tag:blogger.com,1999:blog-42123660350039059162024-03-13T21:58:20.423-07:00any old bullshitKevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-4212366035003905916.post-14312195770835331922015-11-20T04:26:00.000-08:002015-11-29T06:49:11.188-08:00Blog reorganizationAs the name of this blog suggests, it was originally created with the idea that I'd write about whatever the hell came into my head. I had in mind the sort of thing I have long been sounding off about in comments on other blogs, most of them run by economists. Nothing too serious.
<p>Then a woman died in an Irish hospital and I found myself blogging about issues arising from Ireland's bizarre laws relating to abortion.
<p>Abortion is a different sort of topic from Bob Murphy's notions about Keynes, or Scott Sumner's gripes about Paul Krugman. I'm uncomfortable about presenting posts on that topic under the heading Any Old Bullshit.
<p>So I have transferred those posts (five so far) to a new blog, <a href="http://politicsofprocreation.blogspot.ie/">The Politics of Procreation</a>. If I have anything more to say about human reproduction it will appear there.
Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-86734927402781189922014-05-07T04:37:00.000-07:002014-05-07T04:37:50.354-07:00Piketty and the Marginal Product of CapitalLike hordes of others I'm reading <em>Capital in the 21st Century</em> and so far I'm very impressed. But when I came to this, on page 213, I was shaken, not stirred:
<blockquote>Concretely, the marginal productivity of capital is defined by the value of the additional production due to one additional unit of capital. Suppose, for example, that in a certain agricultural society, a person with the equivalent of 100 euros’ worth of additional land or tools (given the prevailing price of land and tools) can increase food production by the equivalent of 5 euros per year (all other things being equal, in particular the quantity of labor utilized). We then say that the marginal productivity of capital is 5 euros for an investment of 100 euros, or 5 percent a year.</blockquote>
Why do economists do this sort of thing? Keynes gave the world a very useful term for the return which a capital asset offers, expressed as an interest rate. He called it the marginal <em>efficiency</em> of capital:
<blockquote>More precisely, I define the marginal efficiency of capital as being equal to that rate of discount which would make the present value of the series of annuities given by the returns expected from the capital-asset during its life just equal to its supply price. This gives us the marginal efficiencies of particular types of capital-assets. The greatest of these marginal efficiencies can then be regarded as the marginal efficiency of capital in general.</blockquote>
<p>Now I think it's clear that Keynes and Piketty are using the same concept, but giving it different names. "So what" you ask; "isn't an author entitled to choose his own terminology?" Well yes, but the name Piketty chose happens to be the name usually given to something quite different. The marginal product of an input, as Wikipedia tells us "is the extra output that can be produced by using one more unit of the input ... assuming that the quantities of no other inputs to production change." (I know Wikipedia isn't always reliable, but trust me I can find plenty of better authorities to cite if I need 'em).
<p>The reasons why this pisses me off somewhat are twofold. Students are regularly warned not to confuse the marginal product of capital (usually abbreviated MPK) with the marginal efficiency of capital (MEC). The MPK should be understood as units of additional output per unit of additional input, while the MEC is akin to an interest rate (it can be thought of as an internal rate of return). It's important to avoid confusion because the two terms often rub shoulders in a discussion.
<p>The other reason why Piketty's choice of jargon is unfortunate is that there are plenty of hacks out there looking to diminish the impact of his work. It's a shame that he has given them an opening.
<p>But it may be for the best. Samuelson remarked that one reason why Keynes's <em>General Theory</em> made such an impact was that the many obscure points give rise to a lot of arguments and, in order to participate, people first had to read the book. Piketty's writing is mostly clearer than that of Keynes, but it may be that it is precisely the few infelicities of language which will keep the conversation going.
Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-77556673800161146982014-01-01T04:42:00.001-08:002014-01-01T04:54:08.998-08:00The Grumpy John H. Cochrane succumbs to Carly Simon Syndrome<a href="http://johnhcochrane.blogspot.ie/2013/12/making-fun-of-peoples-names.html">He writes</a>:<br />
<br />
"Paul Krugman is now reduced to making fun of my name."<br />
<br />
Evidently he believes the term "cockroach ideas" was inspired by the first syllable of his surname. This seems unlikely. Krugman has been writing about cockroach ideas for years. Here's an early example, from March 2011:
<blockquote>Way back, when I spent a year in the government, an old hand told me that fighting bad ideas is like flushing cockroaches down the toilet; they just come right back. I’m having that feeling a lot lately, on at least two fronts.
<p>One is the crowding out issue. I keep encountering both the same old misunderstanding of Ricardian equivalence, and people citing evidence from periods when the economy was nowhere near the zero lower bound. The latter was, perhaps, excusable when the idea of a liquidity trap was still new; but folks, we’ve been at the ZLB for two and a half years now:
<p>The other is the whole “the Social Security trust fund doesn’t exist” thing. I’ll just repeat what I said back when Bush was trying to push through privatization:
<p>Social Security is a government program supported by a dedicated tax, like highway maintenance. Now you can say that assigning a particular tax to a particular program is merely a fiction, but in fact such assignments have both legal and political force. If Ronald Reagan had said, back in the 1980s, “Let’s increase a regressive tax that falls mainly on the working class, while cutting taxes that fall mainly on much richer people,” he would have faced a political firestorm. But because the increase in the regressive payroll tax was recommended by the Greenspan Commission to support Social Security, it was politically in a different box – you might even call it a lockbox – from Reagan’s tax cuts.</blockquote>
Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-84097821600152696622012-10-20T05:52:00.000-07:002012-10-20T05:52:09.051-07:00Ronald Cruise O’Dworkin<p>I’m by no means the go-to guy if you want to explore “<a href="http://crookedtimber.org/2008/05/02/jerry-cohen-valedictory-lecture/">the influence of the altogether neglected Samuel von Pooped on the totally forgotten Herman von Supine</a>”, but from time to time I’m struck by how deeply some not-especially-famous writers impress their ideas, and even their prose, on others. Thanks to a fairly harmless bit of snidery by <a href="http://www.themoneyillusion.com/?p=16999">Scott Sumner</a>, I was reminded of this passage from Conor Cruise O’Brien’s introduction to a 1968 edition of Burke’s <em>Reflections on the Revolution in France</em>:</p>
<p><blockquote>That those who advocate or approve the contemporary counter-revolution should interest themselves in the <em>Reflections</em> requires no demonstration. But why should those who oppose the contemporary counter-revolution, and the neo-conservatism which is among its more overt intellectual expressions, be invited to read this first modern counter-revolutionary manifesto?</p>
<p>The fact that such a question is certain to be asked is in itself indicative of a peculiar, and apparently deep-rooted, weakness in left-wing thinking. The intelligent rightist does not ask to be given reasons why he should read Marx and the Marxists. He reads them because they are important, and because they are on the other side. He learns from them and sometimes is warned by them....</p>
<p>The intellectual left on the other hand – though with some notable exceptions – has a strong tendency to neglect its adversaries and to dismiss even their most influential writings, unread, with a sneer. This is associated, I believe, with another pronounced tendency on the left: that which runs to misunderstanding and underestimating the forces opposed to it.</blockquote></p>
<p>It seems that the right-wing enthusiasm for opposition research has flagged a little since O’Brien wrote those words. Ronald W. Dworkin, Senior Fellow at the Hudson Institute (not to be confused with legal philosopher Ronald M. Dworkin) <a href="http://www.hoover.org/publications/policy-review/article/106466">warns his fellow conservatives</a> against slipping into the idle habits of the left:</p>
<p><blockquote>I believe in capitalism. Many of this journal’s readers do, too. Then why am I writing as if we can learn something from Marx?</P>
<p>The fact that such a question is certain to be asked is in itself indicative of weakness typically more rooted in left-wing thinking. The intelligent conservative does not ask to be given reasons why he should read Marx and the Marxists. He reads them because they are important, and because they are on the other side. He learns from them and is sometimes warned by them. The intelligent conservative makes use of Marxist insights, but for his own purposes. He learns from his adversaries about the strengths and weakness of his own position — and of theirs.</p>
<p>The leftist, on the other hand — though with some notable exceptions — has a strong tendency to neglect his adversaries and to dismiss even their most influential writings. Although conservatives should and do read Marx and Foucault, leftists often think they have nothing to learn from Tocqueville and Burke. Indeed, they often greet these writers with a sneer, which is why they consistently misunderstand and underestimate the forces opposed to them.</blockquote></p>
<p>This kind of thing makes me wonder whether I shouldn’t strive for a more active role as a public intellectual. As the name of my blog indicates, I really don’t think I have any startling new insights to offer the world. Still, I have reasonably well-stocked bookshelves, internet access, and a ticket to the UCD Library. I’m confident that I could knock together a few articles on, say, the American Civil War, with style and content closely resembling Shelby Foote. Or I could offer insights into paleontology reminiscent of Stephen Jay Gould, with wonderfully apt metaphors drawn from baseball. The fact that I have never been to a baseball game, and wouldn’t know a cynodont from a triceratops anus, doesn’t seem to present any particular obstacle. The possibilities are endless. I could rework Russell or recycle Ryle. Should I offer my services to the Hudson Institute? My rates are decidedly reasonable.</p>
<p>(The title of this post borrows from the TLS reviewer who described O’Brien’s really excellent book, <em>The Great Melody</em>, as a biography of Conor Cruise O’Burke.)</p>
Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-72278472683291908542012-09-22T04:35:00.000-07:002012-09-22T04:35:53.306-07:00Trends in Living StandardsBrendan Walsh has an interesting post <a href="http://www.irisheconomy.ie/index.php/2012/09/21/trends-in-living-standards/">on the Irish Economy</a> blog. I don't have anything much to add, but since he provides a link to the relevant Eurostat table I thought it would be interesting to start the graphs he presents in 1995 rather than 1999 and compare Ireland with somewhat different countries. This is the result:
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitvGgTZCvTCehlQ6iYQrBROCFFPcsDZ1NcWtNKKex9p7OLV-vpMP0jOtd824YoDHm2yEsuhyphenhyphengXXzI6ZWzOx1rzabzdDDdjPekr6qRiiTXgHQDTFAQMqmw0cfNnBZf6OSfP_99MPARtaSnk/s1600/GDP_rel.GIF" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="193" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitvGgTZCvTCehlQ6iYQrBROCFFPcsDZ1NcWtNKKex9p7OLV-vpMP0jOtd824YoDHm2yEsuhyphenhyphengXXzI6ZWzOx1rzabzdDDdjPekr6qRiiTXgHQDTFAQMqmw0cfNnBZf6OSfP_99MPARtaSnk/s320/GDP_rel.GIF" /></a></div>
Basically it's just another illustration of how the property bubble, which didn't really appear until 2002 or thereabouts, screwed up the development of a very promissing economy.
Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-56302180403797006602012-08-05T15:13:00.000-07:002012-08-07T12:38:04.863-07:00Cruise ships are getting to be quite a common sight in Dublin. The Cunard Queen Elizabeth is the most impressive I've seen.
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJU8k57qoRHg4KdxlwHRyJj8H5EedfGyhzli7fLRvvN3S8bOQ4GhyphenhyphenfIBzv41_SW-lj7XM5_3sEGXT4eIdvfrI_LiQWy9UGp0jKxniQwNkOgbV_TIQZfygftdgCjBrjGbrrCkbQafxReq7Z/s1600/QE.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="149" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhJU8k57qoRHg4KdxlwHRyJj8H5EedfGyhzli7fLRvvN3S8bOQ4GhyphenhyphenfIBzv41_SW-lj7XM5_3sEGXT4eIdvfrI_LiQWy9UGp0jKxniQwNkOgbV_TIQZfygftdgCjBrjGbrrCkbQafxReq7Z/s320/QE.JPG" /></a></div>
UPDATE: While I'm sure the Queen Elizabeth is quite luxurious, here's how the 0.1% visits Dublin:
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_Xg6YHrET_UKbUFCg_KDwwNn1f4ArtcaI-3y_q5rmDab-4XDYorWJf3a1l9_-CNtIkv5aewxuWaTR-z-lEl6RPySOcEuo90q25v54oXfupqy_c4pcY56EqJO4iRlG1VeApQ1kW0b-Srp5/s1600/Majestic.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="240" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_Xg6YHrET_UKbUFCg_KDwwNn1f4ArtcaI-3y_q5rmDab-4XDYorWJf3a1l9_-CNtIkv5aewxuWaTR-z-lEl6RPySOcEuo90q25v54oXfupqy_c4pcY56EqJO4iRlG1VeApQ1kW0b-Srp5/s320/Majestic.JPG" /></a></div>
If you've got it baby, flaunt it! God knows the economy needs the boost.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-64155023195757689792012-07-29T07:07:00.000-07:002012-07-29T07:07:35.648-07:00The Krugman AlternativeNot a plot proposal for a convoluted film involving leaps onto moving vehicles, but a sketch of the background to the “debate” inspired by Paul Krugman’s post on <a href="http://krugman.blogs.nytimes.com/2011/11/22/taxing-job-creators/">taxing job creators</a>. There is a tension between two claims which conservatives are wont to make about the rewards which go to producers. One of these claims was presented in its most explicit form by the economist <a href="http://www.unc.edu/depts/econ/byrns_web/EC434/HET/Pioneers/clark.htm">John Bates Clark</a>:
<blockquote>Firms operate in a region of their production functions where diminishing marginal returns cause each worker added to a work force to raise total output by a smaller amount than did the previous worker. The employer will hire more workers as long as the last one hired contributes at least as much to total revenue as the cost of employing that worker. Because every worker is the marginal worker, and because the <em>last</em> worker hired adds to the employer's gross income an amount equalling the wage rate in a competitive labor market, all workers are paid the values of their marginal products.</blockquote>
If we consider this simply as a statement about the implications of profit maximization it is irrefutable. To protect it from nitpicking it can be framed in rigorous mathematical form. But for Clarke and many conservatives it has a <em>moral</em> implication: capitalism is just, even if the justice it dishes out is a bit rough at times. The rewards received by workers are a fair reflection of their contribution to the production process. Unlike the mathematics, the morality can certainly be disputed, as <a href="http://economistsview.typepad.com/economistsview/2007/06/marginal_produc.html">Mark Thoma notes</a>:
<blockquote>There have been many, many objections to the normative conclusions drawn by Clark from his marginal product theory. To name a few, it requires perfect competition, it rewards factors, not individuals (owning capital and land gives the owners income, but the income is for the contribution of the factors, not for the contributions of individuals receiving the income), there is no meaningful way to separate the contributions of factors to total product (when crops grow, was it the hoe used to weed the plot of land, or the person operating it?) </blockquote>
If John Bates Clark represents one strand of conservative thought, another, which is especially prevalent in America, is the entrepreneur-worship of Ayn Rand. The creators of businesses have a value to society which far exceeds the rewards they reap. Without them the looters and moochers who make up the mass of the population would be <a href="http://drhelen.blogspot.ie/2008/10/going-john-galt.html">living in squalor</a>:
<blockquote>Do you ever wonder after dealing with all that is going on with the economy and the upcoming election if it's getting to be time to "go John Galt." For those of you who have never read Ayn Rand's <em>Atlas Shrugged</em>, the basic theme is that John Galt and his allies take actions that include withdrawing their talents, 'stopping the motor of the world', and leading the 'strikers' (those who refuse to be exploited) against the 'looters' (the exploiters, backed by the government).</blockquote>
One-percenters of the world unite! I’m not the first to notice that the Randian world view owes a lot to Karl Marx. It’s a story of exploitation, with a creative elite taking the place of the proletariat as the victims. And so we come full circle. John Bates Clark used his theory to undermine Marxism. The workforce is not exploited, it gets the marginal product of labour and the capitalists get the marginal product of capital. Countless conservatives have endorsed this argument. Paul Krugman, tongue firmly in cheek, deploys the same argument against the Randroids. The magic of the market ensures that Galtian superheroes, too, receive their marginal product. “You got a problem with that?” (This appears to be the state motto of New Jersey.)<p>
To date, no conservative blogger has shown much enthusiasm for Krugman’s deployment of Clark’s anti-Marxist weaponry against the Tea Party. For me, the interesting thing is seeing how they avoid getting caught on the horns of this dilemma: should they abandon Clark or Rand? There are various moves they can make, some of which could lead to an interesting debate, but it’s a bit sad that several of them have opted for the silliest response I can imagine: “Paul Krugman simply doesn’t understand the subtleties of that marginal productivity stuff!” No cigar, guys. If this was about bank clearing-systems or option-pricing theory you might be right, but an international trade theorist who doesn’t know this material is about as plausible as a chef who can’t brown onions. You don't score any points by interpreting "marginal reduction" to mean "shipping half of our best-educated people to Somalia."Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-18206420764232809002012-07-20T13:44:00.000-07:002012-07-20T13:45:18.014-07:00A picture for Bob MurphySince I'm too lazy to use this blog for blogging, I might as well use it to illustrate the comments which I post on other blogs from time to time. This picture explains why I think Bob Murphy is doing Paul Krugman an injustice in <a href="http://consultingbyrpm.com/blog/2012/07/krugman-karl-and-kalculus.html">this post</a>. The picture shows how real GDP shrinks when Romney supporter John Q. Wheelerdealer reduces his input to the economy in disgust at the antics of President B. Hussein Obama. As I say in comments:
<blockquote>Krugman is applying the Envelope Theorem correctly: the difference between the income which WheelerDealer foregoes by going Galt and the reduction in national income is approximately zero. Not exactly zero, because there’s a small ‘triangle’ [see picture] under the marginal productivity curve with area 0.5 x dL x dW, where W is WheelerDealer’s real wage and L his input.</blockquote>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnL3teHGJRmpTz1LDUsqy6MbfazI1ylnSHJsFuUQPNqMNqLJUMTckq5P-yzZpRobXmzHbxWMGAevbNNgI4OqgQMnvZjxdoqMkr2443hp9Q160XhID7L3OSFTKjVhZKblq20ftrWuyR34wE/s1600/WheelerDealer.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="281" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnL3teHGJRmpTz1LDUsqy6MbfazI1ylnSHJsFuUQPNqMNqLJUMTckq5P-yzZpRobXmzHbxWMGAevbNNgI4OqgQMnvZjxdoqMkr2443hp9Q160XhID7L3OSFTKjVhZKblq20ftrWuyR34wE/s320/WheelerDealer.JPG" /></a></div>Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-13500711526402166092012-06-13T07:14:00.002-07:002012-06-13T07:14:13.631-07:00Art, innit?This thing has been sitting on Sir John Rogerson's Quay for a few weeks now. This morning a group of people assembled in front of it to listen to a speech, so I guess it's here to stay.
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIKasg1RsFKbP9_zeYELaVTZ4kxln0o0RHTxMRF8e_rpGYIECKwNByYZVQHf9xRLw8N42eweFXUF6ecInAnIOfpERJkpmegS0nGxx0XwV6vNtNKJ1GYQaejq1dKu8leD4cSr7URnHzAVtm/s1600/Art.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="240" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIKasg1RsFKbP9_zeYELaVTZ4kxln0o0RHTxMRF8e_rpGYIECKwNByYZVQHf9xRLw8N42eweFXUF6ecInAnIOfpERJkpmegS0nGxx0XwV6vNtNKJ1GYQaejq1dKu8leD4cSr7URnHzAVtm/s320/Art.JPG" /></a>Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-10842274076009427772012-04-07T05:45:00.000-07:002012-04-07T05:45:32.343-07:00Alas Scott and JoanFor some time now Scott Sumner has been giving the late, great Joan Robinson a hard time about this pronouncement, which appears in her 1938 review of Bresciani-Turroni’s study of the German hyperinflation:<br />
<blockquote>An increase in the quantity of money no doubt has a tendency to raise prices, for it leads to a reduction in the rate of interest, which stimulates investment and discourages saving, and so leads to an increase in activity. But there is no evidence whatever that events in Germany followed this sequence.</blockquote>Let’s break that down into bite-sized morsels, to see what the trouble appears to be:<br />
<br />
<em>An increase in the quantity of money has a tendency to raise prices.</em> Very few economists would argue with that.<br />
<br />
<em>An increase in the quantity of money leads to a reduction in the rate of interest.</em> This is the “liquidity effect” and there is ample evidence for it.<br />
<br />
<em>A reduction in the rate of interest stimulates investment and discourages saving.</em> Maybe that could do with a <em>ceteris paribus</em> qualification or something, but really that seems like nit-picking. We’re talking about a hyperinflation, so it’s not as if there is any chance of a lower nominal interest rate being neutralised by lower inflation.<br />
<br />
<em>A stimulus to investment which also discourages saving leads to an increase in activity.</em> Since the economy under discussion was operating at something like full capacity, it might have been better to stress that much of the “activity” consisted of frantic shopping, but again that’s surely obvious in context.<br />
<br />
<em>There is no evidence whatever that events in Germany followed the above sequence.</em> Her paper discusses the sequence of events: “the violent inflation which set in in the second half of 1921 was inaugurated by a sudden fall in the mark exchange (May, 1921, 15 marks = 1 gold mark; November, 1921, 63 marks = 1 gold mark).” Whether this was caused by reparations payments or some other shock doesn’t much matter. The important point is that the inflation was transmitted through the prices of tradable goods, while other prices and wages lagged. “Moreover, the geographical diffusion of prices supports the argument, the movement spreading from the great ports and commercial centres to the interior of the country (p. 135).” Maybe modern scholars disagree with her about this but the few sources I’ve looked at seem to support her account.<br />
<br />
In short, Joan Robinson’s pronouncement seems fairly innocuous to me. What’s bothering Scott Sumner? Let’s sample his comments:<br />
<br />
<a href="http://www.themoneyillusion.com/?p=1809">1.</a> "So easy money couldn’t possibly have caused the German hyperinflation because German interest rates were not very low. And everyone knows that easy money is associated with low interest rates. I won’t insult the intelligence of my readers by explaining what is wrong with her reasoning."<br />
<br />
<a href="http://www.themoneyillusion.com/?p=1972">2.</a> "So money couldn’t have been easy when German prices were soaring, because nominal interest rates weren’t that low."<br />
<br />
<a href="http://www.themoneyillusion.com/?p=13418">3.</a>"...people like to mock how Joan Robinson said (in 1938) that easy money couldn’t have caused the German hyperinflation, after all, interest rates weren’t low."<br />
<br />
Notice that in all these cases Scott Sumner attributes to Joan Robinson the view that interest rates were not low, or not very low, or all that low. Clearly she doesn’t express that view in the two sentences he quoted. Does she do so elsewhere in the paper? She does discuss interest rate policy. She says that the Reichsbank might have curbed the inflation at an early stage if it had followed a stricter policy:<br />
<blockquote>If the quantity of money had not expanded it may be supposed that the rate of interest would have been driven up, investment impeded, and saving encouraged, so that unemployment would have appeared again and the rise in money wages would have been brought to an end. But, in fact, the budget deficit, the policy of the Reichsbank in ‘meeting the needs of trade’ and the various official and unofficial supplementary currencies which were improvised, combined to meet the demand for money, <strong>the short rate of interest did not begin to rise appreciably till July, 1922, and no obstacle was put in the way of the inflation</strong>. It is true that in 1923 the short rate of interest rose to such heights that loans were taken at 20 per cent <em>per diem</em> (though the maximum reached by the Reichsbank discount rate was only 90 per cent <em>per annum</em>). But by this time the expectation of a continued rise in prices was so strong that it was impossible for high interest rates to discourage entrepreneurs from investment or to restore the motive for saving to the ordinary public. Thus the fact that high rates did not stop the inflation in 1923 cannot prove that they would have been equally powerless in 1921. The champions of the quantity theory, therefore, may reasonably contend that it was the increase in the quantity of money which permitted the inflation to take place. [Emphasis mine]</blockquote>There you have it.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-54016667534762306652012-04-02T12:54:00.000-07:002012-04-02T12:54:38.355-07:00A fragment from my autobiographyThis post is an off-the-cuff response to Liam Delaney, who is tweeting about early retirement. In my case the relevant dialogue ran as follows:<br />
<br />
Me: The voluntary severance package is very tempting. I'd like to take it.<br />
Boss: It's actually intended for people we want to get rid of.<br />
Me: Thanks, but I can <em>make</em> you want to get rid of me.<br />
Boss: I'm sure you can.<br />
<br />
We both knew that <em>his</em> boss wanted the headcount down. Who stays in a dead-end job if there's a financially attractive alternative?Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-63337913349909171322012-03-31T08:28:00.000-07:002012-03-31T08:28:27.313-07:00Nothing happens, twice.Today's demonstration against the household charge, as seen from Samuel Beckett bridge.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEje4WYTzLTPQ6um7DK4N7mSw-4D0m5S34jHa3jnyDENuJn4b09-SG7PvFKHLs3N5mjN447EZAQ_wiaQuL7QWhVt0D8YnI254az1mMTLjmB16uTShGqgZz9fkVHWGS4a8MVnsscJe9T3yjp1/s1600/demo.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="240" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEje4WYTzLTPQ6um7DK4N7mSw-4D0m5S34jHa3jnyDENuJn4b09-SG7PvFKHLs3N5mjN447EZAQ_wiaQuL7QWhVt0D8YnI254az1mMTLjmB16uTShGqgZz9fkVHWGS4a8MVnsscJe9T3yjp1/s320/demo.JPG" /></a></div>Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-37620095661030198982012-03-31T04:03:00.000-07:002012-03-31T04:03:59.918-07:00Tax-backed BondsI’m intrigued by <a href="http://www.nakedcapitalism.com/2012/03/philip-pilkington-mmt-to-the-rescue-in-the-the-eurozone.html">this</a> idea. But I don’t think it works. Suppose the government defaults on its debt. I can now use my €1,000 bond to pay my taxes. But what does the government do with the bond which is now sitting in the tax-collector’s office? It’s not money. It can’t be used to pay nurses and firemen. So how is the day-to-day spending of the government to be funded? Pilkington and Mosler do not say.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-10801862046471919882011-05-15T03:31:00.000-07:002011-05-15T05:19:09.295-07:00Colm McCarthy in the SindoColm McCarthy’s <a href="http://www.independent.ie/opinion/analysis/forget-forecasts-only-the-markets-view-matters-2647447.html">latest</a> includes a non-responsive response to Morgan Kelly. He says the Kelly proposal is impractical because it is unilateral, then he proposes his preferred just-as-unilateral action:<br />
<br />
<blockquote>But Prof Kelly's prescription is less convincing. He wrote: "National survival requires that Ireland walk away from the bailout. This in turn requires the Government to do two things: disengage from the banks, and bring its budget into balance immediately." The budget cannot be balanced overnight, although it should certainly be addressed far more rapidly than the Government intends. This should start with an emergency Budget before the Dail adjourns in July. Nor can we walk away from the sole available lender, but it is surely time to cut out payments to unguaranteed and subordinated bank bondholders.<br />
<br />
If the EU and ECB want to pay them the €20bn still outstanding, that is their affair. Our Government needs to explain that Ireland cannot be expected to place its sovereign bondholders in further jeopardy in pursuit of a Band-aid solution to the European banking crisis.</blockquote><br />
As I understand the situation, if we cut payments to unguaranteed senior bondholders, that is tantamount to walking away from the sole available lender. Michael Noonan can <em>explain</em> until he is blue to the top of his shiny dome. The EU and ECB aren’t listening.<br />
<br />
Or am I wrong? Is there some reason to suppose that we can get away with cutting payments as long as we supply an explanation? Believe me I would dearly love to be wrong. But I suspect Daniel Davies is closer to the truth with his pithy statement of the EU's approach to Ireland: It puts the lotion on its skin or it gets the hose again.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-12351409172978827902011-04-04T08:59:00.000-07:002011-04-04T08:59:41.320-07:00Concerning CorrelationI write this post with a certain trepidation, since my purpose is to explain to an economics professor how tricky it is to judge correlation by eye from a scatterplot. This calls to mind an old New Statesman competition, in which readers were invited to express a familiar proverb in verse. The winning entry was:<br />
<blockquote>Teach not thy parent’s mother to extract<br />
The embryo juices of the bird by suction.<br />
The good old lady can that feat enact,<br />
Quite irrespective of your kind instruction.</blockquote>Anyway, here’s my illustration of the problem. Take a look at the far-from-random scatterplot below. (There are 301 observations.) Now – no peeking – guess the correlation coefficient.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkumW6_aAuGFhwiPYIgFwERZVKHHhp4xOlUvizv_Me79T8HKwYFPinWR5acBKrt7H98Wdemjltz70tNgBK4AZXVDa7t4aOc2zCoNC7aIVJ3jhv4QOyPm9ocDCjJXQrjEIYCcRMSruQ67Ci/s1600/Correl.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="218" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjkumW6_aAuGFhwiPYIgFwERZVKHHhp4xOlUvizv_Me79T8HKwYFPinWR5acBKrt7H98Wdemjltz70tNgBK4AZXVDa7t4aOc2zCoNC7aIVJ3jhv4QOyPm9ocDCjJXQrjEIYCcRMSruQ67Ci/s320/Correl.JPG" /></a></div><br />
<br />
<br />
If you correctly guessed that the answer is 0.93 then I suspect your peripheral vision kicked in.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-17245486958692552472011-03-20T12:55:00.000-07:002011-03-20T12:55:56.116-07:00John Waters, VSPThe thoughts of <a href="http://www.irishtimes.com/newspaper/opinion/2011/0318/1224292506317_pf.html">John Waters</a>, on Friday 18th March:<br />
<br />
<blockquote>Compared with Saddam, Gadafy is a sitting duck, hated by his people far more than he is feared by them, and elaborately surrounded by female bodyguards as though further to taunt the West with its own spinelessness and self-imposed impotence.<br />
<br />
For several weeks now he has been there for the taking, but the western powers have prevaricated and procrastinated, tabled resolutions and debated the imposition of a pointless no-fly zone, hoping for an outcome – any outcome – that would not involve them having to do anything.<br />
<br />
Barack Obama is the embodiment of this culture of hypocrisy and childishness: a black president who is president because he is black, a walking advertisement for left-liberal vanity, a man who can match, word for word, the verbal flatulence of an era characterised by delusion, cowardice and empty talk. A fortnight ago, when Gadafy was still vulnerable, Obama loudly declared that the Libyan leaders “must go”, but since then he has done precisely nothing to enable such an outcome.</blockquote><br />
It’s a pity he doesn’t write for the WaPo. The Sadlynauts could have such fun.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-61468321201112745312011-02-27T03:46:00.000-08:002011-02-27T03:48:54.726-08:00Election ReflectionsAh, the grim satisfactions of democracy! Finally we get to kick the bastards out. And we gave them a pretty good kicking too, though certainly no more severe than they deserved. I live in <a href="http://www.rte.ie/news/election2011/results/dublin-south-east.html">Dublin South-East</a>. I gave my first preference to an independent, Paul Sommerville, who did rather better than I expected. I thought I was just helping him to save his deposit, but in the event he saw off John Gormley and was the second-last candidate to be eliminated. I gave my second preference to Kevin Humphreys of Labour, not because I’m a natural Labour voter but because they voted against the disastrous bank guarantee. But, says Vincent Browne, they voted against it for the wrong reason! Who cares? A ballot-paper doesn’t enable you to spell out your thoughts on policy. All you can do is reward those who vote well and punish those who vote badly.<br />
<br />
While I am a naturally vengeful voter, I’m a bit sorry for Chris Andrews. He seems a nice-enough guy. The penalty for belonging to a shitty party was waiting through ten counts before losing his seat. It’s not the death of a thousand cuts but it must hurt all the same.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-68173524072082103872011-02-08T08:52:00.000-08:002012-04-19T14:58:10.314-07:00Nick Rowe’s Critique in PicturesNick Rowe has devoted umpteen blog posts to explaining why he thinks <em>some</em> Keynesian economists go horribly wrong by neglecting to stress that their ideas are set in the context of a monetary exchange economy. On the dubious principle that a picture is worth a thousand words and because creating diagrams is where I have comparative advantage over Nick, here’s what he is saying.<br />
<br />
If you need me to explain the first picture you’re not interested in economics so stop reading now. It’s here just to set the scene: when all we need is two dimensions then we just draw a triangular budget set and an indifference curve.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMNzGB7hN3J2WQHJCgbzz_90FrFUKSuTpOmgu4gk4O6xuX9g8TokGOYIrE7pj3LHVfsSBW-_YSviStQbe00BF8t5G3XlbS_johcjwzAM_0NehQDjo4gLpLZTLxr5BxdFbSfxim6np6k6Oq/s1600/Rowe00.jpg" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="240" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMNzGB7hN3J2WQHJCgbzz_90FrFUKSuTpOmgu4gk4O6xuX9g8TokGOYIrE7pj3LHVfsSBW-_YSviStQbe00BF8t5G3XlbS_johcjwzAM_0NehQDjo4gLpLZTLxr5BxdFbSfxim6np6k6Oq/s320/Rowe00.jpg" /></a></div><br />
But to understand Keynesian economics we need a minimum of three dimensions, so the budget set is bounded by a plane. If that’s the only constraint then the optimum is the point where the plane is tangent to the best attainable indifference <em>surface</em>, which is not shown; imagine it as a shape like a satellite dish facing out from the origin. (I have indicated where I disagree with Nick by marking the vertical axis “Treasure” whereas he would undoubtedly mark it “Money”. But that’s another story. I’ll call it money anyway.)<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLtyMRIuLRPr1O4691ZybR3c5Xz8Rb3qr0AcVbbXva3EH-rvtHRycr1uwFeAfT0E5QiFrGJundDUV1y5EhhvPQxc94HA7eb8yPvw_dRlcWZbAmYj9rnum4f_7Xdtp7vy64t4HQOEFP-LjR/s1600/Rowe01.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="320" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgLtyMRIuLRPr1O4691ZybR3c5Xz8Rb3qr0AcVbbXva3EH-rvtHRycr1uwFeAfT0E5QiFrGJundDUV1y5EhhvPQxc94HA7eb8yPvw_dRlcWZbAmYj9rnum4f_7Xdtp7vy64t4HQOEFP-LjR/s320/Rowe01.JPG" /></a></div><br />
So far so Walrasian. We go Keynesian and repeal Walras’ Law by introducing a preset money wage (and possibly goods price also) and <em>rationing</em> in the labour market, so that the household is compelled to consume more leisure than it desires:<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbrxbvGoS56NU9WYqxe8uBvR1YLiJCQufys0i4caiTEqXw_sPqSb4r6QlifA4y9Qgpw893M56fJBfzhXQqvyDOZDFL6DkI_WBxnlhhAby3ghLQL2ky-SrsOKNvDaHjFJLXCnkAuwYrgH4X/s1600/Rowe02.JPG" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="320" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbrxbvGoS56NU9WYqxe8uBvR1YLiJCQufys0i4caiTEqXw_sPqSb4r6QlifA4y9Qgpw893M56fJBfzhXQqvyDOZDFL6DkI_WBxnlhhAby3ghLQL2ky-SrsOKNvDaHjFJLXCnkAuwYrgH4X/s320/Rowe02.JPG" /></a></div><br />
Finally, Nick Rowe’s move: we let Walras re-enter though the back door by allowing workers to barter with employers, selling their brewing skills for beer:<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9OZVwB4jW5yc2CBUPbZT5jldDTDXrESxwcnr8_ZQYLKA_YqvI70BBquAG7nZZXbOIXYjzPASwo58dTv0Vzj2P8byY3QQcjKTGisBewD1awOtppny0Qv0f_sFEhomuMAtpNUD1hDVn-POn/s1600/Rowe03.bmp" imageanchor="1" style="margin-left:1em; margin-right:1em"><img border="0" height="320" width="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9OZVwB4jW5yc2CBUPbZT5jldDTDXrESxwcnr8_ZQYLKA_YqvI70BBquAG7nZZXbOIXYjzPASwo58dTv0Vzj2P8byY3QQcjKTGisBewD1awOtppny0Qv0f_sFEhomuMAtpNUD1hDVn-POn/s320/Rowe03.bmp" /></a></div><br />
Households are still rationed, so the end result is not <em>quite</em> Walrasian, but the rationing is confined to the market for assets.<br />
<br />
[Edited to fix the perspective in the third picture.]Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-9515166110940247592010-11-13T09:29:00.000-08:002010-11-13T09:29:12.146-08:00Chef Aid for IrelandAccording to <a href="http://www.bbc.co.uk/news/business-11750676">the BBC</a>:<br />
<br />
<blockquote>Irish officials have not denied they are in talks about accessing the EFSF but instead say "it makes no sense".</blockquote><br />
<br />
I believe this is what is known in legal circles as the <a href="http://en.wikipedia.org/wiki/Chewbacca_defense">Chewbacca</a> defence.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-75102950074426501902010-09-15T04:00:00.000-07:002012-08-10T02:58:30.847-07:00Scott Sumner: an explanationWell not really. I can't explain Scott Sumner. But this picture might clarify <a href="http://www.themoneyillusion.com/?p=6986#comment-32126">my comment</a> on his blog.<br />
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeamrHUc7Vif5wn8DK5NeWMaob6n68pYCJEtlgWyGbK7cPzzAenzQTKLUEhxup31YIVgsZesS0bjIhfbt4qYy69WeYkMgdb54ufRQHHe5QjlLUO3O00b3NZu0xpjxwSq0YgyiuwNiXDOTC/s1600/Blackboard.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="265" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeamrHUc7Vif5wn8DK5NeWMaob6n68pYCJEtlgWyGbK7cPzzAenzQTKLUEhxup31YIVgsZesS0bjIhfbt4qYy69WeYkMgdb54ufRQHHe5QjlLUO3O00b3NZu0xpjxwSq0YgyiuwNiXDOTC/s400/Blackboard.JPG" width="400" /></a></div>Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-31215782861216797512010-01-15T03:46:00.000-08:002010-01-15T04:26:56.903-08:00Krugman for Czar<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoBOwhIM6oqlncdmH6k4wOm8xRz6tBuJUNnFQy92buNQhrg2Iuw96884EckDfG3pvOHGUMX3nUr18NgXbnc257Yp1AzlDlQIPItuoLWqeSMHtV4lleAe77R6zf4xi6KMLth64426aRRqkI/s1600-h/czar-krugman.jpg"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 320px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhoBOwhIM6oqlncdmH6k4wOm8xRz6tBuJUNnFQy92buNQhrg2Iuw96884EckDfG3pvOHGUMX3nUr18NgXbnc257Yp1AzlDlQIPItuoLWqeSMHtV4lleAe77R6zf4xi6KMLth64426aRRqkI/s320/czar-krugman.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5426942019651819122" /></a><br /><br /><br />Probably the best idea Eugene Fama has had in a while.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-60181922895885027402009-03-02T03:05:00.000-08:002009-03-02T03:07:55.453-08:00You and me both, WarrenWarren Buffett <a href="http://news.bbc.co.uk/2/hi/business/7918448.stm">admits</a> that he made some "dumb" mistakes during the past year.<br /><br /><blockquote>In his annual letter to investors in his company Berkshire Hathaway, he said the errors included buying stakes in two Irish banks.</blockquote><br /><br />Is there an emoticon for a rueful grin? Having spent most of my working life dealing with bankers, mostly Irish, I never thought the day would come when I could reproach myself for being too trusting of them.Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.comtag:blogger.com,1999:blog-4212366035003905916.post-78287391433129195532008-09-07T06:57:00.001-07:002008-09-07T06:59:05.941-07:00Hell no, we won't go.With American voters pondering whether Barack Obama is the Antichrist, in which case it might be better to play it safe by putting a 72-year-old with a serious anger-management problem in the White House, the <a href="http://www.irishtimes.com/newspaper/frontpage/2008/0906/1220629536248.html">Irish Times</a> brings news that we too have substantial numbers of paranoiacs on the electoral register:<br /><br /><blockquote>ALARM THAT Irish children could be conscripted into an EU army featured high on the list of reasons why people rejected the Lisbon Treaty, research commissioned by the Government has found.</blockquote>Kevin Donoghuehttp://www.blogger.com/profile/07534540865029864916noreply@blogger.com