Archive for July 2013

Bernanke: A Tenure of Failure: An Addendum

President Obama recently commented that he wanted a next Fed chairman who would do good for all not just for Wall Street and the rich [and politicians and chrony capitalists  supporting government spending at unsustainably high levels), but for everyone. Perhaps if what he has in mind is a real “helicopter Ben” who, instead of buying $85 billion in securities a month from financial institutions, would drop $85 billion from helicopters at pre-announced locations, the common folk might feel an illusion of increased prosperity in the very short run. If he is truly serious about a first do no harm monetary framework, he would work with closely Ron Paul not just to audit the Fed, but to dismantle it.

Robery Murphy’s archive and Mark Thornton’s archive are highly recommended.

More criticisms of Bernanke’s post 2008 policy from Austrian sympathizers and non-Austrian sources:

From yesterday’s Wall Street Journal Ronald I. McKinnon makes a similar point to Salerno’s argument that a low interest rate environment impedes recovery. In  “The Near-Zero Interest Rate Trap”, McKinnon summarizes nicely, “By trying to stimulate aggregate demand and reduce unemployment, central banks have pushed interest rates down too much and inadvertently distorted the financial system [and real structure of production] in a way that constrains both short- and long –term business investment. The misnamed monetary stimuli are actually holding the economy back.”

Steven H. Hanke also has some relevant commentary on how current policy has retarded rather than stimulated recovery. See:

The Federal Reserve vs. Small Business

Rethinking Conventional Wisdom: A Monetary Tour d’Horizon for 2013

Especially section 3: Rethinking the Fed’s Monetary “Stimulus”

Here is a sample of John B. Taylor’s commentary:

← Older posts

Same Old Slow Recovery Posted on February 4, 2013by John Taylor

The data released last week generated a lot of news stories, first bad ones about the GDP numbers and then good ones about the employment numbers. When you put the numbers in perspective, however, the economic story is little changed from … Continue reading →

Posted in Slow Recovery

Don’t Blame Weak Recovery on State and Local Spending Cuts

Posted on June 15, 2013by John Taylor As the economic recovery has remained weak well into its fourth year, some Washington policy makers have increasingly been blaming cuts in government spending, with much of their finger pointing at state and local governments where purchases of goods and … Continue reading →

Posted in Slow Recovery

Ed Leamer on the Weak Recovery Posted on June 3, 2013by John Taylor

In a recent “chart cast” video posted on YouTube, Russ Roberts interviewed Ed Leamer of UCLA on why the recent economic recovery has been so weak. Ed’s list of causes differs a lot from mine, which Russ discussed with me … Continue reading →

Posted in Slow Recovery

An Unusually Weak Recovery as Usually Defined Posted on October 26, 2012by John Taylor

The view that the current U.S. recovery is unusually weak compared to past U.S. recoveries from recessions with financial crises is gaining more and more support. Economists David Papell and Ruxandra Prodan in an article posted on Jim Hamilton and … Continue reading →

Posted in Slow Recovery

Weak Recovery Denial

Posted on October 18, 2012by John Taylor

Paul Krugman disagrees with my recent post that the recovery is weak compared to recoveries from past serious U.S. recessions including those associated with financial crises. I’ve been writing about the reasons for weak recovery for two years, but the … Continue reading →

Posted in Slow Recovery

More on the Unusually Weak Recovery Posted on October 15, 2012by John Taylor

The weak recovery continues to be a major topic. Over the weekend, Russ Roberts issued the second episode of his three part “chartcast” series on the topic, which is based on interviews with me and builds on his highly-regarded podcast series, … Continue reading →

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A New Chart Cast on the Bad News Recovery Posted on September 8, 2012by John Taylor

As many have observed the employment report for August released today was disappointing news, but it really is a continuation of a steady stream of bad employment news that has been the story of this recovery since its beginning. The … Continue reading →

Posted in Slow Recovery

It’s Still a Recovery in Name Only–A Real Tragedy Posted on August 4, 2012by John Taylor

I have been regularly charting the path of real GDP and employment during the recovery from the recession as new data are released. From the start it was clear that the recovery was very weak. By its second anniversary the … Continue reading →

Posted in Slow Recovery

Policy Uncertainty Makes Firms Reluctant to Hire: New Evidence Posted on July 31, 2013by John Taylor

I have been arguing that economic policy–in particular policy unpredictability or uncertainty–has been a factor in the slow recovery. That’s the main theme of the book I edited with Lee Ohanian and Ian Wright. A chapter by Scott Baker, Nick … Continue reading →

Posted in Uncategorized

More on Monetary Policy Before and After the Panic of 2008 Posted on June 28, 2013by John Taylor

Many agree that the provision of liquidity by the Fed during the panic period in the fall of 2008 was helpful in alleviating severe stress in the markets and rebuilding confidence. Most criticism of the Fed pertains to the period … Continue reading

“Trapped” in Rental Contracts

In today’s feature on the US housing market, an NPR correspondent sadly notes that foreclosure victims are “trapped” in rentals. Why, those poor, unlevered souls, choosing to purchase a flow of housing services over time, rather than buying a huge, illiquid housing asset outright, using borrowed funds. Tragic!

It made me think of similar tragedies:

  • Mercedes and BMW drivers trapped in lease contracts, rather than buying their cars with cash or credit
  • Individuals trapped in wage and salary contracts, rather than raising the capital, arranging the inputs, and bearing the uncertainties to be sole proprietors
  • Companies trapped in outsourcing agreements, rather than owning all upstream and downstream production processes directly, as vertically integrated firms
  • Vacationers trapped in resort hotels, rather than owning their own vacation condos or timeshares
  • Readers trapped by downloading and reading books on their Kindles, essentially “renting” them from Amazon, rather than buying physical books
  • Movie fans trapped in DVD rental agreements with Netflix, rather than owning massive DVD libraries

Don’t these suckers know that goods and services should always be purchased outright, rather than rented or borrowed?

[Cross-posted at Organizations and Markets]

Judge Napolitano at Mises University

Mises University this year featured a  “conference within the conference”.  The distinguished jurist and television commentator Judge Andrew Napolitano offered a course of five lectures on “The Growth of the Commerce Clause as an Instrument of Federal Power.” Judge Napolitano presented a masterful survey of how the Supreme Court has interpreted the commerce clause, from Gibbons v.Ogden (1824) to the present. In clear defiance of the plain meaning of the constitutional text, the Court expanded the scope of the clause so that the power of Congress to regulate the entire economy had by the 1940s become little short of plenary. Wickard v. Filburn (1942) was perhaps the culminating case in this sorry record of biased construction. Fortunately, the Court has recently indicated some willingness to recognize limits to the power of Congress in this area. In his final lecture, Judge Napolitano noted that in its recent opinion upholding the individual mandate of Obamacare  as an exercise of the taxing power, the Court also held that use of the commerce clause for this purpose was unconstitutional.

Judge Napolitano followed the Socratic method in teaching the course, but he was a Socratic interlocutor of great kindness, and it was clear that he had won the hearts of his students. His impressive command of the intricate legal issues at stake was everywhere apparent, and no less apparent was his devotion to individual liberty.

Central Bank Organization

A new NBER working paper by Ricardo Reis (unfortunately gated) tackles “Central Bank Design.” I’ve written a little on this myself, and gave a lecture Saturday at Mises University on “Microeconomics of Central Banking” elaborating on my ideas. I’ve been particularly critical of “independence,” the idea that central bank policies should be immune from public or legislative oversight, to avoid “politicizing” monetary policy. Governance and accountability are central to any model of organizational design, and it’s surprising — stunning, actually — that so many mainstream economists oppose any kind of oversight for the monetary authority.

I expected Reis to take the mainstream line, and he is indeed more sympathetic to the practice of central banking than I am (after all, he presumably supports the objectives, which I don’t). But his take is quite balanced and surprisingly critical, though he devotes less space to governance and oversight than I would have preferred. For example, here’s a passage from the conclusion:

While many have defended the virtues of central bank independence in general, looking at more specific questions led to a more mixed message. Even if there is a case for central banks to independently conduct the operations of monetary policy, basic democratic principles would imply that society would still choose the goals. Committing to a stable long-run nominal anchor may reduce the costs of price uncertainty, but that is not the same as having a fanatic central banker committed to 2% inflation at all times, and research shows that a flexible price-level target may be able to lower the variance of inflation and real activity. In turn, releasing the central bank from the duty to raise seignorage to make transfers to fiscal authorities does not imply that the central bank can assume large risks through bold credit policies. Moreover, even if central bankers are appointed to long terms that are independent from political pressure in order to attenuate the problem of time inconsistency, this goal will only be accomplished it the policymakers are politically accountable and transparent.

Definitely worth a read for an “insider” take on this issue.

Plutocracy in Action

Those who still believe the hogwash that the the United States is a two-party, representative democracy should ponder the following. On Wednesday, the amendment to the Defense Appropriations Act of 2014 proposed by libertarian-leaning Rep. Justin Amash (R-Michigan) was narrowly defeated in the House by a vote of 217-205. The amendment would have ended the authority for the unconstitutional, police-state metadata-phone call spy program carried out by the NSA whose existence was leaked by the heroic whistleblower Edward Snowden last month. Interestingly, the amendment had bipartisan support, with 99 Republicans and 111 Democrats voting for it. Its opponents included the leadership of both parties, as both House Speaker John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-California) voted against it. This seeming paradox is easily unraveled if one follows the money. According to an analysis commissioned by Wired, over the past two years those representatives who opposed the amendment and supported the spy program received more than twice the amount of cash contributions from defense and intelligence firms (e.g., Lockheed Martin, Boeing, United Technologies, Honeywell International, etc.) as those who did not. On average, House members who voted to uphold the domestic spy program received an average of $41,635 whereas those who voted to revoke authority for the program averaged $18,765. By the way, the leaders of the two “opposing” parties in the House, Boehner and Pelosi received $131,000 and $47,000, respectively, from the defense-intelligence establishment.

This is just another reminder of the thesis of the great Italian sociologist and classical liberal Vilfredo Pareto (1848-1923) that every democracy is inevitably transformed into a “demogogic plutocracy” that is run by a ruling elite of “fox-like” politicians and their corporate capitalist cronies.

HT to Wolf von Laer.

All This Week: Watch Mises University

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And watch Tom Woods’s inspiring talk from last night here.

Mises University 2013 Starts Tonight!

The top scholars in the Misesian tradition are joined by 150 students and 15 observers from 124 schools and universities, 35 states, and 23 countries.

Tom Woods kicks it all off tonight. Watch his speech live via YouTube. And don’t forget to sign up for Virtual Mises University, to receive a Certificate of Participation and more!


Watched Skyfall on a plane the other day. A well-made and entertaining film. Old fogies like me will appreciate the retro Bond touches. But it’s hard to be a libertarian and fully enjoy these sorts of movies, especially in today’s political climate. The surveillance / national security state is glorified every day in the mainstream press; do we need this from Hollywood as well? Of course, in the film, Bond’s MI6 uses its cameras and supercomputers and technical genius to spy on the bad guys, unlike the real MI5 and MI6 and FBI and CIA which use this stuff to spy on you and me. (I much prefer the way the CIA is portrayed in the Bourne films, as a lawless predator using shadowy “assets” to carry out its extrajudicial executions. And the portrayal of the NSA in the Will Smith film Enemy of the State is even better)

Skyfall opens with an exciting car, motorcycle, and train chase set in and around Istanbul. But I couldn’t help noticing the wanton destruction of person and property carried about by Bond and his agent-partner, smashing cars, shops, and market stalls belonging to innocent bystanders, even using a piece of construction equipment to crush cars and rip a train car in half, all to recover a stolen computer hard drive containing the identities of NATO spies embedded in “terrorist” organizations around the globe. Hey, what’s the life and property of a few random Turks compared to vital Western national security interests?

And, as is usual in Hollywood portrayals, MI6 is coordinating this melee from its headquarters in London, with nary a Turkish official in sight. (We see this too in the Bourne films, where the CIA can apparently control all the CCTV cameras in London with a few mouse clicks.) Perhaps the most egregious example I can remember appears in Fantastic Four: The Rise of the Silver Surfer, where US special forces are seen operating at will in Germany, using tanks and helicopters and futuristic weaponry to capture the titular bad guy in a Bavarian forest before taking him to their secret local base. You’d think that some German military or civilian officials would be at the scene, granting permission for Americans to blow stuff up on German soil, but I suppose this would have gone over the heads of the American audience.

Orson Welles on Contracts and the Rule of Law

From Peter Biskind’s hilarious and irreverent My Lunches with Orson, the edited transcripts of Orson Welles’s conversations with director Henry Jaglom in the mid-1980s:

HJ: In the old days, all those big [movie] deals were made on a handshake. With no contract. And they were all honored.

OW: In common with all Protestant and Jewish cultures, America was developed on the idea that your word is your bond. Otherwise, the frontier could never have been opened, ’cause it was lawless. A man’s word had to mean something. My theory is that everything went to hell with Prohibition, because it was a law nobody could obey. So the whole concept of the rule of law was corrupted at that moment. Then came Vietnam, and marijuana, which clearly shouldn’t be illegal, but is. If you go to jail for ten years in Texas when you light up a joint, who are you? You’re a lawbreaker. It’s just like Prohibition was. When people accept breaking the law as normal, something happens to the whole society. You see?

Of course, the US today is a society in which every citizen is a lawbreaker, virtually all the time — and it’s often impossible to know which law you’ve broken until ex post facto, when a government official decides. What can the rule of law possibly mean in such a system?

Fractional Reserve Banking Paper

You may have missed this paper by Bagus, Howden, and Block on Fractional Reserve Banking: Deposits, Loans, and Banking: Clarifying the Debate

Here is an online version of the working paper