Tuesday, November 15, 2011

You say "Fisher Effect Under Deflationary Expectations", I say "Liquidity Trap"

Is that equation of the two wrong? I don't think so. Here's a great - and disturbing - post from David Glasner on the Fisher Effect. We also have some bad signs from the debt talks, and then there's the whole European implosion thing. I don't think it's going to be a holly-jolly winter, and neither does the San Francisco Fed. One thing I've been pondering more and more lately is "how long do you keep spending time discussing this with people who don't get it?". There are lots of people who get it who just have a problem with the whole Keynes packaging and perhaps some of the politics that go along with Keynesianism - many of the NGDP targeters are like this. But I read this post by Glasner, and I know he is worried about the same problem as I am, and that he has basically the same solution. But many people don't get it - do we still invest time in interacting with them, even if we're heading towards a double dip?? I think you still do.

Karl Smith recently praised "bloodless technocrats" and said "if we are doing our jobs right then people shouldn’t even know that technocrats exist". I have a deep respect for the role that technocrats play. An economy is complex, and when a free society decides to intervene in the economy, it must do so with seriousness and expertise - not following fad or fashion. We need technocrats. But that's only to say that a constitutional, democratic republic ought to make use of technocrats - not that I think a democratic republic would be better off as a technocracy. And a democratic republic can't make use of technocrats if the electorate and the politicians are taken with misleading ideas about the economy, or let ideology guide their view of the economy.

The sciences that deal with highly evolved primates - the social sciences and medicine - are for some reason prone to this sort of do-it-yourself confidence. "Forget what modern medicine says - I can read this book I picked up from Barnes and Noble and heal myself with homeopathic medicine! I can confidently reject vaccination for my kid!"; "Forget the careful work of economists - I'm a freshman in college, and I can learn all there is to know about the laws of human action from Lew Rockwell and the Mises Institute (who needs an identification strategy anyway?)!"; "Forget what psychologists say - I'm a curmudgeonly old Tea Partier that can attribute all human behavior that makes me uncomfortable to a person's values, patriotism, and work ethic!".

These sorts of things can be safely ignored in a technocracy, but not in a democratic republic that utilizes technocrats.


  1. Daniel, You hit the nail on the head. To add another metaphor to the mix, the Fisher effect under deflationary expectations and the liquidity trap are two sides of the same coin. So you definitely go to the head of the class. In fact you should teach the class. I don't want to think about whether this is all as useless as you are suggesting it may be. It's too depressing.

  2. I wonder sometimes if its worth it - the conclusion I came to is "it is" :)

  3. Excellent point about the existence of technocrats v. rule by a technocracy. I would favor few of them over many of them, but by one name or another, they exist. I disagree that it is possible or good for 'people' to not know they exist. The nature of their role is to make policy, which will benefit some and harm others. That piece of it should be as transparent as possible.

    Henry Paulson comes to mind as a recent example of a technocrat doing what he thought was right, and whose actions made some very specific people richer and some specific people poor with a goal of the greatest good for the greatest number.

  4. "...even if we're heading towards a double dip??"

    Are you suggesting that we are? The constant drumbeat from many economists for some time now is that we aren't. We could have a show titled "When Technocrats Disagree" - sort of like when "When Animals Attack" but not.

    You should probably forget a great deal of what psychologists have to say.

    Napoleon of all people is the source of the pejorative aspects associated with the term ideology, and I wish that had never come to pass. But there is nothing to do about that.

    "We need technocrats."

    Some technocrats have useful things to say; some have nothing useful and even actively harmful things to say. Further, one of the basic problems with many technocrats is that they simply do not have a very good idea of the limits of their knowledge - they are very often prone to a great deal of overconfidence as a result of this and other factors.

  5. BTW, you can have something far less than the "One State" to realize that technocrats really don't have the ability to weigh the competing wants, desires, fears, etc. for an individual or a group of people.

  6. Glasner has very quickly become one of my favourite economic bloggers. He consistently produces excellent and thought-provoking material.

  7. "Forget the careful work of economists - I'm a freshman in college, and I can learn all there is to know about economics from Cowen's textbook and the New York Times!"

    It works both ways. Although, I would be astonished if freshmen students were exposed to Mises and Rockwell, unlike the Keynesian orthodoxy we are forced to ingest as undergrads.

  8. Freshman in college should understand that what they are taught is more or less a product of scientific consensus, and there is a reason why they are taught what they are taught.

    We went over this with OWS and Mankiw's class too.

    If you [a general "you"] want your reading to be more eclectic, fine. I think there is a ton of value in Hayek, Menger, and modern Austrians too. Hell, I even think there is value in Mises! Read it!

    But be humble before you scoff at the answers provided by the technocrats and the people who teach about technocratic methods, and who have been thinking about this longer and more deeply than you have.

    There are some people among whom humility is in too short supply.

  9. Daniel,

    I have said in the past (on other blogs) that I do respect you for the fact that you do indeed seek to understand opposing views, that you don't just blindly believe things. This is definitely a good attribute to have and the reason why I do not insult you personally or speak ill of you (well, other than that whole "statist" thing LOL). With that in mind, I was just curious if you have ever read Rothbard's 'Man, Economy and State'? If you haven't, I do recommend that you do so at some point.

    Other than the fact that it is an awesome treatise IMO (esp. the chapters on production), I also think it would benefit you to some degree, because many of the Austrians that I see you having correspondence with are primarily Rothbardians rather than Misesians or Hayekians. Sure, there are similarities, but there are also dramatic differences.

  10. To be honest Joseph, I've been trying to get him to read Human Action for as long as I've known him. I think he likes Rothbard even less than Mises. I definitely agree that MES is absolutely a terrific treatise (and contains a lot that Mises doesn't), I just don't see Daniel picking it up anytime soon.

    Not that that's wrong, he's in a PhD program. Not to mention DIRTY KEYNESIAN stuff comes first.

  11. What is the connection between the first paragraph (The Fischer effect = the liquidity trap) and the second paragraph (We should all defer to technocrat economists and not be fooled by reading Mises or Rothbard). Am I missing something ?

  12. Complete stream of consciousness. There's a lot of fighting between quasimonetarists and Keynesians which I think is completely inappropriate for the reason I stated - we're worried about fundamentally the same problem.

    Which lead me to think "we really need to quit bitching and fix this like good technocrats"

    Which reminded me of Karl Smith's post and my slight disagreement with it.

    Which lead me back to wondering why we haven't been able to "fix this like good technocrats" - and a lot of the reason is that there are a bunch of people who challenge technocrats in social sciences in a way that they wouldn't challenge engineers or some other applied natural science.

    Which lead me back to the whole reason why I disagree with "technocracy". In a democracy we need to argue with these people, tempting as it is to be the man behind the curtain.


All anonymous comments will be deleted. Consistent pseudonyms are fine.