Moderation". During Greenspan's term starting in 1987 the unemployment rate had never gone above 7.8% and it had gotten as low as 3.8%. The attainment of low unemployment under Greenspan did not signal any forthcoming inflationary spiral: The peak 12-mo PCE price index core inflation rate during Greenspan's tenure was 4.7%. The peak inflation rate that followed that 3.8% unemployment rate was 2.4%. Inflation had not been above 2.5% since December 1993. READ MOAR
Over at Equitable Growth: God! We were (and are) so smart!
J. Bradford DeLong and Lawrence H. Summers (1992): Macroeconomic Policy and Long-Run Growth:
On almost any theory of why inflation is costly, reducing inflation from 10%/year to 5%/year is likely to be much more beneficial than reducing it from 5%/year to 0%/year. So austerity encounters diminishing returns. And there are potentially important benefits of a policy of low positive inflation. It makes room for real interest rates to be negative at times, and for relative wages to adjust without the need for nominal wage declines....
These arguments gain further weight when one considers the recent context of monetary policy in the United States. A large easing of monetary policy, as measured by interest rates, moderated but did not fully counteract the forces generating the recession that began in 1990. The relaxation of monetary policy seen over the past three years in the United States would have been arithmetically impossible had inflation and nominal interest rates both been 3%-points lower in 1989. Thus a more vigorous policy of reducing inflation to 0%/year in the mid-1980s might have led to a recent recession much more severe than we have in fact seen...
If the past 24 hours... the past six months... the past six years... are not convincing evidence that a 2%/year inflation target is too low, what would be convincing evidence to that effect?
Plus Bonus Hoisted from the Archives:
A 2%/Year Inflation Target Is too Low: First, the live question is not whether the Federal Reserve should raise its target inflation rate above 2% per year.
The live question is whether the Federal Reserve should raise its target inflation rate to 2% per year.
On Wednesday afternoon, Federal Reserve Chair Bernanke stated that he was unwilling to undertake more stimulative policies because "it is not clear we can get substantial improvements in payrolls without some additional inflation risks." But the PCE deflator ex-food and energy has not seen a 2% per year growth rate since late 2008: over the past four quarters it has only grown at 0.9%. At a 3.5% real GDP growth rate, unemployment is still likely to be at 8.4% at the end of 2011 and 8.0% at the end of 2012--neither of them levels of unemployment that would put any upward pressure at all on wage inflation. It thus looks like 1% is the new 2%: on current Federal Reserve policy, we are looking forward to a likely 1% core inflation rate for at least another year, and more likely three. A Federal Reserve that was now targeting a 2% per year inflation rate would be aggressively upping the ante on its stimulative policies right now. That is not what the Federal Reserve is doing. Would that we had a 2% per year inflation target.
But if we were targeting a 2% inflation rate--which we are not--should we be targeting a higher rate? I believe that the answer is yes.
To explain why, let me take a detour back to the early nineteenth century and to the first generations of economists--people like John Stuart Mill who were the very first to study in the industrial business cycle in the context of the 1825 crash of the British canal boom and the subsequent recession. John Stuart Mill noted the cause of slack capacity, excess inventories, and high unemployment: in the aftermath of the crash, households and businesses wished to materially increase their holdings of safe and liquid financial assets. The flip side of their plans to do so--their excess demand for safe and liquid financial assets--was a shortage of demand for currently-produced goods and services. And the consequence was high unemployment, excess capacity, and recession,.
Once the root problem is pointed out, the cure is easy. The market is short of safe and liquid financial assets? A lack of confidence and trust means that private sector entities cannot themselves create safe and liquid financial assets for businesses and households to hold? Then the government ought to stabilize the economy by supplying the financial assets the market wants and that the private sector cannot create. A properly-neutral monetary policy thus requires that the government buy bonds to inject safe and liquid financial assets--what we call "money"--into the economy.
All this is Monetarism 101. Or perhaps it is just Monetarism 1. We reach Advanced Macroeconomics when the short-term nominal interest rate hits zero. When it does, the government cannot inject extra safe and liquid money into the economy through standard open-market operations: a three-month Treasury bond and cash are both zero-yield government liabilities, and buying one for the other has no effect on the economy-wide stock of safety and liquidity. When the short-term nominal interest rate hits zero, the government has done all it can through conventional monetary policy to fix the cause of the recession. The economy is then in a "liquidity trap."
Now this is not to say that the government is powerless. It can buy risky and long-term loans for cash, it can guarantee private-sector liabilities. But doing so takes risk onto the government's books that does not properly belong there. Fiscal policy, too, has possibilities but also dangers.
My great uncle Phil from Marblehead Massachusetts used to talk about a question on a sailing safety examination he once took: "What should you do if you are caught on a lee shore in a hurricane?" The correct answer was: "You never get caught on a lee shore in a hurricane!" The answer to the question of what you should do when conventional monetary policy is tapped out and you are at the zero interest rate nominal bound is that you should never get in such a situation in the first place.
How can you minimize the chances that an economy gets caught at the zero nominal bound where short-term Treasury bonds and cash are perfect substitutes and conventional open-market operations have no effects? The obvious answer is to have a little bit of inflation in the system: not enough to derange the price mechanism, but enough to elevate nominal interest rates in normal times, so that monetary policy has plenty of elbow room to take the steps it needs to take to create macroeconomic stability when recession threatens. We want "creeping inflation."
How much creeping inflation do we want? We used to think that about 2% per year was enough. But in the past generation major economies have twice gotten themselves stranded on the rocks of the zero nominal bound while pursuing 2% per year inflation targets. First Japan in the 1990s, and now the United States today, have found themselves on the lee shore in the hurricane.
That strongly suggests to me that a 2% per year inflation target is too low. Two macroeconomic disasters in two decades is too many.
Jo Walton: After Paris: Meta, Irony, Narrative, Frames, and The Princess Bride: [Steven] Brust is definitely writing genre fantasy...
...and he knows what it is, and he is writing it with me as his imagined reader, so that’s great. And he’s always playing with narrative conventions and with ways of telling stories, within the heart of genre fantasy--Teckla is structured as a laundry list, and he constantly plays with narrators, to the point where the Paarfi books have a narrator who addresses the gentle reader directly, and he does all this within the frame of the secondary world fantasy and makes it work admirably.
Conor Dougherty: Two Cities With Blazing Internet Speed Search for a Killer App: "Google Fiber in Kansas City Residents in the Missouri city are finding out that Google’s super high-speed Internet is so fast...
...it’s sometimes hard to know what to do with it. A team of computer programmers here set out to learn how many cute kitten photos can be downloaded in one second on their Internet network, one of the fastest in the country. The answer: 612.... When your city has Internet capacity to spare and is not exactly a hotbed for tech start-ups, figuring out what you are supposed to do with all that speed is a challenge.... fter a few million in waived permit fees and granting Google free access to public land, the area is finding out that Google Fiber is so fast, it’s hard to know what to do with it. There aren’t really any applications that fully take advantage of Fiber’s speed, at least not for ordinary people....
Ideas have ranged from installing Fiber-connected cameras in high-crime areas to building a model home where entrepreneurs could test new kinds of Internet-connected appliances. The Kansas City Public Library is experimenting with a software-lending service that will let residents use high-speed Internet to “check out” expensive and data-heavy programs like video editing software. One company tinkered with a service that would allow families to lease data storage in their homes.... The average connection speed in the United States is about 10 megabits per second, good for 14th in the world....
Economically speaking, the biggest benefit may end up being the way fiber has energized the local start-ups.... Programmers have made a sport out of trying to slow Google Fiber down by using online video games and other data-heavy applications to perform the digital equivalent of turning on every faucet in the house at once: Hence, the “Too Many Kittens for Broadband” experiment, part of a hack-a-thon sponsored last year by the KC Digital Drive...
Robert Waldmann saves me from having to read further in David Graeber's Debt: The First Five-Thousand Mistakes this Monday morning:
On unemployment-rate mean-reversion:
...Your analysis is notably different from Paul Krugman's analysis of private sector employment.
This is not odd--notoriousl,y unemployment has returned to normal partly through a decline in labor force participation. But wait, he says this recovery is a lot like the last recovery.
The difference is that you impose the assumption that everything before 2008 was the same. In contrast, Krugman argues (and argued in 2008) that financial crisis recessions are different from inflation fighting recessions. Spring 91 through (at least) Spring 93 saw the "jobless recovery". In 1993 you were attempting to understand why things were different pre- and post-1991. The 2001 mini-recession was followed by recovery with declining employment--the "job-loss recovery". At the time, you wrote something was going very wrong with the US labor market. Now there is a desperate need for jobs and you don't see a pattern in jobless, job loss, and job lust.
Daniel Davies: The World Is Squared--Episode 3: The Greek Calends--A Disquisition on the Nature of Debt: "What is debt?...
...It’s a promise to pay back a specific amount of money at a specific time. Why is it so popular--why do people always seem to end up getting into it? Why, for example, don’t people make more equity investments, buying a share of someone else’s profits and sharing their risks in the way in which Islamic banking is meant to operate?
Daniel Davies again:
Daniel Davies: D-squared Digest -- FOR bigger pies and shorter hours and AGAINST more or less everything else: The D-Squared Digest One Minute MBA - Avoiding Projects Pursued By Morons 101: "Literally people have been asking me...
..."How is it that you were so amazingly prescient about Iraq? Why is it that you were right about everything at precisely the same moment when we were wrong?" No honestly, they have. I'd love to show you the emails I've received, there were dozens of them, honest. Honest. Anyway, I note that "errors of prewar planning" is now pretty much a mainstream stylised fact, so I suspect that it might make some small contribution to the commonweal if I were to explain how it was that I was able to spot so early that this dog wasn't going to hunt. I will struggle manfully with the savage burden of boasting, self-aggrandisement and ego-stroking that this will necessarily involve. It's been done before, although admittedly by a madman in the process of dying of syphilis of the brain.
Sorry, where was I?
Jo Walton: After Paris: Meta, Irony, Narrative, Frames, and The Princess Bride: "I am not the intended audience for William Goldman’s The Princess Bride....
I think Goldman wanted to write something like a children’s book with the thrills of a children’s book, but for adults. Many writers have an imaginary reader, and I think Goldman’s imaginary reader for The Princess Bride was a cynic who normally reads John Updike, and a lot of what Goldman is doing in the way he wrote the book is trying to woo that reader. So, with that reader in mind, he wrote it with a very interesting frame. And when he came to make it into a movie, he wrote it with a different and also interesting frame. I might be a long way from Goldman’s imagined reader, but I am the real reader. I love it....