Devin (do read the whole thing and comment there):
I would not consider this essay realistic. But when you have eliminated the impossible, all that’s left is the highly improbable. If the results of the Reagan Revolution, Contract with America, or “Yes we can!” movement prove anything, it’s that the American political system is unreformable. The political system has a terminal case of entropy decay. When termites have bored through the structural beams on your house, incremental improvements are impossible. When real change comes it will be sudden, discontinuous, and system-wide. This is not a vision for incremental improvement, but rather a vision for a brand new, brick house that we can all move to once we wake up and realize that our house is rotting.
Others try to imitate the sciences and call themselves “social scientists.” The best imitators of scientists are the economists. Among social scientists they rank highest in rigor, which means in mathematics. They also rank highest in boastful pretension, and you can lose more money listening to them than by trying to read books in sociology. Just as Gender Studies taints the whole university with its sexless fantasies, so economists infect their neighbors with the imitation science they peddle. (Game theorists, I’m talking about you.)
You can now read Nock’s Theory of Education in the United States in epub. He was writing about the education bubble 90 years ago.
Jim:
So, the monetary base has tripled.
According to Milton Friedman, the price level will therefore triple “after large and variable delay”
It’s weird that most economists would still argue that we aren’t experiencing inflation and simultaneously claim to agree that Milton Friedman’s research was correct. Obviously they’d argue the “large and variable delay” is the cause. But they should still be 100% certain that inflation is coming.
Bryan Caplan should read his own book. Today he says: “Imagine – there was a time when elite opinion and public policy took free immigration seriously.” This is pretty easy to imagine, since, in his own book, he documents that “elite opinion” is much more favorable to free immigration than mass opinion. Also, many opponents of free immigration would be fine with high levels of immigration if the US had no welfare state like it did in the ’20s. Facts have changed since the ’20s – so should a libertarian’s opinion of open borders. Also on the subject of Caplan, Dennis Mangan also thinks the “idea production” concept is lame.
A while back, Steve Sailer asked what sorts of tactics white people will resort to to improve public schools in their area. This tactic (put in use in Portland – where else?) would work wonders in my neighborhood.
Drudge has a series of articles on black violence across America on Memorial Day – Auster rounds up the links. In the nation’s capitol, there was nothing quite so organized
Foseti 
The inflation logic would be correct if the Monetary Base increase was expected to be permanent. The Fed says it isn’t, and that they’ll shrink it back down and raise rates just as soon as they can to control what would otherwise create a large amount of inflation eventually, with the temporary increase designed to prevent ruinous levels of deflation in the short-term. So nothing is “certain”.
Now whether you believe the Fed Governors, or whether you think they even know what they’ll actually do in the future, is another question.
Personally, I don’t think the Fed will make a single move to tighten until at least next year because of the severe bad-debt overhang, global instability headwinds, and high unemployment and deficit levels – so some higher-than-average inflation is likely on the way. Richard Branson & co. think so too, and same goes for the Euro and the Pound.
Yeah, I don’t understand why reactionaries have such a hard time understanding this. I’m sure we’ll have inflation, but money can be pulled out of the economy through several means.
I don’t know why macroeconomics of any strain is taken so seriously as it’s basically modern-day astrology with about the same level of predictive value as questioning a bunch of magi on their star readings.
Is the idea that a central bank can pull money out of the economy in a way that prevents inflation actually something that has worked in the past or is it just theory?
I can’t think of any examples in which a central bank has actually managed to print tons of money and then avoid inflation by destroying tons of money prior to inflation setting in. I understand how that would theoretically be possible, but I can’t imagine a human, political institution actually doing it.
@Foseti:
“Is the idea that a central bank can pull money out of the economy in a way that prevents inflation actually something that has worked in the past or is it just theory?”
Yes, that is the idea. Or half of it – raising rates or reserve requirements also pulls cash out of the economy, but Central Banks can sterilize or completely retire parts of the base and they indeed do so. And yes, it has worked in the recent past with actual human institutions.
The best major-economy example would be Japan. The BOJ expanded the base (one measure of several they manage, I’m using it for convenience) by 80% from 2001 to 2004 and then sharply and dramatically reduced it by a quarter over only six months when the slightest bit of inflation appeared in early 2006 – returning it admirably almost exactly to its long-term trend-line.
They even maintained trend-discipline all through the recession and significant appreciation of the Yen, but they recently spiked it by a sudden 20% because of the Tsunami aftermath. The BOJ also insists that they’ll terminate this extraordinary measure too to keep inflation very low just as soon as the country can handle it, and they have a high degree of market credibility.
The common Reactionary Economic arguments I see tend to be strongest in the realms of Fiscal spending, taxes, debt, and the ponzi-scheme of informal promises and entitlements, but they also tend to over-ideologize Monetary matters, which is an unfortunate impediment to accuracy.
I’m always somewhat skeptical that things that work for the Japanese can work for other people, but fine. Still, the Japanese example isn’t exactly heart-warming.
@Foseti:
“I’m always somewhat skeptical that things that work for the Japanese can work for other people, but fine. Still, the Japanese example isn’t exactly heart-warming.”
Absolutely right on both counts – and that’s my prediction of what the rest of the decade will look like for our economy – a lot like Japan’s last decade.
@Foseti,
You can read Samuelson’s classic economics text if you want to understand the workings of the Fed better. The Fed always lags indicators and now it’s being used to prop up failing institutions, but it’s what we have.
There are always inflation-beating returns to be found but you do have to know what you’re doing. Most people cannot follow basic investing instructions so 99% of the population will lose their liquid savings if there’s even minor inflation or they dump their money immediately into consumption. This is why social security isn’t such a bad idea.
The idea behind the Fed’s monetary policy, broadly speaking, is to grow the monetary base at the same rate as productivity grows, but that’s not how it works out in practice even though they shoot for a target of 1-3%.
Friedman was simply wrong. For the purposes of the calculation M*V=Y*P, M is not the number known as the monetary base. In the context of the American fiat dollar, M is every note that has a government guarantee of convertibility to the dollar. That includes FDIC backed bank accounts, treasury bills, federal reserve notes, Fed-backed money market funds, etc, minus double counting. We are experiencing inflation, not because of the federal reserve, but because of the deficit (which increases the supply of T-bills, which should be included in M).
Not exactly, but close. The best way calculate “Effective-M” is to use William Barnett’s Divisia Index.
Every asset, whether currency, t-bills, or even corporate bonds and gold, has a certain “money-like character” (or “Monetary Services” somewhere between 0-100%) depending on the market’s own (changing) willingness to hold it and treat it as money.
Liquidity, nominal risk, use as a contract-term, duration, and interest rate and other factors all play a role in how the market determines how “money-like” anything is. What you do is add up every single asset in the economy, weighted by it’s money-like character, and that’s the real monetary base.
You can take a look at some estimates for this here at the St. Louis Fed. Based on those measures, the aggregates do not appear to be currently significantly departing from the long-term trend despite the temporary bump around late 2008.
I’m heartened to see someone trolling Caplan, but Sailer has been trolling him and Kling for years in a similar manner and he stubbornly refuses to see the light. It’s almost as if Caplan and Kling have a Tribal committment to open borders.
Goodness, I was awestruck when the Wall-street journal mentioned “game theorists”, thinking that he was talking about Roissy and those guys. Then I came to my senses that he was talking about the other game theory. Anybody else have the same thing happen to them?
heh