Why we are in this mess

From the NYT:

President Obama has yet to announce nominations to the remaining vacancies on the Fed’s board, but the White House has signaled that at least one of the two vacancies will be filled by someone with community banking experience.

In other news, American Airlines plans to hire a Boeing 747 co-pilot with experience driving a school bus.

I sometimes wonder if we should drop macro from the intro economics sequence, and just do two  semesters of micro.  Macro’s as hard as quantum mechanics if done right, and if done wrong . . . .

People tell me “you can’t do that, it’s important that citizens be knowledgable about important public policy issues like monetary policy.”

OK, let’s say that’s true.  If so, can you explain to me why citizens need to be well informed about monetary policy, but monetary policy makers don’t need to be well informed about monetary policy?

Just asking.

Seriously, we need two Federal Reserve Boards.  One for monetary policy and one for banking regulation.  Yes, that will add a few million dollars to the Federal budget, but has anyone computed the cost of bad monetary policy and bad banking policy?  Are we such cheapskates that we insist on trying to hire 7 “jack of all trades” to do a crappy job in both areas?

I gave a talk at the Cambridge Union today, which was quite an honor.  Working off the iPad now, so blogging will be sporadic.  Later in the week I’ll have a couple posts at Econlog that were written earlier.

 

 

 


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85 Responses to “Why we are in this mess”

  1. Gravatar of Joel Aaron Freeman Joel Aaron Freeman
    16. June 2014 at 15:17

    Software engineers call it “Separation of concerns.” You have a Monetary Authority that does money, a Banking Authority that does banks, and a Fiscal Authority that does spending. And you try to keep them all as far apart from each other as possible. The principle is adhered to religiously in software.

  2. Gravatar of Major-Freedom Major-Freedom
    16. June 2014 at 15:38

    In other news, socialists have always blamed people rather than socialism.

  3. Gravatar of benjamin cole benjamin cole
    16. June 2014 at 15:53

    Actually, the Fed should be part of the Treasury Department. Maybe voters cannot understand macroeconomics. I am struggling. Voters do understand results.
    If inflation is too high or the economy is crappy, let a visible elected official be held accountable, but also give that President the tools to change policy.
    In other words, the White House controls monetary policy and every four years I say yay or nay. Transparency, accountability, simplicity are the hallmarks of democracy. The Fed fails by every measure.

  4. Gravatar of Daniel Daniel
    16. June 2014 at 16:13

    Hate to say this, but Major_Moron is right. For a change.

    If the well-functioning of the economy depends on psychopath politician making the right choice in a field he is ignorant of, you’re asking for trouble.

    If we’re using engineering metaphors, a central bank is a single point of failure.

    Need I explain why that’s very bad ?

  5. Gravatar of Rajat Rajat
    16. June 2014 at 16:44

    There is no easy solution. Australia had Warwick McKibbin on the Reserve Bank Board, a former academic who had previously argued in favour of NGDP targeting. Then when NGDP starts falling below trend (in 2012), he argues for interest rate raises ,while simultaneously suggesting the RBA should sell AUD in the forex markets. Now, he reckons that the rate cuts have gone too far and risk creating ‘unsustainable booms’ in housing, etc, despite tepid NGDP growth and weak wages growth. Without committing to a futures market, we are destined to fail depending on which side of the bed our central bank chiefs wake up on.

  6. Gravatar of Philippe Philippe
    16. June 2014 at 17:56

    Daniel,

    MF’s arguments are just tautological. His definition of ‘success’ is whatever happens in his imaginary “anarcho-capitalist” world, and his definition of ‘failure’ is whatever happens in any world other than his imaginary “anarcho-capitalist” world.

    If it turned out that there was extreme, widespread poverty in his “anarcho-capitalist” world, he would still define that as a success, as whatever happens in that world is a success by definition, according to him.

    If on the other hand there was widespread prosperity in this world, he would still define that as a failure, as whatever happens in any world other than his imaginary “anarcho-capitalist” world is a failure by definition, according to him.

    MF is the perfect example of the pure ideologue for whom reality, truth, and facts are simply not important. The only thing that matters to him is his deranged ideology.

  7. Gravatar of Don Don
    16. June 2014 at 18:20

    It is not the job of the Fed. members to do econ proofs, write papers, or invent mechanisms. Those kind of people are cheap to hire. The job of Fed. members is make political decisions. It is a different skill set. The previous econ wonks have done a crappy job with monetary policy, because they could not make right political decision.

  8. Gravatar of Major-Freedom Major-Freedom
    16. June 2014 at 18:31

    Philippe:

    “MF’s arguments are just tautological. His definition of ‘success’ is whatever happens in his imaginary “anarcho-capitalist” world, and his definition of ‘failure’ is whatever happens in any world other than his imaginary “anarcho-capitalist” world.”

    I’ve already corrected you numerous times on this false assessment you keep making.

    Once again, no I am not defining what happens in anarcho-capitalism to be good, and I am not defining what happens in other ethical systems to be bad.

    Once again, anarcho-capitalist ethics ALLOWS individuals to define and seek THEIR OWN happiness and goodness, without having their property rights (derived from homesteading and free trade) violated.

    Whatever happens when people use such an ethic, will be good as determined by each individual for themselves, given that other individuals are also seeking their own good. When there are opportunities for individuals to seek their own good by way of exchange with others, then anarcho-capitalist ethics permits total and complete freedom for each individual to make exchanges of their property based on their own final judgment, again constrained to the exchange desires of others with their own property.

    This is not tautological.

    “If it turned out that there was extreme, widespread poverty in his “anarcho-capitalist” world, he would still define that as a success, as whatever happens in that world is a success by definition, according to him.”

    No, according to me, each individual would be free to seek their own good as determined by themselves, given that others have their good to seek.

    You propose that it is possible for there to be “extreme widespread poverty” in a world where initiations of violence against the indovidual are illegal. You have not made any attempt to make any case for why such an outcome might be had.

    “If on the other hand there was widespread prosperity in this world, he would still define that as a failure, as whatever happens in any world other than his imaginary “anarcho-capitalist” world is a failure by definition, according to him.”

    It isn’t the absolute wealth that matters, since a government that forces slavery and pyramid building would be considered less impoverished than a society without slavery where the people just so happened to be ascetics and “nature” oriented people.

    What you really mean is the possibility that anarcho-capitalist ethics somehow prevents people from becoming materially prosperous when they want to become materially prosperous.

    But how would total individual economic freedom PREVENT people from becoming materially prosperous? Again, you have not even attempted to propose any argument at all as to how or why.

    You are really just afraid of dying if you are not able to acquire wealth by force. You are just afraid of not being able to sustain yourself in a world without armed thugs who will take from others and give to you.

    In other words, your own worldview assumes that people can indeed produce wealth and become prosperous, you just want an ethic that would sanction initiations of force so that you can become wealthier while others become less wealthy.

    You are not really suggesting that everyone in an anarcho-capitalist world might be impoverished. You are only suggesting that you or a small group of people might be impoverished.

    “MF is the perfect example of the pure ideologue for whom reality, truth, and facts are simply not important. The only thing that matters to him is his deranged ideology.”

    Philippe, you are the perfect example of the pure ideologue for whom reality, truth, and facts are simply not important. The only thing that matters to you is your deranged pro violence ideology.

  9. Gravatar of Jason Jason
    16. June 2014 at 20:06

    What’s the dominant hierarchy in you anarcho cap world? Corporate city states? CEO princes (in the Latin and Renaissance meaning) with shareholder citizens? How do you deal with public goods issues and negative externalities? How do you “homestead” the AIR?

  10. Gravatar of Jason Jason
    16. June 2014 at 20:08

    And establish clear property rights to defend against pollution?

  11. Gravatar of Ralph Musgrave Ralph Musgrave
    16. June 2014 at 21:02

    A problem with having the Fed do bank regulation is that the Fed is infested with private bankers. They’ll just fight for preserving the status quo. And Congress is no better, as Senator Dick Durbin put it, “And the banks are the most powerful lobby on Capitol Hill….and frankly they own the place.”

    And in the UK, the finance minister (George Osborne) is a member of a political party which gets big donations from banks. So you can guess how enthusiastic he is about bank reform. In fact he’s been campaigning for ZERO IMPROVEMENT to bank capital ratios.

    Bankers and politicians are a heap of sh*t.

  12. Gravatar of TravisV TravisV
    16. June 2014 at 21:39

    Krugman: “Creative Destruction Yada Yada”

    http://krugman.blogs.nytimes.com/2014/06/16/creative-destruction-yada-yada

  13. Gravatar of Ralph Musgrave Ralph Musgrave
    16. June 2014 at 22:29

    Another recent article portraying bankers as nothing more than criminals:

    http://jessescrossroadscafe.blogspot.com.au/2014/06/anat-admati-seeing-through-bankers-new.html

  14. Gravatar of Scott Freelander Scott Freelander
    16. June 2014 at 22:39

    Scott,

    What if we had just a chairman that decided on monetary policy? Why not a single individual who can be sacked every 4-6 years, as needed? Or, for that matter, why not just hand it over to the Treasury, so that at least there are political incentives to have a good economy?

    And when it comes to banking regulations, we should greatly simplify them and probably eliminate many of them, in my view, such that regulation is much easier. Replace any judgement calls with hard and fast rules, such that maybe a financial regulation division of the FBI can enforce them. That means no off-balance sheet assets, no residential mortgage loans by federally insured institutions in which the payments can rise to more than 1/3 of verified income at the time the loan is underwritten, and if we insist on leverage ratios, ratios that reflect all assets of a certain character without respect to what we call them, or where or how they’re traded.

    Better yet, perhaps we should eliminate deposit insurance, after we show we can run our monetary policy better, and go back to at least pre-1930s regulation.

    More generally, one thing I’d really love to see is giving the courts the power to adjust or repeal laws that don’t empirically achieve their stated objectives, along with giving the Supreme Court, and perhaps some lower appeals courts the power to declare laws unconstitutional the moment they pass and are signed by the President. And while we’re at it, let’s repeal lifetime terms for members of the court and adopt a staggered term structure.

  15. Gravatar of Scott Freelander Scott Freelander
    16. June 2014 at 22:42

    Scott,

    Oh, and to simultaneously address the liberal concern with not enough financial criminals going to jail, and government being about to shake down banks for money, how about take the emphasis off of fining criminal banks and simply criminally prosecute individuals?

  16. Gravatar of Hansen Hansen
    17. June 2014 at 00:32

    Maybe, just maybe, Australia is a good example where (a) the board has industry representatives that get little sway when it comes to big decisions but are seen as important conduits to the anecdotal evidence among CEOs; (b) a prudential regulatory authority has sway with financial institutions; and (c) an inflation band of 2 to 3 per cent trimmed CPI acts as a nice proxy for NGDP growth. Then again maybe because everyone thinks our entire economy is based on mining means economists are afraid to generalise using our experience. Not to say everything’s perfect but I know where I’d rather be in terms of economic growth, taxes, health care systems etc.

  17. Gravatar of Daniel Daniel
    17. June 2014 at 01:54

    Philippe,

    What I said is that the very existence of a central bank is a major problem, and that we could do much better.

    Of course, the political feasibility of such an endeavour is questionable.

    It should be obvious I do not agree with his obscurantist rants.

    Let’s face it – whatever valuable insight the Austrian school had (and they had plenty) have already been integrated into mainstream economics. What’s left as distinctly Austrian is pure nuttery.

  18. Gravatar of ssumner ssumner
    17. June 2014 at 02:22

    Everyone, Because of network effects, there will be one medium of account. Whether government run or private, competent people are better than incompetent people.

    Due to the wisdom of the crowds, a committee is better than an individual policy maker.

    Perhaps the Fed should not do bank regulation, I’d prefer the Treasury do that.

    Only a barbaric country would decide “we need to put more bankers in jail.” Civilized countries prosecute individuals when specific crimes are committed. The real problem is that there are far too many regulations, making it almost impossible for large institutions (including governments themselves) to avoid breaking laws. That politicizes the legal system.

  19. Gravatar of Nick Nick
    17. June 2014 at 03:24

    ‘Due to the wisdom of the crowds, a committee is better than an individual policy maker.’
    Even if only one person set policy, he or she would still have a full crowd of employees. Indeed, it’s hard to say for certain that this is not the current de facto state of affairs. Our set up lacks accountability and transparency that could well make up for any lost wisdom on the FOMC.
    Plus crowds are only wise when they have skin in the game … We have the summer / fall 2008 minutes now … If I had to highlight all the parts displaying the ‘wisdom of crowds’ I guess I’d just do all the ‘(laghters)’ maybe?

  20. Gravatar of TravisV TravisV
    17. June 2014 at 04:08

    True or False?

    http://nyti.ms/1iAPBSA

    Krugman: “Health Care and Climate: President Obama’s Big Deals”

    “Mr. Obama is having a seriously good year. In fact, there’s a very good chance that 2014 will go down in the record books as one of those years when America took a major turn in the right direction.”

  21. Gravatar of dannyb2b dannyb2b
    17. June 2014 at 05:47

    “Danny, No, the Fed doesn’t just give people money, that would be fiscal policy.”

    I can understand that a transfer from the treasury is fiscal because it has to tax and borrow first but a transfer by fed of new printed money without cooperation of treasury must be monetary policy. I also understand that transfers have never happened or are rare by central bank so its assumed to be performed by treasury and therefore are called fiscal. But I think if the fed had capacity to perform transfers then it is monetary policy.

  22. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    17. June 2014 at 05:55

    This is more like American Airlines having a policy that its planes will be flown by a pilot and a co-pilot so that one is always a Democrat and the other a Republican. No flying experience is necessary as having a bipartisan flying crew should be enough to keep the plane in balance.

    Additionally, AA expects to gain political favors with the FAA for its enlightened policy.

  23. Gravatar of Andrew_M_Garland Andrew_M_Garland
    17. June 2014 at 05:55

    Sumner: “Macro is as hard as quantum mechanics if done right, and if done wrong …”

    Macro is much harder than quantum mechanics. Quantum mechanics has been verified and makes consistently correct predictions.

    Part of the problem with macro is that it works with inconsistent quantities. For example, NGDP depends on GDP, as if GDP were a defined quantity. But, government spending is given a preferred status in creating GDP.

    The public is misled by statistics for government spending, because this spending increases GDP by government’s accounting definition, no matter what is built. In reality, if you spend money (use resources) to dig a Keynesian ditch and refill it, then you starve, because the ditch fails to produce the food and other things which you really want.

    Most government spending is false GDP, leading to nothing of value. An accounting recession based on a decrease in this useless “production” would be good for the future, not an economic disaster. It is the Keynesian spending which represents misdirected resources and fruitless activity.

    ( econlog.econlib.org/archives/2013/01/wasteful_hiring.html )
    When Does Wasteful Hiring Cut Profits?
    01/31/13 – Econlog by Garett Jones
    === ===
    [edited] The boss hires his worthless, unemployed nephew. Does that raise or lower GDP?

    The answer depends on whether the boss is the government or in the private sector.

    [ GDP is measured as the market value of what the company produces, its sales, its income. That income goes to pay for inputs and labor. Whatever is left is profit or loss to the owners.]

    GDP = Income = Expenses + Wages + Profits.

    In private hiring, the nephew’s wages go up by say $100K, and profits go down by that same amount. GDP doesn’t change merely from hiring and spending on wages. GDP goes up only by what the nephew produces toward increased sales, in this case nothing.

    [ This makes sense. GDP is supposed to measure what is produced. ]

    In government hiring, wages rise by $100K and that is it! Government doesn’t report profits, so it pretends that there is no cost to the hiring, and says GDP has gone up by $100K no matter what is produced.
    === ===

  24. Gravatar of Lars Christensen Lars Christensen
    17. June 2014 at 06:20

    Excellent Scott…see you later! Then we will agree on everything once again…

  25. Gravatar of Vivian Darkbloom Vivian Darkbloom
    17. June 2014 at 06:25

    “In government hiring, wages rise by $100K and that is it! Government doesn’t report profits, so it pretends that there is no cost to the hiring, and says GDP has gone up by $100K no matter what is produced.”

    This is terribly narrow thinking and this particular example is not because macro is more difficult than quantum mechanics.

    If government spends $100K that does not mean that GDP goes up by $100K and that is really not how it falls out in the accounting. That government spending has to come from current or future taxes. Thus, the government spending reduces private consumption and spending, thereby reducing GDP. So, that is not “it”.

    True, there may be timing differences and the government may be given too much credit in the accounting of *its* net contribution to GDP, but no self-respecting quantum mechanic would make a bald statement as misleading as the one quoted above. The lack of fixed quantities and the plethora of moving parts makes macro indeed very difficult, but it also makes it very susceptible to intentional obfuscation. I fear that Mr. Garland has given us a prime example of the latter.

  26. Gravatar of Jon Jon
    17. June 2014 at 06:30

    We have two boards: the fomc and the board of governors. One is supposed to focus on monetary policy, one on bank regulation.

    Trouble is their composition isn’t determined the way you’d prefer and their tools are not split right: board of governors controls IOR and reserve policy. So you have one committee controlling the supply of money and the other controlling components of money demand. Oops.

  27. Gravatar of Scott Freelander Scott Freelander
    17. June 2014 at 07:40

    Scott,

    You replied:

    “Due to the wisdom of the crowds, a committee is better than an individual policy maker.”

    I thought this applied to large crowds, not committees. There is an extensive amount of research on problems that arise from committees making decisions, though I admit I’m not familiar with all of the research, positive and negative. Does research suggest committees make better decisions?

    And in response to this:

    “Only a barbaric country would decide “we need to put more bankers in jail.” Civilized countries prosecute individuals when specific crimes are committed. The real problem is that there are far too many regulations, making it almost impossible for large institutions (including governments themselves) to avoid breaking laws. That politicizes the legal system.”

    As I indicated, I would greatly simplify the regulations, but I still think the emphasis should be on punishing individuals rather than the companies themselves. I don’t think anyone is advocating putting people in jail for breaking arbitrary laws. I’m talking about prosecuting fraud, market manipulation and things like that. I haven’t seen anyone suggest we should just put bankers in jail because it makes us feel good, irrespective of justification.

  28. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. June 2014 at 08:01

    ‘I haven’t seen anyone suggest we should just put bankers in jail because it makes us feel good, irrespective of justification.’

    Haven’t seen Baseline Scenario? http://baselinescenario.com/

    That’s exactly what Kwak and Johnson want. Not to mention the loons in their comments section.

  29. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. June 2014 at 08:06

    I think Sinatra had a hit song about this (That’s Life…);

    http://www.reuters.com/article/2014/06/16/us-usa-jpmorgan-chase-discrimination-idUSKBN0ER20R20140616

    It has to be the bankers’ fault, it couldn’t be that they were just doing what the politicians said they should do.

  30. Gravatar of Dan W. Dan W.
    17. June 2014 at 08:23

    As it concerns jailing bankers, per the latest court ruling deliberate financial fraud is legal. It matters not what the prospectus claims. Rather it is up to the buyer to verify what is being sold.

    Thus, Goldman Sachs can lie to clients and as long as it has lazy clients it gets away with it. Of course if this is true then why do we have a SEC?

    “Goldman Sachs Group Inc. (GS) won dismissal of a suit over $450 million in residential mortgage-backed securities, with a New York judge saying that the firms that bought the bonds should have done more research beforehand. State Supreme Court Justice Charles Ramos dismissed the claims against Goldman Sachs today, saying the investors only reviewed data presented in offering documents for the securities and never asked to review files for the underlying loans.”

    http://www.bloomberg.com/news/2014-06-13/goldman-sachs-wins-dismissal-of-mortgage-security-suit-in-n-y-.html

  31. Gravatar of Brian Donohue Brian Donohue
    17. June 2014 at 08:28

    @Andrew (and Scott), why is the criterion for “hard” the ability to make sound predictions? By that standard, astrology is really, really hard.

  32. Gravatar of Doug M Doug M
    17. June 2014 at 10:31

    Macro’s as hard as quantum mechanics if done right, and if done wrong . . . .

    The problem with macro and quantum mechanics (or more aptly string-theory) is that most of it is “not even wrong.”

    Once you realize how much of the theory is in fact bulshytt, it becomes much easier.

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

    http://anathem.wikia.com/wiki/Bulshytt

  33. Gravatar of Floccina Floccina
    17. June 2014 at 11:19

    Daniel’s reasoning above is why I think that free banking would be the best solution. In the current system politicians and voters need to understand the monetary system and act in the interests of most people. In a free banking system even the bankers do not need to know how the system as a whole works. They just need to act in their own interest. They need to float more cash when their money’s circulation is slowing (its value is rising above par) and they need to absorb more cash when its circulation is speeding up (it is falling relative to par) both of which are in their own interest.

  34. Gravatar of AbsoluteZero AbsoluteZero
    17. June 2014 at 11:25

    Scott,
    Off-topic. Came across this book from work:
    Li Gan, et al., Data you need to know about China: Research Report of China Household Finance Survey – 2012. Springer, 2014.
    http://www.amazon.com/Data-need-know-about-China/dp/3642381502/
    It has a lot of very interesting data.

  35. Gravatar of flow5 flow5
    17. June 2014 at 11:45

    Macro-economics is simplistic, requiring only remedial math. All you need to understand is the use or non-use of voluntary savings. Keynes’s “optical illusion” is bad accounting. It is a fact. CBs do not loan out existing deposits (saved or otherwise). Savings are impounded within the commercial banking system.

  36. Gravatar of TravisV TravisV
    17. June 2014 at 12:32

    Benjamin Cole,

    Yes, QE is tapering but prices are…..accelerating????

    http://www.businessinsider.com/cpi-may-2014-2014-6

    http://www.crossingwallstreet.com/archives/2014/06/inflation-continues-to-rise.html

  37. Gravatar of Andrew_M_Garland Andrew_M_Garland
    17. June 2014 at 14:39

    To Vivian Darkbloom,

    You may think that this description of government accounting is crazy, but that is the way it is. Blame the government, not Garett Jones or me.


    To Brian Donohue,

    The sarcasm in my statment is what you point out. Is monetary macroeconomics hard because it is complicated or because it is ill-formed (wrong)? I think it is both.

    I am not an accredited economist, merely an intelligent observer (some controversy there).

    Consider the Fed’s mmonetary policy. They say they are “targeting” 2% inflation. So, what exactly are they doing and how do they know to do more or less? They don’t say. If there is a detailed plan, they haven’t revealed it. More amazing, there is much discussion that they can’t reveal their actions and intentions, because part of the effect depends on surprising the market participants!

    I say that is voodoo. They will supposedly have a good effect by surprising the businessmen, that is, by suddenly changing the conditions upon which the businessmen are making their plans.

    They won’t say what they are doing and they can’t make predictions for their actions. This is arbitrary manipulation, not science.

  38. Gravatar of dw dw
    17. June 2014 at 15:21

    do you really want to have politicians in charge of the economy? cause they could goose when election time comes around, and then let it stagnate after they get re-elected? seems like that exact scenario happened recently in Europe?
    http://www.bloomberg.com/news/2014-06-15/tusk-to-respond-in-polish-central-bank-governor-recording-furor.html?cmpid=yhoo

    and this was with a supposed independent central banker

  39. Gravatar of benjamin cole benjamin cole
    17. June 2014 at 16:25

    Travis–
    The price indices are no longer trending towards deflation, in the USA. I see no evidence, however, of demand-pull inflation. I contend the US economy is much less inflation-prone than 40-50 years ago.
    I disagree with Scott Sumner on one point: I think an accountable single leader at the Fed would have responded much more quickly and aggressively to 2008 than an unaccountable and even secretive FOMC. There is wisdom in crowds…so let’s trust voters.

  40. Gravatar of Major-Freedom Major-Freedom
    17. June 2014 at 16:49

    Daniel:

    Nuttery? Such as? YOU HAVEN’T EVER, NOT ONCE, shown how ANY aspect of Austrianism, not even a relatively inconsequential or esoteric point, is “nuttery”.

    And of course you’re totally wrong in your claim that the mainstream has “integrated” Austrianism. There is a gigantic gap between mainstream and Austrian econ. No exaggeration. The differences are so vast that even the core, fundamental epistemological considerations are different. There is no overlap. Austrianism is 100% grounded on individual action. Maninstream econ is nothing like this.

    Any similarities are semantic and superficial, and only because we speak the same language and have the same logical structure of cognitive activity.

    Now it should be noted, and this will probably go over your head higher than betelgeuse over hades, that everyone is an Austrian. By that I mean everyone actually grounds their knowledge on a foundation that Austrians make explicit, and, everyone is an individual actor who either consciously or subconsciously recognizes what they can know and how they know it, which Austrians also make explicit.

    You’re either an Austrian, or you’re an Austrian in denial. There is no exceptions to this.

    Given the above you might be asking how in the world that can be true, what with all the disagreements, and worse. The answer to that has everything to do with Austrians in denial who integrate that denial into their reasoning. Since there are many ways to be wrong but only one way to be right, we therefore have many different “schools” of economic thought.

    Schools that integrate Austrian denial into their thought necessarily contradict themselves. It just so happens Austrianism is correct. It could have been called Keynesianism or Friedmanism if either of those gentlemen discovered it and elucidated it. It makes no difference to me who discovered it.

    Action cannot be refuted, because all refutations are themselves actions. The character of absolute truth is necessarily irrefutable in that even attempts by us mortal, finite, limited human beings to refute it, ARE it. Absolute truth is truth that is present even in attempts to refute it. It envelopes all. All Austrianism is, is the body of knowledge grounded on this realization.

    You can call it crazy, you can call it wrong, you can think it’s crazy, dogmatic, extremist, silly, illusory, ancient, outdated, refuted, fundamentalist, psychotic, etc, etc, etc, etc, etc, etc, etc, etc, etc.

    Just know that I know that every single one of those conclusions you can make about it, are themselves actions. I am so certain it is true that I can truthfully and without a doubt correctly argue that there is absolutely no concievable refutation possible. I know this is absolutely the case because as mentioned above, all refutations are themselves actions. It cannot be undone.

    Does this rattle you? Does this shake your sensitivities, political correctness, or proper and approved way to approach search for knowledge? Does this “remind” you of tyrants and genocidal maniacs who were absolutely convinced they were right?

    Those tyrants were Austrians in denial, just like you, but their denial was particularly acute. Those whose denial is only mild, tend to be mild mannered people in practise, who understand who they are more than those who are more irrational and more violent. Most people on this blog are mild denialists.

    That difference is why you disagree with me. You are really disagreeing with who you are.

    I don’t give a shit about your fears. I give a shit about your potential to do things that will amaze and make me thankful to live among you.

    There is good in everyone. No individual is completely cut off from enlightenment. The reason why I post so much on this blog is not because of hate or resentment or anything negative. It is because of the level of the disagreement.

  41. Gravatar of Philippe Philippe
    17. June 2014 at 17:40

    MF is clearly a profoundly delusional individual.

    Everything you write is shit, MF. One day you might realize this, and then you will feel really stupid and embarrassed.

  42. Gravatar of Major-Freedom Major-Freedom
    17. June 2014 at 17:48

    Philippe:

    The more you disagree with me, the more you prove I am right, and the more certain I become.

    You have not shown anything I said is wrong.

    I will never feel either stupid nor embarrassed about what I wrote above.

    You are flinging nothing but spitballs 😂

  43. Gravatar of Philippe Philippe
    17. June 2014 at 17:49

    you’re contemptible.

  44. Gravatar of Major-Freedom Major-Freedom
    17. June 2014 at 17:54

    You’re in pain.

  45. Gravatar of Philippe Philippe
    17. June 2014 at 18:38

    Pathetic.

  46. Gravatar of ssumner ssumner
    17. June 2014 at 23:11

    Scott, There are studies that show that committees make better decisions than individuals.

    I do believe prosecutors are going after banks to make us feel better. banks were violating just as many laws in 2004, but we’re much less unpopular. Prosecutors respond to public opinion.

    Brian, I agree that ability to do predictions is not what makes monetary economics hard.

  47. Gravatar of Daniel Daniel
    18. June 2014 at 00:22

    Major_Moron,

    You can’t be that stupid and still be able to type.

  48. Gravatar of Jason Odegaard Jason Odegaard
    18. June 2014 at 07:03

    Turn all the banking regulations over to the FDIC – it’s an organization that frankly has stronger banking regulatory staff and functions already. Get the Federal Reserve out of it. There are only a couple of Federal Reserve banking regulations I consider appropriate: what qualifies as collateral at the discount window, and reserve requirements.

  49. Gravatar of Major-Freedom Major-Freedom
    18. June 2014 at 08:14

    Philippe:

    “Pathetic.”

    You’re upbringing was quite traumatizing, wasn’t it?

    Daniel:

    You haven’t SHOWN anything I said is “stupid.”

    You’re not very empirical are you? LOL

  50. Gravatar of Dan W. Dan W.
    18. June 2014 at 10:29

    Hot off the press the Federal Reserve Open Market committee declares:

    “The Committee continues to anticipate … especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.

    What long run is the committee talking about?

    The numbers from data.bls.gov show the current CPI running at 2.1% and the compounded annual CPI since 2009 is 2.2%.

    On what basis is inflation running below the 2% goal?

  51. Gravatar of Philippe Philippe
    18. June 2014 at 10:32

    MF,

    no, quite the opposite. Your crank pseudo-psychology bullshit is as pathetic as your crank pseudo-economics bullshit. You delusional clown.

  52. Gravatar of Gabe Gabe
    18. June 2014 at 10:53

    Sumner is calling for dividing up the powers of the Fed and seems puzzled about why the government doesn’t do that. It is almost like he forgets the real purpose of the Fed….to concentrate power/wealth in the hands of fewer people.

  53. Gravatar of Jason Jason
    18. June 2014 at 10:57

    So MF, what IS the dominant hierarchy in your anarcho cap world? Corporate city states? CEO princes (in the Latin and Renaissance meaning) with shareholder citizens? How do you deal with public goods issues and negative externalities? How do you “homestead” the AIR and establish clear property rights to defend against air pollution?

  54. Gravatar of Jason Odegaard Jason Odegaard
    18. June 2014 at 11:08

    @Dan W.

    The Fed generally uses the Personal Consumption Expenditure (PCE) price index.

    http://research.stlouisfed.org/fred2/graph/?g=DGd

    That still shows inflation below 2%. Also, even with the BLS’s 2.1% CPI rate for last month doesn’t mean it will stay at that level. It might rise, might fall. Best to wait a couple of months to see if this is a blip or a trend.

  55. Gravatar of Dan W. Dan W.
    18. June 2014 at 11:12

    Jason,

    Thank you. I’ll take a look at the PCE. FWIW, the annual compounded CPI since 2005 is 2%. I would think a decade constitutes a long run and a clearly positive CPI over 10 years negates any argument that deflation is at the door’s edge.

  56. Gravatar of Major-Freedom Major-Freedom
    18. June 2014 at 11:42

    Philippe:

    Denying it isn’t going to make the pain go away.

  57. Gravatar of Major-Freedom Major-Freedom
    18. June 2014 at 11:58

    Jason:

    “So MF, what IS the dominant hierarchy in your anarcho cap world? Corporate city states? CEO princes (in the Latin and Renaissance meaning) with shareholder citizens?”

    The only “hierarchies” (if such a term is used) allowed using the regular, normal, commonly understood ethic that initiating physical aggression against the individual and their property (if you don’t steal from or initiate force against others then you yourself actually live as an ancap, did you know that?) to be wrong and illegal, are voluntary hierarchies like business ventures, sports teams, clubs and associations, and all other cooperation where each individual’s property rights are legally protected by either themselves, or other individual property owners.

    The individual would be master of his own person and property, and nobody else’s, legally.

    “How do you deal with public goods issues”

    I reject the claim that such goods even exist. All goods are explained using economic science.

    “and negative externalities?”

    Property rights enforcement bans negative externalities.

    The state is a gigantic negative externality generating institution.

    “How do you “homestead” the AIR and establish clear property rights to defend against air pollution?”

    Similar to how governments establish it, only it would be illegal to use threats against people to suck up pollution from neighboring regions/countries, illegal to harm people’s bodies, and damage to property would have to be defined. I don’t see any permanent problems that reason cannot solve.

  58. Gravatar of John Papola John Papola
    18. June 2014 at 13:52

    Add my name to the petition for removing so-called “macro” from not just the intro economics sequence but all high school and undergrad study.

    We’d be living in a better world if more people understood the not-so-obvious, unseen truths that good micro reveals. Macro, on the other hand, is overwhelmingly a system that promotes the worst kind of dark-ages confusion. Let’s get rid of it.

    In place of “macro”, let’s have monetary economics and finance. But only after iron-clad proficiency in micro has been established.

  59. Gravatar of Benny Lava Benny Lava
    18. June 2014 at 15:43

    Scott, there is evidence that these sorts of groups will lead to bad decision making. I am surprised you are unfamiliar with groupthink.

    http://en.m.wikipedia.org/wiki/Groupthink

  60. Gravatar of Major-Freedom Major-Freedom
    18. June 2014 at 17:38

    Daniel:

    “If the well-functioning of the economy depends on politician making the right choice in a field he is ignorant of, you’re asking for trouble.”

    Daniel, I find your faith disturbing.

    The right choice? According to who? Clearly not the minority who are threatened with violence if they don’t obey “the” plan imposed on everyone.

    The individual makes the best decisions for themselves. It is impossible for a politician to make any enforceable decision that is “right” for more than only a handful of people, almost always special interest groups who want to use government force to aggrandize themselves more than they otherwise could through persuasion only, i.e. in the market.

    Your statist religion is almost as old as deity religion. Just like ancient peoples believed a single overlord in the sky should watch over them, so too do you believe that we should have a small group of majority elected overlords to watch over you and make you feel safe, regardless if individuals have to be sacrificed.

    The problem is not what you have allowed yourself into believing, that is, it is not “the wrong people” in charge of the socialist system. The problem is the belief the right people can be found for such an impossible task. It is impossible for one person or one group of people to use government force “the right way.” Every governmental action is nececessarily harmful to individuals who would otherwise choose a different path for themselves than the one government forces on them with its one plan one size fits all coercive solution.

    “If we’re using engineering metaphors, a central bank is a single point of failure.”

    It will always be a point of failure because its activity misleads market actors in being able to allocate capital and labor in sustainable configurations, but more importantly, its whole existence is possible only with initiations of force and coercion against innocent people.

    Economists have for many years analyzed and researched monopolies. The overwhelming conclusion has been, thankfully, that monopolies are economically inefficient, whose costs tend to rise over time while the quality of its output tends to decline over time.

    And yet…

    Even otherwise “free market” Chicago school types leave a gigantic blind spot for money. Such an incredibly important commodity in economic coordination, and the economics of monopolies are rarely if ever utilized in studying the government’s counterfeiting operation which is enforced in various ways as a de facto monopoly of medium of exchange.

    We hear that food production should be controlled by individuals in economic freedom. We hear it for clothing. Vehicles. Radios. Refrigerators. Insurance. Healthcare. Housing. Medicine. Etc. Etc.

    But money? For some reason up becomes down, black becomes white, and we hear that a monopoly over money is optimal.

    “Need I explain why that’s very bad ?”

    If the problem is the monopoly, then the solution is to eliminate the coercion that makes the monopoly possible. Open up medium of exchange to market competition. The government must cease demanding payment in its own fiat notes, at least cease taxing dollars from those who would not even transact in it.

    Milton Friedman in his later life, after he no longer felt a need to please anyone, such as Arthur Burns, said that the central bank should be abolished. He also wrote that money is much too important to be left to central bankers.

    If the Chicago school is Friedmanism, then all self-professed Chicago school types should immediately repent, ask for forgiveness, and start advocating for abolishing the central bank. If they care about truth, which admittedly is a very tall order to do, since the truth creates enemies in groups that up until then were stably self-destructive and based on deceit and lies. But to be a true intellectual, and not merely a sophistic opportunist, is to be relentlessly seeking and speaking the truth.

  61. Gravatar of Major-Freedom Major-Freedom
    18. June 2014 at 17:42

    John Papola:

    Even money can only be correctly understood with micro concepts.

    Don’t you find it strange to believe that macro this and macro that are all flawed ways of thinking, but oh let’s keep macro for money and only money? Seems arbitrary.

  62. Gravatar of Philippe Philippe
    18. June 2014 at 18:13

    “The only “hierarchies” (if such a term is used)”

    Yes, such a term is used by “austro-libertarians” all the time:

    “the natural outcome of voluntary transactions between private property owners is non-egalitarian, hierarchical, and elitist. In every society, a few individuals acquire the status of an elite through talent. Due to superior achievements of wealth, wisdom, and bravery, these individuals come to possess natural authority… Moreover, because of selective mating, marriage, and the laws of civil and genetic inheritance, positions of natural authority are likely to be passed on within a few noble families.”

    http://mises.org/etexts/intellectuals.asp

  63. Gravatar of Philippe Philippe
    18. June 2014 at 18:20

    Jason,

    “So MF, what IS the dominant hierarchy in your anarcho cap world?”

    “Noble families” according to Hans Hermann Hoppe (see quote above).

    “Oligarchy” and “natural aristocracy” according to Murray Rothbard:

    “If, then, inequality of income is the inevitable corollary of freedom, then so too is inequality of control. In any organization, there will always be a minority of people who will rise to the position of leaders and others who will remain as followers in the rank and file. Robert Michels [fascist sociologist] discovered this as one of the great laws of sociology, “The Iron Law of Oligarchy.” In every organized activity, no matter the sphere, a small number will become the “oligarchical” leaders and the others will follow.

    In the market economy, the leaders will inevitably earn more money than the rank and file. Within other organizations, the difference will only be that of control. But, in either case, ability and interest will select those who rise to the top.

    “If, then, the natural inequality of ability and of interest among men must make elites inevitable, the only sensible course is to abandon the chimera of equality and accept the universal necessity of leaders and followers. The task of the libertarian, the person dedicated to the idea of the free society, is not to inveigh against elites which, like the need for freedom, flow directly from the nature of man. The goal of the libertarian is rather to establish a free society… In this society the elites will be free to rise to their best level… we will discover “natural aristocracies” who will rise to prominence and leadership in every field. The point is to allow the rise of these natural aristocracies”.

    http://mises.org/fipandol/fipsec4.asp

    http://upload.wikimedia.org/wikipedia/commons/d/da/Misescrest.gif

  64. Gravatar of Daniel Daniel
    19. June 2014 at 01:07

    Major_Moron,

    You can’t be that stupid and still be able to type.

  65. Gravatar of TravisV TravisV
    19. June 2014 at 07:55

    Joe Weisenthal: Above-trend economic acceleration is actually happening. http://www.businessinsider.com/this-is-happening-2014-6

  66. Gravatar of Tom Brown Tom Brown
    19. June 2014 at 08:53

    O/T: New David Andolfatto post:

    http://andolfatto.blogspot.com/2014/06/how-far-are-we-from-trend.html

    Thoughts?

  67. Gravatar of Scott Sumner Scott Sumner
    19. June 2014 at 13:17

    Dan, No one expects deflation in the US. Regarding the 10 year inflation rate, people have drowned in lakes that average two feet in depth.

    John, I agree.

    Benny, Why do you think I am unaware of the problem of groupthink?

    Markets >>>>>>> groups > individuals

  68. Gravatar of Mike Freimuth Mike Freimuth
    19. June 2014 at 13:53

    I agree about teaching macro in the first year of econ. I am highly skeptical that any student has ever managed to understand how the macroeconomy works better from one macro principles class than they would without it and it probably largely confounds their understanding of micro.

    In trying to make it accessible, they usually strip anything meaningful out of it and just end up talking about identities like Y=C+I+G+X-N and then they say things that are misleading like “so when the trade deficit decreases, GDP increases.” Or they start drawing “aggregate demand” and “aggregate supply” curves without carefully explaining what those mean and then students have two versions of supply and demand which have fundamentally conflicting meanings and their sense of “demand” becomes something like “it’s the downward sloping line.”

    Or–best case scenario–if they are pretty on-the-ball, they just come away thinking macro is nonsense, haha.

  69. Gravatar of Saturos Saturos
    20. June 2014 at 04:54

    Greg Ip tries to bring down micro to the level of macro: http://www.economist.com/blogs/freeexchange/2014/01/minimum-wage-and-state-microeconomics

  70. Gravatar of Dtoh Dtoh
    20. June 2014 at 05:08

    For monetary policy, all we need is an application running on an iPhone.

  71. Gravatar of Mark A. Sadowski Mark A. Sadowski
    20. June 2014 at 05:48

    Scott,
    Have you seen this?

    http://www.moneyandbanking.com/commentary/2014/6/19/monetary-policy-target-regimes-inflation-price-level-nominal-gdp-etc

    “…The large gap highlights an important aspect of nominal GDP targeting: when the trend rate of real economic growth rises or falls, the implicit inflation objective also changes (in the opposite direction). The policy question is whether that is desirable. Would the Fed reduce systematic (undiversifiable) risk in the economy by stabilizing nominal GDP if doing so raises uncertainty about future inflation and the price level? Doing so conceivably protects debtors who anticipated a certain level of future income, but it also complicates decisions for households and firms who must distinguish relative price changes from inflation surprises in order to make efficient choices.

    All of this leads us to conclude that returning to the price path implied by the pre-crisis trend is a realistic possibility. Returning to the earlier nominal GDP path is not. That said, the inflation overshoot that our rough calculations suggest is moderate, so the benefits are likely to be limited. But the costs could include a loss of credibility in the inflation-targeting framework. Would that really be worth it?”

  72. Gravatar of dtoh dtoh
    20. June 2014 at 06:15

    Mark,
    Are those guys really economists?

  73. Gravatar of Nick Nick
    20. June 2014 at 07:11

    Scott,
    Have you seen these two post from Tim Duy on the latest FOMC statement / press conference?
    http://economistsview.typepad.com/timduy/2014/06/still-a-dove.html
    http://economistsview.typepad.com/timduy/2014/06/janet-yellen-the-hawk.html

    An interesting duality. In the first he gives a ‘conventional’ response and calls the chairman a dove. In the second, he tells it like it is.
    Do you think the committee may now be ‘tapering’ the terminal fed funds rate projection (despite the chair’s comment to the contrary)?

  74. Gravatar of Major-Freedom Major-Freedom
    20. June 2014 at 13:00

    Daniel:

    You haven’t shown anything I said to be “stupid.”

  75. Gravatar of Major-Freedom Major-Freedom
    20. June 2014 at 13:04

    Sumner:

    “Markets >>>>>>> groups > individuals”

    Except money and what aggregate spending ought to be.

    Then it is:

    “Individuals (Sumner) > groups (Central bank) >>>>>>>>> Markets”

  76. Gravatar of TravisV TravisV
    21. June 2014 at 06:04

    Why we are in this mess:

    Joe Weisenthal: “Inflation: There’s A Big Disagreement Between Wall Street And The Fed “” And It Will Be The Story Of The Summer”

    http://www.businessinsider.com/inflation-wall-street-vs-the-fed-2014-6

  77. Gravatar of TravisV TravisV
    21. June 2014 at 06:42

    Prof. Sumner,

    You might enjoy this long article Yglesias just wrote on the tax reform debate within the GOP:

    http://www.vox.com/2014/6/20/5826030/this-is-the-most-interesting-argument-in-american-politics-today

  78. Gravatar of Kevin Erdmann Kevin Erdmann
    21. June 2014 at 23:38

    Hey Scott and everybody,

    I hope I’m not being too presumptuous, but over the next few weeks I’ll have a 9 part series of posts at idiosyncraticwhisk.blogspot.com that kind of describe a counterintuitive idea of business cycles, monetary policy, and broad financial analysis. Several of you have been kind enough to read and comment on some earlier ideas I’ve floated, so I’d love to get feedback as the parts get posted.

  79. Gravatar of TravisV TravisV
    22. June 2014 at 04:37

    Hank Paulson: “Lessons for Climate Change in the 2008 Recession”

    http://equitablegrowth.org/2014/06/21/evening-must-read-hank-paulson-essons-climate-change-2008-recession

  80. Gravatar of Chris Mahoney Chris Mahoney
    22. June 2014 at 09:00

    Low inflation and low interest rates are in the process of killing community banks, since the all-in cost of gathering retail deposits now exceeds the interbank rate. So maybe a community banker will be a dove.

  81. Gravatar of ssumner ssumner
    23. June 2014 at 03:31

    Everyone, Thanks for the all the interesting links, I’ll try to get caught up over the next few days.

    Kevin, Remind me again if I forget–that goes for others with very important links.

  82. Gravatar of TravisV TravisV
    23. June 2014 at 03:39

    How can this possibly be true?

    “So-called “Core” Europe (Germany and France) are sputtering while peripheral Europe (the countries that had the worst of it in the crisis) continue to strengthen.”

    http://www.businessinsider.com/european-pmis-2014-6

  83. Gravatar of ssumner ssumner
    27. June 2014 at 06:29

    Travis, The natural rate hypothesis explains that. In the long run countries return to their natural rate of output.

  84. Gravatar of TravisV TravisV
    27. June 2014 at 06:38

    Prof. Sumner,

    Thank you for profoundly enlightening me almost every day!

  85. Gravatar of ssumner ssumner
    28. June 2014 at 08:20

    Travis, Thanks for all the great links.

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