I just checked Econlog, and there are two more posts challenging my views.  One is on monetary policy, the other on utilitarianism.  Let’s start with Arnold Kling, who claimed that the Fed is not able to quickly change the inflation rate, at least with conventional policies that exclude cases such as hyperinflation.  I responded with examples like 1921 and 1933, where powerful, clearly identified monetary policies did quickly change the inflation rate, and also the NGDP growth rate, which is what I am actually interested in.  Here is his response:

Beware of proof by selective example. Some thoughts:

1. The monetary regime in 1920-21 was different than today’s regime. It could be that relative to the gold standard, prices had risen way too much in 1919, and everybody knew it. That would have made it easy to bring prices back into line.

2. As to the 1933 episode, what was the long-term impact on general wages and prices? In the short run, the wholesale price index (WPI) can be dominated by commodity prices, which are volatile. Today, in order to gauge the trend of inflation, economists use broader price indexes, and they remove changes in food and energy prices in order to focus on “core inflation.” I wonder how “core inflation” behaved during the episode in question.

3. I can do “proof by example” going in the other direction. Consider how long it took for inflationary expectations to rise from the early 1960’s to the late 1970’s. Consider how long it took for inflationary expectations to fall from 1980 to 2000, even though the “regime change” under Paul Volcker was sharp and highly publicized.
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Lenin’s famous question sounds a bit pompous, but this post will actually be a plea for modesty.  When I started this post I intended to produce a grand survey of morality, politics and economics, plus an in depth discussion of Switzerland.  Fortunately for you guys I don’t have my Switzerland data here with me in China, so the post will be merely overly long, not absurdly long.  I’ll do a follow-up post later on Switzerland.

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Mere?  So much confusion has been caused by one seemingly innocuous adjective.

A commenter named Jian asked me this question after my previous post:

Your point about the arbitrariness of CPI is well taken, but if you were really serious about physical laws being social constructions, I’ll quote Alan Sokal: “Anyone who believes that the laws of physics are mere social conventions is invited to try transgressing those conventions from the windows of my apartment. (I live on the twenty-first floor.)”

I am very serious.  As I indicated in an earlier post, my views of “reality” are similar to those of Richard Rorty.  He takes a pragmatic view of things.  There is no difference between subjective opinions and objective reality, or at least no difference that is discernible to humans.  But many people wrongly infer that this means that human knowledge is useless, simply because there is no such thing as objective truth.  Rorty says that the real question is not whether some belief is “true,” but rather whether it is useful.  The laws of physics tell us not to jump out of windows in tall building, and hence they are useful.  That is all we can really say.  But haven’t they been “proven” to be true?  Let’s take a quick look at the history of one of the most important parts of physics, astronomy.

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[New readers sent here by the NYT, this is a wacky, offbeat post.  If you want a serious look at my policy views please check out my FAQs.  In addition, this link discusses what went wrong last year.  And finally, I want to thank Tyler Cowen for his very kind review of this blog.]

When Bob Murphy sees this title he’ll probably think it is a dream come true.  The evil inflationist finally sees reason.  Well I’m afraid it’s more like his worst nightmare.  I don’t propose to abolish the phenomenon of inflation, but rather the concept of inflation.  And to be more precise, price inflation, which is what almost everyone means by the term.  I want it stripped from our macroeconomic theories, removed from our textbooks, banished into the dustbin of discarded mental constructs.

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