Vox Popoli

A Dog Named Op queries:

I didn’t hear much from the folks here about that electronic bank heist back in September,.. where billions of dollars suddenly got sucked out of the banking system and gov’t had to drop billions to keep the economy from collapsing. What was up with that? Was it Soros? the Chinese? the Saudi’s? Or all of the above?

According to my secret sources, it was an exploit by Goonswarm concocted by The Mittani.

For some reason, yesterday’s column drew more positive email than the last 10 combined. This one, from a fellow Mensan, was pretty par for the course:

You make more sense in a few paragraphs than all of the establishment wizards…. You should be teaching Economics!

I rather doubt that; I don’t have the patience for those who don’t grasp things the first time that a good teacher requires. Anyhow, speaking of the establishment wizards, I was perusing one of Paul Krugman’s books in order to dig up what I remembered was a very untimely prognostication favoring newfangled equity investments over the barbarous relic. I didn’t find it there, as it turns out the advice was given in a different publication, but I did find something even more useful; the policy prescription that is very likely to succeed fiscal stimulus once it becomes apparent that the stimulus attempts have failed.

The standard response to recession is to cut interest rates…. Japan was a bit slow about cutting interest rates after the bubble burst, but it eventually cut them all the way to zero, and it still wasn’t enough. Now what? The calssic answer, the one that has been associated with the name of John Maynard Keynes, is that if the private sector won’t spend enough to maintain full employment, the public sector must take up the slack….

And in fact Japan tried. Since the early 1990s the government has produced a series of stimulus packages, borrowing money to build roads and bridges whether the country needed them or not. These packages created jobs directly; they also clearly did provide the economy with some boost every time they were tried. The trouble was that the programs didn’t seem to get enough bang for the yen…. In short, the attempt to jump-start the economy with deficit spending has reached its limits. So now what?…

The answer is that an economy which is in a liquidity trap needs expected inflation – that is, it needs to convince people that the yen they are tempted to hoard will buy less a month or a year from now than they do today.
– The Return of Depression Economics, pp 78-79

Krugman talks openly about how those who support this idea of “quantitative easing” are biding their time and waiting for when further bad news finally makes “the time ripe for radical action”. What he’s really talking about here is the introduction of negative interest rates, of money with an expiration date. I think this may partly explain why the hyperinflation/deflation debate is so difficult to settle, because the switch from monetary policy to fiscal policy has largely taken inflation off the table for the time being while the stimulus programs are enacted. Only once they fail will the economic leeches return to trying to treat the patient by further bleeding him.

There will almost surely be at least three rounds of stimulus attempted before the neokeyns finally despair of fiscal policy, which means that quantitative easing/negative interest that Krugman is prescribing here probably won’t be seriously discussed until mid-2010 and won’t be enacted any sooner than late 2011.

I would be remiss if I failed to note that Chad the Elder of the Fraters Libertas, that longtime stalwart of the Northern Alliance Radio Show, announced the end of his radio career last week. I always enjoyed being a guest on the show, and very much appreciated his favorable blurb of The Irrational Atheist. He will be sadly missed by at least 14 of the 67 people in the Twin Cities who still have AM radio.

I wish him the very best of fortune in his future endeavors, and eagerly anticipate what will surely be his inevitable Favrean return to radio when the itch to perform on the audio stage overwhelms him this autumn.

As always, the Nihilist in Golf Pants has the real story behind the story.

In which it is explained how the three extant economic schools recommend dealing with the current crisis:

The failure of monetary policy has caused many economists and politicians to return to the Keynesian school, which primarily concerns itself with fiscal policy. Just as the Federal Reserve’s control of the price of money – the interest rate – is the primary tool of the monetarists, government spending is the primary tool of the Keynesians, or more properly, Neo-Keynesians, since even the biggest fans of John Maynard Keynes have been forced to acknowledge at least some of the fundamental flaws in his economic theories. The core of the Keynesian theory of economic contraction is a failure of demand to meet supply, or to put it more simply, people are refusing to buy enough stuff to keep the economy growing. This is why Neo-Keynesians like Nobel Prize-winner Paul Krugman worry about “the looming hole in the U.S. economy,” by which he means the difference between what could be produced by the economy and what will actually be bought.

Filling this gap is the purpose of the stimulus package; it represents the government stepping in to buy what consumers will not. In his column entitled “The Destructive Center,” Krugman fearfully cites the Congressional Budget Office’s calculation that this gap between potential supply and expected demand is $2.9 trillion over the next three years. His worries are based upon the idea that the $787 billion stimulus package which passed last week is only one-quarter the size it would have to be to fill the demand gap.

On a related note, the Mises Economics blog posts a link to an interesting interview with noted neokeyn Paul Krugman. The following exchange comes from the 14 minute mark:

CSPAN: Our next caller is from Urbana, Illinois.

CALLER: Hi, Thanks for taking my call. Mr. Krugman represents the Keynesian view of the economy and he was blindsided by this debacle. The Austrians, on the other hand, represented by Ron Paul, the Mises Institute, and Peter Schiff, did predict this. Now, they’re [the Keynesians] the ones who are given the role of getting us out of this debacle, but they didn’t predict it.

KRUGMAN: Um, tch, boy, tch, I don’t even want to go into the Austrian stuff. It’s, ah, it’s not major school. But look, um, I was, what can you say… uh, I was closer to this than, ah, the bulk of the people who were giving pronouncements about the economy. I saw the housing bubble, I saw the bursting of the housing bubble was going to be nasty. So, I don’t know what more to say. We can bring in Austrians, we can bring in whatever you want, but this is a classic crisis. This looks very much like what happened in the beginning of the Thirties. It looks like what happened in Japan. Those of us who did see those parallels are in better shape to hopefully find a way out than those who assured us everything was fine….

CSPAN: So the lesson is, whether it’s the tulip mania in Holland or the Internet mania here in the US, what can we take away from this, these bubbles?

KRUGMAN: Well, bubbles happen. Bubbles which people believe prices of assets only go up happen. Um, defective financial systems happen, banking crises, very much. We thought we had ended those but it turns out the banking system was not effectively regulated. So, um, but, this is bigger. The main thing to understand is that this is much bigger than the dot com bubble of the late nineties. This is on the same scale as the Japanese bubble of the late eighties and therefore is very, very serious.

Bubbles happen? Seriously, just… bubbles happen? And more regulation would have somehow prevented it? That response, above all, tells you everything you need to know about the intellectual bankruptcy of the neokeyns. I have no doubt that he doesn’t want to get into the Austrian stuff… nothing like an appeal to a nonexistent authority to avoid getting embarrassed. And are we seriously supposed to be impressed that he managed to discern the reality of the housing bubble in 2005? How very impressive, especially for a Nobel Prize-winner who failed to see either the dot com bubble or the credit crash until after the fact.

May 27, 2005: Remember the stock market bubble? With everything that’s happened since 2000, it feels like ancient history. But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses. I’ve never fully accepted that view. But looking at the housing market, I’m starting to reconsider.

Notice that Krugman didn’t manage to see how the housing crash would bring about the subsequent financial crisis, even though I had pointed out the probability three years before, as had many other Austrians.

As usual, the wisdom of the Bible trumps that of the world:

Make it your ambition to lead a quiet life, to mind your own business and to work with your hands, just as we told you, so that your daily life may win the respect of outsiders and so that you will not be dependent on anybody.
– 1 Thessalonians 4:11-12

For me, one of the most convincing aspects of the Bible is the way that its recommendations are fundamentally, even scientifically, more sound with regards to how one should live one’s life on a daily basis than the advice produced by legions of scientists, psychologists, and life coaches operating with the benefit of an additional 2,000 years of experience.

This verse just happened to catch my attention following the recent discussion of the Forbes article on the college scam.

One thing I’ve never understood about those who stand by the Woman Warrior trope is their insistence that the complete absence of the type throughout the course of human history is the result of the same cultural prejudice happening to appear in every historical culture, however disparate. I’ll consider taking the matter seriously when the related cultural distinction between male and female sports is finally eliminated.

Anyhow, one thing I rather like about Black Gate is that it’s one of the few places where more or less controversial subjects can be discussed in a perfectly civilized manner.

Note to self: when attempting to improve public image, try to refrain from beheading anyone:

New York man Muzzammil Hassan founded pro-Islam station Bridges TV five years ago to combat the negative public image of Muslims. He is currently under arrest for beheading his wife.

On the other hand, orkish shrieking about being mad headchoppaz does appear to be working rather effectively in the United Kingdom. And, of course, I imagine the divorce rate would drop precipitously were American men to begin following Mr. Hassan’s forthright example upon being served with divorce papers.

In which Michael Ledeen channels Eddie Izzard:

It’s not surprising that Newsweek won’t call the dramatic expansion of state power over the private sector by its proper name: it’s fascism, not socialism (which rests on the abolition of private property). To be sure, the political consequences—loss of individual liberty, concentration of wealth and regulatory clout in the central government—are much the same, which is the main point.

In the proper ideological sense, Ledeen is right, as much of what both Bush and Obama have been proposing – and what the Congress has been legislating – is not socialism proper but rather something more akin to an internationalist spin on Italian-style fascism. He’s entirely correct to point out that no one on the Left side of the aisle is openly considering, much less proposing, the abolition of private property. All the public-private partnerships, the government authorities overseeing industries and corporations, the militarization of the populace for non-military purposes, etc., are quite familiar, it’s the old Third Way that has been of such grand appeal to politicians such as FDR, Bill Clinton, and England’s Tony Blair.

However, I still suspect that where Bush is a fascist at heart, Obama is a socialist by inclination. Obama may settle for what HG Wells approvingly called liberal fascism because it’s achievable at the moment, but it’s fairly obvious that he’s a run-of-the-mill international socialist of the sort so common in Europe.

The big difference between these regrets and those of women who regret having married too soon is that while one can end a marriage, one can’t turn back time:

I wish a more balanced view of womanhood had been available to me. I wish that being a housewife or a mother wasn’t such a toxic idea to middle-class liberals of yesteryear. Increasing numbers of my feminist friends are giving up their careers for love and children and baking. I wish I’d had kids ten years ago, when time was on my side, but the problem is not so much time as mentality. I made a conscious decision not to have serious relationships because I thought I had all the time in the world.

In love, life, and business, the window of opportunity is always of limited duration. I, for one, am quite glad that Spacebunny was intelligent enough to know that she did not have all the time in the world when we first met.

Paul Krugman fails to realize he’s talking about himself:

And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice.

Keynesian fiscal stimulus failed after the 1922-1929 boom. It failed after the 1980-1989 Japanese boom. Monetary stimulus sufficed to prop things up after the 1996-1999 equity boom, but it’s clear that both monetary and Keynesian stimuli are going to fail again following the 2003-2007 housing boom. One would do well to describe it as a grotesque failure, even as adherents of the doctrine roll out their excuses that it wasn’t big enough… again.