What do the VSP think about the current economy?

This is a sincere question.  Do the Very Serious People think the US economy is deeply depressed, or nearing full employment?  I see conflicting evidence:

1. As far as I can see the policy of tapering has overwhelming support among the VSP, suggesting they think it’s time for the economy to stand on its own two feet, without a crutch from the Fed. Is that correct?

2. As far as I can see most of the press and pundits, and moderate politicians, seem to support an extension of the emergency unemployment benefits? Recall that the proposal would y currently extend them to 73 weeks, which is far more generous than the emergency benefits under Bill Clinton in early 1993, when unemployment was even higher. The call for an emergency extended unemployment benefits program would imply emergency level unemployment rates, where monetary tightening (when inflation is also below target) would be utter madness.

I’m not interested in arguing these two perspectives.  Both are defensible.  Rather I’m trying to get a sense of where the VSP opinion is on this issue. I honestly cannot tell.  Do they think the economy is deeply depressed?  Or not?

PS.  I’m a bit less sure on point two, but a number of GOP lawmakers recently indicated that they would support extended unemployment benefits, which suggests that the center of gravity political was for extension–that’s certainly the overwhelmingly popular view among press and pundits.

PPS.  Totally off topic, but this comment by Greg Mankiw intrigued me:

In this case, the issue is the reduction in capital taxes during the George W. Bush administration.  Paul [Krugman] says that the goal here was “defending the oligarchy’s interests.”

Really? As Paul well knows, there is a large literature in economics suggesting that an optimal tax system imposes much lower taxes on capital income than on wage income (or consumption).

Why should we assume that Paul Krugman is aware of that literature?  You would think he would be aware of the literature—other progressive bloggers like Matt Yglesias and Brad DeLong obviously are.  But I don’t recall reading a single Krugman column that showed any awareness of the need for replacing our current tax system with a progressive consumption tax.  I don’t recall a single post pointing out that taxes on capital should be much lower than taxes on labor income, if not zero.  I don’t recall a single post pointing out that nominal tax rates on capital income are meaningless, and that real tax rates on (for instance) Treasury bonds are now well over 100%.  Or that corporate income is triple taxed, making nominal corporate tax rates utterly meaningless as indicators of progressivity.  Or that Warren Buffet was spouting utter nonsense when he claimed his tax rate was lower than that of his secretary.  If such Krugman posts exist then please show them to me, I’d love to read them.

Either he is unaware of the literature, or he is aware of it and is knowingly spouting misinformation. I’d prefer to be charitable and assume that he’s not aware of the literature.


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84 Responses to “What do the VSP think about the current economy?”

  1. Gravatar of Ashley Owens Ashley Owens
    28. March 2014 at 05:59

    you might want to check your facts. currently EUC is at 0 weeks.

  2. Gravatar of Benjamin Cole Benjamin Cole
    28. March 2014 at 06:03

    I also sense the consensus is the Fed should taper.

    This, despite the Fed being at 1.0 percent or so inflation on the PCE, about one-half of target. It also means we may enter the next recession while still very close to ZLB, and that would mean the Fed would have to go back to QE right away. But it won’t want to, meaning we do the Japan thing.

    On unemployment, I dunno. Probably the old liberal-conservative split.

    Maybe some smarties out there will do a Google word search and come up with some proxies for what the blogarati have spouted regarding these two topics.

    Krugman is Krugman. A lot of good ideas, but….you know, with their beards on, Tyler Cowen and Krugman look alike…have they ever been seen a room together?

    On the progressive consumption tax, love it, I would just add heavy pollution taxes (shrinking regulations), and maybe some PIGOUs and gasoline taxes.

    Interesting idea: Could we raise enough tax money just by taxing polluters?

    Pollution, of course, falls outside the price-signal, free market system, and also outside libertarianism–who has the right to pollute someone else’s land and water and air?

    I guess you have the “problem” of pollution taxes ultimately cleaning up pollution, meaning no tax income….

  3. Gravatar of Becky Hargrove Becky Hargrove
    28. March 2014 at 06:17

    “What do the VSP think about the current economy?”

    There’s a good chance it depends on whether they consider aggregate time value to be a valid component of economic stability.

  4. Gravatar of foosion foosion
    28. March 2014 at 06:27

    One feature of being a VSP is not doing any analysis beyond gut instinct. This often leads to inconsistent results, illogical results, results bearing no relation to the evidence.

    Is it just a coincidence that our government follows the literature when it agrees with the wishes of the oligarchy and ignores the literature when it doesn’t?

  5. Gravatar of Tom Brown Tom Brown
    28. March 2014 at 06:40

    OT: Glasner says the money multiplier is completely useless:
    http://uneasymoney.com/2014/03/27/the-uselessness-of-the-money-multiplier-as-brilliantly-elucidated-by-nick-rowe/
    Rowe Responds:
    http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/03/there-can-be-an-excess-supply-of-commercial-bank-money.html

  6. Gravatar of Gabriel Weil Gabriel Weil
    28. March 2014 at 06:51

    It seems like a plausible way to square the circle would be to say that labor markets are tightening, except for the long-term unemployed, who need continuing support in the form of extended unemployment benefits. If you have lower tolerance for inflation, I could see how a sort of Evan Soltas view of the current state of the economy would leas you to support these two policies in combination.

  7. Gravatar of 123 123
    28. March 2014 at 06:54

    http://mobile.nytimes.com/blogs/krugman/2014/03/27/too-much-faith-in-models-capital-taxation-edition/?from=krugman

  8. Gravatar of TravisV TravisV
    28. March 2014 at 07:31

    David Beckworth wrote a new post that deserves more attention:

    “Ad Hoc Monetary Policy”

    http://macromarketmusings.blogspot.com/2014/03/ad-hoc-monetary-policy.html

    “imagine the Fed’s monetary stimulus programs during this time had be done in a more systematic and predictable manner… assume the Fed had announced a NGDP level target from the start and said asset purchases will continue until a certain level target was hit…. FOMC meetings would have been more predictable and consequently less important. We would not be hanging on the every word of our Fed chairs. Fed watchers and bloggers would be far fewer.”

  9. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 08:10

    Scott,
    “Why should we assume that Paul Krugman is aware of that literature? You would think he would be aware of the literature””other progressive bloggers like Matt Yglesias and Brad DeLong obviously are. But I don’t recall reading a single Krugman column that showed any awareness of the need for replacing our current tax system with a progressive consumption tax…”

    123 has provided the link above but allow me to provide a quote:

    Krugman:
    “The point here is that the economic case for not taxing capital rests on a stylized model that we know does a bad job of capturing real behavior; the case for taxing capital rests on considerations of equity and concerns about excessive concentration of wealth that are very much grounded in real-world observation. You don’t have to be a know-nothing to argue that the second case trumps the first.”

    And here’s my thoughts on this matter.

    When I read Mankiw’s assertion:

    “As Paul well knows, there is a large literature in economics suggesting that an optimal tax system imposes much lower taxes on capital income than on wage income (or consumption).”

    I clicked on the link he provided hoping to see something entirely different and instead I find a theoretical model showing capital taxes are bad (yawn). I share Krugman’s skepticism because I see such theoretical models presented all the time as “proof” even when the empirical evidence shows that the opposite is true.

    For example whenever the subject of the relationship between savings rates and wealth/income comes up the very same handful of theoretical papers is presented as evidence that those with high wealth and/or income is linked to (as though I haven’t seen the same damned paper a 1000 time before). Except that I have similar number of empirical papers suggesting there is absolutely no significant relationship between NIPA/SNA income, and there is even evidence showing that higher wealth/income is at times associated with lower NIPA/SNA savings rates.

    Of course the theoretical model shows the opposite is true. The conclusion is built into the model by virtue of its very assumptions! But empirical reality is very different.

    Be it as it may, Krugman is still wrong, it’s just that Mankiw brought a pea shooter (yet another theoretical model) to a knife fight.

    There is a growing body of literature on tax structure and long run growth. For example one of the better papers is this one:

    http://www.ecn.ulaval.ca/~sgor/cit/arnold_oecd_2008/arnold_oecd_2008.pdf

    Do tax structures affect aggregate economic growth?
    Empirical evidence from a panel of OECD countries
    Jens Arnold
    October 2008

    Abstract:
    “This paper examines the relationship between tax structures and economic growth by entering indicators of the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the accumulation of physical and human capital are accounted for. The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable property, seem to be the most growth-friendly, followed by consumption taxes and then by personal income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita. These findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue base towards recurrent property and consumption taxes and away from income taxes, especially corporate taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes and growth. All of the results are robust to a number of different specifications, including controlling for other determinants of economic growth and instrumenting tax indicators.”

    In other words taxes can be ranked according to their effect on long run growth in the following fashion:

    1) Capital taxes (very bad)
    2) Labor Taxes (slightly bad)
    3) Consumption (moderately good)
    4) Property (very good)

    Payroll and personal income are usually lumped into Labor taxes in these studies. Property taxes include estate, gift and wealth taxes.

    Theoretically the effects of these taxes is magnified by the progressivity of the individual tax.

    Thus, can we reconcile what we know from this literature and what we know historically about U.S. economic performance during the golden years of growth (1948-1973) when the overall federal tax system was very progressive?

    Well, yes, and no. The share of income that the top 0.01% paid in estate, gift and wealth taxes fell from 23.4% in 1970 to 2.5% in 2004. On the other hand the share of income paid in corporate taxes fell from 19.0% to 4.6%, so the effects probably cancelled each other out.

    Is it possible to construct a tax structure consistent with this literature that is also much more progressive like the tax structure of yore? I think so.

    Generally speaking if we shifted from payroll and personal income taxes to a steeply progressive consumption tax (PCT) and dramatically boosted property (estate, gift and wealth) taxes we could not only create a system that is much more growth friendly, but also dramatically more progressive, and probably significantly increasing the amount of revenue as well.

    P.S. I recommend reading Arnold’s literature review, as it is reasonably comprehensive.

  10. Gravatar of Major_Freedom Major_Freedom
    28. March 2014 at 08:10

    If market forces would tighten dollars now, then it is utter, sheer, absolute, unequivocal madness to want to stop it by using non-market means.

    Maybe you haven’t yet realized this, but there are market forces currently in effect, in fact they have been in effect since at least 1913, that are constantly driving the quantity of government issued dollars down to zero. How can we know this? We can know it indirectly by the fact that threats of force is constantly needed to prevent the market from replacing dollars with a market created currency. “Pay me $X per year in my issued currency called dollars, or else I will kidnap you and throw you into a cage, and if you defend yourself against this, then I will shoot you.”

    Just because there is no free market in money, it doesn’t mean that there are no market forces striving towards it. As part of this, there is a constant dollar deflationary pressure. Who in their right mind would think that green pieces of paper are a good means to store value? They are only generally accepted through coercion, not consent. Of course, this is notwithstanding those who have convinced themselves that their free choice is why dollars are in circulation. Delusions akin to slaves convincing themselves their freedom of choice is why they are slaves.

    Madness in numbers is still madness.

    What would happen if starting tomorrow, the government ceased demanding to be paid in dollars at the threat of violence? That you only have to pay them in dollars if you sign a contract, under no duress, to pay for services they offer?

    The dollar deflationary market forces would finally be manifested, and dollar denominated NGDP would soon collapse, much more so than any year during the Great Depression.

    All of this solely from a simple choice to cease initiating violence, and letting market forces work.

    It is no wonder MMs and other monetary socialists feel compelled to ridicule and attack arguments for a free markets in money. Without that constant coercion against innocent people, dollars would not be the generally accepted medium of exchange / store of value.

    To be a MM is to fight a permanent war against peace. What a waste of a life.

  11. Gravatar of Major_Freedom Major_Freedom
    28. March 2014 at 08:14

    The actual question being asked here is not what the state of the economy is, but rather, whether you want the government to do more or less because of your convictions on what government ought to be doing.

    The VSPs who want to benefit with more government, say the economy needs more government.

    The VSPs who want to benefit with less government, say the economy needs less government.

  12. Gravatar of Nick Nick
    28. March 2014 at 08:18

    VSPs think that any time the central bank isn’t actively tightening, then 70’s style stagflation is right around the corner. Added to the perceived risk of QE and other unconventional Fed policies in the first place, and VSP’s see the risk of inflation as much worse than the risk of lower economic growth and therefore support the taper.

    They also agree that lots of people are struggling right now, and extending unemployment benefits is a cheap way to try to reduce the pain associated with high unemployment.

    It’s actually a very logical balancing of risks; the root problem is poor analysis that allows them to overstate the risk of inflation despite all of the evidence to the contrary.

  13. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 08:23

    “Except that I have similar number of empirical papers suggesting there is absolutely no significant relationship between NIPA/SNA income, and there is even evidence showing that higher wealth/income is at times associated with lower NIPA/SNA savings rates.”

    should read

    “Except that I have similar number of empirical papers suggesting there is absolutely no significant relationship between wealth/income and NIPA/SNA savings rates, and there is even evidence showing that higher wealth/income is at times associated with lower NIPA/SNA savings rates.”

  14. Gravatar of Philippe Philippe
    28. March 2014 at 08:34

    “What would happen if starting tomorrow, the government ceased demanding to be paid in dollars at the threat of violence?”

    What would happen if starting tomorrow, landlords ceased demanding to be paid in dollars at the threat of violence?

    Of course private property is based on imaginary voluntary homesteading so use of force to enforce property claims is ok in imagination land.

  15. Gravatar of TravisV TravisV
    28. March 2014 at 08:39

    Check out what’s happening to stock prices in Spain and Germany!!

    Stock index price increases since Monday:

    Spain:
    MADX: 3.9%
    IBEX: 4.0%

    Germany:
    HDAX: 3.8%
    DAX: 4.1%

    Europe:
    STOXX 50: 3.5%
    Bloomberg Euro 500: 2.7%

    I calculated those increases using http://www.bloomberg.com

    Context:
    http://online.wsj.com/news/articles/SB10001424052702304418404579463780850006774

  16. Gravatar of Don Geddis Don Geddis
    28. March 2014 at 09:12

    More useful Krugman quotes from 123’s link, as he explains his thinking: “my suggestion that the Bush administration was motivated by class interests in its determination to slash taxes on capital income and eliminate estate taxes. … How many people really, truly believe that George W. Bush chose to slash taxes on dividends and phase out the inheritance tax because Greg Mankiw and Glenn Hubbard told him that this was the conclusion from economic theory? Can we have a show of hands?

    In other words: regardless of the objective economic arguments for various tax policies, Krugman’s view is that the actual tax change was purely political, motivated only by a kickback to one’s base, and the economic analysis isn’t even relevant.

  17. Gravatar of TravisV TravisV
    28. March 2014 at 09:22

    Frances Coppola’s explanation for the surge above in Spanish and German stock prices:

    “EM fallout due to Fed tapering and China. Not much to do with Europe.”

    http://coppolacomment.blogspot.com/2014/03/why-ecb-wont-do-qe.html?showComment=1396024823227#c8973268954598102091

    Hmmmmmm………

  18. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 10:07

    Travis,

    Why do you think my assessment is unlikely? The ECB has done nothing, and fundamentals in the Eurozone remain horrible. I posted the ECB’s Monetary Developments for February 2014 piece here yesterday. It’s a train wreck.

  19. Gravatar of Neal Neal
    28. March 2014 at 10:15

    On any given topic, VSPs have “an opinion” just like “the public” has “an opinion.”

  20. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 10:21

    Travis,

    The other possibility is that markets are taking ECB talk of monetary easing seriously, particularly in the light of the Spanish retail figures. Personally I wouldn’t. In my view it’s just talk.

    I’m not alone in this view: see comments from Kit Juckes here http://online.wsj.com/news/articles/SB10001424052702304418404579466751696770712?mg=reno64-wsj and Loughney and Kwok here http://online.wsj.com/news/articles/SB10001424052702304418404579463521483777260?mg=reno64-wsj

    Did you look at the inflation forecast chart I posted? If the ECB believes its own inflation forecasts, it isn’t going to do anything.

  21. Gravatar of Shane Shane
    28. March 2014 at 10:24

    Scott, you say that “real tax rates on (for instance) Treasury bonds are now well over 100%.” What exactly do you mean? I’m not denying it, but I just don’t understand the claim.

  22. Gravatar of Cory Cory
    28. March 2014 at 10:28

    Mark A. Sadowski,

    Another very insightful comment. But, you said:

    “In other words taxes can be ranked according to their effect on long run growth in the following fashion:

    1) Capital taxes (very bad)
    2) Labor Taxes (slightly bad)
    3) Consumption (moderately good)
    4) Property (very good)”

    By “Capital Taxes” do you mean “taxes on income from capital”? If so, I would agree.

    When I hear the phrase “Capital Tax” I usually associate it with how you used Property Tax. Michal Kalecki originally proposed that a generalized Asset Tax or “Capital Tax” as he called it was the most conducive for long run GDP growth which seems to correspond with what you write in your post.

    He wrote in 1943:

    ” the inducement to invest in fixed capital is not affected by a capital tax because it is paid on any type of wealth. Whether an amount is held in cash or government securities or invested in building a factory, the same capital tax is paid on it and thus the comparative advantage is unchanged.”

    So while a tax on income from capital is the worst type a tax, a generalized tax tax on capital/property generally is the most pro-growth it seems to me.

  23. Gravatar of Major_Freedom Major_Freedom
    28. March 2014 at 10:32

    Frances:

    “The ECB has done nothing”

    If the ECB has done nothing, then why has Euro M1 expanded by 1.4 trillion Euros from 2009-present?

    If the ECB has done nothing, then why has Euro M2 expanded by 1.2 trillion Euros from 2009-present?

    Clearly the ECB is quantitatively easing the Euro money supply.

    And, there is an economic argument to be made that precisely because of this easing, in the positive sense and not in the “not enough” sense, the economy in Europe remains weak.

    The same argument applies to the US. To wit, because of the Fed’s easing of the dollar supply in the positive sense, the US economy remains weak.

    What I have noticed, is that competing theories, despite being just as consistent with the historical data as the “not enough paper” theory, are being rejected for a priori reasons, and yet those who reject it for a priori reasons, don’t want to debate using a priori methods, and instead they pretend as if history is speaking for itself and only manifesting their theory.

  24. Gravatar of TravisV TravisV
    28. March 2014 at 10:34

    Frances Coppola,

    At this point, I think the ECB rumors are the primary reason why Spanish and German stock prices are surging.

    Here is the performance of other stock indices since Monday:

    S&P 500: Up 0.1%

    FTSE All Shares (U.K.): Up 1.3%

    SBX (Sweden): Up 1.7%

    Shanghai Composite (China): Down 1.2%

    Tentative conclusion: If it had the willpower, the ECB could mimic Japan and quickly make things better in Spain. However, the ECB lacks the willpower…..

  25. Gravatar of Jean Jean
    28. March 2014 at 10:35

    Are the people on CNBC considered VSP? They really, really want the Fed to end unconventional policy. Btw, Prof., over on Econlog a while back you asked why the upper middle class was suddenly viewing itself as middle class even though their incomes hadn’t changed. Forward guidance! They know they’ll be paying for ACA – a family of four earning more than $94000/annum will have to pay about $17,000 with another $4,000 out of pocket. That is just the first year.

  26. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 10:57

    Cory,
    Yes, by “capital tax” I mean a tax on capital *income*, specifically: corporate income, dividends, rent, and some kinds of proprietor income.

    That Kalecki quote is interesting. Where does it come from?

    If Kalecki believed this, he was was very prescient given there was little good empirical evidence showing this was true until relatively recently.

    P.S. In my opinion, Kalecki is often misunderstood, both by his proponents and by his detractors.

  27. Gravatar of ssumner ssumner
    28. March 2014 at 11:00

    Tom, I wouldn’t say it’s completely useless, it is loosely related to the demand for base money. But it makes much more sense to focus directly on the demand for base money–so I basically agree with David.

    Gabriel, There’s a reason circles are hard to square.

    Mark, Thanks for the info.

    So Krugman believes that if models have flaws we ignore them. Does that apply to global warming models? How about Keynesian models? Imagine someone started spouting all sorts of “Say’s Law” claims about the ineffectiveness of Keynesian fiscal stimulus, and justified it on the basis that there was a “flaw” in the Keynesian model (which there is.) Would Krugman say that’s OK?

    And the fact that Krugman thinks capital taxation is an “equity” issue shows he does not really understand the theory–the two issues are unrelated. The Jens Arnold paper sounds good, but I’d point out that a labor tax is a consumption tax.

    I guess we know know that Mankiw was right and that I was being far too charitable to Krugman in assuming that he was ignorant of the literature. I’m too nice to my fellow bloggers.

    Travis, Very Interesting.

    Neal, Yes, that’s probably the best way to look at things.

    Nick, I can’t agree that there is anything “logical” about holding both views at once.

    Shane, I mean the tax rate on real interest income–say on a TIPS bond.

    Jean, That may be part of it, but I’m upper middle class and it has little impact on me.

  28. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 11:01

    Major_Freedom

    Eurozone M3 is actually falling at the moment. At times, the ECB has done more – the Securities Markets Programme and the LTROs spring to mind. But for the last year its actions have been completely inadequate.

    I do not share your hard-money ideology, I’m afraid. The Eurozone economy is weak not because the ECB has been expanding the money supply, but because it hasn’t.

  29. Gravatar of TravisV TravisV
    28. March 2014 at 11:07

    Frances Coppola,

    Spanish stock prices (MADX) have increased 32% over the past 12 months!!

    Meanwhile, German stock prices (HDAX) increased 24% over the same time period.

    I’m very curious what headlines drove the biggest daily increases…….

  30. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 11:11

    Travis,

    I don’t disagree. Indeed as you know I have been severely critical of the ECB’s inaction for a long time now. But it is not so much the ECB that lacks willpower as its political masters. The ECB is not in any sense an independent central bank.

  31. Gravatar of Cory Cory
    28. March 2014 at 11:12

    Mark,

    It is from a footnote in “Political Aspects of Full Employment” which you can read here:

    http://mrzine.monthlyreview.org/2010/kalecki220510.html

    He goes into it in more detail in “A Theory of Commodity, Income and Capital Taxation” which you can read here:

    http://books.google.com/books?id=M-s7AAAAIAAJ&pg=PA35#v=onepage&q&f=false

  32. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 11:17

    Scott,
    “The Jens Arnold paper sounds good, but I’d point out that a labor tax is a consumption tax.”

    In *theory* yes (it was you that showed me this was the case).

    But as a practical matter the tax structure literature does *not* classify them the same way, and more importantly, *empirically* it does *not* find labor taxes and consumption taxes to have the same effect on long run growth.

  33. Gravatar of TravisV TravisV
    28. March 2014 at 11:18

    For years, American media has noticed the strong impact central bank deliberations have on asset prices:

    http://online.wsj.com/news/articles/SB10001424052702303725404579461191077796078

    “financial markets registered disappointment that the ECB took no action at its last meeting early this month”

    Dear Germany: There Is Not “Wait And See” In Macro!

  34. Gravatar of TravisV TravisV
    28. March 2014 at 11:25

    Kevin Erdmann wrote a good post below:

    http://idiosyncraticwhisk.blogspot.com/2014/03/a-regime-shift-in-interest-rates-and.html

    “From about 1968 to 1995, inflation remained above 3%. During this time, interest rates were negatively correlated with equity prices. When interest rates went up, equity prices usually went down.

    From 1997 to the present, when inflation has generally been below 2.5%, interest rates and equity prices have been positively correlated.”

  35. Gravatar of TravisV TravisV
    28. March 2014 at 11:28

    Mark Sadowski and Morgan Warstler,

    What do you guys think would be the optimal long-run inflation rate for the U.S. (GDP deflator)?

  36. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 11:32

    Travis,

    However, I think you are wrong to assume that the problems of the periphery would be solved if only the ECB acted differently. I don’t think you understand the nature of the Eurozone. Did the Fed’s monetary policy prevent the bankruptcy of Detroit? No, it did not. Nor can the ECB solve the problems of highly-indebted and uncompetitive periphery Eurozone states.

    Spain has 27% unemployment, it has lost 25% of its production capacity and real interest rates are far higher there than they are in Germany. The ECB can’t do anything about any of that without breaching its mandate and/or the Lisbon Treaty.It is not Spain’s central bank and has no specific responsibility towards Spain. The reality is that Spain does not have a functioning central bank.

    Simply saying “the ECB must do this/that/the other” without reference to the laws governing the Eurozone ignores political reality.

  37. Gravatar of benjamin cole benjamin cole
    28. March 2014 at 12:04

    BTW, we cannot have sustained very low inflation and think QE is unconventional. Think.
    Sustained zero inflation will put interest rates really low too…so recession and bang you are at ZLB…
    The Fed needs to think about QE as first policy choice…if inflation remains low is there any problem with sustained QE?

  38. Gravatar of TravisV TravisV
    28. March 2014 at 12:04

    Frances Coppola,

    You should write up a blog post explaining your disagreements. I think it would receive a number of responses from credentialed Market Monetarist economists.

    You can say “Market Monetarist TravisV believes that if the ECB introduced negative Interest on Reserves or aggressive QE, that would substantially increase aggregate demand in Spain and reduce its unemployment rate.”

  39. Gravatar of TravisV TravisV
    28. March 2014 at 12:13

    OK, now all the markets have closed. Here is the performance of various indices over the past four days:

    Spain MADX: Up 4.1%
    Spain IBEX 35: Up 4.2%

    Germany HDAX: Up 4.0%
    Germany DAX: Up 4.3%

    U.S. S&P 500: Down 0.1%

    Bloomberg Euro 500: Up 2.8%
    Europe STOXX 50: Up 3.9%

    U.K. FTSE All Shares: Up 1.3%

    Sweden SBX: Up 1.7%

    China Shanghai Composite: Down 1.2%

    Japan Nikkei 225: Up 1.5%

    Here is why I think Spain and Germany have outperformed:

    http://online.wsj.com/news/articles/SB10001424052702304418404579463780850006774

    http://online.wsj.com/news/articles/SB10001424052702303725404579461191077796078

  40. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 12:21

    Travis,

    I actually wrote a post not long ago that explained exactly why the ECB cannot solve Eurozone periphery problems. But I will repeat some of it here.

    If Spain had its own central bank and its own currency, then aggressive QE would be a good course of action for that central bank – indeed it should have done it long ago. But Spain does not have its own central bank. The ECB has no mandate to set money policy to suit one specific country, or even half a dozen specific countries. It should no more set monetary policy to suit Spanish unemployed than it should to suit German savers. Its mandate is the Eurozone as a whole.

    In my view it could and should do more than it is currently doing: Eurozone inflation is far below 2%, M3 is actually falling and Eurozone unemployment is at 12%. But all the ECB is mandated to do is bring Eurozone inflation back to “below but close to” 2%. It has no mandate even to do the far more aggressive monetary easing that would be needed to bring the Eurozone unemployment level down to say 7%, let alone solve Spain’s problems.

  41. Gravatar of TravisV TravisV
    28. March 2014 at 12:38

    Frances Coppola,

    I’m having a hard time seeing why it would be helpful if a hypothetical Spanish central bank eased monetary policy but it wouldn’t be helpful if the ECB eased monetary policy for the Eurozone as a whole.

    My best guess is that Sumner sees it the following way:

    “No, ECB monetary policy can’t solve all of Spain’s problems. However, it can increase aggregate demand in Spain, which would decrease unemployment and reduce its debt burdens.

    If the ECB increased Eurozone-wide inflation to 1.5%, that would help Spain’s employment and debt burdens. If they increased inflation to 1.75%, that would be even more helpful, 2.0% would be even better, etc. etc.”

    Note: what we really want is more aggregate demand (NGDP), which results in BOTH higher inflation and real growth).

    Finally, we don’t think lower Eurozone NGDP growth would encourage many structural reforms that are substantially helpful……

  42. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 13:25

    Travis,

    I think you have misread what I said.

    The ECB is not concerned with Spain’s problems. Provided the Eurozone aggregates were ok, Spain could fall into the Atlantic and sink without trace as far as the ECB is concerned. The only reason why the ECB could, and as I said in my view should, act is that Eurozone inflation is far below 2% and M3 is falling – M3 lending is particularly bad, which doesn’t bode well for M3 itself.

    The trouble is, the ECB’s own inflation forecast is for inflation to rise – that’s what the chart I posted showed. Whether or not you think their forecast is believable is not the point. If they believe it, they will do nothing.

    ECB monetary easing to bring Eurozone inflation back up to target would certainly help Spain. I did not say it would not. But it wouldn’t solve its problems. And the ECB is not going to exceed its mandate in order to solve Spain’s problems.

  43. Gravatar of Morgan Warstler Morgan Warstler
    28. March 2014 at 13:31

    “What do you guys think would be the optimal long-run inflation rate for the U.S. (GDP deflator)?”

    At this point, I’m far closer to 0-1%, but only bc I don’t think RGDP is being measured correctly.

    I’m 110% SURE we eventually have to stop worrying about deflation, we’re all going to just goggle into VR and do everything that way.

    My preferred solution is has two parts:

    1. Fed stops looking at CPI and exclusively uses MIT’s Billion online prices index bc it is run by a computer:

    http://bpp.mit.edu/usa/

    Note the spread is getting bigger.

    2. 50% of the guys in the room measuring the value of growth, have to be geeks who believe the Internet is biggest invention of humankind.

    As far as I’m concerned Skype = $2K in every household income annually.

  44. Gravatar of Steve Steve
    28. March 2014 at 13:34

    There’s another thing that Krugman apparently doesn’t understand: Compound Interest.

    Why do I say that?
    Suppose two investors, Greg and Paul, both start with both start with $100,000 and invest in the same strategy which happens to return 15% annually over 30 years.

    Greg pays 25% capital gains/dividend tax every year, and reinvests the remaining profit.

    Paul pays 50% capital gains/dividend tax every year, and reinvests the remaining profit.

    Over 30 years, who pays more tax?

    If you guessed Greg with his 25% tax rate, you are right.
    Greg pays $783,022 in tax on his investment over 30 years.

    Paul, with his 50% tax rate, pays only $775,495 in tax.

    How is this possible? Because the compounding effect of taxes means that Paul only has 1/3 as much money left after 30 years as Greg.

  45. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 13:34

    Frances and Travis,
    I don’t really have the time to do this justice right now but…

    1) Krugman laid out a very good argument for why expansionary monetary policy by the ECB would help the periphery even if (actually, *because*) it leads to boom conditions in the core:

    http://krugman.blogs.nytimes.com/2012/07/29/internal-devaluation-inflation-and-the-euro-wonkish/?_php=true&_type=blogs&_r=0

    2) By doing nothing the ECB is violating the Treaty on the Functioning of the EU:

    https://www.themoneyillusion.com/?p=26311#comment-322343

  46. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 13:37

    Travis,
    “What do you guys think would be the optimal long-run inflation rate for the U.S. (GDP deflator)?”

    Two percent:

    https://www.themoneyillusion.com/?p=26451#comment-326202

  47. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 13:43

    Mark,

    I’m very aware of all the arguments. I’ve been studying and writing about this for three years now – ever since the Greek crisis blew up. What I am trying to get across is that the Eurozone problems are political, not economic. The ECB will not act if to do so risks Karlsruhe action. Karlsruhe is not going to challenge it doing nothing. It will challenge it acting to support the periphery – indeed it has already done so. And the Bundesbank (which is the most powerful actor in the Eurosystem) is not going to agree to a higher inflation target. Indeed I suspect it would be quite happy with a lower one.

    I don’t like this any more than you do. But we can’t just wish away the political obstacles to sensible economic policy in the Eurozone.

  48. Gravatar of TravisV TravisV
    28. March 2014 at 13:55

    Mark Sadowski,

    Thanks, great stuff!

    Frances Coppola,

    It’s conceivable that Germany will eventually come to its senses. And if it does, then the ECB would allow 3% or even 4% inflation for a couple years. No, that would not solve all of Spain’s problems but it would still be very helpful.

    The bottleneck isn’t the technical wording of a mandate. The bottleneck is that German elites are misguided and shooting themselves in the foot.

    In the U.S., the economics profession and wealthy elites are slowly coming to their senses. It’s conceivable that one day the same thing will happen among German elites.

  49. Gravatar of TravisV TravisV
    28. March 2014 at 13:57

    Christopher Mahoney has a great new post:

    http://seekingalpha.com/article/2115003-valuing-the-bull-market

    According to his simple valuation model, U.S. stocks are [gasp] CHEAP!!

  50. Gravatar of Matt C Matt C
    28. March 2014 at 14:00

    Thanks for the article Professor,

    A couple things though. You make good points that Krugman can not back his assertions at times. He certainly has contributed a great deal to our understanding of international trade but his bias can really show through in his blog.

    That said, though as you point out there is a great deal of literature that states optimal tax rates would have very low taxation of capital, there is a growing amount of literature that discusses that wealth inequality itself can stall growth and that redistribution may be a solution. The IMF seems to believe that wealth inequality could very well play a role in economic stagnation. Obviously not everyone accepts this idea, but for the sake of argument lets say wealth inequality does play a role? Would reducing or eliminating taxes on capital further exacerbate the problem.

    Also you discuss how nominal rates in regards to corporate taxes are meaningless, and how corporate incomes are taxed three times. In reality, however, are there not also a great deal of loopholes and other mechanisms to severely reduce this rate. For example there are pass through entities, offshoring profits ect… In fact I believe many corporations end up paying well under what you would think. I personally don’t mind a low corporate tax rate but it seems that we are not incetivizing reinvestment in the U.S.

    So maybe Krugman does have a point even if he is does not do as good a job with his reasoning?

    On the other hand I do agree a progressive consumption tax should be discussed more frequently.

  51. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 14:15

    Travis,

    By all means keep hoping.

  52. Gravatar of kyle kyle
    28. March 2014 at 14:35

    “I don’t recall a single post pointing out that nominal tax rates on capital income are meaningless, and that real tax rates on (for instance) Treasury bonds are now well over 100%.”

    Perhaps Krugman wonders how the models that claim cutting capital gains taxes will have a major impact on investment decisions account for the fact that the most widely held investment vehicle has a real tax rate well over 100%.

    If investors can’t get enough treasuries even though there are alternatives that are taxed well below 100%, perhaps taxes aren’t as big a concern among investors as the models claim.

  53. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 14:50

    Following Scott’s appearance with David Beckworth on Boom Bust….David’s new post attempts to reconcile endogenous money with market monetarism.

    http://macromarketmusings.blogspot.co.uk/2014/03/market-monetarism-and-endogenous-money.html

  54. Gravatar of Tom Brown Tom Brown
    28. March 2014 at 15:48

    Frances, I look at Beckworth’s use of the word “exogenous” there in one paragraph and compare it to a previous conversation I had with Nick Rowe regarding Beckworth’s use of “exogenous” in a previous post of his. Take a look when you get a chance:
    http://pragcap.com/crickets/comment-page-1#comment-171571

  55. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 17:24

    Hi Tom,

    I’ve replied on PragCap. I think I’ve resolved the difference. See what you think.

  56. Gravatar of Tom Brown Tom Brown
    28. March 2014 at 17:54

    Frances, I responded there. I’m with you as long as you qualify with “wholly endogenous” like you do.

  57. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 18:23

    Tom, yes exactly. There are degrees of endogeneity, as you say.

  58. Gravatar of Mark A. Sadowski Mark A. Sadowski
    28. March 2014 at 18:37

    Frances,
    I hope you don’t mind if I share this comment made by you at PragCap:

    “Typically, Sumner simply avoids the problem by ignoring the endogeneity and focusing on the exogenous “envelope” which constrains endogenous monetary base creation and interest rates. He’s very “macro”….sometimes I wonder if he realizes that woods are made of trees.”

    I found that hysterically funny, because it’s true.

    It used to irritate me how Scott would run roughshod over “compositional” issues. But I’ve come to realize that it’s one of his virtues.

  59. Gravatar of Frances Coppola Frances Coppola
    28. March 2014 at 18:57

    Mark,

    Yes indeed. Being able to see the “big picture” is definitely a virtue in macroeconomics. Though we also need people who understand compositional issues, or we get fallacies of division and the like. Really my disagreement with Morgan Warstler about his GI idea is about compositional issues, game theory and stuff like that – I don’t think he “gets” microeconomics.

  60. Gravatar of ssumner ssumner
    29. March 2014 at 13:00

    Mark, I agree they differ in practice.

    Travis. Ah, it’s reverting to the gold standard correlation.

    Matt, The issue of inequality and the issue of capital taxation are completely different. Better not to mix them up. I agree the progressive consumption tax is the way to go.

    Kyle. Risk?

  61. Gravatar of Mike Sax Mike Sax
    29. March 2014 at 23:34

    On Krugman are you suggesting that the idea that we should tax capital much lower than wage income is universally accepted among professional economists?

    There may be a literature with this argument but there is also a large literature arguing the opposite like Joseph Pechman for instance. He also argues against the consumption tax.

    http://college.holycross.edu/eej/Volume16/V16N1P1_5.pdf

    So there may be a large literature but its far from unanimous. My guess is Krugman is aware of this large literature but disagrees with it.

  62. Gravatar of Mike Sax Mike Sax
    29. March 2014 at 23:38

    I mean the argument over capital gains taxes is like the argument about the minimum wage-you can find indeed find a large literature against it but also large one for it.

  63. Gravatar of Philippe Philippe
    30. March 2014 at 04:15

    “Really? As Paul well knows, there is a large literature in economics suggesting that an optimal tax system imposes much lower taxes on capital income than on wage income (or consumption).”

    The paper linked to in the comment above makes no mention whatsoever of the real world. At no point in the paper do the authors analyse or describe the real world. What they do instead is construct artificial toy models, and then state that in these artificial toy models the optimal tax on capital income is zero. Astonishingly they then leap straight to the conclusion that therefore capital income taxes should be zero in the real world. They urge policy makers to reduce capital income taxes to zero immediately, or as soon as possible, and commit to keeping them at zero FOR EVER. They even imply that a law should be passed forcing all future governments to be bound by this commitment. All on the basis of their little toy models, and with no analysis whatsover of the real world. It’s absolutely extraordinary. Is this what passes for research and scholarship in economics?

  64. Gravatar of Bob Roddis Bob Roddis
    30. March 2014 at 04:48

    Major_Freedom wrote:
    What I have noticed, is that competing theories, despite being just as consistent with the historical data as the “not enough paper” theory, are being rejected for a priori reasons, and yet those who reject it for a priori reasons, don’t want to debate using a priori methods, and instead they pretend as if history is speaking for itself and only manifesting their theory.

    Aren’t Keynesianism and the other assorted “not enough paper” theories far more extreme “a priori” than Austrian theory in the sense that they are not based at all upon observable phenomenon? Austrian “axioms” are based upon observable but self-evident phenomena. The Keynesian Hoax was made from whole cloth by starting their story in the middle of the problem without any historical context thus ignoring for all time the prior massive violent interventions by the state that precede these types of crises. The “not enough paper” folks dare not even reference the gist of the Austrian theory because their entire M.O. is based upon avoiding, ignoring and suppressing the very existence of the self-evident (to even average people) real phenomena at the core of Austrian analysis.

  65. Gravatar of Major_Freedom Major_Freedom
    30. March 2014 at 09:05

    Roddis,

    Well, I wouldn’t say they are “more” a priori. All of us utilize a priorism when interpreting history. It’s binary in the sense that it is what everyone does, and no other method is actually being used, only believed to be used.

    The way I would say it is that while everyone necessarily uses a priorism, not everyone accepts it and so add contradictory beliefs to it, such as what you were referring to, namely, “The state and its various departmental agents should know everyone else better than they know themselves.” MM is no different. In this theory, the additional assumption is made that people are too stupid for their own good, relative of course to other people who must control them, and so their stupidity justifies “second best” actions such as state imposed central banking. The idea is that people have already shown their stupidity because central banking exists, and so that proves they must be controlled in some respects by central banking. So the MMs believe that they are not proposing anything radical. They are just giving what the stupid people allegedly want.

    Notice however the complete absence of any attempt to educate the stupid people with what the MMs believe is too sophisticated for them to handle, i.e. a free market (in money, and security and protection). MM thus takes for granted the old Platonic view of human life: Philosopher kings must rule by force to compel everyone else against their will to reach their potential.

    They sleep at night believing they are improving this rule by force. They’ll stay up all night if they realized they are the very intellectual facilitators of “The state and its various departmental agents should know everyone else better than they know themselves.”

    They haven’t learned (yet?, or will they ever?) that the very gradualist, reformist, pragmatist improvement view of human life that they are preaching, is the very same view of human life that is responsible for the continued perpetuation of what they themselves believe is what they are merely “responding to” with their “improvements.”

    They falsely believe that they are doing something other than perpetuating what they nominally label as a flaw of humanity, that makes them deserve central banking, and statism in general…good and hard.

    Just look at the name of this website. The Money Illusion. Apparently, to be human is to be under an illusion regarding money, and only philosopher kings in money who rule by force can prevent human beings from destroying themselves.

    Of course, they don’t seem to realize the truth that if they can transcend this supposed illusion, then so can everyone else. What these philosopher kings should be doing is teaching how to overcome this illusion, not how statesmen can exploit the masses who are under an illusion. The MMs and their ilk are Machiavellian sell outs. Opportunists. Cynical, dejected, poseurs of enlightenment. Remarkable. They’ll die knowing that they didn’t teach anyone anything other than how some people can better control other people. What a waste.

    It’s even more remarkable when you consider the fact that these MM philosopher kings who think so lowly of human beings when it comes to money, nevertheless vociferously defend those same individuals in controlling their own destinies in all non-money production matters. Now all if a sudden human beings are smart, enlightened, EMH, market is the most right, etc.

    Dr. Jekyll, meet Mr. Hyde.

  66. Gravatar of Michael Byrnes Michael Byrnes
    30. March 2014 at 09:10

    Major Freedom wrote:

    “If market forces would tighten dollars now, then it is utter, sheer, absolute, unequivocal madness to want to stop it by using non-market means.

    Maybe you haven’t yet realized this, but there are market forces currently in effect, in fact they have been in effect since at least 1913, that are constantly driving the quantity of government issued dollars down to zero. How can we know this? We can know it indirectly by the fact that threats of force is constantly needed to prevent the market from replacing dollars with a market created currency. “Pay me $X per year in my issued currency called dollars, or else I will kidnap you and throw you into a cage, and if you defend yourself against this, then I will shoot you.””

    Major, the problem with your argument is that the “tightening of dollars” that we are seeing right now is the result of GREATER demand for dollars, not lower demand. If the demand for dollars was falling, rather than rising, the result would be inflation, perhaps even hyperinflation.

  67. Gravatar of Major_Freedom Major_Freedom
    30. March 2014 at 09:42

    Michael:

    I think you didn’t get what I said. Maybe that’s my fault for not being more clear.

    My argument is that market forces are constantly driving the supply of dollars down to zero, and that in response to this, the state has to use force to maintain the dollar as medium of exchange.

    What you are talking about is something different. Your argument is that given the force is already in place that compels people into the dollar system, then if there is a change in the demand for money holding, for example a rise in money holding, then this is supposedly showing that “the market” wants more dollars.

    My argument is about the market forces vis a vis dollars that make force and violence from government necessary to maintain dollars as medium of exchange. Your argument is about weakened market forces altering the demand for money after the market is already being coerced into using dollars.

    Do you see how statistics of dollars given people are being coerced into using them, can’t address the statistics that would otherwise prevail of that coercion were eliminated?

    When it comes to coercive monopolies over a good or service, you can’t take the observed statistics of usage that you you see and make a conclusion about what the market actually wants. Only if the market is free to operate, can the resulting observed statistics represent what the market wants.

    Going back to the market forces on dollars now. You mentioned the case of the market rejecting dollars in the form of hyperinflation (which can happen if too many dollars are issued). Here, the market forces that are constantly driving the supply of dollars down to zero, are the same forces present that drives expenditures in dollars towards infinity when the supply of dollars from the state approaches infinity. In both cases, market forces are driving dollars out of society, which requires continued coercion to keep dollars in circulation.

    So what of periods of time when suddenly the demand for dollar holding increases? How can market forces explain this? This is where ABCT explains. Since market forces are driving the supply if dollars to zero, and yet the state forces more dollars into society, this hampers the economic calculation that would have otherwise taken place if market forces could be applied to the control and production of money. Here, dollar holding times increase because projects are exposed as uneconomical. It is not that market wants more dollars, it is that the market wants fewer malinvestments, of which longer dollar holding times are a consequence of dealing with malinvestments. MMs believe that this is a signal, a communication from the market to “print more dollars!”, when it is actually a signal to abolish the coercion backing the dollar system.

  68. Gravatar of Philippe Philippe
    30. March 2014 at 10:04

    “market forces are constantly driving the supply of dollars down to zero”

    You’re confusing your imaginary world with the real world again, aren’t you.

    http://en.wikipedia.org/wiki/Fantasy_prone_personality

  69. Gravatar of TravisV TravisV
    30. March 2014 at 10:46

    Prof. Sumner,

    Above, you wrote: “Travis. Ah, it’s reverting to the gold standard correlation.”

    What was “the gold standard correlation”? Do you mean this correlation?

    http://idiosyncraticwhisk.blogspot.com/2014/03/a-regime-shift-in-interest-rates-and.html

    But we’ve had that correlation since 1997. Did you mean a different correlation?

  70. Gravatar of Michael Byrnes Michael Byrnes
    30. March 2014 at 10:49

    Major,

    Half of all US currency is abroad, used by people (often in black markets) who have nothing to do with the US government or its taxes. Why do THEY choose dollars?

    The problem with your malinvestment story is that it is all post-hoc reasoning. Some businesses failed, thus they must have been malinvestments that should never have been made.

  71. Gravatar of ssumner ssumner
    30. March 2014 at 11:10

    Mike Sax, There is also a literature that claims Say’s Law disproves Keynesian economics. Does Krugman accept the validity of those arguments?

    Travis, I just mean that the post-1997 correlation sounds like the correlation under the gold standard.

  72. Gravatar of Major_Freedom Major_Freedom
    30. March 2014 at 18:08

    Philippe:

    “You’re confusing your imaginary world with the real world again, aren’t you.”

    You haven’t shown how I did this a first time, so I don’t see how “again” is a warranted phrase.

    In any event, no, it’s not imaginary. The very fact that constant coercion from the state is necessary to keep dollars in circulation, proves that market forces are driving the supply down to zero.

    For if the state ceased threatening people with violence if they didn’t pay a portion of their income in dollars to the IRS, if the state ceased threatening people with violence if they didn’t enforce contracts in dollars in the courts, then the supply of dollars for market use would soon fall to zero.

    It’s the same reason why Russian Rubles are not generally accepted in US territory. The state is not coercing people into using Rubles. That’s why the supply of Rubles for use in the US is near zero. The state is coercing people into using Dollars instead.

    If the coercion behind dollars was eliminated, then the supply of dollars for use in the US would approach the supply of Rubles for use in the US.

    It is market forces that are the reason why coercion backing use of dollars is necessary, for dollars to remain in use. Take away the coercion, i.e. let market forces work, and bye bye dollars.

    This is not fantasy. This is fact. You are having a hard time dealing with that, aren’t you?

  73. Gravatar of Philippe Philippe
    30. March 2014 at 23:45

    How funny.

    In the real world the supply of dollars is not falling to zero, as such it is not being driven to zero by market forces.

    You argue that if the state stopped collecting taxes or enforcing legal tender laws, then the supply of dollars would be driven to zero by market forces. This is an imaginary alternative world, which exists inside your mind. It is not the real world.

    Now let’s look at your argument in more detail. Your implicit claim is that no one really wants dollars – they are all being coerced by the state into using dollars against their will. What you fail to mention is that the majority of people actually want the state to exist, and they want it to issue money. Only a minuscule number of people like you want neither. So the majority of people actually do want dollars. There is no mass movement to get rid of dollars or to get rid of the state. What you are doing is confusing your strange personal view of the world with what most people want. You’re confusing the real world with your imaginary world.

    If we look at the real world, do we see people trying to rid themselves of their dollars, keeping only as many as are strictly necessary to comply with the State’s taxation and legal tender laws? No. We see people accumulating dollars far in excess of what is needed for either. So again we see that your assertion is false in the real world.

  74. Gravatar of Mike Sax Mike Sax
    31. March 2014 at 07:07

    Scott, Krugman actually wrote a post last Thursday that makes his position pretty clear. To be charitable to you I presume you didn’t read it before writing this post.

    http://krugman.blogs.nytimes.com/2014/03/27/too-much-faith-in-models-capital-taxation-edition/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

  75. Gravatar of Major_Freedom Major_Freedom
    31. March 2014 at 18:37

    Philippe:

    “In the real world the supply of dollars is not falling to zero, as such it is not being driven to zero by market forces.”

    Duh, that’s because in the real world the state is constantly threatening everyone with violence if they don’t comply with the dollar system. But that doesn’t mean that the state has succeeded in fully eradicating the market forces driving the supply of fiat to zero.

    “You argue that if the state stopped collecting taxes or enforcing legal tender laws, then the supply of dollars would be driven to zero by market forces. This is an imaginary alternative world, which exists inside your mind. It is not the real world.”

    Yes, just like it is “imaginary” to posit that if in the year 1820 all the slaves were freed, then their standard of living would be higher. After all, in the “real world”, they are slaves.

    Just like it is “imaginary” to posit that humans can’t plan for the future and make their situations better off by altering the world as it presently exists, through action. After all, the present world is the only “real world”, and so any thought of humans improving their lives is “imaginary.”

    Just like it is “imaginary” for the government to make any new legislation or laws or regulations on the grounds of improving the world. After all, the only “real world” is the world that currently exists with the current legislation, laws and regulations. Any claim that planning for new regulations is based on “imaginary” constructs.

    Just like it is “imaginary” for you to be trying to change my mind from what it presently is. The only “real world” is what you and I presently believe. Your belief that you can prove me wrong is therefore based on “imaginary” concepts. They don’t exist in the here and now.

    “Now let’s look at your argument in more detail.”

    Haha

    “Your implicit claim is that no one really wants dollars – they are all being coerced by the state into using dollars against their will.”

    Nope. I fully accept that there might be some morons in the world who would believe that in a free market, their interest of storing value, and earning a highly valuable commodity for medium of exchange purposes, are best served by collecting paper mache, copper and nickel, with pictures of dead mafia dons engraved on them.

    Really, if anyone wants to do that, I would not try to stop them by force. I would fight for their right to choose whatever money they want, and compete in the market and let the best money or monies win.

    All I ask is that you afford me the same courtesy, and respect my right to choose as well.

    You ought to be willing to accept that people might disagree with you about what is best for themselves. I know that is very difficult for the socialist minded to do. To you, disagreement is inherently conflicting. Me preferring to store gold, and you preferring to store paper mache, is intolerable to you. To you, agreement in economic plans is our duty. We must agree with everyone else about “the plan.”

    “What you fail to mention…”

    I’ve only got two hands and so much time.

    Me fail to mention? Why don’t you just say you have something to add?

    “is that the majority of people actually want the state to exist, and they want it to issue money.”

    If the majority believed in God, or if the majority wanted to kill minorities, or if the majority believed in the solvency of Fannie and Freddie, that doesn’t make those beliefs right or just.

    Truth and justice are not grounded on popular opinion. Popular opinion is right or wrong as compared to truth and justice.

    “Only a minuscule number of people like you want neither.”

    Only a single individual in the entire world wanting to opt out should be permitted.

    You are proving yourself to have no solid response. The fact that you feel compelled to fall back on the ad populum fallacy (google it), shows that you can’t challenge what I am saying.

    “So the majority of people actually do want dollars.”

    The majority has no right to threaten the minority with violence to impose their will on them using “representatives.”

    If the majority wanted out of dollars, you’d be on board with it?

    “There is no mass movement to get rid of dollars or to get rid of the state.”

    Bitcoins.

    “What you are doing is confusing your strange personal view of the world with what most people want.”

    What most people want is not what the individual should be forced to want.

    If we lived in the year 1800, and “most people” wanted slavery, would that mean anyone who wanted slavery to end is therefore “wrong”?

    “You’re confusing the real world with your imaginary world.”

    No, you’re just unable to distinguish between the world as it is and has been, and the world as it ought to be as determined by purposeful human behavior.

    Would someone who lived in a country with slavery be “living in an imaginary world” if they thought individual slaves should be freed if they want to be freed, and not have to convince the majority first?

    Why should individuals have to convince the majority first, if the majority happens to be wrong or unethical?

    Do you claim that the majority is always right? That the majority should have dictatorial rule over everyone else, regardless?

    “If we look at the real world, do we see people trying to rid themselves of their dollars, keeping only as many as are strictly necessary to comply with the State’s taxation and legal tender laws? No.”

    You’re making a false inference. That the coercive taxation system ultimately backs the fiat system, and would collapse in the absence of said coercion, doesn’t imply that the ONLY reason people would hold a particular quantity of dollars is to pay taxes with that specific quantity. That isn’t how the world works.

    “We see people accumulating dollars far in excess of what is needed for either. So again we see that your assertion is false in the real world.”

    No, you’re making a false inference. The fact does not refute my argument.

  76. Gravatar of Major_Freedom Major_Freedom
    31. March 2014 at 18:38

    Philippe:

    Recommend you watch this video:

    https://www.youtube.com/watch?v=fasTSY-dB-s

  77. Gravatar of Philippe Philippe
    2. April 2014 at 07:00

    MF,

    the video you link to makes exactly the same argument that I criticised before – the imaginary individual homesteading story.

    The argument is based on the assertion that what we refer to as private property in the real world today is based on peaceful voluntary individual homesteading, prior to and completely independent of the activities of the State. As such, it is argued, the State has no right to tax or impose rules on anyone’s property, and no one owes anything to the State.

    But this is not factually true, either in the present world or throughout history. As such the argument rests on an assertion which is demonstrably false.

    Here’s a simple example for you: have you ever stepped onto a piece of public land? The answer is yes. As such you have used a resource which is not privately owned.

    As I have said, you confuse reality with the imaginary ‘ancap’ world you want to live in, when you make your arguments and assertions.

    In your mind, you are like the explorer on an empty and untouched continent. Everything you own you created by yourself using previously unclaimed resources, or by exchanging voluntarily with others who similarly used previously unclaimed resources. There is supposedly no legitimate conflict over property claims in this imaginary scenario. According to you everything which is privately owned is rightfully owned and is the absolute inalienable property of the owner. This in itself is debatable, but the main point is that it is completely imaginary.

    The reality is that you were born into a country with a long history, and have used and benefitted from resources and services which were neither unclaimed nor privately owned your entire life, and you continue to do so. Your own private property was not created in a vacuum, using only unowned resources or resources obtained through purely voluntary exchange between individuals in a vacuum. It was created within the context of a legal and social system which legally established and protected your private property claims. It wasn’t created in an imaginary realm where everything is privately owned, but in a territory with both privately and publicly owned resources. Private property is not based on voluntary ‘homesteading’ but on a history of conflict over competing claims and the political settlements that arise out of those conflicts.

  78. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 16:27

    Philippe:

    “The argument is based on the assertion that what we refer to as private property in the real world today is based on peaceful voluntary individual homesteading, prior to and completely independent of the activities of the State.”

    No, for the fifth time, the homesteading principle is not a historical claim of everything that happened in the past. It is not a claim that private property claims today are a product of pure homesteading and free trade in the past.

    Why do you keep conflating history with ethics?

  79. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 16:29

    Philippe:

    “Here’s a simple example for you: have you ever stepped onto a piece of public land? The answer is yes. As such you have used a resource which is not privately owned.”

    Public land is just this:

    A person or group of people who have not homesteaded that land, or freely traded for it, are threatening others with violence if they homestead it and free trade for it without asking for that person’s permission.

  80. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 16:31

    Philippe:

    “The reality is that you were born into a country with a long history, and have used and benefitted from resources and services which were neither unclaimed nor privately owned your entire life, and you continue to do so.”

    If I am forced to pay for it regardless if I use those “services” or not, then you can’t then take my subsequent usage of them as the aha! moment that I have therefore accepted a binding contract.

    No, it’s me cutting my losses.

  81. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 16:32

    Philippe:

    “As I have said, you confuse reality with the imaginary ‘ancap’ world you want to live in, when you make your arguments and assertions.”

    No, I am not “confusing” them at all. I recognize that the ethic I espouse is not what everyone has done in the past. I know we live in a world where some people initiate force against others. To want to change that is not to confuse is with ought. It is to make an ought an is by purposeful activity.

  82. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 16:34

    Philippe:

    “It was created within the context of a legal and social system which legally established and protected your private property claims.”

    No, it does not protect my property claims. It violates them. The state cannot exist if those in the state only protected property rights. The state would collapse.

  83. Gravatar of Major_Freedom Major_Freedom
    2. April 2014 at 16:36

    Philippe:

    “Private property is not based on voluntary ‘homesteading’ but on a history of conflict over competing claims and the political settlements that arise out of those conflicts.”

    No, private property is not a historical claim. It is an ethic.

    You keep conflating history with theory. What is and what was with what ought to be going forward.

    Private property has been violated throughout history. Present day claims are either based on violations or protections. Not all land was stolen, and not all land was freely traded for. But all land in use was homesteaded by SOMEONE.

  84. Gravatar of Philippe Philippe
    2. April 2014 at 17:38

    “Public land is just this: A person or group of people who have not homesteaded that land, or freely traded for it, are threatening others with violence if they homestead it and free trade for it without asking for that person’s permission.”

    No, it’s land which is not privately owned. It is not unclaimed land. It is not empty land. It is not untouched land. It has been used and transformed and inhabited for centuries, but it is not privately owned. An individual may want to take part of that land and claim it as his own, but then he would come into conflict with those that do not want him to take it. As I said, the history of property is one of conflict over competing claims, not fairy tales about homesteading.

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