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With my new Mercatus job, I think I’ll go back to my practice of doing off-the-wall stuff on Sundays–the day of rest.  I already did one today, here’s another.

While flying back from Hong Kong last September I read the Financial Times.  They have a glossy section discussing objects at their website

Then Mosqueda has commissioned many of the world’s most interesting designers to create pieces for the project. Maarten Baas has taken an old carpenter’s desk ($15,000) and done his famous burning act with it, while Matali Crasset for Nodus has produced strikingly geometric rugs ($5,900). Some of Holland’s top designers (Julius Vermeulen, Swip Stolk and the legendary Wim Crouwel) have brought out special fabrics, which have been used to upholster vintage furniture, such as the Theo Ruth & Swip Stolk chair ($6,300). There is a copper Dutch bicycle ($7,100) in an edition of 10 from Van Heesch Design, a skull sculpture ($6,700) by Nick Ervinck and a Botanica vase ($3,100) by Studio FormaFantasma, plus an amusing Naughty Bavaria pillow by Studio Job for Maharam ($415). Verging more towards art than functional pieces are Esther Janssen’s hand-sewn, leather artworks of natural disasters ($5,900), but alongside these there are also utilitarian pieces such as a steel floor lamp by Tom Dixon ($5,900) and a Piet Hein Eek chair ($7,500), as well as a stunning Camino vase by Alessandro Mendini ($7,100). A contemporary Nendo Deep Sea table for Glas Italia ($9,000), a stylish tray by Tord Boontje ($2,200) and a special Viktor & Rolf doll ($75,000) add to the curiosities.

Each new collection at Chamber will come with a limited-edition perfume. The scent for the gallery’s opening has been created by Julian Bedel of Argentine perfumery Fueguia 1833 and costs $350 for 100ml eau de parfum. Mosqueda asked Bedel, who is famous for taking his inspiration from South America and its culture (for example, a fictional library in one of Jorge Luis Borges’s short stories), to craft a unisex scent based on the experience of being in an old Louis Khan building. It is bottled in a porcelain vessel that was designed by Studio Job.

My first reaction was that if the rich need advice on how to spend their money, then maybe it’s time for a progressive consumption tax.  But of course first reactions aren’t always the best, and so for months I mulled the question of how to address this issue; do I want to mood affiliate with philistine populists or reactionary aesthetes?  Let’s consider a few arguments:

1.  The marginal utility argument.  Surely the rich receive less marginal utility from these objects that the poor would receive from an equivalent amount of money.

2.  On the other hand there are externalities involved.  People like me can get utility browsing the Chelsea gallery where these objects are displayed.  And jobs are created making these objects.

3.  But jobs are a cost.  The opportunity cost of making these objects is fewer objects for the poor. Many fewer, as objects for the poor are mass-produced in southern Chinese factories.  And people browsing that Chelsea gallery will also be fairly affluent; these objects do nothing for the working class and poor.

4.  But these jobs are a labor of love for those who feel called to the arts.  Do we really want to go back to the egalitarian 1950s, when Wallace Stevens had to sell insurance? The super rich support a large class of young artists.  Right now the 21st century equivalent of Venice is being created somewhere, we are just too close to see it.  (Let’s just hope it isn’t Macao.)

5.  Perhaps we could tax mansions and yachts on a sort of aesthetic basis, with much higher property tax rates on faux Versailles palaces in the Hollywood Hills than mid-century modern masterpieces.

6.  Are you kidding!  You expect IRS agents to be able to assess artistic merit?

And so it goes.  So I’m torn between these two arguments.  I suppose in the end it was the perfume that tipped me over the edge.  Now I’m as much a fan of old Louis Kahn buildings and infinite libraries as the next guy, but let’s consider the following hypothetical.  Suppose it cost $350 to create the Louis Kahn perfume and only $250 to create a perfume that will leave you smelling like an old Louis Sullivan building.  What is the marginal utility from that extra architectural cache?

So the philistine in me won out.  But how are we going to get the money to the poor? Matt Yglesias tells us that our next president (Hillary Clinton) plans to run on a platform to help the middle class, not the poor.  (I refuse to believe she has no idealism; rather (like Mitt Romney) she intends to lie her way into office and then tell us what she really believes.)  At the other extreme, after very wisely cutting the Kansas income tax, Governor Brownback had to wreck everything by a plan to raise the cigarette tax from 79 cents to $2.29/pack.  A blow right to the solar plexus of poor and working class Kansans.

The Dems want to subsidize NPR while the GOP doesn’t want to subsidize any radio stations.  Who will subsidize the stations that the poor listen to?

So I’ll keep advocating a progressive consumption tax/wage subsidy to help the poor. But I’m not very optimistic. The rich have their lobbyists and the middle class has their teachers/public employee unions.  No one listens to the poor cigarette smokers.

You might wonder why I am so obsessed with redistributing consumption from the rich to the poor, and so disdainful of those who want to help the middle class.  I suppose it’s partly because I believe the motivations are different, utilitarianism vs. envy.  Why is utilitarianism better? Consider the following from a recent piece in the New York Review of Books:

Aly’s emphasis on emotion (in this case envy) and psychology (concerning the reception of race theory), to say nothing of the topic of anti-Semitism itself, represents a significant departure from his earlier work. Here is a creative scholar who continues to grow in remarkable ways. In Aly’s portrayal the German paradox alluded to above disappears. If the Jews of Germany experienced the greatest success of any Jewish community in Europe in assimilation, social mobility, and the attainment of wealth and preeminence, they did so amid a Gentile population for which the modernization experience was more compressed, intense, and disorienting than in other countries. If envy of Jewish success was the driving motive behind modern anti-Semitism, as Aly argues, then it would be logical rather than paradoxical that the most intense anti-Semitic reaction would also occur in Germany, the land of the greatest and most visible Jewish success. This in my opinion is the most important contribution of Why the Germans? Why the Jews?

PS.  Would you rather smell like this:

Screen Shot 2015-01-25 at 6.38.25 PMOr this:

Screen Shot 2015-01-25 at 6.38.44 PM

My new career

I have spent the past 6 years trying to do two jobs at once, my teaching job at Bentley and lots of blogging/writing/speaking on monetary reform.  I am pleased to announce that from now on I’ll be able to focus on monetary policy. Through a very generous donation of Kenneth Duda (a Silicon Valley entrepreneur who is supportive of market monetarism), the Mercatus Center has created a new program on monetary policy, and appointed me as director.  I’m sure people will have some questions about this, so let me provide a bit more detail.

A few months back I began raising money to set up a NGDP futures market.  At the time, Ken Duda offered to support the project with a large donation.  He also expressed an interest in supporting my NGDP targeting in any way he could. Initially he suggested setting up a foundation to promote monetary reform, and having me direct the foundation.  I thought it might make more sense to work within an institution such as a university or a think tank, where I could get managerial support.  We eventually decided to embed the project within the Mercatus Center.

The Mercatus Center is a bit different from Washington DC think tanks.  It is often regarded as the world’s premier university-based research center with a focus on free market ideas. I was reassured by the fact that Mercatus is attached to George Mason University (my favorite econ program), and that Tyler Cowen is the Chairman of the Board. One nice thing about Mercatus is that they are focused on funding serious academic research, and don’t insist that researchers follow any particular party line.  I’ve done three papers for Mercatus in recent years, but they’ve also funded other researchers with very different views of monetary policy.

Here I might add that at this stage of my life I’m not too worried about a lack of academic freedom. I’ve always been the type to say what I thought, even though my research topics were so unconventional that I often had a hard time getting published, and almost didn’t get tenure. Nonetheless, it’s nice to be in a situation where no one is likely to question my academic independence.  Not only does Mercatus allow me academic freedom, Ken Duda also wants me to follow the implications of my research where ever it leads, even if it leads me away from NGDP targeting.

As you might expect from someone who has donated money to both and Mercatus, Ken Duda is not a strongly partisan or ideological person.  He has told me that he’s basically a pragmatist, who became very frustrated by the condition of the US economy after 2008 and thought that my monetary policy ideas made sense.  He’s been a long time reader of my blog and has commented on numerous occasions.

I actually wouldn’t have had any problem taking a position funded by a much more partisan donor, and/or at a highly ideological think tank.  My policy is to always say what I think and let the chips fall where they may.  But I can’t deny it’s nice to be involved with a donor and research center that encourage academic freedom.

Although I am done teaching, I will actually be a Bentley employee for another 18 months, and after that I hope to maintain my Bentley affiliation through some sort “emeritus” relationship.  I will continue to live in the Boston area, although long term we plan to retire in Southern California. (In a sense I’ll never retire, as I’ll keep promoting NGDP.)  My contract with Mercatus runs through mid-2018.  I won’t discuss the monetary details, other than to say I’ll make roughly as much doing this project over the next 3 and 1/2 years as I would have made teaching at Bentley over the next 2 and 1/2 years.  More work for the money, but that’s fine as I won’t be so stressed trying to do 100 things at once.

I hope to achieve many goals, but the one that might be of greatest interest to MoneyIllusion readers is a book on NGDP targeting and market monetarism, based on this blog.  Mark Sadowski has agreed to work as a research assistant on the project.  I also hope to support academic research that provides more “rigorous” empirical and theoretical support for NGDPLT and related ideas. And I’ll continue to do shorter papers, op eds, speak to academics, business people and policymakers, work on the NGDP futures markets, etc.

And of course I’ll keep blogging here and at Econlog.

I’ve known this was likely to happen for several months, but kept it secret until the funding was in place.  Even my colleagues didn’t know (except my chair.)  It was a bittersweet feeling going down the final stretch last semester after 34 years of teaching.  I always envisioned telling my students it was my last class, but life never plays out as you envision it will.

I’ve started noticing restaurants that offer senior discounts to the over 60 group, a milestone I’ll reach later this year.  But you know what they say, 60 is the new 50.

PS.  I have a new post at Econlog on the zero bound problem.

Update:  Stocks open sharply higher on the news!  :)

The Gabe Newell funded Hypermind NGDP market is up and running

Before discussing the new Hypermind NGDP futures market, let me mention that the donations to iPredict are now coming in.  As I mentioned in earlier, there was a glitch in the process for a few weeks due to the fact that (for tax reasons) donations in the US must go through several layers of bureaucracy.  If you planned to donate and were frustrated a few weeks back, please try again.  All the information including the correct contact address are included in this post.  I plan to complete the donation process in mid-January, and start the program with whatever funding we have received by that time.

Gabe Newell (CEO of Valve) has generously donated $10,000 to Hypermind, and they plan to run 5 markets, 2 of which are now up and running.  The plan is to have 4 quarterly GDP prediction markets, 2014:4, 2015:1, 2015:2, 2015:3, and one annual market; 2014:4 to 2015:4.  The first quarterly market currently trades at 43, which means 4.3% expected (annualized) NGDP growth in Q4.  The annual market began just minutes ago, and is the one I’m most interested in for monetary policy evaluation purposes.  For that reason, the total prize money in the annual market is 4000 euros (about $5000), whereas each quarterly market offers prizes of $1000 euros (about $1250.)

Update:  Actually all five markets are now running.

This is not gambling, as you do not put up your own money.  Thus it is perfectly legal for Americans, but you do need to go through a brief registration process. You can’t get rich doing this, but I’m told the winnings are skewed, with some individuals winning much more than the average.

Here is the way Hypermind describes the payoffs:

Cash rewards are based on a fixed EURO amount and translated in US Dollar according to the current exchange rate.

A contest’s cash reward is split among the participants pro rata of their performance in the contest. For instance, if Jane achieves twice Joe’s performance, then Jane receives a share of the reward that is twice as large as Joe’s. Only the participants who made a profit in the contest can share in the reward. The sharing formula is detailed in Article 7 of the rules.

Your cash earnings are cumulative across contests. You can request a payment at any time in the form of Amazon Gift Certificates. The amount is of your choosing, with a minimum of 20 USD.

So you can win money, but you can’t lose.  And you would be helping to save the world economy by supporting a demonstration project for NGDP futures.  Note that this market is not intended for the general public, but rather for people who are well informed on the issue.  Readers of this blog are some of the most well-informed individuals on NGDP.

PS.  I’d like to thank Emile Servan-Schreiber at Hypermind for helping to create the market.

At the other extreme . . .

A quick follow up to my previous post.  Australia has seen 3% RGDP growth over the past 12 months, and 2.7% the year before, and 3.6% the year before.  Great news eh?  Here’s Australia’s unemployment rate over Screen Shot 2014-11-18 at 9.56.23 AMthe past 12 months:

That’s what happens when you have a high trend RGDP growth rate.


The real “beggar-thy-neighbor” policy

Proponents of fiscal stimulus often call on Germany to adopt a more expansionary fiscal policy, in the hope that this will help rebalance and reflate the entire eurozone.  It’s possible it might work, but it’s also possible it might end up being a “beggar-thy-neighbor” policy.

Suppose the ECB is targeting inflation. Fiscal stimulus in Germany will be partly offset (in Germany) by tighter monetary policy. The ECB will want to keep overall eurozone inflation on target.  Hence it will offset any impact on NGDP.  But some of the effect of tighter eurozone monetary policy will be felt in the other countries. So if total eurozone NGDP and inflation are unaffected by the two policy changes, and German NGDP rises, then it is necessarily true that non-German NGDP falls.

Possible objections:

1.  The ECB would never be that cruel.  It’s not about the ECB being cruel; it’s about the ECB doing its job.  A better counterargument is that the ECB is incompetent and won’t do its job.

2.  The argument doesn’t apply at the zero bound.  I would remind you that during over 90% of the past 6 years the ECB has been doing normal monetary policy, raising and lowering its interest rate target with the goal of stabilizing inflation.  Only very recently has it hit the zero bound.  And yet people have been calling for German fiscal expansion for years.  And it’s also worth noting that fiscal proponents who claim that the zero bound “changes everything” were spectacularly wrong in their 2013 prediction that austerity would slow growth in the US. That doesn’t mean that monetary offset applies in each and every case—the ECB is unusually incompetent, but it’s certainly the baseline assumption.

3.  This is one of those ivory tower theories that don’t match the real world.  And yet the idea of fiscal stimulus being a beggar-thy-neighbor policy is actually the standard textbook explanation for the European exchange rate crisis of September 1992.  Germany did a massive fiscal stimulus in the early 1990s, to help rebuild East Germany.  This pushed up real interest rates in the ECU area. The higher real interest rates (combined with a Bundesbank monetary policy tight enough to prevent inflation) led to recession (or aggravated an existing recession) in countries like Britain and Sweden.  Eventually they were forced to devalue, and to this day remain outside of the euro.

So fiscal expansion in one country within a currency zone is a beggar-thy-neighbor policy in both theory and practice.  Over at Econlog, I have a new post explaining why low interest rates do not call for more public investment.