Archive for April 2011


Other activities (bumped)

[I bumped this ahead of the Lindsey post, so people could see my latest links.  I don't have anything new today, but added a few other blog posts that I recommend.]

Just so you guys don’t think I am completely goofing off, here are a few links:

1.  A paper I wrote for the Adam Smith Institute, a UK think tank. 

2. An article in  I thought the reporter (Scott Hamilton) did a very good job.

3.  An interview with the BBC.  I haven’t listened, but thought it went poorly.  I now realize that I need a much simpler way of explaining NGDP vs. inflation targeting if I am going to do live interviews.  (I believe the link will only last a week.  Thank God!)

4.  I was asked by The to discuss the flawed US job market, and ended up discussing NGDP targeting.  Sorry Ryan.  (Insert hammer and nail joke here.)

I’ll add new articles to this post as they come along.  Meanwhile there are lots of good quasi-monetarist posts being done by others.  Check out these by David Beckworth and Marcus Nunes.

5.   Ramesh Ponnuru at the National Reviewdiscusses quasi-monetarism.  (HT:  John Thacker.)

6.  Did quasi-monetarist views reach the White House?  This Christina Romer document (p. 4) suggests the answer is yes.

7.  The Kiwis reject my NGDP targeting idea.  FWIW, I think NGDP targeting works best in large diversified economies.   (HT:  Richard A.)

8.  Ryan Avent does a great job taking apart a lame NYT article on QE2.  I would add that the way to test QE2 is by examining what happens before it is adopted, not after.

 9.  This guy did a Leonardo DiCaprio-like foray into my dreams.

10.  Ed Dolan should get more links—a great resource for economics instructors.

11.  John Papola and Russ Roberts produce another great videoNiklas Blanchard has a insightful critique.

12.  There’s no such thing as “public opinion,” only election results.

13.  It would be an honor to serve with Paul.

14.  Brad DeLong gets it.

15.  And Niall Ferguson most certainly doesn’t:

 ”If the old methods were still used, the CPI would actually be 10 percent.”

16.  Paul Krugman understands the damage done by people like Ferguson:

“What’s going on here? My interpretation is that Mr. Bernanke is allowing himself to be bullied by the inflationistas: the people who keep seeing runaway inflation just around the corner and are undeterred by the fact that they keep on being wrong.”

17.  David Andolfatto responds to the goldbugs.

18.  First he misinterprets Steven Landsburg, then Casey Mulligan.  Paul Krugman needs to take a deep breath before launching his personal attacks.  (I correct him in comment 68, but Noah Smith does a better job.

19.  A good discussion of monetarism in the comment section of Matt Rognlie (and this one too.)  Josh Hendrickson and David Beckworth also comment.

20.  If the Fed is targeting the forecast, then what’s the purpose of fiscal stimulus?

21.  Harold Demsetz on Coase and Pigou.

22. David Beckworth on the Fed as a monetary superpower.

23.  S. Carolina social conservatives want to legalize heroin . . . Matt Yglesias doesn’t.

24. Steve Chapman exposes the foolishness of the inflationistas.

25.  The best argument against Obamacare.

26.  I wish I was able to defend my ideas as skillfully as Andy Harless:

If you wish, you can go further by making the rule forward-looking (using a forecast of nominal GDP instead of a lagged observation) and increasing the coefficient to a very high number. And you can enforce the credibility of the forecast by requiring the central bank to use the forecast implicit in a publicly traded nominal GDP futures contract, so that the market is putting its money where the central bank’s mouth is. You end up with the proposal that Scott Sumner has already made. People seem to think that Scott Sumner’s ideas about monetary policy are far out of the mainstream. But I’m not proposing anything radical here, just trying to fix some problems with the very orthodox Taylor rule.

27.  Someone explain the “hot potato effect” to this guy.  (HT: Kevin Tryon)

Still not blogging (Comments on Brink Lindsey)

Although I’ve temporarily stopped blogging, I felt an obligation to say a few words about Brink Lindsey’s new paper on entrepreneurship and free markets.  Brink’s been very supportive of me, and I am quite sympathetic to the arguments he makes.  The basic premise is that entrepreneurial capitalism is especially important when a country is near the technological frontier, and when there is great uncertainty about which products to produce, and how to produce them.  And that means that free market policies that promote entrepreneurship are now more essential than ever.

To see the distinction between the “what to produce” and the ”how to produce” questions, consider Viagra and Facebook.  Viagra was a product for which the need was well understood (as rhinos have learned to their dismay) but where it was not understood how to produce the product.  Facebook was a discovery of a need that had been heretofore overlooked.  Entrepreneurial firms are especially good at solving these sorts of questions, although that doesn’t necessarily mean the firms must be small (as we saw with Viagra.)  Central planning is relatively good at producing steel and washing machines and apartment buildings–well understood needs with easy to follow blueprints for production.

In an earlier study I found that if one excluded size of government, the country with the world’s most market-friendly policies was actually Denmark.  So if Brink is right, you’d expect tiny Denmark to be an entrepreneurial hotbed.  I decided to check out the ranking on entrepreneurial activity by country, and came across this survey for 2010:

Denmark: The entrepreneur’s paradise

Entrepreneurship is a hot political topic at the moment. David Cameron in a speech to the Conservative Spring Conference stated that he was on the side of ‘go-getters’ who would create growth and jobs in the British economy. Britain could certainly do with an infusion of entrepreneurship according to the Global Entrepreneurship and Development Index (GEDI), a new measurement of enterprise and entrepreneurial activity created by Zoltan Acs of George Mason University, Laszlo Szerb of the University of Pecs, and Erkko Autio of Imperial College Business School.

So Denmark isn’t just the most free market economy, and the most egalitarian, and the most civic-minded, and the happiest.  It’s also the most entrepreneurial.  And is has the world’s best restaurant.  Thank God the weather will always be awful.  Oh wait  . . .  global warming is coming.

Brink didn’t focus on the role of finance, but it seems to me that finance is far more important in an economy where it’s not clear what needs to be produced nor how it should be produced.  So I’d expect the share of national income going to finance (broadly defined to include finance-like activities within firms) to rise sharply in a high-tech economy on the technological frontier.   That’s not to deny that there are enormous problems with our actual finance system, associated with moral hazard and risk-shifting.  But it remains an open question as to which factor best explains the rising share of GDP going to finance.

And since high-tech activities are often low MC/high fixed cost activities, income should become more unequal.  Of course economic inequality has little to do with income inequality, and it is economic inequality on which we should focus.

I also think it’s important to distinguish between socially productive entrepreneurship and socially unproductive entrepreneurship.  The latter takes advantage of government subsidies like Medicare (see McAllen, Texas) and/or regulatory arbitrage.   The best way to promote socially productive entrepreneurship is not by trying to directly promote entrepreneurship, but rather by promoting free (and non-distorted) markets.

[On the other hand Paul Krugman assures us that the problems in McAllen, Texas should not occur, as doctors are motivated by a code of ethics, not self-interest.]

PS.  One problem with vacations is that others beat you to the story.  I have been growing increasingly dismayed by progressive blog posts on taxing the rich, and was planning a post pointing out that it was impossible to tax Bill Gates and Warren Buffett more heavily, as no plausible tax regime would lower their consumption bundle (or even the consumption bundle of their heirs.)  Alas, Steven Landsburg beat me to it.  I guess it attracted a lot of criticism.  My reaction:

1.  I’m shocked that people found his argument novel or controversial.

2.  I’m shocked that progressive bloggers that are so dismissive of no-nothing conservatives are themselves so ignorant of public finance 101.  Tax incidence is all about expected future consumption streams, as is pretty much all of economics.  I thought people knew that.

3.  Neither party is being honest with its supporters.  If we don’t cut spending (and neither party wants to) we will need a progressive consumption tax—which will place a heavier tax burden on almost everyone (except Gates and Buffett.) 

Back to non-blogging oblivion.