Big Government

Macroeconomic Fallacies, Fed Chairman Bernanke’s Delusions and the Rise of Donald Trump

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The G20 leaders recently called upon the leaders of the developed nations to employ more massive amounts of debt financed government spending to ward off the current economic stagnation and in some instances the early stages of recession. That fits Einstein’s definition of insanity: “doing the same thing over and over again but expecting a different result”. The pursuit of so-called “macroeconomic (fiscal and monetary) policies” has produced a quarter century of economic stagnation in Japan, a $30 trillion debt bubble in China with little to show, and stagnation and looming recession in Europe and increasingly in the US.

Einstein was a genius who remains relevant today. Just within the last few weeks evidence was reported of gravitational waves predicted by Einstein almost a century ago. Proving Einstein’s theories has been the focus of physics during the past century, but he maintained that had he been able to get an academic appointment instead of a position at the Swiss patent office he never would have been able to develop and publish his new path-breaking theories.

In his recently released biography The Courage to Act (2015), former Federal Reserve Chairman Ben Bernanke describes how, initially failing physics, he turned to macroeconomics as an outlet for his mathematical skills. This was auspicious. In physics, when your equations don’t fit the reality it is the equations that must be changed unless there is new evidence to change the understanding of reality. Einstein’s biggest error was rather than waiting for better data when his equations predicted an expanding universe, he fudged the equation (introducing the Max Planck constant) to fit the current understanding of a stagnant universe, then disagreed for most of his lifetime with the next generation of quantum physicists who proved he had gotten it right in the first place. Einstein’s one mistake is the modus operandi of modern macroeconomists.

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The Transformation of Economics.

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A great piece in the Wall Street Journal today about what has happened to Economics and Economics education.

I took an Economics class in college in 1957 and it changed me to a Republican. My first vote was for Richard Nixon in 1960. My family was furious as they thought we were related to the Boston Kennedys and they had always been Democrats. I wonder if an Economics class would have that effect today?

And that political economy and my assessment of it has changed over a career spanning more than half a century. Here are five developments I would emphasize:

I agree with his appraisal.

1. Diminishing returns to research. A core economic principle is the Law of Diminishing Returns. If you add more resources, such as labor, to fixed quantities of another resource, such as land, output eventually rises by smaller and smaller amounts. That applies—with a vengeance—to academic research. Teaching loads have fallen dramatically (although the Education Department, which probably can tell you how many Hispanic female anthropologists there are teaching in Arkansas, does not publish regular teaching-load statistics), ostensibly to allow more research. But the 50th paper on a topic seldom adds as much understanding as the first or second.

This has been characteristic of Medicine, as well as other academic subjects.

Emory University’s Mark Bauerlein once showed that scholarly papers on Shakespeare averaged about 1,000 a year—three a day. Who reads them? How much does a typical paper add at the margin to the insights that Shakespeare gave us 400 years ago?

That isn’t all he has shown.

The attitude touches the President’s favorite pastime. Tevi Troy reported in Commentary how much Obama enjoys television, particularly SportsCenter and the middlebrow series Homeland and Mad Men. The New York Times added Breaking Bad and The Wire in its article “Obama’s TV Picks: Anything Edgy, with Hints of Reality,” and while it warned of the foolishness of “psychoanalyzing” a president based on “the books he reads or the music he listens to or the television shows he watches,” the story mentions not a single book. One would expect Marxists, feminists, queer theorists, post-colonialists, anti-imperialists, and media theorists to chide Obama for his bourgeois, masculinist taste, but as far as I know they have remained silent.

Obama’s taste runs more to sports and rap music.

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The Big Middle Finger

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Honestly, that is the only way that I can account for the out-of-completely-left field popularity of Donald Trump. He is not a notorious small-government libertarian like the Koch brothers, or has any previous political interests of any stripe to recommend him particularly; not even any detectable small-government, free-market and strict Constitutionalist Tea Party sympathies to recommend him.   If anything, he has always appeared to me as one of those big, vulgar crony-capitalist, unserious reality-TV personalities; the epitome of vulgar architectural bad taste and in blithely using his money and influence to cheerfully run over anyone who got in his way. His campaign at first seemed to be a particularly tasteless joke a grab for publicity on the part of a flamboyant personality who never seemed to get enough of it, in a bad or a good way. So all props for having the sheer brass neck to start playing the game, and playing it with calculated skill.

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Negative Interest Rates! What A Great Idea!

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Japanese Seeking a Place to Stash Cash Start Snapping Up Safes (WSJ, subscription required):

TOKYO—Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash—the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates.
 
Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does. Cash languishing in safes could thwart the Bank of Japan’s move to get money circulating more vigorously in the economy.
 
Shimachu Co., which operates a chain of stores selling hardware and home products, said Monday that sales of safes in the week that ended Sunday were 2 ½ times higher than in the same period a year earlier.

Of course the Fed would never be so foolish as to institute a negative-rates policy in the hope of getting investors to prop up weakening securities markets. Right?

(Via T. Greer on Twitter)

“Breaking the iPhone: Once again, conservative establishment is urgently, insistently wrong”

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J. E. Dyer:

But I don’t have any confidence that the Fox panel would have been smarter if its members understood the issue better. The real problem was that they didn’t come down in principle on the side of privacy. They could have at least expressed regret, or been reluctant about siding with the FBI.
 
But they were slavering urgently for whatever measure the FBI demanded to get into Syed Farook’s iPhone as if all our lives depended on giving law enforcement any privacy-busting capability it sees a need for.
 
Technology doesn’t change the fact that this perspective is the opposite of the perspective of the Fourth Amendment. If our highest priority should be opening the people’s lives up to law enforcement, in case there are terror links lurking in our coupon drawers, then we should throw the Fourth Amendment out and require the people to all give the police keys to our homes, so it will be less of a hassle for them to get in whenever they declare a need to.
 
Conservatives are supposed to be smarter than this. Let’s walk through it briefly to clarify why there is no need to bust the built-in security feature of the iPhone for the FBI’s general convenience.

Worth reading in full.