Wednesday, December 19, 2012

Assault of Thoughts - 12/19/2012

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

- Nick Rowe on how you fit bonds into general glut parables. The key ingredients are sticky prices and zero lower bounds.

- Eric Falkenstein has a great post accusing Keen of being a crank. I don't know Keen well, so I won't weigh in on the specific accusation. But what I like about this post is that it provides some commentary on the problems with Minsky which are helpful for someone who (1.) hasn't read a lot of Minsky, and (2.) does appreciate Minsky's fragility arguments. Falkenstein thinks Minsky is on to something, but suggests that he errs in making such a big deal of aggregate debt levels. This comes to the question of the complicated value of "cranks" (I wouldn't necesarily call Minsky a crank, but the post is a good opportunity to talk about this). Often "cranks" aren't exactly right but they have an intuition about a problem that everybody else misses, which makes them worth reading. This is true, for example, of Foster and Catchings in the early 20th century. They weren't as sophisticated as Hayek was but in a lot of ways they had better intuitions for what was wrong than Hayek did, and laid a lot of groundwork for the acceptance of demand-side explanations in the United States. Cranks have their place. Even if you don't like what Falkenstein says about Keen, I think you'll get something out of the discussion of Minsky.

- I haven't been linking to these, but Gene has been picking out some real gems from Malthus. That's a link to one on savings, but you can look through his feed for others. People who know Gene know that he has a knack for finding really insightful passages in whatever he's reading, and he doesn't disappoint here. I've always thought Malthus has been underappreciated, and I also think that people don't get the most out of him by reading his essay on population. I haven't read all of it, but what I have read of Principles of Political Economy is much more engaging. I have the same reaction to Marx. Again, I can't say I've read all of Capital, but Jesus who would want to? It's not a fun read. In contrast, I've always liked the Economic and Philosophic Manuscripts of 1844, Theories of Surplus Value, etc.

- Two good posts on hyperinflation: Jonathan asks whether institutions in the U.S. mean we aren't at risk of  hyperinflation anymore, and J.P. Koning tells us how Schacht ended that hyperinflation in Germany. Which reminds me, I really do need to read Lords of Finance. I meant to years ago, but other stuff kept getting in the way. If you're interested in Schacht I also cannot recomment Wages of Destruction highly enough.

- David Glasner shares my reaction to the Fed announcement the other day: it does not seem as big of a deal as people are hping it up to be. In noting this, he suggests that Robert Waldmann should calm down in criticizing Matt Yglesias about monetary policy in Japan. It's probably good advice, although I have to say Yglesias's blogging often bugs me too. I'm not as down on monetary policy as Waldmann is but I do worry it's not the silver bullet a lot of people think at the ZLB, although still a good policy option, and Yglesias seems to have this unexplained awe for what it can do. I guess I just worry about the veracity of the expectations channel in a way I don't worry about the veracity of direct government creation of demand. I don't know - maybe it's just me.

10 comments:

  1. Daniel: thanks for the link.

    "The key ingredients are sticky prices and zero lower bounds."

    And, I would add, everyone is a noise trader in money, because money is the medium of exchange. And when the volume of trade in money falls, the volume of trade in everything falls too.

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  2. Whoops, I clicked on Jonathan's link and it went to my page, and vice versa.

    Lords of Finance is a great book. I have the audible version and have already listened to it twice. Definitely recommended.

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  3. Why do you think that Falkenstein's post was so great? I mean, there are a lot of better criticisms of Keen's theories and models, ranging from conceptual to technical. Falkenstein's, in contrast, is composed of ad-hominems against Keen and Minsky, a short bit about how his own hypothesis of bad investments is better then debt deflation theory of depressions and then a really irrelevant but long piece about an old model of firm's behavior that still generates arguments.

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    Replies
    1. He never mentions debt deflation that I know of... I would not have endorsed that. What he does is question claims about the significance of aggregate debt levels.

      What do you consider ad hominem? I missed that.

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    2. My bad, I should have rather written 'debt-driven theory of depressions based on FIH'. Falkenstein indeed did not mention debt-deflation and may perhaps even support it in some narrower definition, like that of Fisher 1933, for all I know.
      About ad hominem arguments: Falkenstein liberally mixes in phrases that paint those he critiques in a bad light. Minsky as a surly fellow who "would dismiss [his colleagues] as fools" and who was 'forever anticipating another 1929 crash', Keen as a crank who "took credit, just like others [...] with a vague, persistent prediction of a crash". It's his right, of course - it's a blog post, not an academic paper. But it's hard to see it as a coherent, diligent critique.
      Would you consider a critique of Marxian thought to be excellent if it started by stating that Marx was a jackass whose ideas were unappreciated by the contemporary economists and concluded that one only has to look at his proposed solutions to the social ills to dismiss him altogether? Yet Falkenstein's is not dissimilar in its spirit.

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    3. No, it wouldn't be a good critique if you called Marx a jackass... but Falkenstein didn't do that. He said that they were always anticipating crises that never happened. That's obviously relevant. I don't know how Minsky treated his colleagues. I considered that background on Minsky - I should hope no one takes it as an argument about Minsky's theories.

      I don't know - it just seemed pretty far from "Minsky is a big jerk and that's why you shouldn't believe him", which is what an ad hominem would be.

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    4. One doesn't have to be *that* blunt in personal attacks, y'know? Falkenstein's post doesn't have much more content to argue about, anyway. He implies that Keen's theory only provides a "vague, persistent prediction of a crash", but it actually has a robust mathematical model with pretty clear-cut predictions of when the recessions happen (and I will even dare to say that data generally supports Keen).
      Considering Minsky - I of course did not read everything he wrote, especially for the obscure American journals I have no hope of ever seeing - but I think it's safe to say that he did not consider FIH to be the sole cause of all recessions, did not believe that every instance of financial instability leads to the Great Depression-like catastrophe and was not an alarmist (if anything, he was concerned for the structural problems of the economy of the time). To treat him in Falkenstein' vein is akin to reducing Marx to a jackass and a supporter of a violent revolution (even though he was not a very good man and was an ideologue of the proletarian movements).

      I did a quick search and found a *good* Keen's critique in the blogosphere: http://www.concertedaction.com/2012/10/06/income-≠-expenditure/
      Civil, technical, and to the point. And I hope, progressing Keen's paradigm, even if just a bit.

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  5. One doesn't have to be *that* blunt in personal attacks, y'know? Falkenstein's post doesn't have much more content to argue about, anyway. He implies that Keen's theory only provides a "vague, persistent prediction of a crash", but it actually has a robust mathematical model with pretty clear-cut predictions of when the recessions happen (and I will even dare to say that data generally supports Keen).
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