Why the left and the right can never be defeated
Paul Krugman likes to talk about how he’s been right about almost everything, and his conservative opponents have been wrong about almost everything. While that’s certainly overstating things, I do believe he’s been right about the need for more demand-side stimulus, and that government policies since 2008 were not likely to lead to higher inflation and interest rates.
Let’s assume Krugman was correct. Why wouldn’t the left gradually win the vigorous debate among intellectuals? Why wouldn’t the gradual accumulation of facts tend to discredit one model and support the other? Isn’t the intellectual debate in the blogosphere a sort of Darwinian struggle?
Krugman’s answer is that the right is dishonest. The smarter people on the right don’t believe what they are saying; rather they’ve been corrupted by the promise of plum jobs in DC, or money from the Koch family. But that doesn’t seem plausible to me. It doesn’t explain why I became a right-winger when young, or why I’ve morphed into being a pragmatic libertarian (out of step with both the GOP and the Koch family.) And when I talk to other right wing intellectuals they seem a lot like me. So unless I’m incredibly naive, I think there is an honest debate taking place. If so, why doesn’t one side gradually win?
My guess is that both sides are right, but about different things. The left is right about two big things, the value of social insurance and the need for a government policy that stabilizes aggregate demand. Right wing intellectuals (not necessarily the GOP!) are right that prosperity depends on a set of “conservative” ideas like property rights, prudence, thrift, hard work, ownership, personal responsibility, and the various government policies that encourage those things. In other words the left is right about the demand side of the economy and also the steeply diminishing marginal utility of consumption, and the right is right about the supply-side of the economy. Of course I’m oversimplifying, the left has made some contributions to the supply-side, and the right has a better understanding of the potency of monetary stimulus than the left. But as broad generalizations, they explain why both sides keep seeing confirmation of their model in the news they read—they are looking at a different set of issues:
1. The left sees the folly of a monetary regime that allows AD to collapse, as in Greece and Latvia. The right sees that the state willing to do more “responsible” supply-side policies (Latvia) does better than the one which is more statist (Greece.)
2. The right sees sound economic policies and low taxes producing very rich countries (Singapore, Hong Kong, Switzerland) whereas the left sees fairly rich and more egalitarian models in places like Sweden and Denmark. If I’m right that both sides are partly correct, then you’d expect the most successful countries on Earth to embody ideas from both sides of the spectrum, and they do.
Another point I’d make is that whereas left wing pundits are right about some issues, and right wing pundits are right about other issues, the markets are always right. Now that’s a pretty bold assertion, so let me qualify it. I don’t mean the market have perfect foresight, and can predict the future. And I am restricting this claim to policies about efficiency, supply-side and demand-side policies, not egalitarian policies. My claim is that the markets are left-wing on the need for adequate AD, and right-wing on the need for sound pro-growth supply-side policies. The markets believe that each side of the ideological debate has a sort of blind spot—the left underestimates the importance of incentives, and the right underestimates the damage done by demand shortfalls. Here’s Arnold Kling discussing the recent moves to save the eurozone:
I believe that for the crisis to end, two things have to happen: the defaults by insolvent governments must be formalized, so that creditors know exactly how far to mark down the value of their holdings; insolvent banks must be resolved, as Kapoor defines resolution.
The new agreement accomplishes neither of these. The financial markets were pleased. As is often the case, I am baffled by the markets.
During the 1930s the slow motion collapse of the gold standard was extraordinarily damaging to AD. The markets know this, which is why oil soared $6 and equities also rallied on the positive eurozone news. (This post was written a week ago.)
Kling is also right that Europe is not addressing the fundamental problems. They are just kicking the can down the road. But markets know that can kicking can be very important, if it staves off disaster until a more durable solution can be developed.
This perspective doesn’t just apply to economic policy, but to social science more generally. The right is correct that culture helps explain why some groups are more productive than others. The left is correct that those on the right are often too resistant to the sort of progressive cultural change that comes from increasingly polyglot cosmopolitan societies. In criminal justice you can build similar dynamic around deterrence vs. civil liberties.
Because both the left right embody perspectives that at least to some extent “work” (I’m a pragmatist so I can’t say “are true”) they may lose a battle here or there, but can never lose the ideological war of the social sciences.
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15. July 2012 at 18:04
>>Right wing intellectuals (not necessarily the GOP!) are right that prosperity depends on a set of “conservative” ideas like property rights, prudence, thrift, hard work, ownership, personal responsibility, and the various government policies that encourage those things>>
I’m not clear on who disagrees with this, at least who among the Krugmans of the world disagree with this.
The main contention I know of is over the extent of intellectual property rights, which many view as having evolved into government giveaways that raise prices, lower competition and make innovation more difficult. The cost of pharma patents is huge (Dean Baker has written extensively on the subject), the disruption caused by tech “patent wars” is huge, etc.
15. July 2012 at 18:07
Another excellent post. I am glad Sumner is blogging (along with Nunes, Glasner, Beckworth, Lars and the growing roll-call). Otherwise an intelligent layman (hopefully that is me!) would have to conclude that the “experts” (Meltzer and Krugman) must know what they are talking about.
Go Market Monetarism!
15. July 2012 at 18:13
foosion, Of course none of this is black and white, it’s all a matter of degree.
Thanks Ben.
15. July 2012 at 18:30
Scott writes:
Seeing Sweden as an example of successful left-wing policy is itself a mistake. Sweden hit the wall much like France, Italy, etc, what’s different about Sweden (and they aren’t the only ones) is they embraced neoliberal reforms.
Indeed, what’s striking about the left in the US is how they are trapped in a time-warp. The original round of tax reform in Sweden placed investment taxes below those in the US during the 90s (and where Obama now wants to take them today)*. Indeed, EU best practices for member states codifies the neoliberal regime: tax consumption, introduce fluid labor markets, etc.
Countries like the Netherlands don’t bother trying to create single payer for all maladies. Instead the government clinics cover basic primary care: infections, broken bones, vaccinations, births. Other types of coverage are bought from private companies, and there is an enunciated policy that the level of social-benefit taxation cannot grow so large as to foreclose the ability of ordinary people to select which supplementary health insurance they want to buy.
* http://ntj.tax.org/wwtax%5Cntjrec.nsf/C7B05CD84D78235E85256863004B1F50/$FILE/v49n4643.pdf
15. July 2012 at 18:39
Scott,
Posts like this are why you are wiser than me. For a minute I thought you were responding to my criticisms of Krugman and Mankiw for Latvia and quintiles. I get angry and lash out when I see facts obscured by partisanship.
That said, I feel justified as I am younger and have more to lose from disastrous policy. So I will continue to criticize when I feel it’s warranted. Oh, and maybe it’s time to start an “Occupy K Street” movement?!?!
15. July 2012 at 18:55
I think the right can be defeated politically, essentially for good. I mean, that the right as it is known today can be chased into the political wilderness if Democrats are willing to relentlessly attack conservatives from all sides, without a moment of hesitation or a hint of mercy.
The rich can be demonized without end, the average Republican can be properly painted as the nutcase/ignoramus he/she is, and the Republican Party can be beaten over the head with its own corruption and religious and ideological extremism until it either dies or plays dead.
Democrats can highlight wars on women, children, the poor, the elderly, the middle class, immigrants, and teachers/police, and seize the high ground in the political battle while also blazing the low road, attacking “capitalism” itself. The Republicans’ own internal polling show that the very word “capitalism” is a vulnerability and can be exploited for liberal gains.
I won’t even comment on whether I think this approach is right or wrong. I just think the opportunity is there if the Democrats will seize it. They can choose to do what voters have a very hard time rejecting, which is giving many of them them more of other peoples’ money.
At the same time, the Democrats can turn on Wall Street with a vengeance, pushing for a large set of new criminal penalties to punish fraud, market manipulation, and conflicts of interest. Let the Republicans take the side of Wall Street. The Democrats can dare them.
Obama has gone on the attack, and frankly it’s his only strategy as a failed President. But, if the Democratic Party learns the general lesson that punishment works, they can begin to shift the balance of power in their favor permanently.
It’s amazing to me that I haven’t seen national ads running showing multiple Republican politicians calling for an end to child labor laws. If the opposition wakes up, it’s game over.
15. July 2012 at 19:42
Scott,
I really like those big picture type posts of yours where you really sum it all up very nicely. It’s here that I see that we really think very much alike, I recognize things I’ve thought about before in just the same way, and in addition, you really gave me some new insights which I had missed before (such as, that the neoliberal reforms of the 80s were done by most democracies worldwide regardless of color of government – looks obvious once pointed out but non obvious to see unaided).
I know that the monetary part of your blog is your main spiel and that you defend a more specific theory there, but by nature of the world’s complexity this is also the part where it’s harder for me to “swallow” your specifics sometimes.
Anyhow – you write the most enjoyable blog on the internet. And I’m not actually really interested in monetary economics. Or let’s say, I wasn’t, before you started this.
15. July 2012 at 19:55
So by sheer cosmological coincidence the truth lies somewhere between two biggest political parties in country where you happened to be born?
Now that’s some amazing luck! Especially since almost no other country in the world has anything like GOP, so if you were born somewhere else you’d be saying “the left and further left are both right”. Except you’d be calling them “right” and “left” then.
15. July 2012 at 20:07
The United States is by far the richest large country in the history of mankind. It’s not a coincidence that competent economists fall somewhere in its political center overall.
15. July 2012 at 20:11
‘…the left underestimates the importance of incentives….’
Selectively they do. They criticize banks for being too big to fail, for taking risks because they know they will be bailed out if those risks cause losses. At the same time they deny that higher taxes on success will reduce risk taking.
15. July 2012 at 20:13
Scott, this may be your most sagacious post. Does this mean there may actually be hope for bipartisan reform or are we forever stuck with ideologically-rigid politicians and intransigent Keynesians/Austrians/New Classicals/New Monetarists?
15. July 2012 at 20:20
That’s really clever. Thank you!
I often have the problem of seeing smart people say dumb things. I know they must be making different underlying assumptions than I am. Now I have a better idea of where to look for their assumptions — and recognize where “those idiots” are actually worthwhile experts I should listen to.
15. July 2012 at 20:29
Tomasz writes:
I think you have that backwards. Most European countries have among three or four strains of thought: Social Democrats, Labour, Liberals, and Conservatives–of those US politics is a subset.
The US Democrats are roughly like the ‘New Labour’ party we see in Britain whereas the US GOP is similar to what is known in Europe as the liberal party with the Christian elements that often live under conservative banners joined-in.
There is no right-wing in the US as the term is understood in Europe as the GOP is not particularly nationalistic. Now there is no mainstream libertarian party in europe but then the Libertarian party is hardly mainstream in the US either.
15. July 2012 at 21:16
“The markets are always right” is too bold an assertation. Consider the housing market in 2006. If the market is a place where both sides of a deal end up better off, then this market was very wrong. Maybe you could say half the market was right (the sellers) and half wrong but that doesn’t get you to an increase in utility or social good or whatever its called now. And then add in how the loans that supported this market were themselves marketed. And then add derivatives into that mess and you are talking complete market failure, not “markets are always right”.
Paul Krugman should be proud of his analysis. He has been more accurate than his critics and more timely than the market.
15. July 2012 at 21:16
@Jon
Of course I don’t disagree with any point in particular, but I do want to point out that while you suggest Sweden is successful because of neoliberal reforms, Singapore has a healthcare system which has some fairly statist elements mixed in with their personal responsibility initiatives.
http://www.moh.gov.sg/content/moh_web/home/our_healthcare_system.html
15. July 2012 at 21:20
Scott, by your own description, I’m not sure that if Friedman were alive now he would concede that the Left has a monopoly on thinking that more monetary stimulus is necessary at present. That said, I take your broader point. As you’ve said, what’s important is what the median economist and intellectual thinks. And that has moved to the right over the last 30-odd years.
15. July 2012 at 21:56
ssumner:
Another point I’d make is that whereas left wing pundits are right about some issues, and right wing pundits are right about other issues, the markets are always right.
Except when it comes to money holding and money spending, right? Then the state has to overrule the market because all of a sudden the market is wrong.
Saying “the market is always right” effectively demolishes NGDP theory, since NGDP targeting necessarily overrules what the market process would have generated.
The funny thing is that Sumner doesn’t seem to realize this implication.
————–
Both the left and right in this country are wrong, because both the left and right believe violence against otherwise peaceful people can solve complex social problems. The left and right are two groups of inward neanderthals in suits, one predominantly wanting to control people’s bodies (left), the other predominantly wanting to control people’s mind (right).
————–
ssumner:
(I’m a pragmatist so I can’t say “are true”) they may lose a battle here or there
Pragmatists are not those who say “I can’t say that’s true.” Skeptics are those who say that.
Also, it’s interesting how often you contradict yourself. You claim to be a skeptic, and yet you have told me repeatedly that I am wrong. You claim to believe all economic theories are false, and yet you have repeatedly said certain people’s economics are right and certain other people’s economics are wrong.
Because both the left right embody perspectives that at least to some extent “work”
“Work” according to what standard? Your life? If so, then you’ll have to excuse me as I deem the left and right to be wrong because neither “works” according to the standard that is my life. If the standard is anyone else’s life, then you are being presumptuous and claiming to have knowledge you don’t actually have.
Is this where you want to go? To either relativism or totalitarianism? To individual subjective standards, all of which are unique, or to totalitarianism where you decide what’s best for others?
Is there no other alternative?
but can never lose the ideological war of the social sciences.
If the result is perpetual ideological war, then someone is wrong.
15. July 2012 at 22:22
As anyone who knows hisotry well knows, social insurance is a conservative idea.
It’s well known that social insurance was pioneered by conservative Bismarck, and that the conservative Churchill advocated such things as national health care earlier than the Labour party.
Humpty-Dumpty misuse of language doesn’t change the historical record.
“the value of social insurance”
15. July 2012 at 22:25
This is a Milton Friedman idea long endorsed by Friedrich Hayek, it ain’t “left”.
“The left sees the folly of a monetary regime that allows AD to collapse,”
15. July 2012 at 22:45
Greg, by the standards of today’s right (or just the GOP) milton friedman is a far left socialist.
15. July 2012 at 22:52
“My guess is that both sides are right, but about different things. ”
I think “the problem” might be easier to understand if this would be stated in the reverse: “both sides are wrong, but about different things”.
And, both sides are wrong because the public debate, particularly the debate among politically aligned economists, is not primarily about economics, or even sound public policy, but about politics. When the debate becomes about politics rather than economics (or law or social science generally), then the game is changed. The objective is to frame the public discourse to influence voters (not fellow economists or social scientists as an academic matter) and win elections. It is simply a reflection of the increasing political polarization of public policy debate. This is not unique to economics or economists; however, the evidence that this is so is very strong in the economics sphere, particularly because economists more than others have seized the opportunity to influence public opinion through the new public media more than just about anyone else (please name just one prominent blogger in the legal profession). When both sides are driven to ideological extremes due to politics, the chances that they will be “right” about policy matters become much smaller. The situation has, I think, been exacerbated by the focus on “blogging” rather than duelling academic papers. Blogging is an ideal forum for the type of rhetorical discourse politicians like to engage in—I’m not convinced it has done much for the state of economics.
Paul Krugman is, as the most high-profile economist on the public stage, a case in point. He’s almost certainly a much better economist than his record as a “pundit” would indicate. He would be “right” much more often, I’m sure, if his economics were not so infused with politics. In fact, PK (and DeLong) have made a very vocal case for their extreme political partisanship: both have strenuously argued that journalists should not present both sides of a policy debate when one side is so very obviously “right”. And, they probably do have strong convictions that they are “right”; but, any idea that they are “right” solely on economic principles would strike me as self-delusional. It is not a coincidence, I’m sure, that the deteriorization of his economics has coincided with his general circulation opinion writing and blogging and function as a political persuader.
The fact that this is about politics as much as, or even more than economics, is borne out by Scott’s choice of a headline for this topic: “The left and the right can never be defeated”. Why should economics, as such, be viewed in those terms, rather than as an objective social science? Economics has become so much so about politics that we don’t even question framing the issue in this “left and right” manner. It is just accepted as a fact. When did that happen? I guess economics, being partly the study about “who gets what”, has always been closely aligned with politics, but I strongly suspect that it has never been more so than today.
The situation reminds me of two sayings, each of which has never been more true. The first is, Thomas Mann’s observation that “everything is politics”. He was right when he wrote it, and it’s even more true today. The second is “the truth is somewhere in the middle”. That’s more often true than not and, with each side currently occupying more extreme ends of political spectrum, it’s also more true today than ever. That’s why the “left” and “right” are not only wrong about “different things”; they are often wrong about the *same* things.
15. July 2012 at 22:52
Greg, by the standards of today’s right (or just the GOP) milton friedman is a far left socialist.
That isn’t true. Today’s right is still neoconservative. It is a myth that the right is now “Austrian.”
15. July 2012 at 22:57
Vivian:
“The second is “the truth is somewhere in the middle””.
If reality is objective, then any claim that goes to “the middle” can only go towards being more wrong.
Other than that, I think your post to be an excellent one.
15. July 2012 at 22:59
Actually, bad wording. I should have said
“If reality is objective, then any claim that is in “the middle” can only have some wrong associated with it, since correction claims are “extreme” by nature.
15. July 2012 at 22:59
Bah! “correct.”
15. July 2012 at 23:03
Greg Ransom:
As anyone who knows hisotry well knows, social insurance is a conservative idea.
Thanks for pointing that out Greg. I thought the same thing. In addition, most conservatives of today believe social security to be sacred.
15. July 2012 at 23:05
First, I have to say that I agree with your general message. It is true that on intellectual level there is not that much difference between “cutting-edge” left and right ideas and policy proposals.
What I think is the most important however is the part that you left out completely: intellectual dishonesty. If I can name one of the biggest fails of the current politically influential left-wing intellectuals as they are represented by Paul Krugman, it is their thundering silence on the matter of monetary stimulus.
If we would come to the rightwing side of the intellectual debate …. Suffice to say that you yourself admitted your disconnect with the political movement that is supposed to be closest to your view. I know that many intellectuals on the left are deeply dissatisfied by current political leadership, but they are loud in expressing so. So I would say to all right-leaning intellectual friends of Scott Sumner out there: don’t you think it is time to let yourself be heard?
15. July 2012 at 23:43
“… as broad generalizations, they explain why both sides keep seeing confirmation of their model in the news they read””they are looking at a different set of issues”
In other words, the testing isn’t scientific – the “experiments” aren’t controlled and specific.
“Europe is not addressing the fundamental problems”
The fundamental problems being government budgets and transparency, and the sub-optimal currency area, yes? And not fiscal or banking unions, which everyone else thinks it is.
“… they may lose a battle here or there, but can never lose the ideological war of the social sciences.”
I think it also matters that the goalposts keep shifting. Fifty years ago being on the left basically meant you thought the Soviet Union was basically a good idea (in re). Nowadays even the college-campus Marxists disown (heh) them.
The right has been shifting its goalposts ever since the term was born during the French Revolution.
Also, sad that we’re using “ideological war” and “-science” in the same sentence. Worse, the definition of the scientific process is supposed to be one that corrects for human fallibility and bias in the pursuit of knowledge.
” (This post was written a week ago.)”
Scott, how many posts do you have on the backburner at any one time? Just curious.
16. July 2012 at 01:21
BTW, if any of you want to be astonished, read the following.
Don Regan, Reagan’s Treasury Secy, calls for putting Fed powers into Treasury as Volcker is being too tight. Inflation then? 4-5 percent.
http://news.google.com/newspapers?id=hUBVAAAAIBAJ&sjid=55QDAAAAIBAJ&pg=5524,8412282&hl=en
Reagan himself later addressed a realtor group and said interest rates were too high.
The feeble, prone nature of the Obama Administration does not compare favorably to Reagan’s bullishness, regarding monetary policy. Those guys wanted growth.
16. July 2012 at 02:25
This is an excellent post. Your point is quite convincing, and there’s much to agree with.
But as Nick Rowe recently noted, there is a selection bias in blogging as well as in comments, you only talk about what you disagree with…
I believe you overstate the position of what you call the “left”. I’m quite confident that Krugman and people who think like him don’t dismiss the importance of the supply side or the validity of some basic supply-side principles.
On the other hand, I have the impression that fresh-water economists entirely reject demand-side concepts.
This implies that a balanced view of the debate would not fall right in the middle, but closer to the Krugmanites (this is by the way exactly the frustration that Krugman expresses about US media pretending to report a balanced view of the political debate).
Another point is that while your argument globally makes sense, it is entirely dependent of what you call right and left. On political ground, the US left corresponds to the European center. Maybe it’s not so different with economics. What I would call the left is the anti-capitalist movement (don’t laugh, please. With 20% unemployment in some countries and negative real rates on bonds in others, it is permitted to at least question capitalism.)
A minor point on which I have to fully disagree is when you class Switzerland along with HK and Singapore, as a country with low taxes and sound economic policies.
– Swiss taxes are not low (except in a few posh suburbs where very rich people moved their homes). Statistics are biased because much of social welfare is paid for by compulsory contributions that are not accounted for in taxes.
– Swiss economic policies are not that sound either. Switzerland is over-regulated and not much free-market oriented. By the way, welfare is quite developed in Switzerland.
Culture, institutions, location in the heart of Europe, and probably some luck, are better explanations for Swiss wealth than taxes or policies.
16. July 2012 at 02:33
I would say I’m more on the “left” in this discussion. But I thought that John Roberts actually showed conservatism at its best recently.
I know they all think he’s a traitor. But if you understand conservatism in the longer sense, and a conservative as he who takes the long view of things, then Justice Roberts made a very conservative rulling.
If you understand what conservatism realy is, which is about defusing social conflicts, of toning down social confrontation.
This is why the modern Republican party in this sense hasn’t been conservative at all-I think it was Midge Dector who declared “We are not conservatives, we are revolutionaries.”
Roberts I think was pragmatic-yes, he could have gone for immediate self gratification but he saw that if he did cynicism would have again spiked through the roof-like Bush-Gore-and the Court would be seen as just another arm of the Republican party.
16. July 2012 at 02:39
Greg Ransom I think is right about social insurance being conservative. That’s what I just suggested about Roberts. Which is why it’s so ridicilous for Romney to be running against his own health care plan.
16. July 2012 at 03:03
“economists more than others have seized the opportunity to influence public opinion through the new public media more than just about anyone else (please name just one prominent blogger in the legal profession).”
Eugene Volokh. Richard Posner. Jack Balkin.
16. July 2012 at 03:44
If both sides are locked in a stalemate because they’re right about some things and wrong about others, and you know what each side is right about, then you should be able to win the debate away from both sides. All hail Master Sumner!
16. July 2012 at 04:51
Left and right are really very close. Hitler and Stalin spring to mind. What unifies them is that “social insurance” is a statist idea. The meaningful battle is between statists and non-statists. Imposed order and spontaneous order.
However, it still doesn’t allow MF off the hook. What would a free market money provider do in response to a demand-side shock to the economy?
16. July 2012 at 05:53
Yawn.
Stick to Economics.
If you win the bet in November, this post carries weight.
If you lose our bet, this post makes you look dumb.
The country has become far more conservative since 1980, political gamesmanship matters.
It LIKELY matters more than monetary policy for growth.
But we’ll find out in November.
16. July 2012 at 05:59
Yawn. Conservative, liberal (US version), you are all the same.
16. July 2012 at 07:26
Scott, you must take a look at this: http://www.zerohedge.com/news/here-why-fed-will-not-cut-ioer-bernankes-own-words
The last paragraph is an excellent illustration of how almost no one understands monetary economics.
James, what’s exciting for you?
16. July 2012 at 07:44
‘Consider the housing market in 2006. If the market is a place where both sides of a deal end up better off, then this market was very wrong.’
Except that by 2006 the housing market had had over ten years of politicized distortion. The GSE Act of ’92, HUD’s Best Practices Initiative of ’94, Clinton’s National Home Ownership Strategy….
Almost every arm of the Federal govt was working to force lending to people who at one time the market had denied were qualified to repay home loans.
16. July 2012 at 07:44
Do you really think that Meltzer is engaging in an honest debate here?
16. July 2012 at 07:55
“Eugene Volokh. Richard Posner. Jack Balkin.”
Of course, Posner, while a lawyer and a judge, is also an economist. The Becker/Posner blog is mostly about economic, not legal, issues.
That’s it?
16. July 2012 at 07:56
“The country has become far more conservative since 1980, political gamesmanship matters.”
The country has not become more conservative, but the huge increase in inequaltity that has taken place during the last 30 years has given the monied elite a lot more economic power. The decision by the Supreme Court to give the moneyed elite a free hand to buy election has given the moneyed elite even more power.
Nevertheless, if the Republicans win this Fall it is because the conservative members of the FOMC, and that includes Bernanke, are sabotaging Obama by blatently refusing to comply with its mandate to achieve maximum employment. If the FOMC were obeying the law and the unemployment rate were coming down at a solid rate, Obama and the Democrats would win big.
Obama in reappointing Bernanke and failing to make sure all of his other appointments were serious about the Fed’s mandate to achieve maximum employment may well have assured his defeat.
16. July 2012 at 08:27
FEH. Romney has no chance of winning unless he releases his taxes.
16. July 2012 at 08:45
As a first-time commenter, let me applaud the insight (and spirit) of this post before proceeding with graceless alacrity to my one point of contention:
“[T]he left is right about…the value of social insurance….”
If you’re simply saying that the left sees value in having some sort of social insurance regime, how does that alone distinguish it from anyone on the post-WWII right except the hardest-core libertarains?
But if you’re asserting that the left historically has shown superior acumen in evaluating the costs and benefits of social insurance, and therefore in choosing among the possile blueprints for (and magnitudes of) such a regime…ooh, I dunno ’bout that.
Consider various examples: Sweden in the 1970s and 1980s vs. today; the UK in the late 1940s and again in the 1970s; the AFDC-welfare regime in the US 1965-1995; much of continental Europe to this moment; and the US entitlement-form issue going forward. It seems to me that the first impulses of the political/academic left tend to be far too sanguine about how extensive and unqualified a social insurance regime can feasibly be, only to be over time corralled and schooled by limitations imposed by the very considerations that you credit the right with being mindful of (“property rights, prudence, thrift, hard work, ownership, personal responsibility…”).
Hayek and Friedman were among the prominent classical liberals to make room in their visions for a measure of social insurance. But they warned that it should grow neither too fast (beyond a society’s productive/demographic capacity to sustain it at any given point in time) nor too far (to the point of undermining the citizen’s incentive to save and strive to shape her own economic destiny, thereby eroding over time the economic performace of the society via a sort of macro “moral hazard”). I think the right owns a piece of this social welfare legacy too– the left may have been the prime mover, but the right has played the crucial role of asserting a more tough-minded and reality-based evaluative margin.
Finally, I’m assuming a distinction between a “safety net”– prive and/or public assistance targeted specifically to the poor, diabled and victims of calamity– and “social insurance”– in which the state simply commandeers a vast portion of society’s product (mostly through withholding) to backstop the fortunes of (all) citizens by means of pensions and other entitlements. The former even most libertarians are fine with. The question, I guess, is how much beyond a safety net a social insurance regime can, or ought to, grow.
16. July 2012 at 08:55
“FEH. Romney has no chance of winning unless he releases his taxes.”
I disagree. The economy is, once again, deteriorating and will continue to do so until the election. Because of this, I think Romney has a significantly more than even odds chance of winning. In the final analysis, ITS THE JOBS! For ordinary working people having a good, dependable job, both for themselves and for their relatives and friends is of crucial importance. Many people who are economically secure tend not to understand the crucial importance of this. Most voters do not have the economic sophistication to understand why the economy is still in a depression. They therefore give the President credit if the economy is good; and if it is bad, they blame the President and vote against him. The chief exception is that they do understand political obstructionism in Congress. Obama’s best hope is to do a Harry Truman and blame the obstructionism of the Republicans in congress in not passing his jobs bills for the fact that the economy has not recovered.
In actuality, if Obama loses, it is because the FOMC has sabotaged him. One can argue about whether this is deliberate or not, but there is no question that the FOMC, in sitting on its hands and doing nothing while the economy is deteriorating, instead of obeying the law to create maximum employment, will be responsible for the defeat.
16. July 2012 at 09:02
“Almost every arm of the Federal govt was working to force lending to people who at one time the market had denied were qualified to repay home loans.”
This is conservative dogma. The reality is that the great majority of the irresponsible loans were not the result of this.
16. July 2012 at 09:02
“Don Regan, Reagan’s Treasury Secy, calls for putting Fed powers into Treasury as Volcker is being too tight. Inflation then? 4-5 percent.”
And Dick Cheney argued that deficits don’t matter.
16. July 2012 at 09:12
“Imposed order and spontaneous order.”
You are assuming is that sponentaity will neccessarily lead to order. What you are ignoring is that there can also be spontaneous disorder, like vicious cycles and domino effectsfor example,
In real world market economies externalities, market power, asymmetric information, and missing markets are the RULE not the EXCEPTION. Therefore real world market economies only have an INVISIBLE PAW, not an INVISIBLE HAND. The market on its own works reasonably well a good deal of the time. If it did not, economies beyond simple subsistence would never have arisen. But it can go badly off the rails at times. In those cases the VISIBLE HAND of the government is needed to put the economy back on track. And I am not asserting that the visible hand will always get it right. It can make things worse. Therefore careful discretion has to be used in determining how to use the visible hand.
16. July 2012 at 09:14
Jon, I strongly agree, and I tried to imply that in my post.
Steve, Occupy K street? I like the idea.
Mike. Obviously specific versions of the right can be defeated, as McCarthyism was in earlier decades. But they’ll come back in a new version. Without a right wing an airplane can’t fly. (I bet everyone is groaning at that one.)
BTW, Child labor laws should be abolished. I often worked as a child–there’s nothing wrong with it.
RTomasz, You said;
“So by sheer cosmological coincidence the truth lies somewhere between two biggest political parties in country where you happened to be born?”
You get the award today for the most clueless commenter. I specifically said in the post that this had nothing to do with the GOP, and mentioned lots of foreign economic models. Have you ever thought of taking a course in reading comprehension?
Alan, Good point.
Patrick, Good observation.
Pyroseed13, Reform comes in cycles.
DKS. Thanks.
jbrown981, Krugman’s done well, but the markets have done far better.
Rajat, I would agree with Friedman, As I said, the left doesn’t have a monopoly on favoring monetary stimulus.
Greg, This post wasn’t about history. When you say someone is “gay” are you referring to the definition when Bismarck was alive? If so, do you ever find yourself to being misunderstood?
Vivian.
1. I agree that Krugman is a better economist than pundit.
2. I think it’s good news that neither side can be defeated, so I think we agree there.
3. People who claim everything is politics are actually claiming that the word ‘politics’ has no meaning.
JV, I think many on the right are also frustrated with the political leadership on the right. That’s inevitable, but especially severe right now.
Saturos, I agree with most of your comments. And science that is seen as having moral implications will always have wars. Not just econ, but psych, anthropology, etc.
I usually only have a couple in backlog, but the total can be as high as 10. The non-monetary ones are often saved for the weekend–I try to do money posts on weekdays, but there are many exceptions.
Ben, That would actually make a very interesting article. Contrasting Reagan and Obama on monetary policy.
Zorblog, I afraid I’m going to have to disagree. Switzerland is more capitalist than its neighbors, that’s what I meant. I certainly agree that it’s more socialist than Singapore and HK. But I have commenters coming on here claiming Singapore’s a communist country. Everything is relative. I’d guess that the good old capitalist USA has more government regulations (in sheer numbers) than any other country on earth. The various ratings that come out (for “economic freedom”) claim Switzerland is highly capitalistic.
I also disagree about the right. All the respectable economists on the right that I am familiar with think AD shocks have real effects (Lucas, Friedman, Taylor, Mankiw, McCallum, Hetzel, Feldstein, etc.) There may be a few fanatical RBC-types, but they are the exception.
Obviously the left thinks incentives matter, but much less so than people on the right think they matter. Obama seems to be an extreme case–I’ve almost never come across someone so impervious to the “economistic way of thinking.”
Mike, See my reply to Greg.
John Becker, I’m way more successful as a blogger than I have any right to be. Maybe you’ve found the reason.
James, You said;
“Yawn. Conservative, liberal (US version), you are all the same.”
Earlier I did a post discussing how when we look at other countries, both sides seem the same. Most American intellectuals would not be able to describe the difference between the Japanese left and right. Or the Swiss right and left. Maybe not even the French right and left.
FEH, Yes, honest but misguided. I think Meltzer is a really good guy. Very idealistic.
16. July 2012 at 09:17
“For ordinary working people having a good, dependable job, both for themselves and for their relatives and friends is of crucial importance.”
This is why macroeconomic theories that assume that the cyclically unemployed are choosing leisure are hopelessly off base and economists who take them serously, while they may be very technically skilled, do not have a clue.
16. July 2012 at 09:24
Charles, Those are good observations, but don’t really change my mind. I still find that the left has a better understanding of the ntilitarian benefits of social insurance. The right is more obsessed with “just deserts” arguments against social insurance. I certainly agree that the right has had lots to say about the most effective design of such programs.
Having said all that, my personal views are probably closer to yours, than to the typical person on the left.
Saturos, Yes, that last paragraph was pretty bad.
16. July 2012 at 09:28
Scott, have you found that you’ve become much more productive as a writer (and perhaps more generally) since you started this blog? And changed the world in the process? The famous case of that is of course Eliezer Yudkowsky from Overcoming Bias and Less Wrong.
“Obama seems to be an extreme case-I’ve almost never come across someone so impervious to the “economistic way of thinking.””
What do you like so much about him then? You seem to clearly prefer him over Romney, despite the latter being more likely to leave taxes lower, and no more likely to fail to fix the budget. Also Warstler is certain that Bernanke will goose the economy as soon as Romney takes office, or something like that.
“3. People who claim everything is politics are actually claiming that the word ‘politics’ has no meaning.”
Precisely.
I’d really appreciate a comment on the Zerohedge post.
16. July 2012 at 09:35
“As anyone who knows hisotry well knows, social insurance is a conservative idea.”
This includes government sponsored universal health insurance.
Social security and universal health insurance in Germany were brought about by conservative monarchist Prinz Otto Von Bismark. He saw this as an excercise in Realpolitik. This robbed the Marxist (at that time) Social Democrats of their most popular political platform.
The current “conservatives” are not real conservatives. They are right-wing reactionaries who want to return the United States to the guilded age of the late 19th Century.
16. July 2012 at 09:42
If your post is not about today’s GOP, then it’s a post about politics that ignores actual political reality. Which makes it pretty useless, as a practical matter. I mean, there COULD be a world in which both the left and the right are correct but about different things, but it’s not the world in which we live now.
Part of the issue is that smart people like you should be trying to convince the GOP neo-austrian blowhards that they are actually wrong and/or convince the rest of the GOP that, to wit, a gold standard is no way to fix the modern economy, rather than trying to convince Keynesians that a fiscal stimulus without an accomodating central bank is useless.
16. July 2012 at 09:42
“3. People who claim everything is politics are actually claiming that the word ‘politics’ has no meaning.”
I think the claim is more: Politics is an aspect of all human endeavour.
Humans are social creatures – we conciously or subconciously evaluate the political implications of every action we take (autisitic people excepted).
I remember as a small child, my teacher was Democratic (Clinton, 1992) and my parents were Republican (Bush Sr.).
At school I was for Clinton, at home I was for Bush.
I could barely read, but I knew how to align myself politically.
If my parents were present, then Bush was a hero for saving Kuwait from the bad Sadam Hussein.
If my teacher was present, then the economy was bad and Bush was not helping the minorities and thus destroying the legacy of Martin Luther King, Jr.
16. July 2012 at 10:26
Scott, you said:
“Obviously specific versions of the right can be defeated, as McCarthyism was in earlier decades. But they’ll come back in a new version. Without a right wing an airplane can’t fly. (I bet everyone is groaning at that one.)”
I don’t disagree. While in principle as a liberal Democrat I implicitly believe that if liberal Democrats would win every single election everywhere, forever then we’d have a utopia-as every conservative Republican also implicitly believes-in reality, no doubt the optimum outcome is different.
Indeed what you actually see party wise in any case is endless parity since Nixon won in 1968-before that the Dems were dominant. Prior to FDR the Republcians had dominated since Lincoln.
In truth of course a state with one party is totalitarian
16. July 2012 at 10:33
JL,
That is why teachers must be destroyed and replaced by the Internet.
16. July 2012 at 10:36
“Pragmatic Libertarian” describes anyone whose principles bend as soon as their own comfort zone is violated. I think a more appropriate description for you would be “Pragmatic Statist”, since you recognize that governments and central powers are lousy at delivering most Goods, so you are /pragmatic/ about letting markets do their job, except in the one core area (monetary policy) where you’re just so sure you’re right that force (Fed, tariffs, legal tender law,…) must therefore be warranted to make things come out your way.
Where you think it matters most, you are a statist, not a libertarian, so that needs to be the root term in your self-definition.
16. July 2012 at 11:10
Thanks for the response, Prof. Sumner. I’m a bit of a late-comer to this left-right dialogue/impasse. But lately the most thoughtful discourse I’m catching about social insurance issues is coming from the libertarian-of-center side: philosophically (“Bleeding Heart Libertarians”) and economically (e.g., GMU, plus the “cosmopolitan right,” by which I mean people like Ross Douthat, Reihan Salam, etc.). The U.S. left sounded more open to real entitlement reform ideas in the 1990s, but today seems to have circled their wagons around the FDR/LBJ status quo as if it’s their political brand.
16. July 2012 at 11:18
I like the Max Planck quote:
“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
This is true of the economic debate as well. We have to wait until everyone educated in the 60s & 70s is dead. 2050 or so.
Scott, you said:
“Right wing intellectuals (not necessarily the GOP!) are right that prosperity depends on a set of “conservative” ideas like property rights, prudence, thrift, hard work, ownership, personal responsibility, and the various government policies that encourage those things.”
These are all things the left believe in, we just think as currently constructed in the US, e.g. hard work does not translate into prosperity … and that as currently construction the benefits of prosperity are distributed randomly.
I would like to point out that the closer we get to “free will”, as I would say is a requisite for these conservative principles you list, the less scientists believe we have it. However, societies and groups that believe in free will do better: less crime, more prosperous; it is a useful construction.
I think free will is the real center of the debate — and no one knows how to talk about it! The right talks about incentives … but that must mean we don’t actually have fully free will if we follow incentives. If you tax rich people more they won’t work as hard (even if they have a good work ethic and want to). As a scientist and a lefty myself, I have to somehow hold together the idea that free will is a useful effective concept for people to have but that it doesn’t exist scientifically. How do you push that idea? It would be like trying to push an idea of effective software design that the hardware doesn’t matter, but that it reality it actually does.
16. July 2012 at 11:18
Greg Jaxon –
No force is necessary for the government to have a monetary policy or a central bank. Even if a government funded itself entirely through voluntary contributions, that government would still have to decide what to use for money. If it chose to use units of NGDP, that would be no more statist than using gold or anything else.
The use of force you refer to is the power to tax, but that power is just as much a use of force if the government collects its taxes in gold or NGDP units. If you want to argue the government should never tax anyone, fine, make your case. But stop pretending it has anything to do with what the government chooses to use for money.
16. July 2012 at 11:45
“The right is more obsessed with “just deserts” arguments against social insurance. ”
I think this is an important point, related to the view (mostly on the right) of “economics as a morality play” that Krugman has written about. The idea that we deserve bad economic times because we had it too good.
The “just deserts” world view makes sense for policies to fight crime and terrorism, where the right is far better than the left. But on social insurance, where the goal is to help people who are trying to help themselves but can’t because of forces beyond their control (bad luck, disability, the overall economy), the left is better. The right does help identify costs in dollars and in disincentives.
Clinton mixed the two worldviews, tough on crime, but wanted to help those who help themselves. He said he was for those who “work hard and play by the rules”, and he wanted to “end welfare as we know it.” Maybe that’s why he was so popular.
16. July 2012 at 12:03
One big difference between left and right is that folks on the left are more likely to deny supply side economic problems, whereas the right is more likely to be skeptical of demand side problems.
For example, here is a recent survey purporting to show a lack of economic knowledge on the left. If you look at the questions liberals got wrong, the clear theme is that liberals tend to think that the price of a good or service isn’t much affected by the supply of that good or service or visa versa. Liberals say that restricting the supply of housing doesn’t increase the price of housing (question 1), that restricting the supply of doctors (through licensing) doesn’t increase the price of doctors (question 2), and that price floors won’t decrease the supply of either rental space (question 4) or jobs (question 8).
By contrast, many on the right seem to have a hard time getting their heads around how there could be a shortage of aggregate demand. If unemployment is high, it must be because of unions, etc.
16. July 2012 at 12:14
@James_in_London
«However, it still doesn’t allow MF off the hook. What would a free market money provider do in response to a demand-side shock to the economy?»
Not sure why this question should hold MF on hook, but too bad if it does. The only problem I see is that assymptotically everybody consider this to be a problem.
Here I’m assuming that a «demand-side shock» is a sudden increase in desire of consumers to spend their money at later date instead of just now. A spike in the «demand for money».
Well a free-market money-provider will increase the price of money. Duh! And to the degree that any money holder is a money-provider as well, they’ll do the same. So the prices will fall and the loans will get more expnensive. And, if the commodity on which the markets converged as medium of exchange will allow it, more money will be produces at higher marginal expense. See, it wasn’t hard at all.
Will that be a good thing? Well an increase in price, as such, is almost never a good thing, but on a free market it is almost always the least bad of the alternatives. If tomorrow the demand for apples will double first those will be in shourt supply than their prices will rise. Will you call for price controls?
Now.. I feel an urge to explain why the attempt to fix the «demand for money» by producing more of it is wrong. Because demand for money is not demand for «nominal» money. Demand for goods is demand for services provided by those goods. And you do not increase the servcices provided by money by increasing the number of dollar bills. And if there are real changes in the saving and spending habits of consumers/producers in an economy you should shout about it from the roofs not hide it.
Let’s return to the apples from the previous paragraph, and assume two things for the sake of a thought experiment. All apples are highly uniform and the tradition is that apples allways sell by dozen. Will you solve the shortage of apples by issuing a decree that there are 6 apples in a dozen insteand of 12?
16. July 2012 at 12:36
And, both sides are wrong because the public debate, particularly the debate among politically aligned economists, is not primarily about economics, or even sound public policy, but about politics. When the debate becomes about politics rather than economics (or law or social science generally), then the game is changed. The objective is to frame the public discourse to influence voters (not fellow economists or social scientists as an academic matter) and win elections…
This is on the money.
As to Krugman being a much better economist than pundit, back in Slate days Krugman-the-economist pretty well savaged William Greider for making the ‘jobs are destroyed by greedy, productivity-improving businesses’ claim, using his analogy of hot dogs and buns…
Now Krugman-the-partisan-pundit is fully supporting the “Romney/Bain destroyed jobs” theme (though carefully phrasing his words to maintain professional deniability).
(PK used to know his own limitations as a pundit, saying in Slate:
Thomas Mann’s observation that “everything is politics”. He was right when he wrote it, and it’s even more true today.
Yes. There’s a fine little volume, “What Do Economists Contribute”, with selections on the subject from Coase, Stigler, Buchanan, Tullock, Schelling, McCloskey, etc. The consensus answer is that to politics, in the short run, economists contribute basically zero, nothing. Politicians do what they want to do for political reasons and use economists only opportunistically, when they find an economist who will help them or provide a politically useful marketing line. They never “listen” to economists.
Coase put it in a positive perspective, though. He said that basically zero isn’t absolutely zero, and if economists improve the efficiency of government by 0.1% that is a tremendous return on their combined salaries and they should feel good. Plus in the long term, the influence of economists can compound somewhat.
PK (and DeLong) have made a very vocal case for their extreme political partisanship.
I just took a peek at DeLong’s blog, and boy, he’s living his dream.
16. July 2012 at 14:00
“I could barely read, but I knew how to align myself politically.”
Not everybody is like that. I quite frequently got into trouble for arguing with my teachers.
16. July 2012 at 14:17
“I certainly agree that the right has had lots to say about the most effective design of such programs.”
For example. Obamacare was essentially designed by the Heritage Foundation.
16. July 2012 at 14:18
“I certainly agree that the right has had lots to say about the most effective design of such programs.”
For example. Obamacare was essentially designed by the Heritage Foundation.
16. July 2012 at 16:02
FEH,
but single payer would be better…so that is not a good example.
16. July 2012 at 16:43
“but single payer would be better…so that is not a good example.”
A monopoly in the hands of the government is still a monopoly. For this reason I do not favor single payer. Germany and Switzerland both have genuine universal health insurance withoug single payer. What we should have in the United States is a robust public option to COMPETE with the private companies. If the Republicans had not subverted majority rule in the Senate by using the filibuster, we could have had this.
16. July 2012 at 16:52
Bill even if SP would be better-and I’m not so sure of this, I’m more with FEH, I’d rather the public option myself and people can choose the government or private insurance; ricch people could continue to buy expensive private insurance if that were their prefernece-are you saying SP or nothing?
Ie, if you can’t have SP you’d prefer the pre Obamacare status quo?
16. July 2012 at 17:00
“By contrast, many on the right seem to have a hard time getting their heads around how there could be a shortage of aggregate demand. If unemployment is high, it must be because of unions, etc.”
This is a joke right?
AUCTION the Unemployed and we’ll see that ZERO people aren’t employed with ROI for the purchaser.
Only liberal distaste gets in the way of this economic fact.
One side is right, and one side is worthless liberals.
16. July 2012 at 17:36
Pragmatists are those without principles. And you’re not a Libertarian if you don’t believe in the NAP. Since you support central economic planning, which requires coercion, then you simply aren’t a Libertarian. You are a statist. At least be honest in your labeling.
Oh, and why not be for allowing people to freely choose their own money? Didn’t the creator of monetarism Milton Friedman have a television show called Free To Choose after all? Why not let people be free to choose their money?
16. July 2012 at 18:24
FEH and Mike…
I forget that around here one can’t use the short hand that passes on other comment sections. hahaha…
I am for a single payer system. Altho I don’t have a problem with Multi payer Universal systems…. I am for letting people opt out if they want to buy their own. And I don’t have a problem with means testing.
Germany’s system is fine, but it is heavily regulated by the government and I think it is a stretch to call it free market in any meaningful sense. It is a command economy approach. It is not completive forces that drive it in the least. It is more like the government giving private providers who self manage a universal contract. But the thing that really bugs me about the German system is that it relies heavily on employer contributions. That is a hidden tax. Why not just tax?
16. July 2012 at 18:29
Scott Sumner,
Seems like to some on this thread, because you are not an anarchist… you are a statist.
The left and the right can never be defeated…but you can never win. 🙂
16. July 2012 at 22:38
“Pragmatists are those without principles.”
The principle of pragmatism is that whatever works best should be used, regardless of which ideological school it comes from. That seems like a very sensible principle to me.
Right wing ideologues too often think that people who do not accept THEIR principles do not have principles, while the reality is that they adhere to a different set of principles, which they consider better.
16. July 2012 at 22:42
“Oh, and why not be for allowing people to freely choose their own money?”
There are a number of good reasons, but the one that is most imprortant to me is that monetary policy is needed to reduce the business cycles that result primarily from fluctuations in aggregate demand that market economies generate.
17. July 2012 at 00:59
[…] a recent post, Scott Sumner writes on the left-right dichotomy in economics, on how both are oftentimes right, and applies it to Greece. I could discuss all […]
17. July 2012 at 01:03
This is certainly true but there are also other factors.
Most importantly, it is fashionable to be anti-authoritarian. Now, plain simply if you feel the authority you hate is the capitalist, you go left, if it is the government, you go right. This is mostly based on personal experience, upbringing etc. Actually both often tends to be authoritarian, hence the division stays.
There are also moral aspects. Left: don’t be greedy and uncompassionate. Right: don’t be lazy and envious. Actually all are good values, hence the divison stays.
How about a philosophy that is against greed, against laziness, against government and against big business?
Well, that would be Distributism. The best of the two worlds of left and right.
17. July 2012 at 02:52
I’d agree that neither right or left will be defeated, mostly because they live in the mind of the true believers.
I expect they will be made irrelevant, however.
17. July 2012 at 03:47
Full Hawk:
monetary policy is needed to reduce the business cycles that result primarily from fluctuations in aggregate demand that market economies generate.
Why are you assuming the business cycle will occur in an economy where people can freely choose their own money?
Why are you saying violence is justified against peaceful behavior? Suppose there was a free market in money. What justification is there for pointing guns at people to monopolize money in the hands of the state?
The principle of pragmatism is that whatever works best should be used, regardless of which ideological school it comes from. That seems like a very sensible principle to me.
Works best according to who? To what? “Society”? Who in society? You only? Why aren’t these standards considered an “ideological school”? One is the ideology of altruism, the other is the ideology of egoism.
You present pragmatism as being ideology-free when it is anything but that.
Right wing ideologues too often think that people who do not accept THEIR principles do not have principles, while the reality is that they adhere to a different set of principles, which they consider better.
Left wing ideologues too often think that people who do not accept THEIR principles are dogmatic ideologues, while the reality is that adhere to a different set of principles, which they consider better.
17. July 2012 at 05:38
Distributism is what I preach everyday Shenpen.
17. July 2012 at 06:39
Curious Bystander
“the attempt to fix the «demand for money» by producing more of it is wrong”
“Wrong” is quite a normative statement. But you made it, fair enough. So, if you ran a private bank supplying money, a Central Bank of the Curious Bystander if you will, and demand for money rose due to a demand shock, you would tell your customers that you wouldn’t give them any more, even temporarily, is that what you are saying? Is that what MF is saying?
I would expect your customers to go elsewhere. And, as modern Austrians have shown, this is exactly what happens in reality. When money was short, and the money supplier couldn’t or wouldn’t respond, respectable, trusted instutions like business clubs or goods exchanges or companies step into the breach. And demand-shock induced recessions are ended.
And it is much better to have a clear rule as to how much money to produce and when to slow down, like forecast NGDP growth and possibly level tagettting, as this blog has shown. Not just “printing money”, but doing it with a very clear plan of when to start and when to stop, so that the money printer retains credibility for sound management.
17. July 2012 at 06:45
Shenpen and Morgan –
I like the Distributism of Chesterton and Belloc as well – I usually don’t use the word because people confuse it with redistribution-ism and think of it as a left wing socialist thing. I think of it as a recognition that widespread ownership of property (paid off homes, retirement accounts, etc.) is the way to maximize freedom and avoid both monopoly capitalism and socialism. Speaking of Chesterton, he gave the best reason why the left and the right will never be defeated:
“The whole modern world has divided itself into Progressives and Conservatives. The business of Progressives is to keep making mistakes. The business of Conservatives is to make sure those mistakes don’t get corrected.”
17. July 2012 at 07:38
There are two kinds of pundits, the philosophers and the demogauges.
Krugman is a demogauge. He the Anne Coulter of the left. I have no time for either Coulter of Krugman.
17. July 2012 at 11:09
James in London – «I would expect your customers to go elsewhere»
And I expect my self to be highly doubtful about the payablility of checks from «Elsewhere» banks. Are you surprised?
Now we do not have private banks with different money-providing policies, but we have different Central Banks. And I’ve never seen money flowing to NGDP paradises, like Argentina or, currently, Iran. Especially, during a crisis
– «When money was short, and the money supplier couldn’t or wouldn’t respond, respectable, trusted instutions like business clubs or goods exchanges or companies step into the breach. And demand-shock induced recessions are ended.»
You’ll have to be more specific. Because, this is an extraordinary claim.
And no, not enough money is never the problem. If tomorrow, Men in Black XCIX wiil double the quantity of money, fix accordingly all the prices, debts, contracts and our memories than we will have twice as much money and still the same problems.
So it is never about the quantity of money, it is always about the relative prices and/or money balances. Now you can claim that money printing will «fix» relative prices/money balances but that a quite different claim.
17. July 2012 at 12:49
Saturos, I don’t know what he means when he claims the size of the reserves is controlled by the Fed. The Fed controls the base. The public determines the composition. If the banks choose to hold fewer reserves, then the public must hold more cash. To get them to do so you either need to lower interest rates, raise NGDP, or some combination.
I think I have been more productive, although I don’t think I’ve “changed the world.” However, I’d add that by doing blogging I am not able to do “immersive” projects like my Great Depression study. I was only able to do that study by spending a decade of my life being a “complete loser.”
I don’t favor Obama over Romney, I’ll vote libertarian. I have blah feelings about both, and think the economy might do a bit better with Romney.
Alekseyev, You said;
“Part of the issue is that smart people like you should be trying to convince the GOP neo-austrian blowhards that they are actually wrong and/or convince the rest of the GOP that, to wit, a gold standard is no way to fix the modern economy”
I have about 500 posts doing that.
JL, I stand by my claim. If everything is political, then saying X is political is saying precisely nothing. I’m a pragmatist, I like to use language in a useful fashion.
Mike, Perhaps, but I was thinking of pundits, not politicians.
Greg, I’m just as much a libertarian as Friedman or Hayek.
Charles, Good point.
Jason, I’ll be dead by then!
I don’t believe in free will but support those conservative ideas, so I don’t see any relationship between the two sets of ideas.
Negation, Good point about Clinton.
Josiah, That’s a very interesting observation.
Razer, By your definition Friedman was not a libertarian.
Bill, A lot of people are more comfortable being an ideologue, they don’t have to think. Just like Marxism.
Shenpen, Distributism? Never heard of it.
18. July 2012 at 01:01
Curious Bystander: You are curiously unread. Have you heard of George Selgin? Go to his freebanking.com website and you will find numerous real life examples of private entrepreneurs and institutions creating trusted money, both in free banking periods and in periods of central banking failures.
18. July 2012 at 03:32
—Re-posted here under the correct blog entry—
“3. People who claim everything is politics are actually claiming that the word ‘politics’ has no meaning.”
JL: “I think the claim is more: Politics is an aspect of all human endeavour.”
JL, Yes, that comes closer to the original intent, I think. The full quote was:
“Der Menschenfreund kann den Unterschied von Politik und Nichtpolitik ueberhaupt nicht anerkennen. Es gibt keine Nichtpolitik. Alles is Politik.”
In other words, even if there would be a difference between “politics” and “non-politics”, as a practical matter we are unable to draw that line (unless perhaps one excludes non-philanthropes from “we”, but I don’t think that was the point).
That’s at least what Mann’s character Settembrini seemed to think, (which is not necessarily what Mann thought). I suspect Settembrini, and perhaps even Mann, would argue that “I’m a pragmatist” is, in itself, a political statement.
But, the main point of my comment was that economics is political””no, economics is *very* political, and more so today than ever”” whether one believes *everything* is politics, or not. When you frame the issue, as here, as one between “left and right”, it strikes me that that is a proposition that is pretty difficult to deny.
18. July 2012 at 09:53
James in London – «Have you heard of George Selgin?»
Sigh. I have quite a laundry list of what is wrong with George Selgin. From quite a short time period, if that matters. But let’s go back to the question that you kind of avoided. Support for the claim the a demand-shock induced depressions were fixed by privately provided increased supply of money.
Is there something like a canonical example of that? (Besides the Krugman baby-sitting coop story). Of course, there are historical examples of 2 + 2 being 5. Or, 7 black kitties. But I’m still interested.
18. July 2012 at 18:22
Vivian, I think this is silly. I see debates over the best way to cook scrambled egg as nonpolitical. If others want to call that debate political, they are entitled. It just seems to me that one has made the word meaningless when you do that. It just makes language more confusing, that’s the sense in which I’m a pragmatist. I see some parts of economics as being more political than others, but again that’s just my preferred use of the term ‘political.’