Month: January 2007

Whither conservatism?

Take that word in the broad rather than narrow sense.  Jim Kalb writes:

As time went on the movement followed the usual shift in emphasis from
quality to quantity: from the traditionalist, libertarian and
anti-totalitarian ideas that got it started to the forces that gave it
the means to exercise power: politic and well-connected
neoconservatives, spokesmen and operatives who could influence and
mobilize masses of religious and populist voters, and those simply
interested in power as such.  GWB’s big government borderless
“conservatism” brought that process to a conclusion: no conservative
principle at all, just power, political management, and scraps of
liberal and conservative ideology made up into banners.  At this point,
with the failure of the Bush administration, the whole thing seems to
have come to an end.  It seems that those who want to resist the reign
of quantity and the managerial state, and work toward a better way of
life, need to start again from basics.  We are back in 1945.

There is much truth to this.  As to the future, Brad Thompson offers an Objectivist viewpoint.  Here is my take on reviving classical liberalism.

Models of me

I expect Tyler Cowen
to jump in here and point out that this applies to food, too: you
should try something new frequently, rather than sticking to old

Here is the modeler, a few remarks:

1. If you are in a good restaurant, try something that doesn’t sound appealing.  If it seems bad to most customers, it is on the menu for some other good reason, such as how it tastes.

2. The best argument against trying new things is wanting to keep the pleasures of anticipation.

3. Beware those who try many new things, it is often their sneaky form of conservatism.  In many fields of interest, trying new things is the only sustainable routine.

4. The person who tries new things only "every now and then" is often, in real terms, the greater innovator.  Such occasional quests for novelties have greater potential to be true earthquakes.

5. People have only so much toleration for novelty in them; no one embraces novelty consistently and in all fields of life.  Spend your tolerance for novelty wisely.

6. To prevent "trying new things" from becoming stale in its own terms, I have two tips.  First, spend time with children,.  Second, try "not trying anything new for a while," that is if you can.

7. Many people try new things for pre-emptive reasons; "I’d better try it before it tries me."

Pagamos con pesos?

The New York Times reports (and more):

Pizza Patrón, a Dallas-based pizza chain with many Latino customers,
has begun accepting pesos as payment, hitting a nerve in the nationwide
immigration debate.  Critics call the idea unpatriotic.

I see five readings:

1. This is testament to the remarkable new-found stability of the Mexican peso.  Immigrant arrivals still hold pesos rather than ditching them ASAP.

2. People could have free banking or competing currencies already, if they wanted it.

3. The pizza chain is receiving lots of positive publicity with its Latino customers.  I saw this same item on Primer Impacto last week.

4. If everyone accepted pesos, currency substitution effects would make the demand for dollars harder to predict, and thus monetary policy would be harder to implement.  Inflation would accelerate the velocity of monetary circulation to a greater degree, if dollar inflation is high just switch from dollars to pesos.

5. Change is given at the rate of twelve pesos to the dollar, so this is price discrimination against patriotic and possibly unsavvy Mexican customers.

How one fictional Indian views Hollywood

I liked the special effects, of course, but on the whole
the film [a Schwarznegger movie] bored me.  Like many of these American
films, it had one good idea and clung to it so hard that it seemed poor
in emotion and range.  The scenes seemed flat because even in the most
dramatic moments the American actors spoke quietly to each other, as if
they were discussing the price of onions.  And there were no songs.
Finally, ultimately, most American films were sparse and unrealistic,
and didn’t interest me very much.

That is from one character in Vikram Chandra’s Sacred Games, my early pick for novel of the year.

Otherwise I am learning just how good a writer Roberto Bolaño
can be, I see Bogota women run into the men’s room to avoid even a
slight line at the ladies room, and I’ve figured out how to eat well
here, it is fundamentally a baking culture.

Why I don’t believe in liquidity traps

The core idea is that the government prints more money but people just hold it.  If nominal interest rates are low, OK, maybe no one wants to buy more bonds (however under some assumptions this will lower bond prices and raise rates again, bonus points if you can work through the whole analysis with real and nominal rates and price level paths).  But they will buy more goods, thereby stimulating aggregate demand.  If they won’t buy more goods, just print even more money.  The spending impulse will kick in. 

For another view, Paul Krugman argues people may not expect the inflation to continue for long enough, and therefore won’t spend their money but will instead expect a future deflation further down the road.  I think that creating and maintaining the inflationary expectations is quite easy, especially if the inflation will boost output and employment and thereby make politicians popular with voters.  If you print money, people don’t think "hmm…that is inflationary…that means someday the central bank will have to deflate, I’ll wait six years and spend this new money when prices are really low."  Yes, I see the intertemporal equilibrium concept, but nope, that fails Psych 101.  Krugman also borrows the idea of an ongoing negative real rate of interest, but this describes Battlestar Galactica, not the twentieth century.

Open market operations, when tried, seem to have worked in 1932.  Was Japan in a liquidity trap in the 1990s?  They could have printed more money and given it to me.  With an interpreter at my side, I would have spent it right away.  Who knows, maybe you could have helped me.  Here is a good critique of Krugman on Japan.

Perhaps there is a knife edge setting where printing too little money leads to hoarding and printing too much money leads to hyperinflation.  So a risk-averse central bank is stuck.  I doubt this, people don’t act so closely in accord but rather they adjust their cash balances at different speeds.  So again, just print some more money to get out of the liquidity trap.

What is the evidence for a liquidity trap?  Low nominal rates and the absence of a recovery?  That’s not much evidence.  I suspect real coordination problems are at fault in most of these settings, and hoarding is at most a secondary issue.  Few serious economic problems are purely monetary in nature, yet the liquidity trap encourages us to embrace that dangerous idea.

The bottom line: I once wrote a paper arguing the liquidity trap is possible.  Now I think that Milton Friedman was right all along.

Book fact of the day

Are ethicists more moral than the rest of us?  This result should warm the heart of Richard Posner:

I noted that ethics books are more likely to be stolen than non-ethics
books in philosophy (looking at a large sample of recent ethics and
non-ethics books from leading academic libraries).  Missing books as a
percentage of those off shelf were 8.7% for ethics, 6.9% for
non-ethics, for an odds ratio of 1.25 to 1.

There is further data analysis at the link, hat tip to Bookslut.

Hard to make this stuff up department

Daniel Gross’s best argument for FDR is that FDR was better than Hitler. 

Roosevelt scared investors and businessmen? Did he scare them as much as, oh,
Stalin, who controlled one of the world’s largest economies and was expanding
his influence? or as much as Mussolini? Or as much as the fascist government of
Japan? Or as much as Hitler, who was confiscating property of Jewish
investors and businessmen?

So there you have it.  FDR not as bad as Hitler, therefore, FDR a good president.  Compare with Bryan Caplan’s actual argument.

Bogota thoughts

Unlike Mexico City and Rio, most of the shops don’t have private security guards or much in the way of security systems.  Bars on home windows are unusual.  I haven’t heard many sirens.  Solo women walk around many parts of town.  Fear of civil war, kidnapping, and paramilitary guerrillas is no reason to postpone a trip.  From a tourist’s point of view, Bogota is more secure than most other Latin American cities.

There is less glamour here than I expected, and most of the city is solidly working class, lower middle class.  People are well dressed but in a relatively formal way; there is little sartorial individuality or flair.  Dark clothes, especially black, are the default style, but not in a Will Wilkinson cool hipster sort of way.  Rather the message is "it rains here a lot and it is cool and foggy and we have endured centuries of violence, so why wear floral pink?"  The bowler hat, however, is now passe. 

Bookstores and libraries are everywhere, and it is common to see people reading or carrying books.  The shops display their serious books, not the junk.  The museums are the best in South America, for both content and presentation.

Bicycling is a big deal, and the bus system is well-developed to an extreme.  The water is potable.  The green hills around the city are attractive, the colonial part of town has wonderful colors and houses, and the modern architecture is getting better.

Colombianos are remarkably gracious and friendly.  There is nothing like isolation to make people love foreigners.  Does having a bad international reputation make people nicer to compensate?

You have to utter "good day" to the guard each time you enter a new room in a museum.  People open doors for each other.  No one is loud.  It all feels vaguely right-wing.

The local soup mixes shredded chicken, avocado, potato, corn, capers, cream, and herbs for a tasty blend.  So far the food doesn’t thrill me; too many restaurants remain in the meat and potatoes stage; being in the Andes has never been good for any cuisine, except of course for their hearty soups.

The people look surprisingly homogeneous; I expected more Caribbean types and indigenous.  That said, the Turks run the textile trade and there are plenty of Chinese (so-called) restaurants.  Indian features are common, but blended into a broadly Spanish mix.  No one is very tall.

How can such a nice place be in the midst of a civil war and guerrilla uprising?  Why do leaders in the highest reaches of government secretly work with the paramilitaries?  Does every radio station in the country play Juanes, and how long will their Tower branches last?

Here is a good reading list on politics and institutions, but do any of these pieces explain what I am seeing?

Did World War II end the Great Depression?

Joseph Cullen and Price Fishback write:

We examine whether local economies that were the centers of federal spending on military mobilization experienced more rapid growth in consumer economic activity than other areas.  We have combined information from a wide variety of sources into a data set that allows us to estimate a reduced-form relationship between retail sales per capita growth (1939-1948, 1939-1954, 1939-1958) and federal war spending per capita from 1940 through 1945.  The results show that the World War II spending had virtually no effect on the growth rates in consumption that we examined.  This contrasts with Fishback, Horrace, and Kantor’s (2005) findings of about half a dollar increase in retail sales associated with a dollar of New Deal public works and relief spending.  Several factors contributed to this relative lack of impact. World War II spending often required a conversion of plants designed for civilian good production into military factories and back again over the 9 year period.  Substantially higher federal tax rates that were paid by the majority of households imposed much stronger fiscal drags on the benefits of the spending.  Finally, less of the military spending was earmarked for wages and use of locally produced inputs, which reduced the direct stimulus to the local economy.

Here is the paper, here are non-gated versions.  My understanding has long been that wartime orders from Europe, by 1940, provided the decisive turning point for the American economy.  So if WWII did end America’s Great Depression, it was not through the traditional mechanism of massive domestic fiscal stimulus.

Addendum: Here is James Hamilton on the Great Depression.  And Brad DeLong replies to critics, but if we are going to count as monetary policy we must recognize 1937-8 as a disaster which cut off a recovery.  And Paul Krugman chips in, see the comment by Robert Waldmann, I am myself skeptical that a liquidity trap was in place.

Second addendum: The authors have another good paper on crime and social spending during the New Deal.

Not Normal on the New Deal

Readers will not be surprised to know that I am not normal.  Indeed, I have not been normal for a long time as this post from 4 years ago attests:

Roosevelt and the Great Depression

I was amused to see Conrad Black writing with shock:

Jim Powell of the Cato Institute (cited approvingly in a recent column by Robert L. Bartley) argues in a new book that FDR actually prolonged the Depression!

Of course, Powell is correct. Imagine, increasing the power of
unions to strike and raise wages during a time of mass strikes and mass
unemployment. Imagine thinking that cartelizing whole industries
thereby raising prices and reducing output could improve the economy.
Not everything Roosevelt did was counterproductive – he did end
prohibition (although in order to raise taxes) – but plenty was and
worst of all was the uncertainty created by Roosevelt’s vicious attacks
on business. (See, for example, the work of Bob Higgs especially this important paper and historian Gary Dean Best’s overlooked classic Pride, Prejudice and Politics.)
Business investment failed to recover because business people
legitimately feared a regime change like that which had occured in
Germany and Italy. Sound extreme? Roosevelt himself threatened/promised
this in his first inaugural:

…if we are to go forward, we must move as a trained and
loyal army willing to sacrifice for the good of a common discipline,
because without such discipline no progress is made, no leadership
becomes effective. We are, I know, ready and willing to submit our
lives and property to such discipline, because it makes possible a
leadership which aims at a larger good… I assume unhesitatingly the
leadership of this great army of our people dedicated to a disciplined
attack upon our common problems….in the event that the Congress shall
fail to take one of these two courses, and in the event that the
national emergency is still critical, I shall not evade the clear
course of duty that will then confront me. I shall ask the Congress
for… the power that would be given to me if we were in fact invaded
by a foreign foe.