What I’ve been reading

George Selgin has an excellent set of posts discussing the myth that fractional reserve banking is inherently unstable. He concludes as follows:

Whereas empirical (as opposed to mythical) support for the “inherent instability” hypothesis is scarce, there’s no shortage of evidence favoring this alternative “legal restrictions” theory of banking crises. For starters, there’s the fact that some of the world’s least heavily-regulated banking systems have also been remarkably crises free. There is the fact that voluntary contracts allowing bankers to suspend convertibility of their liabilities—the most obvious private-market device for preventing runs—have frequently been outlawed. Finally, there are piles of evidence concerning the (often crucial) role other misconceived regulations have played in past banking crises—so much evidence, indeed, that it’s hard to discover any past banking calamity in which misguided regulations played no part. Besides the works just linked, skeptical readers are encouraged to consult Fragile by Design, Charles Calomiris and Stephen Haber’s excellent 2014 survey which, thick though it is, is but the tip of a very large iceberg.


In his essay, “Monetary Theory and History: An Attempt at Perspective,” Sir John Hicks observed that “Monetary theory is less abstract than most economic theory; it cannot avoid a relation to reality, which in other economic theory is sometimes missing. It belongs to monetary history, in a way that economic theory does not always belong to economic history.”

What Sir John said of monetary theory necessarily goes for its subdisciplines. It follows that the theory of banking also “belongs” to monetary history, and therefore can’t avoid a relation to reality. The trouble with Diamond and Dybvig’s model is that its relation to reality is so very distant that the two might as well be perfect strangers.

I’ve also started subscribing to “Substacks”, including one by Matt Yglesias and another by Razib Khan. Khan ends a post on religion with the following observation:

The death of the godly nation that Europeans saw the United States as has not meant the rebirth of something fundamentally different. The nature of the people remains the same. Instead of apocalyptic street prophets, we now have unhinged YouTube celebrities. Rather than epistemological humility the human mind still prizes the certainty of beliefs that must not be questioned. Unseen forces, from George Soros to the Koch brothers dominate the demon-haunted minds of post-religious Americans, becoming our modern-day myths. Ultimately the faith in rationality was just that, another faith. Reason is a far less powerful motivator for human action than faith, whether we label it religious or not.

This is from an Yglesias post on Covid:

I know the public health community has a lot of raw feelings right now after being so blithely dismissed by Trump and tossed into the maw of partisan politics. And I agree that we could have parked this in a better outcome had Trump listened to them more closely.

But to get to the kind of dramatically better outcomes that we see on the other side of the Pacific would have required an approach that was more different from the range of outcomes under consideration in the United States. Maybe there are good reasons for that and enforceable quarantines, mandatory testing, and travel restrictions never would have flown in the United States. But the confused dialogue around masks and ventilation and the superior performance of countries exposed to SARS suggests to me perhaps simply that people and institutions were not adequately thoughtful about the specific dynamics of a respiratory illness which, after all, is quite different from Ebola or HIV/AIDS.

An added bonus is that in addition to being really smart, Yglesias and Khan are both quite witty, albeit more so in their tweets.



70 Responses to “What I’ve been reading”

  1. Gravatar of Michael Rulle Michael Rulle
    26. December 2020 at 11:22

    Scott at least finally says increased exposure to SARS in the Far East might have contributed to better outcomes. He has denied that at least some of the time. But he states that perhaps “people were not adequately thoughtful about the dynamics of a respiratory illness versus Ebola and HIV”.Hmmm. What “people”? Do they include Fauci and Birx? I think they do. Yet he gives them a moral pass unlike the “blithely” dismissive” Trump. No arrogance for the former?

    Not sure what he means. Proper “behaviors” were too complex for Fauci and Birx ? Social Distancing? Or is something else going on like greater physical resistance to Covid due to greater and more exposure to SARS? Where has all that certainty gone?

  2. Gravatar of Michael Sandifer Michael Sandifer
    26. December 2020 at 12:10

    Michael Rulle,

    Do you consider yourself a born again Christian?

  3. Gravatar of Todd Kreider Todd Kreider
    26. December 2020 at 12:36

    I listened to Yglesias discuss the pandemic with Joe Rogan and as with his paragraph above, he has demonstrated that he still doesn’t know the basics.

    For someone who does really get the pandemic, listen to the recent Joe Rogan podcast with former NY Times reporter Alex Berenson from December 23rd.

  4. Gravatar of Benjamin Cole Benjamin Cole
    26. December 2020 at 13:02

    John Cochrane has noted that not only does the US have a fractional-reserve banking system, but that banking system borrows short to lend long.

    What could go wrong?

    What passes today for monetary policy was developed by that same banking system.

    But…would any sane person developing a monetary policy system from scratch, devise one that was implemented through a fractional-reserve banking system? Why?

    In a seance, let’s divine what Rube Goldberg advises. The answer: Yes, implementing monetary policy through a fractional-reserve banking system is nuts, so let’s add on quantitative easing, and pour money onto Wall Street.

    A sane person might sense that money-financed tax cuts seem a lot more direct. And effective. But that would cut out the middlemen on Wall Street and in commercial banking.

  5. Gravatar of ssumner ssumner
    26. December 2020 at 14:26

    Michael, You said:

    “Scott at least finally says increased exposure to SARS in the Far East might have contributed to better outcomes.”

    I’ve said that many, many times. You really have trouble with reading comprehension.


  6. Gravatar of Todd Kreider Todd Kreider
    26. December 2020 at 14:52

    In the post Scott wrote above, he did not mention previous exposure to SARS as a reason for the very low case and death count in Taiwan.

  7. Gravatar of Todd Kreider Todd Kreider
    26. December 2020 at 14:53

    ^ That is, the physical exposure to SARS in Taiwan.

  8. Gravatar of Anonymous Anonymous
    26. December 2020 at 15:50

    Todd, it’s about a country having experienced SARS, not the population. Are you saying you think people have immunity because of SARS exposure?

    Scott, glad to have you as an Yglesias reader – he’s solidly to the left of me but his posts have been really solid. I’ve seen a few posts (including the one that mentioned the recent Summers & Furman paper) where it would’ve been quite interesting to get your perspective.

  9. Gravatar of JC1 JC1
    26. December 2020 at 16:12

    I know the public health community has a lot of raw feelings right now after being so blithely dismissed by Trump

    Oh yea, because the CDC and Fauci were right to warn at the beginning of the pandemic not to wear masks.

    The health community have been excellent throughout…. NO THEY HAVEN’T! They’ve been an F….ing disgrace.

  10. Gravatar of xu xu
    26. December 2020 at 16:37

    None of this matters.

    The only thing that matters is inalienable concepts, rooted in natural rights.

    It doesn’t matter how many people die. It doesn’t matter how many people get the virus.

    Nobody has the right to tell you to shut down your business, force you to take a vaccine, and/or curtail your liberties if you don’t comply.

    You cannot bargain with the inalienable.

    And medical tyranny is still tyranny.

  11. Gravatar of Helena Helena
    26. December 2020 at 16:55

    …”I know the public health community has a lot of raw feelings right now after being so blithely dismissed by Trump and tossed into the maw of partisan politics. And I agree that we could have parked this in a better outcome had Trump listened to them more closely”…

    I’m a board certified plastic surgeon. I don’t feel slighted. I signed the Great Barrington Declaration. And I agree with Trump.

    1. Hydroxychloroquine has shown to be successful.
    2. The fatality rate is simply too low to close industry.
    3. mRNA-1273 is designed to initiate cell producing of the virus; this is a novel approach. We have no idea what the long term effects are.

    There are unique and unknown risks, including local and systemic inflammatory responses. Some may experience severe allergic reactions.

    I took an oath. As such, I would not recommend the vaccine to any patient unless they were in poor physical health.

  12. Gravatar of Anonymous Anonymous
    26. December 2020 at 17:07

    xu, you haven’t read much (libertarian) philosophy, have you?

  13. Gravatar of Benjamin Cole Benjamin Cole
    26. December 2020 at 17:15

    Scott Sumner might enjoy reading “Trade Wars are Class Wars” by Michael Pettis.

  14. Gravatar of Todd Kreider Todd Kreider
    26. December 2020 at 17:21


    It is clear that two things are happening in Asia. First, doctors are defining Covid-19 deaths *much* more narrowly than the U.S. and many Western countries as shown by how Singapore counts deaths. Second, there has been higher immunity due to some previous coronavirsus which a paper showed happened thousands of years ago although doesn’t preclude a much more recent immunity boost.

    Taiwan had 73 SARS deaths while South Korea had three cases and no deaths and Japan had no cases, so it isn’t as if there was some extensive experience there that applies to coronavirus.

  15. Gravatar of bob bob
    26. December 2020 at 17:24


    Archbishop saw it coming in October. Wrote letter to Trump.
    Trump must save humanity from the evil.
    Sumner is trying to destroy us all. He’s part of the great reset.
    We can be borg.
    Or we can be human!
    Choose to defend humanity.

  16. Gravatar of sarah sarah
    26. December 2020 at 17:30

    “History teaches us that humanity evolves significantly only when it is really afraid: then it initially develops defense mechanisms; sometimes intolerable (scapegoats and totalitarianisms); sometimes useless (distractions); sometimes effective (therapies, which, if necessary, may depart from all previous moral principles). Then, once the crisis is over, fear transforms these mechanisms to make them compatible with individual freedom and inscribe them as policies of a healthy democracy.”

    Guess who wrote that?
    If you guess the architect of the WEF Great Reset marketing slogan you are correct.

    Covid is just a tool to get what they want, which is a new world order – one that is not based on individualism, but collectivism.

  17. Gravatar of Aleksander Aleksander
    26. December 2020 at 18:09

    “there has been higher immunity due to some previous coronavirsus”
    That’s clearly not what Yglesias is writing about, and so clearly not what Scott had in mind when he referenced his earlier post about Taiwan.

  18. Gravatar of Todd Kreider Todd Kreider
    26. December 2020 at 18:34

    OK, I get that after Michael used the word “exposure” which normally means to the population. But as I wrote, Taiwan had 73 deaths, Korea had three and Japan didn’t even have a recorded case yet the latter two have far lower deaths than almost all Western countries. Experience couldn’t have mattered where SARS didn’t exist, and it is a dubious claim about Taiwan, a small island nation where they managed to mostly have kept it out with only an average of two cases a day since February.

  19. Gravatar of Michael Rulle Michael Rulle
    26. December 2020 at 21:06

    @michael Sandifer.

    What is wrong with you? Do you believe there really was a Big Bang that had a trillion to the trillionth a priori probability? Do you believe you are smarter than Biden. What do you think of Kierkegaard?

    You are a moron

  20. Gravatar of ssumner ssumner
    26. December 2020 at 21:40

    Helena, I’m very thankful that you are not my doctor.

  21. Gravatar of Michael Rulle Michael Rulle
    26. December 2020 at 21:42

    @m sandifer

    Shouldn’t have called you a moron. That’s not an apology. Just a statement of opinion

  22. Gravatar of Postkey Postkey
    27. December 2020 at 02:33

    ‘We’ have ten years?

    “ . . . our best estimate is that the net energy
    33:33 per barrel available for the global
    33:36 economy was about eight percent
    33:38 and that in over the next few years it
    33:42 will go down to zero percent
    33:44 uh best estimate at the moment is that
    33:46 actually the
    33:47 per average barrel of sweet crude
    33:51 uh we had the zero percent around 2022
    33:56 but there are ways and means of
    33:58 extending that so to be on the safe side
    34:00 here on our diagram
    34:02 we say that zero percent is definitely
    34:05 around 2030 . . .
    34:43 need net energy from oil and [if] it goes
    34:46 down to zero
    34:48 uh well we have collapsed not just
    34:50 collapse of the oil industry
    34:52 we have collapsed globally of the global
    34:54 industrial civilization this is what we
    34:56 are looking at at the moment . . . “


  23. Gravatar of Michael Sandifer Michael Sandifer
    27. December 2020 at 02:54

    Michael Tulle,

    Thanks. I’m not offended, and I don’t know much about physics or cosmology and lack the math expertise to have a useful opinion.

  24. Gravatar of Michael Sandifer Michael Sandifer
    27. December 2020 at 02:55

    Michael Rulle, that is. Autocorrect keeps changing your name.

  25. Gravatar of Michael Sandifer Michael Sandifer
    27. December 2020 at 02:58

    Todd Kreider, Helena, Sarah, Bob:

    Do you consider yourself a born again Christians?

  26. Gravatar of Ralph Musgrave Ralph Musgrave
    27. December 2020 at 04:20

    Selgin’s claim that the evidence for bank instability is “scarce” is nonsense: banks have been failing regular as clockwork for at least 500 years. Plus the REASON banks fail is blindingly obvious: their liabilities (e.g. deposits) are fixed in value, while their assets can fall in value (when silly loans are made).

    As for his claim that “….some of the world’s least heavily-regulated banking systems have also been remarkably crises free…”, that’s just based on his discovery that there was a short period (about a century) when about two countries (Canada and Scotland) managed to combine little regulation with freedom from bank failures. You might as well claim that because you haven’t crashed your car for five years, that therefore you will NEVER crash it.

  27. Gravatar of Ralph Musgrave Ralph Musgrave
    27. December 2020 at 04:30

    Benjamin Cole, Re your reference to John Cochrane, there’s a good article by him published a few days ago where he points out that CBDC makes it easier to introduce the alternative to fractional reserve, i.e. full reserve, or “narrow banking” as it is sometimes called. (Apologies if I’m teaching grandmothers to suck eggs.) The article is here:


  28. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 06:58

    Economists don’t know a debit from a credit. Liquidity risk and maturity transformation is a microscopic mirage, a pseudo-economic construct.

    Banks, from the standpoint of a collection of banks (irrespective of a single bank), do not loan out deposits. Exactly where and how do you think money originates?

    The accounting is self-evident. Savings flowing through the nonbanks increases the supply of loanable funds, but not the supply of existing money (a velocity relationship). Why do you think velocity has fallen?

    This is exactly what Dr. Philip George rediscovered. Why do you think the title of his article is “The Riddle of Money Finally Solved”?

    An increase in saved bank deposits destroys velocity.

  29. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 07:22

    Nobel Laureate Dr. Milton Friedman was also one-dimensionally confused (couldn’t distinguish stock vs. flow).

    See the Fed’s propaganda in their own “Bible”: by R. Alton Gilbert (retired senior economist and V.P. at FRB-STL) – who wrote: “Requiem for Regulation Q: what it did and why it passed away”, 2/1986 Review.

    In his letter back to me on December 11, 1978 Gilbert wrote:
    “Such savings are invested in many ways, including deposits at commercial banks.”

    Never are the commercial banks intermediaries (conduits between savers and borrowers) in the savings-investment process.

    Dr. Gilbert asked the wrong question. His implicit and false premise was that savings are a source of loan-funds to the banking system.

    Gilbert assumed that any potential primary deposit for the individual bank (actually a derivative deposit, or funds acquired from other DFIs within the system), were newfound funds to the banking system as a whole.

    All monetary savings, income not spent, originate within the payment’s system. The source of interest-bearing deposits is other bank deposits, usually non-interest-bearing deposits. There is a one-to-one relationship between time and demand deposits. An increase in TDs depletes DDs by an equivalent amount.

    And the source of bank deposits (loans=deposits, not the other way around), can be largely accounted for by the expansion of Reserve bank credit (operations between the Reserve and commercial banks and their nonbank customers).

    That there is a close connection between aggregate bank credit and the aggregate volume of bank deposits can be verified by comparing the net changes in commercial bank credit to the net changes in total deposits for any given time period (which the MMT Boys can’t do).

    In other words, the commercial banks cannot expand their earning assets by attracting something (derivative deposits) that they collectively already own. Since time deposits originate within the banking system, there cannot be an “inflow” of time deposits and the growth of time deposits cannot, per se, increase the size of the banking system.

    Thereby in his analysis, Gilbert also assumes that every dollar placed with a non-bank deprives some member bank of a corresponding volume of loanable funds.

    Gilbert asked: Was the net interest income on loans/investments derived from “attracting” these savings deposits (viz., outbidding other member banks) greater than the interest attributable to the direct and indirect operating expenses of retail and this wholesale “funding”?

    I.e., Gilbert assumed the DFIs were intermediary financial institutions, which matched savings with investments. Never are the DFIs middlemen in the lending process for either depositors or stockholders.

    The confusion arises from a unique feature of the payment’s system; the whole (the forest) is not the sum of the parts (the trees) in the money creating process.

    The question is not whether net earnings on CD assets are greater than the cost of the CDs to the bank; the question is the effect on the total profitability of the commercial banking system. This is not a zero-sum game. One bank’s gain is less than the losses sustained by the other banks in the System

  30. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 07:31

    It’s a disputation of the Gurley-Shaw thesis (that there is no difference between money and liquid assets).

    See: “Should Commercial Banks Accept Savings Deposits?” Conference on Savings and Residential Financing 1961 Proceedings, United States Savings and loan league, Chicago, 1961, 42, 43.

    “Profit or Loss from Time Deposit Banking”, Banking and Monetary Studies, Comptroller of the Currency, United States Treasury Department, Irwin, 1963, pp. 369-386

    It is incontrovertible. Link: “Corrected Money Supply vs. Recessions”

    It’s stock vs. flow. As Dr. Philip George says; ““When interest rates go up, flows into savings and time deposits increase” ( the ratio of M1 to the sum of 12 months savings ).

    This results in a double-bind for the Fed (FOMC schizophrenia: Do I stop because inflation is increasing? Or do I go because R-gDp is falling?). If it pursues a rather restrictive monetary policy, e.g., QT, interest rates tend to rise.

    This places a damper on the creation of new money but, paradoxically drives existing money (savings) out of circulation into frozen deposits (un-used and un-spent, lost to both consumption and investment). In a twinkling, the economy begins to suffer.

  31. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 07:47

    I don’t see how you can read George Selgin’s article. It’s packed with errors.

  32. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 08:20

    We’re about to test Scott Sumner’s thesis:

    Money flows, proxy for inflation > 100 + years:

    07/1/2020 ,,,,, 0.65
    08/1/2020 ,,,,, 0.68
    09/1/2020 ,,,,, 0.68
    10/1/2020 ,,,,, 0.76
    11/1/2020 ,,,,, 0.86
    12/1/2020 ,,,,, 1.13 inflation accelerates (reported in Jan)
    01/1/2021 ,,,,, 1.18
    02/1/2021 ,,,,, 1.14

    CRB Index

  33. Gravatar of Michael Sandifer Michael Sandifer
    27. December 2020 at 08:21

    George Selgin is both as good an economist and economic historian as I’ve found. He’s also a gentleman, despite being passionsate about his work.

    That doesn’t mean I agree with him on everything. I don’t think money has been too loose since at least probably 1981, so I certainly don’t think it was too loose between the recessions of the 00s. NGDP growth never returned to trend after the 2001 slowdown. I don’t even think there’s such a thing as macro risk aversion or time preference.

    But, on banking, especially issues like free banking and fractional reserve stability in absence of harmful regulation, the evidence he presents seems overwhelming. It’s enough that I now favor trying truly free banking in the US.

    Yglesias is an honest and thoughtful commentator, so I follow him too. He also happens to be right a lot, at least as I see it.

    Razib Khan makes an excellent point that what used to appear to be rationality with many Americans was just faith. I think it was faith in authority and institutions generally, which has been erroded by a media and other elite cultures that have nearly lost the ability to communicate with most Americans.

    I had a Twitter conversation with a journalist over this yesterday, and I argued that the New York Times was wrong to publish a story about a single doctor claiming to have had allergic reaction to a Covid-19 vaccine. Such anecdotes are almost always “noise” rather than “news” I pointed out. She replied that the job of journalists was to be the first take on history as events unfold, to paraphrase her, and that it was important to get the information out there so it could be examined. I responded that these sorts of claims get reported in the form of case studies in the medical literature, and get reported to the FDA, so that actual scientific study can proceed.

    She said I gave her food for thought, by mentioning that thr majority of Americans, for example, are low information consumers and cannot use noise presented as information in any useful way.

    Quite the contrary, such reporting undermines faith in science and our institutions, for example. Writing shallow and often incorrect reports about single studies that have been published within medicine or physics, for example, creates the impression that doctors and physists really don’t know much of anything, as scientific “beliefs” are constantly overturned.

    This is the madness of reporting sans context. We see this also with economic reporting, or reporting about the federal budget,in which large numbers are thrown around in scary fashion, sans the context of history or even the size of the federal budget or economy.

    This tendency to report noise over signal, as the low information consumers sees it, means that sources such as the New York Times, Washington Post, CNN, etc. offer little of value to most Americans. On fact, they offer negative utility,and they further destroy trust with extensive use of unnamed sources,which most consumers of news fail to understand.

    Those with college degrees, for example, in average, are better at distinguishing news from noise, and why we may decry the lack of appropriate filters in the media to help us save time, we can at least more often sort the signals from the noise and at least use a popular media report as a jumping off point to explore a topic in more detail.

  34. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 09:16

    “The central predictions of the quantity theory are that, in the long run, money growth should be neutral in its effects on the growth rate of production, and should affect the inflation rate on a one-for-one basis. –R.E. Lucas, Jr.”

  35. Gravatar of Benjamin Cole Benjamin Cole
    27. December 2020 at 09:17

    Ralph Musgrave: yes, I have read Cochrane’s blogs about narrow banking. Interesting. I guess Cochrane wants to end fractional-reserve banking.

    In any event, trying to implement monetary policy through commercial banks and Wall Street is looking sillier and sillier. Building more debts is dubious.

    Money-financed tax cuts are far more direct, sensible.

    Michael Pettis has some insights on the inadvisability of consumption taxes in Japan and US.

    Probably time for a reformation in the Temple of Orthodox Macroeconomic Theology.

  36. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 09:18

    re: “George Selgin is both as good an economist and economic historian as I’ve found.”

    Ha, he has no respect for academic freedom.

  37. Gravatar of Spencer B. Hall Spencer B. Hall
    27. December 2020 at 09:36

    12/8/20: “I would not be a buyer of Treasuries,” Dimon said Tuesday at an annual Goldman Sachs financial services conference. “I think Treasuries at these rates, I wouldn’t touch them with a 10-foot pole.”

  38. Gravatar of ssumner ssumner
    27. December 2020 at 09:39

    Ralph, It’s not just that places like Canada avoided banking panics, is that the US experienced banking panics precisely because of counterproductive regulations that Canada did not have.

    You obviously have not read the studies in this area and are not qualified to comment.

  39. Gravatar of nick nick
    27. December 2020 at 16:01

    Sumner actually thought they were going to sue. What a loser.

    As you can see, they were only bluffing. Total domination by Lin Wood.
    Total idiocy by Sumner.

    That is why wood is a legend, and sumner is a punk. OWNAGE!

  40. Gravatar of Ray Lopez Ray Lopez
    27. December 2020 at 18:16

    Off-topic: if you read the below, 90% of you with brains will stop reading this blog afterwards.

    https://www.youtube.com/watch?v=9rKNtFyZ8cg at 18:41 minute mark, notice how Fed during early 1980s did not lead markets at times, contrary to the narrative that Volcker beat inflation by raising rates, see that effective Federal Funds rate yo-yos even as inflation drops, as I have written here before but this graphic makes it visually clear; further note earlier in the video that velocity of money was constant from 1960-1990 but not thereafter. Hence Sumner’s snake oil worked up until 1990, the start of massive computerization in financial transactions.


  41. Gravatar of Benjamin Cole Benjamin Cole
    27. December 2020 at 18:56

    Ray Lopez:

    The “Volcker beat inflation” story does have caveats.

    A couple of guys at the Richmond Fed said that Arthur Burns actually started the anti-inflation ball rolling.

    “Economists often describe the Great Inflation of the 1970s as a failure of the monetary policy actions of the Federal Reserve under Chairman Arthur Burns. According to conventional wisdom, when Paul Volcker became chairman of the Fed in 1979, he implemented changes that ushered in a period of disinflation. This Economic Brief challenges this standard narrative in two ways. First, it argues that the “Volcker disinflation” had its roots in 1974. And second, Volcker’s actions were the culmination of a gradual shift in policy that began under Burns rather than an abrupt shift.”


    There is also the oddity that inflation globally went down after 1980 also.


    Volcker beat inflation globally? Superman!

    And, of course, Volcker continuously predicted that US inflation and interest rates would soon soar again, from about 1982 until his passing recently. So, did Volcker have insights, or was he just lucky?

    Empirically, orthodox macroeconomics makes no sense.

    To fight the incoherent world, you have to have a theory, and filter all information through your theory, eliminating inconvenient facts and historical events.

    Religion and superstitions perform the same role for those so inclined.

    Ray Lopez, what is your macroeconomic theory? I hear faint echoes, something about “money is neutral.”

    Well, in macroeconomics, one theory is as good as the next. Your theory is fine.

  42. Gravatar of Mark Z Mark Z
    27. December 2020 at 20:13

    Michael (Sandifer), your point about the allergic reaction is an important one, and it applies more broadly to, well, pretty much *all* news. Most ‘news’ consists of selected anecdotes. Why should the news report on one black guy shot by a cop? Or on one cop shot by a black guy? It is a fact of life that you could find enough stories every day to fill a newspaper and reaffirm any narrative you want without telling a single lie.

    The news just isn’t a good medium for informing people; it’s inevitably mostly noise and highly manipulative. The only solution I know of is to dispense with the illusion that reading/watching news is a means of being informed. It’s mostly a form entertainment, and might as well be an anthology of short stories. All the time people spend reading the news would be better spent reading books or research or even wikipedia articles on the topics in question rather than the latest hot take. I wish I were better at taking my own advice, but then the news is much more immediately gratifying than more substantial reading.

  43. Gravatar of bob bob
    27. December 2020 at 20:23

    Your totalitarian leftist communist regime will fail Scott CCP Sumner.


    And. IT. WILL. BE. Glorius!

  44. Gravatar of ee ee
    27. December 2020 at 21:21

    Yglesias is super wrong about the required approach to get dramatically better outcomes: “enforceable quarantines, mandatory testing, and travel restrictions”. The correct answer was: don’t block the smart people. The federal government slowed down testing and vaccines. We’re currently 6+ months behind in our response compared to where we should have been. Remember the idea of at home testing? Jesus.

    The conversation today is still about stupid things: Who should get priority? How awesome is Operation Warp Speed? Should Fauci still be in charge? All of that should be irrelevant. The budget for Operation Warp Speed ($18B) is laughable compared to the private demand for vaccines. If vaccine manufacturers could have started challenge trials at will and if they could charge a market clearing price for their vaccines, the amount of money people and companies would have thrown at manufacturers would dwarf OWS, and this country would be well on our way to herd immunity at this point. Short-term questions about priority would less relevant at new years in this alternate timeline.

    Overall I think the slowness and blocking nature of our medical policy was clearly highlighted and obvious to the country for some brief times but I don’t see a light where people are moving to free it up. Yglesias’ sentences dim that hope even further. Disappointing that a “smart guy” saw the failures around overly tight control of testing and vaccines and decided the most important change would be tighter government control of more aspects of the response.

    This reminds me a lot of some clingy tech organizations I’ve worked for that like to have a lot of processes and approvals. Those types of orgs are typically in decline. Every smart tech org knows to NOT BLOCK THE FUCKING SMART PEOPLE.

  45. Gravatar of Spencer B. Hall Spencer B. Hall
    28. December 2020 at 05:31

    re: “read the studies in this area”

    Understand the problem with blaming the regulations (“originate-to-distribute”). It’s wrong to conclude that “prices are determined as a function of, the interaction of, buyers and sellers, as opposed to supply and demand. Prices are not overtly governed by regulation.

    Regulatory example: “The stage was set with Garn–St. Germain and the CRA, and then in 92 the Housing and Urban Development Act established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, and that mandate was to be regulated by HUD. Initially, the 1992 legislation required that 30 percent or more of Fannie’s and Freddie’s loan purchases be related to affordable housing. In 1995 HUD mandated that 40 percent of Fannie’s and Freddie’s loan purchases would have to support affordable housing.”

    The housing boom was advanced by Alan Greenspan. By mid-1995 (a deliberate and misguided regulatory policy change by Alan Greenspan in order to jump start the economy after the July 1990 –Mar 1991 recession), legal reserves ceased to be binding – as increasing levels of vault cash/larger ATM networks, retail and wholesale deposit sweep programs (c. 1994), fewer applicable deposit classifications (including allocating “low-reserve tranche” and “reservable liabilities exemption amounts” c. 1982) and lower reserve ratios (requirements dropping by 40 percent c. 1990-91), and reserve simplification procedures (c. 2012), combined to remove reserve, and reserve ratio, restrictions.

    After 1995, the commercial banks became non: “e-bound” (Dr. Richard G. Anderson’s term). See the truistic money multiplier, SA article and contributor, Charles Hugh Smith, “Bank Reserves and Loans: The Fed Is Pushing On A String”


    The evidence of inflation is represented by “actual” prices in the marketplace; The “administered” prices would not be the “asked” prices, were not soaring and plummeting real estate prices not “validated” by enormous money flows, not “validated” by volume X’s velocity, i.e., “validated” by the world’s Central Banks

  46. Gravatar of Michael Sandifer Michael Sandifer
    28. December 2020 at 10:13

    Mark Z,

    Yes, I agree. Not every police shooting gets national attention, but some do, even before protests begin.

  47. Gravatar of Michael Sandifer Michael Sandifer
    28. December 2020 at 10:14

    Todd Kreider, Helena, Sarah, Bob:

    Do you consider yourself born again Christians?

  48. Gravatar of Gene Frenkle Gene Frenkle
    28. December 2020 at 11:32

    I still think it made sense to NOT advocate wearing masks early on when public health officials believed the virus was transmitted via touching surfaces. So if the virus is transmitted via touching surfaces wearing masks merely gives a false sense of security.

  49. Gravatar of Gene Frenkle Gene Frenkle
    28. December 2020 at 12:12

    Spencer, George W Bush and his administration took great pride in the housing market in 2004 when running for re-election, from the Bush WH:


  50. Gravatar of bob bob
    28. December 2020 at 13:01

    Woman in Nashville just got Bels Palsy from the vaccine. She was a registered nurse.

    Sumner should be in Jail. He’s a little fag boy who promotes lockdowns and forced vaccinations that destroy people’s lives. For Sumner the means always justify the ends. He’s a sick son of a bitch.

    Don’t listen to him. Follow real patriots like Lin Wood and Sidney Powell, and DJT. They will save us from Sumner Tyranny.

    And Ukraine just played auto tapes of Loser Biden’s dollar vacuum machine. That all but puts the nail into the coffin. He’s a corrupt loser, and Trump isn’t going anywhere.

    WE ARE HUMAN. Not Borgs.

  51. Gravatar of Michael Sandifer Michael Sandifer
    28. December 2020 at 14:12

    Gene Frenkle,

    I think Scott’s right that it’s a mistake to lie to the public, especially in this era of such low trust in authority and institutions.

  52. Gravatar of Christian List Christian List
    28. December 2020 at 14:16


    Thank you, the linked blog posts by Yglesias “The masks and the experts” and “The road not traveled” are really good. He covers all the important points. He has not so many political “blinders” as others, which seems to be kind of important these days, where really everything is politicized.

    The comments by Michael Sandifer and Mark Z are also worth reading, they make some points.

    But then there are also a lot of commentators, not just here, almost in all the media, where you have to fear parts of the world have gone crazy.

    In the real world I meet these people less, but even here there is a significant lag, important messages just don’t get through, even after all this months.

    This really seems to be a problem, explained maybe (in parts) by the abundance of information. Even some “specialists” are so confused, it’s embarrassing. No wonder so many laymen are completely lost, although it is not so difficult. You for example immediately understood that masks are important, long before the specialists could finally agree on it. It was really not that hard, still isn’t.

    Probably everyone has such a fixed politicized “blind spot”, for you it is probably CCP China, which is not a threat for the US and the Western World, okay I get it. For me it is certainly 2-3 other things, I readily admit that, nobody is perfect. But when it occurs in such large masses, such as with Covid-19, whole populations are affected, it’s a real herd effect, then it really becomes a problem.

  53. Gravatar of Carl Carl
    28. December 2020 at 14:32

    Take a deep breath. One of the placebo recipients also experienced Bell’s palsy. 40,000 Americans get Bell’s palsy every year. And, just to save you the trouble of warning us every time anything bad happens to anyone who got the vaccine: the vaccine doesn’t inoculate people against all danger. Millions of people are being vaccinated. Thousands of them are going to die in car crashes, from heart attacks, strokes, old age. Thousands more will get migraines and develop cancer. Thousands of them will have allergic reactions to the vaccine, just like thousands have allergic reactions to the flu vaccine every year. Thousands of them will remain autistic. And, hundreds of thousands of them won’t die from COVID-19.

  54. Gravatar of Luke Luke
    28. December 2020 at 16:40

    Yglesias is fairly diplomatic in that excerpt, the impression he creates (maybe not intentionally) in his articles is not so much that mistakes were made, it is that the public health community lacked the skills to come up with relevant strategies.

    My impression is that while you have talented people in that community, there is an intermediary talent gap. You can have good theoreticians, good people on the ground but you still need the intermediaries who understand theory and logistics sufficiently to be able to bridge the gap and come up with meaningful strategies. I am not convinced that many of our public health officials have those skills. Do the degrees that these people take even teach them to do that?

  55. Gravatar of Todd Kreider Todd Kreider
    28. December 2020 at 16:59

    Christian List: “You [Scott] for example immediately understood that masks are important, long before the specialists could finally agree on it.”

    Obviously, Scott’s deep science background from high school enabled him to see how important masks were in February, which went against all the major health organizations and still against most where scientists have actually studied this in depth.

    As usual, economists > doctors > scientists in their own fields.

  56. Gravatar of ssumner ssumner
    28. December 2020 at 17:27

    ee, Good points. In a libertarian world we would have done far better, probably by now most Americans would be vaccinated. But can’t allow free choice, or the profit motive in medicine. That would be EVIL.

    Todd, No, I noticed that doctors wear masks. And I noticed that the reasons given for why we shouldn’t wear masks (the doctors need them) were stupid reasons.

  57. Gravatar of Anonymous Anonymous
    28. December 2020 at 19:28

    Damn Todd, back at it with the masks. How about that Danish study?

  58. Gravatar of Anonymous Anonymous
    28. December 2020 at 19:43

    Since we are on the topic of Matt Yglesias – he had a great post today about predictions and epistemic humility: https://www.slowboring.com/p/predictions

    Todd, what are some things around COVID where you’ve changed your mind, including as part of arguments here?

    In my case my main mistakes (excluding things there were hard to know) were thinking that it would more or less stay in China until Italy got hit hard, and that I didn’t think the spring and especially summer calm would last nearly as long as it did.

  59. Gravatar of Ralph Musgrave Ralph Musgrave
    29. December 2020 at 03:06

    Scott, You claim above in support of George Selgin that “….the US experienced banking panics precisely because of counterproductive regulations that Canada did not have.”

    My answer to that if US banks had been run by competent people rather than the quasi criminals who actually run banks both in the US and elsewhere, they’d have been able to take account of the latter “regulations” and run their banks in a manner that was sufficiently conservative that it avoided bank failures. The fact that bankers, both in the US and elsewhere over at least the last 500 years and in numerous different regulatory scenarios are incapable of avoiding bank failures shows that, contrary to Selgin’s claims, banks are prone to failure.

    As for your claim that I have not “read the studies in this area”, I’ve actually read a large amount of Selgin’s material. Trawl thru his articles and you’ll find dozens of comments from me over the last five or ten years. Though I plead guilty to not having read every single “study” in this area.

  60. Gravatar of Todd Kreider Todd Kreider
    29. December 2020 at 05:39

    “Todd, No, I noticed that doctors wear masks. And I noticed that the reasons given for why we shouldn’t wear masks (the doctors need them) were stupid reasons.”

    Scott, apparently you missed all of the real world scientific studies which showed masks were not effective and one from 2015 that showed cloth masks let in 97% of a virus load and surgical masks 45%>

    Anonymous: “Todd, what are some things around COVID where you’ve changed your mind, including as part of arguments here?”

    1. Masks. I thought for some reason that if maybe 60% of people wore surgical masks as Japanese do then transmission could be slowed. I never thought cloth masks did anything. When I started to actually read about mask studies it soon became clear that they don’t help with viruses. Doctors *sometimes* wear masks because of bacterial transmission but a few studies show that isn’t effective either.

    2. Not my fault, but I had no idea in March that the CDC would radically change their guidelines on how doctors should fill out death certificates, thereby inflating Covid-19 deaths by 30% to 50% relative how they would have been counted if the two separate parts of death certificates weren’t blurred into one this spring.

    3. I had no idea that many PhD economists would suddenly forget cost benefit analysis, pretending that the high human costs of lockdowns aren’t even worth mentioning, and that it is if these same economists never took a basic stats course.

  61. Gravatar of Spencer B. Hall Spencer B. Hall
    29. December 2020 at 06:30

    re: “The smallness and lack of diversification of so many U.S. depository institutions has made them chronically failure-prone:”

    Hysterical. Isn’t that why we have zombie companies?

    The Riegle–Neal Interstate Banking and Branching Efficiency Act was the most disastrous U.S. banking act. It allowed for the pyramiding of reserves and fostered an excessive competition for funds.

  62. Gravatar of Spencer B. Hall Spencer B. Hall
    29. December 2020 at 06:40

    re: “well placed to help in the recycling of the OPEC surpluses”

    The unregulated E-$ market was a superfluous and harmful addition to the worlds’ money stocks.

  63. Gravatar of Spencer B. Hall Spencer B. Hall
    29. December 2020 at 06:46

    re: “restrictions against branch banking increase a bank’s exposure to liability-related as well as asset-related risks”

    Ha. The increase in bad debt is due to the impoundment of savings. The prosperity of the DFIs is dependent upon the prosperity of the NBFIs (putting savings back to work).

  64. Gravatar of Spencer B. Hall Spencer B. Hall
    29. December 2020 at 07:00

    Economists have the same conceptual problem. Banks, as a system of banks, don’t loan out savings. The Sept. 2019 repo crisis is prima facie evidence (where the remuneration rate vs. SOFR rates, Secured Overnight Financing Rate – a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities was inverted). I.e., the FED’s artificial remuneration rate interest rate inversion.

    To wit:

    See Lyn Alden Schwartzer’s graph, the IOR vs. 3mo Treasury Constant Maturity rate

    Credit is the life blood of the economy. Savings flowing through the nonbanks increases the supply of loanable funds, but not the supply of money (a velocity relationship). Why do you think money velocity has disappeared since exactly 1981? $15 trillion dollars in U.S. bank-held savings are un-used and un-spent.

    Historical FDIC’s insurance coverage deposit account limits (commercial banks):
    • 1934 – $2,500
    • 1935 – $5,000
    • 1950 – $10,000
    • 1966 – $15,000
    • 1969 – $20,000
    • 1974 – $40,000
    • 1980 – $100,000
    • 2008 – $unlimited
    • 2013 – $250,000 (caused taper tantrum)
    It’s stock vs. flow.

    It’s the nonbanks that should have higher savings insurance. The GSEs were the outcome of the DIDMCA of March 31st 1980 (which destroyed the thrifts).

  65. Gravatar of Spencer B. Hall Spencer B. Hall
    29. December 2020 at 07:43

    re: “In contrast, unit banks, particular in large money centers, have relied heavily in recent years upon “liability management,” attracting wholesale deposits as an alternative means for persons far removed from the money centers to take advantage of better investment opportunities

    Fake news. Continental Illinois failed because of foreign deposits. The problem is that the banks resorted to buying their liquidity instead of following the old fashioned practice of storing their liquidity (i.e., because of the deregulation of Reg. Q ceilings).

  66. Gravatar of Michael Rulle Michael Rulle
    29. December 2020 at 08:08

    @Todd Kreider

    I knew that the counting method for Covid was different than than previous types of methods—-but did not know it overstated by 30-50%. Of course we still do not know if this counting method is right or wrong. It is virtually impossible (although there is a method which presumes to get it right) to determine “cause on the margin”

    I had believed this was a conspiracy theory against Trump—-only because it would be a good thing to do (I have no idea of course) if one wanted to later blame him.

    The interesting unknown is the “excess deaths” counting. As of today excess deaths are 11%. Since Feb 1. Supposedly they adjust this for when deaths are known in prior years so it should be apples to apples.

    Yet CDC says 25-33% of excess deaths do not involve Covid. I did some approximation assuming 20% of Covid “deaths” were not really Covid due to counting changes. About 40% of excess deaths have no Covid.

    Using your numbers it is 50/50. The one thing this tells us is how little we know. But how can we have so many excess deaths unrelated to Covid?

    My guess is various policies which discourage people from getting treatment for other diseases.

    Or we are making it all up. In the year ending 4/ 2010 CDC estimated that 40-80 million people contracted H1N1. And that 10-20k died. If we used our current counting method (people who died with H1N1) that low a number is virtually impossible. Unless there is a reason that people who had H1N1 were less prone to die than the population as a whole —one would expect as much as 333k-675K deaths (that is a max number as it assumes dying when one had H1N1). Divide by 2? 5? 10? . But 10-20k is obviously too low.

    Now we know Fauci knows nothing. It’s all one big unknown driven by various agendas—-including then pharmaceutical companies. The vaccines use different assumptions than how we count. Of the approximate 220 people who tested positive with a placebo—-did any die? What was the age groupIng? If no one died, what does that tell us?

    Too lazy now to try and think thru all the possibilities. But I believe it is very likely you pick the result you want and you can get it.

  67. Gravatar of Spencer B. Hall Spencer B. Hall
    29. December 2020 at 08:20

    re: “No episode illustrates more dramatically the weakening effect of
    anti-branching laws than the Great Depression. Between 1931 and
    1933 several thousand U.S. banks—mostly small unit banks—failed.”

    Nonsense. There was an insufficient volume of eligible paper. It was not until 1933 that we began to unshackle our paper money from the numerous and unnecessary restrictions pertaining to its issuance. With the numerous types of paper money in circulation at the time, this would seem to have been a non-problem. Here is the list: gold certificates, silver certificates, national bank notes, United States notes, Treasury notes of 1890, Federal Reserve Bank notes, and Federal Reserve notes.

    With that array of paper money there should have been plenty to meet the liquidity demands placed on the banks by the public. But the volume of each type that could be issued was so circumscribed by restrictions that even the aggregate group could not begin to meet the panic demands of the public.

    Today we have only the Federal Reserve Note, and there is only one restriction placed upon its issuance. No Federal Reserve Note can be put into circulation unless there is a prior transaction involving the relinquishing by the public of an equal volume of bank deposits, and an equal diminution of the holdings of IBDDs on deposit with the Federal Reserve Banks; In other words, the issuance of our paper money contains no inflationary bias. Its issuance does not increase the volume of money. It merely substitutes one form of money for another form.

  68. Gravatar of Carl Carl
    29. December 2020 at 08:31

    What banking regulations do you favor?

  69. Gravatar of Nathan Towne Nathan Towne
    29. December 2020 at 10:19

    This is very cool. I am going to have to print out the papers cited by Selgin this afternoon. I admit that I have long been a (tentative) advocate of full-reserve banking, but that is by no means a position which is set in stone for me. Either way, the Fed’s emphasis on monetary stability (thanks to Milton) has infinitely improved things, so it has never really been something which I have seen a real need for.

    As for the last part, I don’t know Khan, but I am not much of a fan of Yglesias, for obvious reasons.

  70. Gravatar of ssumner ssumner
    29. December 2020 at 12:16

    Ralph, You don’t seem to understand that the reckless behavior by bankers is encouraged by the bad regulations. Why aren’t Canadian bankers reckless? Are they morally superior?

    Carl, Ideally none. If we have FDIC they I favor a regulation that insured deposits can’t be used for risky loans. Insured deposits would be used to buy safe securities, and uninsured bank liabilities would be used for risky lending.

    Nathan, I’m a fan of Yglesias for obvious reasons–he’s really smart.

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