Three interesting looking posts I wish I had the energy to consider in more depth

- Paul Krugman on why gold prices fit his understanding of what's going on.

- Karl Smith on what I'm going to call private Keynesian governance. I have reservations along the lines he raises at the end - but his point is good. Thinking about incentives in this way will help to explain Keynesian claims and get past this cop-out that we just love government.

- Robert Blumen at the Mises Institute discussing Rothbard's views on inventories. I think he levels a very thoughtful critique of Rothbard - a thoughtfulness I often find lacking there (I can't remember the last post there I liked that wasn't by Bob or Jonathan). One major shortfall of the piece was a sin of omission. Two words that never appeared were "interest rate". The decision whether to hold inventory or not is intimately related to the interest rate, and if Rothbard doesn't understand this, then people need to approach anything Rothbard says about ABCT or Hayek with caution.

Two new blogs I'm following

One probably not new to most of you, but one might be.

- First is Octahedron's blog - a relatively new commenter here with Austrian and libertarian sympathies and from what I can tell a very open mind to other ideas. He wrote a post recently reacting to my post on the distributions of reasons for opposing certain policies to address racial inequality from 1968 here.

- Second is David Friedman's blog. I'm sure most of you are familiar with David. I am, I just haven't followed his blog until now. For those who don't realize, David is Milton's son. I'm sure having that pointed out all the time bugs him, but oh well - I have to provide context for those who aren't aware :)


If any other readers have blogs I should be following please let me know (even if you don't actually comment much here). I like to follow what people are thinking and writing.

Jonathan on Keynes on Methodology

Jonathan has his first post up on The General Theory. I want to read it and respond to it more carefully later than I have time to now (on his blog... I always feel bad that instead of commenting on others' blogs I throw up my thoughts on here), but I did want to throw one question out there. Jonathan asks "Does Keynes ever elucidate on the methodology he applies to theory development in economics?" (with more details on motivation in his post). Nothing immediately comes to mind to me, but I would venture that he's a traditional positivist. Jonathan will find that the book is peppered with statements of the form "this seems reasonable but we will have to find out from experience whether it works this way in practice". When it came to wage cyclicality, Keynes offered a speculation in the General Theory, was proven wrong with data in 1938 and 1939 by Tarshis and Dunlop, and recanted in 1939 in light of the evidence. Anybody have any more specific thoughts on Keynes and methodology? Jonathan also mentions epistemology, and I would carefully segregate this from methodology for Keynes. Keynesian epistemology is best found in his Treatise on Probability (1921).

Two good posts from Krugman and Vienneau

First, Paul Krugman reflects on what's been coming out of the INET Bretton Woods meeting and the revival of "the oldies" (Bagehot, Kindelberger, Keynes, etc.). In this portion, he ties the problem with the last couple decades back to the microfoundations push:

"Bagehot wrote of panics in which the collective desire to shed risky assets and debt produced a downward spiral; Keynes of situations in which the collective desire to save but not invest led to mass unemployment. And in both cases these arguments suggested a case for government intervention to undo or limit the bad macro consequences of reasonable individual behavior.

But notice that I’ve framed this in terms of “reasonable” behavior; it’s a lot harder to tell these stories in terms of perfectly rational, maximizing behavior.

One response — a pretty good response — is, “So?” After all, maximization isn’t a fact about human behavior, it’s a gadget — an assumption we use to cut through the complexities of psychology and all that, one that can be very useful if it clarifies your thought, but by no means an axiom or a law of nature.

But maximizing models have a special appeal for modern academic economists: they require solving equations! They’re rigorous! They make it easy to show that you’re doing “real research”. And so maximization tends to acquire a bigger importance in economic thought than it deserves."

The point isn't that microfoundations are inherently bad. The point is simply that we need to be intelligent about how we talk about microfoundations. In an earlier post I gave the example of physicists grappling with making quantum mechanics and relativity consistent. It would be weird (wouldn't it?) if physicists said "well relativity really needs microfoundations, so lets try to derive relativity from quantum mechanics and if relativity ends up popping out the other end, that's great - but if it doesn't we just have to abandon relativity." Would that make sense? Of course not. First, we need to really interogate this claim "relativity needs microfoundations". Why? Are microfoundations some sort of scientific pre-requisite? Nope. Nevertheless, consistency is good even if there's not a necessity for microfoundations. But that just leaves open the question - why derive macroprocesses from microfoundations? Why not derive microprocesses from macrofoundations? One is at risk of the ecological fallacy and the other is at risk of the fallacy of composition, but neither is a bad approach in and of itself. You all know my take on this - the Krugman post is very good.

*****

Robert Vienneau has a great review of Nozick up. There are a few things I especially like, starting with his assertion that "libertarians" are better called "propertarians". I would actually suggest that "paleo-propertarians" is better, because not only is libertarianism essentially a philosophy that enshrines property rights - it often offers preferential status to existing or status quo property arrangements. This distinction is important because it's precisely the assignment of rights that determines whether a social order is one of "liberty" or not. This is not something a lot of libertarian seem to appreciate. I did a double take recently when I read Bryan Caplan write: "boosting libertarians' Total Fertility Rate to 3 is the most realistic long-run path to liberty", and as far as I can tell he meant it seriously. Libertarians identify their philosophy with a philosophy of liberty, which is odd for other liberals. It's actually a very specific sort of philosophy of property, and it's not at all clear that a society arranged along libertarian lines would have more liberty. The fact that libertarians identify libertarianism with "liberty" makes engaging with them hard, because they actually do believe this. Convincing yourself of this sort of equivalence is powerful rhetorically; one need look no farther than the Bush administration for evidence of this. It's akin to equating ideas with the will of God - you obviate the need to really probe the idea when you equate it with the will of God. The modern Western world is a world of secular liberalism, and liberty is the new "will of God". If you proclaim your philosophy as being equivalent to liberty ("the will of God") as a matter of definition, you render unintelligible the counterarguments that offer different perspectives on exactly what we mean by liberty ("the will of God") and the implications of a specific philosophy for liberty. Just like with older fundamentalists, when I argue against libertarianism I am perceived as arguing against liberty.

Vienneau has other great points too - including Nozick's begging of the question on how to define "property rights" (a point I raise here a lot). He also presents Nozick's three propositions for the just distribution of property. What caught my eye here is that the third proposition: "Whatever injustices may nevertheless have arisen in original acquisition or transfer must be rectified justly" is usually defined circularly by libertarians - and it is defined on the basis of the very property rights that we're trying to rectify!

More on libertarian social engineering and rationalism

Autofyrsto links to an old post of mine on libertarian social engineering, where I make the argument that libertarians are the biggest viable social engineers in America today (I'm assuming - safely, I think - that state socialism is off the table). Strict libertarianism takes a blueprint for the organization of society that it has derived rationally from a few essential principles and seeks to impose that blueprint on society. They don't see it as an imposition, of course, because they see it as a reaction to other impositions. But their perception is largely irrelevant. The strict sort of libertarians (rather than "libertarians on the margin", like Greg Mankiw) pursue radical change on the basis of very little experimentation or experience. That's not inherently good or bad, but it's something to be cautious about.

Autofyrsto primarily takes issue with what he perceives to be my assault on reason and rationalism. He starts by making an issue out of the point in the David Brooks article I link where Brooks notes that Edmund Burke was "horrified" that "individuals would use abstract reason to sweep away arrangements that had stood the test of time". Atuofyrsto goes on to protest when in the blog post I link to Greg Mankiw admits that he "recoil[s] at more radical libertarian positions". Autofrysto writes that "If steam comes out of the libertarians’ ears, it is only at the frustration of arguing with people who openly and proudly muzzle the voice of reason so that they may continue to believe, at our expense, whatever makes them comfortable." Muzzle the voice of reason? This is an odd interpretation of what Brooks, Mankiw, and I were doing. We aren't unreasonable or unrational people, after all. It would be strange for us "openly and proudly muzzle the voice of reason". All we're suggesting is that human society is complex and a single person or a group of people can't map out a blueprint for it. Reason is a tool of the mind to be used, not abused. Autofyrsto seems to be arguing that the admonition not to abuse reason is an attempt to muzzle it. I disagree.

Autofrysto then goes on to cite a favorite of this blog, Thomas Paine:

"To argue with a man who has renounced the use and authority of reason, and whose philosophy consists in holding humanity in contempt, is like administering medicine to the dead, or endeavoring to convert an atheist by scripture. Enjoy, sir, your insensibility of feeling and reflecting. It is the prerogative of animals. And no man will envy you these honors, in which a savage only can be your rival and a bear your master."

Again, no one here is renouncing the use and authority of reason. Quite the contrary. I am renouncing the unreasonable application of reason. I am renouncing the fetishism of reason. I am upholding the idea that man's reason is a great asset but renouncing the idea that it is capable of forseeing and planning all things. I'm advocating common sense, in other words, which makes the rebuke with Paine a little laughable. Autofrysto ends with this point, which I can agree with him whole-heartedly on:

"We should carefully scrutinize the so-called “wisdom of the ages” in light of reason, and abandon it when it fails that scrutiny. I don’t even know how to explain why. It seems so self-evident."

Two new blogs to follow

First, a good friend has started a cooking blog that already has several tastey looking entries. Having sampled her huevos rancheros, venison, and various other dishes and appetizers (parmesan cheese slices on green apples slices... simple... unexpected.. one of the tastiest cheese appetizers I've ever had), I can attest to her abilities.

Second, regular commenter Gary Gunnels has started a blog about his mountain climbing. I believe he has a big trip in the works - he can probably tell you more about it in the comment section.

Post Keynesian Blogs to Follow

I've had a couple recent posts highlighting distinctly (and sometimes, I argue, not so distinctly) Post Keynesian ideas that have drawn in commentary from self-identified Post Keynesians. I've followed a few of their links and blogrolls and have a couple blogs I haven't been following but that might be of interest to readers here:

- Robert Vienneau's blog
- Barkley Rosser's blog, which I've been meaning to add to my Google Reader for a while but haven't gotten around to it until now.
- John T. Harvey's (I think...) blog, Post Keynesian Observations
- The Levy Institute blog

I am following these now, and of course I'll share any interesting content here. Of course one that I've really enjoyed and have been linking to lately is Social Democracy for the 21st Century. That blog has two more posts on the Keynesian uncertainty point since I last discussed it, here and here.

I haven't invested the requisite amount of time reading the Post Keynesians, but my initial impression is that claims that "Keynes would have been a Post Keynesian" are somewhat weak. I think all branches of modern Keynesianism (with the exception of the few New Keynesians that pass off sticky wages as the entire story) are heirs to Keynes to a large extent. The strongest case that Keynes would not have embraced the neoclassical synthesis is that he himself rejected Hicks's formulation of joint determination of the interest rate in the loanable funds and money market while he was still alive. OK, so Keynes and Hicks are different. There was a time when I said "Hicks definitely had it right", but I'm not so sure how declarative we should be about that anymore. The point is, neither of them (and none of the neoclassical synthesis Keynesians) were strict Wicksellians on the interest rate. That's the salient point. I have no real interest in fixing Keynes in stone on this point an beating the neoclassical synthesis over the head with it. The other thing you hear Post Keynesians say to distinguish themselves is that they put special emphasis on uncertainty. This is weak too, I think. The absolute most important role that uncertainty played for Keynes was in driving liquidity preference and money demand. New Keynesians have not dropped this. They may say they embrace rational expectations, but as you all should know "rationality" is a very slippery term in economics. A rational optimizer that demands liquidity still provides a substantially Keynesian story. Do Post Keynesians talk about uncertainty more frequently? I wouldn't be surprised if they do. But as far as I know they are not unique in their consideration of liquidity preference, and that is the real significance and application of Keynesian uncertainty.

That's my take, but I am happy to admit that I am even less well read in Post Keynesianism than I am in, say, the Austrian School.

Disappointing news

Apparently, Facts and Other Stubborn Things did not make the Top 40 Libertarian Sites list.

I am both shocked and disappointed, and I want to assure readers I'll try harder in the coming year.

Jonathan announces a milestone for the Economic Thought blog. We have not topped 12,000 hits per month, but we've been over 10,000 for the last couple months and well over 6,000 for a long time before that. Jonathan has a nice cadre of followers (441 on Facebook), and a traffic every time he publishes on Mises.org, which certainly helps get the message out.

I'll try and think of something salacious to post to boost the hits for March.

Another blog post on the 1920-21 article

It's here. Not a lot of discussion because he can't access the article, but still nice to see people taking notice. He calls it an "interventionist" response... I suppose that's fair enough.

I like the blogger's description of himself:

"I am a law student at Rutgers University in Camden. My main career goal is to use the law to force my Libertarian ideals on people I’ll never meet. If these people could subsidize me as well, that would be a bonus."

Sounds reminiscent of my post on libertarian social engineering :)

On Don Boudreaux and Brad DeLong

A couple days ago I was lucky enough to have DeLong comment on my blog - he does it from time to time, and it's always great - he's a prominent figure in the economics blogosphere, and in economics, period. This time, though, I was critiquing Brad's style of attacking people in a relatively personal way on his blog (he can be of the "forget the honey, these flies have some vinegar in store for them" style) and he took issue with my critique. Fair enough. I responded to him by suggesting he give up his "Stupidest Man Alive" posts as a New Year's resolution. It didn't take apparently. Shortly afterwards he announced that Don Boudreaux (and Mark Perry and John Tierney) were in the running for "stupidest man alive". OK, so he didn't take a lowly blogger's stylistic advice into account. No big deal. So why did he give Boudreaux, Perry, and Tierney this honor? Well - for quite good and quite clearly identified reasons. What DeLong took issue with was this claim by Tierney (and Perry and Boudreaux for applauding Tierney):

"The overall energy situation today looks a lot like a Cornucopian feast, as my colleagues Matt Wald and Cliff Krauss have recently reported."

Ummm... ya... that is a problematic statement, is it not? Energy prices are higher now than they were, and there are no clear signs that the rate of new production is going to outpace new demand in the near future. This is not an energy doomsday, but it's not a "cornucopia" either. Indeed, it's precisely this pressure that is going to incentivize new discoveries and whole new energy sources and ways of using energy, but that doesn't make the current energy situation or the situation in the foreseeable future a "cornucopia". And Brad said as much.

Don Boudreaux didn't like that very much - which I have to add isn't surprising because Brad called him "stupid", after all. The problem is, because Don was seeing red from being called "stupid" he went off the deep-end in interpreting DeLong's quite reasonable critique. He concluded that DeLong was taking the position of Paul Ehrlich, who predicted mass scarcity of resources, inexorably increasing prices, and that England "might not exist" by the year 2000 (I don't even really know what that means, but it doesn't sound pretty). At this point I want to invite readers to read DeLong's post in case you glossed over my earlier hyperlink. Is there anything in there that indicates he has any sympathy at all for the Ehrlich argument? Is there anything in there that even indicates the thinks there will be a dependable trend increase in prices? Of course not. Because Ehrlich was completely ignorant of economics and DeLong is one of the best informed economists out there. Don apparently did not take the time to read DeLong's post - I'm not sure he got past the title, because he certainly expected DeLong to take Ehrlich's side of the bet when he offered the classic Simon-Ehrlich wager to DeLong.

So what do I care? Well this is where I (probably unwisely) inserted myself. I told Don it was absurd for him to think DeLong would ever take this bet because it was absurd to think DeLong was sympathizing with Ehrlich in his critique of Tierney. I even pointed out an earlier DeLong post to Don where he agreed with Alex Tabarrok that neither Simon nor Ehrlich were especially wise in predicting such a persistent trend. And how did Don respond?:

"Daniel, you seem to read famous economists as if they are incapable of being dead wrong. Economists are too frequently slaves to their silly textbook and academic-journal models, having little ability to distinguish their models from reality, and fancying themselves wise and knowing because they've mastered complicated mathematical formulae and esoteric jargon. I'm certain that I'm wrong - even dead-wrong - quite often. But I've never, to my awareness, read any economist with such eagerness to excuse him or her from dumbshit error as you read the likes of Krugman, Keynes, and DeLong."

Well, it turns out I read DeLong exactly right on this point.

DeLong doesn't think the Ehrlich side of the bet is a wise bet because: "Falling expected extraction costs over time will impart a downward trend to resource prices even if net resource earnings are expected to be stable. Moreover, expected resource earnings are probably not expected to be stable: they are probably on a downward trend because most exhaustible natural resources are negative-beta assets--which means that investors ought to be willing to pay more for them than if they required a Treasury bond-like return. And most organizations that extract natural resources would like to be around for a while and think that their industry has a bright future--which means that it is at least plausible that they are likely to pump a little bit less than they should and so push today's prices up even further above the optimal Hotelling level."

All that, and he never initially claimed to take Ehrlich's side, of course. I want to re-emphasize that it's not especially notable that I was able to tell Don that DeLong thought this in advance of DeLong's response. It was written in plain English in everything DeLong has ever written about it. DeLong made a counter-offer. He reminded Don that his only claim was that we were not in an "energy cornucopia" where a flush supply of oil compensated for the increasing demand from developing economies. The absence of demand pressures usually manifests itself in lower prices, so DeLong instead suggested a put option for oil at $20/barrel.

You would think Don would show some humility after all this. To me, for framing my ability to read plain English as reading DeLong, Krugman, and Keynes with "eagerness to excuse him or her from dumbshit error" - but especially to DeLong for completely misreading him and absurdly associating him with 1960s vintage environmental-doomsday-dystopians. But there is no humility to be found - he's back on the attack, calling DeLong "not a nice man" because DeLong apparently read Don's response too fast and thought Don refused his counter-offer when he actually said he'd sleep on it.

Yawn. OK who cares? Am I missing something? That's an honest question because this is so absurd - am I missing something about why Don called him that? Don thinks that makes you "not a nice man"? DeLong apologized.

A new offer is on the table from DeLong, that the price of oil won't average $10/barrel for any five year period over the next twenty years.

I am not holding my breath for Don to embrace any of these offers, although I suppose it could happen. Don is only interested in painting anyone that disagrees with him as an extremist. If you offer him proof that you're not an extremist (as DeLong did initially, and then again, and now a third time), Don just hunkers down. Don is the kind of guy that looks for fights, and then when there is nothing to really disagree over, he invents positions for you. It's entirely transparent unless you're completely enraptured by him, as a lot of the commenters at Cafe Hayek are. And when I try to point out that the vast majority of people are not extremists - that there is not some cadre of environmentalist fanatics or statists out there - I get attacked by Don for being credulous.

DeLong likes to fight too (and I also enjoy heated debate - I'm not claiming to be a delicate flower that shuns heated debate in general). I still maintain calling people the "stupidest man alive" is not the most effective approach or the most polite approach. But it's also clearly a schtick and has to be understood as such. DeLong is not the one with egg on his face here. I've critiqued DeLong for a handful of things in the past, I've favorably cited considerably more, and it is still the position of Facts and Other Stubborn Things that he is among the few indispensable bloggers in the economics blogosphere.

I'm waiting for an apology from Don for claiming I eagerly defend "dumbshit errors" by famous economists, but I'm not holding my breath for that either, until he breaks out of his ideological bubble.

(Not Brad DeLong)

Good post on "interpretative charity"

This is one of the best blog posts I've read in a while now from one of the best critical thinkers out there. He nails a point that has always bothered me but couldn't always express: the lack or misunderstanding of "interpretative charity" in both the blogosphere and in intellectual circles. He writes:

"A common misconception takes interpretative charity to be an inability to say anything contrary about someone's thoughts or actions... a sort of well-meaning but naive refusal to engage in argument because a nicer and more well-meaning interlocutor could always be plausibly imagined. The idea is that the overly-charitable interpreter nuances a person's position to death so that even the worst crimes and falsehoods could be justified in the name of standing aloof from uncivil polemic... While I don't see any need to link other conversations, this post originated out of continued frustration with the idea, held by a few folks, that I can be something of an etiquette obsessed contributor to... blogs, unwilling to ever just go out and offer a straightforward criticism."

The author, speaking of a paper he wrote where he exhibits this "interpretative charity", says that his critique:

"simply couldn't have been made without taking most of the paper to follow through certain arguments on the basis of their own most reasonable terms. That is, without prioritizing interpretative charity some critiques actually remain unavailable."

The Year in Review at Facts and Other Stubborn Things

So I see a lot of bloggers are posting their top posts, so I guess I'll do that too. The top ten, by page views, are a little surprising to me:

- Benoit Mandelbrot, 1924-2010 Oct 16, 2010 1,168 Pageviews
- On Secession Jul 24, 2010, 23 comments 581 Pageviews
- One more NFIB chart post... Sep 17, 2010, 2 comments 502 Pageviews
- Critical Rationalism Blog Apr 16, 2010, 9 comments 410 Pageviews
- Hey, at least it keeps them off the streets! Oct 6, 2010 371 Pageviews
- Murphy v. Krugman: The Blind Debating the Blind Oct 21, 2010, 5 comments 230 Pageviews
- This deserves its own post... Sep 2, 2010, 25 comments 196 Pageviews
- Daniel Klein, Progressivism, and Rights Dec 7, 2010, 20 comments 157 Pageviews
- A Good Krugman Post Oct 31, 2010 153 Pageviews
- Boardwalk Empire Sep 17, 2010 146 Pageviews

Why the simple memorial to Mandelbrot is first is beyond me. I looked up search terms that brought us up and "Mandelbrot" was very high, so I guess somehow we got caught up in a search algorithm and it directed people here. I think I posted links to my "On Secession" post on a Mises.org discussion of Woods's book - that explains that. Nick Rowe and Brad DeLong both picked up my "One more NFIB chart post..." - on DeLong's blog he dubbed me a "three musketeer" along with Nick Rowe and Niklas Blanchard for my efforts taking on some odd interpretations of the NFIB business confidence data. A proud moment indeed. I know Brad picked up the "Hey, at least it keeps them off the streets" post too. DeLong, despite my occassional critiques, is a good promoter of an amateur blogger. The blog that directs the most traffic here, though, is of course Economic Thought. I have to thank Jonathan and Mattheus for a great year. In a lot of ways, this blog and their blog were co-travelers in the blogosphere. Economic Thought played the Hayek to Facts and Other Stubborn Things's Keynes (and while Hayek wins when he is given a script and put on Youtube, we all know how it worked out in real life).

My fairly critical post on the Murphy/Krugman debate was also shared on Mises.org. I'm not sure how the Daniel Klein post got around so much, but I'm glad it did - I enjoyed writing it, and it was only a couple weeks ago that I wrote it and it's made the top ten for 2010 (although I'm not sure how much of a feat this really is... I'm sure most page views happen within the first week of posting).

The Daniel Klein post is one of my favorites this year. Others that I particularly enjoyed are:

- Keynesianism and Consumptionism (I'm still working these ideas out for myself, but I think it's a major source of misunderstanding and I think I laid out my case fairly well).
- Me on Selgin, Lastrapes, and White (This was pretty contentious over at Cafe Hayek with Selgin himself mocking me (and then apologizing), but I really think it needed to be said. I did not find this to be a very good paper at all).
- My post on the insincerity of "taxation is theft" claims (this was one of my weakest arguments this year and I got blasted for it from all directions - but I still think it was worth writing because I think there's a kernel of an argument there and the melee helped me work through it. I'm still floundering for a full argument).
- My post tying Janos Kornai to proto-Keynesian sorts of ideas (I think I was on to something - I want to get a copy of Kornai's book but it's hard to find online).
- On the supply inelasticity of graduate school educated labor
- This post, Surprise! I agree! is one of many where I've pointed out what I've called "the presumption of ideological orthogonality", or the assumption that "because I think something, and because you're my opponent, you must oppose it". It's a really bad assumption to make.
- This post on The Empire of Liberty is another speculative post that I think hit the mark more than my critique of the "taxation is theft" post. Mattheus gave me props on it, and he's a rigorous critic.
- Alien skepticism... what I think and don't think about aliens.
- Earlier in the year I had a string of posts contrasting "calculation problems" with "incentive problems" to highlight why addressing so-called "externalities" can be tough, but is completely different from central planning. I like these ideas... I need to distill these posts into a paper of some sort.
- All my posts on 1920-21 (some about the depression, some just about the period) are here.

My New Year's resolution? Well like I said earlier, it's to not blog in the morning until I've written 250 words. It sounds silly, I know, but this will actually be a major lifestyle change for me. I spend about an hour and a half every morning before going to work looking around at other blogs and drafting my own thoughts - sometimes producing two or three posts in a morning. That's been great, but if I could actually research and write in that time it would be very, very good for me. I've got a lot of ideas stewing that need to get on paper - to say nothing of current obligations.

Light posting this week and maybe for a little while longer...

This is going to be a busy week - I'm going to be in Indianapolis on my first site visit for work from Tuesday afternoon through Thursday night. Normally I'm just crunching numbers at the Urban Institute, but for the first time I'll actually be conducting interviews at a program site. I'm going to be evaluating an apprenticeship program with one of the foremost American economists that studies the subject, Robert Lerman.

I'll be back Friday, probably frantically doing other work, and then Friday night through Sunday I'll be in Williamsburg, Virginia to celebrate my three year anniversary. One of the places we're going to be going is The Trellis - a very nice restaurant in Colonial Williamsburg that was somewhat out of our price range when Kate and I were students there.

I'm hoping this hiatus will ween me off of regular morning blogging, so in the week or two after I get back I can do a lot more work finishing off my applications, writing up my entries for the Encyclopedia of American Populism, and make major progress on the NBER chapter.

Nick Rowe is a wise man

Just read this. I concur in the comment section too.

*****

I have to say - thank God for blogging. I'm guessing I would not have the opportunity to read the positions of various international economists like Rowe as easily without it (although Rowe isn't too far). I wouldn't even get in the brain of American economists as intimately and often without it. And I also get the chance to read guys like Lee and stickman who I think are sharper than probably 80% of the professional economists I follow... maybe without as voluminous or technical an understanding as those professionals, but with easily greater insight. Even amateurs that I think have relatively more wrong than Lee and stickman, like Jonathan and Mattheus (and I have no illusions that the feeling isn't mutual) still present, in my mind, a fairer, clearer, more interesting, and less hostile case than 80% of the professional Austrians I follow. What an amazing technological development this is. I don't think it's the future of scholarly work or anything. I don't think blogging has that potential. It's the future of the seminar room and the water cooler, though. It lets ideas stew in my head but with a much, much wider field of people to bounce ideas off of and to hold each other accountable. How wonderful is it that I am transitioning from amateur to professional with blogging at my finger tips. I think that's going to be a huge advantage, and I intend to take full advantage of it.

OK... off to farmer's market, some work, some shopping, some movie watching, some home-improvement at the in-laws. Have a good weekend everyone.

Some posts on Austrians

First Brad DeLong - you've gotta appreciate this: Austrians as the "mutant descendants" of Marxism. Now that sounds pretty cool even if you're not a DeLong fan, doesn't it? I wish I was someone's mutant descendant... ya'll would probably say I'm the mutant descendant of John Law or something, I don't know.

Matt Yglesias will probably also piss a few people off.

BTW - I kinda sorta defended you guys against Brad recently here.

There are problems with prominent non-Austrian treatments of the Austrian school to be sure, and I'll try to highlight those and highlight what I like in the Austrian school (yes, there are a few things I do like). I'll muster more moral indignation when I see a higher share of Austrians being reasonable in their approach to Keynesianism.

...and IMO, people should temper their outrage at a post with goofy Grecian dialogue and mutants.

A Grave Mistake...

I realized something when reading a comment of stickman's in an earlier post...

... I haven't been following his blog! I thought I put it on my blogroll as soon as he started, and then I just figured he didn't keep up with it. Turns out I never got it on my blogroll and he's been writing fairly regularly!

Anyway - I only note this because it's really, really quality stuff. I've been trying to read through them tonight. Here's a sampling of some good ones:

- The newest post is on facts vs. beliefs, our willingness to change our minds when confronted with contrary evidence, and some stupid knee-jerk defenses that people engage in. His take away point: "Facts are important, but you have to play - and be sensitive - to peoples' emotions and values if you really want to win hearts and minds." I would agree with this, but I would caution against play the turns into dangerous indulgence.

- A great post on physics envy, an accusation which I think is too easily flung at economics. Economists have to constantly be on guard even for physics admiration (which I have), lest it be interpreted as physics envy. What's so strange about the physics envy accusations is that they seem to reject doing anything that physicists have ever done... it's as if math is "claimed by physics". I personally think economics is more like biology than any other natural science (it is biology - we are studying the social behavior of highly evolved primates), but when the task is to optimize, you can use optimization theorems no matter who else is using them. When the tool is appropriate to the task at hand, there's nothing that should prevent you from using the tool that makes the most sense... really makes me want to get around to reading Knight. And I'll be damned if it doesn't make me think of Keynes too.

- Here, he shares a great article advocating the pursuit of both carbon taxes and a robust R&D policy... no argument here. As a side note, I had no idea they made He-Man into a movie - I just knew it as a cartoon.

- Here he uses Schelling's classic segregation model to show the importance of math in economics. If you haven't read Schelling's Micromotives and Macrobehavior you really should.

- Here he talks about the prospect of morality without God, citing an article by Dutch primatologist Frans de Waal. Stickman bolds precisely the line that stood out for me: "Perhaps it is just me, but I am wary of anyone whose belief system is the only thing standing between them and repulsive behavior." This all reminds me of Matt Ridley's The Origins of Virtue which, like Schelling's Micromotives and Macrobehavior, you really should read if you haven't.

- Here stickman notes that people haven't been reading through his math examples! I did! But he raises a serious concern here - people simply aren't interested. He apologizes for his calculus, but I don't really see why he should. It should have been a fairly accessible post. Nevertheless, it might simply not be the medium for it. There has to be a happy medium, though. One person who I think does a very good job at introducing models without overwhelming readers is actually Paul Krugman. They are quite simply models (although even those can confound some people [I'm refering to commenter RP Long in this thread, not Arnold Kling]) - sometimes they are more complex - but they provide a structure to Krugman's arguments that you simply don't get in any other economics blogs out there. This is probably the level that should be done in blogs - which means that most of us could get a little more formal in the presentation of our ideas. That's a steep order - Krugman has a lot of experience in this sort of thing.

- Here is his Nobel Prize post.

Please follow and enjoy the blog!

Three Links on 1920-21

I just wanted to note these quickly:

- Jonathan Catalan has a thougthful post on Austrian methodology and my 1920-21 paper, with a lively comment section. I think he's obviously right that I'm taking a positivist approach to economic science. Whether Austrians want to play that game with me is clearly up to them. Jonathan makes a case that Austrians should think carefully about this. Either way, the point may be moot when it comes to 1920-21. My basic argument is that while we can say a lot of interesting things about it and I think we should study it more closely, it ultimately is not a case that can arbitrate between Keynesianism and the Austrian school. As far as I can tell so far (and of course I'm just at the beginning of my study of the episode), it's consistent with both stories.

- This blog, called "Social Democracy for the 21st Century: A Post Keynesian Perspective" (Post-Keynesian as in Galbraith/MMT, not "after Keynesian") has a very thorough post up on the 1920-21 downturn and also mentions my paper at the end. I haven't been able to fully digest this post yet, but it does a lot of good bibliographical leg-work. The blog itself is Post-Keynesian, so it's going to be a little left of me - and it also seems to engage the Austrian school a lot (and more harshly than I do). I'm going to start following it, so if anything interesting comes up I'll share it here.

- Prometheus 6 does not mention my paper, but does have a post up on the Harding election, the 1920-21 depression, and the lead up to the Great Depression. It's interesting - he takes an approach that is skeptical of corporate interests and laissez-faire capitalism, but it also attributes the Great Depression to boom-time shenanigans by the Fed after 1920-21. I don't think that idea is entirely crazy - certainly the crash was a result of loose monetary policy, and the crash was a contributor to the depressionary demand shock. I guess I just found it interesting because usually more left-of-center perspective blame the Fed for their response to the Depression rather than the run-up to the Depression. Either way - I don't know exactly where this guy is coming from politically/philosophically, but I thought it was worth resharing.

These are some exciting discussions that are going on. We are really cutting into the just-so stories that guys like Woods and Murphy promote about 1920-21. That's fantastic!

"Prices and Production" Reading Group

Jonathan Catalan is organizing one and I'll be participating in it. The book, where Hayek outlines his version of what has come to be called Austrian Business Cycle Theory, is organized as a set of four lectures. We'll be reading a lecture a week or so, and Jonathan will kick off the discussion with a blog post. He invites other bloggers to post on it as well and cross link, which I'll likely be doing. I think this is a great format and if this is successful it should not be the last of these.

The Mises Institute provides the book for free here. The first lecture starts on page 221.

Feel free to join in - maybe leave a post on Jonathan's blog to let him know and thank him for organizing this.

Assault of Thoughts - "We aren't Marginal Revolution or Conscience of a Liberal, But You Should Still Read Us" Edition - 10/8/2010

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

- Regular commenter stickman has a relatively new blog called Stickman's Corral that is worth following. He recently had a post up on "Why we need maths in economics". It's not every day you get to read a blog post where you agree with every single word. You all know I like to caveat and agree with parts of posts and disagree with other parts. I found myself agreeing with every single word of this post - it's worth a read.

- Stickman also has a newer post up illustrating his point about math in economics using a simple model of investment in oil fields. It's worth reading through the whole post. First, it's nice to see an actual model in a blog post. I'd never have the balls to put one up (right now at least) - I just blog on whatever comes to mind between 5:30 and 7:00 am, which usually isn't a full-fledged model. If you've had calculus you should be fine with this one. He demonstrates that the impact of the interest rate on investment is indeterminate because of the opportunity cost of capital. Now, there's a certain bit of irony in this conclusion. I've stumbled on several Austrians who think that they're the only ones that think about the opportunity cost of capital, and yet it's precisely this cost that introduces a stumbling block for cavalier assumptions (derived from less formal, less precise deductions) about the interest rate. Two thoughts on the model for stickman (which he is free to disregard, since it's not like I'm going to put in the work of implementing them): First, if you remove the assumption of up front payments, does that change anything? Second, usually Austrians (and honestly I'm not sure if you had them in mind when writing this up) think of the impact of the interest rate on investment as affecting investment in higher order vs. lower order production - i.e., causing malinvestment rather than overinvestment. Your result varies with c/p - the opportunity cost of capital, with some value of c/p where there would be no impact. If there were reason to believe that higher order production has a lower c/p and lower order production has a higher c/p, this would affirm the Austrian view (granted, I'm not sure if or why there would be any reason to believe that). Nice post.

- Jonathan Catalan also posts on math and the Austrian school, specifically econometrics. I have a few concerns with it - first, he cites Mises as if econometrics were used to derive theory rather than test theory. I'm not aware of any work that really does this, so I'm not sure exactly what Mises was thinking. We certainly theorize with some sense of the world (you can't theorize about the interest rate without observing the world and knowing about this thing called an "interest rate") but that's different from using econometrics inductively, which isn't done. The qualification Jonathan suggests Mises makes of mathematical models is that "those relationships are subject to change depending on the different factors that the model does not account for (thus, models rely on ceteris paribus)" - again, this isn't really a point that anyone would really dissent on. I'm not sure why Austrians have to go to Mises for approval, but if this is what Mises thought then there shouldn't be any major obstacles to mathematical and empirical Austrian economics. After all, this is how the vast majority of economists view math and empiricism. So maybe there's no problem? Perhaps Mattheus will weigh in on this - I know he sometimes differs from Jonathan on these points. One of the frustrating things about Jonathan's post is that he claims that math is less precise than using words, and he points out that people may get slopppy with their assumptions or premises with math. This is taking the standard argument in favor of math and standing it on its head. The whole point of math is precisely that you have to explicitly state all your assumptions or you can't solve the damn problem. This isn't the case with language. With language, the assumptions are implicit in the words themselves. Stickman can't write out his initial NPV equation without telling you what each symbol means. That's considerably more precise and the assumptions are considerably more out in the open than anything I've read on the Economic Thought blog about the determinants of oil rig investment. That's the whole point. Just saying it doesn't make it true, Jonathan. The English language is versatile and useful, but it is not more precise or clear than math.

- Scott Kuhagen continues his coverage of our activist Attorney General in Virginia. Jefferson would be rolling in his grave if he knew about this assault on academic freedom at his university. I don't like to use the memory of the founders to make a political statement. I hate it when the Tea Party does that. It oversimplifies very complex positions that they held and tries to pretend that the late 1700s are comparable to the 21st century. But in this case, I'm pretty confident Jefferson would abhor what Cuccinelli is doing at the University of Virginia.

- Lee Kelly has a post on currency, deposits, and monetary disequilibrium. He suggests private banknotes as a solution. I have a few concerns about that, which I note in the comment section of the post. Not a terrible idea - not even something I'd be especially opposed to - but I don't think it's quite the solution that Lee suggests it is.

- Evan had an interesting post up a little while back on Stephen Hawking's recent statements about God. He connects the spontaneity of Hawking's universe to the theological concepts of the "freedom" of God. I will stress that these are developed theological concepts - just like I talk in jargon here, he'll talk in his jargon there - so read with interest and google some stuff if you need more background on it, but know that there is a bit more depth and background to the concepts he's discussing than might meet the eye. I have comments in this comment section as well.

This will be a blog worth following

Lee Kelly has started a new blog called Philosophy and Economics, and the first post is on the paradox of thrift. One of the things I've always appreciated Lee Kelly for is a very clear exposition of monetary disequilibrium arguments. He's also, of course, excellent on questions of certainty and knowledge.

The paradox of thrift post is great - often it is explained as "if people are saving then they aren't spending", which I suppose is true on a micro level but clearly doesn't have to be true at a macro level. Saving rates can increase without disastrous consequences if investment rates also increase, for example. Too many people spin the paradox of thrift off into crude Keynesianism by failing to explain that problems emerge when savings are not matched with an increase in demand for loanable funds. That's when these various accounting identities like S=I and Y=C+I+G come into play, with a new equilibrium at a lower output level.

The comment section gets into more liquidity trap issues, but I don't think Lee Kelly was necessarily talking about a liquidity trap - you can have paradoxes of thrift without them, after all (I think at least - I'm not sure why you would need a liquidity trap to have a pardox of thrift, but perhaps I'm wrong).

The next post will be a refutation of the paradox of thrift.