Assault of Thoughts - 12/2/2010

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

- If you haven't heard yet, NASA is going to be holding a press conference at 2 pm today to announce that they have discovered life on Titan, one of Saturn's moons. Well... actually that's just what I would want them to announce, but you know how it goes - the aliens aren't going to make it that easy on us. It sounds like in all likelihood it will be an announcement of some discovery about the prospect for arsenic-based life. That's the source of all the Titan talk - Titan is the only other body in this solar system that we know of that has liquid on its surface (all over its surface, in fact). Astronauts are not going to want to take a dip in it, because it is super-chilled water that only remains liquid that far away from the sun because of its high arsenic content [UPDATE: So needless to say I'm not an astronomer... a closer reading of the material on Titan and this announcement requires me to make a correction - I don't think we know that arsenic exists in Titan's lakes. They are hydrocarbon lakes with a lot of liquid nitrogen and methane. Part of the speculation was they may also have arsenic and that an arsenic-based life form was discovered]. Still, the liquid is encouraging and a new discovery that an arsenic solution offers a viable building block for life would be especially encouraging. And of course if it really is aliens you'll see a post from me at 2:01 pm saying "I told you so".

- Nick Rowe has a long new post up on "New Keynesian macroeconomics with and without barter". I haven't gotten a chance to read it yet, but Rowe is always good. Arnold Kling talks about it here. If anyone wants to post reflections on it here that would be great, because I don't always get around to circling back and reading these things I intend to read.

- Matt Yglesias makes a point that me, Jefferson, and Keynes like to make - namely, that different economic circumstances call for different policy responses. Yglesias writes of Mike Pence: "There do seem to be a lot of people, Pence among them, who have a weird amount of trouble with the idea that you do different things in different circumstances. If inflation’s too high, you need tighter money—that’s the early 1980s. But if nominal expenditures are too low, you need looser money. If high deficits are forcing the central bank to keep nominal interest rates high, you need a lower deficit—that’s the early 1990s. But if nominal rates are at zero and total spending is still too low, then you need a bigger deficit." So I was wondering to what extent this is a partisan thing. Certainly it isn't entirely partisan - both sides make this mistake when it's convenient. But I was especially curious to look back and see how Carter reacted to inflation in the 1970s. This is an address Carter delivered in 1978 on his anti-inflation program. He seems to understand the "different circumstances require different policies" quite well. He's got deficit cutting, federal pay and hiring freezes, delay of tax cuts. He also notes the necessity of tight monetary policy, although he doesn't go into detail there because its not his purview (Carter did, of course, appoint Volcker to the Fed). So broadly speaking, it sounds like Republicans had the same approach to the Depression, to stagflation, and to the Great Recession, and they were wrong two out of three times. Democrats changed their tune depending on what the circumstances required, and guess what - three out of three. Dogma does not make for good economic science or economic engineering (ya you read that right - I used the "e" word).

- Finally, solar costs may converge with carbon-based fuel costs within a decade. People vastly underestimate the power of the price mechanism and the power of technological innovation, and I think that leads them to be unduly pessimistic about human prospects. Certainly if a cost isn't priced in by the price mechanism, you're going to have a distortion - which is why I think it's pretty clear that the price mechanism alone, with current property rights, would not solve climate change for that reason. But that doesn't make the price mechanism futile or purposeless. What it does do (in combination with human inventiveness) is displace old technologies and direct people towards new, better ones with an efficiency that central planning could never dream of. Of course it would do this even more efficiently if all the costs and benefits were internalized. But this is still good news.