Wednesday, June 12, 2013

Keynesians, Remember: Tax Policy Is Fiscal Policy

According to an AER article by Correia, Farhi, Nicolini and Teles:
When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates.
My own interpretation:
(a) Wasteful government spending? Always better to do nothing (CHECK).
(b) Forward guidance, quantitative easing? Always better to do nothing (CHECK).
(c) Reduce the tax load? Maybe (CHECK). But be prepared to pay the price later (CHECK).

Jeffrey Tucker on the Character of Edward Snowden

Jeffrey Tucker writes an interesting article in The Freeman about the important role played by people like Edward Snowden in the defense of freedom. This Orwellian statement by Snowden is particularly significant:
You can't come forward against the world's most powerful intelligence agencies and be completely free from risk because they're such powerful adversaries. No one can meaningfully oppose them. If they want to get you, they'll get you in time. But at the same time you have to make a determination about what it is that's important to you. 
And if living unfreely but comfortably is something you're willing to accept—and I think many of us are, it's the human nature—you can get up every day, you can go to work, you can collect your large paycheck for relatively little work, against the public interest, and go to sleep at night after watching your shows.

Tuesday, June 4, 2013

The Bastiat in a 7-Year-Old Boy

Conversation with my son Arnaud, age 7, last Sunday during lunch:

Me: "You know son, there's this great French economist Bastiat, he writes some cool stories, I think you'd enjoy reading his books."

Arnaud: "Oh yeah?"

Me: "Yes, kind of like Aesop fables [which he loves]. But his stories are real ones, about the economy, written 150 years ago."

Arnaud: "What did he write about?"

Me: "One story is about a child that breaks one of his home's window glass panes. His father is mad at him, but passersby say that this is good for the economy, so he shouldn't be mad."

Arnaud [startled]: "WHAT?"

Me: "What 'WHAT'?"

Arnaud: "Who are those silly people that would say something so stupid?"

Me: "Why do you think it is so stupid?"

Arnaud: "Because it's so obviously bad for the economy."

Me: "Is it? The passersby believe that if the broken window needs to be fixed then it will create work for the window repairman."

Arnaud [chuckling]: "This is so stupid... If his father spends the money fixing the window, then they won't have money for buying a new Lego set (did they have Lego sets at that time?), so it's obviously bad for the Lego factory. And the family now has the same window but no new Lego set, so the economy is worse off."

Me to my wife: "Isn't it telling that a 7-year-old boy knows more economics than most central bankers and finance ministers in this world of ours?"

Thursday, May 30, 2013

My Personal Reading of Ayn Rand's "Anthem"

I chose to free myself from Christianity, Catholicism and its catechism during my early adolescence. Reading Voltaire's God and Human Beings was important in my intellectual transformation, but I also remember how Bertrand Russell's essential essay titled "Why I Am Not a Christian" turned to be the final nail in the coffin of my Christian beliefs.

Ayn Rand's "Anthem," to my surprise, rekindled my teenager memories of intellectual struggle with religion. Less surprisingly, it also made me think of my second liberation, which took place a few years later when I rejected socialism. It didn't take me much at that time to realize that socialism was mostly a perversion of Christianity, one that was useful to me only as a temporary buffer between an impractical and obsolete code of conduct and the dangers of Rand's "uncharted forest" - the latter a perfect metaphor for my early political and economic ignorance.

Like Bertrand Russell, Ayn Rand wasn't fond of Christian values. According to a letter that she wrote in 1946:
There is a great, basic contradiction in the teachings of Jesus. Jesus was one of the first great teachers to proclaim the basic principle of individualism -- the inviolate sanctity of man's soul, and the salvation of one's soul as one's first concern and highest goal; this means -- one's ego and the integrity of one's ego. But when it came to the next question, a code of ethics to observe for the salvation of one's soul -- (this means: what must one do in actual practice in order to save one's soul?) -- Jesus (or perhaps His interpreters) gave men a code of altruism, that is, a code which told them that in order to save one's soul, one must love or help or live for others. This means, the subordination of one's soul (or ego) to the wishes, desires or needs of others, which means the subordination of one's soul to the souls of others.
This is a contradiction that cannot be resolved. This is why men have never succeeded in applying Christianity in practice, while they have preached it in theory for two thousand years. The reason of their failure was not men's natural depravity or hypocrisy, which is the superficial (and vicious) explanation usually given. The reason is that a contradiction cannot be made to work. That is why the history of Christianity has been a continuous civil war -- both literally (between sects and nations), and spiritually (within each man's soul).

Saturday, May 18, 2013

The Privately Managed Library of My Childhood


The library in Brasilia, Brazil, from which I would borrow the books that I read during my childhood was privately managed. Member families paid monthly fees to support the library and also paid for literature and crafts classes. It was a wonderful place of discovery, and it didn't need authoritarian, centralized, inefficient and corrupt government to work. The library didn't survive the changes in demand and supply for its services and has been replaced some time ago by an English school for kids.

You may say that this tiny institution served the interests of an economic elite. Not at all. The only elite that it served was an intellectual one, families that cared about books, literature and arts, and that considered cultural spending to be a priority. In our case it was so highly ranked in the family's budget that membership survived two oil shocks and a debt shock, while during the same period our consumption of beef was cut down to almost zero. Families that wouldn't pay for membership clearly had other priorities in life, such as watching soap operas on expensive TV sets.

And no spending on public libraries by the Brazilian government has ever changed this simple reality.

Friday, May 17, 2013

Intrade and Financial Mischief

The Financial Times suggests that financial mischief may explain the insolvency of Intrade, company renowned among the proponents of prediction markets:
A company audit earlier this year revealed that its founder John Delaney, who died while climbing Mt Everest in May 2011, had received $2.6m in insufficiently documented payments from the company in 2010 and 2011. Mr Bernstein confirmed that the legal action the company would pursue was related to those transactions.

Saturday, April 6, 2013

7th Art: Hell on Wheels, 2nd Season (2012)

The second season of Hell on Wheels is fantastic. It escapes from the most obvious American series cliches by showing anti-heroes lacking almost any quality or decency and through a depiction of violence that is repugnant and realistic. It's not sadistic, not moralistic, and not condescendent. It's just realistic.

The jump in quality from the first to the second season follows the rejection of PC and multiculturalist formulas. I hope more American productions will follow its example.

Friday, April 5, 2013

Would You Die for Free Trade?

Since David Ricardo it's impossible to ignore the fact that free trade is good for the global economy and for humanity. Yet, even when this fact is rationally acknowledged, the most stubborn anti-traders will frequently argue that it's not fair to ask a minority of compatriots to temporarily sacrifice their standards of living in order to improve the lives of the rest of humanity.

Leaving aside the fact that it's perfectly possible to design compensation mechanisms, and that nobody should have rights to stable power rents, consider the following political paradox: in all countries that I know of, it's normally assumed by a large part of the population that it's "honorable to die and kill for the sake of their fellow countrymen and countrywomen," and that "it's your duty to serve your country through sometimes regretful but necessary violence and exposure to danger." Why is it then that these same people, most of the time, don't necessarily assume that it's much more honorable to service all countries through small and temporary personal sacrifices and joyful and necessary economic cooperation? Why is it that both the left and the right refuse to apply to free trade, global peace, international cooperation, and the good of humanity the same moral standards that they apply to military service or most other sacrificial collective duties?

I believe that the answer to this paradox is that people living in modern nation-states develop cognitive dissonance through brainwashing, and that the dissonance persists because it's an important enabler of power grab, which in its turn leads to continuous brainwashing. If you think that you have a better explanation, then I'd be curious to hear from you.