Last Build Date: Fri, 02 Dec 2016 17:04:20 -0500Copyright: Copyright 2016
Fri, 02 Dec 2016 17:04:20 -0500
width="440" height="250" src="https://www.youtube.com/embed/1xqtjc_YADI?rel=0" frameborder="0" allowfullscreen>
I was on RT, the Russian-government-funded news network, earlier this week, talking about various issues. My segment begins around the 15:00 point and goes to about 22:30.
Some friends have questioned the wisdom of going on a network funded by the Russian government. I understand their concerns. Here's what I can say: In all the times I've been on, they've never edited the interviews to distort. Indeed, on average, they are better, at least to me, than other media, government-funded and otherwise, in the United States. One of the worst experiences I ever had with media distortion was with the Los Angeles Times, which isn't government funded. Another of the worst was with Warren Olney, on a radio station that might get some government funds.(4 COMMENTS)
Fri, 02 Dec 2016 09:25:28 -0500
I recently participated on a panel in London, discussing options for monetary and fiscal policy. At one point I mentioned that if the Japanese didn't want such a large central bank balance sheet, then they ought to set a higher inflation target. (Of course I'd prefer an NGDP target, but it was easier to explain my point using their currently preferred target variable.)
Someone in the audience objected that higher inflation would hurt elderly Japanese on fixed income, and this might reduce aggregate demand. In contrast, I think it would boost consumer spending in Japan. Furthermore, I believe the audience member was reasoning from a price change, whereas I was not. Why?
The audience member made the mistake of thinking about the impact of inflation, without thinking about the cause. If the cause had been disruption to Japanese production from the 2011 tsunami, then his reasoning process would have been correct. (Although in that case the impact would have been too trivial to mention. Even the most massive natural disasters have only a tiny impact on macro variables in large diversified economies.) However, in my hypothetical the inflation was caused by monetary stimulus, not an adverse supply shock.
An increase in inflation caused by an expansionary monetary policy will first shift the AD curve to the right. In the short run output may increase, due to sticky nominal wages. Even if output does not rise, it will certainly not decline as a result of higher AD. It is inflation from adverse supply shocks that causes people to buy less stuff.
Japanese unemployment has recently fallen to 3%, so I would certainly not recommend monetary stimulus in Japan for the purpose of boosting employment. But I might recommend it for three other reasons:
1. Ease the burden of the national debt
2. Reduce the zero bound problem for monetary policy
3. Reduce the role of the BOJ in the Japanese economy.
In normal circumstances, it is not wise to inflate away the debt. It is unfair to lenders, and reduces policy credibility. In the case of Japan, however, previous deflation unfairly favored borrowers, and steeply increased the ratio of public debt to GDP. A modest amount of inflation is justified in that case---but nothing more than 3% in my view. In addition, when the interest rate is zero, the equilibrium rate is often below zero, which means that lenders to the Japanese government are earning an above equilibrium rate of return. A bit more inflation can prevent that.
2. If the Japanese shifted to NGDPLT and/or abandoned the short-term interest rate as a monetary instrument, then the zero bound problem would not be an issue. But as long as they use interest rates to target inflation, monetary policy becomes less effective at very low inflation rates. Thus if they refuse to adopt a sensible monetary policy, then a slightly higher inflation target might make sense as a way of keeping the policy rate above zero, a sort of "second best" policy.
3. The size of the BOJ balance sheet is inversely related to the trend NGDP growth rate. In recent years the balance sheet has become huge, with the BOJ even buying equities. I prefer less government involvement in the economy, and hence a smaller balance sheet. That means a slightly higher inflation target.
As I keep emphasizing to conservatives, it's socialism or inflation.
Thu, 01 Dec 2016 14:01:33 -0500Shikha Dalmia and George Borjas' immigration debate in Reason manages to be intriguing and aggravating at the same time. For me, the highlights are when Borjas leaves technical economics and lays his ideological cards on the table. Borjas is in blockquotes, I'm not.
Most victims of Communism, in my experience, take away lessons like, "Human rights matters," "Government should respect individual liberty," "The fact that government does something doesn't make it right," "Forbidding emigration is monstrous," or just "Socialism is evil." Borjas, in contrast, takes away the lesson that "Ideology is bad." Which is simply bizarre. Castro ruined Borjas' native Cuba because his ideology was totalitarian. If Castro's ideology had been pro-market and pro-freedom, Cuba would be a great place today - and Borjas might be at the University of Havana writing books to keep immigrants out of Cuba instead.
My research was never motivated or influenced by what I thought about individual liberty or the rights of people to live anywhere they want. My personal experience with Communist indoctrination when I was 10 and 11 years old left me very wary of thinking about anything in ideological terms.
When push comes to shove, I will side with policies that improve the well-being of the American worker.This is no less "ideological" than siding with policies with improve the well-being of whites, women, Germans, or the international proletariat. And like all of these ideologies, Borjas' is subject to devastating counter-examples. Like: Suppose enslaving the whole population of Cuba would improve the well-being of the American worker. When "push comes to shove," would you favor that?
Thu, 01 Dec 2016 13:02:08 -0500
Many people worry that if Obamacare were replaced in one fell swoop, almost all the people who enrolled in Medicaid due to the law would lose their health insurance. This worry is understandable. Nevertheless, it turns out to be unjustified. Many of the people who were enrolled in Medicaid as a result of Obamacare would lose their insurance. But even a greater number would not. And the evidence for this comes from MIT economist Jonathan Gruber, one of the architects of Obamacare.
In an April 2016 NBER study that Gruber co-authored with Harvard's Molly Frean and Benjamin D. Sommers, "Premium Subsidies, the Mandate, and Medicaid Expansion," NBER Working Paper No. 22213," the authors show that 60 percent of the increase in coverage due to Obamacare was in Medicaid. That's a fact that's now well known and is behind many people's worry about the effects of repealing Obamacare. But, the authors show, 2/3 of that 60 percent were people who were already eligible for Medicaid before Obamacare began.
That's good news for those of us who want to repeal Obamacare because it means that this 2/3 would not lose their coverage even if Obamacare were repealed lock, stock, and barrel.
But why is this number of people who were previously eligible so high? Why weren't they already receiving Medicaid? We don't know, and the authors don't claim to know. But there are two possible explanations.
Probably the more-important one is the "woodwork effect." The idea is that the publicity around Obamacare and the Medicaid expansion brought people out of the woodwork who didn't know they were eligible or knew but hadn't got around to it.
The other explanation is the "mandate effect." It's possible that some people who were eligible for Medicaid knew they were eligible but didn't want to enroll. Why? It's still true that there are people in this country who regard Medicaid as welfare and don't want to go on welfare.
A personal story about my experience with Medicare in Canada: Medicare is the name for the federally mandated socialized health insurance program that is run by the provincial governments. In the 1970-71 academic year, while I was living in Manitoba and teaching myself economics by reading economics journals, I refused to sign up for Medicare. I was against the program on principle and didn't want to be part of it. But one day I got a phone call from a Manitoba government official who threatened me. He told me that if I persisted in not signing up for Medicare, the government would forcibly put me on welfare. Yuck! I don't know how they would have done that, but this 20-year-old believed them. So I signed up.
Similarly, some of the people who were, as noted above, previously eligible for Medicaid and signed up might have done so because they were forced to do so. So, for them, getting rid of Obamacare would be a blessing.
So we have 3 sets of people who were newly on Medicaid due to Obamacare:
1. The one third who were newly eligible. Most of them would be worse off with repeal. I say most, not all, because it's conceivable that some of them did not want Medicaid but signed up because of the government's threat of force for those who didn't.
2. The fraction of the two thirds--and we don't know what that fraction is, but it is likely to be over half of the two thirds--who were previously eligible for Medicaid but didn't get it, and want it. This is the woodwork effect. They would not be hurt by repeal because they could stay on Medicaid.
3. The fraction of the two thirds--and it's likely to be under half of the two thirds--who were previously eligible for Medicaid, didn't want it, and were forced to get it. Repeal of Obamacare would make them better off.
Wed, 30 Nov 2016 14:15:07 -0500In the last few weeks, several critics have told me things like: "History will not be kind," "History will judge you," and "You are on the wrong side of history." My initial reaction is sheer puzzlement. If my critics can't persuade me with the evidence they currently possess, do they really think they can persuade me with evidence they claim they're going to acquire in the future? One carefully-tailored bet would be worth a thousand of their Cassandra cries.
Wed, 30 Nov 2016 10:56:09 -0500
In this post I will discuss two primitive cultures, the Sudanese and the Americans. I will argue that both need to adopt a utilitarian ethical framework. Let's start with the Sudan.
In the Sudan, female genital mutilation is a common practice. A western visitor to the Sudan might make the following argument:
"Yes, your culture views this practice as very important, related to deeply held beliefs about purity and the female body. But from a practical point of view it is harmful. It can result in pain, as well as severe medical problems and even loss of life. You should abandon this practice."
Now consider this recent passage from the New York Review of Books:
Calabresi's most plausible example of a merit good involves bodily organs. The law forbids people to buy and sell kidneys, and one reason does involve inequality: it's gruesome to think of poor people walking around with fewer organs because rich people have made them an offer they can't refuse.The rich/poor distinction is a red herring. Under the current system, the rich are far more likely to receive kidney transplants than the poor. If a market were created, virtually all Americans who needed kidneys would get them, both rich and poor, because it's much cheaper for medical providers/insurers/Medicaid to pay for a transplant, than to take care of someone who needs a transplant.
The real concern is that selling an organ is morally repugnant. The human body is sacred, not a commodity to be bought and sold. So how might a visitor from Iran react to America's cultural views on the body? (In Iran, kidneys can be sold, and there is no shortage. In America, many thousands die each year because of our kidney market prohibition). Perhaps an Iranian would respond as follows:
"Yes, your culture views the human body as scared, and organ sales violate your deeply held beliefs about purity. But from a practical point of view this prohibition is harmful. It can result in pain, as well as severe medical problems and even loss of life. You should abandon this prohibition."
I believe that these two primitive cultures, the Sudanese and the Americans, could learn a lot from reading Jeremy Bentham, and also from studying Iranian cultural practices.(17 COMMENTS)
Tue, 29 Nov 2016 17:05:29 -0500
Lars Christensen has a new post pointing to a recent interview of John Allison, who is being considered for the post of Treasury Secretary. Here is what Allison said:
We need discipline, we need some kind of rule, I like the Taylor rule, I like some kind of GDP indexing rule...
1. In context, he clearly meant NGDP rule, not RGDP rule.
2. The Taylor rule is an instrument rule, that is, a technique for achieving a 2% inflation targeting rule. NGDP targeting rules are policy goals, analogous to 2% inflation targets. I think the most sensible way to read his comment is that he's open to NGDP targeting, but would like it to be implemented in a rules-based fashion; something analogous to a Taylor Rule, but not necessarily identical.
3. My guess is that George Selgin may have influenced Allison's thinking on this issue. George has long advocated NGDP targeting, or at least something closely related. In addition, Allison mentioned a long term goal of having the sort of free banking regime that once existed in Scotland and Canada. George Selgin (and Larry White) are experts on the history of free banking. And finally, George directs a monetary program at the Cato Institute, and Allison recently headed the Cato Institute.
4. In most countries, the Treasury Secretary is more powerful than in the US. For instance, in the UK the Chancellor of the Exchequer is the one who gives the central bank its mandate. In the US, Congress provides the mandate, although conceivably the Treasury Secretary could have at least some influence on the formation of legislation in Congress. After all, it has to be signed by the President.
5. I'm not a fan of the President and/or Congress giving the Fed a specific NGDP target. However, I do favor a policy change that would call on the Fed to devise a more specific and transparent policy rule, and a metric for evaluating whether past policy was too expansionary or too contractionary. Because inflation is impacted by supply shocks, I believe this mandate would push (nudge?) the Fed toward NGDP targeting, as it would provide a clearer measure of AD growth over time, and hence a clearer measure of whether policy was too easy or too tight (especially compared to inflation.)
HT. George Selgin, TravisV
Tue, 29 Nov 2016 16:33:03 -0500
Twitter today is all heated up with justifiable upset about Donald Trump's latest anti-liberty proposal: a prison sentence and possibly loss of citizenship for someone who burns a flag. Other tweeters have pointed out that the prison sentence part of what he proposes is similar to the legal sanctions in a bill on flag burning that Senator Hillary Clinton co-sponsored: the Flag Protection Act of 2005.
Aside: One of the biggest benefits of the web is that it's much harder now to stuff things down the memory hole, and this latest revelation about Senator Clinton is one such instance.
I mention Clinton, not to join the chorus of people attacking her, fun as that might be, but to make a different point: her bill didn't go anywhere. Indeed, she was fairly ineffective as a U.S. Senator. Many people, including Donald Trump, have criticized her for that. But I come to praise her. I would love to have politicians who are effective at protecting and increasing our freedom. But sometimes the best we can do is get politicians who are ineffective at reducing our freedom.
A 19th century politician named Gideon J. Tucker wrote, "No man's life, liberty or property are safe while the Legislature is in session." He could have added that they're not safe even when the legislature is out of session. But the point remains: If they're in session, they're often (usually?) trying to reduce our freedom and so it's great when they're ineffective at doing so.(10 COMMENTS)
Tue, 29 Nov 2016 14:56:42 -0500Until recently, I thought I'd steered clear of what Scott Alexander calls, "the toxoplasma of rage." Now, sadly, I'm at the point where people are getting angry at me for failing to be properly angry about Trump's election. This will probably only make them angrier, but in case anyone's genuinely curious, here's my thinking.
Mon, 28 Nov 2016 00:00:20 -0500How many people did Castro murder? The authoritative Black Book of Communism blames him for 15-17,000 executions. More speculative estimates put the blood of another 80,000 Cubans on his hands - everyone who perished trying to flee his doleful paradise. And the man was guilty of many other evils.Still, by the bloody standards of Communist dictators, Castro's rule was mild. Castro's Cuba doesn't even look like the biggest charnel house in modern Latin America. The Guatemalan Civil War (1960-1996) probably claimed more innocent lives. Indeed, multiple U.S. Presidents have killed more civilians than Castro - though of course they had the power to murder vastly more. Why then should we dwell on the horrors of Castroism - or make a point of dancing on Fidel's grave?Here's why: Because Castro is a symbol of larger evils - evils that claimed many millions of lives - and could do so again. Castro symbolizes the idea that backwards countries can and should take the following path to modernity:1. Wage civil war by any means necessary to overthrow existing regimes.2. After victorious civil war, hand total power over to Marxist intellectuals.3. Cheer while these Marxist leaders expropriate business, expel foreign investors, and try to run the whole economy.4. Use this centralized economy to build up a mighty military.5. Deploy this military (and military-industrial complex) to help Marxist intellectuals in other countries copy your path to modernity.Any person of common sense would have foreseen the fruits of this demented recipe: mass murder, slavery, war, famine, and poverty. But common sense is, alas, not so common. The horrific Marxist-Leninist "experiment" spread from Russia to Eastern Europe, China, southeast Asia, Africa, and Castro's own Latin America. And while most of these regimes were far worse than Cuba, Castro did great evil - and continues to do evil - by charismatically inspiring sympathy for this psychopathic path to a glorious future.In my mind, then, Castro is a lot like the minimum wage: something we must stubbornly decry even though there are far greater ills in the world. My words: The minimum wage is far from the most harmful regulation on the books. Why then do I make such a big deal about it? Because it is a symbol of larger evils. From the standpoint of public policy, the minimum wage is a symbol of the view that "feel-good" policies are viable solutions to social ills: "Workers aren't paid enough? Pass a law so employers have to pay them more. Problem solved."...We need to get rid of the minimum wage. But that's only a first step. Our ultimate goal should be to get rid of the errors that the minimum wage has come to represent.We need to get rid of all sympathy for Castro. But that, too, is only a first step. Our ultimate goal should be to get rid of the errors that Castro has come to represent. Castro was a villain straight out of 1984. And in a just world, Orwell's words would adorn his tombstone:One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. (29 COMMENTS)[...]