Friday, September 16, 2011

Assault of Thoughts - 9/16/2011

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

- Charles Krauthammer has a good article on Social Security. He doesn't mention the role of persistent growth but does mention something else important - than mandatory nature of the program. He's also a little too worried about the sustainability of the program, but his point is right on: this Ponzi scheme works because it's not like a Ponzi scheme in all the ways that matter. So let's keep it running until the electorate decides they don't want it anymore.

- Bob Murphy has a post critiquing the idea of measuring trend GDP from peak-to-peak. I think the key insight for why we do this comes from Friedman's "plucking model". I try to explain that in the comments, but Bob seems to think I'm saying Austrians can't explain long recessions (I'm not saying that - they do have an explanation for that). The point is that the plucking model gives us a reason for why we measure GDP potential from peak-to-peak. Maybe this weekend I'll do a more detailed post on the plucking model, but it's a very interesting empirical regularity.

- And speaking of empirical regularities and Bob Murphy, Chris Bertram sharply criticizes Bob's a priorism with respect to Graeber and the origin of money. Bob may point the finger at Gene Callahan for misleading him (I don't know which of these stories holds water), but all that misses the point and here Bertram hits the point dead on: a priorism is a bad way of understanding the world. What's ironic is that of the Mises Institute bunch, Bob is one of the most likely to give you data to support his argument. He is one of the least a priorist (in practice at least) of a very a priorist bunch. So I don't want to pile on Bob here - I just want to reiterate Bertram and Graeber's general point. As Graeber says: "Economists claim to be scientists. Normally, when a scientist’s premises produce such spectacularly non-predictive results, the scientist begins working on a new set of premises. Saying “but can you prove it didn’t happen sometime long long ago where there are no records?” is a classic example of special pleading. In fact, I can’t prove it didn’t. I also can’t prove that money wasn’t introduced by little green men from Mars in a similar unknown period of history." I just hope he realizes he's stumbled into an idiosyncratic little group that is very resistent to empiricism as a deliberate methodological position, and that most economists don't think like this at all.

- Karl Smith puzzles over being considered a liberal or a leftist. I have to post this because I have the exact same reaction. I've been referred to as a liberal for years now and it's still weird to hear people say that because I don't think of myself as being particularly liberal. There are three reasons for this I think. First and foremost, it's who we're talking to (the libertarians). I know other people don't think of me as a liberal. Second, in the middle of this recession I'm finding myself frustrated that Democrats sound increasingly like Republicans so I probably come across as "to the left" of them, whatever that means. Really it's just a disconnect with all but the more liberal politicians on one very big issue. And third, with the rise of the Tea Party supporting basic safety nets, basic public investments, etc. and thinking these are just smart and reasonable things to do has become suspect. So what would have been fine for a conservative to say thirty years ago is suddenly less tenable. These days, being of the view that Social Security, public education, a safety net, and investment in science is something to be celebrated can come across as "liberal".


  1. I think Garrison's explanation is consistent with ABCT because all (relevant) Austrians since Mises have stressed the difference between "malinvestment" and "overinvestment" which I always interpreted as the claim that GDP growth doesn't have to be above trend growth because of a credit induced boom. It's just that shift to other "stages of production" what matters, but I have to admit that many Austrian bloggers are a bit vague on this issue (analog to Krugman who somethimes slips into the consumptionism rhetoric).

  2. Exactly my thoughts... mostly.

    I think it's fair to say the plucking model may be a little harder for Austrians, but it's not a refutation of the Austrian school for this reason.

    It is strange that most Austrians don't talk about it this way. Even Garrison in his earlier chapters in Time and Money explicitly talks about ABCT as a growth in GDP above trend, and only in LATER chapters when bringing in Friedman does he tell a different story.

    Anyway - that's not my fight. Strangely a lot of people on Bob's blog thought I was criticizing ABCT. I'm not sure why everyone presumes this. I'm on record lots of places saying I like ABCT.

    What the plucking model does is give us a good reason to track potential GDP trends from peak-to-peak.

  3. With the political discourse and polarization these days, you get considered a liberal or leftist because you bring up pesky details and stubborn facts. When people are so tightly tied to their ideology, and get presented with conflicting data, it is easier to throw a label on you and dismiss you out of hand. While some people see the world as black and white, and require the answers, others see the world as shades of grey and are more comfortable with the question than the answer.

  4. I'm at a disadvantage here since no matter what I say, until I read Graeber's book he can continue denouncing me. But for anybody who cares:

    (A) Graeber et al. continue to falsely say that our theories "predicted" there would be observable barter economies. No those theories didn't predict that at all.

    (B) If you go look at my original critique of Graeber, I said that I couldn't believe temple authorities could've invented a unit of account out of whole cloth without relying on market transactions to guide them, and I said I really didn't believe the merchants trading with foreigners could be using anything other than the mechanics economists normally use in describing barter. Then it turns out, the temple authorities in fact used silver for their money, which was a medium of exchange that the merchants used when trading with foreigners. That's pretty impressive stuff for a "halfwit" (Bertram's term) to come up with. It seems that knowledge of economic theory can lead to good hunches when speculating on how people used to interact.

  5. Daniel,

    You're right, SSI isn't a ponzi scheme:

    As for how and when it will end, it isn't going to be ended by the "electorate" - it will just end because people stop using it or stop figuring it into their future. SSI is part of a nearly outdated paradigm (not to abuse that term too much) about what it means to "grow old" in the U.S. We have major life extension technologies about to come online, and retirement as a concept is going to be quite different from what it is today. Thus it isn't surprising it isn't surprising that the political class generally and the political system is going to wake up someday and realize that SSI just isn't important - sort of like the postal service.

  6. "These days, being of the view that Social Security, public education, a safety net, and investment in science is something to be celebrated can come across as 'liberal'."

    Well, it is. The world is a shifting place; where the political center was thirty years ago is not where one should expect it to be today. And you know, let's be blunt, these institutions you speak of are objectively dissatisfying to lots and lots of people (this is particularly true of public schools) and the basic liberal response to those facts on the ground has been very flat footed and continues to be. In the main they want to fight the battles of the 1930s over and over again because they are stuck in nostalgia land.

  7. I should divulge course materials, but the order is:

    7. Leftist
    6. Liberal
    5. Satanist
    4. Socialist
    3. Marxist
    2. Communist
    1. Soros

    According to Glenn Beck University.

  8. BTW, it seems that you're not the only person who is worried:

    "Certainly, there’s a legitimate debate about the proper role of the federal government and the scope of federal vs. state power. But that is a different argument than the one long thought settled during the New Deal: that the Constitution grants the federal government power to regulate a broad array of activities in the national interest."

    I always find it rather amusing when modern liberals go with the "argument from tradition" mantra. ;)

    The landscape has changed; their is ideological competition that didn't exist in the fashion it does today for a number of decades (which I see as a very bad thing and one of the reasons we're in the mess that we're in - the inertia of those programs, etc. created during that period moves forward in other words); people have more choices everywhere but in their political lives and that is very frustrating to a lot of people; and progressives make up an increasingly shrinking share of the population in comparison to other ideological groups (even though in the aggregate there are probably more progressives than their ever have been, there is just a flavoricious variety of ideological positions out there). This is all for the good and I think will end up in some interesting and cool places.


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