John Cochrane, the beaming fellow in this photo, took on Paul Krugman here: http://johnhcochrane.blogspot.com/2014/12/deflation-links.html Okay, I'm a little late to the fair, but I'm traveling this week, not doing any blogging at all, so you're reading something written when that Cochrane blog entry was still fresh. Cochrane's point is that NY Times columnist (and Nobel Prize winner) Paul Krugman repeatedly, in 2009 and 2010, warned of a deflationary disaster if the Fed didn't really put the pedal to the medal on money creation. Well, the Fed didn't. Not by Krugman's standards. And the deflationary disaster didn't happen. In case you didn't follow the above link, I'll paste the gist of Cochrane's take-down here: -------------------------------- " But deflation is a huge risk — and getting out of a deflationary trap is very, very hard. We truly are flirting with disaster." " So we're really heading into ...
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Almost exactly four years ago, economist Paul Krugman wrote the following explanation of the difficulty in defining the money supply for purpose of monetarist analysis. I think it is worth the resurrection. Surely we don’t mean to identify money with pieces of green paper bearing portraits of dead presidents. Even Milton Friedman rejected that, more than half a century ago. For one thing, a lot of those pieces of green paper are pretty much inert — sitting outside the United States, in the hoards of drug dealers and such. For another, checking accounts are clearly a close substitute for cash in hand. Friedman and Schwartz dealt with this by proposing broader aggregates –M1, which adds checking accounts, and M2, which adds a broader range of deposits. And circa 1960 you could argue that those aggregates were good enough. But now we have a large shadow banking system, in which things like repo serve much the same function as deposits; M3 used to capture some of that, but...
In June of this year, Paul Krugman wrote a sort of humblebrag column admitting to certain errors that have accumulated in his columns. The tone was, "yes I've gotten things wrong, but none of these examples reflects any very deep mistakes in my assumptions, and since I'm owning up to my errors, all is good." The most intriguing of the admissions, to me, involved the economy of the United Kingdom. Krugman has been using "austerity" as a whipping boy for years now. Every impulse toward hardening the money supply or cutting public expenditures, in any country toward which he turns his gaze, is "austerity" or the cult of the "austerians" and a bad thing. One sometimes gets the impression that Krugman coined "austerians" to pun on "Austrians," and to try to use the failures (as he sees them) of austerity policies as arguments against Austrian economics. A silly pun, if that is what is intended. Anyway: the U....
Below I'll provide a link to a well-written blast at the expense of Nassim Nicholas Taleb's latest book, Anti-Fragile. The thesis of the book is that there are three different states-of-being for institutions, individuals, even academic theories: fragility, robustness, and anti-fragility. These are also, in order: really bad, not so bad, good. [I've written about one aspect of this book in this blog quite recently -- Taleb figures in my series of posts about Krugman and Gould. ] A brief illustration of the thesis might run this way: a nation that has built its whole economy around the production and sale of wine would be fragile. It would depend for its livelihood on the international market for wine, and, (even if demand for wine holds up forever) it could be devastated by climate changes that make its own terrain less hospitable to grapes. A nation that was less dependent on any single market or product would be robust. But better than robustness...
Taleb (above) also, on October 19th, put his response to Krugman's dissing of Gould in twitter form: "How econ models fragilize (or how Krugman blames others yet does not understand much risk & economics)." Daniel Davies then took up the twittering cudgels on behalf of Krugman, telling Taleb "your stuff always has one or two things in in that just can't be stood up." Tweet fight! A wonky tweet fight about economic and evolutionary theory, but a tweet fight still. It came to my attention through Salmon's column, here . And with that, I have said most of what I want to say on all this, except for three points: who is Daniel Davies? how much of a Ricardian is Krugman really? and, where do I stand on the underlying Krugman/Taleb debate over trade? 1. Davies? I don't know. His twitter account has nearly 3,000 followers, though. 2. Krugman and Ricardo. Here I admit my earlier reference was rather slighting. I said Friday that Krugman a...
Continuing... How has Taleb made his name? Look at the above graph. The blue line represents a normal or Gaussian distribution, also known as the "bell curve." Events on the far right or ar left side of that line, where the blue is approaching zero along the X axis, are sometimes call hundred-year storms. If we think of this in a finance/business context, the blue line may represent what a certain business thinks are its profits for the coming year. The tip of the bell represents the most likely result (a modest profit in line with that of most of its competitors, perhaps.) Toward the right end of the curve you get to ever higher but more unlikely profits, to the left you get losses, and then ever larger losses, though here too the fall-off in the line toward the zerobase of the X axis implies that certain disastrous results are very unlikely. But what if probabilities in finance don't have a normal outcome distribution? If you draw a flattened curve with "fa...
Headnote: I have just learned that the great scholar Jacques Barzun has died. It is hardly a life cut short -- he was born on November 30, 1907, so he was about a month short of turning 105. Still, for those of us to whom his life and work mattered, he had come to seem immortal. And in any sense that scholarship can secure: he is. For now, I will proceed with the material prepared for this and the following two entries in this blog. But I will have more to say about Barzun here soon enough.] Stephen Jay Gould, the paleontologist who did a good deal to educate the non-scientists of the world about the biology of evolution, passed away back in 2002. He might be surprised to learn that his name has now become a bone of contention [a fossilized bone of contention?] among economists. Of course it isn't all that surprising that there should be cross-fertilization between biology and economics. Ask Malthus about this. Ask Herbert Spencer. Still, my understanding is that this wasn...
So, continuing yesterday's discussion: what do Austrians say about MMFs? Let us be clear about the analogy Krugman draws between MMFs and banks. The term "fractional reserve" just means that the bank doesn't have all the money in the vault. Yes, there are a lot of checks floating around that represent the amount of money the bank is responsible to pay on demand and, yes, in the event of a bank run this is a dangerous situation. The bank only has some small fraction of the money in reserve. Hence the term. So: what do Austrians say about that? Is this a case where their hard money views come into conflict with their laissez-faire views, and where they ought in consistency with the former to demand that the government close these dangerous fractional reserve institutions down as so many embezzlers? Well, there are different approaches within this broad school of thought. But the general line of thought is well stated by Detlev S. Schlichter, in his recent book...
Nobel Prize winning economist Paul Krugman, pictured here, whose writings for the mainstream press have made him easily the most visible Keynesian of our day, issued a challenge to Austrian economists recently. For those of you who may be new to such discussions, I'll explain the jargon. The Austrian school is the tradition of Hayek and Von Mises, [and for the record, Hayek too received a Nobel Prize], a school built on a subjective understanding of economc value, that is, the view that something has value because one or more individuals want it -- regardless of, say, how much labor or how impressive a technology was necessary to create it. Also integral to the "Austrian" school are distinctive views about economic calculation, the demand for hard or honest money, the bases of interest rates, and certain meta-theoretical ideas as to how economics ought to be studied. What especially sticks in Krugman's craw, though, is the Austrian view of the business cycl...