I’ve always liked Forbes magazine, and I’m a big fan of Malcolm Forbes’ proposal to “blow-up” the income tax. So I don’t have any big problem with the magazine on ideological grounds. But I do have a problem with several recent Forbes articles by John Tamny, who seems proud of his lack of expertise in the subject he writes about.
In a new column, Tamny has accused me of calling anyone who favors the gold standard a “knuckle-dragger.” I don’t recall making that accusation (in this post), nor do I believe it to be true. Indeed many highly intelligent economists favored the gold standard, as Tamny accurately points out. Here’s the statement that led me to accuse Forbes magazine of anti-intellectualism:
Assuming the Fed could do what it cannot; as in fine tune economic activity on the way to stable prices, we would be much worse off if Bernanke et al were to actually succeed.
To see why, it has to be remembered that the cure for high prices is in fact high prices. Or better yet, high prices foretell low prices.
If producers create a consumer product that fulfills unmet needs on the way to high prices, the latter is the signal to other producers to enter the market for the same good on the way to lowering its cost. Gyrating prices are the necessary market signal telling businesses what we need.
Taking this further, if price stability were policy, it would still be the case that a phone call from Houston to Dallas would cost $15 for a half hour of conversation. It would similarly mean that we’d be paying thousands of dollars for flat-screen televisions, not to mention even more for computers that perform very few functions.
When I tell other economists about this passage, even Tamny’s fellow libertarians, they break out laughing. That’s not good. I want libertarians to succeed. We both favor small government. But we won’t get anywhere if Forbes keeps publishing articles than make conservative/libertarians the laughing stock of the blogosphere. Just imagine what a Krugman or DeLong would do if they stumbled across this defense of the gold standard. We need arguments that can stand up to the best the other side has to offer.
In his rebuttal Tamny points out that I am not famous (like he is?) That’s true. But the quality of an argument isn’t related to the fame of the person making the argument; it is based on reason, evidence, and even a familiarity with basic terminology. In the new article Tamny seems to not understand the meaning of the term ‘deflation:’
For that we need stable money values, nothing else. Gold has historically served as the measure meant to make the tickets in our pockets most stable in value. As the great financier J.P. Morgan put it, “Gold is money. Nothing else.”
After that, the money prices of goods change with great regularity for reasons ranging from consumer preference to productivity enhancements. Confused about what deflation is, Sumner presumes that it’s a function of falling prices, but were he to ever emerge from the campus one of these days, he’d understand by virtue of walking the aisles of most any retailer that prices fall all the time.
If this were true, then the Great Deflation of 1929-32 would never have happened, as the price of gold was stable throughout that period. Then he compounds his mistake, by citing Mill:
Or, as Mill put it, “If one-half of the commodities in the market rise in exchange value, the very terms imply a fall of the other half.” Put more simply, what Sumner presumes to be deflation is not that. The price level can only be altered through a change in the value of money itself, and with the dollar at near all-time lows against gold and nearly every foreign currency, the presumption of deflation promoted by Sumner is laughable, and also sad.
Obviously Mill cannot be referring to the nominal price of goods, as the statement would be absurd. While I don’t have the Mill volume in front of me, I assume he must be referring to the real or relative price of goods. But of course in that case the statement has no relevance to the case Tamny is trying to make, as it’s equally true of Zimbabwe and Switzerland. Indeed it’s merely a property of averages.
Tamny then engages in false modesty:
To answer Sumner’s initial presumption, I should first say I’m decidedly not an intellectual, and will leave what is now a debased adjective to people of his ilk at obscure colleges. But a curious sort, I’ve long sought to read intellectuals of the past and present who actually impacted the policy debate.
It’s clear from reading Tamny’s column that he is an intellectual, quite engaged in policy ideas. And a very well read intellectual as well. What makes these two Forbes column’s anti-intellectual is that Tamny is writing on a topic that he knows little about, monetary economics. He cites famous economists of the past, like Keynes, who supported a fixed price of gold. But Keynes would be horrified by the arguments that Tamny is making in support of a gold standard. The problem isn’t so much Tamny, it is Forbes, for choosing columnists who pander to crude populist prejudices, rather than those with expertise in the issues being discussed.
Sometimes I feel like I am trying to save conservatives from themselves. The free market is a great idea. Taking monetary policy decisions away from the Fed and letting the market determine the money supply is a great idea. But when conservatives/libertarians show a contempt for everything that’s been learned in the past 80 years, including the scholarship of distinguished fellow libertarians such as Milton Friedman, they are not going to win out in the battle of ideas. I don’t have any problem with Forbes publishing a piece with which I totally disagree. I do have a problem with conservative outlets that publish authors who are ignorant of the key tenets of monetary theory, that do not know the meaning of basic economic terminology, indeed that seem to have created a private language that has nothing to do with the real world. We won’t get anywhere unless we offer solid reasoned arguments written by people who have the expertise to handle the issues they are writing about.
My criticism of Tamny was not personal; most highly intelligent people know nothing about monetary theory. He’s obviously very intelligent. But he’s writing on the wrong topic. I’d sound like an idiot if I wrote on nuclear physics (a simple field compared to monetary economics.) Forbes should be publishing pieces on monetary policy that are written by distinguished monetary economists. (And I don’t give a damn about credentials. A distinguished monetary economist is someone who understands the field, not someone who happens to teach at a big name university or work at the Fed.)
PS. It’s Bentley University, not College. I couldn’t care less, by my bosses do care.
PPS. I’m not generally viewed as a “quantity theorist” as I don’t favor targeting money, nor do I think the money supply is a good monetary policy indicator. But it’s a forgivable mistake, as I occasionally make quasi-monetarist arguments.
PPPS. But I’m definitely not a fan of “collectivist economics.” That’s unforgivable.
PPPPS. I am greatly indebted to Bruce Bartlett, without whom I would be a complete nobody. His encouragement pushed me up to the exalted position of “little-known Bentley College economics professor.” I’d also like to thank John Tamny, who has pushed me up from the position of being an obscure professor at Bentley, to someone so famous that Forbes devotes an entire article to trashing my “droolings” on monetary economics. Ma! Top of the world!