Thursday, June 30, 2011

Assault of Thoughts - 6/30/2011

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

I come home to over 1,000 posts on my blogroll... here are a few that caught my eye. What else deserves my attention?

- First - my connection to the outside world at the beach has been the Washington Post, so I did catch this article on Sweden's recovery, and this profile of Christine Lagarde, the new head of the IMF. As far as I can tell she's a good choice.

- As Simon Johnson points out, though, problems will persist so long as the international monetary system doesn'st solve the Triffin Dilemma.

- Krugman on monetary policy in a balance sheet recession.

- LK on the 1920-1921 depression. He hits some high points on why this particular downturn is different from, say, the current downturn. I've mentioned most of these points before. What LK does that I've refrained from doing is come out and say it's inconsistent with ABCT. I'm not sure I have the tools to go for that claim, but I certainly know it offers no clear evidence that fiscal policy doesn't work, and it seems to suggest that monetary policy is efficacious in downturns not characterized by debt-overhangs, deficient demand, or financial crises.

- Noahpinion discussing Brad DeLong and the political infeasibility of stimulus. I steeply discount the public choice theory credentials of people who suggest that Keynesianism is great for politicians (yes, this includes a lot of prominent public choice theorists).

- Tyler Cowen on British accents.

- This is a great post by Bryan Caplan on ability bias vs. signaling in the economics of education.

- In 1911 a piece of Mars slammed into Egypt. This sounds like it has Lovecraftian potential.

- Gary has several posts up on Jefferson at Pacific Crest Trail. This one is on Jefferson's views on Hamilton and debt. There are others - you can look at the blog. I've always found Jefferson's views on banking and debt hard to parse. Part of it is clearly that he doesn't understand the difference between public and private debt and he maintains old prejudices against public debt that were just beginning to fall to the wayside. But he also has more nuanced distinctions between politically connected private bankers who enrich themselves with their connections, and more independent public bankers. I'd love to learn more about exactly what he thought, but I'm not convinced it maps on to modern central banking as much as people like to think.


  1. "What LK does that I've refrained from doing is come out and say it's inconsistent with ABC"

    Yes, to the extent that they point to it endlessly as if it vindicates their ideas: in fact, a recession that was ended by the Fed lowering interest rates, expanding the money supply and allowing further expansion of the money supply by a fractional reserve banking system leads in ABCT to an unsustainable boom causing distortion of the capital structure.

    Under ABCT, there would have been no real or genuine recovery in 1921 that avoided forced saving: it was just another ABCT.

    They demonstrate gross illogic and hypocrisy by claiming that the recovery of 1921 is proof of the success and ability of free markets to end deflationary recessions quickly: in fact, the Fed helped end it, and, under their own theory, there was no real or sustainable recovery at all.

  2. I defended your honor from villainous curs here:

  3. @ LK

    You have actually a very good argument there. And when I heard the first time of the depression of 1921, and that it was ended by prudent government policies, I wondered immediately myself “Ahm wasn’t that the roaring 20s? With low interest rates?”… And I didn’t saw anyone mentioning it except you.

    I haven’t looked so far at the data and timing to argue if it was a real recovery or phony recovery, or maybe at which point the real recovery turned into a phony one... But the fact is clear that it is hard to argue either way, and that one cannot ignore the booming years and the policies enacted following this episode.

    @ Daniel

    As far as I understood that, you argued that prudent policies haven’t been a problem because the economy wasn’t in a liquidity trap at that time right? So do think it was/is actually good in such a recession to be prudent like it was in 1920-21 or would you argue that also in that case it was still a bad policy and with more government spending (and lower interest rates?) the recovery would have been faster(without being phony or at least more phony)?

    Is in the Keynesian theory a phony recovery even possible, or are all recoveries real and good recoveries?

  4. In the radical Whig tradition public debt was an evil to be avoided. Debt allowed states to become military empires; Hamilton and the federalists argued this point at the time. That isn't the sort of empire that Jefferson wanted; Jefferson wanted an empire of people espousing liberal values and voluntarily exporting those throughout the Americas (indeed, to Jefferson that empire need not be one contiguous state - he imagined that the West would eventually break off from the East, for example). That radical Whig tradition is still alive today, though it probably has a lot fewer adherents than it did. It is the primary problem I have with public debt; public debt allows for a large, powerful state with a standing army and a horde of officials.

  5. Thought I would pass this on. The confrontation over the debt ceiling reminds me that while Geithner is waving the 14th Amendment around what he is probably referring to in reality is this language from Perry v. U.S. (1935):

    "We do not so read the Constitution. There is a clear distinction between the power of the Congress to control or interdict the contracts of private parties when they interfere with the exercise of its constitutional authority [294 U.S. 330, 351] and the power of the Congress to alter or repudiate the substance of its own engagements when it has borrowed money under the authority which the Constitution confers. In authorizing the Congress to borrow money, the Constitution empowers the Congress to fix the amount to be borrowed and the terms of payment. By virtue of the power to borrow money 'on the credit of the United States,' the Congress is authorized to pledge that credit as an assurance of payment as stipulated, as the highest assurance the government can give, its plighted faith. To say that the Congress may withdraw or ignore that pledge is to assume that the Constitution contemplates a vain promise; a pledge having no other sanction than the pleasure and convenience of the pledgor. This Court has given no sanction to such a conception of the obligations of our government."

    This further reminds me, in of the many of FDR's more blatant tinpot dictator moments, that he ordered (unsuccessfully) - and prior to the court's decision - the Sec. Treas. Morganthau to manipulate the financial markets so as to create enough turmoil that pressure would be brought to bear on the Supreme Court. Happily Morganthau had the stones to ignore that command.

  6. My understanding of the Constitutional argument (whether or not this is Geithner's Constitutional argument) is this:

    - We have to fulfill contracts
    - Congress, in its recent appropriation bill, did not specify whether funds are financed with debt or taxes
    - Tax revenue is not sufficient to fulfill contracts
    - Therefore, the executive is caught between violating the debt limit or violating the appropriations bill.
    - The most recent act of Congress is presumably the will of the Congress. The executive - in order to not overstep the legislative prerogative - must therefore contract more debt to spend what Congress demands that it spends.

    Congress, in other words, has required the executive to do two contradictor things. It's as if Congress passed a law requiring the executive to collect a 20% flat tax and it passed a law requiring the executive to collect a 21% flat tax. What must the executive do? It should do whichever Congress demanded most recently.

  7. As for FDR and Morgenthau, you're going to have to be more specific.

    When did FDR order Morgenthau to manipulate financial markets to cause turmoil.

    I find that as implausible as these recent claims that the Republicans want to trash the economy to ruin Obama's election chances.

    Claims like that really require some sort of evidence, Gary.

  8. Please see: McKenna, Marian C. (2002). Franklin Roosevelt and the Great Constitutional War: The Court-packing Crisis of 1937.

    Here is what I am referring to in question:,+Marian+C.+%282002%29.+Franklin+Roosevelt+and+the+Great+Constitutional+War:+The+Court-packing+Crisis+of+1937+morganthau&hl=en&ei=1cQMTpOHB8rYgQfKt4nUDQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCoQ6AEwAA#v=onepage&q&f=false

    Hope that works.

  9. Unfortunately you can't cut and paste from Google or I would do that instead. Roosevelt was prone to all manner of outbursts like this; he could not stand being challenged by the other branches of government. The fact that he tried to pack the Supreme Court is measure enough of his character. Imagine if Bush had tried to get away with that non-sense; he'd be called a fascist.

  10. Want some more delicious irony about another American President while we're at it? Jefferson actually banned books at the University of Virginia. I'm trying to think of the titles in question; one of them may have been Montesquieu's "Spirit of the Laws" due to its emphasis on the independence of the judiciary - Jefferson hated the idea of an independent judiciary.

  11. I disagree for a number of reasons. But it is no matter. Let the President try to enforce the issue in the courts; the courts will throw up the non-justiciable flag faster than three minute rice boils.

  12. You linked me to the index, but I traced it back.

    OK - so this is how Morgenthau remembers things. Do you really find that satisfactory? I'm regularly told that Hoover's recollection of Mellon's call to "purge the rot" is unreliable and unfair. Certainly current accounts that the Republicans want to wreck the economy would be considered unreliable.

    I don't mean to be difficult, but doesn't this seem... well... extremely self-serving? Even if FDR had called for a halt to taking any action with any of these stabilization funds, this inference that he wanted to generate uncertainty doesn't seem to have any basis at all. Notice how much of it isn't even Morgenthau's words - it's McKenna providing his own narrative.

    What would you think if I just took for granted reports that Ron Paul wants to end the Fed to cause a double dip, or that Republicans in general want to enforce the debt limit to cause a double dip. Wouldn't that be unconvincing of me?

    This is clearly Morgenthau's understanding of the situation (although even McKenna seems to make it more malicious than Morgenthau considered it). It's not clear at all it's more than that.

  13. On the courts -
    Court-packing doesn't appear to me to be illegal at all. The number of justices varied before Roosevelt. Clearly it was unsavory.

    Your concern with it seems unusual after your recent suggestion that there is some problem with putting the Constitution at the mercy of the judiciary. Wasn't Roosevelt and his Congressional allies just asserting his right as a co-equal branch? Let's say court-packing did pass. How dictatorial would that be? Doesn't that just mean that 500 or so Congressmen and a nationally elected executive disagreed strenuously with how nine men read the Constitution? How is that any more dictatorial than 500 Congressmen and nine justices disagreeing with how Roosevelt read the Constitution (which is how the situation ultimately turned out in this particular case)?

    I think court packing definitely reveals a character flaw on Roosevelt's part, but that's because I'm comfortable with Marshall's vision of a unique role for the Supreme Court.

    Why you're uncomfortable with court packing seems unclear to me. It seems to me your argument changes depending on what the politics and the ideology of the question at hand are.

  14. Daniel,

    First you accuse me of making shit up and now you're attacking the "some sort of evidence" I bring to the table. What I find silly about your earlier comment is just how naive it is; how it implies that political actors just don't do things like this and that evidence is needed in regarding statements like this. Political actors lie to their publics - partly to liberal publics - all the time; they do all manner of underhanded stuff to push forward their agendas.

    "Your concern with it seems unusual after your recent suggestion that there is some problem with putting the Constitution at the mercy of the judiciary."

    When did I say that exactly?

    Roosevelt clearly knew that he was trying to change the ground rules by attacking the structure of the Supreme Court.

  15. You need to calm down, Gary.

    1. I've never accused you of making shit up, and I don't appreciate being accused of that.

    2. Yes, one person's privately expressed interpretation of another person's intention has less veracity than other corroborating evidence, particularly when there are political frictions involved. You need to learn to deal with this, Gary.

    3. To clarify - of course I think political actors lie, cheat, and have improper motives. Of course I think that. I haven't said anything to suggest that isn't true, but apparently my thoughts on this need clarification. However, this does not mean that we can simply assume that any given situation is an example of this sort of impropriety on the part of political actors.

    4. re: "When did I say that exactly?". In your recent post on judicial review at your blog.

  16. 5. re: "Roosevelt clearly knew that he was trying to change the ground rules by attacking the structure of the Supreme Court.". I agree. This is why I called it unsavory. I think it's less clear that it is (1.) illegal, or (2.) in any way dictatorial. If he won, he would have won with the assent of Congress. Two co-equal branches asserting an understanding of the constitution against a third co-equal branch doesn't strike me as being particularly dictatorial, although as I've always agreed it does show something about Roosevelt's character.

  17. Daniel,

    I'm quite calm Daniel.

    This is what you wrote:

    "I find that as implausible as these recent claims that the Republicans want to trash the economy to ruin Obama's election chances."

    I personally don't find such claims in the least bit implausible. And claiming that a statement of mine sounds implausible is tantamount to accusing me of spreading bullshit.

    As for your statement on Morganthau, since it was only he and two other people in the room, yes the only other corroborating evidence would be those two other persons. Given what we know of FDR though, his statement is right on the money - he was quite prone to these sorts of outbursts (given his background and pedigree it isn't surprising that he'd get all in a huff over people challenging his authority or his way of thinking - he had a hard time treating others as equals and a difficult time seeing anyone who challenged as being honest in their challenges). The point of course is that you're now moving the goal posts; first it was "some sort of evidence," and now you're poo-pooing the idea merely because it was the recollection (via his diary) of one man. What you need to do is realize that I provided you exactly what you asked for.

    "In your recent post on judicial review at your blog."

    I said nothing of the kind. You're reading something into the comment that isn't there. My point is to attack the commonly held notion that judicial review came from the hoary past before the creation of the Constitution - it didn't. It is assumed to be an inherent power of the courts based on this idea; just as the President is assumed to have inherent FP policy (this too being a relatively modern invention). Whether it is a bad idea, I have no way to predict whether something different would be better - I don't think it leads to significantly better results in other countries for example.

    "Two co-equal branches asserting an understanding of the constitution against a third co-equal branch doesn't strike me as being particularly dictatorial..."

    That really depends on the nature of the branches actually; formally I am sure that Venezuela looks nothing like a dictatorship - but would argue that this matters on the ground? But thus ignores the point of whether FDR himself was trying to act like a dictator; and he often did, whether there was resistance to his efforts or not.

  18. It's true I think you're "spreading bullshit". I've never accused you of "making shit up". Those seem like two very different things to me.

    Presumably you don't realize the bullshit is bullshit, which is why I'm trying to explain why I think it is. That's just a less nice way of saying "I think you're wrong".

    To accused me not of saying you're wrong (which I do think), but of saying you're dishonest (which I haven't said).

    I just want to clear that up - I'm tired of arguing with you over the rest of it. This post wasn't even about Morgenthau or Roosevelt.

  19. Daniel,

    It isn't bullshit.

    All you've done is argue that Morgenthau isn't a terribly credible source; you haven't demonstrated that he isn't a credible source (except by analogy to comments re: Mellon & Hoover). Why you automatically discount his statement I cannot say, but it seems like a rather knee-jerk reaction to me to say the least.

    What is the source of the error in Morgenthau's remembering the details then (keeping in mind this was from his journal dated the day of the incident)? After all, we're not talking about the weak scenarios that you cook up - just some body saying bad things about Republicans, or just someone's comment about Ron Paul - we're talking about the man that Roosevelt himself picked to be Sec. Treas. (over objections of Republicans) who was in his administration from the time it started until Roosevelt's death - someone who advised FDR on a number of fronts, not just economics. Of course, Morgenthau wasn't a Keynesian ... hmm. Maybe in his secret anti-Keynesian heart he was a rogue agent who was bent on making comments that were not flattering to FDR in his diary.

  20. Gary, please. All I've said is that this claim about FDR isn't strongly supported. I don't know if Morgenthau is right or not. I'm simply saying my default position is not to presume that he is.

    I am saying you are wrong for pretending that the situation is otherwise. I have no idea whether Morgenthau is wrong or not - whether Morgenthau is "spreading bullshit". It's precisely my inability to know that that introduces the problem.

    Morgenthau thought Roosevelt was reckless on a number of fronts, particularly on much of the more expansionary New Deal policy. It's not inconceivable at all that he interpreted the situation to be much more reckless than Roosevelt interpreted or intended it. And ultimately it's McKenna, and not even Morgenthau, that introduces this language about "uncertainty".

    I'm sick of arguing over this stuff with you, particularly when all I'm telling you is that we have to distinguish between an authoritative history and a very specific interpretation of history. What does it seem like we can say authoritatively? Well, probably that Roosevelt wanted to pull back on his use of financial market stabilization funds while the Court was making its decision and that once again Morgenthau had a difference of opinion from Roosevelt. We can't say authoritatively that Morgenthau's side of that difference of opinion and Morgenthau's interpretation of Roosevelt's motives was right.

    [end conversation]

  21. "All I've said is that this claim about FDR isn't strongly supported."

    Yes, you've said that and then you've also made stronger claims.

    "I am saying you are wrong for pretending that the situation is otherwise."

    I am not pretending it is stronger than that; it is stronger than that. Couple Morgenthau's statement with what other people said about FDR's rash behavior (as well as his rash actions as President that were more visible even at the time) and it becomes a very strong claim indeed.

    "I'm sick of arguing over this stuff with you, particularly when all I'm telling you is that we have to distinguish between an authoritative history and a very specific interpretation of history."

    My Gods, there is no such thing as "authoritative history." I don't know whether to laugh or cry at this sentence or what. Some history is better than others, sure, but authoritative? That's far too subjective a claim to make.

    Here's what you continue to fail to understand; Morgenthau's statement is highly credible because of what we know of Roosevelt from other sources. If it were the only statement ever made by anyone like that, sure, you might be right. I can see now my error, I presented the evidence without that context; I just assumed you knew it.

  22. Anyway, agree or disagree, it is nice to know that someone reads my rather homely blog. Thanks. :)


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