Wednesday, August 21, 2013

Assault of thoughts - 8/21/2013

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

- Bob Murphy finds an awkward footnote. The EPA is really up a creek on this one. As Bob lays out, it's hard to know what else they could have done short of redoing the administration Working Group's work for them. And this comes up in empirical work. Sometimes things just can't be nicely squared off and you're up-front about it and try to finesse it and move on as quickly as you can. Still - very awkward and very funny.

- I am reading David Card's 2011 article "Origins of the Unemployment Rate" for a chapter I'm writing and I'm really enjoying it. If you're like me and you enjoy (1.) labor economics, (2.) empirical puzzles, (3.) American economic history, and (4.) history of economic thought then I think you'll enjoy it too - it's got all of that.

- LK addresses the problem with Steve Horwitz's take on WWII and the immediate post-war period here and here. He makes a point that I very much sympathize with and have made here before: if you try to spin fighting the advance of fascism across the globe as wasteful spending then you need to stop, take a deep breath, and think a little harder about what you are claiming.

- Grant McDermott discusses the empirical ABCT paper I linked to recently on here, and provides some thoughts on the reaction of one of his Austrian sparring partners.

- If you are interested in the economics of Africa, a classmate of mine has recently started blogging on Zambia.


  1. Re-reading your ABCT paper is on my future reading list, as is digging into some of your references.

    There has been a considerable shortening of the time component of all sorts of production processes. That should shorten capital structures in many industries.

    I'm still confused by this from another blog post:

    "The recent crisis doesn't seem to have anything to do with the unsustainability of an elongated capital structure."

    Is a massive increase in housing loans not an elongation of the capital structure? I see it as a very long term investment whose profitability easily disappears at higher interest rates. Is turning credit card debt into HELOCs an elongation of capital structure? It also makes sense as malinvestment since these loans would not have been as extensive if a more realistic consideration of the level of saving in the economy had been made.

    1. A couple thoughts:

      I have a harder time thinking about housing as an investment like that. The whole idea of a loanable funds theory of the interest rate is that investors see a savings level of S and identify it as consumers' indifference with the consumption of S*(1+r) in the future. They are investing with an eye to future consumption levels consistent with that degree of time preference. Housing isn't really like that. Borrowers aren't taking out mortgages and incurring a cost in order produce anything to satisfy future consumer demand. It's got little to do with that - it's just credit for the purposes of consumption smoothing.

      Now, could you have distortions in the consumption smoothing process by messing with interest rates? Sure. But we're far afield from ABCT now.

      This brings me to my second problem with this point - you can't pick out activity in one type of long-term credit and call it a day. For ABCT to really make it's case I'd think the whole capital structure needs to respond how it says it should respond. If all we're saying is that low rates causes asset bubbles that's fine but it's not ABCT and has little to do with the capital structure.

    2. I'm very late getting back to this. You make a good point about consumption smoothing, but I believe consumers picture housing as more of an investment than you suggest. Lenders clearly see the loan as an investment. Business real estate investments increased.

      The Garrison "dualing triangles" model would predict increases in early and late stage investments as increases in money supply make money available for both C and I. Do you have a link to Gee Callahan's criticism of that perspective?

  2. Interesting links, Daniel Kuehn.

    However, I do have a question regarding your ABCT you still have time to update the piece to refer to the upcoming Lester and Wolff (2013) Review of Austran Economics article in your bibliography? (I would if there was still the opportunity, especially if their paper came out in an issue before your Hayek piece does.)


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