One application submitted!!!!!!

Georgetown University, right across the Potomac River from us - Kate's alma mater for her master's degree - a beautiful campus and a great economics program. Prof. Albrecht and Prof. Vroman especially have done a lot of work on search and matching theory that I'd love to become involved with - this is extremely high on my list - right up there with Maryland.

You can see the river from this shot - that's Potomac Boat Club on the river. When I rowed crew in high school on the Potomac, we rowed out of Thompson's Boat House, which is a little down river. Races would start just a little up river from Potomac Boat Club. I still kayak on the river on this section all the time and pass this spot.

There's something about Krugman... part 2

The man is like catnip to some people, and I just don't know why.

Don Boudreaux ties Krugman to Paul Ehrlich and other environmental doomsdayers. I set him straight in the comments.

Bob Murphy thinks that if you think that workers will and should move from low marginal productivity areas to high marginal productivity areas you are (1.) an Austrian, and (2.) somehow in violation of Keynesianism. I set him straight in the comments.

Alen Mattich of the WSJ published a list of the best economics blogs that has been making the rounds. He weirdly accuses Krugman of ad hominem attacks. Does Mattich know the meaning of the term? I can't think of any ad hominem attacks that Krugman has made. I imagine there have been some over the years... maybe... but I entirely clueless as to what he means and can't come up with any specific examples. I think Mattich confusing "criticism of a specific person that you name" with "ad hominem attacks". I'm sorry, but if you get bothered by criticism you shouldn't read blogs. Good solid criticism is one of their most important functions. Ad hominem is a different story. Mattich completely fails to mention Brad DeLong's blog which is absurd - but DeLong is one who veers into ad hominem with his "stupidest man alive" act (the quality of the analysis still makes it worth reading, although that is frustrating... still, I've been called worse on other blogs). But Krugman? When has Krugman ever done this?

Not everyone is a hater, though. Apparently Paul Krugman is the "most influential figure on the European left-of-center" beating out Habermas and Zizek (both of whom have been discussed on F&OST here and here, respectively). Go figure - apparently New Jersey is in Europe.

I don't get this. Krugman is just a really great economists all around and I don't see how he inspires all this animosity. He is a creative thinker (see his work on trade theory and economic geography), he is a great exponent of very traditional macroeconomics, and he is a great public educator/public intellectual/public commentator - which a lot of economists can't do. It's not hard to recognize what a great economist the guy is - you don't have to strain for a justification for that claim. You also don't have to be obsessed with him or be a "Krugman lover" to recognize the value of his contributions to the discourse. Why he inspires such animosity is beyond me, even if he can be "shrill" at times, which I'll certainly admit.

Scott Kuhagen on Space Law

Scott Kuhagen shares a new title of the U.S. Code - title 51 - which deals with "National and Commercial Space Programs". Scott also provides details on what this entails legally - it's not the creation of any new laws, it's the collection of old laws into a new title.

He could explain the implications of that, but I think the mere recognition is an important sign that human society - and specifically American society - has a future beyond the Earth.

You can get a degree in space law from Ole Miss, and my alma mater (George Washington University) offers a degree in space policy. Ole Miss publishes the Journal of Space Law as well.

The Constitution and Congress

The Washington Post reports that the Constitution will be read on the House floor in January, and more importantly, that every House bill will include Constitutional justification for it.

I think this is an excellent and an interesting move. Tea Partiers and even a lot of libertarians are convinced that people who don't agree with them consider the Constitution to be an anachronism or an embarassment. Of course that's ridiculous. But it is true that the Constitution isn't an explicit part of the legislative process these days.

Tea Partiers think this will force Washington into agreeing with their concerns. I actually think it will have the opposite effect (if Tea Partiers are open to it). It will demonstrate the far more normative interpretation of the Constitution that the Tea Partiers don't even seem to be aware of, and it will educate people who don't normally think in Constitutional terms to stand up to Tea Party bullies who insist they're the ones being true to the legacy of the founders.

I think Republicans not necessarily associated with the Tea Party will also realize that their understanding of the Constitution is largely in line with the Democrats and the rest of the country, they simply take a more conservative stance on the wisdom (but not the Constitutionality) of certain laws.

My advice to our representatives: don't rely as heavily on the Commerce Clause as you have been. I think it's a relatively weak power - I do think the intention of regulating interstate commerce was clear. Real, direct, commercial regulation - even parts of the health reform bill - can legitimately be justified by this power, but it's always a stretch when every single piece of legislation touching the economy is justified by it. You have the power to appropriate money to provide for the general welfare. This was understood as a broad discretionary authority. You can put up money to make public programs for health care and provide subsidies, etc. That is so thoroughly Constitutional it's the power the founders put first on the list of enumerated powers. To make that spending most effective you'll probably need to pass a few rules and regulations, set up a few administrative apparatuses, etc. Those things - to me - sound like necessary and proper measures to help provide for the general welfare. I wish more weight would be given to the general welfare and necessary and proper clauses, and less weight given to the commerce clause.

Some post-WWI and Keynes links

- Keynes framed as pro-reparations, by Roger Meyerson (HT Tyler Cowen). Meyerson makes the point that Keynes only objected to the magnitude of the reparations, but was not opposed to the concept itself. He also highlights one very unique quality of the WWI reparations: they were the first reparations imposed without direct occupation.

- Keynes on psychology and capital accumulation, by Richard Green (also from Economic Consequences of the Peace). The effective demand theme comes out strong here, as does an early reference to pyramid building (an often misunderstood metaphor from the General Theory... people think the point he was making was "any government spending is good" - if you read the passage its actually about subjectivist value theory).

- Krugman on the misuse of the Weimar inflation episode, and making steam come out of Niall Ferguson's ears.

.

UPDATE: And Evan just shared this fascinating looking paper from a couple years ago with me on the argument between Henri Bergson and Albert Einstein in the early 1920s over the nature of time. I've only read the first several pages, but it looks very good. What's the connection with the other links besides the dates involved? The paper largely deals with relations between Bergson and Einstein and its role in the history of Commission for Intellectual Cooperation (CIC), a scientific commission of the League of Nations. The CIC's dissolution, due in no small part to the disagreements between the two men, is used as a sort of microcosm of the wider breakdown of the League of Nations and the tenuous interwar peace.

Technological Unemployment at The Onion

An opinion piece at The Onion notes the human touch that no machine can replace...

No Machine Can Do My Job As Resentfully As I Can

In today's increasingly mechanized world, where the bottom line so often takes precedence over human considerations, the working man never knows how long it will be before he is replaced by a machine. It's no secret that some in management at Gillian's Fish Products, where I work, feel that automation would improve productivity and quality control. But what they don't understand is that they will lose something far more valuable if employees are let go: the resentful human touch.

No mere machine can replace the embittered alienation of the flesh-and-blood worker. Sure, machines may be able to gut whitefish in the blink of an eye. But would they be able, as I am, to despise and bemoan their miserable lot? To seethe with the unbearable knowledge that this will be their sole livelihood until the day they die? To identify with the glassy, sightless eye of every fish as their sharp blades spill the innards out? ...

New Year's Resolution - A Little Early

So I've decided on my New Year's Resolution, and it's going to cut considerably into blog time. My goal now is to write at least 250 words before I start blogging in the morning. Some days it can be harder to write than others - I'm not sure how that limit will work out and maybe it'll need to be tweaked. But that's the plan.

I'm starting a little early (i.e. - now) because I'm wrapping up my applications and my Encyclopedia of American Populism essays. In the new year I'll be finishing off my NBER book chapter on the labor supply of engineers. I'm also hoping to write a quick, couple page comment to the Quarterly Journal of Austrian Economics. Then we'll see - I have a few article ideas in their infancy and I really need to focus on this work.

I may completely botch this, and things may go on as normal, or I may considerably cut down my time here (God knows I've been trying to all fall) and get more work done.

Three New Acquisitions

The Metaphysical Club, which I will start reading very soon.













Inventing Ourselves Out of Jobs, on arguments over technological unemployment.

And Cycles of Unemployment in the United States, 1903-1922. This book was published in 1923. It was the winner of an essay prize held by the Pollak Foundation in 1921 for an essay that best treats the problem of unemployment. The Pollak Foundation was headed by the well known amateur economists, Foster and Catchings.

Scrooge, Krugman, and Christmas

Krugman calls people who don't support the welfare state Scrooge.

David Henderson and Troy Camplin point out that Krugman has misstated the message of the Christmas Carol. Scrooge does support the welfare state - the state workhouses. What he refuses to do is support the poor with additional private charity. Then David Henderson says: "So here's my modest suggestion. Next time you hear someone advocating a coercively financed government program to help those in need, call him a "Scrooge." I guarantee that you'll catch him off guard. Moreover, he'll likely ask why you called him that. Then you can tell him the truth about Ebenezer Scrooge and A Christmas Carol."

And in the process, turns a good point into a point that's just as erroneous as Krugman's initial point.

What differentiated Scrooge from the donation seekers who knocked on his door was not his support for the welfare state. The good guys that we all like supported the welfare state and Scrooge supported the welfare state. That wasn't the difference between them. The difference between them was that Scrooge rejected the idea of private charity - a truly Scroogy stance. I have no idea why Henderson wants to attribute that to those who support public safety nets for the poor.

I should note, that the donation-seekers appeal to Scrooge by noting the troublesome inequality in England. Scrooge is unconcerned about it - it's not an issue for him, and he's concerned that attempts to alleviate will induce idleness. Scrooge's support for the welfare state may not make it to the Cato blog, but that lack of concern for inequality certainly would!!!

And what of those people who don't even like the welfare state??? Well we have no good analogy to draw for them. After all, Dickens never conceived of such a character. Even his meanest antagonist-turned-protagonist supported the welfare state (as Henderson so ably points out), along with the private charity seekers.

Merry Christmas everyone! And remember that economic calculation only gets us so far in this world. Be generous when you have the opportunity and means to. All year, of course, but this time of year when "when Want is keenly felt, and Abundance rejoices" (as Dickens writes) especially.

One of my favorite Christmas songs

More conversation with Papola

I thought this was worth reproducing - someone let me know if I could have said it better. Lee? You're always good at verbalizing the general glut point, although I know you cringe to do it in a fiscal policy context. Anyway, here it is:

John: "Do me a favor. Dig into my specific points/questions about aggregation in my last long post. You haven’t yet. You’ve just waved your hands by saying “keynesians recognize that slack is unevenly distributed”. That’s not an answer. I’m asking what I believe are reasonable and reasonably precise questions. That you agree with DeLong and Stiglitz suggest to me that my understanding of keynesianism is correct and that my criticism holds. Posting your blog that I’m spewing fallacies doesn’t do anything to point them out. You haven’t. I’m listening. Nothing would make me happier in life than to have keynesianism proven true. After all, both political parties are keynesian."

Me: I said "peddling" not "spewing" fallacies... that sounds a little nicer to me. Isn't it? I was referencing the "Keynesianism as consumptionism" fallacy and the assumption that we're operating at full employment (ie - no liquidity preference so no paradox of thrift). I feel pretty solid calling those "fallacies" and I have pointed to them explicitly a couple times now, so don't suggest I haven't pointed them out - I have.

OK - on aggregation - let me try and think of another way of phrasing my point.

We always experience uneven levels of depression, growth, market tightness, market looseness, inflation, and deflation. That is always with us - they are simply temporary disequilibria and price signals to direct scarce resources to their best use. They're a good thing in a market economy because the market uses the price signals from those imbalances to make economic activity more efficient. This is intertemporal as well - people save and borrow because the market allocates goods and services over time as well. What I'm saying is that in some situations, there is a general depression. There are still these heterogeneous differences as there always are, but everything is more depressed than it would have been under normal circumstances. This occurs when there is a reduction in effective demand - when people and firms don't want to save to set something aside for the future - they want to save to have a liquid asset. This isn't time preference this is liquidity preference, and it's something Austrians regularly ignore. You say your money is in the bank and isn't idle simply by virtue of the fact that it is paid interest. It isn't absolutely idle, you're right - but savings can be kept in more liquid and less liquid forms. More liquid assets are by definition kept less productive than less liquid assets.

So, the point of Keynesianism is that while liquidity preference may be rational in the sense that its understandable why people have it, it isn't socially functional. It's unnecessarily wasteful and it means that the market does not always efficiently use all factors of production. The task at hand is to turn that liquidity preference shock into actual income.

Restoring full employment in that sense has absolutely nothing to do with your concern about unevenly depressed sectors. The task isn't to say "what's especially low out there? - let's fill up that hole because its not doing so well". No. That defeats the whole purpose. We like those relative differences because those provide price signals that efficiently allocate means of production. That's not the way to think about fiscal policy. Think about fiscal policy as being much like monetary policy. People are demanding liquid assets, so they hold money or some other highly liquid asset, and it just sits there - depressing everything, not just specific sectors. Fiscal policy is the government saying "here, why don't you hold on to this bond - its very liquid, there's always a market for it, it'll satisfy your mattress-stuffing impulses, and I'm going to go credit worker and contractor accounts to do this "stimulus" stuff. People want to turn income into liquid assets and take it out of circulation. So the government says "I'll take that trade", and then puts it back into circulation. It's no different from monetary policy, which you were damn close to embracing on Cafe Hayek recently.

So that's why I say you're thinking about this from completely the wrong angle. You are thinking of it from the goods and services side of things, which is why it seems like a calculation problem to you. You need to be thinking about what's going on in the money and loanable funds markets - why your savings are in fact idle, and what fiscal policy does about it.

So see - the case I've made so far has nothing to do with these relative imbalances. Because I don't see the relative imbalances as a problem - I only care about general gluts. Market specific gluts are going to be worked out by the market. The task is to fix the problem that lead to the general glut.

Now, I did agree with you that these relative imbalances in different sectors are important because clearly fiscal policy is going to have an impact in various markets in ways that monetary policy simply isn't going to. You want to be smart about how you spend the money in that sense. If you spend $800 billion on Sponge-Bob Square Pants DVDs, macaroons, and snow-globes you're going to introduce some pretty bizarre price distortions. You'll still put idle cash back into circulation, which is why Brad DeLong says anything passes the cost-benefit test and why Keynes talked about burying bank notes and digging them up again. You will, in essence, solve the general glut problem but exascerbate the industry-specific gluts. I am not aware of a Keynesian that doesn't recognize this, John. Are you? The argument is that the general glut is by far and away the bigger problem at a time like this - period. If we solve the general glut and cause a few issues with relative price distortions, the argument is that the cost of those relative distortions is much, much lower than the benefit of solving the general glut. You can't accept this because from what I gather you don't even think general gluts are real.

So this is why I say anything works as long as you put money back into circulation, but relative prices still matter because of course you can introduce distortions. The thing is, there are a lot of public goods that we could be investing in. They are sub-optimally underinvested in right now so we can dump money on them and they would indeed change relative prices but they would improve the situation. We can dump money on research and education and it would adjust relative prices for the better because these are underpriced by the market. We could dump money on clean energy technology and it would indeed adjust relative prices, but for the better because this is underpriced by the market. We could increase NASA's budget five-fold and it would adjust relative prices for the better because space colonization is currently underpriced by the market. We could also just put a roof over people's head, food in their mouth's, and clothes on their back as a purely humanitarian act because people are deserving of the basic dignity of having their needs met. At full employment you have to weigh that against what you're taking money away from. Below full employment, I say "it solves the general glut and it serves a humanitarian motive outside economic calculation - win-win to me".

You have to be careful of course, because these can have bad distortionary effects too. You mentioned health care in an earlier post. Policies that drive demand for health care - mandates, tax breaks on health plans, etc. are not the way to spend stimulus money. Things that will lower costs like health care IT and grants for nurse training wouldn't be as bad.

But the point isn't to distribute money to every weak market. It's not "C, I, G, altogether adds to Y - keep that total growing and watch the economy fly". That's crude Keynesianism. That completely misses the point. The point is get money back into circulation, recognize that as your number one priority, but also recognize the distortionary effects your policy might have and try to avoid them the best you can.

Robert Skidelsky says it very well on your website [see his discussion starting at 12:53] - there is government waste and there is market waste. Governments absolutely waste when they try to allocate resources. Governments cannot do economic calculation, period. But in a general glut, markets are far more wasteful than governments. You have to just live with some government waste to solve the market's waste problem - and ideally you spend on positive externalities and public goods to minimize the level of government waste in the first place.

Keynes wrote: "To put the point concretely, I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use. There are, of course, errors of foresight; but these would not be avoided by centralising decisions. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down."

I could not agree more.

If you still don't feel like I'm speaking to your point, you may want to look for answers elsewhere because I'm clearly not communicating this well. I feel like this has been asked and answered countless times by lots of Austrians before you, and maybe I'm just not addressing it right. Needless to say, if you still think I'm violating some assumption about economic calculation I'm miscommunicating something because I am fully on board with Hayek on economic calculation.

Note that Keynes never submitted a report to the Chancellor of the Exchequer saying "My dear chap, I strongly feel that we should bury banknotes and pay the unemployed to dig them up". Notice Stiglitz never castigated Congress for not including more ditch digging in the stimulus package.

Doesn't that say something to you? The whole reason for pointing out these completely crazy options is to try to highlight this fact that its not about "boosting consumption" or even "boosting investment" directly. A lot of people think of fiscal policy as the government spending when the market won't - as if the government is stepping in to do the economic calculation.

That completely misses the point, which is precisely why Keynes came up with such goofy examples. But he never seriously proposed such examples because even though the point wasn't to bolster certain goods and service markets, it clearly could have the effect of distorting those markets."

A request for sources...

I'm sketching out a small paper that I think has a high publication chance to start writing in the New Year immediately after I finish writing these populism pieces.

I'm curious if anyone knows of any work done on wage adjustment during the Depression using individual level data. Jonathan Rose has a new article in the Journal of Economic History that I have. I have a mountain of material from the post-war period, but more evidence on the Depression is crucial. Anyone know of any?

Thanks in advance.

Krugman on Maddow, Consumptionism, and Keynesianism

Krugman was on Maddow last night. One of the things that's irked me lately about Krugman is that with all this talk about tax cuts and unemployment benefits he's been thumping the "boost consumption" line, which as I've explained here distracts from the main point. Its not that he doesn't understand the other side of the story - he always explained it very clearly earlier in the crisis. And as I explain in that post on consumption and Keynesianism, he's not even wrong about his points on consumption. He is just, in a sense, going off on a theoretical tangent. I'm not sure why this is. It may just be frustration at Washington being accommodating to the wealthy but not the unemployed - and that's certainly reason to be frustrated.

Brad DeLong, in contrast, has not gone off message when it comes to fundamental Keynes-Hicks insights into liquidity preference and investment as the primary story of what's going on. Unfortunately, DeLong is spending more of his times writing "so and so is stupid" ledes and less of his time writing "Matlhus, Say, Bastiat, Bagehot, Keynes, Fisher, Minsky, Hicks, and Friedman all agree" posts. Strategically and stylistically (to say nothing of etiquette), I prefer the latter.

Conversation with John Papola at EconLog

I've been involved in an extended conversation with John Papola, the creator of the "Keynes vs. Hayek" video, in a blog post by David Henderson.

The post starts off by talking about one of Papola's remarks on behavioral economics. My initial concern was that he's conflating questions of cognitive bias with questions of socialist calculation unnecessarily. We can "solve" cognitive bias problems in ways that governments are doomed to failure in addressing calculation problems (for example - on savings decisions its plausible to think we can start to over come "status quo bias" but still recognize we can't centrally plan individual savings levels). That, however, quickly turned into a discussion of Keynesianism. My comments were rushed during lunch breaks and early in the morning so I hope I've done it justice - he comes at me with a lot of questions, so I'm sure I dropped some of them. But I think its instructive because he's peddling a lot of the fallacies about Keynesianism that I talk about on here - that Keynesians actually want to plan economic decisions, concerns about heterogeneity in depression, confusion of the savings identity with a behavioral law (which is done by assuming we're at full employment), talking about Keynesianism as if investment doesn't matter and consumption is paramount, etc. etc. Anyway - I try to succinctly address all of that because it all crops up.

If you (1.) live under a rock, or (2.) just want to see it again, this is Papola's video:

Bad New York Times blogging on Demand Problems

Casey Mulligan has a serious problem distinguishing between various economic cycles and the arguments of his opponents.

Mulligan compares the small growth in employment in December to the large growth in sales and concludes that demand-side policies don't work.

First, let's address the problem with how Mulligan thinks about cycles. Retail sales increase in December and fall in January. Mine certainly do. I'm sure all of yours do too. Does this surprise anyone? No - and that's largely the point. This is an extremely predictable, well known clustering of purchases. It's a seasonal cycle because it comes at regular calendar intervals. Seasonal cycles are very predictable by definition. So yes, retail stores will need more staff on hand so you'll get a bump in employment (and a subsequent drop in January), but the increased income and the increased demand is already factored in by everyone. Entry-level workers know they can find work around Christmas easier. They will plan their demand accordingly. Firms know they will earn more in the Christmas season. They will plan accordingly. Consumption will be smoothed in relation to unsmooth, seasonally cyclical earnings. There is no story here. You can't compare a predictable seasonal cycle with an unpredictable business cycle.

Mulligan is also comparing apples and oranges. The price of a retail good sold in December is the sum total of the value added of lots of stages of the production process. Retail is just the final bit of value-added at the top. Now, there's going to be some seasonality in manufacturing as well, but not as much as you see in retail - its not like factories have to work significantly harder in late November and early December to meet holiday demand - they also have more of a chance to smooth production and therefore employment. So while the value you see in increased retail figures reflects an entire stream of value added, the employment change is going to be much smaller because the only shock you see there is in the retail sector. Again, why? Because people know this is coming. If you are a miner, a farmer, a manufacturer, or a wholesaler you will smooth your production in response to this shock as much as inventory costs allow you to. If you're a retailer you don't have much room for smoothing. But nobody is caught off guard by these seasonal fluctuations. Keynesian recovery occurs when income increases due to increases in demand. A Christmas retail spike is a predictable increase in demand in December relative to a level of demand in November. In other words, you can have total income (and thus employment) decrease at the same time that you preserve the predictable seasonal clustering of that total income.

This is not the first time Mulligan goofs this. Earlier he tried to point to summer youth employment shocks as proof that Keynesian demand concerns are baseless. When this came out, it was shocking to me that someone employed by the University of Chicago could get away with writing such drivel. This is the graph he presents:

What do we see here? A predictable seasonal spike because supply increases (students are out of work), and perhaps because some demand increases (lawns need to be mowed in the summer, construction picks up in the summer, vacation/resort/recreational businesses pick up in the summer). So a spike. No surprise. But the 2010 spike is sitting much lower than the spike from any earlier year. It's unfathomable to me that this didn't set off any alarm bells Mulligan. The lower employment doesn't tell you whether its Keynesian or not, of course. But this graphic shouts out "seasonal fluctuations occur even within business cycle fluctuations".

Mulligan also makes this mistake of confusing demand with consumption, which of course also weakens his example of December consumption as a critique of Keynesian stimulus.

Assault of Thoughts - Lovecraft would love this stuff edition - 12/21/2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- A group of astronomers announce the prospect that Pluto may have an ocean beneath its surface. Of course Lovecraft alluded to the presence of liquids on Pluto too. In The Whisperer in Darkness he wrote "The black rivers of pitch that flow under those mysterious cyclopean bridges—things built by some elder race extinct and forgotten before the beings came to Yuggoth [Pluto] from the ultimate voids—ought to be enough to make any man a Dante or Poe if he can keep sane long enough to tell what he has seen." Granted Lovecraft is refering to liquid on the surface, which is a different matter entirely. Nevertheless, Alan Stern at the Southwest Research Institute is hoping that a NASA flyby scheduled for 2015 (launched back in 2005) might show evidence of geysers and volcanic activity.

- This is an incredible illustration of how big the universe is (HT Don Boudreaux), that would thoroughly impress so great an expounder of cosmic insignificance as Lovecraft. A couple things are striking to me. First, if you scroll out to where a lot of the inner planets are, you see that Pluto is about as wide as the United States. That's kind of interesting to think about for anyone that's ever been on a substantial road trip. It's still a hike, clearly, but if you theoretically had the oxygen, atmospheric pressure, and gravitational pull that means it's not outlandish to think about circumnavigating a (former) planet in a car. Weird thought, huh? Its also striking to compare the size of Mars to the United States. OK, now scroll out a little more to where they show the scale of a light year, and the distance to the nearest star (which is 4.3 light years away). That's the single nearest star - the closest family of worlds that we aren't immediately familiar with by looking up at the planets we can see with the naked eye in the night sky. That closest family of alien worlds would take thousands upon thousands of years to travel to with current technology, to say nothing of surviving the trip. If we can't cut that travel time there's obviously a very high likelihood we'd end up dying in the black emptiness of space. It just drives home the fact that our ability to experience alien worlds is contingent on either (1.) them coming here because they have more advanced technology than we do, (2.) them already being here in the solar system - which human beings could certainly travel to the edge of in my lifetime, or (3.) humans making a technological breakthrough that allows us to travel that far in that amount of time - wormholes or something like that. I think the best chance in my lifetime is #2. Again - in my lifetime the second best chance is #1, but I'm ultimately a do-it-yourselfer, so I'd prefer #3 if at all possible. I'm not so sure its in the cards - but then again, scientific breakthroughs are highly unpredictable. Finally - scroll out one more time to the very end. Maybe readers already realize this, but this has always boggled my mind: first, that there is an edge to the universe. I can't even really understand what that means for there to be an edge of the universe. But second - that that edge is so far away that we can't see it. Not because our eyes have given out or because our telescopes aren't strong enough, but because the universe has not existed long enough for light to travel across its full expanse. How incredible is that?

- And finally, how to summon a Shoggoth:

This is...

...stupid.

Comment.

William White on a Keynesian-Austrian Synthesis

Jorge Nascimento Rodrigues interviews William White, the former chief economist at the BIS and currently employed by the OECD, about a Keynesian-Austrian synthesis. White suggests that Keynesians need to drop "neo-Keynesianism" and incorporate more of the Austrian School and Minsky. He makes the same case in an earlier paper here.

It was an interesting read, but I thought a little lacking. The most he took from the Austrian school was a warning against pro-cyclical policies. That's fine, but its not really exclusively Austrian. Who does support pro-cyclical policies? Nobody that I'm aware of. It's also very unclear about where he comes out on policy - he seems to forcefully advocate fiscal policy, but then he seems to only incorporate the Austrians as a caution against fiscal policy (except for one point where he briefly alludes to Hayek on secondary depressions).

He seems to be heavily influenced by Axel Leijonhufvud, and is thus not sympathetic to Hicksian Keynesianism. The fact is, Keynes was not sympathetic to Hicksian Keynesianism either, but I personally think that was a mistake.

I've said in the past quite clearly that I think what the Austrians bring to the synthesis is a treatment of the structure of production as it relates to interest rates. Keynes himself thought that basic idea made sense (see section 2). He just didn't think it seemed like a substantial enough process to form the centerpiece of an economic theory (and I tend to agree with him on that). So White ends up not even mentioning what I think is probably the most important piece that the Austrians bring, dropping one of the more important advances in Keynesianism, and being generally wishy-washy about implications. Still - it's another voice in the chorus noting that Keynesianism and the Austrian school need not be at war - we just have to be smart about integration.

Cool picture of the lunar eclipse from the Washington Post

Hero-worship is an ugly thing

If I ever defend a politician (as opposed to a policy or an idea) against the criticism of a private citizen writing in a newspaper, or if I ever write a love song to John Maynard Keynes, someone please refer me back to this post.

I did some searching on the blog... this seems to be the most I've ever fawned over a politician, and I'm still pretty comfortable with that post. I think its fine for people to admire politicians - it would be unfortunate if there were no politicians we could admire (unfortunately there are very few). I even admire some things about Ron Paul.

Assault of Thoughts - 12/holys$%^isitreallythe20thalready????/2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Brad DeLong on the Constitution and classical liberalism. It's a really great post - the bottom line he makes is that the founders were not classical liberals, they were mercantilists. I would phrase it slightly differently. The founders were nothing if not classical liberals - they were not the libertarian strain of classical liberalism which, as Brad points out, largely emerged in the mid-nineteenth century. The founders were the earlier vintage of classical liberal that valued each of the major philosophical components of liberty, equality, and representative self-government. They also had a largely mercantilist background, which as I point out in this post had more to do with early monetary disequilibrium theorizing than the rabid protectionism it is associated with today. So I would take issue with Brad on that - he's unnecessarily ceding the term "classical liberal" to the libertarians (who do fall under the broader "classical liberal" umbrella, I would certainly agree). I would also disagree with him on the interpretation of the interstate commerce clause. I do agree with Brad that Congress has what could be called "plenary power" to regulate the economy, but I think the commerce clause pretty clearly refers to interstate activities only. I would justify the plenary power on the basis of the very first enumerated power, to provide for the general welfare, combined with the necessary and proper clause. Congress clearly has the power (if it wishes to exercise it) to provide for the general welfare by subsidizing and providing certain health insurance. That is without question. To make that provision efficacious, it's necessary and proper to regulate the private health care industry as well. That's where I would say the plenary power comes from. The legislature and the courts will - appropriately - hash out exactly what is "necessary and proper" and what constitutes the "general welfare". It's not a blank check as so many people claim, but it is a vague and flexible check that reasonable people can disagree on. If anyone asks in the comment section "well if they can regulate what health care we buy what can't they regulate". My response is "they absolutely do not have the authority to regulate things that do not provide public benefit, and they do not have the authority to impose unnecessary or improper regulations. That means they do not have a blank check - there are a lot of things they can't do."

- The New York Times has a discussion of the "do it yourself macroeconomics" trend in the blogosphere. This is very akin to the "macro is hard" discussion kicked off by Kartik Athreya. I am now, as I was then, of two minds on this. Part of me is an amateur, largely macro blogger with most of my academic and professional experience in labor economics and econometrics who likes the DIY macro idea. Part of me is an aspiring doctoral candidate who wants to have academic and professional experience in macroeconomics and would caution against this arm-chair theorizing. A third part of me recognizes that there are a lot of professional and academic economists out there who sound like they're just spouting off arm-chair theorizing anyway, so what difference does it make? The point, I think, is that of course this is a good thing, its always good to have more people talking about it, but we do need to guard against bad analysis that gets reinforced by internet echo-chambers.

- Razib Khan discusses international comparisons of time preference.

More ngram insights

Like Tyler Cowen, I've been playing around a lot with this. I think its probably best to share links - the graphs weren't very clear before. Here are some more thoughts...

1. Thomas Malthus seems to pass Jean Baptiste Say definitively after the Great Depression. There's no real surprise why, I think.

2. The battle of the founding fathers offered a few surprises. Its widely remarked that John Adams used to be much more widely respected until he fell into a period where nobody really cared about him. McCullough prides himself on rescuing him from obscurity (well... as obscure as a signer of the Declaration of Independence can be at least). However, I had no idea how much more discussion he got in the 19th century. Some of this might be other people named "John Adams" but I'm sure a lot is the former popularity of the pugnacious founder who gives this blog its name. I was also surprised that Washington's dominance didn't emerge until the 20th century - the same with Jefferson.

3. Here I have "technological unemployment" and "overproduction" in American English, and here I have it in British English. I knew "technological employment" as a phrase emerged in the early twentieth century, but I was surprised that "overproduction" wasn't really popular until the depression. "Overproduction" makes an appearence in British English in the 1830s, and in American English in the 1880s, when really heavy industrialization hit both countries. So where should we look for modern treatments of overproductionism? Apparently the UK. Whereas discussion of the term in America dropped off after the depression, the peak for the term in the UK was even higher in the 1980s than it was in the 1930s. Not sure what this is - but its worth looking up some of that literature.

The Economy Faces a Major Crowding Out Problem...

...private investment poses a serious risk of crowding out public investment.

I don't know how I missed this before, but this is interesting - Brad DeLong and Paul Krugman disucss an original post by Michael Mandel on the age of the capital stock. Residential and non-residential private capital stays about roughly the same age. Seems reasonable - it looks like market forces are maintaining an equilibrium that's probably pretty strongly dependent on productive technology.

Our public capital stock has not been at equilibrium - its been getting older and older. Its no surprise no equilibrium can be maintained. We know from the socialist calculation debate that non-market institutions don't respond to signals that would maintain equilibrium in the same way that the market would. The conclusion a lot of people take from that is "down with the public sector". Another conclusion oughta be "if we want the public sector to do certain things we need to manage it more deliberately - we can't expect natural forces to produce the ideal result."

Reading some W.E.B. DuBois this morning...

...this was good:

"Thus the shadow of hunger, in a world which never needs to be hungry, drives us to war and murder and hate. But why does hunger shadow so vast a mass of men? Manifestly because in the great organizing of men for work a few of the participants come out with more wealth than they can possibly use, while a vast number emerge with less than can decently support life. In earlier economic stages we defended this as the reward of Thrift and Sacrifice, and as the punishment of Ignorance and Crime. To this the answer is sharp: Sacrifice calls for no such reward and Ignorance deserves no such punishment. The chief meaning of our present thinking is that the disproportion between wealth and poverty today cannot be adequately accounted for by the thrift and ignorance of the rich and the poor."

From "Darkwater: Voices from Within the Veil" (1920). Earlier in the text he gives a very good account of the war-time inflation, its relationship to the increase in labor turmoil, and the relationship between the labor turmoil and worsening race relations.

This particular line seemed like it could have come right out of Keynes. It gets even more Keynesian further down in this selection. He talks about interest as the "price paid for waste" (that sounds like a liquidity preference theory of interest to me), and profit as the "price paid for chance".

A Revolution of Liberty, a Philosophy of Equality

Tyler Cowen noted a Google book search function yesterday, and he charted the fate of "liberty" since the mid-18th century. I was curious about doing some comparisons with "equality". Liberalism is really a philsophy of liberty, equality, and self-government, but the relative weight placed on each of these concepts shifts over time. One of the tough things about this google function is that the scales are not always comparable - but "liberty" and "equal" seemed to show up at roughly the same scale, so that their relative position could more easily be observed.

Below I've presented findings for American English, British English, French, and German (Blue is "liberty", red is "equal". The years are fuzzy, but its from 1720 to 2000). A few things stand out to me:

1. "Liberty" is a fightin' word. The spikes for "liberty" associated with the French Revolution and the American Revolution are obvious. You also have a run-up to increased levels of "liberty" that peak at 1848 for Germany. France's radical mid-19th century maintains mentions of "liberty", in contrast to America which largely sets the term aside after the Constitution is ratified.

2. "Equal" emerges as a dominant term in America, not with the Revolution or the Constitution, but with the Jeffersonians. It maintains its position until present times. What's even more interesting is that if you substitute "freedom" for "liberty", then "freedom" surpasses "equal" in the late 1840s - at the end of the dominance of the Jeffersonians. I think there are two forces at work here: first, "freedom" was the word of choice in the abolitionist literature, rather than "liberty" - and after the war it stuck. Second, of course, is the Jeffersonian liberalism was a democratic liberalism rather than a strictly libertarian liberalism. It was liberalism. It's not like ideas of liberty were left out in the cold by any means. But it was a liberalism that emphasized both liberty and equality, and of course democratic self-government.

3. The British case is the only case where "equal" dominated "liberty" for the entire period (although Germany came close). This would likely look very different if the data stretched back to the 17th century. If "liberty" is truly a fightin' word, as I suggested in point #1, then the British had already had their fight.

It's dicey to draw too much from this data, but that's what I noticed - the point that "liberty" is associated with revolutionary breaks, while "equal" is more stable I think comes across very clearly, though. Is there anything else worth noting?

American

British

French

German

Culturomics

This data is incredible.

I have a post with some quick analyses I did coming up tomorrow morning.

I've played around with a few more things.

Two billion time series. Wow. I sure am glad I'm not a dogmatic a priorist.

Security and Risk-Taking

Matt Yglesias cited David Leonhardt yesterday, arguing that safety net programs encourage risk taking, and that what he calls "this country's two economic traditions" (risk-taking and security) are in this sense not in conflict at all.

I think it's a quite reasonable point, and it reminds me of this classic paper by Lee Alston and Joseph Ferrie on paternalism and agricultural labor contracts in the South, and the relationship of that paternalism to the development of the welfare state. This is the abstract:

"The authors examine paternalism as an implicit contract in which workers trade faithful service for nonmarket goods. Paternalism reduced monitoring and turnover costs in cotton cultivation in the U.S. South until the mechanization of the cotton harvest in the 1950s. Until then, the effectiveness of paternalism was threatened by government programs that could have substituted for paternalism; but large Southern landowners had the political power to prevent the appearance of such programs in the South. With mechanization, the economic incentive to provide paternalism disappeared and Southern congressmen allowed welfare programs to expand in ways consistent with their interests."

The argument is somewhat different, of course. Alston and Ferrie did not present the welfare state as the catalyst. But the point was that a modicum of security was demanded by laborers, which Southern landowners provided. The problem was that that security came at the price of a stifling social hierarchy. Changing institutional and technological arrangements allowed for a less costly form of security to emerge.

The risk-taking that Leonhardt and Yglesias talk about isn't featured here, but their discussion of the demand for security and the role of the welfare system in providing a potentially more free safety net reminded me of this.

Evan fighting the good fight...

...for small independent book-sellers.

I think as economists we get too caught up in our own logic sometimes. Markets optimize... what exactly? Well they optimize the allocation of scarce resources by using privately held, subjective information on the relative value placed on those resources.

As a social institution, the power of the market to optimize in this way is deeply impressive and important to human progress. But the resources that are allocated are the building blocks of other cultural institutions, and so "efficient" allocation has important cultural consequences. Its eminently reasonable and rational to act on the basis of those cultural consequences, even if you embrace market efficiency as an important social good.

Before reacting negatively to these sorts of appeals against dominant market players, I think its important to keep these competing concerns in mind and remember that we are embedded in a social fabric that is considerably broader than the allocative efficiency concerns that economists normally think about (and which, even if we restrict our attention to allocative efficiency, aren't always best solved with markets).

True Grit Remake

Looking forward to this... Jeff Bridges looks like he's going to be a lot darker than John Wayne was.

Skidelsky and Caldwell on Hayek and Kenyes

Robert Skidelsky and Bruce Caldwell on Hayek and Keynes in the Depression. These are lectures from Soros's new Institute for New Economic Thinking organization.

Skidelsky says something interesting - he says we should embrace theories that accept the possibility that depressions happen, and that it is the Austrian and Keynesian theories that do so and they need to be the "building blocks" for theory as we go forward.

It amazes me...

A few things have really amazed me recently.

- It amazes me how "promote the general Welfare" can be rewritten to mean "to promote the following enumerated powers" without anyone blinking an eye...

- It amazes me how people are thought to "defend the Constitution" when they accuse others of overreaching, but not when they assert the right to republican self-government provided in the Constitution against those who would deny them that right...

- It amazes me that we forget that almost all of the grievances brought against George III in the Declaration of Independence involve either (1.) the denial of the authority of self-governing bodies, or (2.) the failure of the King to pass beneficial legislation demanded by the people...

- It amazes me that one of the most ideological and political movements in the post-war period actually considers itself to be apolitical or non-political or even anti-politics...

- It amazes me that a politician that has been elected over 15 times, who has been in Congress for longer than I've been alive, who has perhaps the widest - and easily the most fervent cult following of any politician in Washington today, is similarly considered to transcend politics and political opportunism...

- It amazes me that libertarianism is explicitly promoted on some shows on the largest news network in America (and implicitly promoted in many others), and yet it still claims not to have a mainstream platform, and that news network still claims to be out of the mainstream. How can you be the largest network in the industry and not be a part of the mainstream?!?!?

*****

I don't generally go after conservatives or libertarians for "not caring about the unemployed" or "hating poor people" or "hating the environment". I understand they are not monsters on these questions, and I understand why they might come to the conclusions they do about the appropriate means for addressing these concerns (and in more than a few cases I agree with them - I occupy the market-oriented center-left). I rarely critique conservatives or libertarians on these grounds unless I stumble on a statement or an instance that gives me special reason to.

But what bothers me to no end is when they blatantly and utterly fail on their own terms. When Hill staffers and advocates that are up to their eyeballs in political pandering and strategizing tell me they are opposed to Washington politics. When I not only have to listen to people bend over backwards twisting or simply dropping the words of the Constitution to fit their viewpoint on an issue - but I also have to listen to them tell me afterwards they are constitutional originalists. And not only that they are constitutional originalists, but that they are defending the Constitution against people like me.

These people aren't originalists - they are de-ratificationists. At one point we called them anti-federalists. It's fine if that's what you are, but don't tell me you have any concern for the Constitution or a broad sampling of our founding principles (certainly they are representing a narrower sampling of anti-federalist founders).

No one instance inspired this. A fairly wide collection of things I've read and conversations I've had over the last week or so inspired it, many having to do with the health reform ruling.

Outsourcing deep thoughts

Its been pretty busy lately, so while I can throw out a few points on the Grinch, I haven't had time to really review a few other things I've been wanting to, so I'm going to outsource a few things.

Here is Jonathan and Mattheus on the third chapter of Hayek's Prices and Production, which I still haven't gotten a chance to read and comment on, but hope to at some point.

Here is Scott Kuhagen on the recent health reform ruling in Virginia. I also found this piece on the role of the Commerce Clause in this decision useful. Readers know I'm no fan of the mandate, but I think the Constitutional case against it is somewhat weaker than the policy and economic case against it. The reason for this, I think, is that proponents and detractors alike have focused far too much on the Commerce Clause and far too little on the General Welfare and Necessary and Proper clauses, which I which I think are the necessary and proper ways of defending a mandate. But even if one were to defend the constitutionality of the mandate, I have serious doubts about the wisdom of the measure.

The Grinch is No Pigovian

Art Carden, an Austrian affiliated with the Mises Institute, recently published a version of The Grinch Who Stole Christmas at Forbes that presents the Grinch as a Pigovian trying to shut Christmas down in Whoville by citing externalities. For example, it starts with:

"Every Who down in Whoville liked Christmas a lot.
But the Grinch, who lived just north of Whoville, DID NOT.
He stood and he hated the Whos and their noise
He hated the shrieks of the Who girls and boys
For fifty-three years he’d put up with it now—
He had to stop Christmas from coming, somehow.
He asked and he questioned the whole thing’s legality
Then his eyes brightened: he screamed “externality!”
He reached for his textbooks; he knew what to do
He’d fight them with ideas from A.C. Pigou
This idea has merit, he thought in the frost
A tax that was equal to external cost
At the margin, would give all the Who girls and boys
An incentive to stop all their screaming and noise
Failing that, an injunction to make them all cease
And they’d have to pay him to have their Roast Beast."

I can't let this one be, because it tarnishes (1.) a Christmas classic, and (2.) an economic classic, and that simply cannot stand.

Carden is certainly right that A.C. Pigou would consider the uncompensated costs that the Grinch bears valid for consideration. Pigou is an all-inclusive sort of guy in that sense. Much like Cindy-Lou-Who, Pigou recognizes the fundamental Whomanity of the Grinch and wouldn't just shut him out in the cold on Christmas. But it simply doesn't follow that Pigovian logic would militate against Whoville Christmas cheer. After all, Pigou says that we need to consider all uncompensated costs and all unpaid for benefits - there can be positive externalities as well as negative externalities. And while Whoville celebrations may be a genuine negative externality for the Grinch, it's a positive externality for all the residents of Whoville. Think of it like the way in which a vaccination is a positive externality. If one person gets a vaccination that's good for them - they enjoy benefit. But if the whole community gets a vaccination they get additional benefit because of the actions of others. Pigovian logic would suggest that Whoville singing could be subsidized, not taxed.

Now, just because there's a logical case that it could be subsidized on the grounds of externality does not mean that it should be subsidized. I'm also a firm believer that the very act of commoditization cheapens some goods, and so its not necessarily appropriate to transact for optimal Whoville celebration levels at all. But if you were to consider it as a transaction, as the Grinch does in Carden's poem, Pigou is unequivocally on the side of Whoville, not the Grinch.

A question...

There used to be an amazing resource called www.econphd.net, with all kinds of rankings and information and advice. It doesn't exist at that url anymore. Does anyone know if this is still around or if the people that put it up have anything else like it?

Assault of Thoughts - Getting Published Edition - 12-14-2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

I have a (mostly) silent obsession with getting published, as I'm sure a lot of amateur scholar types do. I, like a lot of you, always have ideas percolating. Many of them I share and develop and cultivate and revisit over time on here. Many others I don't share. Virtually all the ones I don't share are ideas I would like to get published in a peer-reviewed journal*. But of course, this is extremely challenging. There are a lot of trade-offs. First, I'm a relative amateur in economics. I think I have some truly sophisticated and worthwhile ideas, but I feel like if I let them stew for a while they could get cleaned up considerably. There are also time constraints. I mainly research and write early in the morning... and lots of mornings that doesn't even happen - I simply blog. But I don't jump head-first into my morning research because it seems unlikely I'll get a solid paper together given these constraints. It took me something like eight months to write my 1920-21 paper this way, and that wasn't a technical paper at all. I feel like the sooner I push these ideas through, the lower quality job I'll do. But then there's also that urge: publish.

It's an intimidating business, and I'm always interested in thoughts on publishing in peer-reviewed venues, particularly thoughts for young scholars. I've seen a few recently (not for young scholars, necessarily) that I'll share here.

- First, Greg Mankiw shares a short essay by Preston McAfee, an editor at the AER, on editing economics journals.

- Second, an article in The New Yorker shared by a colleague here at Urban on trends in significant results in random assignment studies over time. Initially, significant results are very high, but over time the significance actually erodes. Why? One reason is publishing biases. A subject of study first attracts the interest of journals by providing statistically significant results. That's what's exciting. And it's really less devious than that I'm sure - why would you publish an article saying "nobody ever suggested this would work before, and by the way we find it doesn't work"? So - whether you think of that decision making process as biased or sensible, a research agenda usually starts with lots of significant results. As it goes on, the insignificant results become more attractive because they challenge a status quo. Is this good? Is this bad? I'm not entirely sure its either... or to perhaps its more accurate to say I'm not sure its entirely either.

- And since I hate to have less than three links in these posts, here's Peter Boettke on "book cultures" vs. "journal cultures" in economics. I think I've linked to this before, but it doesn't hurt to do it again.

If anybody has thoughts on getting published I'm interested in hearing them.

* - I currently have four journal-length article ideas that I haven't shared on here, that I continue to outline and collect sources for in some detail, and that probably won't see the light of day (if at all) until well into my PhD (if that happens... which I hope isn't in question, but who knows). This is aside from hugely speculative ideas like "I'd love to write something about H.P. Lovecraft's thoughts on the Depression", of which I have several as well.

Drinking microfoundations from a fire hose

- Peter Diamond's prize lecture
- Dale Mortensen's prize lecture
- Chris Pissarides's prize lecture

I have now listened with great interest to all of these, but my title was chosen for a reason - I have no idea how to distill it all for readers right now, and I think I'm going to listen to Pissarides's a second time. All very good - listen to them if you haven't already.

- Rajiv Sethi on microfoundations with lots of good links (HT Mark Thoma)

- David Andolfatto isn't really talking about microfoundations, and it's not really a fire hose... it's a strong garden hose that you realize somebody put a kink in... maybe that kink will eventually be released, and a gush of water will come out, but by the end of it I didn't get that much out of it. He starts of by accusing certain Keynesians of being naive and simple-minded, then he acts like he's going to put together some more sophisticated framework to demonstrate that, and then the framework he comes out with essentially ends up telling a Keynesian story. I link it here because the framework itself (which he links to) is more formal and sophisticated than a lot of blog posts you see, and formalism is always nice in this quite informal medium that we are all operating in. Still... the story sounds pretty Keynesian to me. And what he calls "rational pessimism" and "irrational pessmism" both sound Keynesian to me (he only calls it Keynesian if its "irrational pessimism", and that seems to be the sum total of his critique of Keynesian stories).

All this makes me think I need to read Phelps et al. as soon as this populism stuff is out of the way.

Matt Yglesias's kinda-sorta-half-decent response

I started by titling this "Matt Yglesias is making things less clear, not more clear", but that didn't seem entirely fair.

Anyway - he writes a good post, ostensibly in opposition to Steve Horwitz , without really addressing Horwitz's point. That, unfortunately, reinforces Horwitz's implicit claim that Keynesians are consumption-mongers. The charge that Horwitz is "extremely foolish" was uncalled for, but then again I'm sure Horwitz has had worse thrown at him.

.

Yglesias walks into precisely the same trap I outline here: assuming that "consumption" is the same as "demand". It's not. Firms "demand" labor and firms "demand" capital goods. None of this is "consumption". "Demand" in a monetary economy is simply "when somebody wants to give another person money in exchange for something else". Yglesias is right to trumpet loudly that what we face is a demand problem. But he jumbles that up with Horwitz's talk about consumption. I think this consumption line needs to be firmly put to rest. Nobody should mistake the babbling of a journalist or a politician for the Keynesian position. Consumption may or may not be depressed - it probably is a little depressed - but the real concern is investment demand.

What I'm reading...

I need to write these short articles on populism soon, so my reading has shifted gears towards that material.

- I had a great anniversary weekend in Williamsburg with Kate. As usual, I woke up relatively early and enjoyed reading about three quarters of Norman Pollack's The Populist Response to Industrial America (1962) in front of a roaring fire. This is an excellent book - its stated goal is to provide an intellectual history of Populism, drawing mainly from Populist presses in the mid-west. His primary argument is that Populism was not, as many argue, a reactionary, conservative, or regressive movement. Rather, it was radical and embraced industrial development. I'm mainly reading this book for Pollack's treatment of technological unemployment (one of the longer entries I'm writing on is on technological unemployment). The story seems to be mixed here - Populism certainly had a sense of technological unemployment, but they primarily blamed social arrangements that they suggested didn't channel "labor-saving technology" into lower work hours and higher wages.

- I'm still reading Friedman and Schwartz's Monetary History. It's very good. Jonathan cautioned that it was essentially an encyclopedia and not worth reading on its own. I've found that there's a lot of very thoughtful, very clear analysis that accompanies the mountains of data. It's certainly not a gripping read, but there is a clear narrative to it. I'm actually starting to think about how monetary trends in the immediate post-Civil War period might relate to the post-WWI and 1920-21 depression period. I'm mostly reading this for the entries as well - so I'll probably put it down when I get to the Great Depression chapters (I've read the Depression chapters before - some other time I'll finish off the rest of the book).

- I've read a series of good articles, also mostly on Populism entry topics. Luca Einaudi's From the franc to the 'Europe': the attempted transformation of Latin Monetary Union into a European Monetary Union, 1865-1873, and Marc Flandreau's The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870-1880 have both provided invaluable information on the International Monetary Conferences.

- I've also recently read Giuseppe Fontana's The transmission mechanism of fiscal policy: a critical assessment of current theories and empirical methodologies (Journal of Post-Keynesian Economics), for an idea that's stewing in my head on empirical tests of fiscal stimulus. I think Fontana critiques the empirical approaches well, but I would have framed it all slightly differently.

It will probably be more Populism on my reading list until the end of the year - I want to read Hofstadter's essay on Coin's Financial School, and Coin's Financial School itself if I have time. I also want to read Friedman's The Quantity Theory of Money - A Restatement. And, as with Friedman and Schwartz, probably pick up the third volume of Dorfman's The Economic Mind in American Civilization to read relevant chapters that address Populist economic thought.

For the New Year, we shall see...

Assault of Thoughts - 12/13/2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Krugman comments on a post by David Andolfatto on the worker flows (hiring, firing, etc.) that we would expect to see in a recession. Krugman writes: "Andolfatto correctly points out that different stories about the fall in employment have different implications about hiring and firing. If you believe that we’ve suffered an overall fall in demand, you’d expect to see hiring plunge and firing rise; it’s ambiguous what should happen to overall job separations, because you’d also expect fewer people to quit, given the lack of available jobs... Hiring plunged; job separations also mostly fell, but that was due to a fall in quits rather than layoffs, which rose during the worst of the crisis, then returned to normal levels. In all such exercises, you’re looking for the “signature” associated with one or another story; and the signature here is clearly the one you’d expect with a general fall of demand. Keynes roolz." This note from Andolfatto first caught my attention because these gross flows are what I'm interested in doing work on. I think Krugman was right to criticize Andolfatto's initial focus on changes in labor force status (unemployed to employed, unemployed to out of the labor force, etc.) and focus instead on hiring, separations, quits, etc. Krugman was probably also right to demonstrate that a simple restructuring argument would not be sufficient to introduce a simultaneous fall in hiring and rise in separations. But Krugman is wrong to conclude from all this that Keynes was right. Krugman is a theorist, not an empiricist, and he often makes the mistake on his blog of confusing corroboration with proof. Reduced hiring during a recession is the dominant feature of all gross worker flow data that any theorist has to explain. It's like volatile investment and realtively smooth consumption over the business cycle. Almost every business cycle theory explains these facts because they would be immediately rejected if they didn't. Some, like the readjustment story, can't explain the hiring data on its own - so it's often paired with other points or explanations. This does corroborate Keynes, but Krugman doesn't prove anything by it.

- Nick Rowe has a great post up in an ongoing dialog with Brad DeLong that should be a clarion call for Keynesians blaring: "Keynesianism is liquidity preference theory: don't forget that". Rowe's post does a great job distinguishing Keynes on money from monetary disequilibrium theories. I think it's fair to say that most modern macroeconomists are monetary disequilibrium theorists of some variety. Some people may not realize this, but Malthus won that debate pretty handily - so handily that many question if Say ever really disagreed with him. Keynesians add liquidity preference to the mix, which raises the question: are we observing an increase in the demand for money or an increase in the demand for liquidity? To make piece or common cause with monetary disequilibrium theorists, we often treat these as if they're synonymous - but they're not, and they can imply different solutions. Rowe presents the differences and alternatives with a very clear analogy.

- Finally, Brad DeLong reproduces one of my favorite letters by Thomas Jefferson to James Madison while Jefferson is in France. The letter is on the causes and consequences of inequality in France. I had read Jefferson's letter discussing how the earth belongs to the living a long time ago, but reading this letter really drove home for me the connection between Jefferson and Paine on the centrality of time and the legal fiction of property rights in their political philosophy. I discuss this here, and elsewhere as well. Jefferson, I think, was the most brilliant mind of the founding era - no spunky young constitutionalist or sagacious old womanizer comes close in my opinion. He placed an extremely high premium on liberty - and rightly so - but I fear we've dumbed down his intellectual legacy.

New article in History of Political Thought

My most recent article, "Melchizedek as Exemplar for Kingship in Twelfth-Century Political Thought", is now published in the latest issue of History of Political Thought.  Following is the abstract:

This article examines the use of Melchizedek as an exemplar for kingship in the twelfth century, considering interpretations offered in the Norman Anonymous, Bernard of Clairvaux’s de Consideratione and John of Salisbury’s Policraticus. While the Norman Anonymous provides a Christological and royalist reading of Melchizedek’s roles as king and priest, de Consideratione offers a more nuanced explanation of papal power without significant regard for disputes of secular and ecclesiastical liberties. The Policraticus, on the other hand, advances a theory of divinely elected, non-hereditary kingship on the basis of Melchizedek’s being ‘without genealogy’. The interpretation of the Policraticus stands in tension with a prominent rabbinic teaching that Melchizedek is identical to Shem, the son of Noah, and so possessive of a lineage that raises interesting (though not insurmountable) challenges for the non-hereditary kingship theory advanced in the Policraticus.

Please email me if I can help you by sending a PDF of the article.



Also published in this issue is an article by Vasileios Syros, "Linguistic Contextualism and Medieval Political Thought: Quentin Skinner on Marsilius of Padua".  I wrote my Melchizedek article for a seminar with Prof. Syros in 2009, and at the time Prof. Syros was working on this article.  I had the opportunity to read a draft and offer some thoughts on it, and he's kindly acknowledged me in the published version.

The Ultimate Helicopter Drop

This puts QE2 to shame.

Lee on Russ Roberts and Keynes

Lee Kelly has a post up critiquing Russ's post that I mentioned earlier.

At our next secret Keynesian meeting where we plot how to slide America to socialism and dismantle the Constitution, I'm officially nominating Lee to receive the title "honorary Keynesian".