Party like it’s 1999 (1.385 million ZMP workers go back to work)

What a first half!  We don’t have a GDP report for the second quarter, but all indications are that first half RGDP growth will come in around 0.00%.  Meanwhile, it’s the best half year for jobs since late 1999.  When you break things down further, the first quarter was typical of recent years, coming in at 569,000 jobs.  Was that held back by winter weather?  I’m not sure, but the second quarter was unusually strong, coming in at 816,000 jobs.  Wage growth is still running at 2%, so the economy shows no sign of overheating.  Some thoughts:

1.  This is the natural rate hypothesis in action.  Even though NGDP growth remains slow, and indeed is getting slower, wage moderation does eventually allow the labor market to heal.  And no, it’s not about discouraged workers leaving the labor force.  Recent job growth is far above labor force growth, which is now very slow due to boomers retiring.  Indeed if you take the slowing labor force growth into account, then the job growth was actually far, far better in the first half of 2014 than during the housing boom, and even better than 1999.

2.  The jobs speed-up may have something to do with the extended unemployment benefits ending at the beginning of the year.  But the excess job growth is only a few 100,000s, so there is no sign yet that the extended benefits had a major impact on the unemployment rate.  That was my assumption all along, and although the data isn’t strong enough to draw any firm conclusions, I see no reason to change my prior that the recession was mostly about demand, with some modest supply-side factors such as extended UI and 40% higher minimum wages.

3.  The Fed has a big NGDP problem.  It’s becoming increasingly clear that when the labor market recovers, RGDP growth will be very slow, maybe 1.2%.  Add in about 1.8% on the GDP deflator, and 3% NGDP growth looks like the new normal, assuming the Fed intends to stick with 2% PCE inflation targeting.  Bill Woolsey wins!!  Here’s the problem.  The Fed wants to do both of these things:

a.  Continue targeting inflation at 2%.

b.  Continuing to use interest rates as the instrument of policy.

But it won’t work.  At 3% trend NGDP growth, nominal interest rates will fall to zero in every single recession going forward.  The Fed will be spinning their wheels just when monetary stimulus is most needed.  At some point they will need a new policy instrument/target.  Lars Christensen has a very good post discussing a clever idea by Bennett McCallum, but in my view this idea works better for small countries than for the US, which is likely to follow the global business cycle.  NGDP futures anyone?  Level targeting?

4.  Unemployment is likely to fall to the natural rate (estimated by the Fed at 5.6%) quite quickly. There will be a debate about what to do next.  It will be the wrong debate.  The debate needs to be about where the Fed wants to go in the long run.  First figure out where you want to go in the long run, then adjust your short run policy as needed.  Otherwise the blogosphere debate will be like a bunch of drunken frat boys arguing about which street to take, when they can’t even agree on which bar they are going to.

Not much blogging over the next few weeks—happy 4th!

Update:  The US population age 16 to 64 is growing at about 0.4% per year, and will slow further. In the first half payroll employment rose at an annual rate of more than 2%, and the household survey was up 2.26%.  I beg you not to mention “discouraged workers.”  That’s the old story, not what’s going on now.

BTW, 3% may well be an overestimate of trend NGDP growth, if current productivity trends hold up.


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96 Responses to “Party like it’s 1999 (1.385 million ZMP workers go back to work)”

  1. Gravatar of Steven Kopits Steven Kopits
    3. July 2014 at 06:37

    These last two posts are just precious. Sumner at his very best: well-written, cogent, biting–and funny.

    You have a good 4th and vacation, Scott. Don’t stay away too long, y’hear.

    (And tell Sadowski to get his ass back in the saddle.)

  2. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 06:46

    “The jobs speed-up may have something to do with the extended unemployment benefits ending at the beginning of the year. But the excess job growth is only a few 100,000s, so there is no sign yet that the extended benefits had a major impact on the unemployment rate. That was my assumption all along, and although the data isn’t strong enough to draw any firm conclusions, I see no reason to change my prior that the recession was mostly about demand, with some modest supply-side factors such as extended UI and 40% higher minimum wages.”

    Can set of priors that intentionally excludes the theory of too much inflation causing malinvestment and subsequent supply side issues and demand side issues, that only appears as falling demand causing recessions, be capable of EVER identifying supply side recessions other than “fiscal” induced ones? Of course not!

    Let’s party with Bernard Mandeville and his bees like it’s 1705 and believe the evils of recessions are caused by an insufficient propensity to consume.

  3. Gravatar of Daniel Daniel
    3. July 2014 at 07:02

    too much inflation causing malinvestment and subsequent supply side issues and demand side issues

    Austrian Business Cycle Theory in a nutshell – money printing leads to deflation. And people’s brains not functioning properly (aka “malinvestment”).

  4. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 07:02

    Market monetarism is just like Keynesianism. Growth can be horrible, and no matter what the alleged driver happens to be, the answer is always “This means we need more”.

  5. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 07:04

    Daniel:

    That is not a substantive rebuttal.

  6. Gravatar of Daniel Daniel
    3. July 2014 at 07:07

    Oh, but it is. I’m right because I’m right. My theories are not subject to verification and falsification on the ground of experience and facts.

  7. Gravatar of Danny Kahn Danny Kahn
    3. July 2014 at 07:11

    What is your reasoning for the estimate of 1.2% as the new trend RGDP growth rate?

  8. Gravatar of ssumner ssumner
    3. July 2014 at 07:32

    Thanks Steven,

    Danny, about 0.2% labor force growth and about 0.5% productivity growth. They add another 0.5% in case I underestimated one of the two.

    Note that RGDP growth has averaged 2% during a 5 year period where the unemployment rate has been falling fast. When the unemployment rate stops falling, RGDP growth will slow sharply. That means around 1.2% RGDP growth, or less.

  9. Gravatar of SG SG
    3. July 2014 at 07:46

    @ Major-Freedom:

    What types of economic decisions are distorted by “too much” inflation and why?

    Do you believe that wages are sticky on the downside? If yes, how do you compare the costs of “too much inflation” (that result from countercyclical monetary policy) against the benefits of reducing unemployment?

  10. Gravatar of Benoit Essiambre Benoit Essiambre
    3. July 2014 at 07:48

    “At trend NGDP growth, nominal interest rates will fall to zero in every single recession going forward”

    “When the unemployment rate stops falling, RGDP growth will slow sharply.”

    These two facts are extremely crucial and incredibly, there seems to be little attention paid to them.

  11. Gravatar of Kevin Erdmann Kevin Erdmann
    3. July 2014 at 08:53

    Debt levels of all kinds are very low. Equity risk premiums remain high. And real estate loans at commercial banks have been dead for 5 years.

    And Yellen is out talking about housing bubbles and reaching for yield and using regulatory tools to stifle credit markets. It’s even worse than interest rate targeting. The Fed is supplementing interest rate targets with outrageous hawkishness. This will not end well.

    Btw. Here’s a sign of the effect of eui. Here is the number of workers with a duration of unemployment of 15-26 weeks (which, starting in January marked the end of benefits). This is for June 2011 to June 2014:
    1899, 1839, 1892, 1472

  12. Gravatar of Tom Brown Tom Brown
    3. July 2014 at 08:57

    O/T: what’s your take on Cochrane’s latest:
    http://uneasymoney.com/2014/07/02/john-cochrane-on-the-failure-of-macroeconomics/

  13. Gravatar of Don Geddis Don Geddis
    3. July 2014 at 09:01

    @SG: Please don’t feed the troll. We have years of experience that MF/Geoff does not engage in constructive discussion. It is an output-only device. Think of it like a fixed tape recording, that presses play every time you try to interact with it.

  14. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 09:02

    SG:

    “What types of economic decisions are distorted by “too much” inflation and why?”

    Intertemporal decision making is the main one.

    Investors need free market prices and interest rates to enable their profit seeking behavior to tend towards coordination. Without knowing this information, capital allocation moves away from what can be sustained with voluntary real savings.

    “Do you believe that wages are sticky on the downside?”

    I have never been presented with, nor have I found in my desperate searching, a concrete definition of what “stickiness” even means.

    I have only been able to surmise that it means, at least, that wage rates don’t instantly fall towards clearing the labor market when there is a fall in the nominal demand for labor.

    Beyond that, I think it is at root an outcome of the alleged ideal of pure and perfect competition. This ideal, I think, is itself an outcome of irrationalism in philosophical thought through the ages. It stems from the thread of thought that spans Plotinus, Neo-Platonism, middle age mysticism, Hegelianism, Marxism, and Progressivism.

    It has been jumped on by those looking to sully the market with a corrupted label, so as to stand as a political tactic to warrant abolishing or infringing on economic freedom, and thus rationalize violence in the market to force humanity towards the philosophical ideal in line with the above.

    If you asked me what I think it might mean economically, I think it just means that when wage earners and employers have an excuse to not reduce wage rates, if there are payoffs to not doing so, then wage rates will not fall as they otherwise would without any such excuses. And, even if there were no such excuses, I think wage rates would still be called sticky because they still would be held to a standard that implies violence is jusitified.

    Do I think that unemployment out of a company will never result from declines in profits in a pure free market, because the wage rates of every single employee will correspondingly and immediately fall? Of course not. They could find other jobs that pay the same. If that makes me a believer in downward sticky wages, then I am a believer.

    But I also think that declines in profits across the board would tend to put downward pressure on wage rates in a free market. How long of a time passes before the last unemployed person finds a job is an empirical question. I think the need to eat and live would present a large incentive for a laborer to be willing to accept a lower wage rate if the nominal demand for his preferred labor skills falls.

    “If yes, how do you compare the costs of “too much inflation” (that result from countercyclical monetary policy) against the benefits of reducing unemployment?”

    First, and most importantly, I don’t believe in the notion of social costs and social benefits. Costs and benefits are individual concepts. Utility of each individual cannot logically be added because utility is subjective. There is no objective measuring stick. Attempting to act to raise social benefits through government has the implication of initiating coercion against and harming certain individuals. Individuals are sacrificed in this way. They incur losses. Others might gain (in the short run).

    Your ethics might call for individuals to hurt each other, but mine calls for individuals to act peacefuly with each other, even if it means some people (including myself) dying a horribly painful death due to natural causes, disease, starvation, or the harsh elements.

    When this is mentioned, I notice that the most popular response is to blame the victims. Wage earners don’t experience a rising wage rate with inflation to match the rise in prices they pay due to others experiencing an increased nominal income first? F em. It is more important that the government’s plans are put into action.

    Second, I don’t regard monetary policy as counter-cyclical, but pro-cyclical, always. Malinvestment is caused by inflation both in the deepest depressions and the most euphoric booms.

  15. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 09:05

    Don Geddis:

    That is an insult to SG’s intelligence. Let him decide for himself.

    Ans I am not a troll. You just seem to still be shaken by our last debate, where I got you to admit that you aupport me being shot solely because I want to peacefully use my body and property in ways you approve.

    You are just afraid of more people learning more about your vicious ideology.

  16. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 09:09

    *do not approve

    Pretty sure it’s trollish to call for innocent people to be shot.

  17. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 09:20

    Daniel:

    “Oh, but it is.”

    No, it isn’t.

    “I’m right because I’m right. My theories are not subject to verification and falsification on the ground of experience and facts.”

    But you haven’t gone through the logical deduction based on the self-reflective knowledge that you’re an actor.

    The school of thought you’re trying to criticize isn’t one that is grounded on “I am right because I said so.” Try again.

  18. Gravatar of Brian Donohue Brian Donohue
    3. July 2014 at 09:32

    It’s been a long 6.5 years, down the valley and back up. I’m enough of a vestigal Austrian to think that some good has come out of this painful process. For example, jobs numbers below (in thousands):

    Date Total Private Government
    Nov 07 139,443 116,644 22,799
    Jun 14 139,761 117,896 21,865
    Change 318 1,252 (934)

  19. Gravatar of Brian Donohue Brian Donohue
    3. July 2014 at 09:44

    Ugh, that was a mess. The point is that total jobs now exceed the late 2007 peak, but we’ve swapped a million government jobs for private jobs in the meantime. Firmer footing.

  20. Gravatar of Edward Edward
    3. July 2014 at 10:27

    Guys, this is great! Noah Smith has an article at Bloomberg about the Austrian brain worm. Too bad our resident wacko is probably too far gone to be affected.
    http://www.bloombergview.com/articles/2014-07-02/austrian-economists-9-11-truthers-and-brain-worms

  21. Gravatar of dw dw
    3. July 2014 at 10:35

    2% wage growth? really? haven’t seen any thing that says that true

  22. Gravatar of Edward Edward
    3. July 2014 at 10:37

    “Malinvestment is caused by inflation both in the deepest depressions and the most euphoric booms.”

    If that were true we would see the depth of the depression correspond to the excesses of the previous boom, and that is not always the case. The exit from World War II spending (which was massive, both monetary and fiscal) should have created a massive depression in response, comparable to the 1929-1933 great contraction, and yet the de-mobilization only created a depression of 10% of gdp and post war prosperity.

    P.S. MF, don’t quote me Paul Samuelson. Keynes didn’t believe in post-war stagnation, and he is the most important Keynesian. (One thing Lord Keynes was good at was pointing this out) I noticed that Austrians reference the war demobilization and spending cuts without any reference at all to the previous War spending.

  23. Gravatar of Edward Edward
    3. July 2014 at 10:38

    No doubt MF will come up with some massively convoluted hand waving to explain this all away.
    Failing that, he will just scream “violence” and that will presumably be the end of it. :-)

  24. Gravatar of Matt Waters Matt Waters
    3. July 2014 at 12:25

    The issue with “monetary policy causing bubbles” and really all of ABC comes down to this: they assume that somehow, someway people will willingly invest money in negative-NPV assets. Krugman can make such an argument because he’s suspicious, but how does an Austrian who lionizes free markets assume that the same free market will make irrational capital allocation decisions? It makes no sense.

    Re discouraged workers and all that: I generally agree with Krugman that the best measure of unemployment is employed/population for ages 25-54. It was 80% at pre-recession peak and went down 75 and now at 77. The interesting thing is that it bounded up in two very short intervals and has otherwise been flat. It bounded up from 75 to 76 around 1/12 and again from 76 to 77 around 1/14. Is it some artifact of seasonal adjustment or does it correlate with monetary policy announcements somehow? I honestly have no idea.

    http://data.bls.gov/timeseries/LNS12300060

  25. Gravatar of Matt Waters Matt Waters
    3. July 2014 at 12:26

    That should say “because he’s suspicious of free markets.” Though Krugman may be a suspicious person in general too.

  26. Gravatar of Daniel Daniel
    3. July 2014 at 12:34

    SG, I hope you’ve learned your lesson. The moron is simply too insane.

  27. Gravatar of Benny Lava Benny Lava
    3. July 2014 at 12:38

    This is interesting and I am not positive if this is just trend or what. Seems like the rate of growth is following the quantitative easing slow burn.

    One thing I keep coming back to is price inflation vs wage inflation. We aren’t doing so well on that metric. Will wages beat inflation in the near future?

    Also, I love the abc trolls. Slowest GDP and jobs growth of any postwar recovery = dangerous bubble and malinvestment. Only depressions are real.

  28. Gravatar of Daniel Daniel
    3. July 2014 at 12:50

    how does an Austrian who lionizes free markets assume that the same free market will make irrational capital allocation decisions? It makes no sense.

    They want to have their cake and eat it too.

    They want to argue that the free market is perfect, so when something goes wrong it’s the gubmint’s fault.

    In this case, the Fed emits magic waves which cause “malinvestment”. Which definitely wouldn’t happen if we had no government.

    Wages, for example, are sticky only because the gubmint makes ‘em so. Otherwise, workers would take pay cuts with a smile. Banks would alter loan terms automatically. Etc.

    It’s all the gubmint’s fault.

  29. Gravatar of Don Geddis Don Geddis
    3. July 2014 at 13:11

    MF: “including myself dying a horribly painful death due to natural causes, disease, starvation, or the harsh elements.

    I share your hope. Alas, it appears some dreams are doomed to never be realized…

  30. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 13:48

    Edward:

    “Guys, this is great! Noah Smith has an article at Bloomberg about the Austrian brain worm. Too bad our resident wacko is probably too far gone to be affected.

    You haven’t shown anything I said to be “wacko”.

    I’ve read the article, and this anti-Austrian is trying to insinuate that the school has predicted hyperinflation by the time of his article.

    One, Austrian economics is not a predictivr science. It is a logical inquiry akin to mathematics and formal logic.

    Two, as far as I can tell, no Austrian economist has predicted hyperinflation. Peter Schiff and Marc Faber have mentioned it, but that is not representative.

    His article is just a poorly written FU.

    “Malinvestment is caused by inflation both in the deepest depressions and the most euphoric booms.”

    “If that were true we would see the depth of the depression correspond to the excesses of the previous boom, and that is not always the case.”

    No, that is not necessarily the case, because the central bank is not a constant in its inflation, nor is demand for money holding a constant.

    “The exit from World War II spending (which was massive, both monetary and fiscal) should have created a massive depression in response, comparable to the 1929-1933 great contraction, and yet the de-mobilization only created a depression of 10% of gdp and post war prosperity.”

    Inflation was not “massive” post WW2. But it was significant enough to cause an early 50′s recession.

    “P.S. MF, don’t quote me Paul Samuelson. Keynes didn’t believe in post-war stagnation, and he is the most important Keynesian. (One thing Lord Keynes was good at was pointing this out) I noticed that Austrians reference the war demobilization and spending cuts without any reference at all to the previous War spending.”

    Austrians believe government retrenchment allows corrections and recovery to occur.

    Each cycle is different. Austrians do not argue any constants of cycles in terms of content or intensity. The post war US was unique in that the US manufacturing base was intact, unlike Europe, and Asia and Africa were still developing.

    “No doubt MF will come up with some massively convoluted hand waving to explain this all away.”

    If you know what you say is shaky then why say it?

    “Failing that, he will just scream “violence” and that will presumably be the end of it. :-)”

    Violence. That’s the end of that.

    Matt Waters:

    “The issue with “monetary policy causing bubbles” and really all of ABC comes down to this: they assume that somehow, someway people will willingly invest money in negative-NPV assets. Krugman can make such an argument because he’s suspicious, but how does an Austrian who lionizes free markets assume that the same free market will make irrational capital allocation decisions? It makes no sense.”

    It does make sense, because the projects are positive NPV given prevailing artificially low cap rates, and that the accelerating inflation necessary to keep the projects sustainable have been revealed as malinvestment once the central bank reduces its inflation back down.

    Daniel:

    “SG, I hope you’ve learned your lesson. The moron is simply too insane.”

    You have not shown anything I said to be “moronic”, nor “insane”.

    And you insulted SG’s intelligence. He can decide for himself.

    Benny Lava:

    “Also, I love the abc trolls. Slowest GDP and jobs growth of any postwar recovery = dangerous bubble and malinvestment. Only depressions are real.”

    This assumes GDP is the metric that determines whether malinvestment occurs or not. Malinvestment

    Daniel:

    “How does an Austrian who lionizes free markets assume that the same free market will make irrational capital allocation decisions? It makes no sense.”

    A free market has to exist in order for people to do what they can potentially do in accordance to what the lionizers are saying.

    It is absurd to argue that good listeners should still listen well on a radio that is jammed. So too with claiming that free market advocates are required to believe that investors can know what free market prices and interest rates are in a world without free market prices and interest rates.

    Your belief of what investors should be able to do is not only absurd on its face, but contradicts your entire worldview. For if investors could really do what you believe is possible, then monetary policy would not affect anyone’s behavior, since after all they would all act as if the central bank isn’t even there.

    “They want to have their cake and eat it too.”

    No, your understanding is just horribly muddled, that’s all.

    “They want to argue that the free market is perfect, so when something goes wrong it’s the gubmint’s fault.”

    Do you even know what a free market is? Obviously not. If you refer to the existing government being at fault for something, then right away you are not talking about a free market!

    Gee whizz, like holy confusion!

    “In this case, the Fed emits magic waves which cause “malinvestment”. Which definitely wouldn’t happen if we had no government.”

    It ia not magic. It is real world. The Fed makes prices and interest rates move away from free market ones. This is what your own rotten political advocacy is grounded on for pity’s sake.

    “Wages, for example, are sticky only because the gubmint makes ‘em so. Otherwise, workers would take pay cuts with a smile. Banks would alter loan terms automatically. Etc.”

    Straw man.

    “It’s all the gubmint’s fault.”

    No, just some things are.

    Wow, the quality of attacks are rapidly declining

  31. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 13:51

    Don Geddis:

    Yea Don, I get it. You like saying you want me killed. But is repeatedly displaying your sociopathic tendencies a wise thing to do?

    Good thing we don’t know each other in person, because something bad might happen.

  32. Gravatar of Daniel Daniel
    3. July 2014 at 14:18

    It does make sense, because the projects are positive NPV given prevailing artificially low cap rates, and that the accelerating inflation necessary to keep the projects sustainable have been revealed as malinvestment once the central bank reduces its inflation back down.

    Remember folks, in Mises-land, 3+2 = 1.

    Before I drank the cool-aid, I used to think that since the nominal rate is the sum of inflation and real rate, it would be impossible to have low rates and inflation at the same time.

    Luckily, the Austrians with they magical arithmetic have shown me otherwise.

    then monetary policy would not affect anyone’s behavior, since after all they would all act as if the central bank isn’t even there.

    There’s a thing called “expectations”. You might wanna look it up.

    Imbecile.

  33. Gravatar of ssumner ssumner
    3. July 2014 at 15:04

    Matt, That ratio data is very noisy, large errors in moth to month changes.

  34. Gravatar of Tom M. Tom M.
    3. July 2014 at 15:07

    Wait…all of this job growth occurred after we raised taxes on the “job creators”? How did this happen?

  35. Gravatar of Philippe Philippe
    3. July 2014 at 15:34

    “Your ethics might call for individuals to hurt each other, but mine calls for individuals to act peacefuly with each other, even if it means some people (including myself) dying a horribly painful death due to natural causes, disease, starvation, or the harsh elements.”

    Does this strike anyone else as psychopathic?

    Here’s a scenario to illustrate MF’s position.

    There is a vast hangar full of vast amounts of food. Outside stand Major Freedom and a person who is dying of starvation. The starving person has no access to food, the only food he can possibly get is in the hangar.

    The starving person walks towards the hangar, and is about to enter when Major Freedom violently grabs him and shoves him to the floor. The starving man gets up and tries to walk into the hangar again, at which point Major Freedom starts beating him with a stick. The man falls to the ground again, battered and bruised.

    He tries again, and again to enter into the hangar, but each time Major Freedom viciously beats him back to the ground. The man begs Major Freedom to let him go into the hangar to find something, anything, to eat, but Major Freedom ignores his pleading, and beats him with the stick each time he tries to make his way into the hangar.

    After a while, the man dies of starvation, in intense agonizing pain.

    According to Major Freedom’s warped mind, this constitutes “acting peacefully with each other” and ‘not hurting each other’; the violent aggressor in this scenario is the man who dies of starvation, and Major Freedom is the peaceful and righteous victim.

  36. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 16:16

    Daniel:

    “Remember folks, in Mises-land, 3+2 = 1.”

    Where does this statement exist in Austrian literature?

    “Before I drank the cool-aid, I used to think that since the nominal rate is the sum of inflation and real rate, it would be impossible to have low rates and inflation at the same time.”

    “Luckily, the Austrians with they magical arithmetic have shown me otherwise.”

    Austrians define inflation as an increase in the money supply. Yes, you can have low rates and inflation at the same time. Sumner calls it the liquidity effect.

    “then monetary policy would not affect anyone’s behavior, since after all they would all act as if the central bank isn’t even there.”

    “There’s a thing called “expectations”. You might wanna look it up.”

    It doesn’t matter to the argument whether we think it terms of anticipation, or temporal events of cause and effect.

    If it is the case that market actors are able to allocate capital and labor as if free market prices and interest rates exist and are known, despite the existence of central banks, then that is an argument that central banks wouldn’t have any influence in the economy.

    “Imbecile.”

    You have not shown anything I said to be “imbecilic”.

    Philippe:

    “Your ethics might call for individuals to hurt each other, but mine calls for individuals to act peacefuly with each other, even if it means some people (including myself) dying a horribly painful death due to natural causes, disease, starvation, or the harsh elements.”

    “Does this strike anyone else as psychopathic?”

    Why? Why is it psychopathic to call for peace in social interactions?

    “Here’s a scenario to illustrate MF’s position.”

    “There is a vast hangar full of vast amounts of food. Outside stand Major Freedom and a person who is dying of starvation. The starving person has no access to food, the only food he can possibly get is in the hangar.”

    The starving person walks towards the hangar, and is about to enter when Major Freedom violently grabs him and shoves him to the floor. The starving man gets up and tries to walk into the hangar again, at which point Major Freedom starts beating him with a stick. The man falls to the ground again, battered and bruised.

    He tries again, and again to enter into the hangar, but each time Major Freedom viciously beats him back to the ground. The man begs Major Freedom to let him go into the hangar to find something, anything, to eat, but Major Freedom ignores his pleading, and beats him with the stick each time he tries to make his way into the hangar.

    After a while, the man dies of starvation, in intense agonizing pain.

    According to Major Freedom’s warped mind, this constitutes “acting peacefully with each other” and ‘not hurting each other’; the violent aggressor in this scenario is the man who dies of starvation, and Major Freedom is the peaceful and righteous victim.”

    No, according to non-violence ethics, that would not be an example of people acting peacefully with each other. First, the man who intends to steal the food is aggressing against the property rights of the land owner. That is not peaceful coexistence on the hungry man’s part. Second, I personally think only eye for an eye defense and retribution is justified. Someone stealing a loaf of bread and the owner beating the thief to a pulp in response, is not justified because it would create a new initiation of violence.

    A stolen loaf of bread would mean, in non-violence ethics, that only recompense for the loaf of bread is justified. Trespassing need only be responded to with equal and opposite resistence to keep the trespasser away. Beating the hungry man to a pulp would not be justified unless the hungry man intended to beat the owner of bread into a pulp.

  37. Gravatar of Major-Freedom Major-Freedom
    3. July 2014 at 16:26

    Philippe:

    If it is justified to steal when you’re hungry and the only food available is food that you can’t eat unless you steal it, then what is the principle that grounds such an ethical norm? That it is Ok to scrape off a layer that the owner might not miss all that much to save a life? OK, then surely you would think it justified if I stole from you to save a life of a starving person in a poor war torn African country, right? That it would be justified for taxes to be raised on you and everyone else of your income bracket to such a degree that the only wealth you have left at any given time is that which just barely keeps you alive, and in abject squalor, so that lives can be saved overseas, right? Can you link me to the letter you wrote to your Congressman, or a blogpost, anything, where you advocated strongly about raising taxes on you and others, as huffypuff as you write on this blog about how much you hate private property rights?

    I can’t wait for you to prove to me you live according to your professed moral world you seek to impose on me.

  38. Gravatar of Don Geddis Don Geddis
    3. July 2014 at 18:56

    MF: “Good thing we don’t know each other in person

    I again agree wholeheartedly! See, we have so much in common, you and I.

  39. Gravatar of Daniel Daniel
    4. July 2014 at 01:51

    Austrians define inflation as an increase in the money supply.

    And I define “austrian economist” as “sadistic autistic moron”.

    then that is an argument that central banks wouldn’t have any influence in the economy.

    Yes, moron, that is exactly what I’m saying. As long as the inflation is small and stable, the central banks are practically invisible.

    First, the man who intends to steal the food is aggressing against the property rights of the land owner.

    Such a fine encapsulation of the Austrian philosophy.

    “What’s mine is mine, with the help of deflation what’s yours could be mine too, now go screw yourself”.

  40. Gravatar of Philippe Philippe
    4. July 2014 at 04:15

    “Austrians define inflation as an increase in the money supply.”

    False.

    Ludwig von Mises:

    “In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur. Again, Deflation (or Restriction, or Contraction) signifies: a diminution of the quantity of money (in the broader sense) which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange-value of money must occur.”

    The Theory of Money and Credit, Mises (p. 272)

  41. Gravatar of Daniel Daniel
    4. July 2014 at 04:19

    Philippe – HA !

    So even Mises defined inflation/deflation in terms on M * V falling/rising.

    This is just too rich.

  42. Gravatar of Daniel Daniel
    4. July 2014 at 04:20

    In other related new, dig this

    https://www.stlouisfed.org/publications/re/articles/?id=2278

    So by engineering a slow recovery, the Fed actually did us a favour. Anything else would have been “disconcerting”.

    Those people truly are shameless.

  43. Gravatar of Morgan Warstler Morgan Warstler
    4. July 2014 at 05:28

    TravisV “vestigial Austrian” is a good line.

    Scott,

    Let’s talk about a “few hundred thousand jobs” – here’s Krauthammer:

    http://www.realclearpolitics.com/video/2014/07/03/krauthammer_job_growth_coincides_with_end_of_extended_unemployment_benefits.html

    here’s you:

    “so there is no sign yet that the extended benefits had a major impact on the unemployment rate. ”

    But wait, that few hundred thousand jobs adds up to the fastest growth since 99, right?

    And WHY wouldn’t we grant ALL the extra jobs and maybe even more… as you like to say… it can always be worse.

    So, there are two main ideas:

    1. Eventually things had to finally get better on their own.

    2. Cutting unemployment benefits works.

    It seems to me all rational people have to note 2 more likely than 1. That doesn’t make 1 false, it just means that 1 is very likely the last refuge for those that can’t possibly allow for 2. And after all 2 is our most recent new fact on the ground.

    It’s 60 / 40, but MOREOVER, BECAUSE of this, the next time we are in the sh*t, we’ll be looking at now and using it to say ‘let’s cut UI.”

  44. Gravatar of SG SG
    4. July 2014 at 06:02

    Off topic, but Scott has sometimes said that sometimes he feels crazy, because everyone around him appears to have gone off the rails.

    This article gave me a similar feeling:

    http://www.nytimes.com/2014/07/04/us/influx-of-central-american-migrants-roils-murrieta-calif.html?_r=0

    highlights:

    And a day after many here celebrated what they saw as a temporary victory, more than a thousand residents packed a high school auditorium on Wednesday night for a town-hall-style meeting that lasted more than four hours, voicing fears about an influx of migrants.

    “What happens when they come here with diseases and can overrun our schools? How much is this costing us?” one resident, Jodie Howard, asked the mayor.

    “How do you know they are really families and aren’t some kind of gang or drug cartel?” another person asked federal officials.

  45. Gravatar of Tom Brown Tom Brown
    4. July 2014 at 06:21

    Scott, O/T: Have you seen Cochrane’s piece criticizing the concept of AD shortfalls as a explanation for the recession and/or slow recovery? How about Noah Smith’s response? Glasner’s response? Thoughts?

    I especially liked Noah’s final paragraph and his reference to “information criterion.” Also this comment by foosion:

    “Uncertainty is a wonderful explanation. Given that there’s always uncertainty and that there’s no good quantification, it can explain everything and can be used as a policy justification for anything. Things I like reduce uncertainty, things I don’t like increase uncertainty. Who needs models when I can just ask myself what the issue in question does to uncertainty.”

    “Uncertainty” certainly does seem like a slippery word… and I’d think for macroeconomists, the slipperier the better, no? :D So John argues it’s not a lack of “expectations” causing an AD shortfall, it’s “uncertainty” causing structural problems…. Hmmm, I think he’s got you there. You need to get on this “uncertainty” thing.

  46. Gravatar of W. Peden W. Peden
    4. July 2014 at 08:13

    Daniel,

    “To argue against monotonic convergence in the current environment would imply that when unemployment is above the natural rate, monetary policy can only be appropriate if inflation is above the policymaker’s inflation target, not below. On the face of it, this does not completely make sense, since the U.S. has actually experienced periods when both inflation and unemployment were above desirable levels. In the 1970s, this phenomenon was dubbed stagflation, and monetary policy has been regarded as exceptionally poor during that period.”

    So the President of the Federal Reserve Bank of St. Louis thinks that the natural rate = the desirable rate.

    That’s the only way I can begin make sense of an argument that “it is a bad idea for inflation to be above-target if unemployment is above the natural rate, because it could be the case that both inflation and unemployment are above desirable levels”.

  47. Gravatar of Daniel Daniel
    4. July 2014 at 08:22

    W. Peden,

    You’re reading too much into that piece of nonsense.

    He’s just trying to deflect responsibility for having engineered and prolonged the worst recession in 80 years.

  48. Gravatar of W. Peden W. Peden
    4. July 2014 at 08:30

    Daniel,

    Or perhaps he’s sincerly worried about stagflation at 1.3% inflation.

  49. Gravatar of Don Don
    4. July 2014 at 08:58

    Let’s not overlook the bombshell of this post: productivity, which is historically been about 1.5%, will only be 0.5% going forward.

    That is an amazing thing. Per-capita rGDP growth will 1/3 of the historical number in the future! Really!?! If true that is our problem and everything else is “frat guys arguing”.

    What happened? Is this some kind of sudden measurement error? (eg, we don’t know how to measure Facebook’s effect on economy.) Is this some effect of the government takeover of economy? Think regulatory capture, oligopolies, negative multiplier, waste & fraud,…

  50. Gravatar of TravisV TravisV
    4. July 2014 at 16:48

    Fascinating!

    “Obama avoids food fight, separates Bernanke and Krugman teams”

    http://blogs.marketwatch.com/capitolreport/2014/07/02/obama-avoids-food-fight-separates-bernanke-krugman-teams

  51. Gravatar of Michael Byrnes Michael Byrnes
    4. July 2014 at 17:01

    Sadly, no mention of “Team Sumner”.

  52. Gravatar of Bonnie Bonnie
    4. July 2014 at 20:38

    I would rather have monetary policy be functional and not have to have the conversation about extended UI. Other than that, if we’re going to have a policy of hard core sadomonetarism, we can’t just sit and do nothing in the about the people who are put out of business by it.

  53. Gravatar of Bonnie Bonnie
    4. July 2014 at 20:41

    I meant we can’t just sit by and do nothing in the *short-run* for the people are left with nowhere to go because of the sadomonetarism.

  54. Gravatar of TravisV TravisV
    5. July 2014 at 00:14

    Morgan Warstler,

    I’m not sure why you mentioned me.

  55. Gravatar of TravisV TravisV
    5. July 2014 at 00:18

    Major concession from Bob Murphy:

    “I have indeed altered my views of the economy in light of this episode. In particular, I realize that worldwide investors have more confidence that the Fed’s “exit strategy” will work smoothly than I do. I won’t know whether they are idiots, or I was paranoid, until I see how exactly the Fed deals with its bloated balance sheet.”

    http://mises.ca/posts/blog/noah-smith-boldly-goes-where-thousands-of-austrian-critics-have-gone-before

  56. Gravatar of TravisV TravisV
    5. July 2014 at 00:23

    Marcus Nunes posted an excellent email analysis:

    http://thefaintofheart.wordpress.com/2014/06/28/what-is-missing-at-the-fomc-leadership

    “Giving Fed Bank presidents the latitude to offer their opinions not only on how an economy functions but on the likely course of future policy actions. This behavior is terribly irresponsible and neither Volcker or Burns would have tolerated it for one minute. During their tenures, the Fed acted in a manner similar to that of the Bank of Canada: The policy committee met behind closed doors to debate the course of policy but, once that course was determined, only one person — the Governor — communicated those decisions and the reasoning behind them. In recent years, however, several Reserve Bank presidents (Bullard and Plosser come to mind) have spoken as if they were the Chairman; this is even more ludicrous when it is remembered that these presidents get to vote on FOMC decisions only once every three years……if “forward guidance” means anything, multiple voices articulating strong, but mutually exclusive, points of view can only add uncertainty rather than reduce it.

    ……….

    While Bernanke tried to “lead” by treating the FOMC as if it were the chairman of an academic dept. where all voices carried equal weight, his naiveté was remarkable. One of the first roles of the Chairman is to make it clear that HE is in charge and if people wish to act otherwise, wrath would be directed toward the renegades.”

  57. Gravatar of Mike T Mike T
    5. July 2014 at 05:20

    Philippe,

    ““Austrians define inflation as an increase in the money supply.”

    False.

    Correct. This definition is not solely attributed to Austrian economists:

    Today, we commonly hear about different kinds of inflation. Indeed, the word inflation is often used synonymously with “price increase.” But there is also a different, more specific, definition of inflation–a rise in the general price level caused by an imbalance between the quantity of money and trade needs. This “inflation” has but one origin–the central bank. It is the latter definition that drives many of those advocating an anti-inflationary policy for the Federal Reserve, and that more closely conforms with the word’s original meaning.

    Mises? Hayek? Major Freedom? Nope,… https://www.clevelandfed.org/research/commentary/1997/1015.pdf

    Here’s Webster 100 years ago: http://machaut.uchicago.edu/?resource=Webster%27s&word=inflation&use1913=on

    In*fla”tion (?), n. [L. inflatio: cf. F. inflation.]

    1. The act or process of inflating, or the state of being inflated, as with air or gas; distention; expansion; enlargement. Boyle.

    2. The state of being puffed up, as with pride; conceit; vanity. B. Jonson.

    3. Undue expansion or increase, from overissue; — said of currency. [U.S.]

    Webster today: http://www.merriam-webster.com/dictionary/inflation

    Full Definition of INFLATION

    1 : an act of inflating : a state of being inflated: as
    a : distension
    b : a hypothetical extremely brief period of very rapid expansion of the universe immediately following the big bang
    c : empty pretentiousness : pomposity
    2 : a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

  58. Gravatar of Mike T Mike T
    5. July 2014 at 06:17

    Mike T,

    do you understand that there is a difference between:

    1. “Inflation is an increase in the money supply”

    and,

    2. “a rise in the general price level caused by an imbalance between the quantity of money and trade needs”

    3. “Undue expansion or increase, from overissue; — said of currency

    4. “a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services”

    5. “an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur.”

    Do you understand that (1) is not the same as (2,3,4,5)?

    You said:

    “This definition is not solely attributed to Austrian economists”

    That definition is not the same as any off the other definitions you provided.

  59. Gravatar of Philippe Philippe
    5. July 2014 at 06:22

    Mike T,

    do you understand that there is a difference between:

    1. “Inflation is an increase in the money supply”

    and,

    2. “[inflation is] a rise in the general price level caused by an imbalance between the quantity of money and trade needs”

    3. “[inflation is] Undue expansion or increase, from overissue; — said of currency

    4. “[inflation is] a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services”

    5. “[inflation is] an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur.”

    Do you understand that (1) is not the same as (2,3,4,5)?

    You said:

    “This definition is not solely attributed to Austrian economists”

    That definition is not the same as any of the other definitions you provided.

  60. Gravatar of Mike T Mike T
    5. July 2014 at 07:52

    Philippe,

    The point of the two Webster definitions was to show the change over time from a focus on the quantity of money toward a focus on the general price level.

    Regarding your Mises quote, he also wrote about 30 years later in Human Action:
    “What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates.”

    So while the quote from Theory of Money and Credit includes that demand caveat, it was still premised around the quantity of money and not the price level. The quote above from Human Action is even more explicit.

    The point being that most Austrians still reference inflation in the manner with which it was originally defined, which at its root, focuses moreso on the quantity of money rather than an increase in the general price level (which was seen as a consequence).

  61. Gravatar of Philippe Philippe
    5. July 2014 at 10:45

    “The point of the two Webster definitions was to show the change over time from a focus on the quantity of money toward a focus on the general price level”

    No, you said:

    “Correct. This definition is not solely attributed to Austrian economists”

    Then you provided definitions which were different to the supposed ‘austrian definition’, which even von Mises did not agree with.

    You attempted to show that others have defined inflation as “an increase in the money supply”, but none of the quotes you provided actually defined inflation as “an increase in the money supply”.

    “The point being that most Austrians still reference inflation in the manner with which it was originally defined”

    None of the definitions you provided define inflation as “an increase in the money supply”. Von Mises did not define inflation as “an increase in the money supply”, or if he did in some places then he contradicted himself.

    The definition of inflation as “an increase in the money supply” appears to be something which latter-day austrian enthusiasts have invented.

  62. Gravatar of Major_Freedom Major_Freedom
    6. July 2014 at 08:41

    Daniel:

    “Austrians define inflation as an increase in the money supply.”

    “And I define “austrian economist” as “sadistic autistic moron”.”

    I define that as a substance-less argument.

    “then that is an argument that central banks wouldn’t have any influence in the economy.”

    “Yes, moron, that is exactly what I’m saying. As long as the inflation is small and stable, the central banks are practically invisible.”

    Then there is no reason for them to exist.

    “First, the man who intends to steal the food is aggressing against the property rights of the land owner.”

    “Such a fine encapsulation of the Austrian philosophy.”

    It’s not Austrian, that’s anarcho-capitalist ethics. Austrian economics is value free deduction from human action. There are no “oughts” advocated in Austrianism.

    Anarcho-capitalist ethics contains the “ought” that you ought to gain the permission of the land owner before you step foot on it.

    “What’s mine is mine, with the help of deflation what’s yours could be mine too, now go screw yourself”.”

    That perfectly describes your ethic. “Your land is mine, and with the help of inflation, even more of what’s yours can be mine, now go screw yourself.”

    —————————

    Philippe:

    “Austrians define inflation as an increase in the money supply.”

    “False.”

    “Ludwig von Mises:”

    “In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur. Again, Deflation (or Restriction, or Contraction) signifies: a diminution of the quantity of money (in the broader sense) which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange-value of money must occur.”

    “The Theory of Money and Credit, Mises (p. 272)”

    Murray Rothbard:

    “The process of issuing pseudo warehouse receipts or, more exactly, the process of issuing money beyond any increase in the stock of specie, may be called inflation. A contraction in the money supply outstanding over any period (aside from a possible net decrease in specie) may be called deflation. Clearly, inflation is the primary event and the primary purpose of monetary intervention. There can be no deflation without an inflation having occurred in some previous period of time. A priori, almost all intervention will be inflationary. For not only must all monetary intervention begin with inflation; the great gain to be derived from inflation comes from the issuer’s putting new money into circulation.” – Man, Economy, and State: A Treatise on Economic Principles (1962)

  63. Gravatar of Daniel Daniel
    6. July 2014 at 08:52

    Then there is no reason for them to exist.

    That is correct, I agree 100%.

    However, that is the only sane thing you’ve said since … since you decide to regale us with pages of drivel. Stopped clock, twice a day.

  64. Gravatar of Major_Freedom Major_Freedom
    6. July 2014 at 09:01

    Daniel:

    “I agree 100%.”

    You can agree with that, but I was just showing you the logical implication of what you said.

    I don’t agree with the conclusion even though it follows from the premises, because I think the premises are wrong.

    In reality there is a reason why the Fed exists. It is to benefit the government and bankers, at the expense of everyone else. It is absurd to claim that there is no reason the Fed should exist, in the face of decades of many individuals purposefully keeping it in existence. Obviously there are reasons.

  65. Gravatar of Daniel Daniel
    6. July 2014 at 09:06

    I’m aware of the logical implications of what I’m saying, and I stand by them.

    Now go be retarded somewhere else.

  66. Gravatar of Don Geddis Don Geddis
    6. July 2014 at 13:49

    MF/Geoff: As long as you’ve ruined yet another thread with your repetitive drivel, let’s keep the fun going!

    logical deduction based on the self-reflective knowledge that you’re an actor … Austrian economics is not a predictive science. It is a logical inquiry akin to mathematics and formal logic. … Austrian economics is value free deduction from human action.

    This is the part I like the best. It’s so ironic. I happen to have a bit of training in both math and formal logic … and the so-called “reasoning” that Austrians like you engage in, is not at all actual “logic”.

    Now, to give you credit, you did say only that Austrian economics was “akin” to logic. Much in the same way that the cargo cult natives looked at Western airplanes and airports, and then built wooden mockups that were “akin” to real air traffic machines.

    You see math and logic, and see the respect they have achieved among intelligent people. You know you want to reject empirical testing, because any attempted Austrian predictions simply fail. So you hope to borrow some of the respect of formal logic and copy it on to your Austrian theoretical dreams. Presumably hoping that “math is hard” and people are afraid of or don’t really understand logic.

    I do understand logic (and math). Your Austrian “deductions” are neither. The truth is, that using REAL logic — and no empirical testing — you can’t get much past Descartes “I think, therefore I am.”

    So, you want to start with your “human action” axiom. (An axiom which not everyone accepts, but let’s ignore that little problem.) With actual logic, you don’t get much further. And you reject empirical inquiry. So how, exactly, do you ever get to any conclusions of any value to the real world? You make chains of statements, but they aren’t connected by logic, and they aren’t connected by data. What are they connected by? Your dreams and intuitions?

  67. Gravatar of Major_Freedom Major_Freedom
    6. July 2014 at 15:06

    Daniel:

    “I’m aware of the logical implications of what I’m saying, and I stand by them.”

    Then you stand by incorrect premises.

    Don Geddis:

    “…the so-called “reasoning” that Austrians like you engage in, is not at all actual “logic”.”

    Yes, it is.

    “…you did say only that Austrian economics was “akin” to logic.”

    Akin to formal logic commonly taught in universities.

    Not exactly formal logic, because formal logic is not constrained to individual action.

    Praxeology is just that logic which is constrained to the boundaries of human action, in other words, the sum total of all logic is composed of abstract logic not constrained to action, and the logic that is so constrained.

    The reason why this constraining is done is because economics is believed by Austrians to be the study of human action.

    “Much in the same way that the cargo cult natives looked at Western airplanes and airports, and then built wooden mockups that were “akin” to real air traffic machines.”

    ?

    “You see math and logic, and see the respect they have achieved among intelligent people.”

    Ad populum.

    “You know you want to reject empirical testing, because any attempted Austrian predictions simply fail.”

    Austrian economics is not a predictive science.

    “So you hope to borrow some of the respect of formal logic and copy it on to your Austrian theoretical dreams.”

    ?

    “Presumably hoping that “math is hard” and people are afraid of or don’t really understand logic.”

    Oh so that’s why Mises.org makes available every single book and paper and article for free to the general public.

    It’s because they want to set up an Ivory Tower like mainstream intellectuals.

    Gotcha.

    “I do understand logic (and math). Your Austrian “deductions” are neither.”

    Yes, they are. If you don’t know it, then you either don’t know Austrianism, or you don’t know logic.

    Merely claiming you know logic is superficial posturing. You have not even shown you understand self-reflective logic.

    “The truth is, that using REAL logic — and no empirical testing — you can’t get much past Descartes “I think, therefore I am.””

    Sure you can. You can get past it by realizing that action is the bridge between the cogito, and empirical reality. Our brains are empirical machines. What is true for our brains, constrained to action, is empirical reality because action is also an empirical activity.

    “So, you want to start with your “human action” axiom. (An axiom which not everyone accepts, but let’s ignore that little problem.)”

    It is not a problem for me that there exists people who reject it and thus contradict themselves. It is a problem for them.

    Again, ad populum.

    “With actual logic, you don’t get much further.”

    Yes, you do. You can go as far as the logical relations of reality go.

    “And you reject empirical inquiry.”

    No, I only reject the underlying assumption of empiricism in the realm of human action. Empiricism is grounded on a priori propositions, no less than “formal” a priorism. Empiricism is grounded on the assumption that causal relations do not change over time. That is what is implied in the process of falsification. A theory is proposed at time zero. Then later on, testing the theory is done. Then later on the results of the observations are contrasted with the theory proposed in the past, and it is assumed that if the observations are not consistent with the theory, then the theory proposed in the past is identified as falsified in the present. The only way this can be done is if constancy is assumed.

    I reject this assumption of constancy in the field of knowledge. Knowledge is not constant over time. Empiricists are of course compelled to admit this, or else their entire program would be in vain. In order to even claim to be learning from the empiricist method, which is based on constancy, it is required for the subject that is doing the empirical testing to NOT be constant. The subject changes in the method of acquiring knowledge of a world that is assumed as constant in causal relations.

    This is why I reject empiricism. Human actors contradict themselves when they apply empiricism to their own selves.

    I do not reject empiricism when it comes to reality that IS in fact structured by constancies in causal relations. I do not reject empiricism for studying all phenomena that does not act, e.g. chemicals in a lab, stars in space, i.e. the “hard” sciences. Here, I do not reject empiricism because it is not, as far as I can tell, a self-contradiction to assume constancy in causal relations for inorganic matter.

    “So how, exactly, do you ever get to any conclusions of any value to the real world?”

    You are setting up an arrogant and ridiculous standard that no amount of proof can accommodate, because you are presenting YOUR OWN subject value as the ultimate standard of value. You are demanding me to “prove” to you that you “must” value the theory and the deductions. But who the hell are you to presume yourself to be some objective standard?

    “You make chains of statements, but they aren’t connected by logic, and they aren’t connected by data. What are they connected by? Your dreams and intuitions?”

    They are connected by logic.

  68. Gravatar of Major_Freedom Major_Freedom
    6. July 2014 at 19:38

    Breakfast price index:

    http://i.imgur.com/qkjNZpg.jpg

    Yay QE.

    Poor people can still eat, we need more inflation.

  69. Gravatar of Jason Jason
    6. July 2014 at 21:45

    Oh boy, most of that is due to supply side inflation

  70. Gravatar of Daniel Daniel
    7. July 2014 at 01:23

    Because it’s better to be unemployed. Austrian logic at its finest.

  71. Gravatar of Philippe Philippe
    7. July 2014 at 03:51

    “The process of issuing pseudo warehouse receipts or, more exactly, the process of issuing money beyond any increase in the stock of specie, may be called inflation”.

    That’s a crazy definition, but it’s still not the same as “inflation is an increase in the money supply”.

    According to Rothbard’s definition there can be an increase in the money supply which is not ‘inflation’.

  72. Gravatar of TravisV TravisV
    7. July 2014 at 06:08

    China, U.S. to discuss yuan, monetary policy this week

    “Both sides will conduct candid and deep policy dialogues on the RMB (yuan) issue and issues concerning China’s domestic financial reforms,” Zhu told reporters at a briefing.”

    http://finance.yahoo.com/news/china-u-discuss-yuan-monetary-policy-week-100716421–sector.html

  73. Gravatar of TravisV TravisV
    7. July 2014 at 06:21

    “That’s Some Ugly Data In Germany”

    “Some of the hottest economies are peripheral ones, like Spain (which was an utter basket case during the crisis). While “core” Europe is weak.”

    http://www.businessinsider.com/german-industrial-production-2014-7

    http://www.businessinsider.com/european-pmis-2014-6

  74. Gravatar of TravisV TravisV
    7. July 2014 at 06:24

    Prof. Sumner on the data above: “The natural rate hypothesis explains that. In the long run countries return to their natural rate of output.”

    http://www.themoneyillusion.com/?p=26957#comment-355220

  75. Gravatar of TravisV TravisV
    7. July 2014 at 06:35

    Frances Coppola: “Sumner on Piketty”

    http://coppolacomment.blogspot.com/2014/07/sumner-on-piketty.html

  76. Gravatar of TravisV TravisV
    7. July 2014 at 06:37

    Dear Commenters,

    Could someone please clarify the point Prof. Sumner was trying to make when he wrote this sentence:

    “That might be ideal for a college professor, for most of the men that I have met during my life that sort of society would be a dystopia.”

    http://www.themoneyillusion.com/?p=27027

  77. Gravatar of Nick Nick
    7. July 2014 at 06:51

    Travis,
    He meant that not all people would like to be by turns, an actor, a teacher, a doctor, yada yada yada ….
    It seems to be a bit of a fanciful flight into Humanism by picketty. After all, only a small percentage of the super rich choose to live such a life … Why would that be the end outcome if leisure were more evenly distributed?
    I think pickettys paragraph should read:
    “We are free to imagine a society in which all other tasks we currently know how to do well are almost totally automated and each individual has as much freedom as possible to pursue the goods we currently know how to make. Everyone would do whatever the hell they wanted more, probably leading to new strain on the healthcare system and new scarcities.”

  78. Gravatar of Ben Polidore Ben Polidore
    7. July 2014 at 09:23

    Hey, Scott, so it occurs to me that the “transmission mechanism” for interest rate policy works like this:

    lower/negative (higher) interest rates -> more (less) investment in equity -> more (less) NGDP

    And NGDP futures arguably work like this:

    fed buys (sells) futures -> more (less) investment in equities -> more (less) NGDP

    So, it seems that as long as you are ok with negative interest rates, the interest rate policy is just as powerful as futures if much less precise in terms of over/under shooting targets.

    Also, given the above, maybe the fed should just buy large cap growth directly. ;) Then these companies (GOOG/FB) can buy up other entrepreneurial companies with their increased capital. Maybe GOOG does a better job of allocating capital than traditional AMs (longer term, etc)!

  79. Gravatar of Becky Hargrove Becky Hargrove
    7. July 2014 at 12:57

    TravisV,
    Given the chance to do so from a young age, I think a lot of people would ultimately go for the mental challenges. They just manifest in many many different ways.

  80. Gravatar of Don Geddis Don Geddis
    7. July 2014 at 15:26

    @Ben Polidore: “as long as you are ok with negative interest rates

    Isn’t that exactly the primary problem? The Zero Lower Bound on interest rates is the #1 reason they are a poor choice as a policy tool.

    Secondly, you’ve left out the question of exactly how much to buy or sell (or what interest rate to target). You’ve got the qualitative direction, but not the necessary magnitude.

    This is an additional advantage of NGDP futures. Not only would they provide the mechanism for getting additional cash out into the economy (or absorbing it back in), but they also serve a predictive function of letting you know whether you’re currently on (expected) target or not.

  81. Gravatar of Major_Freedom Major_Freedom
    7. July 2014 at 17:00

    TravisV:

    The point is that not everyone has equal economic values. Not everyone values Piketty’s “ideal” of being autistic dilettantes, ignorant of social needs for production, and instead dabbling whimsically and sporadically in all manner of arts, as their basic needs are all taken care of by robots.

    Incidentally, Marx had the same ideal:

    “The transformation, through the division of labour, of personal powers (relationships) into material powers, cannot be dispelled by dismissing the general idea of it from one’s mind, but can only be abolished by the individuals again subjecting these material powers to themselves and abolishing the division of labour. This is not possible without the community. Only in community [with others has each] individual the means of cultivating his gifts in all directions; only in the community, therefore, is personal freedom possible.” – The German Ideology.

    and

    “It is true that eating, drinking, and procreating, etc., are … genuine human functions. However, when abstracted from other aspects of human activity, and turned into final and exclusive ends, they are animal.” – 1844 Manuscripts.

    These Marxoid types consider the material world to be a “fetter” standing in the way of true human development. They hold the ideal world to be one where material goods are limitless, and people spend their days singing spiritual hymns on social brotherhood.

  82. Gravatar of Philippe Philippe
    7. July 2014 at 18:05

    “They hold the ideal world to be one where material goods are limitless”

    oh no!

  83. Gravatar of Major_Freedom Major_Freedom
    7. July 2014 at 19:12

    Philippe:

    “They hold the ideal world to be one where material goods are limitless”

    “oh no!”

    You do see an “and” there I hope. And is not an or.

  84. Gravatar of Edward Edward
    7. July 2014 at 19:51

    “Let’s not overlook the bombshell of this post: productivity, which is historically been about 1.5%, will only be 0.5% going forward.

    That is an amazing thing. Per-capita rGDP growth will 1/3 of the historical number in the future! Really!?! If true that is our problem and everything else is “frat guys arguing”.

    What happened? Is this some kind of sudden measurement error? (eg, we don’t know how to measure Facebook’s effect on economy.) Is this some effect of the government takeover of economy? Think regulatory capture, oligopolies, negative multiplier, waste & fraud,…”

    Don, maybe the low productivity numbers reflect the idea that workers who have a job have had it up to their necks by being squeezed for extra overtime pay by corporations.and corporations ARE FINALLY beginning to realize that there is a limit to how far existing workers can be pushed for their marginal product, without hiring NEW workers- (hence we see the accelerating employment numbers)
    Scott, your thoughts?

    By the way Travis V linked too Francis Coppola reviewing your review of Piketty. I’m eager to see your review of her review of your review :-) :-) :-)

  85. Gravatar of Edward Edward
    7. July 2014 at 19:56

    “Squeezed for extra overtime work WITHOUT pay”

  86. Gravatar of TravisV TravisV
    7. July 2014 at 22:19

    Dear Commenters,

    What are the best posts Prof. Sumner has written refuting this recent “large time lags” argument by a prominent Austrian? Any detailed analysis of asset price reactions to monetary surprises during the Great Depression?

    http://www.acting-man.com/?p=31598

    “the progression from “lots of money printing” to “inflationary breakdown of the underlying currency system” could be observed several times in history, and what all these historical examples have in common is that there were large time lags between the money supply expansion and the point when the public came to realize that the inflationary policy wouldn’t be stopped and lost confidence in the currency……”

  87. Gravatar of Vivian Darkbloom Vivian Darkbloom
    8. July 2014 at 12:13

    This is off topic, but I hope it is of interest to Scott.

    Over at Econlog, Scott has an interesting post on “Why no Kansas Miracle”? published on July 7. A day later (admittedly early in the morning) Tyler Cowen linked to that post quoting a paragraph of it.

    As of this writing, the original post by Scott has 15 comments and the linked-to snippet from Cowen has 61.

    OK, that’s Econlog. But, I’ve noticed the same about things posted here that Cowen links to. Folks at MR seem a lot more interested in mixing it up. Few of those folks who visit Marginal Revolution care to leave comments here.

    My observation is that there is a much more diverse audience at Marginal Revolution than there is here. Why is that? Are there simply more trolls there? Or, do people elsewhere feel that this is a choir led by Scott and that if you are not a member of the choir you do not feel free to sing a different tune?

  88. Gravatar of Tom Brown Tom Brown
    8. July 2014 at 12:29

    O/T: Look at this:
    http://economicsone.com/2014/07/07/new-legislation-requires-fed-to-adopt-policy-rule/

    A *required* rule-based policy? Milton would be overjoyed, right??

    … probably depends on who makes the rule. How about … uh… Allan Meltzer? Stephen Williamson? Randall Wray? Peter Schiff?

  89. Gravatar of Jim Glass Jim Glass
    8. July 2014 at 14:24

    My observation is that there is a much more diverse audience at Marginal Revolution than there is here. Why is that?

    Vivian, my guess is that it is because Tyler and Alex make a lot more posts on a lot more different subjects than our host does here (and have done so for years longer, so they had a much bigger audience to start with).

    As to Tyler, with all the posts and book reviews and such he puts up, I wonder sometimes how he has any time left over for a day job. (The joy of tenure?) Right now he has six posts up there dated today, five on different subjects plus one of “assorted links” going to six other subjects. And there is still 1/3rd of the day left.

  90. Gravatar of Mike Sax Mike Sax
    8. July 2014 at 16:19

    “ndeed if you take the slowing labor force growth into account, then the job growth was actually far, far better in the first half of 2014 than during the housing boom, and even better than 1999.”

    Of course, this is after a deep recession and mediocre recovery so that’s not surprising-1999 was the height of a boom and even the meager 2000s was a Golden Age compared with recent years.

  91. Gravatar of ssumner ssumner
    9. July 2014 at 13:46

    Vivian, We do get a mix of liberal and conservative commenters here, but the MR blog is less specialized and also far more popular.

  92. Gravatar of Vivian Darkbloom Vivian Darkbloom
    9. July 2014 at 22:38

    Scott,

    With respect to the mix of “liberal and conservative” commenters, I guess I don’t normally view commenters here through that distinction. Rather, I was thinking that there are those that fully agree with market monetarism ideas and those who don’t. The former outnumber the latter by a wide margin and I suspect that those who might disagree but don’t participate might be reluctant to comment because of the perception that this is a club for market monetarists. You (and others that comment regularly here) should encourage constructive criticism from skeptics. Your ideas can only get better as a result.

    Occasionally, strong ideological biases come through, but that’s not exactly what I had in mind. As I think you’ve indicated, market monetarism is not an ideological movement even though there is a preference for monetary tools rather than fiscal tools for guidance and stimulus (the latter clearly has a “progressive” bias, but the former seems ideologically agnostic to me).

    Yes, MR is less specialized. In fact, it struck me that it is a sort of economic “Drudge Report”. Most of the posts simply quote others and invite comment on a variety of topics. Tyler and Alex rarely write posts that explicitly express their own views and what views are expressed are usually indirectly expressed by the implied approval of what is chosen for publication and quotation. That’s an observation, not a criticism.

    While MR is entertaining, I would not encourage you to change your approach. It takes much more work and thought, and at the end of the day is much more influential to clearly write and support with argument what your own views are. This requires, unlike MR, staying within your own zone of expertise and competence.

    I guess what I did find strange was that when your articles are quoted and linked to, many, if not most, of those MR commenters must come to the original source to read the full thing, but when they leave comments it is at MR and rarely here (or Econlog). I guess people just feel comfortable in exchanging views and disagreements with the old familiar crowd—or, are they afraid of being attacked en masse here?.

    A small point: What I do find better at MR is the comment format that allows replies to comments to appear directly below the comment that is being replied to. But, I see at the bottom of this page that your theme is “Simplicity”.

  93. Gravatar of Brian Donohue Brian Donohue
    10. July 2014 at 11:16

    @Vivian, I like MR but there are lots of purely political people there. It’s a politics/ general interest blog, and comment sections have a 25% chance of deteriorating badly.

    This is an economics blog. MM is a big political tent. Sadowski is a Democrat.

    I think Sumner is in the process of exerting a larger influence on the wider world than Cowen, page hits and comments notwithstanding. Of course, MR steered me here in the first place.

  94. Gravatar of Vivian Darkbloom Vivian Darkbloom
    10. July 2014 at 11:39

    “This is an economics blog. MM is a big political tent. Sadowski is a Democrat.”

    Brian,

    I always thought Sadowski was a Druid. But, if he’s a Democrat, then it only supports my assertion that market monetarism is not an ideological or party movement.

    I find your comments at MR mostly lucid and insightful (the exception being when then disagree with mine).

  95. Gravatar of ssumner ssumner
    11. July 2014 at 01:03

    Vivian, Thanks for the suggestions. I hope I do encourage constructive criticism. I feel like I do get a lot of criticism here, but most is not as constructive as people like Nick Rowe get.

  96. Gravatar of Ralph Musgrave Ralph Musgrave
    15. July 2014 at 21:54

    Scott,

    You claim my suggestion that you’ve changed your mind on fiscal stimulus is a “lie”. Thanks for that. Here’s some evidence from which I think most people will conclude that it’s actually you that’s the liar (if we’re going to use pejorative words). Here’s a selection of your anti-fiscal statements in recent years (I could have dug up far more, but the following will do). They’re in stark contrast to your most recent statement, namely that fiscal stimulus has been beneficial.

    Title of a paper of yours, Sept 2013: “Why has the effect of fiscal stimulus been so meager in recent years? ”

    Statement you made in May 2013: “The fiscal multiplier theory is as dead as John Cleese’s parrot.”

    Dec 2011: “Keynesian economists have never been able to accept my assertion that the fiscal multiplier is roughly zero.”

    Title of blog post Oct 2012: “Fiscal policy has no oomph”.

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