Archive for August 2017


Political correctness is a stupid idea

I made this point a few weeks ago, but now there is empirical evidence to back up my claim.   Razib Khan presented the following graph, which shows that people who score high on an intelligence test are far more likely to favor allowing unpopular speech:

This goes against the widely held view that PCism is concentrated on elite college campuses.  Presumably liberal arts professors score pretty high on a vocabulary test.

You might wonder if that only applies to questions about Muslims.  Not so, at least not among white non-hispanics.  In another post, Khan shows that (among whites) smart people are also more willing to allow others to claim that blacks are inferior:

PCism is also associated with the extreme left, whereas in fact the extreme left is the most tolerant of controversial views:

Opinions may differ on whether PCism is a stupid idea in the sense of being a bad idea.  But it’s hard to deny that PCism is a stupid idea in the sense of being a view that is disproportionately held by stupid people.  And to a lesser extent, PCism is a conservative idea.

I’m sure this goes against the preconceived ideas of many of my readers, so I await your comments explaining to me that this is all wrong.

PS.  The fact that an idea is disproportionately held by stupid people does not necessarily mean that the idea is incorrect.  There are undoubtedly some areas where my own view corresponds to the prevailing view of stupid people.  But PCism is not one of those areas.

PPS.  When I say an idea is “actually correct”, I mean that I believe it to be true and also predict that society will eventually come to accept the idea as true. Long-time readers know that I don’t believe there are any objective facts.

Is the battle against “reasoning from a price change” unwinnable?

Over at Econlog, I have another post that touches on reasoning from a price change.  I must have already done a hundred such posts.  And yet every day I see more examples of this EC101 error in reasoning almost everywhere I look.  Not just among the uneducated, but in elite newspapers like the WSJ, NYT, Economist, etc. Here’s a new example from the FT:

Loose monetary policy led to share buybacks that enriched mainly the wealthy

One of the great ironies of the 10 years following the financial crisis is the way in which low interest rate monetary policy — which was designed to get Main Street USA back up and running and to help people buy homes and start businesses — has bolstered share prices and the markets more than it has helped ordinary Americans.

This is just embarrassing, and yet it happens all the time.  Is there any way to make people see that this is flat out wrong?  We teach students in EC101 not to reason from a price change, but people don’t seem to get the message.  What are we doing wrong?  Is there any way to explain this that I haven’t yet tried?  Lots of you commenters are closer to people with “average opinion” than I am.  Some of you may have recently learned not to reason from a price change.  So what works? What allows people to see that low interest rates are not a loose monetary policy?

PS.  A few reporters such as Caroline Baum warn against the fallacy of reasoning from a price change, but most don’t seem to get it.

Trump and Corbyn; two peas in a pod

Here’s The Economist:

There are also signs that Mr Corbyn’s Teflon coating is wearing thin. On August 7th he returned from a cycling holiday in Croatia to face a barrage of questions about Venezuela. Why is a country that he once praised as a land of milk and honey turning into a giant gulag? Why had he said nothing while the regime beat and killed dissenters? Mr Corbyn eventually broke his silence only to say he condemned violence on “all sides”, seemingly oblivious to his own recent tweet that “If you are neutral in situations of injustice you have chosen the side of the oppressor.” This came on the heels of two other embarrassments. He back-pedalled on his promise to forgive all past student loans on the ground that, even in Labour’s free-spending Britain, writing off £100bn might be a bit irresponsible. And he clashed with the pro-European wing of his party when he insisted that Britain would leave the single market when it left the European Union.

Further skeletons lurk in Mr Corbyn’s closet. He has spent his life forgiving people their nastiness so long as they are hostile to the Great Satan of the United States.

BTW, lots of respectable “progressive” intellectuals supported this disgusting jerk.

Corbyn can’t quite bring himself to clearly condemn socialists because he is a socialist, just as Trump can’t clearly condemn alt-rightists because he is an alt-rightist.  Their supporters insist they aren’t the bad kind of extremist; Corbyn is not a Stalinist and Trump is not a Nazi.  That’s true, but their refusal to take a clear moral stand shows you where their heart is—with the bad guys.

PS.  It really doesn’t matter whether deep down Trump is a racist thug or just a thug.  The fact that he feels a need to pardon racist thugs is all that we need to know.

Josh Hendrickson on IOR and demand for bank reserves

Josh Hendrickson has an important new (forthcoming) paper in the Journal of Macroeconomics. Here’s the abstract:

Over the last several years, the Federal Reserve has conducted a series of large scale asset purchases. The effectiveness of these purchases is dependent on the monetary transmission mechanism. Former Federal Reserve chairman Ben Bernanke argued that large scale asset purchases are effective because they induce portfolio reallocations that ultimately lead to changes in economic activity. Despite these claims, a large fraction of the expansion of the monetary base is held as excess reserves by commercial banks. Concurrent with the large scale asset purchases, the Federal Reserve began paying interest on reserves and enacted changes in its Payment System Risk policy. In this paper, I estimate the effect of the payment of interest on reserves (as well as other payment policy changes) on the demand for daylight overdrafts through Fedwire. Since Fedwire provides overdrafts at a fixed price, any fluctuation in the quantity of overdrafts is a change in demand. A reduction in overdrafts corresponds with an increase in the demand for reserves. I show that the payment of interest on reserves has had a negative and statistically significant effect on daylight overdrafts. Furthermore, I interpret these results in light of recent theoretical work. I argue that by paying an interest rate on excess reserves that is higher than comparable short term rates, the Federal Reserve likely hindered the portfolio reallocation channel outlined by Bernanke. Thus, the payment of interest on reserves increased payment processing efficiency, potentially at the expense of limiting the ability of monetary policy to influence economic activity.

And here Josh describes the role of overdrafts:

Reserves are held both to meet unexpected withdrawals and to settle payments between banks, with the latter motive being substantially more significant. Large-scale wholesale payments processed through Fedwire are done through a real-time gross settlement system. This means that payments to and from banks are credited and debited in real-time. If the bank has insufficient reserves to cover a debit in their reserve account, the bank is extended credit that is expected to be repaid by the end of the Fedwire day. Historically, a large portion of these daylight overdrafts have been backed by pledged collateral of the bank.3 It follows that banks can hold either highly liquid, short-term debt such as Treasury bills and other forms of short-term debt that can be sold quickly or used in repurchase agreements in the event of an overdraft or banks can hold reserves sufficient to fund payments. Prior to the paying of interest on reserves, banks faced a trade-off of holding short-term debt or reserves. If the bank held reserves it would enable more efficient settlement of payments at the cost of foregone interest on short-term debt. Holding interest-bearing assets provided a positive rate of return, but overdrafts due to insufficient reserve balances were subject to fees. With the payment of interest on excess reserves, this tradeoff is eliminated because the policy change allows banks to earn interest comparable to alternative assets while avoiding fees associated with overdrafts. The market for daylight overdrafts therefore provides an opportunity to analyze the effect of the payment of interest on reserves.

The paper confirms that the adoption of interest on reserves in October 2008 was indeed a serious (contractionary) policy error.  More broadly, it reconfirms the importance of looking beyond interest rates when evaluating monetary policy, and specifically the importance of the portfolio rebalancing channel as a transmission mechanism for changes in the quantity of base money.


Don’t let Trump be Trump

People my age recall the “Let Reagan be Reagan” chant from his true believers. With Trump it’s the opposite; you don’t want him to to be himself. Here’s what Steve Bannon thinks is the real Trump:

“We still have a huge movement, and we will make something of this Trump presidency. But that presidency is over. It’ll be something else. And there’ll be all kinds of fights, and there’ll be good days and bad days, but that presidency is over,” Bannon said. He added that it would be a miscalculation to assume Trump will change.

“His actual default position is the position of his base,” Bannon said. “I think you saw it this week on Charlottesville.”

I think that’s right.  The real Trump is a guy who’d like to be a fascist dictator committing war crimes, but our country won’t let him fill that role.  (That’s why Trump respects people like Duterte and Putin more than the Angela Merkels of the world.)

Right after the election, I pointed out that early appointments like Flynn and Bannon were either loony or scary.  Now they are gone, as are many others.  Don’t get me wrong; it’s still a bad administration, but it’s no longer horrific, off-the-charts bad.  People like Cohn and Kelly are now in charge.

It’s been interesting to watch the National Review pivot once again.  They were strongly anti-Trump during the campaign, before tilting more in his favor after the election.  Now they are once again appalled:

In One Tweet, Donald Trump Just Spread Fake History, Libeled a Hero, and Admired an Alleged War Crime

[Trump’s recent tweet] is almost certainly referring to a story he told during the campaign. He claimed that General John J. Pershing crushed an Islamic insurgency in the Philippines by committing a heinous war crime. Here’s Trump at a South Carolina rally:

They were having terrorism problems, just like we do,” Trump said. “And he caught 50 terrorists who did tremendous damage and killed many people. And he took the 50 terrorists, and he took 50 men and he dipped 50 bullets in pigs’ blood — you heard that, right? He took 50 bullets, and he dipped them in pigs’ blood. And he had his men load his rifles, and he lined up the 50 people, and they shot 49 of those people. And the 50th person, he said: You go back to your people, and you tell them what happened. And for 25 years, there wasn’t a problem. Okay? Twenty-five years, there wasn’t a problem . . .

Trump isn’t just spreading falsehoods, he’s doing so in a context that puts a presidential stamp of approval on war crimes. Even worse, he’s doing it in direct defiance of the warrior ethos of the American military. There is no possible way that any of Trump’s generals would approve of this sentiment. I’ve never met an American officer who would carry out an order to commit an atrocity like this.

Trump is careening out of control. He says what he wants, when he wants, and neither truth nor consistency nor wisdom nor prudence dictates a single syllable that comes out of his mouth. By many accounts he’s taken to directly defying his advisers simply for the sake of declaring that he’s in charge. This isn’t leadership. It’s a collection of temper tantrums. Unfortunately, those tantrums have consequences.

People are shocked that we’ve ended up with a madman in the White House, but this was all clearly spelled out in the campaign.  GOP voters apparently had no problem with a candidate advocating war crimes.

Going forward, the key will be whether the grownups in the room can keep the big baby in his crib.  I hope and pray that our generals have privately decided not to carry out a order to launch a nuclear attack, unless of course the generals agree with Trump that there is a threat that would justify that sort of action.

PS.  Heh Mr. Macho Trump: How come you didn’t tell us during the campaign that there was a Washington establishment that would emasculate you once you took office?  You told us that you were a man of action that would get things done.  “Who knew the deep state could be so complicated?”

PPS:  The bigger the threat, the bigger the overreaction:

1.  WWII leads to internment camps for Americans wrongly called “Japanese”.

2.  Stalin leads to McCarthyism

3.  9/11 leads to TSA and NSA abuses, plus the Iraq war

4.  The alt-right is leading to a rise in left-wing opposition to free speech.

The right attitude was to oppose internment camps, McCarthy, and the NSA, but to oppose the Nazis, Stalin and Al Qaeda even more strongly.  Much more strongly. That seems pretty simple, but it’s remarkable how few people are able to do so.

So oppose the left-wing overreaction, but oppose what provoked that overreaction even more strongly.