Quick Roundup 498

Monday, January 18, 2010

MLK: The Good, the Bad, and the Ugly

The good: Martin Luther King's dream of black equality has been largely realized. Barack Obama's election to the presidency, which required the support of a majority of white Americans, is ample evidence that skin color is no longer the barrier it once was. [Update: This was not actually the case, although Obama did poll at least as well as the past two Democrat candidates for President did among white voters.]

The bad: Said President seems oblivious to the fact that central planning is a form of slavery, and he seeks to impose it on another class of citizens, namely physicians. Neither skin color nor the possession of valuable skills and knowledge justify legalized coercion of individuals.

The ugly: Obama's trip to Massachusetts to shore up support for Martha Coakley indicates that he is unable or unwilling to reconsider his own prejudices against capitalism and, by implication, individualism.

To top all this off: How un-self-aware (or brazen) can someone be to claim that Republicans are "walking in lockstep" even as he campaigns for someone who will do just that with 59 other Democrats to pass a bill that is plainly very unpopular?

Where will they go with this?

Despite my distaste for vendor lock-in, Apple gained my respect when it rewrote its OS on top of a Unix kernel and my interest with its iPhone success. But where will it go with the tablet it's going to release around March? That's the question Farhad Manjoo asks at Slate:

[A rumored price of over $800.00 is] exactly what makes Apple's move so risky. A machine that seeks to supplant a laptop can't offer just a "lean-back" experience -- it's got to let you enter text, too, and that's where tablet machines have long failed. Let's assume that Steve Jobs and his minions have come up with an amazing solution to this problem. In the same way that Apple managed to build an intuitive, easy-to-learn interface into a phone that lacked a physical keyboard, they could figure out a way to make it easy to type long e-mails on a screen that you've got to hold with both hands. But any new system will require a learning curve, and it's likely that some people will never get used to it. Indeed, I still type on my iPhone only grudgingly. When I've got to pen a long e-mail, I wait until I'm near a keyboard.
Even if they've found a way to make inveterate keyboard users like myself buy a work computer without a keyboard, they'll have to be prepared for many of us to let the early adopters be the guinea pigs, especially in this economy.

Venezuela on the Precipice

Dismuke points me to an blog posting that predicts national collapse for Venezuela within 120 days based on the unavoidable consequences of Hugo Chavez's gross mismanagement of the power grid.
"National collapse" would be sparked by the forced shutdown of at least 5,000 MW of Venezuela's hydro-power generation capacity.

The lights would go out in large swaths of Venezuela including Caracas for days, weeks, perhaps even for months, according to Edelca's report.

Even worse, [hydroelectric producer] Edelca's best-case forecast is that Venezuela will only barely avoid "national collapse" – assuming that it starts raining by March and the emergency conservation plan launched on 12 January 2010 is effective – but when has the Chavez regime been effective at anything besides destruction, corruption and bullying?

Caracas Gringo goes into more depth on this and other aspects of the situation in Venezuela in this post and elsewhere in his blog.

Japan, too?

Economist Ambrose Evan-Pritchard thinks that, "2010 will prove to be the year that Japan flips from deflation to something very different:"
Japan's deficits are already within the hyperinflation "red flag" zone identified by historian Peter Bernholz (Monetary Regimes and Inflation ... the Bible on this subject). As you can see from the charts below, prices start to spiral into the stratosphere once the deficits as a share of government expenditure rises above a third and stays there for several years.
More there on how Japan may have escaped hyperinflation so far and why it might cease doing so soon.

How have we not had (much) inflation?

I don't know enough about economics to be sure of the soundness of his argument (and wonder how a Japanese collapse would affect it), but Harvard economist Gregory Mankiw explains why he thinks we are not necessarily in store for it.
And as a result of legislative changes in October 2008, the Fed has a new tool: it can pay interest on reserves. With short-term interest rates currently near zero, this tool has been largely irrelevant. But as the economy recovers and interest rates rise, the Fed can increase the interest rate it pays banks to hold reserves as well. Higher interest on reserves would discourage bank lending and prevent the huge expansion in the monetary base from becoming inflationary.
Not only does he wonder aloud whether the Fed will use this "new tool," however, he also indicates that the Fed may want to use "a little inflation" to spur the economy. This immediately reminds me of the seventies.

When all is said and done, the value of my bank account remains at the mercy of mere politicians. Color me less than reassured.

Objectivist Roundup

The latest is over at Titanic Deck Chairs.

-- CAV


: Corrected a factual error.


Neil Parille said...

According to this story, Obama got only 43% of the white vote -


-Neil Parille

Greg said...

You read Slate right? Have you seen this garbage? http://www.slate.com/id/2233966/

Gus Van Horn said...


Correct, but this does not undermine my main point, which is that race was not a factor in that election. The same story goes on to note that:

"That's the same percentage gap by which Gore trailed George W. Bush in the virtual dead-heat election of 2000, but it's five points smaller than the Democrats' deficit four years ago."

Obama fared no worse among white voters than the last couple of Democrats.

All the same, I appreciate the factual correction.


Garbage is right. That one's so bad, I'm surprised it escaped my attention.


z said...

Re: banks and interest rates. My jaw drops at the audacity of some of these economists. First, I don't want to over simplify but if the Fed raises interest rates, how could paying banks not to sell their product be a good thing? What exactly are banks for anyway? Does anyone else ever wonder that at all? Its like, instead of regarding them as independent entities and businesses, these economists treat them as if they will be whatever "the nation" wants and needs them to be and to do.

Gus Van Horn said...


That's an interesting point, and reminds me of a particularly asinine book title I recently encountered: "Are the Rich Necessary?" Judging by a blurb for it, it definitely fails to consider the idea that individuals exist for their own sakes.


Anonymous said...

Mankiw wrote the textbook I used for macroeconomics. He was also an economic advisor for Bush. As far as I am concerned, anything he says should be deemed as incorrect, until he earns back the benefit of the doubt.

Gus Van Horn said...

Also a good point.

Jim May said...

Gus: a key error in Mankiw's approach is that he does not distinguish between genuine wealth and fiat dollars. I explain that distinction in this post at The New Clarion: The Revenge of Jean-Baptiste Say

The second error is this idea that the reserves "don't count" as inflation until the money is lent out.

First: imagine that the government prints up a $100 bill. Is that inflationary? Mankiw says no, and he'd be right at this point; the government could easily destroy that Benjamin, and no inflation has occurred.

However, what happens if they use that $100 to buy your widget? Now it's inflation, because that $100 represents artificial demand for your widget, added to the real demand presented by the owners of $100 bills that had to *earn* theirs in trade by earning it in trade for actual goods or services.

And there's the rub; now that you earned that $100 bill, it stands for the valuable widget you created. The government has obtained your widget for essentially nothing.

Now, if I understand the terminology correctly, that $100 bill is no longer "sterile"; it has now "mingled" in the regular economy. What this means, is that the only way the inflation is now reversible would be for the government to selll you the widget back, and then destroy that $100.

But they can't do that, see; they used the widget. It's gone. If they were simply to withdraw the $100 from you, you would scream theft, and you'd be right; the economy wou7ld not be impoverished by one stolen widget. That inflation is now permanently baked in.

This is the error that Mankiw makes. The reserves are not sterile! Remember, what was going to nuke the banks was insolvency due to **real wealth (demand) destruction**, in the form of the bad mortgages and radically cheaper real estate. The printed dollars in the reserves replace that destroyed real wealth, with artificial "wealth" in the form of printed dollars.

When a bnak goes insolvent it cannot honor all of its demand deposits; that wealth is gone. The wealth that you created in the form of widgets, exchanged for dollars, and deposited in these banks, has been destroyed. So, to the extent that these reserves permit a bank to continue honoring your checks, giving you cash at the ATM, paying their employees, and investing -- not to mention making new loans -- is the extent to which the inflation is already "leaking" into the economy.

We will necessarily see the price rise attendant upon the existence of all those dollars. The only mitigation is the extent to which the banks (and all of us) can replace the lost wealth via production.... and to which the Fed is willing to destroy the banks' reserves.

Place your bets on anyone's willingness to do *that*.

Inflation can be delayed; on that count, Mankiw is correct. But it cannot be stopped. The government has already consumed a vast amount of widgets. To avoid a massive price rise, the real economy would have to produce a mountain of real wealth, far beyond its current capacity -- and as is plain from the numbers, it it operating well below that.

Gus Van Horn said...


Thanks for taking the time to debunk Mankiw's argument.