There is shockingly little literature on the economic thought and economic policy thought of Dr. King

I am picking up a summer project I had started on the subject...

...does anyone know any good peer-reviewed articles? It's astonishing how little there is, which makes me more glad I'm getting this down.

Five times as many libertarians support Romney as support Gary Johnson

Wow - that's embarassing (HT - Brad DeLong).

Doesn't matter much to me. I don't want either elected and I think this election is going to be more about who gets out the base than about swaying the other side.

I imagine these numbers would be pretty different if the libertarians' favorite career Washington politician (Ron Paul) were running, even though some of the more thoughtful libertarians agree that Johnson is better than Paul.

btw - since I don't post all that much about electoral politics, this is as good a place as any to note that Brad DeLong has also been posting a lot about how ridiculous that Friedersdorf column about not voting for Obama was. That's been nice to see. I've been seeing far too many of my fellow left-of-centerers praising that thing.

Scroll a few posts back for my view on drones and such, and use the search function to find old posts on how insane it is to castigate a president for treating enemy fighters like enemy fighters rather than common criminals. There is plenty to criticize Obama for. Killing enemy fighters is not one of them.

Jonathan on Human Capital and the Crisis

Jonathan has a good post up on taking human capital investment seriously even in the midst of a demand-driven crisis. Often in the blogosphere you'll hear the subject dismissed, simply because it's a long term growth issue that has no (or at least very little) relevance to our current problems.

Like Jonathan, I agree the consensus on the contribution of skills mismatch to the crisis is right. Also like Jonathan, I hope this is not going to lead people to ignore it (if for no othe reason than that I spent a lot of my time studying human capital investment issues!).

He argues that the problem isn't a skills mismatch so much as a policy mismatch:

"There is a lot of evidence that some firms can’t find qualified employees. Earlier this week, I linked to an article in the Wall Street Journal arguing that some 600,000 jobs in manufacturing were left unfilled in 2011. Here in San Diego, I was made aware of a firm, which produces machine parts, offering free classes in its trade to lure potential employees — wages are relatively high too: I heard up to $80,000, but I’m sure there’s a range (with most new employees making much less). In this kind of environment (San Diego, specifically, has an unemployment rate of 9.2-percent) these kinds of offers seem ridiculous, but it reflects on real structural problems (workers with superfluous skills).

But, these kinds of offers may not seem that attractive when you can go to a subsidized university for as cheap as $3,500 a semester (current price of attending SDSU [which four semesters ago cost ~$2,500) — UCSD is much pricier, of course, at ~$13,000 for the entire year [and, this doesn't include parking, rent, books, et cetera], and USD charges ~$40,000). Some even get it cheaper through student aid (I not only attend for free, but get aid to help pay for my cost of living in general — the benefit of being an older, financially independent student). Even where students pay through student loans, you can get a high proportion of subsidized loans. Apart from subsidies, there also seems to be a culture fixated on the benefits of higher education, and so parents (in large part also because of higher real incomes) are more willing to subsidize their children’s education (this may breed contempt for jobs requiring a heavy degree of physical labor). The result seems to be too many college students and too little people seeking alternative means of improving their own human capital, such as trade schools."

To a certain extent I agree with this. I don't think the problem is so much our investment in college education as it is our underinvestment in other alternatives.

He concludes with an important thought:

"So, when we recognize the existence of skills mismatch, we should really be wary of advocating things like "improving human capital," since the only person in a osition to know in what direction to improve human capital is the individual - anything that can distort decision making can actually worsen the skills mismatch problem (that tend to reveal themselves during bad economic times."

Again, I obviously think there is a bigger role for policy here than Jonathan does. There are plenty of credit constraints, inequality and inadequate primary and secondary school problems that constrain the opportunity to attend college or other training programs, and positive externalities associated with education to justify making public investments in human capital investment.

The key - as Jonathan points out - is that the decision making capacity needs to be at the individual level. Too often we hear targets from politicians that we need X number of scientists and engineers or Y number of college graduates. These are numbers that market signals will provide and that individuals will make decisions about based on their own abilities and aspirations. They're not numbers that can be set by politicians.

What politicians can do is structure educational institutions to give students a wide range of opportunity and choice (and the schools considerable flexibility in satisfying those needs). Then you let the market determine the allocation and investment in skill.

I think the economic questions that lead me to support public investment and Jonathan not to are somewhat different from the issues raised here. We both agree that individual choice in human capital investment is the best way to grow the human capital stock.

I don't understand this

I don't want to get into the "apodictically certain" stuff in the post. I'm not sure what the point of even worrying about that is. But I didn't understand this point by Peter Klein:

"Both the Austrian and neoclassical approaches to demand begin with an ordinal preference ranking. But the understandings of marginal and total utility are completely different. For Menger, marginal utility applies only to discrete units of a homogenous stock of a good. The fourth apple is allocated to a lower-valued use than the third apple, and so on. The law of demand follows from the fact that additional units of a homogenous good are used to satisfy lower-ranked ends. Note that for the Austrians, the term “marginal” applies to the units, not the utilities. “Marginal utility” is the total utility of the marginal unit, not the marginal utility of a unit. There is no larger concept of “total utility,” of which marginal utility is a little slice."

The bolded part, specifically.

What is the difference? Why would you make a claim like that? Isn't this just fundamental theorem of calculus stuff? I don't see what the difference is.

Quiggin on "Economic Possibilities for Our Grandchildren"

Here. (HT - Brian Leiter [who my brother told me the other day he thought he saw driving by in a minivan])

I have not had a chance to read it yet.

Quote of the day

"There is no magic formula for wringing knowledge about complicated problems from stubborn facts"

- Milton Friedman, pg. 277, Essays in Positive Economics

Feynman on Math and Physics

Some of you have probably seen this before, but I wanted to share an excellent lecture by Feynman on the relationship between math and physics that I listened to yesterday. When I don't feel like listening to music I sometimes put these sorts of things on in the background while I work. If I internalize 10% of it I've still gained something. This was good enough that I replayed it after listening to it the first time and paid even closer attention.

I especially liked the discussion of the difference between (what he calls) Babylonian and Greek mathematics, and the fact that physicists are more like the Babylonians. It's something that I think can really be generalized to all science, including economics.

The idea is that Greek mathematicians did the math we do today: you take a few axioms that you assume are fundamental and build up a system of knowledge on top of it. The Babylonians did math differently. It was rule-based but it wasn't axiomatic. Different pieces of the puzzle could be used to develop a proof that was convincing, but it was not derived up from knowledge that was assumed to be any more fundamental than any other knowledge. Feynman describes Babylonian math as "efficient" in that sense, and I'd also add that it is robust.

Physics works that way too, according to Feynman - physics is Babylonian. There's no fundamental truth. Instead, we take bits of different things we know and try to construct theories that connect those dots. It's wrong, he says, to expect that you have all the axioms at your disposal. And if you don't have all the axioms at your disposal then reasoning from an incomplete list (this assumes you haven't made a mistake in your reasoning - a big assumption in itself for human beings), you're going to get wrong results. The whole nature of the scientific endeavor is to understand what we don't know about. If you don't fully understand a phenomenon, how are you going to be able to assert you have all the relevant axioms at your disposal?

Draw whatever conclusions you want to about the fatal conceit of Mises on this point. You all know I have, of course.

So is the Greek math we're taught wrong?

No - and Feynman is very adamant about this. He says towards the end that it's not a mathematician's job to do physics. If the mathematician isn't doing what you want him to do don't complain to him about it: do the work yourself! What the Greek approach provides is a collection of arguments and ways of thinking about the world that are derived using a particular algorithm in mind. It's a framework or a superstructure that we as human beings have found very useful. It may not be the efficient way to discover new properties about the world, but building up from axioms is a very efficient way to erect a stable edifice of a series of mathematical propositions, given a common denominator set of axioms. And such an edifice is very useful to have.

In a lot of ways, this is why I don't mind mainstream "microfounded" neoclassical economics. I recognize the problems with it. But it provides a framework that has proven to be very useful in understanding human society. I would not let that constrain me from doing Babylonian economics. The so-called "ad hoc", non-microfounded mathematical macroeconomics as well as the more pluralist methods of qualitative researchers and other heterodox economists ought not to be considered so heterodox. They have important contributions as well.

Policy Precedents and the 1920s

Since the money supply is endogenous and the natural rate of interest is going to change over time, it's always tough to know whether you can really call a monetary policy stance "tight" or "loose". You can, of course, point to whether the Fed is buying or selling and there are of course other policies like IOR and reserve requirements that you could probably independently call "tight" or "loose". But otherwise it's tough.

Bob Murphy asks whether we can at least all agree that the Fed took unprecedented policy steps in the early days of the Depression:

"Here’s something I want to pin down. In my book on the Great Depression, I quote Lionel Robbins saying (I think in 1934) that central banks around the world had tried unprecedented measures to stimulate a recovery through cheap credit, and that this was a complete reversal of traditional central bank doctrine...

So here’s my question: Do any of today’s Keynesians deny this? Obviously you think that these measures were woefully inadequate, in light of the shortfall in Aggregate Demand in the early 1930s. But I’m asking, do you agree with Robbins, Hayek, and the random Joes writing letters to the NYT, who at the time were claiming that the central banks of the world were fighting the downturn differently from how things were handled in previous crises?

Note well, I’m speaking here in absolute terms, not in a Sumnerian view whereby the Fed–by definition–has been “tight” the last few years because NGDP is below trend. Rather, I’m asking (for example) if it’s true that central banks in the early 1930s were actively trying to ease credit (by lowering interest rates, setting up special asset purchases or loan programs, etc.) when they had never done things like this in earlier crises?"

I get what he's getting at, but I still think it's tough to get someone to commit to the idea that the Fed was "easing" credit. I looked at Friedman and Schwartz, and there was some activity in 1929, but that was pulled back. More substantial bond purchases seemed to be going on in 1931, but the policy didn't seem like it was sustained. I don't know the period particularly well, but nothing extraordinary seemed to be going on.

Were they "easing"? That's very hard for me to say yes to. Were they making bond purchases? Yes - it seems like they were sporadically, but the major action had to wait for Roosevelt in 1933.

Was this unprecedented?

That I didn't know for sure. They met the 1920-21 depression with a rate hike, not because they were Austrians but because they were anticipating Volcker. If you want to call the rate reductions in 1921 a counter-cyclical response you're free to, but I don't think that makes much sense. I think it makes more sense to say that they broke the inflation and ended their policy of high rates, not that they broke out low rates to fight unemployment. So I don't see much precedent there.

I don't know much about the rest of the decade, though, nor do I know about precedent at other banks.

The blogger "Lord Keynes" does. He has a very detailed post up demonstrating the use of open market operations during the other two recessions of the 1920s. As I noted in my RAE paper on 1920-21, this decision to rely on open market operations was in part a response to the whiplash they got from relying on the discount rate alone in 1920-21. OMOs are a smoother ride.

This all seems like Bagehot to me.

If I were Bob, this is how I would put it: before 1933, the Fed engaged in some bond purchases to address the contraction. The New York Fed was particularly energetic in the very beginning, when Wall Street was in so much toil. They did not behave like a modern central bank and were following precedent from the previous decade, but of course they were building toward a modern central banking mentality.

If anyone has anything else to add, I'm sure LK and Bob would both appreciate it.

The transparency canard (more on drones)

The authors of the Standford-NYU, along with their complaints about drones, have also called for greater transparency and democratic accountability around the program (HT - Andrew Sullivan). Just like "auditing the Fed" it sounds lovely and democratic and nice, but this is an active front of a war. You're not violating democratic principles to keep the details confidential any more than we are violating democratic principles by not trumpeting what banks are facing problems or disclosing CIA ops or publishing grandma's medical consumption (that's Medicare! that's a public program! democratic accountability!).

We ought to have a vigorous public debate about drones, but you don't disclose the war strategy while the war is on.

Democratic accountability means an informed public, but democratic accountability also means that our elected representatives have an obligation to professionally provide for the public defense, and that means not disclosing the details of active military operations.

More on drones

In the comment section of this post, Bob Murphy says that I have "unusual preferences when it comes to the president being able to blow up Americans with flying robots and no judicial review."

It's an awfully loaded way of putting it, but I'd like to say a little bit about why my preferences are not all that "unusual" (assuming "unusual" means "inexplicable" rather than "uncommon").

Another motivation for this post is a recent report from Stanford and NYU shared by Glenn Greenwald (the guy who a lot of people seem happy to outsource their views on all things war on terror related to) (HT - Bob Murphy). The report is thought provoking and it points readers in a lot of directions to learn more. It raises concerns about the reliability of the data (which is somewhat well known now, since the issue of the definition of "militant" was discussed a litle while back) - which as a data guy I consider very important. I had a hard actually getting a sense of the data in the report. There is some information in some charts at the end, but by putting the number of casualties on the same axis as the number of strikes, and then not providing a clear table that aggregates it, it's hard for me to follow.

However, the report does point to other peoples' data which is presented more clearly. I specifically looked at The Bureau of Investigative Journalism, a non-profit in London. The report says that "TBIJ's data currently constitute the most reliable available source". The primary reason is that they do not rely on official designations of militants. The chart I put together below compares their numbers on all drone strikes to Iraq War casualties from 2003-2012 that come from the Iraq Body Count project (also - from what I understand - an opposition-approved source):

This is the biggest reason why I refuse to concede the moral high ground to Glenn Greenwald types. These are the numbers that a highly critical report considers fairly reliable. Drones are (as Klaidman has called them) a "significant humanitarian advance over other kinds of weaponry". There's a lot of misdirection from Greenwald and others by pointing out the obvious point that you may want to dig a little deeper rather than trusting the administration's word on how precise drone attacks are. That's clearly true, but the fact that the administration may be presenting an overly rosy picture hardly demonstrates that drones are not precise.

The primary contribution of the report (from what I've read - I didn't read the entire thing) is to discuss the suffering that people experience from the drone attacks in more detail, based on information gathered in 130 interviews (none of the interviews seem to include American military personnel, based on the description of who got interviewed). This sort of thing is important - particularly for driving home the point that people like me have been making for a decade now vis-a-vis the Iraq war that you create terrorists in these conflicts as well.

But again, this has to be considered in the context of the counterfactuals.

How does drone warfare compare in this regard to conventional warfare? My working assumption - just based on the numbers above and common sense - has to be that prosecution of the war on terror with drones has reduced this problem, not exascerbated it. I have a very hard time taking concerns about "creating new terrorists" seriously looking at the drone numbers, particularly when considering how effective it is at dismantling terrorist infrastructure.

The real concern around "creating new terrorists" for me is the entire war in Iraq, as well as the fact that we are so deep in Afghanistan now because we did not crack down hard in the tribal regions on the border back in 2002 and 2003. It seems to me that if you're concerned about "creating new terrorists", the drone strikes are getting back to minimizing that problem after a decade of counter-productive (and in the case of Iraq, entirely unprovoked) conventional warfare.

The Greenwald types never seem to have an answer to this. Of course drone warfare isn't pretty. But instead of just talking about how warfare isn't pretty, let's compare it to the counterfactuals.

There is another counter-factual, of course. We could just drop the whole thing.

We could leave Iraq to Islamist parties, and leave Afghanistan to whatever militants, tribal leaders, or warlords can hold a certain territory. We can leave al Qaeda - an enemy that launched the first strike on U.S. soil in sixty years - entirely unharassed in Pakistan, Yemen, and elsewhere. Will this be less terrorizing for these populations? Will less terrorists be created in these situations? Would Americans be safer?

I can't see how.

The trouble with Greenwald and those like him is that they often lump a lot of things together.

I think drone warfare is an important advance to embrace. But I do think we could probably scale it back - and the Obama administration appears to agree lately. I think there's nothing wrong with having a military prison on a Cuban beach or holding militants for the duration of a conflict where their compatriats are still fighting. But I don't think we should torture people, violate international law, or go against Constitutional law. I think if an American citizen is fighting with an enemy force it's a military matter. But that doesn't mean I'm non-chalant about due process. I think we should have gone to war in Afghanistan. But I don't think we should have gone to war in Iraq.

Just as it's hard to get Greenwald and Greenwald types to talk about counterfactuals, it's hard to get them to talk about these sorts of distinctions and nuances.

But that's really what we need to talk about, not how me and people like me are monsters and don't care about due process or civilian casualties. It's precisely because I care about civilians that I want to eliminate al Qaeda and the Taliban in the most sensible way possible.

*****

Watch it in the comment section. If you're an asshole to me or anyone else your comment is going to get deleted. Believe it or not, I really don't enjoy getting told that I'm a statist or that I don't care about human suffering or the Constitution. Sometimes I leave nasty comments if they are accompanied with additional substantive thoughts. Don't count on that.

Publications moving along!

I just received word that my article with Marla McDaniel on racial disparities in the employment returns to a high school diploma that we recently resubmitted has been accepted for publication at the Review of Black Political Economy.

Also, it looks like my submission to Notes and Records of the Royal Academy of Sciences on some of Keynes's Newton-related activities in 1942 and 1943 has some reviewers assigned to it.

Lots of Friedersdorf chatter going around....

Responding to this.

For me, Obama is still the clear choice. He is the "lesser of two evils" in the sense that any politician is going to be the "lesser of two evils" at best (although his biggest transgressions are macroeconomic, and not even raised by the chatterers). But that thinking doesn't dominate for me. He's not all that evil - not to any extent that it is worth noting. He's a pretty good president, and would have been even better if we didn't have this depression (because then it wouldn't even give him the opportunity to drop the ball on the macroeconomics).

And I'm not even a Democrat.

Anyway - I doubt those thoughts are news to many readers.

Which brings me back to Friedersdorf. The people praising his article today are probably thinking "Wow Daniel, you have really been suckered. The spin of the Obama campaign has got you hook, line and sinker. You don't even realize how bad Obama is."

Just remember what I'm thinking: "Wow, those guys have really bought into the Ron/Rand Paul-Gary Johnson-Murray Rothbard line that the Ds and the Rs are indistinguishable. They don't even realize that they've been duped just to aggrandize these politicians".

Actually I don't really think that in most cases. I do think these libertarian claims are more electoral posturing than substance, but I also believe libertarians genuinely believe it.

So here is my reaction to the reaction to Friedersdorf: if your story requires that everyone who disagrees with you is being duped and everyone who agrees with you "gets it", then something is probably wrong with your story.

"The New Classroom is a Factory"

Very interesting article on on-the-job-training (HT - Kate). They mention labor shortages, but it's a news item so I can't be too picky. The point is still on target - we have a hard time educating middle skill workers in this country, and companies are picking up the slack. This is good, simply because it provides the non-college-bound with opportunities, but it is also good because there is a greater guarantee that the education will be relevant to the job.

Of course this is no way to provide a complete skills distribution. OJT will be weighted towards firm-specific skills. What we need is a system (like apprenticeships, or entrepreneurial community college or CTE programs) that gets buy-in and participation from employers and can provide the general skills that may be less forthcoming in OJT.

You could see where this could develop a virtuous cycle. Given a set of CTE and community college graduates with the right general skills (because of cooperation with industry), firms will be willing to spend more OJT on brand new workers (who they now trust to have useful skills). Companies with strong professional development policies will attract more interest from students and schools and bolster the CTE and community college system. All of this is going to help raise wages, productivity, and reduce dropping out.

A little inter-species homosexuality never hurt anyone

Bartleby has long been a kisser. If you pucker up he is happy to walk right up to you and give you a kiss.

Today (I imagine because Kate is gone!), he walks up to me, slaps his paws on each of my cheeks, and starts kissing me, entirely unprovoked.

Very cute.

For those of you not aware, and who are thinking I'm cheating on my wife and making major lifestyle changes, this is Bartleby:

If you take Hayek seriously (like I do), don't read Taking Hayek Seriously

Greg Ransom, the author of Taking Hayek Seriously, is impressive in his ability to marshall up texts by Hayek and as a general resource.

But please, please, please, don't take his interpretive claims about Hayek for granted. This is not Daniel the Keynesian talking - I know a lot of Austrians have big reservations about him too.

My motivation, now, for saying this is this post by Greg:

"As pointed out by an endless stream of leading academic specialists, Jeffrey Sachs & Paul Krugman are constantly making false and deeply ignorant claims about Friedrich Hayek and his work.

The latest false and ignorant claims of Jeffrey Sachs and Paul Krugman can be found in "Masters of Money – Friedrich Hayek" presented by Stephanie Flanders on the BBC.

Here is Hayek’s clearly stated view:

"I agree with Milton Friedman that once the [1929] Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression."

F. A. Hayek, interviewed in 1979, from Conversations with Great Economists: Friedrich A. Hayek, John Hicks, Nicholas Kaldor, Leonid V. Kantorovich, Joan Robinson, Paul A.Samuelson, Jan Tinbergen by Diego Pizano.

"I think it is certainly true that ending an inflation need not lead to that long-lasting period of unemployment like the 1930s, because then the monetary policy was not only wrong during the boom but equally wrong during the Depression. First, they prolonged the boom and caused a worse depression, and then they allowed a deflation to go on and prolonged the Depression."

F. A. Hayek, interviewed in 1977

In "Masters of Money" Sachs and Krugman flatly and falsely say that Hayek denied what he directly asserts just above."

Notice both these are from the 1970s - 40 years after the depression. This was not what he was saying during the depression.

Take "The Fate of the Gold Standard", in 1932:

"Although there can be no doubt that the fall in prices since 1929 has been extremely harmful, this nevertheless does not mean that the attempts made since then to combat it by a systematic expansion of credit have not done more harm than good. In any case, it is a fact that the present crisis is marked by the first attempt on a large scale to revive the economy immediately after the sudden reversal of the upswing, by a systematic policy of lowering the interest rate accompanied by all other possible measures for preventing the normal process of liquidation, and that as a result the depression has assumed more devastating forms and lasted longer than ever before."

The claim in the 1970s - that the response to the depression was wrong because it allowed deflation - is completely different from the claim in the 1930s - that the response to the depression was wrong because it didn't allow for enough liquidation! Indeed the whole essay is an argument against what Hayek called the "stabilization theorists" who were arguing what Hayek would come to argue in the 1970s - that you wanted to avoid both inflation and deflation.

Greg could responsibly argue that some time in the intervening 40 years, Hayek changed his mind and agreed with the Keynesians and the monetarists. But he cannot accuse Jeff Sachs and Paul Krugman of "bottomless ignorance" for accurately presenting Hayek's view at the time of the depression. This was the common perception of the Hayek-Robbins position, and it was a common perception for good reason. If you want to talk secondary deflations we can talk secondary deflations and that sort of thing. But Hayek, in 1932, was critical of the Federal Reserve because it ameliorated too much of the deflation; whatever deflation was occuring, Hayek of 1932 thought there should be even more of it.

Methinks thou doth protest too much

Bob Murphy thinks I deserved my own entry in Noah Smith's bestiary...

...hmmm. I'm not the one that has a whole post series, set of you tube videos, and charity drive solely dedicated to trolling Paul Krugman, Bob!

It's true, I agree with Krugman often. I also disagree with Krugman (including in the comment sections of one of Bob's more recent Krugman posts where I claim that he makes a bad analogy between the Broken Window and the iPhone, which puts me in the company of that great Krugman-lover Robert Wenzel).

Surely agreeing with Krugman and putting forth arguments to that effect doesn't amount to "trolling", particularly since the only comment sections I regularly participate in these days are Bob's and my own (and occasionally I get in a tussle at Coordination Problem).

No, I don't think that's trolling.

Having a blog dedicated to arguing with Krugman? That's trolling.

Exposing yourself on youtube to try to get Krugman to argue (err... debate) with you? That's trolling (although it is a bit of trolling that I'd personally like to see come to fruition).

It is a very weird state of affairs when (for many people) calling Krugman an economically illiterate partisan hack is "engaging in honest discourse" and me raising the point that he's a decent economist that makes good points is "trolling".

Krugman fans may be a type of troll that plagues other blogospheres... maybe right or left wing political blogospheres. They are not a phenomena in the econ blogosphere. Krugman haters, though...

Racial Justice and Libertarianism

There have been a couple interesting posts by Bryan Caplan and one by David Henderson recently on racial justice issues that I wanted to call attention to.

The first is a series of three posts on libertarianism and Jim Crow (here, here, and here). Bryan starts off by asking about libertarian positions on Jim Crow at the time. He links to Ayn Rand and Murray Rothbard. Rand discusses racism as a form of collectivism. Like a lot of Rand, she has a point and then gets distracted by her own excesses (various versions of being proud of your family history "are samples of racism", for example). Rothbard's piece is more interesting. He presents the standard, half-right libertarian formula that segregation is bad but integration is bad too. He calls public efforts "compulsory integration" to drive home the point. But that's largely in the background. Most of Rothbard's chapter discusses the Civil Rights movement itself, the various factions within it, and the probable future course of the movement. This is what we've been hearing from Ron and Rand Paul recently as well - and it doesn't just apply to the Civil Rights movement. It's the old line that slavery was bad but so was Lincoln (I have some scattered critiques of Lincoln, but I don't approve of this advocacy of opposition to the Civil Rights Act or the prosecution of the Civil War).

All of this is rooted in a twisted application of the non-aggression principle that only sees certain aggressions as actually aggressive. This strain of libertarianism ignores institutional discrimination, and it ignores the intergenerational transmission of past crimes. It also ignores cases where people are coerced by virtue of the property rights system (i.e. - involuntary impositions through negative externalities). When you start to think how long the list is, it becomes quite clear that Rothbard isn't really pro-liberty so much as he is anti-state. Libertarianism, in Rothbard's sense, is better thought of as Antistatarianism. Whatever the state does - whether it is pro-liberty or anti-liberty - is not considered acceptable. Anarchism, if you will. Obviously this doesn't characterize all libertarians - but I do think it's important to clarify that all libertarians (Rothbardians/anarchists or not) distinguish themselves more on the question of the state than on the question of liberty.

David Henderson follows up on Bryan's post with his own on Milton Friedman and segregation. Friedman takes the same position as Rothbard. Indeed, Henderson shares that Friedman considered Nazi anti-Semitic legislation, Jim Crow, and Civil Rights legislation to all be "similar in principle" to each other. Henderson says Friedman is right, but I think it's utter nonsense. Again, this is the sort of thing that you get when you confuse being pro-liberty with being anti-state. It's true, opposition to the Nuremberg Laws, Jim Crow, and Civil Rigths legislation is all consistently anti-state. But the distinction between the first wo and the last one is that the last one is pro-liberty. Milton Friedman is following the Rothbard/Rand line of argument, and it's leading him down a very problematic path.

In the third link, Bryan shares Ilya Somin's thoughts. Somin discusses Moorfield Storey and W.H. Hutt. I found the article on Storey very confusing. I have no idea why he is supposed to be a libertarian. The article presents a couple points: (1.) Storey was an anti-imperialist (not just a libertarian thing), (2.) Storey was a goldbug (many libertarians aren't), (3.) Storey was anti-segregation (not just a libertarian thing), and (4.) Storey thought blacks had a right to property and economic liberty (not just a libertarian thing). Storey may very well have been a libertarian, I'm just not clear on whether he was or not. The article framed it as Storey the libertarian vs. left-liberals and I just found a lot of the discussion confused. Still, he sounds like an admirable guy.

Somin additionally shares Hutt's book on the subject, which I am not personally familiar with. Hutt, of course, is South African and so he has a lot of experience to draw on in addition to his familiarity with the American case. The book as framed as being about the economics of discrimination. That is intriguing to me. Can anyone provide a synopsis of the economic argument that's made in the book?

*****

I also wanted to quickly discuss Bryan's post on whether we should give land back to the Indians. He also cites Rothbard extensively in this one. Rothbard essentially highlights the fact that the title chain to American land is very unclear. Even if you knew a particular parcel of land was stolen on a particular date, the lack of title and inheritance records means that no white (or other) owner of a piece of American land today has any victim they can compensate by returning the land.

This is an excellent example of points that Gene Callahan has made in the past about the coercions of different understandings of legitimate property rights. Indians didn't have titles or inheritance records because they didn't have the same system of property rights that we do today. The issue we're dealing with is quite akin to the enclosure movement in England. It would be like subsequent landowners dismissing complaints because those who used the common land can't show that they have title to the land. Of course they can't show that! The whole point was that it was not a private property right system!

Once again, as above, Rothbard shows that he is not really pro-liberty at all. He is pro-the-maintenance-of-a-very-specific-property-rights-regime. So he is antistatarian and propertarian, but not especially (or shall we say, not uniquely) pro-liberty.

I consider the Indian issue to be a very hard case. Enclosing the commons is form of social organization that to a large extent I support (I'm not saying that all commons ought to be enclosed). But I'm not like Rothbard in that I do recognize that you are dismissing someone's rights. Compensation, I think, is reasonable. I would certainly support substantial federal investments in Indian communities. I think it would probably make the most sense to have a sort of block grant scheme. There's a big concern (among some) about changing the way they live on reservations. Flexibility in the investments helps those sorts of decisions to be made at the local level.

But I don't apply this universally. I'm a lot more concerned about Indians in the West than I am in the East. In the East you have to remember that a huge portion of Indian lands were obtained as a result of the French and Indian War. The Indians were willing (indeed, eager) French allies in that war. When we (we, in this case and at this point being "the British") beat the French, we got Canada from them. The French lost their rights when they lost the fight. Why should we treat the trans-Appalachian territories any differently? Why must we feel obligated to give Ohio back to the Indians but we don't feel obligated to give Canada back to the French? Not only did we win the war in both cases, but the French and the Indians were fighting the same damn war on the same damn side! It's a subtle form of ethnocentrism to shed tears over the land lost in the trans-Appalachian territories but not over the loss of French territory in Canada.

I am not as well versed in Western history, but my impression is the situation there was very different and it was more straight theft.

I feel the same way about reparations for slavery, by the way. The idea that the black community today isn't experiencing disparities resulting from slavery and Jim Crow is nonsense. Failure to right these wrongs comes close to complicity in the wrongs.

Noah Smith's Bestiary

...which I always thought was spelled "beastiary", but now I am corrected.

Here.

I'm very glad to see Market Monetarists on the list.

I actually feel a little sorry for the New Classicals, who are also on the list. I always think of New Classicals in the blogosphere like my grandad (not the one that I know reads this blog - you're quite tech savvy) who discovered the internet as a new medium to be just as cantankerous as he usually is. It's not strictly "trolling", it's just business as usual but on the web.

I could be wrong - maybe they are genuine trolls. I just picture them as garden variety curmudgeon's with a blog.

Austrians of course come in for criticism as well. I've departed from Noah's characterization in the past. Treating them like tin-foil hat wearing goldbugs may describe a few but it allows a lot of Austrians to skirt criticism by (legitimately) convincing themselves that that's not them. Granted, many of those escapees of criticism will be caught up in the libertarian entry in the bestiary.

I loved the Post-Keynesian picture, but felt a little bad there too since I know a few of these guys now (and they actually aren't troll types). Ah well.

*****

Speaking of Post-Keynesians, we're well into neo-Kaleckian models now, which I like a lot. They don't feel all that different from standard macro (not DSGE stuff necessarily, but other models). You have most of your standard pieces, but there are also assumptions about mark-ups, differential savings rates, and capital utilization rates - all of which are very appealing and easy to work in. The last element is particularly appealing to me. I anticipate coming out of this course still a fully dedicated mainstream New Keynesian - not some outspoken critic of neoclassical economics - but with a lot of modeling insights from the Post-Keynesians.

Callahan on Sowell on Say

He (Gene) writes:

"I am re-reading Sowell's wonderful book, Say's Law: An Historical Analysis. If you want to read a fascinating history and understand the theoretical issues at play more clearly, do pick it up. In any case, a will, as usual, comment occasionally as I read, starting here.

The first thing of note is, come on, this is Thomas Sowell. He is a fairly market friendly, "right-wing" economist, and no "born again Keynesian," as I was recently accused of being. So if he says that Say came to agree with Malthus, well, perhaps he is wrong, but it's not because he wants to throw the decision to the opponents of Say's Law; he is just being honest.

And when he writes, in his very first sentence, "The idea that supply creates its own demand -- Says' Law..." he is not trying to back Keynes, he is letting us know that is a pretty darned good way to summarize Say's Law."

I can't speak exactly for Keynes (I'd have to review a few things before I tried to), but another thing to remember regarding Gene's last paragraph is that most Keynesians don't think Say's Law stated that way is all that crazy in most circumstances. Supply is calibrated to expectations about what the market will bear, as well as cost and profit requirements. As everyone knows, those wage earners and rentiers that get payments from the entrepreneur (costs, from the entrepreneur's perspective) and the profits of the entrepreneur himself are earmarked either for reinvestment, a cash cushion, or consumption. Demand is implicit in supply in "normal times" in exactly the sense that Say was discussing. There really has to be something exogenous to this whole logic to upset Say's Law. It's not that Say's Law is nonsense - it's that it doesn't consider a few other things.

I also think one of the biggest problems with discussions of Say's Law is this confusion between "general gluts" and recessions. They're related, but not the same. The former is a fundamentally Walrasian concern, while the latter is a fundamentally Keynesian concern.

It's the exact same confusion that comes up when people mix up excess supply of labor and unemployment. They're not the same thing.

The confidence fairy is treated ridiculously because of the facts on the ground, not because regime uncertainty is a bad idea

Brad DeLong rightly defends "the confidence fairy" types from Paul Krugman's righteous indignation at the idea that there is symmetry between that view and the view the inflation expectations view. Paul and Brad are specifically discussing the "expansionary austerity" argument, but I'd expand it to other "regime uncertainty" arguments that say that the reason growth is slow is that people are afraid of regulations that are or will be imposed on them (as opposed to spending cuts).

These arguments, in theory, are fine. Excessive government spending and taxation will depress private economic activity practically by definition (otherwise it wouldn't be "excessive"). Regulation diminishes expected profits and therefore will also depress growth. Anything that lowers expected profit opportunities like that is going to threaten growth for the exact same reasons that we think reduced expectations of future demand are going to threaten growth.

Where expansionary contraction and regime uncertainty fail is when you compare them to the facts on the ground.

We aren't facing any unprecedented spending or tax levels (indeed, low tax revenue is what's driving the run-up in debt) that could explain the crisis. The problems with Medicare on the horizon were there long before the crisis, and hardly offer a convincing explanation for the Great Recession (nobody is even proposing that), so there's no reason to think that our spending or tax levels are "excessive", at least in a way that can pay macrocyclical dividends (perhaps you could argue some adjustment could nudge up our growth rate). The same goes with regulation. You might argue that the health reform law introduced regime uncertainty, but that case seems weak. Again, the problems started long before that was even on the radar, they weren't reduced after passage of the law added certainty, and they weren't reduced after the Supreme Court added even more certainty. Regime uncertainty in theory is fine. All you have to believe to admit that is that regulation can cut into profits. That's not a hard thing to accept.

What can't be provided is evidence that these stories matter for this crisis and recovery from this crisis.

What does seem to matter pretty obviously is a debt overhang that is strangling demand and a lagging public sector.

Krugman is right because his diagnosis is right. He's not right because the very idea of expansionary austerity or regulatory uncertainty as an explanation of economic crisis is nonsense.

Reading list today

Folbre, N, 2003 "Theory of the misallocation of time", in Folbre and Bittman, eds., Family Time: The Social Organization of Care. Chapter 1.

Bera, Anil, and Bilias, Yannis. 2002. "The MM, ME, ML, EL, EF, and GMM approaches to estimation: a synthesis". Journal of Econometrics 107, pg. 51-86.

Finishing off the last couple pages of Batemarco's article on ABCT in the Elgar Companion (made me laugh at several points about all this outrage over Josh Barro).

And I should probably read some neo-Kaleckian stuff before tomorrow. But I won't. After I'm done with that I'll probably just read Moby Dick.

Sorry for the slow posting

For a little while now my laptop has had trouble reading from a particular section of the hard drive, which has until now just meant errors when turning it on, so that I have to restart it. Starting yesterday it's prevented connection to the internet - even when I connected it directly to the router. Taking it in to Best Buy today... the one good thing about this happening within a year of buying it. Slow posting though.

A better immigration policy than all this gaming of the skills distribution

Why don't we just do a bunch of lotteries: permanent resident with family sponsor lottery, permanent resident without family sponsor lottery, five year temporary lottery, one year temporary lottery, and student lottery.

Shift the numbers in each as they are over or under subscribed and as the electorate deems appropriate (as with capital flows, I am generally in favor of open labor flows but 'm still sympathtic to people who worry about big discontinuous flows that the system may have trouble accomodating in the short run).

This has no valuation of people who happen to have lots of education over those who have little or who make lots of money vs. little money. My family never would have made it in if they had that sort of standard between the 1630s and the 1890s (the expanse of time when we arrived), and I feel like we've made some valuable contributions since then. Plus it just doesn't feel like that's the way we should be doing things in this country.

This one just came to mind.

There are surely other better ones.

It seems to me immigration policy ought to be welcoming, universalist, and able to distinguish between people who come here for different reasons (in other worrds, I recognize that just as we shouldn't distinguish based on skill level we also shouldn't only cater to permanent residents or only cater to temporary workers). Policymakers should not try to shape the composition of the American people. That's our business.

I guess I have no brain

Alex Tabbarok calls recent high skill immigration policy proposals "the no brainer issue of the year".

Why is it that so many economists get the logic that you can't generally count on governments to pick winners on every other issue except immigration policy.

As I've said in the past, this sort of thing is a big slap in the face to low skill immigrants. If anything, given credit, travel, and information constraints, the weight should be in favor of lower skilled workers, not higher skilled.

This is the one issue where I hear what smart people have to say and I consistently feel like this:

This was me a couple weeks ago

 

More or less out of the blue it occurred to me that the ability of a majoritarian government to supply goods that are positive externalities dependend critically and quite straightforwardly on the distribution of utility functions across the population.

 

I did a little googling and it turns out that back in the 70s someone had published almost exactly the same math I had jotted down.

 

 



 

"Micro success doesn't guarantee macro success"

This VoxEU post details an example from a Danish job assistance program. General equilibrium and spillover issues I think are some of the most underappreciated problems in labor market policy evaluation today.

General equilibrium effects are critical for all areas of economics. I think you find microeconomists - because they study human choice - are very attuned to endogeneity and selection problems. That's something that macroeconomists often gloss over. But macroeconomists are the ones who are more attuned to general equilibrium issues that don't come as intuitively to people, and that's an area where microeconomists can lag.

One of the things I like best about the paper I am writing for my econometrics class this semester - an evaluation of a new hire tax credit - is that the study design, in addition to dealing with the standard endogeneity problems, is able to estimate general equilibrium impacts.

Jonathan Catalan on Property and the State

Jonathan has good thoughts on this very odd phenomenon of people thinking that you can't have property without the state.

The point he makes is that as a social construction all property rights really require is an enforcement mechanism. This could be anything. There's no reason it needs to be the state. Mutual benefit from recognition of property rights may even require very thin institutions. I think most people probably think some kind of institutional enforcement is required (otherwise we'd all be an-caps), but there's no reason to think it has to be a state.

I am particularly happy to see Jonathan adopting language around coercion that I've pushed for: "No, I’m not saying the free market is free of coercion (i.e. that property rights don’t need a protective, coercive institution). But, markets tend to minimize coercion (embodied in the general cooperative relationships aggregated as the division of labor)". I think it's wrong to talk about non-coercion as a goal. Everything in life is coercive. Property rights are coercive: property rights are just you being able to say "this is mine and if you try to make it yours 300 million other people have my back and will contribute resources to forcefully prevent you from doing that". The goal is to minimize how coercive human life is, and as Jonathan suggests markets tend to work very well at minimizing coercion because market action occurs precisely when action is mutually beneficial and voluntary.

I do have more problems with this paragraph on redistribution:

"The market, though, is characterized by a growing volume of voluntary exchanges. Certainly, incomes today — save those decided by government redistribution (to all income groups and institutions) — are voluntary. Government redistribution is characterized by the use of force. Suppose, for an instance, the existence of a completely unperturbed market. It’s true that institutions change over time, and so does income distribution, even in this setting. So, the idea of redistribution doesn’t presuppose a “default” distribution, rather it distinguishes a coercive stream of income from the voluntary one of the market. To make the point clearer, person A’s income is redistributed by the State to person B, because person A didn’t voluntarily surrender (usually in exchange for something else) her income."

Income distribution today is really not voluntary. It depends critically on the circumstances and the brain and body you were born into and the choices that were made for you when you were young. It's impossible to look at income distribution by something like gender and race and seriously conclude that the size of the pie that different groups get is something that is "voluntary". That's nonsense.

So we're at a bit of an impasse.

We know the market has important coercion-minimizing properties, but we also know that a lot of the resources that people bring to the market and that they live off of are anything but voluntary.

For me, that opens the door to egalitarian policy that constantly has an eye toward ensuring this slippery concept of "equality of opportunity" while trying to avoid this equally slippery concept of "equality of outcomes". It's not an easy distinction to make at all, because one child's "equality of opportunity" is some parent's "equality of outcome".

This is the trade-off of coercions that we as a society have to deal with.

States governed by the principles of liberalism seem to me to strike a decent and workable balance - and that's where the state comes in. But Jonathan is certainly right that there is no necessary connection between states and property rights.

...you might be Steve Horwitz

If the first sentence of a guy's comment on your post is "I agree completely with the points here" but your very first comment on your own post is to insult the guy that said he agreed completely with the post...

... you might be Steve Horwitz.


No comments on this one. I'm just venting. My blog, I get to vent when I want.

Department of Huh?: Skidelsky on Economic Possibilities for Our Grandchildren

I have always been a big fan of Economic Possibilities. It is a powerful essay. It makes lots of good points. It's very optimistic. And even among Keynes's enormous pile of well-written essays this one, I think, is particularly well written.

But the one area where Economic Possibilities falls flat is that it fails at predicting the far future!

Why is Skidelsky celebrating the one obvious and universally agreed upon failure of the essay?

Bob Murphy on obstacles to drilling in the Arctic

UPDATE: Very strange - I got this link by accessing Bob's publication list at IER yesterday, but now the by-line is gone and Bob informs me it's not his. It's still worth a read.

Here. This is the sort of thing that gets obscured in the hand-wringing after a disaster:

"Shell spent $2.1 billion for its tracts in the Chukchi Sea in a 2008 lease sale, and was prepared to start drilling during the summer of 2010.[v] But the oil spill accident in the Gulf of Mexico that April resulted in a moratorium on all offshore drilling, in both shallow and deep waters, by the Obama Administration.  According to Shell, there is less of a risk of a blow out in Arctic waters for two important reasons. First, drilling in the Arctic is in only 150 feet of water compared to 5,000 feet at BP’s Macondo well.  Second, the Arctic wells will tap into reservoirs that are under less pressure.[vi] This means that a blowout is much less likely and if there is a blowout, it is much easier to control in 150 feet of water than under the crushing pressure at 5,000 feet."

There is good reason to have a fossil fuel policy, but you do that with things that don't require planning production and allocation decisions for the market (like a carbon tax), not with ham-fisted regulation.

Keynes, Hayek, and Wicksell

I need to get Tyler Goodspeed's book Rethinking the Keynesian Revolution: Keynes, Hayek, and the Wicksell Connection (HT Peter Klein).

Goodspeed highlights the "Wicksell connection" between the two, which is precisely what I've been trying to say in several recent posts as well:

"While standard accounts of the 1930s debates surrounding economic thought pit John Maynard Keynes against Friedrich von Hayek in a clash of ideology, this reflexive dichotomy is in many respects superficial. It is the argument of this book that both Keynes and Hayek developed their respective theories of the business cycle within the tradition of Swedish economist Knut Wicksell, and that this shared genealogy manifested itself in significant theoretical affinities between the two supposed antagonists. The salient features of Wicksell's work, namely the importance of money, the role of uncertainty, coordination failures, and the element of time in capital accumulation, all motivated the Keynesian and Hayekian theories of economic fluctuations. They also contributed to a fundamental convergence between the two economists during the 1930s. This shared, "Wicksellian" vision of economic problems points to a very different research agenda from that of the Walrasian-style, general equilibrium analysis that has dominated postwar macroeconomics."

Frustration over all the cross-blog flame wars is fading into the background...

...upon the realization that the premiere of the final season of the best show on TV today is a week from tomorrow.

 

I was married in a pirate's lair

Here. The story is long, but here's where it all comes together: "Free on bail in the streets of London, the three ex-pirates were not tried until 1692. The British judge was no more grounded in law than his Virginian counterpart; while personally convinced that Wafer, Davis and Hingson were pirates, he lacked the appropriate evidence to convict them. Caught in between, he suggested a deal. If the supposed pirates would donate a substantial portion of their treasure to a charitable purpose, they would be exonerated. The ex-pirates complied. As the pirates had been arrested in Virginia, it seemed only appropriate that some portion of their treasure be reappropriated to Blair’s newly endorsed college. In 1692, Wafer, Davis and Hingson contributed £300 of loot to the College of William and Mary — over $900,000 in 2010 dollars. Thanks to their coerced generosity, King William would eventually issue a royal proclamation restoring the remainder of their treasure to them and ensuring their freedom. Thereafter, Wafer was involved with the failed Scottish colony at Darién, Panama; Davis returned to piracy in Madagascar and was ultimately hanged.


In Virginia, the plan began to take shape in the years to come, forming the beginnings of the College of William and Mary. Not long after, Gov. Nicholson moved the colony’s capital from swampy Jamestown to Middle Plantation, renaming it Williamsburg after his king. The foundations of the College’s first building — now known as the Wren, after its supposed architect — were built in part with the proceeds from a life of piracy on the high seas."

This takes the horribly misleading tendency to treat economies like families to a whole new level...

...but it's quite entertaining.

More arguing with Austrians

Josh Barro has a great post up at Bloomberg reflecting on the onslaught. It does a nice job highlighting some of the same things that Krugman has run up against, I think.

What's funny is that a priorism (Barro) and opposition to fractional reserve banking (Krugman) are views that are passionately held by a lot of Austrians. Instead of acknowledging this and saying "but there's actually a diversity of opinions on both of these issues among Austrians", they get brow-beaten for it. That's no way to promote your views, particularly when both Barro and Krugman have accurately represented an important part of the Austrian school.

There is this weird tension where because of the heated divisions within the Austrian school, outsiders who make an honest attempt to grapple with it get treated like pariahs. Selgin is one of the few who reacted this more constructive way - saying essentially that he agrees opposition to fractional reserve banking is wrong, and that actually a lot of Austrians agree too.

Barro invokes the alleged empirical failure of The Road to Serfdom, and this is another minefield when talking about Austrians. Is it just about totalitarian socialism or is it a slippery slope argument about mixed economies or what? If you say it's just about totalitarian socialism you are guaranteed to get a contingent telling you you have no idea what you're talking about. If you say it's a criticism of mixed economies you are guaranteed to get a contingent telling you you have no idea what you're talking about (see Greg Ransom). You know how I react to that? It makes me never want to talk about The Road to Serfdom! This isn't like the arguments about excavating "what Keynes really meant" by differentiating Keynes himself from the years of theoretical synthesizing of his ideas, where one side gives a late twentieth century textbook boilerplate Keynes and the other gives a historical Keynes. That's not what we're really dealing with. These are people who disagree strongly about what the historical Hayek actually said, and will call you dishonest or poorly read if you don't agree with them.

Not sure where I'm going with this. It's messy business.

Damned if I do, damned if I don't

So the first part of Brad's discussion invoked some points on anti-Semitism in comments from both Brad and Noah. I felt like I had to acknowledge it or my Austrian readers would just read the first part and stop because they think Brad is calling them anti-Semitic.

Now even though I addressed in and encouraged people to keep reading, it's still raising hackles.

Let me (1.) clarify and (2.) provide one thought: Brad said medieval thinkers and a particularly chauvinistic Brit in the early twentieth century were motivated by anti-Semitism when they argued their case for disgust with money made out of nothing. I can't argue with this. This is absolutely true. Hang-ups about banking long pre-date anti-Semitism, but these views also fed on anti-Semitism later. There's no denying that at all.

Actually what I felt was inaccurate was Noah's point (quoted by Brad) that called more modern renditions of  the theory anti-Semitic. That, I think, is inaccurate in almost all cases when it comes to the Austrian school (although there's a guy who's name has a lot of H's in it that always worries me...). All anti-Semites might be paranoid about the Rothschilds, but not everyone paranoid about the Rothschilds is anti-Semitic. Got it? That's what I considered inaccurate.

Now, you could make a "sins of their fathers" argument. If these ideas grew out of the writings of anti-Semites, surely they are stained with it.

Maybe.

But that would give me pause. In the General Theory, Keynes explicitly connects his views on the interest rate to medieval Christian doctrine which he says was more thoughtful than people realize. Keynes himself clearly had anti-Semitic prejudices, although we can have an honest debate about how severe they were. If we took Mises and Keynes and had to call one the anti-Semite, clearly it would be Keynes.

But I get a lot out of Keynes, including his views on the interest rate.

I would argue - and I know this is going to sound self-serving - that anti-Semitism has nothing to do with the ideas that I hold about the economy.

So this sort of thing is tough, I think. We will have to throw out most Continental philosophy in the second half of the twentieth century (some wouldn't mind this). Even if you think Nietzsche wasn't all that bad you can't really argue your way around Heidegger. Forget being a public space program enthusiast, because NASA is thoroughly infected. Lutherans are going to need to convert.

Ultimately, there's more than enough low hanging fruit - making contorted arguments about anti-Semitism in a post about Mises of all people is unnecessary.

For example, Mises said fascists saved civilization by murdering Communists.

That's food for thought, and a lot harder to weasel out of. When we're done with that we can chew on Chile for a while.

Or we can talk about economics.
 

Something I think critics of mainstream economists need to be more careful about

"Optimization" is a misleading thing to talk about, because common language suggests the output of an optimization process is "optimal". Talking about "optimization" has the tendancy to make people think that mainstream economics has a Pollyannaish view of the economy (this is particularly common among critics on the left).

What is critical to remember is that "optimization" refers to the decision making process, not a characteristic of the outcome. We'll opt for the good over the bad and the better over the good. That's what is implied by "optimization", not that the outcome is always wonderful.

It's also critical to remember what is being optimized. An objective is always what is being optimized.

And to make matters more confusing, that objective is subjective, as are all the other arguments of the optimization problem (including the constraints).

If you think people have imperfect subjective views of the world (but not so erratic that you can't get them to be behave mathematically), that they choose good over bad, and that the outcome of this process can definitely be "wrong" relative to some standard outside of the individual's subjective objective function, then you shouldn't get all that worked up about optimization.

Even heuristics jive with everything in that previous paragraph if we remember that the whole reason we use heuristics is that it is better than not using them (from a cognitive resources perspective).

A little while ago I was unimpressed with some of Randall Munroe's output (not that I could do better!) and was worried xkcd had peaked...

...now I know he was just working on this.

Quote of the day: I-think-Gene-Callahan-will-like-this edition

stickman: "Slowly, however, I came to realise that some of "Hayek's" ideas that I liked least were, in fact, better attributed to Mises. And, more recently, I've come to appreciate that some of that which I disliked most about Mises is actually Rothbard."

Mises lovers: feel free to clarify the man for we, the confused and skeptical ones. I want to emphasize that I really am offering an "I dunno" response to Mises. My disposition is skeptical from what I do know, but I know enough to know I don't know all that much.

UPDATE: Potential addendum - and the really awful stuff in Rothbard might actually just be Walter Block.

UPDATE 2: Should that be "us, the confused skeptical ones" or "we, the confused skeptical ones"? I can't decide. The former sounds weird with the second clause, but the latter sounds weird with the first clause.

UPDATE 3: I have now provided three updates before anyone has even clicked through to this link.

Early fall cooking

Anybody have some favorite foods to make? I love fall food. These are a few - not all especially autumnal.

One thing I've been cooking a lot more with is fennel. We had a bunch for this first recipe, which called for it, and I've basically been substituting it in where I'd normally use onions.

Mussels with steamed with garlic, fennel, triple sec, orange rind, and white wine. Garlic herb bread on the side. We are drinking a La Grange winery Chardonnay.

Pork is grilling on cherry plank slathered with apple butter. Apples on the top rack will be brushed with BBQ sauce later. Fennel and carrots are grilling, and corn on top.

The above grilled food - corn chopped off and mixed in with grilled fennel and carrots. Sweet potato fries and salad on the side, grilled apple on the pork. Sam Adams Hazel Brown in the glasses (Kate liked it too much... I had to share).

Julia Child's boeuf bourguinon, with green beans and a biscuit. Had this with Beaujolais, which the beef was also cooked in.

The lump on his couch

Brad DeLong on Austrian economics

I'm worried that a lot of Austrians will be turned off by the initial discussion in this post, which gets into anti-Semitism (inaccurately, in my mind) and Mussolini (more accurate, but not quite relevant to the question at hand). After the initial discussion there's an important attempt to struggle with Mises and some reposting of past discussions, including a couple with me. So please, read through.

I have a few scattered thoughts.

*****

I think it's important to remember that not all Austrians are 100% reservists, and the ones that are taken seriously in the academy aren't. The 100% reservists are basically affiliated with the Murray Rothbard shrine that is the Mises Institute - and not even all of them are 100% reservists. My regular readers probably know this, but outside traffic might not.

That whole can of worms is fascinating in a car-wreck-on-the-highway sort of way and could be safely ignored if it weren't for the fact that we have a powerful politician with a large political movement behind him that seems to have bought into it. That's what Krugman has been mocking. Now, those 100% reservists (a subset of Austrians) have actually addressed money market mutual funds. Joe Salerno has written that "they are clearly excludable from the TMS [true money supply - another Rothbardianism], because they are neither instantly redeemable, par value claims to cash, nor final means of payment in exchange".

OK, so they say Krugman is comparing apples and organges. Fine. Austrians associated with LvMI have been making a huge deal out of this, but whether Krugman's analogy met all the Austrian tests seems a lot less important to me than some of the points that Brad DeLong raises, or the awkward question of how you require 100% reserves as an alleged libertarian.

Ultimately, though, whether fiat money passes a cost benefit test (I think it's obvious that it does), isn't going to sway LvMI Austrians of a more deontological persuasion who simply think it's fraudulent. I don't know what you do with these people. I've tried my hand at the "fraud" argument in the past - perhaps you can search the blog history if you're interested. But these sorts of arguments can be like talking to a brick wall. I have a very tough time wrapping my brain around any sort of deontological ethics, much less that of this gang.

*****

Brad often wonders why I spend time on the Austrians (just like Krugman wonders the same with him). Part of it is an interest in intellectual history. I like Keynes, and Keynes spent quite a bit of time with Hayek, so the Austrians have always held  someinterest for me. There's a bit of path dependence too. I started talking about it. I might as well keep talking about it. Plus I'm more broadly concerned about the impact of libertarianism on this country.

But one person I don't deal a lot with is Mises.

It's not because I think he's "the crazy one" (that's Rothbard, after all). I genuinely don't get what's going on in Mises's head in the way that I feel like I grasp what is going on in Hayek's head. There is a way to (potentially) solve this: read him. I say potentially because of course reading someone that writes inscrutibly doesn't guarantee an understanding. But Mises's books are long and he seems to pontificate a lot, and there is so much else to do and read.

So I stick with Hayek because I understand him, and I actually think he has important ideas. I agree with Friedman that the Austrians have some good insights, but not in monetary theory. It's easy to understand how credit creation causes recessions in Hayek - it's much more transparent than in Mises. You have a sequence of Cantillon and Ricardo effects that cause real changes in the structure of production. In that sense, it's a credit-induced-real-business-cycle-theory. Hayek specifically takes the Bohm-Bawerkian view of capital as goods in process so that the carrying cost of capital has to be considered in capital accumulation decisions. Since production is carried out over an expanse of time, the marginal product of capital itself is a function of the interest rate, and credit expansion and contraction can change (to use Keynes's terms) both the volume and direction of investment.

I find all this quite interesting and quite sensible... as a statement about capital.

I don't think it's sensible as a business cycle theory, and this is one of the things I've been thinking a lot about lately.

But there's a lot of interesting stuff to unpack in Hayek - and that doesn't even get into what Brad DeLong has in the past called "the good Hayek" - the Hayek who talks about decentralized knowledge and the price system.

I don't feel the same way about Mises. I am the first to admit that part of that is my own ignorance (an ignorance I have no plans to remedy any time soon). A lot of Brad's post is about Mises. I can do my best to take a shot at that, but I really don't know Mises.
 

A reminder

Don't comment anonymously. Either use your name or a consistent pseudonym. This has gotten worse in the last couple weeks. Starting this morning I'm just going to delete anonymous comments.

I know the verification procedure is annoying. I don't know how to change that. But if you're having trouble signing in as someone, at least sign in the comment itself - then I won't delete it.

There is a noticable negative correlation between comment quality and anonymity. That should not be surprising to anyone. So stop.

This is exactly like Bartleby

Here.

There's some dog-specific stuff in there, but otherwise this is my cat. I wonder if some of it is just a male pet thing. Chloe was very affectionate, but she was never as obsessive about Kate and me as Bartleby is. That frame with the dog spreading eagle sitting on the couch? If you were to hide a security camera in my house facing my couch, that is the picture that you'd get nine times out of ten. We let him in the room with us at night for the first time last night - he was beside himself with excitement. It was like having a lawnmower sitting on the bed, his purring was so loud. I don't think he slept all night. Pets are wonderful things.

Bartleby on Kate

I need to read this tomorrow

(not time today, unfortunately)

Keynes and Hayek regions in uncertainty-liquidity trade persistence space, each with momentum and reversion (which, because they're adjacent to each other, I assume makes for some kind of saddlepath dynamic).

The conclusion: "To return to the price of sovereign bonds: if we are in the Keynesian region, Mr. Draghi may be right to intervene since prices are far away from fundamentals compared to consensus estimates. However, if we are in the Hayekian region the consensus estimates are farther away from fundamentals than prices, and intervention is not warranted on the grounds of prices being out of line with fundamentals."

Sounds an awful lot like the bottom line of my Critical Review article, except they're talking about bond prices and I'm talking about rates. Whether you can apply ABCT to evaluation of fiscal or monetary stimulus depends critically on where the interest rate is relative to the natural rate.

An army of slaves?

While I've always enjoyed the Friedman/Westmoreland exchange and while (barring an existential crisis) I am on Friedman's side of the AVF question, I do sympathize strongly with commenter Will's point:

"There is something extremely perverse about describing as "slaves" people who live in a democratic country, are monetarily compensated for their service, and receive special consideration for the rest of their lives after this service ends. Ask anybody who served in World War II whether they considered themselves enslaved."

Indeed.

I would say this: Westmoreland decided to be a smart-ass first, so Friedman was a smart-ass right back to him. The exchange is a poignant illustration of the issues at stake in the debate, and a great example of Friedman doing what Friedman does best.

I don't literally think of draftees as slaves any more than I think of the current military as mercenaries. It was precisely Westmoreland's reductionism that Friedman was mocking, I think.