Russ Nelson

Interesting! So Paul Krugman read the story of a baby sitter club which had poor policies regarding issuance of its currency, and because he was able to apply Keynsian economics to their situation, that gave him the confidence to apply the same economics to the entire society. Amazing. Astounding!

The lesson that I draw from this is not that I'm wise enough to manage an economy (I know I'm not). Nor do I think that Paul Krugman is wise enough to manage an economy (but he thinks he is -- which makes him a dangerous person). No, the lesson that comes to my mind that "We're all baby sitters now."

Paul Krugman says that the state governors are acting like Fifty Herbert Hoovers. He thinks this is wrong. He thinks they should spend and burn money like he wants the federal government to do. Maybe he's right. If he's right, then the 62 counties of New York State should also borrow like maniacs and spend like lunatics. And if they should, then so should the citizens of New York State. Borrow! Spend! Like there's no tomorrow! Don't worry, the Fed has made sure that we'll have massive inflation, so you'll only have to pay back a fraction of the money you borrow!

Paul Krugman is a doody head!

Like all bad economists, Krugman is paying no attention to the fact that there's a REASON why people aren't spending their money like, well, like a Krugman (we need to start using "Krugman" as a synonym for "foolish idiot"). Here's a hint: if you see someone who isn't taking into account all the effects of a policy they propose, then they're being a bad economist. As soon as you identify a group of people being ignored, or a time (now or later) being ignored, you can immediately label that person a bad economist. It's up to them to explain why they're ignoring those people or that time.

11.41 km 37427.95 feet 7.09 mi 2378.00 seconds 39.63 minutes 0.66 hours 10.73 mi/hr

December 28th, and I'm bicycling! It's 60 degrees and windy as all getout. Cold weather is blowing in, so best go for a ride while I can. The ride is short by a mile and a half because my Garmin Foretrex took that long to get a synch. No matter.

I've been looking for unfinished railroads via map services again. I think I've found the tunnel that the Ogdensburg, Clayton & Rome built near Pixley Falls in the Boonville Gorge. I also have a candidate road for this "cut and abutment". Look on the Historic USGS maps. Look at the red circle, and the road just to the south of it. That road heads down the hill. Where it crosses the driver is approximately one and a half miles below upper Lansing Kill Falls, just as described. I'll have to look in person, but I'm reasonably confident that it's not the railroad.

Just to the left of the red circle is a large flat spot on the side of the hill. On the south end of the flat spot, next to the aforementioned road, is a house. I'd guess that somebody wanted a farm with a view. I can't see any ruins of a farm there, but you can look at the farm site for yourself and see if you can see it. Switch to Satellite for high-resolution photos.

Robert Skidelsky praises John Maynard Keynes. There are many missing facts, facts that don't line up, and logic that isn't.

The chairman of the Federal Reserve is a regulator. Skidelsky should not be "astonish"ed to find a regulator who decries the failure of deregulation.

The story says "the regime of deregulation he oversaw" and links to an article. The article, however, doesn't speak to a single deregulation which could be laid at Greenspan's feet.

It doesn't logically follow that legislation is the regulation necessary to make inefficient markets efficient. Perhaps there are other solutions?

Soros is right -- the problem was intrinsic to the financial system -- which cannot in any sense be described as unregulated, deregulated, or less regulated. The best description of it is "highly regulated". I've read the financial filings that go with an IPO, cover to cover. Would anyone describe an IPO as having been a part of "extensive financial deregulation"?

Skidelsky could name a deregulation, and then compare it in magnitude to the effects of Sarbanes-Oxley, which is a new regulation. Then we could decide whether the amount of regulation has increased or decreased. If you only count deregulations and never reregulations, then you must eventually conclude that there are no regulations left. That doesn't describe financial markets.

I grant that it's possible that there really are fewer regulations, but Skidelsky hasn't made that case and doesn't deserve to be granted it "for argument's sake".

Talking about "deregulation" without naming the deregulations makes it impossible to refute.

Similarly, laying blame at the feet of any one or more deregulations, and then claiming that all deregulation is bad, is like finding a bug in one line of code, and then claiming that all lines of code are equally bad. It just doesn't follow.

Similarly, if you deregulate the predators, while keeping the victims regulated, you have created, not solved a problem. When the wolves are freed, and the sheep left penned, you know mutton is on the menu.

Skidelsky doesn't name any of the "economists who believes that all uncertainty could be reduced to measurable risk." I can't name any either.

"Most economists", again, not named. There are multiple schools of thought about the nature of money. To which ones does Skidelsky refer? Without knowing to whom he refers, it's impossible to judge whether his summary of their ideas is accurate.

"It is this flight into cash that makes interest-rate policy such an uncertain agent of recovery." Let's assume this is a true statement. The fact that Keynes held to one thing that was true lends no credence to any other things he may have said.

"Spend on pyramids, spend on hospitals, but spend it must. (sic)" Keynes felt that non-productive spending was as useful as productive spending. The problem is that this is exactly the Broken Window Fallacy.

Greenspan being wrong doesn't make Keynes right. It's possible that a third theory is more correct.

Someone who has written a biography on Keynes is emotionally and financially invested in the ascendancy of Keynes' ideas. This article is just one stop on a book tour. True, it's not evidence that Keynes is wrong, but I never expect anyone to speak for the truth against the interests of their wallet. They might do it, but I'm surprised when it happens. Here, it hasn't.

Tubby writes to say that I'm just as politicized as Krugman and Stiglitz. Maybe. I assume that nothing works perfectly, that everything fails in its own way, that all we can seek are improvements, not perfection.

I think that the opponents of libertarianism see that libertarianism is: not perfect, doesn't try to be perfect, and acknowledges that people are corrupt, institutions fail, and hopes are dashed. These opponents look to coercive planned collective action as the solution to those problems: planning can be perfect, is an attempt to be perfect, can eliminate corruption, make institutions work, and create hope.

They're wrong, of course. But that's their own form of imperfection, their own failing institution. Since they plan on perfection, since they require perfection, they cannot acknowledge that they might be in error.

Which is why they're so scary to me.

So, I have this epistemological problem. I have a great deal of respect for Tim O'Reilly. He's created a successful publishing and conferencing company. That's an accomplishment not to be made light of. One of the things he does from his bully pulpit is look for insight into problems. Of course, he uses that insight to further target his conferences and books, but there's nothing (NOTHING) wrong with that.

The problem is that Tim O'Reilly advocates bad economics. You know, the Krugman and Stiglitz brand of economics. Economics needs to be free of a political slant, less it cease to be description and wander off into the weeds of prescription. Unfortunately, both Krugman and Stiglitz espouse political ideas in the guise of economic analysis, and Tim has bought into those ideas.

Okay, so anybody can be wrong, right? Yesbut, Tim is respected for his insight, and uses that respect to promote ideas. When you're in that kind of position, you need to be careful to only promote ideas that you are confident of. Of Economics, Tim knows little, but he thinks that because he has created a successful business, he knows something about economics. Thus the epistemological problem.

John Maynard Keynes was a successful investor. Because he became wealthy, he thought he knew something about economics. Because he became wealthy, other people thought he knew something about economics. Unfortunately, business and investment insight does not lead directly to an understanding of economics. Only a study of economics leads to an understanding of economics.

Like Keynes, O'Reilly knows very little good economics. I do understand economics (an assertion you can check for yourself by reading the archives of this blog). Yet O'Reilly natters on about economics. He also has much to say about other things, of which I know little. How am I to trust O'Reilly, now that I know he is willing to promulgate bad information? How do I know when Tim is speaking from his experience and his insight, instead of pulling stuff from his butt? If I can't trust him to be right in areas where I have expertise, how can I trust him to be right in areas where I have little knowledge?

Answer: I can't. The solution for him is to listen to his friends. When they tell him he is wrong, in areas where they have expertise, he should be more circumspect in his pronouncements. The trouble is that, like so many people, O'Reilly (and Keynes) thinks that because he is good at finance, he's good at economics. How to cure people of this idea?

I still have a lot of respect for Tim as a person. But as a seer? Much less. It hurts to say so, but I guess every hero has clay feet.

Run, do not walk, to Eric Baum's essay on the Greater Depression.

UPDATE: Dec 14: Claudia writes to point out that Eric's essay is political spin. True. But is it good economics? I don't care if people have opinions. People always have opinions. I don't want people to let their opinions infect their economics. Economics isn't subject to your opinion. As a soft science, it's mushy at the edges, and economists should admit when they're in a mushy area. E.g. for small increases in a minimum wage, you will very very few jobs destroyed (see, that's me sticking to the facts, but also inserting my opinion -- which is that no amount of job destruction is worth the gain of somebody else's higher pay). So yes, you can do spin, but you can also be accurate in your economics.

Richard Heinberg is not impressed by modern economists, expressing disgust with both Keynsians and Austrians alike. He prefers to ride his hobby-horse that Peak Oil means the end of modern "growth" economics. The fact that economics is the study of choice seems to have escaped him.

But Austrians still win out. We predict that when you inflate the currency, you confuse people into thinking that they have more money than they really do. They use that money to expand their business. The thing is, that money wasn't real. As everyone realizes this, they start to raise their prices. The new business that you hoped to get doesn't show up. You have to lay people off, lower salaries, and sell your business improvements for dimes on the dollar. Keynes' prescription: forcing taxpayers to borrow money to buy the unwanted things now. Exactly HOW does that help us??

I predict that none of this "stimulus" spending is going to help one whit. We're in for a good ten years of lowered employment and lessened prosperity. More if government tries to help more. Less if government does nothing.

I'd like to be wrong about this, but I'm not.

Oh, and if you think that recent deregulation got us into this mess, I'd point to things like Sarbanes-Oxley, or Fannie Mae / Freddie Mac, or anti-redlining regulations for banks. There's still plenty of harmful regulation: the Fed, to make our money worthless (by printing up new diluted money), the FDIC, to create a moral hazard for banking (why bother selecting a bank when no matter what they do you can't lose your money?), the farm subsidies (the corn lobby ensures that corn is cheap enough to put into all food products), the Sherman Antitrust act (where you can be charged with anti-trust if your prices are lower, equal to, or higher than your competitors).

Economics in One Lesson is the most important book about economics that you may ever read. It will teach you how to think like an economist. This is important, because if you do not think like an economist, then anything you say about economics will be nonsense. Let me repeat that, because many many people think they can fail to think like an economist and still say sensible things. If you do not think like an economist, then anything you say about economics will be nonsense, or it may be sensible, but you will have no way to know the difference.

The one lesson, in its entirety:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Every economic error, every economic fallacy, can be tracked back to a failure of that looking or tracing. The classic broken window fallacy fails to trace the effects of paying to fix the window -- money that could not be spent on something the shopkeeper would have preferred to have.

Knowing this lesson is the equivalent of having a PhD in economics. It means that you're finally ready to start understanding economics, just like having a black belt means that you're finally ready to start understanding martial arts.

Go read Economics in One Lesson, and learn how to apply the lesson to the examples in the book. Then you will be ready to start thinking like an economist, and understanding the world of choice around you. For economics is not the study of money, or trade, or public policy. Economics is the study of choice.

How NOT to stimulate an economy: promise to take decisive action in a couple of months. In the meantime, no sane person will invest in anything, and your economy goes further into the shitter.

Krugman says "but we have to do SOMETHING". In fact, no, we don't, and promising to do something is worse than promising to do nothing.

Do you think global warming is the modern-day equivalent of the Salem Witch Trials? Me too. It's a load of superstitious crap.

That said, it always makes sense to grow trees. Saving Species is buying degraded agricultural land on the cheap, and allowing it to regrow in trees. I donated to them, and I think you should, too. They do donate the land to the government, so they're not without sin, but governments are usually pretty good about preserving national parks.