Inflation is a drug, but which kind of drug?

The New York Herald of 1933 suggests it’s the bad kind, a sort of monetary heroin:

As the effects of the first jab in the arm wear off, the country is plainly more than a little worried over the cure-all drug called inflation.  The first dose was just a promise – and what beautiful dreams it produced!  Exchange was about to be stabilized, stocks and commodities were to go kiting, everyone was to be prosperous – long live the 50-cent dollar!

Now the headache of the morning after is already unmistakable in many quarters.  Such is the familiar inevitable history of the inflation treatment, and it is interesting to see even the first preliminary stage following the classic formula.  Nothing is more certain to produce a temporary thrill, a delusion of wellbeing; nothing is more certain that, as the effects wear off, the patient feels worse than ever.  That is the chief viciousness of inflation.  It is in literal truth a habit-forming drug requiring ever larger and larger doses to keep the patient satisfied. (New York Herald, 4/27/33)

But Saturos sent me some recent research suggesting that it’s more like a drug to treat neurosis, helpful in allowing the economy to cope with irrational fears of lower nominal wages:

ScienceDaily (Mar. 27, 2009) — What would you prefer: a three per cent wage rise at five per cent inflation? Or a two per cent wage-cut with stable prices? Many people, faced with this choice, would take the first option, although the true purchasing power of their income sinks in both cases by exactly the same amount, namely two per cent.

Researchers at Bonn University and the California Institute of Technology have now discovered the cerebro-physiological cause underlying this so-called “money illusion”. This effect is of great practical relevance in that it explains, for instance, why financial policy and inflation can have a beneficial effect on employment and economic growth.

.  .  .

“We had now confronted our test subjects with two different situations”, Falk explains. “In the first, they could only earn a relatively small amount of money, but the items in the catalogue were also comparatively cheap. In the second scenario, the wage was 50 per cent higher, but now all the items were 50 per cent more expensive. Thus, in both scenarios the participants could afford exactly the same goods with the money they had earned – the true purchasing power had remained exactly the same.” The test subjects were perfectly aware of this, too – not only did they know both catalogues, but they had been explicitly informed at the start that the true value of the money they earned would always remain the same.

Despite this, an astonishing manifestation emerged: “In the low-wage scenario there was one particular area of the brain which was always significantly less active than in the high-wage scenario”, declares Bernd Weber, focusing on the main result. “In this case, it was the so-called ventro-medial prefrontal cortex – the area which produces the sense of quasi elation associated with pleasurable experiences”. Hence, on the one hand, the study confirmed that this money illusion really exists, and on the other, it revealed the cerebro-physiological processes involved.

An Explanation for the unpopular “Teuro”?

The results achieved by these scientists in Bonn demonstrate that as far as the brain is concerned money is represented as being “nominal”, and not only “real”. In other words: people like to be seduced by large numbers. This is of great practical relevance as the money illusion explains, for example, why the economy allows itself to be reflated by expansive financial policy. It also offers an explanation for why nominal wages rarely sink, whereas true wages, in contrast, fall in value in periods of inflation. Many economists also see the money illusion as an explanation for speculative bubbles, such as those in the property or shares markets. Armin Falk declares: “Even minor departures from rational behaviour, i.e. a “little money illusion” can have major economic consequences”.

I’m often taunted by RBC-types: “Where’s your model.”  ”That’s not scientific.”  We now have hard science showing money illusion exists.  In contrast, the RBC belief in the non-existence of money illusion is akin to religious faith.  ”Our models say it shouldn’t exist, so it can’t.”

Unfortunately, it does exist.

PS.  I was thinking of entitling this post; “It’s the ventro-medial prefrontal cortex, stupid.”  But I already overuse the term ‘stupid.’

PPS.  I had breakfast the other day with Louis Woodhill, the guy who first noticed that each rise in the IOR was associated with a stock market crash.  We were talking about the possibility of a Greek devaluation.  He pointed out that rather then reduce the “length” of their monetary measuring stick, they could just increase the “length” of the second.  Make seconds 50% longer.  This would lower real wages as long as nominal wages were sticky.  And he pointed to an additional benefit; it would reduce interest payments, which also involve units of time.  I thought it was a great idea.  Then I found out he was being sarcastic, using a reductio ad absurdum argument to show the folly of devaluing your way to prosperity.  Bob Murphy would have probably noticed that before I did.

:)


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39 Responses to “Inflation is a drug, but which kind of drug?”

  1. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2012 at 19:47

    Inflation in an old atomic economy is TOTALLY DIFFERENT than an economy moving fast to digital (no scarcity).

    We KNOW we have a ton of built in deflationary forces as scarcity evaporates.

    So aiming for <1% inflation is just like aiming for a higher target back in the olden days.

  2. Gravatar of Morgan Warstler Morgan Warstler
    29. September 2012 at 20:14

    “Many people, faced with this choice, would take the first option, although the true purchasing power of their income sinks in both cases by exactly the same amount, namely two per cent.”

    EXCEPT the winners with money in bank, re waiting to buy up the losers assets at fire sale prices…

    … and SAVERS are at least equal to spenders – that’s WHY we favor consumption taxes over income taxes.

    So here’s the logic:

    1. Savers doesn’t suffer Money Illusion in the above example. They KNOW inflation is bad choice.

    2. Scott wants there to be more savers.

    3. Scott wants Money Illusion – the VERY THING that he uses to justify his policy choice – to GO AWAY.

    —-

    ta-da!

  3. Gravatar of Benjamin Cole Benjamin Cole
    29. September 2012 at 20:38

    Good ol’ Cal Tech. Nice blogging.

  4. Gravatar of Edward Edward
    29. September 2012 at 21:24

    Scott,

    I never really thought the way inflation worked best was by lowering real wages. Low real wages can quickly lead to low real incomes And the money illusion is more difficult to sustain at higher levels, even in an inflationary direction (10% increase in wages but a 30% increase in the cost of living.

    for me, inflation works by the “reverse” real balance effect, by persuading cash holders to spend now in anticpation of rising future prices. I suppose ignorant fools like MF will call this robbery, but what they fail to get is purchasing power is an abstract relationship between money and real goods not purchased. It is never a singular quantity/quality within one person’s dollars.

    So bottom line, monetary inflation/expansion is necessary, but a drug, I dont think so. More like food.

    What say you?

  5. Gravatar of Edward Edward
    29. September 2012 at 21:38

    Besides, The politics of selling lowering their real wages to workers are atrocious. Much like wage targeting by the Fed. In their minds workers wages and their incomes are tightly linked. You’ll likely induce howls of rage by asking them to work longer hours for less pay, just to get back to where they started when the recession began! That is why economic sadists like Major Freedom will always have little influence

  6. Gravatar of Saturos Saturos
    29. September 2012 at 21:50

    I was thinking this should be the “title post” of the blog, maybe something you link to when clicking on the tagline at the top or something. (Yes I know that “The MoneyIllusion” is really more about confusing tight and easy money, but still)

    I was a bit skeptical of the study at first, as I know that things “lighting up” in the brain doesn’t necessarily prove what people think it does. Then I read the abstract:

    … Subjects received prizes in 2 different experimental conditions that were identical in real economic terms, but differed in nominal terms. Thus, in the absence of money illusion there should be no differences in activation in reward-related brain areas. In contrast, we found that areas of the ventromedial prefrontal cortex (vmPFC), which have been previously associated with the processing of anticipatory and experienced rewards, and the valuation of goods, exhibited money illusion. We also found that the amount of money illusion exhibited by the vmPFC was correlated with the amount of money illusion exhibited in the evaluation of economic transactions.

    Then I also found a link on the back archives of NeuroSkeptic, pointing me to this Neuronarrative post:
    http://neuronarrative.wordpress.com/2009/03/24/finding-the-money-illusion-in-the-brain/

    Of course there are other examples of contextual-processing based illusions, famously the “checkerboard illusion”, a version of which Alex Tabarrok linked to a few moths ago: http://marginalrevolution.com/marginalrevolution/2012/06/a-visual-illusion.html

    I’m also not sure about this: “It also offers an explanation for why nominal wages rarely sink, whereas true wages, in contrast, fall in value in periods of inflation.” Not reflation, mentioned earlier, but inflation. In fact I don’t think real wages do fall in periods of sustained inflation, they catch up, and discrepancies from surprise inflation follow a different mechanism, don’t they?

    I think the reason the seconds-adjustment wouldn’t work is that people are more cognizant of the realationship between time and their pay-packet than that between their nominal wages and the “average price level”, which most people aren’t clearly aware of (just listen to my parents talk about how everyone’s getting poorer each year because of rising prices, and how future generations like mine will suffer – and no, they can’t be reasoned with). In fact isn’t that similar to why it’s possible for unpredictable inflation to create “noise” in the price system as well?

    Edward, you’re confusing real wage-rates with real total wages, classic mistake.

  7. Gravatar of Saturos Saturos
    29. September 2012 at 21:55

    Of course, as MF might point out, it doesn’t actually help people cope with lower nominal wages, it prevents people having to deal with them at all…

  8. Gravatar of Edward Edward
    29. September 2012 at 22:00

    Saturos,

    I was under the impression that Scott used wages in the sense of $20 dollars Per hour and incomes as the amount earned per year

    I’m using the terms as Scott defines them (I think) when Scott talks of wages he means wage rates, (right Scott?)

  9. Gravatar of Saturos Saturos
    29. September 2012 at 22:59

    Damn, why are my posts getting blocked?

  10. Gravatar of RebelEconomist RebelEconomist
    30. September 2012 at 00:05

    Actually, if you read the 1933 Herald extract carefully, it really says that easy monetary policy is the drug – because it boosts asset prices – rather than what would now be called inflation (ie of goods and services prices), which is more like the hangover. While Scott might argue that loosening monetary policy now in pursuit of NGDP targeting would not cause inflation because of the output gap, I don’t think that he would deny that it would boost asset prices, which is part of the transmission mechanism. So even if Scott is a well-meaning doctor rather than a drug pusher, he may well be inadvertently feeding the addict’s habit. And I suspect that Scott’s 401K makes him a bit of an addict himself.

    Interesting PPS about adjusting time to lower Greek real wages, but being the great philosophers and inflation junkies that they are, the Greeks already thought of that one, to raise real wages of course: the thirteen / fourteen month salary: http://money.cnn.com/2010/03/04/news/international/greece_pay.fortune/index.htm

  11. Gravatar of Pietro Poggi-Corradini Pietro Poggi-Corradini
    30. September 2012 at 01:14

    “What would you prefer: a three per cent wage rise at five per cent inflation? Or a two per cent wage-cut with stable prices? Many people, faced with this choice, would take the first option, although the true purchasing power of their income sinks in both cases by exactly the same amount, namely two per cent”

    “but now all the items were 50 per cent more expensive.”

    Raising all prices is not the same as inflation. Inflation is an average. Some prices go up, some go down. If your mortgage is locked in, that’s one major chunk of your wages that is not affected by higher inflation. So people who prefer the first option might be rationally thinking that they will be able to adjust their spending patterns and actually defeat the rising inflation.

  12. Gravatar of Don Don
    30. September 2012 at 03:29

    The experiment needs to be replicated with the higher inflation choice actually being worse than the low inflation choice. Showing that people often pick one choice when the two choices have been constructed to be exactly identical isn’t interesting. Show me that people still pick that choice even when it makes them worse off, and I’ll pay attention. I did a paper on a related idea once…

  13. Gravatar of Bill Woolsey Bill Woolsey
    30. September 2012 at 03:59

    On the face of it, it seems like people would be happiest with hyperinflation. (But if it depresses real income, or even makes using money really inconveient. I suppose there would be costs offseting its direct “utility.”)

    Maybe nominal incomes get translated emotionally into the size or numbers of animals captured or the size or number of fruit and berry trees discovered.

    On other other hand, inflation gets translated into the number of mouths to feed.

    Humans respond more positively to finding more food than they react negatively to having a large family at home to feed.

    People who are really happy to find lots of food and feed lots of children would be fruitful and multiply and fill the ends of the earth.

    That you can’t find much food, but some of the kids died already, so there is enough everyone left is a sad state of affairs.

    By the way, I just read an article that claimed that libertarians are more rational than other people. They tend to be cool, cold calculators as opposed to deciding based upon feeings.

    Also, if we really did have the choice of higher vs. lower real wages– community A has 2% lower wages and 3% lower price per year, and community B had 4% higher wages and 5% higher prices, year after year–how long would it take for more and more people to develop different gut instincts? Would it have to get to the point where the higher nominal wages–lower real wages option results in starvation and less production?

  14. Gravatar of zaybu zaybu
    30. September 2012 at 05:02

    Here are the choices a society faces when the economy is rapidly falling: 1) let it fall to whatever minimum it will reach, in which case a large segment of the population will lose their jobs(say 10%, or 15 million workers in the USA), and the other 90% keep their job, the winners as they will have an income to deal with falling prices but expecte the crime rate to go through the roof; or 2)create a little inflation to prevent the economy from falling further, and perhaps change direction for a recovery, in which case fewer will lose their jobs, but everyone will see their purchasing power diminished.

    Given those alternatives, most people will choose option 2.

  15. Gravatar of Ryan Ryan
    30. September 2012 at 05:26

    I clicked on the link to this post from my Google Reader solely to read Major_Freedom’s response. Alas, I find I am too early.

  16. Gravatar of Saturos Saturos
    30. September 2012 at 06:54

    Ryan, I was thinking about MF’s response when I sent Scott the article.

  17. Gravatar of John John
    30. September 2012 at 06:58

    It’s funny how the hard money types are still smarter than the progressives (like Keynesians and Market Monetarists) 80 years later. They’re also still being ignored. Heck, read Rothbard’s account of the 1819 recession and you can see that the level of economic sophistication in popular debate has gotten worse and not better.

  18. Gravatar of ssumner ssumner
    30. September 2012 at 07:26

    Edward, Yes, hourly wages and annual incomes.

    Saturos, You said;

    “Not reflation, mentioned earlier, but inflation. In fact I don’t think real wages do fall in periods of sustained inflation, they catch up, and discrepancies from surprise inflation follow a different mechanism, don’t they?”

    There are two possible interpretations for their claim (that make sense):

    1. Aggregate real wages fall during unanticipated inflation.
    2. Anticipated inflation can allow for wages in specific sectors to fall, even when money illusion prevents nominal cuts.

    rebeleconomist, You said;

    “While Scott might argue that loosening monetary policy now in pursuit of NGDP targeting would not cause inflation because of the output gap”

    I’ve never, ever made that argument.

    You said;

    “And I suspect that Scott’s 401K makes him a bit of an addict himself.”

    This is moronic and insulting.

    Bill, Pragmatic libertarians are obviously more rational than the average person, it’s not even close. Saying pragmatic libertarians are more rational than average people is like saying NBA players are better at basketball than average people. It’s stating the obvious. I’m less sure of dogmatic libertarians, but perhaps they are also more rational. (I’d guess they are, MF notwithstanding.)

    John, I’ve read his account of the Great Depression, I hope the 1819 account is not that delusional.

  19. Gravatar of Jon Jon
    30. September 2012 at 09:26

    There was just a little piece in the wsj about personality traits–libertarians have certain unique elements reducing to being calculating and thoughtful. I see a nexus here, libertarians oppose inflation and maybe they don’t have these same cognitive basises.

  20. Gravatar of Saturos Saturos
    30. September 2012 at 09:30

    Scott, and what’s your definition of rationality? Are you just saying that people who agree with you are “smarter”? (I actually agree, though.)

  21. Gravatar of Saturos Saturos
    30. September 2012 at 09:32

    I was just reading this Glenn Stevens speech http://www.rba.gov.au/speeches/2008/sp-gov-140308.html. It’s amazing how well he was able to pivot from public pressure to restrain inflation to proactively lowering rates in the coming months. His view of how policy works is very old-Keynesian, though – funny how Bernanke understood monetary economics so much better, yet did a far worse job. (Then again there is Lars Svensson…)

  22. Gravatar of Saturos Saturos
    30. September 2012 at 09:34

    Bill, I think in an economy with a necessarily unstable price level, say where money was the only financial asset and savings vehicle, people would lose their money illusion.

  23. Gravatar of Morgan Warstler Morgan Warstler
    30. September 2012 at 13:28

    Fact: Savers do not suffer Money Illusion in the above example.

    Savers don’t worry about “income” alone, like the non-savers do.

    We favor savers in tax policy for exactly the same reason we favor savers with monetary policy.

    Scott’s straddling the fence.

  24. Gravatar of Morgan Warstler Morgan Warstler
    30. September 2012 at 13:29

    Dear taxpayer, please save your income, so we can inflate it away!

  25. Gravatar of RebelEconomist RebelEconomist
    30. September 2012 at 14:35

    Scott: “This is moronic and insulting.”

    I don’t mean to suggest that you seriously expect to be able to change monetary policy to suit your personal finances – that would be a long shot – but I do think that people’s views are shaped by their own hopes and the attitudes of those around them, even if only sub-consciously.

    But I make no apology for raising such questions when you are such a strident campaigner, Scott. The best answer would be to place your pension savings in money market funds that would not gain from looser monetary policy.

  26. Gravatar of Saturos Saturos
    30. September 2012 at 22:04

    Rebel, wouldn’t that like, make him poorer in retirement? So you think he should stab himself in the arm as a test of faith?

  27. Gravatar of Razer Razer
    1. October 2012 at 00:37

    Governments love inflation because it allows them to tax in a stealthy way. If the Cantillon Effects were reversed you would see governments preachy hard money and pro deflation. It’s a shame Scott has no understanding of Cantillon Effects or the immorality of debasing people’s money. Statism does that to you. At least his hero Friedman finally wised up before his death and renounced the Fed. So perhaps there’s hope for his fellow central economic planners like Scott.

  28. Gravatar of Razer Razer
    1. October 2012 at 00:44

    Rising prices are a symptom of inflation. You can have falling prices in an inflationary environment. Computers are an example. The price level is an absolute joke as Rothbard demonstrated and tells you nothing about inflation (or anything meaningful). People who tend to love inflation are those that benefit from it the most (banks and government). In a free market, constantly depreciating money will ALWAYS lose out to stable (hard)money and can only be sustained by government coercion (i.e. legal tender laws). Of course Scott can’t support free market money because it would hamper his inflationist schemes he so desperately wants to force peaceful humans into.

  29. Gravatar of Saturos Saturos
    1. October 2012 at 03:18

    Just registered for Marginal Revolution University! It’s going to be legen – wait for it – wait for it – wait for it …

    No, seriously, I’m still waiting for them to confirm my registration.

  30. Gravatar of RebelEconomist RebelEconomist
    1. October 2012 at 03:55

    @Saturos. Frankly, yes; I do think that campaigners like Scott should be prepared to either put themselves in a position in which they do not personally benefit if their advice is followed, or at least disclose the key details of their finances and endure the resulting questions about their motives. The same point applies equally, if not more so, to other easists like Paul Krugman. Actually, while I only know a little about Scott’s situation, I believe that Scott is of an age when pensions experts would advise that he should be shifting his asset allocation towards fixed income anyway. The enthusiasm of US pension savers for stocks may well be a sign of the kind of cultural bias influencing our views that I mentioned above.

  31. Gravatar of Browsing Catharsis – 10.01.12 « Increasing Marginal Utility Browsing Catharsis – 10.01.12 « Increasing Marginal Utility
    1. October 2012 at 04:01

    [...] “I’m often taunted by RBC-types: ‘Where’s your model.’  ’That’s not scientif….” [...]

  32. Gravatar of Doug M Doug M
    1. October 2012 at 09:18

    Edward,

    “for me, inflation works by the “reverse” real balance effect, by persuading cash holders to spend now in anticpation of rising future prices.”

    I have to say that for me, a rise in inflation would trigger higher levels of savings. If I had absolute confidendence that inflation would run 0-1% for the next 50 years, I would not need to save much money to meet my retirement needs — I already have enough stashed away. However, if infltion runs 2-3% (my base case), then prices will double before I retire. I am only half way to my savings goal and will need to continue to set aside a portion of my paycheck. If inflation stated to click above 5%, I would worry about not having enough and would cut back on spending.

    I could buy a house today if I thought inflation was set to rise, but I can’t pre-purchase most of the rest what I am going to want to spend.

  33. Gravatar of Major_Freedom Major_Freedom
    1. October 2012 at 10:31

    ssumner:

    Bill, Pragmatic libertarians are obviously more rational than the average person, it’s not even close. Saying pragmatic libertarians are more rational than average people is like saying NBA players are better at basketball than average people. It’s stating the obvious.

    “Hi, my name is Scott Sumner and I am more rational than the average person, it is not even close.”

    I’m less sure of dogmatic libertarians, but perhaps they are also more rational. (I’d guess they are, MF notwithstanding.)

    A person who holds libertarian principles and who advocates for NGDP targeting (inflation), is an adherent of internally contradictory premises. A rigid disposition holding them as non-contradictory is a form of dogmatism.

    I know you are just using rhetoric to paint your intellectual opponents in an unfavorable light, whether you realize it or not, rather than actually identifying their ideas and engaging/refuting them. You believe that what you advocate is pragmatic, and what your opponents advocate is dogmatic, despite the fact that you are rigid and uncompromising in your beliefs.

    Free markets in money production are extremely pragmatic. They work very well, if the goal is sustainable economic growth, financial stability, and minimal business slumps in a division of labor.

    What you are calling pragmatism is actually a form of central planning dogmatism. It is the dogmatic belief that a small group of statesmen (who have aggressive violence backed authority) can know what inflation, and thus spending and interest rates, should be for everyone else, and not only that, but also that such central planning can be sustained indefinitely, on the poor basis of crude references to finite lengths of certain historical episodes that are misconceived due to a fallacious a priori theory chosen as the means to understand history.

    ———————–

    John: “Heck, read Rothbard’s account of the 1819 recession and you can see that the level of economic sophistication in popular debate has gotten worse and not better.”

    ssumner: “John, I’ve read his account of the Great Depression, I hope the 1819 account is not that delusional.”

    No engaging, no refutation, just hand-waving. Big surprise.

    ———————–

    Edward:

    Besides, The politics of selling lowering their real wages to workers are atrocious. Much like wage targeting by the Fed. In their minds workers wages and their incomes are tightly linked. You’ll likely induce howls of rage by asking them to work longer hours for less pay, just to get back to where they started when the recession began! That is why economic sadists like Major Freedom will always have little influence.

    So that’s what doctors are doing when they heal drug addicts. They are purposefully administering cures that hurt because they enjoy seeing pain.

    for me, inflation works by the “reverse” real balance effect, by persuading cash holders to spend now in anticpation of rising future prices. I suppose ignorant fools like MF will call this robbery, but what they fail to get is purchasing power is an abstract relationship between money and real goods not purchased. It is never a singular quantity/quality within one person’s dollars.

    Straw man on two levels. One, I hold that purchasing power is not an abstract relationship between money and real goods not purchased, but rather, a real world relationship between money and real goods actually purchased. Two, I don’t hold it as a single objective quantity true for all, but rather a complex of quantities, one for each individual, given their cash balances and their real goods needs/desires, and the prices for those real goods. Purchasing power doesn’t need to be a singular quantity true for everyone, before my statement that inflation is a form of theft is true. You are just seemingly not able to think outside your own abstract universal box when trying to understand the view you choose you criticize. You obviously don’t understand the ideas, or else you would not have misrepresented it in your attack against it.

    Prices derive from actual exchanges, not potential ones. Higher prices than what would otherwise have existed, due to an increased money supply, relate to actual exchanges, not potential ones.

    BTW, as I am sure you know deep down and react to it by lashing out against me, in an unsolicited manner, it’s economic sadism to enjoy inflicting pain on cash hoarders via inflation. How many times have you made comments suggesting you desire for a reduction in the purchasing power of wealthy cash hoarders’ cash balances? In this sense, your accusation I am a sadist is actually a projection.

    You are obviously dealing with having to explain your sadism, and so you lash out at me when I wasn’t even here. You are forming your inner demon as an image of me, because I am responsible for making you more fully aware of what you believe. In this sense, I am actually contented that you would actually call my name out and say I am a fool. You don’t like me for pointing out your harm inducing worldview. You want to believe you are a good person, so there is no way you can hold what I say you do hold, right? I must be a bad person who has ulterior motives.

  34. Gravatar of Gene Callahan Gene Callahan
    2. October 2012 at 02:56

    @Bill Woolsley: “By the way, I just read an article that claimed that libertarians are more rational than other people. They tend to be cool, cold calculators as opposed to deciding based upon feeings.”

    The problem is, Bill that the dichotomy is false: emotions are actually PART of our intelligence. A part that is missing in some people.

  35. Gravatar of Major_Freedom Major_Freedom
    2. October 2012 at 04:37

    Gene Callahan:

    The problem is, Bill that the dichotomy is false: emotions are actually PART of our intelligence. A part that is missing in some people.

    And is too large a part in other people.

    When emotions and logic contradict, it would be going against the foundation of modern material civilization to defer to the former, rather than the latter.

  36. Gravatar of Major_Freedom Major_Freedom
    2. October 2012 at 04:39

    If inflation is a drug, then it is the kind of drug that has short term psychological benefits, but distorts calculation that has the result of accumulated errors and subsequent pain.

  37. Gravatar of Saturos Saturos
    2. October 2012 at 05:23

    In case anyone was tempted to, don’t pay any attention to MF’s arguments, as he has already explicitly endorsed the principle that his words (such as “libertarian” or “inflation”) mean whatever he wants them to mean. (Wasn’t there someone in Lewis Carroll who believed the same thing?)

  38. Gravatar of Boo Mouse Boo Mouse
    2. October 2012 at 10:05

    What do IOR and RBC stand for?

  39. Gravatar of Jason Odegaard Jason Odegaard
    2. October 2012 at 11:43

    Interest On Reserves (IOR) and Real Business Cycle (RBC)

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