Advocates of Reason: 10 September 2012

Man has only one tool to fight error: reason.

Ludwig von Mises

Plenty of links for the week.

1. While American economic policy discussion revolves around the ‘inevitability’ of deficit reduction, the Chinese government recently put into action a $158 billion stimulus. This public spending program is directed towards infrastructure projects, including rail, highway, and various water-related outlets. I wonder what the term “overstimulus” (as used in the article) refers to.

2. The “Macro Wars” have transitioned from fiscal to monetary stimulus. As Noah points out, and as has become increasingly clear over the past few months, there is a growing consensus behind some kind of NGDP targeting. Actually, I think this consensus existed a long time ago, but now the blogosphere is at least realizing it (even if Sumner continues to attack New Keynesians every so often — Daniel Kuehn does a good job at archiving them). The basic idea behind the proposal is to create ‘inflationary expectations’ that will motivate those who hold cash balances to spend them. As your ‘typical Austrian’ I will say that this kind of plan is ripe for backfiring. Maybe an in depth post to come (hint: it touches on the consumption–investment relationship I tend to tout).

3. Heterodox economics books: Michael Yates provides a reasonably lengthy review of three books dedicated to criticizing neoclassical economics; Lars P. Syll gives a list of his “top 10 heterodox economics books.” This reminds me that I need to review Steve Keen’s Debunking Economics — more specifically, criticize his alternative to the neoclassical paradigm (Marxian and Sraffian economics).

4. The European Central Bank (ECB) declared on Thursday its intention of buying European sovereign debt. Authors writing for the WSJ suggest the plan allows for “unlimited” purchases; Larry White argues that the ECB’s capabilities aren’t so unlimited — at least, if the ECB is also trying to maintain other targets concurrently. Krugman is in a similar mind set, suggesting that more ought to follow.

5. Will restricting banks’ investment choices mitigate unwarranted risk taking? Peter Wallison argues ‘no.’ I agree, today’s advanced financial markets shouldn’t be cut down to their stump out of misguided fears of financial instability. No doubt, the financial industry needs to be reformed — many of the perverse regulator incentives already in place ought to be repealed —, but not in the direction that most are in favor of.

6. Having finally gotten around to finishing William H. Hutt’s The Theory of Idle Resources, I thought it warranted to read this appreciation by the always eloquent Richard Ebeling. Actually, after reading J.M. Keynes’ The General Theory, Hutt’s book no longer seems as impressive — but, all of this will, hopefully, be addressed in an upcoming review.

7. Depression economics: in Spain, economic conditions are bad enough to push a man to voluntarily amputate his arm to defraud his insurance company. How much is your arm worth?

  • Blue Aurora

    Will you criticise Steve Keen’s (qualified) endorsement of the econophysics project in your book review?

    • JCatalan

      Not sure, but probably not.

  • H

    I’d love to hear your thoughts on Hutt’s book. I recently finished reading Steve Horwitz’s chapter on Hutt and price rigidities in “Microfoundations & Macroeconomics” and found it quite impressive. I haven’t gottten a chance to read The Theory of Idle Resources yet, so I don’t know if I fully endorse Hutt’s reasoning or if I just appreciate Horwitz’s take on that one line of thought.

    • JCatalan

      Maybe I was prematurely hard on Hutt here. The Theory of Idle Resources is a great book and I don’t think there’s anything to disagree with in it, but I guess I was disappointing by Hutt’s unwillingness to tackle head on a situation where the market can achieve an equilibrium in wages, but there still be involuntary unemployment (Keynes’ real argument, not sticky prices).