The internet’s highest honor
Vaidas Urba pointed me to a very clever post by John Carney of CNBC. It includes parodies of many well known bloggers, on the theme of Christmas and economics. Here’s an example–see if you can guess who:
If the Fed would simply announce a nominal target for presents, we’d all receive more presents on Christmas day. There are many ways to do NCPT, but I prefer that the Fed creates a presents futures market.
A lot of people look at the amount of presents under the tree and attempt to derive the stance of Santa. But this is wrong. You need to examine the demand for presents as well as the supply. In general, a large pile of presents is a sign that Christmas policy has been too tight, while coal in the stocking is a sign that it has been too loose.
At the risk of spoiling the joke, I’m going to try to improve it further
A lot of people look at the amount of presents under the tree and attempt to derive the stance the parents’ generosity. But this is wrong. The pile of presents represents the interaction of generosity and deserts. In general, a larger pile of presents is a sign that the stance of Christmas policy has been relatively generous. But the level of generosity also depends on how many presents are deserved, which depends both on the behavior of the child and the wealth of the parents. An increased pile might represent greater generosity, but also greater deserts, due to improved wealth and/or better behavior by the child.
Yeah, I know, I’ve ruined the joke.
PS. Although I am now a “somebody”, I am under no illusion that I am anywhere but at the bottom of the class of people called “somebody”. But at least I’m not a nobody.
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27. December 2016 at 21:42
So…we’re supposed to imagine the counterfeiting cartel as Santa and his elves, and everyone else are just little children.
The minds of socialist pundits…
27. December 2016 at 21:45
But the trend is upward!
The piece gave me a chuckle when I read it. (And the author clearly *had* read Steve Sailer.)
27. December 2016 at 22:43
Major.Freedom,
Out of curiosity, since I can’t sleep, what do you think of George Selgin and his free banking ideas? He’s not Austrian, but in my view he wants a more free market approach to banking than many Austrians.
28. December 2016 at 02:35
Congrats Scott, on believing yourself to no longer be a nobody. Even if it’s not true, you still have your belief to cling to, and that’s something!
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?
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Sorry, I couldn’t help myself. Actually, that’s pretty cool!
28. December 2016 at 02:54
You actually got a rather long bit compared to many of the others. I thought Kaminska’s was perfect for a short one though (not so much about her personally though).
O/T: Christmas is over, but I’m pretty sure some of your readers will prefer this rendition of a Christmas classic: https://youtu.be/oGNMjo29WsI
28. December 2016 at 03:06
…Or this: https://youtu.be/wNyPIbwb-UA
28. December 2016 at 08:23
Scott, I’m mostly supportive of free banking, but for any specific proposal I need to see how monetary policy is handled. I’d like to make sure the system leads to stable NGDP growth.
28. December 2016 at 08:55
That was very funny, but the tone of Murphy’s felt off somehow.
28. December 2016 at 10:07
Scott,
Yes, I assumed you were familiar with Selgin’s claims, but probably weren’t completely convinced. Supposedly, a competitive free banking system with daily reconciliation via clearinghouses would constrain banks that issue private currency, lest it become immediately obvious that a particular bank was becoming riskier than the rest, via relative exchange rates/acceptability of a given currency.
And during downturns, the banks would understand they could issue more currency and loans to expand business without devaluing the currency, within certain limits, reducing the severity of downturns if not mostly preventing them altogether via the expectations channel. That’s at least my understanding of his arguments.
Supposedly, this would be a sort of natural NGDP targeting.
28. December 2016 at 10:16
I’ve been thinking lately about what would happen if the federal government forced taxpayers to buy newly issued Treasuries instead of paying taxes. They can be purchased directly from and held at the Treasury Department. Perhaps at least some of the Treasury holdings could be sold before maturity. This would have obvious advantages for taxpayers.
Also though, perhaps it would create incentives for government to be somewhat restrained in terms of size, as any spending increase that didn’t increase real GDP potential would cause a capital loss to taxpayers. It could similarly restrain the monetary authority when the economy’s at full potential.
Additionally, during disinflationary economic downturns, the value of Treasury holdings could create a wealth effect, and the government could allow more of the Treasury stock held as taxes to be sold, or the government could increase spending to keep Treasury rates constant. They could effectively target treasury rates to keep nominal spending on track. Or similarly, the monetary authority can simply create more money to keep nominal interest rates constant.
I won’t be surprised if there are serious problems with such an approach that haven’t occurred to me yet, but interesting to think about, and who knows? Maybe it’s better than traditional taxation.
28. December 2016 at 11:50
Scott,
Individuals who directly engage in free banking methods are capable in principle of respecting the property rights of all others who indirectly through their own transactions become dependent on it, but there needs to be strong disclosure standards in place to ensure that those who accept the notes/debts as payment are presented with the fact that they are receiving a debt instrument and not a money as final payment instrument.
In a laissez faire market the tendency would be for abuses and misleading practises to be curtailed, if not for the sole fact that people will learn the hard way if they do not take the proper precautions. History has shown that free banking, coupled with state privileges and “looking the other way”, can lead to serious violations of trust and economic coordination.
My conviction about a framework of free banking plus statism, is that it will likely lead to centralized banking because the blame will be put on bankers who abuse the system because of the incentives brought about by state privileges and protections. On the other hand, a framework of free banking plus absolute individual private property rights, I.e. “anarcho-capitalism”, will likely lead to at or close to 100% reserve banking voluntarily because victims will be able to punish abusers who mislead what it is they are offering to settle debts when defaults arise.
As for whether this will lead to stable aggregate nominal statistics, I will say two things. First, the doctrine of “stability” is a chimera, sought after because of an underlying false ideology, taken for granted, on what is pure and good. This ideology, which spans millennia, and has been promoted by philosophers since Plato, contains the notion that final states of rest are the pure good, and change are the pure evil. To bring about a cessation of flux, of change, is to do good, and to bring about constant changes, is to do evil. The good is perfect and unchanging. The evil is imperfect and changing.
This notion of the good, when brought down to Earth, conflicts with what actually occurs in human life. Hence the desire to minimize change in all of its various manifestations through institutions of power and influence. Hence the term “stability” is taken for granted as good, and “instability” is taken for granted as evil.
Sumner falsely believes that evil is caused by changes. That the reason Hitler rose to power, and ordered millions killed was because of changes in people’s spending of government issued notes. In other words, he believes that if spending in Germany was stabilized, then the holocaust could have been avoided. The truth is that evil is not caused by changes. Evil arises in the world from individuals based on their ideas, and this can occur with high degree of changes and low degree of changes. The Gulags for example were all about totally stopping counter-revolutionary forces. To bring an end to capitalist change. It is not correct that large scale changes cause evil.
In fact, the whole fascist movement that occurred in Germany was associated with ideas relating to the philosophical tradition of “good=stability” ! Fascism was and remains in effect an attempt to bring about an end to changes, in this case to race, economy, and governance. To create a final end all and be all society of obedient German Aryans.
The underlying ideology of Changes=Evil has many many manifestations. In the area of state created cartelized counterfeiting, the goal for both the managers and their Neitzschean/Machiavellian academic apologists, is to stabilize the aggressive anti-market power structure so as to to overturn it. For its own sake and no other. Hence the fear mongering and hysteria surrounding changing or eliminating it.
It isn’t for my sake, or for my family’s sake, or for your sake or Sumner’s sake either.
Change, within the confines of individual property rights, is a good thing, because it is the only way individuals can manifest what is good for them.
28. December 2016 at 11:55
And secondly,
Recessions are not caused by declines in aggregate spending. Declines in aggregate spending are caused by the same thing that causes recessions, namely, structural misalignment caused by central banking preventing free market interest rates, prices and spending.
28. December 2016 at 15:04
That was good. I liked Krugman’s and Cowen’s too.
Scott Alexander thinks you’re someone too, FWIW:
http://slatestarscratchpad.tumblr.com/post/154827572901/you-wake-up-on-the-morning-on-the-20th-of-january
28. December 2016 at 17:11
well, back when there was a laissez faire market, why did the abuses happen? and why were they endemic? as were all sorts of bad business behavior? and they were real not made up.
so why did all of that happen if the solution was lassez fair market?
maybe its because we are humans, and given no rules. and lots of incentives to misbehave
we will
28. December 2016 at 17:22
and we have
28. December 2016 at 17:47
Congrats, Scott 😉
In a similar vein, the FT’s 404 error page is a riot. Try this:
https://www.ft.com/x
Happy holidays to all!
28. December 2016 at 18:10
The jokes on us, the readers of this crazy blog. I guess you could improve the Sumner joke passage by saying there’s no such thing as a “bad Christmas” since there’s no such thing as a “bust” or “crash”. If you wait long enough, every bad Christmas becomes good.
28. December 2016 at 21:04
Scott, I’m skeptical of substitutes for taxation—seems too good to be true.
dw, Remind me, when was that laissez-faire market?
28. December 2016 at 22:45
I am not sure if anyone noticed, but that the post is three years old.
The jokes are quite funny, by the way.
29. December 2016 at 08:08
Not only did you ruin the joke, you changed it from “Santa” to “parents”, thereby denying the existence of the jolly old elf! Where is your Christmas spirit?
29. December 2016 at 09:20
dw,
That’s true, but governments misbehave too, in case you don’t watch the news. I think Trump is about to illustrate the benefits of smaller government, as he abuses the expanded executive powers ceded by Congress in recent decades.
29. December 2016 at 09:30
Maybe I should start a blog and blog about the idea of replacing taxation with borrowing via forced purchase of government bonds. Once I get readers I can ask if any of them see some problems with the idea. I won’t be surprised if it’s infeasible for some reason that will be obvious in retrospect.
29. December 2016 at 10:24
Maybe I should start a blog and blog about the idea of replacing taxation with borrowing via forced purchase of government bonds. Once I get readers I can ask if any of them see some problems with the idea.
I don’t see the point of this idea. Sure it would be great for the taxpayers but they are called “taxpayers” for a reason. The US government is not interested in this and never will be. The US government will say it needs taxes to be able to sell bonds in the first place. And it would not be a lie actually. Nearly all (if not all) creditworthiness and solvency of a state like the US is based on its ability to raise taxes.
I think in the US it’s mostly income taxes, payroll taxes and corporate income taxes. Abolish those taxes and you kill like at least 80% of the revenue. How do you issue and pay back bonds when you kill your revenue?
You want to build a skyscraper by destroying its foundation.
29. December 2016 at 10:32
In the best case scenario this bogus idea will end up with the exact same thing that we already know and use: Money.
A lot of risk and effort to end up exactly at the point that we call “current situation” (and only in the best case scenario).
29. December 2016 at 11:07
I know an old Japanese joke which you can explain
(after explaining, still hold as a joke.)
29. December 2016 at 11:23
Christian List,
Economies grow, so governments can successfully expand debt in proportion, making rolling over debt easy. One of the features of the idea of replacing taxes with debt issuance is that it makes inefficient increases in government spending or other inefficient policies much more immediately felt by more voters. It would offer a more salient market judgement of government policies.
29. December 2016 at 11:24
Also, of course, the government could issue some number of perpetual bonds, with coupons.
29. December 2016 at 11:26
The biggest potential problem I see with the idea is that to the extent people are allowed to sell their bonds, the ownership can end up concentrated in fewer hands, including those of people overseas, which would diminish the how immediately widely felt new bad polices would be.
29. December 2016 at 12:17
You didn’t really answer my questions. What’s your revenue again? Didn’t you replace taxes with bonds in your scenario? So what’s your revenue? What’s the foundation of your bonds? How is your state solvent? How does it have any creditworthiness?
29. December 2016 at 12:56
Christian List,
Peopke pay taxes as usual, but receive Treasuries in return.
29. December 2016 at 13:24
It’s not a tax when you get something back for it directly, especially not when it’s a bond of equal nominal worth. And it’s not revenue either. It’s just another ponzi scheme. But one that will end pretty fast I guess.
29. December 2016 at 13:26
I find it pretty amazing that the observations by John Carney of CNBC are three years old but nevertheless still so accurate.
I tried to make a little update for 2016:
ssumner: Don’t reason from a present change.
Ray Lopez: Presents are neutral!
ssumner: There’s no such thing as no present policy.
H_Wasshoi: I’m a bot but nevertheless Scott talks to me which is nice.
ssumner: Present policy is not that important, it’s third tier at best. First tier issues are the interventions of big Santa (I’m mostly against it), elf migration (more, more, more), and the war on myrrh and Christmas candies (end it, let out 400,000 trolls). Arrggh, I just realized I wasted my whole life on a tier three issue…
Major.Freedom: Present policy is so wrong, I only believe in the Austrian Krampus.
ssumner: I’m very afraid of Santa Crump.
Tom Brown: Me too. Look at the youtube video I just found.
ssumner: Why are people getting so afraid of Santa Crump? I just don’t get it. You people should just chill. And no, I don’t want Santa’s chair.
29. December 2016 at 13:36
Christian,
Explain how it would end pretty fast. Be detailed and specific. Otherwise, it seems like you’re just saying that because an idea’s new to you, it can’t work.
29. December 2016 at 13:38
fun ! thanks…
29. December 2016 at 13:41
SS, how about the 1800s or 1700s? o maybe as late as the early 1900s.
course governments do. they are made up of people arent they? and if they can game their jobs (just like private sector employees will) to make it easier to do them, they will. its easier to catch ‘bad’ guys if you can torture them into ‘confessing’ to their ‘crimes’. just like if an executive will game their companies pay plans to make them selves look good. say by putting unreasonable sales goals on their workers so that they open bogus accounts for customers.
an example of the ‘old’ days, when your horse died, it was left where it did. even if that was a city street. where a meat plant was. or back in NYC where backers used the same tables that people slept on
29. December 2016 at 14:03
Explain how it would end pretty fast. Be detailed and specific. Otherwise, it seems like you’re just saying that because an idea’s new to you, it can’t work.
Your state raises no taxes. It is insolvent from the start. People would dump the currency of this state in no time. The inventor of this great new idea would be stoned within the first two weeks by an angry mob. Maybe they would wheel him. It’s either wheeling, hanging or stoning. I hope this was detailed and specific enough. Or do you want pictures?
29. December 2016 at 15:12
You’re on the right track, NGDP in the economy-economy is aggregate child behavior in the Santa-economy. But I think the other guy starts out right:
“A lot of people look at the amount of presents under the tree and attempt to derive the stance of Santa.”
You need a single Present Authority (Santa), not diffuse “parents.” How about something like:
“A lot of people look at the amount of presents under the tree and attempt to derive the stance of Santa – lots of presents (“loose”) means children have been behaving too well, and Santa is trying to make them act more mischievously, or have more fun; few presents (“tight”) means children have been behaving poorly, and Santa is trying to make them act nicer. But actually lots of presents can mean that Santa’s policy has been too tight for too long….”
I have no idea where this would go from here, although surely the distinction between base presents and presents is important. Also you need to complete the parody, e.g.:
“Comment: Of course in most New Keynesian Christmas models, children don’t actually receive presents….” (Nice Work)
“Comment: Geez, Sumner, ya ass, elves don’t really have pointy ears. Though an elf I dated in Miami one time was pretty pointy in some other places.” (Royal Pez)
Etc etc….
29. December 2016 at 15:15
Christian List,
No, I think you misunderstand. Interest paid on Treasuries is simple interest, but economic growth is compounded. Hence, the principal and interest shrink or remain constant as a percent of GDP, as long as the debt is within certain limits. Issuing Treasuries in exchange for taxes paid could put some limits on government spending.
Most people don’t get this simple point. Even many economists don’t seem to understand why the US and Japan, for example, are nowhere near having debt crises. There is significant room for the US debt and deficits to grow, before they become problematic. and it isn’t hard to calculate what the limits are, ceteris paribus.
29. December 2016 at 21:21
Kudos to Scott “Capo Tutti Capi” Sumner for becoming a “somebody”, and other Market Monetarist luminaries, such as Lars C., David Beckworth and Marcus Nunes, for putting MM on the map. Sad to say the Fed does not (yet) agree.
The risk in becoming somebody is that the desire for continued credibility can undermine clarity.
Why do MM’ers have such timid NGDP targets? To win credibility in the eyes of the right-wing inflation-honchos? So Charles Plosser will not nod too dismissively?
Why the MM reluctance to embrace QE or helicopter drops? (Adair Turner and Michael Woodford do the embrace).
Kevin Erdmann has done yeoman work on property, banks and monetary policy. Property zoning is looming as a major structural impediment and source of instability in banking and thus monetary policy. Yet MM’ers go mute. (Even U.S. “libertarians” go mute on property zoning, and are much more comfortable exulting in the moral righteousness that envelops those who condemn the minimum wage.)
I hope the MM movement can mature in 2017, and confidently or bravely push policies even if unorthodox, such as dezoning property or helicopter drops.
Modern-day orthodox macroeconomics has become ossified, and then further rigidified by compromise, defeatism and hubris.
My fellow MM,’ers, boldly go where no (monetarist) man has gone before!
Seek aggressive NGDP targets, unzone property, and send in the Hueys, Bells, Chinooks, Sikorskys in horizon-spanning fleets. Darken the skies (actually, use helicopter drops to offset cuts in FICA taxes).
Prosperity can be had.
(Oddly enough, Trump may be the man to do it. He is not orthodox sort of fellow. Would not that be locally ironic if Trump embraces NGDP targeting?)
30. December 2016 at 13:20
Anand, I didn’t see that–thanks.
31. December 2016 at 01:21
Oh that was good- thanks for posting it. A lot of good comments too. I especially liked anon/portly and Christian List @ 13:26. Humor can be so difficult on econ blogs. Nice to see it can be done. Thanks and happy New Year!
31. December 2016 at 09:16
J Mann wrote:
That was very funny, but the tone of Murphy’s felt off somehow.
I thought so too, but I didn’t want to look like a griper. Once I saw a special on Weird Al Yankovic’s videos, and they interviewed this band that said something like, “We were really excited when we heard he was going to parody one of our songs, but it actually wasn’t a great one.” And they were right.
1. January 2017 at 08:35
@Jerry
Glad that someone liked it.
@Scott F.
You keep calling it a tax. I still don’t see how it is a tax. You are just selling bonds. That’s no taxing. It’s just contracting debt.
Issuing Treasuries in exchange for taxes paid could put some limits on government spending.
More like completely strangling it. The federal revenue (through taxes) is over $3 trillion each year. Those taxes are all being spent but it’s still not enough so on top of that they contract about $0,5-1,5$ trillion additional debt each year. Your system would turn the mentioned $3 trillion of taxes into $3 trillion of debt. You really seem to think this is sustainable.
Most people don’t get this simple point.
Let’s assume your idea is really so ingenious. Then do you think you are the first one who came up with this brilliant idea? It’s hard to see why you would be the first one. So do you have any papers promoting your idea? And if not why not?