Month: October 2010

Arguments against QE2

Besides the claim that it won't work, that is.  We might as well see them put on the table.  Edward Hugh (do read his whole post) sums one of them up:

Push to shove time has come, I fear, and if this reading is right then it is no exaggeration to say that a protracted and rigourously implemented round of QE2 in the United States could put so much pressure on the euro that the common currency would be put in danger of shattering under the pressure. Japan is already heading back into recession, as the yen is pushed to ever higher levels, and Germany, where the economy has been slowing since its June high, could easily follow Japan into recession as the fourth quarter advances.

In other words, even if the Europeans should follow suit, they either can't or won't and perhaps their loss will exceed our gain.  They have a straitjacket currency union and also tougher rigidities.

The second argument is that Thailand, Brazil, and other countries are becoming bubbles.  The claim is that financial institutions are still prone to seek too much risk and so the new liquidity flows to riskier markets than the U.S.  The new liquidity doesn't help us much, while it becomes "hot money" for some more vulnerable countries, which in the meantime have overvalued exchange rates.  The more that real rates of return fall in the U.S., the more dangerous this mechanism becomes.  There is a double whammy if those same countries are betting too strongly that robust Chinese commodities demand will continue indefinitely.

I'm not trying to persuade you of these (both seem fairly speculative to me), it's simply time to take stock of the debate.  It's a good example of why macroeconomic knowledge is hard to come by, namely that each situation brings some new risks and new constraints.

*The Gold Standard at the Turn of the Twentieth Century*

The author is Steven Bryan, a historian, and the subtitle is Rising Powers, Global Money, and the Age of Empire.  This book offers a great deal of previous unpresented information on the operation of the gold standard in Japan, Russia, Turkey, and Argentina, based on original rather than secondary sources.  Here is a summary paragraph at the end of the book:

The connection between nineteenth-century great power politics, empire building, and militarism and the gold standard was obscured after World War I in the rush to reinstate the form of the gold standard while ignoring its substance and the varied rationales and motivations that had supported it.  Despite the rose-colored hues of nostalgia that flourished after the war, the gold standard did not exist in some magical land separate from the rest of the late nineteenth-century world.  For better or worse, the gold standard was as much a part of the age of empire as it was of the age of industry.

Here is the book's home page.  Here is the p.99 test applied to the book.

*Autobiography of Mark Twain, vol. I*

Finally, in Florence in 1904, I hit upon the right way to do an Autobiography: start it at no particular time of your life; wander at your free will all over your life' talk only about the thing which interests you at the moment; drop it the moment its interest threatens to pale, and turn your talk upon the new and more interesting thing that has intruded itself into your mind meantime.

Also, make the narrative a combined Diary and Autobiography.  In this way you have the vivid things of the present to make a contrast with memories of like things in the past, and these contrasts have a charm which is all their own.  No talent is required to make a combined Diary and Autobiography interesting.

And so, I have found the right plan.  It makes my labor amusement — mere amusement, play, pastime, and wholly effortless.  It is the first time in history that the right plan has been hit upon.

I spent about ninety minutes browsing this new book, but found it only moderately interesting, with more emphasis on the "moderately" than the "interesting."  If you're obsessed with Twain, you'll find it worth the $20, but the above paragraphs sum up the main problem with the text.

The ongoing saga of British expenditure reform

Prof. Steve Smith, president of Universities U.K., which represents Britain’s higher-learning institutions, said the government was likely to cut about 80 percent of the current $6.2 billion it pays annually for university teaching, and about $1.6 billion from the $6.4 billion it provides for research.

To make up for the shortfall, universities would have to raise tuition to an average of more than $11,000, Professor Smith said, and doing so would require Parliament to lift the cap on such fees, now set at $5,260.

Here is the full story.


This long series of posts by an inmate who just got out of prison after doing two years for armed robbery is riveting.  Lots of great material most of which cannot be printed here.  Seems real to me but you be the judge.  The number of murders he says to have witnessed seems awfully high.

So I just got out of prison

…and fuck it if I've forgotten how to work a mouse and hit the submit button too soon.

Shit [sic] has changed. So many boards now. I don't know what the fuck is going on. Where do I start? Two years inside and it's like the whole world has changed. Just wanted a board where things stayed the same….who the fuck if Justin Bieber?

Is. Is Justin Bieber. Lost my ability to spell….My cable got cancelled while I was away so I can't even find out. Thank fuck for wireless internet, I swear to God it's faster now too. Seriously, it's like I've traveled through time. Fucking iPads look like shit out the future. Feel like I've missed a decade…

I joked to my cell mate on the first day that at least the GFC [Global Financial Crisis, AT] couldn't fuck us inside. He'd been done for assaulting a cop when his house got taken by the bank. But within months 'GFC___' became the standard reply to any query as to how black market prices were suddenly going through the roof. The price of a deck of smokes tripled. There was an actual economic reason about this. I went away in Michigan, where a lot of people lost their houses, mostly poor people already. When they had to move away from the prison, it meant they couldn't bring their loved ones as much contraband group, which meant the price of what there was sky rocketed….Bet you didn't read about that one in the Wall Street Journal.


My first time in solitary was during a mass transfer, which is when our pen would be filled with extra inmates from another pen over night before being moved on. I was there for three days. The first day wasn't so bad. In the beginning, I thought 'this is interesting' at least. And I kind of enjoyed being alone. I jacked off a lot. The second day, I read the bible. Which is the only book allowed in ad seg. The third day… I began to imagine I'd been forgotten about, and I started to panic. Like Mau-dib says "Fear is the Mind Killer". Once you start down the road, there is no going back. You think you can handle it, like being alone isn't so bad, like it's almost a relief… But they make the room just the slight little bit too small. You lose track of time. You can't see the light or figure out what day it is. You resort to counting out loud the seconds. You can't distract yourself anymore and you start pacing but there isn't enough room to pace and it just makes it worse. I'd never had a panic attack before, so I didn't know what to expect. My heart just started pounding out of my chest and I felt like I was going to faint. I wanted to faint, so I could at least sleep and waste some time. But I couldn't. I ended up by stay in ad seg screaming for help, until they came in and tasered me. I woke up back in my old cell.

The next morning, they pulled me out of bed, and said because I fucked up in ad seg… I'd be put back in ad seg. For a week. I screamed and tried to get away on my way back so they put leg cuffs on me and didn't take them off. I got tasered again. This just made it worse.

That was when I decided to get some dope as soon as I was out.

On the plus side, I now have scary accurate recall of obscure biblical passages.


The author is Timothy Snyder and the subtitle is Europe Between Hitler and Stalin.  I learned that this period was even bloodier and more brutal than I had thought:

Mass killing in Europe is usually associated with the Holocaust, and the Holocaust with rapid industrial killing.  The image is too simple and clean.  At the German and Soviet killing sites, the methods of murder were rather primitive.  Of the fourteen million civilians and prisoners of war killed in the bloodlands between 1933 and 1945, more than half died because they were denied food.  Europeans deliberately starved Europeans in horrific numbers in the middle of the twentieth century.

It is a very powerful book and I can recommend this review and this review.  Along somewhat related lines, some of you may wish to read Paul R. Gregory's Politics, Murder, and Love in Stalin's Kremlin: The Story of Nikolai Bukharin and Anna Larina.  Bukharin, of course, was also an economist.  Here is Gregory on the book.  Here is Gregory on Germany's currently low unemployment rate.

The experiment starts

The Federal Reserve has taken a large step towards a formal inflation target after chairman Ben Bernanke said that most of its officials think the rate of price rises should be “2 per cent or a bit below”.

For all my carping, I've thought this is a good idea for some time now, but I'm selfish enough to be most excited about what we will learn.  As I wrote:

Professor Sumner’s proposals may not be public policy now. But if there is one thing economists should know, it is that we should not underestimate the power of an idea.

It should be noted that Sumner's first choice is a nominal gdp target and the targeting of a price level, not an inflation rate.

Which ingredient most signals a quality dish?

Phil Maymin asks:

What one ingredient most signals a quality dish to you? For me it is scallions. If it's got scallions in it, it's gotta be good. Scallions have never steered me wrong. I think it's because no one really starts with scallions. They get added later to take a proven dish from good to great.

His answer is excellent.  "Fish sauce" came first to my mind, perhaps because it doesn't taste so good.  Yet it is correlated with high-quality Thai, Vietnamese, and other creations.  Real saffron (expensive, signals quality) and lime (sour, scares off the timid) also could be mentioned.  Chicken gizzards.  Sichuan peppercorns.  What else?

Ricardian thought in progress

In Ricardo's basic model there are diminishing rather than linear returns.  Surplus accrues to the fixed factor, which is land.  Labor earns some version of subsistence and the going rate of profit is piled on top of that.  The productive difference between a piece of land, and the least valuable piece of land, accrues to each specific landlord as rent.

What if ideas rather than land are the fixed factor?  Wages and profits stagnate.  Some "idea landlords" receive enormous pecuniary returns, while others do not.  The rate of invention is slowing down and indeed "patents per researcher" has been falling for a long time.

Which features of our evolving income distribution does that scenario not fit?

Addendum: Arnold Kling comments.

Markets in everything


"The Republic of China (Taiwan)" has delivered to the municipality of Suchitoto, El Salvador two hundred packages of food, four wheelchairs, and a selection of musical instruments.  The accompanying ceremony was attended both by the Chinese ambassador and the mayor of Suchitoto.  Similar donations have been made to Santa Ana y Mejicanos and there are plans for visiting other locations as well.

Gdp growth rates in the dollar currency area

El Salvador:

2006: 2.8%, 2007: 4.2%, 2008: 4.7%, 2009: 2.5%, 2010: -2.3% (estimated)


2006: 6.4%, 2007: 8.1%, 2008: 11.2%, 2009: 9.2%, 2010: 2.4% (estimated)

Ecuador: 2006: 4.7%, 2008: 2.0%, 2009: 6.5%, 2010: -1.0%

Those countries, of course, all use the U.S. dollar.  Does that look more like how a real shock is transmitted or an AD shock?

I don't think there is a simple answer to that question.  U.S. data are here and the large plunge is from January 2008 to January 2009, with the Latin slowdowns in the dollar area coming later.

In 2009 the El Salvador inflation rate ran over seven percent.  In Panama it ran over four percent in 2008 and almost nine percent in 2009.  Ecuador has 2.3 and 8.3 inflation for those two years.

In those countries one can see a lot of expansionary nominal demand, followed by a major slowdown, most of which is probably fallout from the broader U.S. and global crisis, with some lag.  That fits the real shock story.  To defend the nominal story, start by noting how little those countries share a common inflation rate, either with the U.S. or with each other.  (But that may itself stem from real factors driving the production of inside money and the Fed not mattering so much.)  Maybe they never received the U.S. negative nominal shock to such a strong degree or maybe the U.S. negative nominal shock came more from the wealth side than from the monetary policy side.

Still I am drawn back to the question: if it was the Fed which screwed up, why is there such a lag across the currency zone but not across the U.S. states?