What Do You Mean by 'Supernatural'?

Q: kentlyon asked: “What Do you Mean by Supernatural?”

A: My notion of “natural” comes from what I know of science. Since science progresses, that is a moving target, but I think the idea of regular laws will continue to be central to science. A claimed phenomenon is being treated as “supernatural” if there is no serious attempt to subject it to scientific investigation in order to establish its existence and explain it by the principles of regular science. On the other hand, if something exotic–say a claim of mind reading–is subjected to scientific investigation, it will either be (a) drawn within the orbit of science and what we count as “natural,” (b) shown to be a hoax, or (c) investigated by “science” done so badly that we can justifiably call it pseudo-science.

Remarks:

  1. Very often, how statistical issues are handled makes the difference between good science and bad science. For example, people often point to selected anecdotes as persuasive evidence even in situations where large-sample, even-handed evidence is, in principle, available.

  2. If someone makes a claim that would require new physics, the one making the claim should be making an attempt to convince the physicists. More generally, the immediate objections of the relevant experts should be registered alongside whatever claim is made.

  3. In cases where a scientific discipline itself is off target, it may be necessary to find a jury for a claim made up of people capable of understanding a scientific discipline who are enough on the outside that they can have some impartiality. Typically, it will be best to choose such a jury for judging an entire discipline as a panel of academics in other disciplines.

  4. Though particular scientific disciplines may be badly off target, I disagree with any claim that science and academic inquiry as a whole are off target.

  5. Scientific disciplines such as economics often have only weak evidence one way or another on questions people care a great deal about. In that case, it is important to distinguish between scientific statements that are backed by a large, informative body of evidence, and scientific statements that are simply the best one can make of grossly inadequate evidence. In this, I want to emphasize that evidence is often grossly inadequate even after valiant efforts to gather as much evidence as possible. Scientists in disciplines that often have grossly inadequate evidence sometimes forget to remind each other just how uncertain the answers to the questions they are debating really are, given the inadequacy of evidence.

  6. One should be especially slow to accept a claim that requires violating a principle of a scientific discipline such as physics where most statements are backed by a large amount of evidence.

  7. To the extent that there is no conceivable way to test a statement, then it is neither natural nor supernatural. (Indeed, it may not be a “phenomenon.”) Following Wittgenstein, let’s call such a statement “metaphysical.” Metaphysical statements can be important as framing, but they should not be confused with claims of the supernatural. Often, a way to quickly tell the difference between a supernatural claim and a metaphysical claim is that a supernatural claim usually has a hint of something that (if true) would seem like genuine magic (at least outside of religious contexts that desensitize people to the magical element), while a metaphysical claim points to at best metaphorical magic–which isn’t really magic at all.

  8. Just because a claim is extraordinary doesn’t make it a supernatural claim. For example, take the claim that Earth might be observed by intelligent aliens from listening posts inside our own Solar System, and that these aliens make intentional efforts to hide their presence. If the claim is that these aliens came to our Solar System in at only a small fraction of the speed of light, this does not violate any laws of physics. There is no particular implausibility to the idea that intelligent aliens would be interested in studying us scientifically. (Presumably, some species of intelligent aliens would be interested in such a scientific investigation, even if others wouldn’t.) And there is no implausibility to the idea that they might want scientific data about our behavior that was not contaminated by awareness of their existence.

  9. To give another example, there are conspiracy theories that are very implausible, but do not violate the laws of physics. I would be inclined to call these claims natural. That tells me that in my distinction between “natural” and “supernatural,” I am privileging my understanding of the laws of physics over my understanding of social science. This is in line with the phrase “the natural sciences.” It is my impression that pretty much all the principles of the natural sciences can be derived from the principles of physics and basic logic. (Leaving aside any broader claims of evolution, the narrow version of the principle of natural selection is just a matter of the logic of selection–it is like counting.)

Update. This afternoon, Noah Smith tweeted links to two articles that are wonderful on exactly the issue here: 

Luigi Zingales: Pro-Market vs. Pro-Business

From Chrystia Freeland’s book Plutocrats, pp. 261-262:

Luigi Zingales, a professor at the University of Chicago’s Booth School of Business, frames [a central issue for government policy] as the choice between being promarket and being pro business. Super-elites are often the product of a strong market economy, but, ironically, as their influence grows, they can become its opponents. 

Here is how Zingales, an ardently patriotic immigrant to America and a passionate defender of the market economy, describes the dynamic: “True capitalism lacks a strong lobby. That assertion might appear strange in light of the billions of dollars firms spend lobbying Congress in America, but that is exactly the point. Most lobbying seeks to tilt the playing field in one direction or another, not to level it. Most lobbying is pro-business, in the sense that it promotes the interests of existing businesses, not pro-market in the sense of fostering truly free and open competition. Open competition forces established firms to prove their competence again and again; strong successful market players therefore often use their muscle to restrict such competition, and to strengthen their positions. As a result, serious tensions emerge between a pro-market agenda and a pro-business one.”

Quartz #11—>Why the US Needs Its Own Sovereign Wealth Fund

Link to the Column on Quartz

Here is the full text of my 11th Quartz column, “Why the US needs its own sovereign wealth fund,” now brought home to supplysideliberal.com. It was first published on January 3, 2013. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© January 3, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

The fate of the US economy, like that of Japan, the euro zone, and the rest of the world will rest on an important fact: unless private investors or another government counteract central bank asset purchases 100%, central banks can drive asset prices up and interest rates down by buying any asset that has an interest rate above zero. The Fed has committed to continue buying $45 billion of longer-term Treasurys every month and $40 billion a month of mortgage-backed securities until the economy recovers.

But what if longer-term Treasuries and mortgage-backed securities are the wrong assets for the Fed to buy? Most of those rates are already below 3%, so it’s not that easy to push the rates down further. What is worse, when long-term assets already have low interest rates, pushing down those interest rates pushes the prices of those assets up dramatically. So the Fed ends up paying a lot for those assets, and when it later has to turn around and sell them—as it ultimately will need to, to raise interest rates and avoid inflation, it will lose money. Avoiding buying high and selling low is tough when the Fed has to move interest rates to do the job it needs to do. At least economic recovery reduces mortgage defaults and so helps raise the prices of mortgage-backed securities through that channel. But the effects of interest rates on long-term assets cut against the Fed’s bottom line in a way that is never an issue when the Fed buys and sells 3-month Treasury bills in garden-variety monetary policy.

From a technical point of view, once 3-month Treasury bill rates (and overnight federal funds rates) are near zero, the ideal types of assets for “quantitative easing” to work with are assets that (a) have interest rates far above zero and (b) are buoyed up in price when the economy does well. That means the ideal assets for quantitative easing are stock index funds or junk bond funds!

Yet, is the Federal Reserve even the right institution to be making investment decisions like this? University of Chicago finance professor John Cochrane writes in his Wall Street Journal editorial “The Federal Reserve: From Central Bank to Central Planner.”

In his speech Friday in Jackson Hole, Wyo., Mr. Bernanke made it clear that “we should not rule out the further use of such [nontraditional] policies if economic conditions warrant.”

But the Fed has crossed a bright line. Open-market operations do not have direct fiscal consequences, or directly allocate credit. That was the price of the Fed’s independence, allowing it to do one thing—conduct monetary policy—without short-term political pressure. But an agency that allocates credit to specific markets and institutions, or buys assets that expose taxpayers to risks, cannot stay independent of elected, and accountable, officials.

This is not a criticism of personalities. It is the inevitable result of investing vast discretionary power in a single institution, expecting it to guide the economy, determine the price level, regulate banks and direct the financial system.

As Cochrane points out, isn’t it a bit much to expect the Fed to both choose the right amount of stimulus for the economy and decide which financial investments are the most likely to turn a profit for a government that faces remarkably low borrowing costs?

Why not create a separate government agency to run a US sovereign wealth fund? Then the Fed can stick to what it does best—keeping the economy on track—while the sovereign wealth fund takes the political heat, gives the Fed running room, and concentrates on making a profit that can reduce our national debt.

Sovereign wealth funds are already standard for governments that have paid off their national debt and gone into the black. And some countries have both debt and sovereign wealth funds on their balance sheet. In order of holdings, the Monitor Group’s Sovereign Wealth Fund Assets Under Management Table shows that Norway, China, United Arab Emirates, Singapore, and Kuwait have the top sovereign wealth funds. Markets today are so hungry for assets as safe as US Treasurys, and so frightened of risk (pdf), that a US sovereign wealth fund would be paid handsomely to provide safe assets and shoulder some of the risk. But those financial returns are a bonus over and above the primary aim: fostering full economic recovery.

As an adjunct to monetary policy, the details of what a US Sovereign Wealth Fund buys don’t matter. As long as the fund focuses on assets with high rates of return, the effect on the economy will be stimulative, and the Fed can use its normal tools to keep the economy from getting too much stimulus. So there can be a division of labor: the US Sovereign Wealth Fund can focus on making as high a return as possible for the US taxpayer, and hire accordingly, as other sovereign wealth funds do, while the Federal Reserve focuses on getting the amount of stimulus right, which is where its expertise lies. The US Sovereign Wealth Fund needs the same level of independence as the Fed, and a single mandate to earn high returns, given the level of risk it is taking on. Above some minimum, the US Treasury can be given the authority to determine the amount the US Sovereign Wealth Fund is allowed to borrow so that no one institution would have too much power or too much responsibility.

Since it would horn in on their turf, big investment banks on Wall Street are likely to offer a chorus of complaints about a US Sovereign Wealth Fund. But after many years of playing a “heads I win, tails you lose” game with the US Government and the US taxpayers, the big investment banks have no moral standing to object to the US government and the US taxpayers finally getting some of the return that should go along with the risks that they have always had to bear.

We Don't Talk Enough About the Story Outside the Model

Tomas Hirst interviewed me for his newly upgraded aggregator website Pieria. The site includes me as one of its “experts.” Here is the link to the interview on Pieria. It appeared yesterday. I highly recommend taking a peek at the new Pieria: here is the homepage.

The full text of the interview is below. Q is Tomas, A is Miles. This interview is closely related to Noah Smith’s post “What is Economic Equilibrium.”

Q: Has the financial crisis prompted a renewed interest in debating and challenging the economic orthodoxy of the “Great Moderation”?

A: The blogosphere was there before the crisis and was helping that conversation to grow, but the crisis certainly brought more people in. Indeed Scott Sumner said on his blog that he was motivated to start blogging because of the crisis. I think people are thinking about a wider range of things.

There are always fashions in economic research, but perhaps not surprisingly there’s more time being devoted to looking at what was going on. People have been working on models where having collateral matters, for example, which show that when the value of houses goes down it’s harder to borrow and lend.

Q: Have the events of the past few years changed the way that you think about policy responses to a crisis?

A: The Great Depression and the Japanese “Lost Decade” certainly made me think about issues surrounding the zero lower bound a lot. It’s true that I wasn’t thinking about the idea of electronic money and negative nominal rates at the time, although I had seen a piece by Greg Mankiw in which he toys with the idea of getting rid of the zero lower bound.

So I was thinking about quantitative easing but then I shifted to thinking about new ideas. It’s too bad that people are simply taking the zero lower bound as a given. I think it will be a hugely important discussion to get people to realise that it’s not some law of nature, it’s an artefact of our paper currency policy.

Q: Some people might consider moving to a world in which we had negative nominal interest rates rather uncharted territory compared with more traditional stimulatory policies such as increasing government spending. Do you think there is a role for more conventional policy moves to pull economies out of a slump?

A: As Reinhart. Reinhart and Rogoff have said, national debt above 90% of GDP has a negative impact. Obviously that’s just a stylised fact just like the fact that you tend to have a long-lasting slump after a financial crisis but I think it’s fairly proven that there are problems with having the national debt at too high a level.

Although you could say that stimulating the economy by massive fiscal stimulus is better understood, some of what we understand is that that has downsides in terms of national debt. Being well understood doesn’t always mean that it’s a better policy.

I would say in that context the conservative policy would be national lines of credit. It is something that is in the range where we understand what it would do, although there is some debate over just how much stimulus it would provide. My guess is that it would have a similar impact on demand as handing people that amount of money.

Policies such as bringing forward already planned government spending would also be a quite conservative option. You could, for example, accelerate the restocking of certain types of military equipment that you know you are going to have to buy later anyway.

As soon as you’re doing types of government spending that you wouldn’t be doing otherwise then that’s a fairly long-term addition to the national debt with probably pretty serious negative consequences.

Q: Are you worried about possible unintended consequences of negative nominal interest rates and electronic money?

A: It depends really on how much you believe in monetary neutrality and monetary superneutrality.

If you believe in approximate monetary neutrality then we’ve already seen negative rates before. It is just low real interest rates. It’s only untried if you think that nominal illusion is important.

I have no doubt that it could be confusing to people at first but the main thing we know is that it would mark a return to the type of effective monetary policy that gave us the “Great Moderation”. If you take away the zero lower bound then monetary policy can keep the economy on target and you get the separation between fiscal policy and keeping the economy at its natural level of output.

That is very helpful in terms of the political economy as it’s a wholly different debate to how much you want to redistribute and how you value different kinds of government spending. It becomes very difficult when you try to mix those things up with trying to keep output at its natural level.

Q: What do you make of the argument that there is a case for raising interest rates in a downturn in order to raise inflation expectations and improve confidence in the economy, as some have suggested?

A: I think that’s a huge mistake. It’s a theoretical error that comes from the fact that people are so used to defining and modelling equilibria that they don’t realise that each of these models has to have a story outside the model for how you got to equilibrium.

As far as I know that’s true without exception. Yet we don’t talk enough about the story outside the model. The reason for this is that it can’t be formalised in the same way.

When people don’t think about how you get to an equilibrium they come to conclusions that are just wrong.

In the real world raising rates would be very contractionary. You can have a model in which there are multiple equilibria but I’m pretty sure that raising rates is not the way to move from the equilibrium we’re in to a better one. I can’t imagine the expectations of people in the real world being such that they would see the Federal Reserve or the Bank of Japan raising rates and think that the economy is suddenly going to do great.

Even if it’s theoretically possible, it would only be one of the possibilities. In terms of way that people like John Taylor have been arguing this point, it seems as though he believes rates should go up and is looking for any reasons that could support this conclusion even if they don’t all come from the same theory.

Q: Does any of your current work touch on this subject?

A: Bob Barsky, Rudi Bachmann and I have a paper in progress that’s related to this. Here’s the model that I’ve worked with a lot, which Bob Barsky also got excited about, and then we recruited Rudi:

Let’s simplify it by leaving aside Q-theory and having no adjustment cost for investment. Now I have a delay condition for investment that says “I want to accelerate investment if the net rental rate is greater than the interest rate”.

So I have a graph of output on the horizontal axis and on the vertical axis I’ve got the net rental rate and the real interest rate. I have a net rental rate curve, which we call a KE curve because I think Sargent called it that. There’s no mystery that the rental rate goes up with output. When the economy is booming you’re going to be more eager to rent some capital by leasing office space or rent some

machines.

The other curve is a monetary policy rule. When I think in continuous time, the number one thing I need for the stability of monetary policy is for it to be steeperthan the net rental rate. However, you’ve got a problem when you get down to the zero lower bound as it’s tough to keep interest rates steeper than rental rates. So you can easily get multiple equilibria.

If you have zero gross investment, that would be a low level of output. Suppose that level of output gives you a net rental rate below zero. That would be an example of a stable equilibrium with zero gross investment. If you did nothing eventually the capital stock would deplete to the point where the net rental rate would come above zero and the economy would restart, but that could be an awfully long slump.

The other thing that can happen is that you have some fiscal stimulus that could get you past the unstable equilibrium in the middle and you could jump up to the good equilibrium again. The very existence of the good equilibrium depends upon monetary policy so you might need a combination of monetary and fiscal policy.

Yet you can get out of it just through monetary policy. If you don’t have a zero lower bound then you can keep cutting the interest rate until it does get past the net rental rate. Moreover, you wouldn’t have fallen into the bad equilibrium in the first place if you had electronic money and no zero lower bound.

What I think is happening in people’s thinking is that they have observed that you have higher interest rates during a boom. That, however, is about the net rental rate and not about the monetary policy. In fact, when you have these two upwards-sloping curves it is precisely by cutting interest rates that you achieve higher interest rates as the economy recovers.

It’s theoretically possible that the economy could miraculously jump to the good equilibrium with no impulse whatsoever and that could coincide with a rise in the interest rate. But in terms of causality it’s still the miraculous restoration of confidence that caused the jump, not the higher interest rate.

Margaret Thatcher From Afar

Margaret Thatcher preceded Ronald Reagan in heralding a rightward shifts in politics, becoming Prime Minister in 1979. To me as an American, three factors combined to make Margaret Thatcher look good from a distance: ignorance of the substance of criticisms of her, a reflexive respect for all things British, and the fact the she had broken a glass ceiling that remains unbroken in the US.

Margaret Thatcher’s presence across the Atlantic seemed to give more heft to what Ronald Reagan represented. That was true especially when I disagreed with Ronald Reagan, as I did because I was upset with the addition he made to the U.S. national debt. Margaret Thatcher avoided debt–in the process providing evidence to us today that the effects of austerity depend critically on whether monetary policy is hobbled by the zero lower bound or not.  (See what David Beckworth has to say about UK fiscal policy during the Thatcher administration in this tweet, and what I have to say about austerity now in my column “Why austerity budgets won’t save your economy.”)

In honor of Maggie, I am collecting here links about the subset of policies I have advocated that I think she would approve of:

  1. A Constitutional Amendment to Limit Government Spending to Less than Half of GDP
  2. Year-Round Schooling
  3. Free Trade
  4. Charter Cities
  5. The Free Market
  6. The Reintroduction of the Deutsche Mark
  7. A Dramatic Reduction in Occupational Licensing
  8. The End of Income Taxes and Capital Taxes, Replaced by Consumption Taxes (also here) 
  9. Reorienting Unions and Workplace Law toward Improving the Workplace Experience and away from Politics and from Artificially Pushing Up Wages and Benefits

(You can see other propoals Maggie might not have approved of in my posts “The Overton Window” and “Within the Overton Window.”)

Quartz #10—>Read His Lips: Why Ben Bernanke Had to Set Firm Targets for the Economy

Link to the Column on Quartz

Here is the full text of my 10th Quartz column, “Read his lips: Why Ben Bernanke had to set firm targets for the economy,” now brought home to supplysideliberal.com. It was first published on December 13, 2012. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© December 13, 2012: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

The Fed has announced for the first time what levels of unemployment and inflation would lead it to keep short-term interest rates close to zero:

In particular, the Committee decided to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-½ percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

There are several remarkable aspects to this sentence. First, the Fed is saying more clearly than ever before that 2% is its long-run inflation target. Second, it is saying it thinks the unemployment rate can be brought down at least as far as 6.5% without causing too much inflation, though it will keep a close watch on where inflation seems to be headed to make sure. Third, the Fed is saying it is willing to tolerate inflation temporarily above 2% if that is what it takes to bring the unemployment rate down that low.

I applaud this move by the Fed. Although the Fed said, “The Committee views these thresholds as consistent with its earlier date-based guidance,” I am not so sure. It is not that easy to know how long it will take for the economy to recover. Specifying the actual economic indicators that the Fed is looking at, and how it is reading them, is much better. Saying specific dates had the danger of suggesting the Fed would keep interest rates low for too long if the economy recovered more quickly than expected. This danger was significant because an important line of thought has suggested that the Fed should promise to overheat the economy in the future to stimulate the economy now. The specific guidepost for unemployment and inflation that the Fed has laid down in yesterday’s statement make it clear that the Fed is not promising to overheat the economy in the future to stimulate the economy now. But those guideposts also make it clear that the Fed intends to continue to do what else it feels it can to return the economy to the lowest level of unemployment consistent with steady inflation.

There are things that the Fed could do to get the economy more quickly to robust health. Most obviously, there is no reason that the Fed should limit its purchases of additional long-term treasury bonds and mortgage bonds to the $85 billion per month rate it has announced. But to take the chains off of monetary policy, the best thing for the Fed to do would be to urge Congress to give it the authority to subordinate paper money to electronic money to eliminate the “zero lower bound” that paper money puts on short-term interest rates, as I discuss in “How paper currency is holding the US Recovery Back” and “Could the UK be the first country to adopt electronic money?”

John Stuart Mill: The Paternalistic Temptation

The temptation toward paternalism is one that I feel keenly. And I think  that paternalism can be justified in some situations. So it is in important measure to cause myself to examine my own motives and cause myself second thoughts on that front that I post here what John Stuart Mill writes in the introduction to On Liberty about the paternalistic temptation:

The ancient commonwealths thought themselves entitled to practise, and the ancient philosophers countenanced, the regulation of every part of private conduct by public authority, on the ground that the State had a deep interest in the whole bodily and mental discipline of every one of its citizens; a mode of thinking which may have been admissible in small republics surrounded by powerful enemies, in constant peril of being subverted by foreign attack or internal commotion, and to which even a short interval of relaxed energy and self-command might so easily be fatal, that they could not afford to wait for the salutary permanent effects of freedom. In the modern world, the greater size of political communities, and above all, the separation between spiritual and temporal authority (which placed the direction of men’s consciences in other hands than those which controlled their worldly affairs), prevented so great an interference by law in the details of private life; but the engines of moral repression have been wielded more strenuously against divergence from the reigning opinion in self-regarding, than even in social matters; religion, the most powerful of the elements which have entered into the formation of moral feeling, having almost always been governed either by the ambition of a hierarchy, seeking control over every department of human conduct, or by the spirit of Puritanism. And some of those modern reformers who have placed themselves in strongest opposition to the religions of the past, have been noway behind either churches or sects in their assertion of the right of spiritual domination: M. Comte, in particular, whose social system, as unfolded in hisSysteme de Politique Positive, aims at establishing (though by moral more than by legal appliances) a despotism of society over the individual, surpassing anything contemplated in the political ideal of the most rigid disciplinarian among the ancient philosophers.

Apart from the peculiar tenets of individual thinkers, there is also in the world at large an increasing inclination to stretch unduly the powers of society over the individual, both by the force of opinion and even by that of legislation: and as the tendency of all the changes taking place in the world is to strengthen society, and diminish the power of the individual, this encroachment is not one of the evils which tend spontaneously to disappear, but, on the contrary, to grow more and more formidable. The disposition of mankind, whether as rulers or as fellow-citizens, to impose their own opinions and inclinations as a rule of conduct on others, is so energetically supported by some of the best and by some of the worst feelings incident to human nature, that it is hardly ever kept under restraint by anything but want of power; and as the power is not declining, but growing, unless a strong barrier of moral conviction can be raised against the mischief, we must expect, in the present circumstances of the world, to see it increase.

The Rise of Tape Recording

Bing Crosby played a key financial role in the rise of tape recording because he wanted to spend more time playing golf. 

Bing Crosby played a key financial role in the rise of tape recording because he wanted to spend more time playing golf. 

From David Byrne’s book How Music Works, pp. 99-100:

Milner tells the curious story of the advent of recording tape–the next medium on which sound would be captured. The sequence of events that led to the adoption of tap is so accidental and convoluted that its invention and adoption were far from inevitable.

Just before WWII, Jack Mullin, an engineer from California, tried recording onto various mediums other than discs, but with limited fidelity or success. When he was stationed overseas during the war, he sometimes heard broadcasts of radio programs featuring German symphonies. Nothing unusual about that: lots of radio stations had their own orchestras that played live in large studios or theaters, and those performances were primarily broadcast live. The odd thing was, these “performances” were happening in the wee hours of the morning, and Mullin heard them when he was working late. So unless Hitler was commanding orchestras to perform in the middle of the night, Mullin’s only conclusion was that the Germans somehow had developed machines that could record orchestras with such fidelity that on playback they sounded live. 

Through a happy accident, Mullin ended up in Germany right after the end of the war, and someone said that those radio transmissions had come from a town near where they were stationed. Mullin went to look, and sure enough, there were a couple of tape machines that had been modified in such a way that their fidelity vastly improved on what any other existing technology could achieve. German technical innovations, like their rocket technology, were now free for the taking, so Mullin dismantled one of the machines and had the parts sent to his mother’s house in Mill valley. 

When he got back to California, he reassembled the machine, and in the process figured out what the Germans had done. Among other things, they had added a “bias tone” to the recordings–a frequency that you can’t hear but that somehow makes all the audible frequencies “stick” better. Mullin eventually put these machines to work, and he discovered that in addition to being a good recording medium, tape also opened up some unexpected possibilities. If a radio announcer flubbed a line, Mullin could edit out the mistake by splicing the tape. You couldn’t do anything like that on disc! If a comedian didn’t get the same laughs he got on his run-through, then, assuming the run through had been recorded, the laughter from that performance could be spliced into the “real” performance. The birth of the laugh track! Furthermore, laughs could be reused. “Canned” laughter could be added to any recorded program if the live audience didn’t yuk it up sufficiently.

The use of editing and splicing meant that a “recording” no longer necessarily represented a single performance, or at least it didn’t have to. The beginning of a song, for example, could be from one “take” and the end from a take done hours later. The broadcast version could even be the result of performances that had been done in many different places spliced together. The elements of a “performance” no longer had to be rooted in contiguous time or space. 

After seeing a presentation by Mullin of his tape recording device, Alexander Poniatoff formed a company, Ampex, to make more tape machines based on Mullin’s designs.  The banks, however, wouldn’t give Amex the loans they needed in order to get things up an running–constructing the early machines required considerable capital–so it looked bad for the future of tape-recording.

Around this time, Bing Crosby, the singer who had mastered an innovative use of microphones, was getting tired of having to do his very successful radio show live every day. Bing wanted to spend more time playing golf, but because his shows had to be done live, his time on the links was limited. Crosby realized that by using these new machines to record his shows, he could conceivably tape a couple of shows in one day and then play golf while the shows were being broadcast. No one would know the shows weren’t live. He asked ABC radio if they would agree to the plan, but when they saw Poniatoff’s “factory”–which was a complete shambles, with parts scattered all over–they said no way. So Crosby wrote a personal check to Ampex that guaranteed the machines would start getting built. They did, and after Crosby’s initial order, ABC soon ordered twenty more. The era of tape recording, and all the possibilities that went with it, was under way. 

I read this passage in the light of what Charlie Stross said in his post “On the diminishing marginal utility of Stuff”: 

So why do the rich keep trying to acquire more money, long past the point at which it can make any noticeable difference to their lifestyle?

I have three answers. One: it becomes a habit. You don’t generally get to be hyper-rich without many years of continual effort; after a decade, just about anything becomes an ingrained habit. Two: it becomes a game, a way of keeping track of how well you’re doing at whatever it is you want to do. And three: you’re trying to build up a war chest that will buy you a very expensive toy—one that isn’t currently available at any price, so that if you want one you’ll have to sink billions of dollars and years of your own time into building it.

The latter is unusual but not unheard-of. Elon Musk has repeatedly explained that he wants to retire on Mars. That’s a not-available-at-any-price option right now, but he’s definitely serious about it; which is why he sank most of a gigantic fortune into building his own space program.

Quartz #9—>Could the UK Be the First Country to Adopt Electronic Money?

Link to the Column on Quartz

Here is the full text of my 9th Quartz column, “Could the UK Be the First Country to Adopt Electronic Money?“ now brought home to supplysideliberal.com. In draft, this column had the working title “How the Transition to Electronic Money Rewards the First Movers and Punishes the Laggards.” It was first published on December 12, 2012. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© December 12, 2012: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

The “fiscal cliff” of mandated tax increases and spending at the end of this year is simply  the peculiar American version of the struggle of advanced countries around the world to deal with mountains of debt. The euro zone debt crisis can be depended on to provide constant grist for the news mill, as Quartz’s Euro Crunch obsession demonstrates. Japan’s debt is a quieter, but in many respects, larger time bomb, as Anthony Fensom explains in “Forget Europe: Is the Real Debt Crisis in Japan?” backed upby an official International Monetary Fund warning. And our mother country across the pond is not immune.

What people don’t fully appreciate is the extent to which hobbled monetary policy has exacerbated these debt crises. The high levels of unemployment that have dragged down tax revenues and elevated government spending—as well as making it harder for individual households to get out of debt—could have been cut short if monetary policy had more vigorously fought the slumps that have faced the US, the euro zone, Japan and the UK. And whatever the Fed, ECB, Bank of Japan and Bank of England could have done (more Quantitative Easing, anyone?), there is little doubt that they did less than they might have because of their inability to push short-term interest rates more than a hair into negative territory.  In his November 2000 academic article “Overcoming the Zero Bound on Interest Rate Policy,” Carnegie-Mellon economist Marvin Goodfriend explained with admirable directness: “No one will lend money at negative nominal interest if cash is costless to carry over time. Therefore, the power of open market operations to lower short-term interest rates to fight deflation and recession is strictly limited when nominal rates are already low on average.” In other words, if a central bank tries to push short-term interest rates very far below zero, people will shift to storing their own massive piles of paper currency, which makes it a lot harder for central banks to do their jobs.

In “How Paper Currency is Holding the US Recovery Back,” I explained how subordinating paper money to electronic money can end recessions and stop inflation. Freeing up monetary policy then makes it possible to raise taxes or cut spending to deal with debt without throwing the economy back into a deep recession. And as Matthew Yglesias points out, with the means to keep the economy at the natural level of output—at the sweet spot between recession and the overheating that accelerates inflation, we “… could happily move on to more interesting topics, such as: How do countries get rich rather than simply escape recession?”

The key is to allow for an exchange rate between paper currency and money that is recorded electronically in bank accounts. I am proposing that in times of economic emergency, the rate at which electronic money could be converted into paper currency would be allowed to vary over time. Let me use the pound as an example, and a 4% per year rate of depreciation of paper money. The exchange rate would start out at par: withdrawing £100 from a UK bank account would yield £100 of paper money, as usual. But after three months, if you withdrew £100 from a UK bank account, you would be handed about £101 in paper money. After six months, you would get about £102 in paper money, and so on. Of course, the exchange rate would apply for deposits as well: after six months, depositing £102 of paper money would add £100 to what was shown in your bank account. Retailers might accept paper money at par for longer than banks, but after a while, they too would ask for more in paper money than would be charged to a debit or credit card. But the extra paper money banks would give for withdrawals would make that a wash. The exchange rate between paper pounds and electronic pounds wouldn’t directly change how far anyone’s paycheck would go. What it would do is allow the Bank of England to set short-term interest rates anywhere above negative 4%. That is, since the value of paper pounds would be shrinking at the rate of 4% per year in relation to electronic pounds, the Bank of England could push interest rates so low that the number of electronic pounds in a bank account would gradually shrink at a somewhat slower rate.

What a negative interest rate means is that there is no way for someone saving money to stay even using a totally safe saving strategy, either in a bank account, or by saving currency. Negative interest rates help to fight recessions, and once the economy recovers, interest rates will soon return to normal. Indeed, even someone living off of interest income is likely to be helped more by the quick recovery of the economy, leading to interest rates above zero, than if interest rates had not been able to go negative, but had stayed at zero for a long time.

Negative interest rates stimulate investment when firms find that building a new factory or buying new equipment in even a wounded economy earns a better return than putting money in the bank or keeping paper money in a safe. Negative interest rates have another powerful effect as well. They cause savers to seek higher returns in foreign stocks, bonds and other assets. For the UK, the purchase of foreign assets would put pounds in the hands of people outside the UK whose only good use for those pounds is to either to buy UK products or to pass off the unwanted pounds to someone else until someone spends them on UK products. So negative interest rates stimulate exports.

Right now, most major economies are struggling to get enough aggregate demand stimulus for their economies. And one nation’s exports—an addition to aggregate demand, are another nation’s imports—a subtraction from aggregate demand. So the powerful effect of negative interest rates on exports means that the first movers in the transition to electronic money gain aggregate demand at the expense of the laggards. But that should just spur the laggards to make the transition to electronic money as well; then the whole world will have all the aggregate demand stimulus it can possibly use (and more, if care isn’t taken not to overdo the stimulus). Or if other nations stubbornly resist the transition to electronic money, the first movers could still come out ahead even if they invited other countries to do exchange rate interventions that would give them less of a boost in exports, but a bigger boost to investment in factories and equipment. (One reason the first movers would come out ahead is that such exchange rate interventions would involve the laggards lending to the first movers at even lower negative interest rates than would otherwise prevail. That means the laggards would, in effect, be paying the first movers an arm and a leg to take the funds.)

The fact that the transition to electronic money rewards the first movers and punishes the laggards makes it much more likely that this transition will actually happen in the near future. Once any major economy gets the ball rolling, others will soon follow. And nations should be vying to be the first. My use of the UK as an example above is not random. The UK could easily be the first nation to make the transition to electronic money. Such a dramatic move would be easier to push through in a parliamentary system of government, with a powerful Chancellor of the Exchequer, than in the American system of government, replete with checks, balances, and gridlock. As Joe Weisenthal writes, the Bank of England has a creative incoming Governor in Mark Carney—who is now Governor of the Bank of Canada—and a Chancellor of the Exchequer willing to go outside the monetary policy box far enough to appoint a Canadian. The economy of the United Kingdom needs help. It is the mother country for modern economics as well as for American politics. There are many UK economists who can fully appreciate the opportunity the transition to electronic money would provide. This transition is in many ways a small one compared to the great monetary transitions of the past: paper money is just a way station on the road between barter and coins and a full embrace of the electronic money that is already a big part of our daily lives.

Quartz #8—>Judging the Nations: Wealth and Happiness Are Not Enough

Link to the Column on Quartz

Here is the full text of my 8th Quartz column, “Obama the Libertarian? Americans say they’d be happy if the government got out of their way,“ now brought home to supplysideliberal.com. The title of this post is the original working title of the column. Below the text of the column itself, I have an important outtake from my original draft.  This column was first published on December 4, 2012. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© December 4, 2012: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

Four years from now—or 40—how should we evaluate Barack Obama’s presidency? This is not an easy question. For example, when things go badly (or well), a tricky aspect of this question is “To what extent is the president responsible for what happened?” Ruchir Sharma argues that in their judgment of the last four years, voters put the primary blame for our economic troubles on inevitable after-effects of the financial crisis that hit in 2008. Another tricky aspect of judging a presidency is deciding how to sum things up when a policy initiated by the president helps one group while hurting another. But the first question to ask four years from now, in 2016, will be “Are you better off than you were four years ago?”

It’s often assumed that in answering this question people are referring to their financial situation. But what if they took happiness into account as well? As Allison Steed points out in her Nov. 29 article in the Telegraph, “Here’s How Much You Need to Be ‘Happy’ in Different Countries,”  financial aspirations can differ a lot across countries. And money is clearly not the only thing that matters for happiness. A Pew Research Center Report on happiness around the world shows that while happiness goes up with per capita GDP, at similar middle-income levels, the Latin American countries do better than expected while Eastern European countries do worse than expected.

In two previous Quartz columns, I discussed evidence that happiness is not enough: people want to be rich, successful, happy and much more. In previous research my co-authors and I found that in both hypothetical situations and the real-world choices young doctors make about which residency to choose, happiness was very important, but so was money and prestige.  This would be paradoxical if each of the people we surveyed defined “happiness” as “whatever it is I want,” but in fact, people used the word “happiness” to mean “feeling happy.”

That people want more than money makes GDP an inadequate measure of well-being. That they want more than happiness makes happiness an inadequate measure of well-being. So it won’t work to simply replace GDP with Gross National Happiness as Richard Layard advocates in his book, Happiness. And looking at National Life Satisfaction has a similar problem.

So let’s get serious about what it means for an individual or a nation to be better off. Constructing a solid measure of national well-being requires answering the two questions “What do people want and how much do they want it?” So my coauthors Daniel Benjamin, Ori Heffetz, Nichole Szembrot and I set out to answer exactly those questions in our National Bureau of Economic Research Working Paper “Beyond Happiness and Life Satisfaction: Toward Well-Being Indices Based on Stated Preference.” We gave about 4,600 US adults hard choices to make in computer-generated scenarios where they had to identify both what people wanted for themselves and what they wanted for the nation as a whole. We didn’t want to prejudge, so we started with a list of 136 aspects of life that people might care about, drawing from a wide-ranging scientific and philosophical literature, as well as spirited discussions among the four of us.

The answers we found to “What do people want and how much do they want it?” were at once surprising and the height of common sense. I want to focus on the answers people gave for what they wanted for the nation as a whole, since that is primarily what a president should be judged on. One important finding is that, even across divisions of party, religion, age and sex, people by and large put the same things at the top of the list of what they want for the nation.  And the things they want for the nation as a whole are similar to the things they want for themselves.

Let me give my take on the top 25 things we found people want for the nation as a whole. Freedom comes first: freedom from injustice, corruption, emotional abuse and abuse of power; freedom of speech and political participation, freedom to pursue one’s dreams and the freedom of having choices. Besides freedom, people want for the nation goodness, truth, loyalty, respect and justice.

Only after freedom and goodness, do the “bread-and-butter” aspects of people lives start to come in. These bread-and-butter aspects are reflected in 11 of the top 25 aspects of life, including people’s health and freedom from pain, financial security, someone to turn to in time of need, emotional stability, a sense of security and peace, and activities to enjoy. Beyond freedom, goodness, and the practical, bread-and-butter aspects of people’s lives I just listed, people want meaning—the sense that one is making a difference in the world–for themselves and for others.

Freedom, goodness, truth, loyalty, respect, justice, bread-and-butter concerns, meaning: people’s hopes for our nation, and for themselves, extend to a lot more than money and happiness. I believe the breadth of what people want for the nation has implications for the policies our country should pursue, and how we should judge President Obama four years from now. In drawing out those implications, I will leave aside the bread-and-butter concerns, and concerns about “justice,” since I think our leaders understand those better than the other concerns.

One of the best ways to increase the freedom in the world is to allow more people to come to the United States to experience and tell of the freedom we have here, as I advocated in my Quartz column “Obama Could Really Help the US Economy by Pushing for More Legal Immigration.” But there is a lot to be done to preserve and bolster freedom in the US. Taxes represent a loss of freedom that should be mitigated in the kinds of ways I suggest in my post “No Tax Increase Without Recompense.” The conflict between employees’ freedom at work and employers’ freedom to lay down work requirements need to be fairly adjudicated, as discussed in my post “Jobs.” And every government regulation, in addition to whatever other costs and benefits it has, causes a loss of freedom from telling somebody what they must do.

When we do constrain freedom by regulation, it should be in service of something important, such as truth: people’s freedom from being lied to, deceived or betrayed. It is worth remembering that the standard results about the virtues of the free market all depend on deception being effectively neutralized–so there is no fundamental conflict between economic growth and laws that block corporate deception and throw scam artists in jail.  Enforcing the basic principle of telling the truth, like enforcing property rights, is an area where government is on the side of the angels.

Meaning, goodness, loyalty and respect are the trickiest for public policy to foster. As a social scientist who does research supported by government grants, I would like to think that there is some sense of meaning for all of us in humanity’s efforts at scientific research, such as medical research and the kind of research to slow global warming advocated by Noah Smith in his Atlantic column “The End of Global Warming: How to Save the Earth in 2 Easy Steps.” But I think a big part of what government needs to do to foster meaning, goodness, loyalty and respect is to stay out of the way. In this regard, I am worried about recent discussion of limiting the charitable deduction. My proposal for a system of “public contributions” is a way to reform and refocus the purpose of the charitable deduction instead, in order to reduce the government deficit, and reduce the footprint of the government, without depriving people of help they need.

From doing this research, I am left with the overwhelming impression that—even in the realm of intangibles—what people hope for and wish for is not one thing, but many things. Our desires are boundless. And that is how it should be. As Robert Browning wrote, ”Ah, but a man’s reach should exceed his grasp, Or what’s a heaven for?”

In early drafts, I related what I say in the Quartz column to Jonathan Haidt’s six moral tastes in his book The Righteous Mind: Why Good People Are Divided by Politics and Religion. Here is a New York Times book review by William Saletan, and here is a good passage from Jonathan Haidt summarizing his theory, chosen by Bill Vallicella, in Bill’s post “Jonathan Haidt on Why Working Class People Vote Conservative.”

There is a key chunk of text making the link to Jonathan Haidt’s theory that was appropriately cut for being too wonkish, but that I think you might find valuable

  1. for making that connection and 
  2. for more carefully stating the key findings about people’s preferences in hypothetical policy choices from my paper with Daniel Benjamin, Ori Heffetz and Nichole Szembrot. 

Here it is: 

The most important boon people want for the nation as a whole is freedom. In the words we used for the choices we gave them, the #1, #2, #10, #13, #18 and #23 things people want for the nation are

  • freedom from injustice, corruption, and abuse of power in your nation
  • people having many options and possibilities in their lives and the freedom to choose among them;
  • freedom of speech and people’s ability to take part in the political process and community life;
  • the amount of freedom in society;
  • people’s ability to dream and pursue their dreams; and
  • people’s freedom from emotional abuse or harassment.

The next most important boons people want for the nation are goodness, truth, loyalty, respect and justice. On our list, the #3, #6, #8, #17, #19 and #21 most highly-valued aspects of the good society are

  • people being good, moral people and living according to their personal values;
  • people’s freedom from being lied to, deceived or betrayed
  • the morality, ethics, and goodness of other people in your nation;and
  • people having people around them who think well of them and treat them with respect
  • the quality of people’s family relationships
  • your nation being a just society.

The exact picture of “goodness” and “justice” might differ from one person to the next, but it is clear that they represent more than just money and happiness.  University of Virginia psychologist Jonathan Haidt,  in his brilliant book The Righteous Mind: Why Good People Are Divided by Politics and Religion argues that morality comes in six flavors (“The righteous mind is like a tongue with six tastes.”):

  1. liberty vs. oppression,
  2. fairness vs, cheating,
  3. sanctity vs. degradation,
  4. loyalty vs. betrayal,
  5. authority vs subversion, and 
  6. care vs. harm.

The first five of Haidt’s flavors of morality are well represented above.  The fourth flavor of morality, care vs. harm, is the one many authors focus on, to the exclusion of the others. It is the bread and butter aspects of people’s lives. In our findings, care vs. harm is reflected in 11 of the top 25 (numbers 4, 7, 9, 11, 12, 13, 16, 18, 22, 24, 25), including “the overall well-being of people and their families” in your nation, people’s health, financial security, and freedom from pain; “people having people they can turn to in time of need” and a “sense of security about life and the future in general” and balance, as reflected in the items “people’s mental health and emotional stability,” “how much people enjoy their lives” and “how peaceful, calm and harmonious people’s lives are.”

In addition to all of these, people want meaning, as reflected by #5 and #14 on our list: “people’s sense that they are making a difference, actively contributing to the well-being of other people, and making the world a better place, and “people’s sense that their lives are meaningful and have value.”  In addition to his discussion of key dimensions of morality, in The Righteous Mind: Why Good People Are Divided by Politics and Religion, Jonathan Haidt emphasizes the importance of meaning—in particular, the importance of feeling one is a part of a larger whole. One of his central metaphors is “We are 90 percent chimp and 10 percent bee.” That is, Haidt believes that perhaps 90% of the time we are out for ourselves, however gently, but perhaps 10% of the time we are out for a higher cause (like the general good of everyone in our group) to the deepest level of our beings. A sense of “meaning” often comes from making that connection to something greater than ourselves.  

You can see my other posts on happiness in the happiness sub-blog linked at my sidebar, and here:

http://blog.supplysideliberal.com/tagged/happiness

Why Austerity Budgets Won't Save Your Economy

Here is a link to my 20th column on Quartz: “Why Austerity Budgets Won’t Save Your Economy.”

The link has the abbreviated title “Austerity is Bad Economic Policy”:

http://qz.com/69302/austerity-is-bad-economic-policy/

To interpret that abbreviated title, let me claim that austerity plus electronic money is so dramatically different from austerity alone, that it would not be called “austerity."

The Mormon View of Jesus

Since it is Easter, it seems appropriate to write about Jesus. Putting together my own thoughts about Jesus is a big task. (To understand my religious views more generally, see my post “Teleotheism and the Purpose of Life.”) Today, I am going to follow the easier path of telling you about the views of Jesus I grew up with in Mormonism–which in many respects echo traditional Christian beliefs, though there are some key differences from traditional Orthodox, Catholic and Protestant beliefs. The biggest difference between Mormon beliefs about Jesus and Orthodox, Catholic and Protestant beliefs is that Mormons believe Jesus is a separate being from God the Father, as illustrated by the depiction of Joseph Smith’s “First Vision” above. Jesus literally stands at the right hand of God the Father. (It is worth remembering that the Trinitarian doctrine of a three-in-one God that the picture above violates had to be decided by early Church Councils precisely because it was not clear in the Bible itself.)

Mormons believe in the Bible and what it says about Jesus–including, of course, Jesus’ bodily resurrection. Luke reports Jesus saying this after returning to life:

Behold my hands and my feet, that it is I myself: handle me, and see; for a spirit hath not flesh and bones, as ye see me have. Luke 24:39

But let me illustrate Mormon beliefs about Jesus mainly from the other three volumes of Mormon scripture that Mormons believe are also inspired by God. 

In the Book of Mormon, one can find this description of Jesus’ ministry: 

… behold, the kingdom of heaven is at hand, and the Son of God cometh upon the face of the earth. And behold, he shall be born of Mary, at Jerusalem which is the land of our forefathers, she being a virgin, a precious and chosen vessel, who shall be overshadowed and conceive by the power of the Holy Ghost, and bring forth a son, yea, even the Son of God. And he shall go forth, suffering pains and afflictions and temptations of every kind; and this that the word might be fulfilled which saith he will take upon him the pains and the sicknesses of his people. And he will take upon him death, that he may loose the bands of death which bind his people; and he will take upon him their infirmities, that his bowels may be filled with mercy, according to the flesh, that he may know according to the flesh how to succor his people according to their infirmities. Alma 7: 9–12. 

While in many respects traditional, this passage is theologically interesting because it suggests that even a god can learn, and as a result become further empowered.

Next are two revelations to Joseph Smith, the founder of Mormonism, as they appear in The Doctrine and Covenants. The first describes the glory of Jesus:

This Comforter is the promise which I give unto you of eternal life, even the glory of the celestial kingdom. Which glory is that of the church of the Firstborn, even of God, the holiest of all, through Jesus Christ his Son—He that ascended up on high, as also he descended below all things, in that he comprehended all things, that he might be in all and through all things, the light of truth; which truth shineth.

This is the light of Christ. As also he is in the sun, and the light of the sun, and the power thereof by which it was made. As also he is in the moon, and is the light of the moon, and the power thereof by which it was made; as also the light of the stars, and the power thereof by which they were made; and the earth also, and the power thereof, even the earth upon which you stand. 

And the light which shineth, which giveth you light, is through him who enlighteneth your eyes, which is the same light that quickeneth your understandings; which light proceedeth forth from the presence of God to fill the immensity of space—the light which is in all things, which giveth life to all things, which is the law by which all things are governed, even the power of God who sitteth upon his throne, who is in the bosom of eternity, who is in the midst of all things.

Now, verily I say unto you, that through the  redemption which is made for you is brought to pass the resurrection from the dead. And the spirit and the body are the soul of man. And the resurrection from the dead is the redemption of the soul. And the redemption of the soul is through him that quickeneth all things, in whose bosom it is decreed that the poor and the meek of the earth shall inherit it. Doctrine and Covenants 88: 4–17.

To me, the importance of this passage and others like it is the emphasis on truth. Indeed, another way in which Mormonism emphasizes truth is in the frequent, heartfelt testimonies by Mormons in exactly these words "I know the Church is true" and “I know the Gospel is true.” (The words “the Church” mean “The Church of Jesus Christ of Latter-day Saints” and are sometimes expanded to exactly that. “The Gospel” means the entire body of teachings of the Mormon Church.) I like the message in the fact that the Mormon Church and its teachings are constantly being affirmed by reference to truth. I no longer believe in Mormonism (nor in anything else that is supernatural), but I get emotional thinking about the value of truth. 

Mormonism has a strong emphasis on Jesus as Savior and Redeemer, as the second passage I have chosen from The Doctrine and Covenants illustrates:

For behold, I, God, have suffered these things for all, that they might not suffer if they would repent; but if they would not repent they must suffer even as I; which suffering caused myself, even God, the greatest of all, to tremble because of pain, and to bleed at every pore, and to suffer both body and spirit—and would that I might not drink the bitter cup, and shrink—Nevertheless, glory be to the Father, and I partook and finished my preparations unto the children of men. Doctrine and Covenants 19: 16-19.

Relative to Orthodox, Catholic and Protestant beliefs, the unusual aspect of this passage is that Jesus’ saving act, or in an old word, the atonement of Jesus Christ, takes place in the Garden of Gethsemane rather than on the cross. This is a big part of the explanation for the almost complete absence of the cross in Mormon iconography. It is very hard to find any crosses or crucifixes anywhere in a Mormon church building, except inside a Sunday School manual or perhaps on an outside visitor’s necklace. Instead, in order to symbolize Jesus’ saving act, Mormon church buildings often have a picture like this of Jesus in the Garden of Gethsemane:

The theological importance of having Jesus’ saving act in the Garden of Gethsemane is that the supernatural pain Jesus suffered in the Garden of Gethsemane as he took on the sins of the world is viewed as being enormously greater than the pain he suffered in being crucified. In Mormon belief, Jesus’ death on the cross was the easy part of the task the Father had sent him to do, compared to Jesus’ suffering the weight of all the sins of the world in the Garden of Gethsemane.

The final passage I have chosen is from the Pearl of Great Price.  This passage tells how, in the Council in Heaven when all human beings were still only spirits, and none had yet been born physically, Jesus took a stand for freedom, while Satan argued for forced obedience:

And I, the Lord God, spake unto Moses, saying: That Satan, whom thou hast commanded in the name of mine Only Begotten, is the same which was from the beginning, and he came before me, saying—Behold, here am I, send me, I will be thy son, and I will redeem all mankind, that one soul shall not be lost, and surely I will do it; wherefore give me thine honor. But, behold, my Beloved Son, which was my Beloved and Chosen from the beginning, said unto me—Father, thy will be done, and the glory be thine forever. Wherefore, because that Satan rebelled against me, and sought to destroy the agency of man, which I, the Lord God, had given him, and also, that I should give unto him mine own power; by the power of mine Only Begotten, I caused that he should be cast down; and he became Satan, yea, even the devil, the father of all lies, to deceive and to blind men, and to lead them captive at his will, even as many as would not hearken unto my voice. Moses 4:1–4.

Among Mormons this story of the Council in Heaven is often referred to in order to emphasize the importance of freedom. The strong drumbeat for obedience to Mormon Church leaders–encapsulated in the admonitions “Follow the Prophet!” and “Follow the Brethren!”–weakens the force of this message of freedom in relation to the Mormon Church itself. But among most Mormons, that message of freedom is taken very seriously in relation to government power. 

Canadians as the Voice of Reason on Financial Regulation

From Chrystia Freeland’s book Plutocrats, pp. 216-217:

The self-interested, and ultimately self-destructive, herd mentality on Wall Street and the City of London shaped policy around the world, but it didn’t prevail everywhere. One exception was Canada. Canadian regulators required their banks to hold more capital and permitted less leverage than their peers in London and New York. The result was no bailout of the Canadian financial sector and a recession (and budget deficit) that were much softer than in the United States. To this day, the Bank of Canada divides the world in to “crisis economies,” which means those whose banks failed, and everyone else, like Canada. 

Ottawa chose a different course because the government had a profoundly different attitude about its duties toward the system as a whole and its relationship with its bankers. As minister of finance in the 1990’s, Paul Martin laid the foundations for this approach…. “I knew there was going to be a banking crisis at some point and so did everyone else who has read any history. I just wanted to be damn sure that when a crisis occurred it wouldn’t occur in Canada, and that if it did occur internationally, Canada’s banks wouldn’t be badly sideswiped by the contagion.” …

“I think one of the things that happened was the great competition between New York and London pushed the two into more of a light touch in terms of regulation,” Martin recalled. “I remember talking to [the regulator] and we agreed that we were not prepared to take that approach. Light-touch regulation in an industry that was so dependent on liquidity didn’t make any sense." 

One Bay Street financier summed it up more saltily: "Canadian regulators didn’t have penis envy." 

… A Canadian finance executive who spent the 1990’s in Toronto, then moved to Asia, and now lives in London sheepishly recalls thinking: "Come on, guys, get in the game! The world’s changing." 

Plutocrats, pp. 252-254:

… in the fall of 2011, [Mark] Carney [who is now making the transition from being head of the Bank of Canada to being head of the Bank of England] became a protagonist in a central battle between the plutocracy and the rest of us–a crucial fight over the regulatory power of the state. 

… Carney was tipped to become the next head of the Financial Stability Board, a body of international regulators that comes closest to being the world’s banking boss. The FSB’s big job at the moment is refining and implementing new international bank capital rules. These regulations, known as Basel III, have taken on particular importance because a lack of capital in many U.S. and European banks was a central cause of the 2008 financial meltdown. …

Jamie Dimon, CEO of JPMorgan Chase, told Carney he thought the proposed Basel III rules were "cockamamie nonsense” In fact, the bank chief said, the rules ran counter to the national interest. “I have called it anti-American,” Dimon said, according to one participant. “The only reason I am calling it anti-American is because I am American. I also think it’s anti-European.” …

At first, Carney responded calmly: “I hear what you are saying. I don’t think it will surprise you that I am taking a different view. These are reasonable responses to the financial crisis.”

Quartz #7—>How the Electronic Deutsche Mark Can Save Europe

Link to the Column on Quartz

Here is the full text of my 7th Quartz column, “Move Over Bitcoin: How the Electronic Deutsche Mark Can Save Europe,” now brought home to supplysideliberal.com. This column was first published on November 20, 2012, but is just as relevant today as then. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© November 20, 2012: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

Among the many worries Ben Bernanke listed in his speech at the New York Economic Club today  is the continued danger of a meltdown in Europe:

The elevated levels of stress in European economies and uncertainty about how the problems there will be resolved are adding to the risks that U.S. financial institutions, businesses, and households must consider when making lending and investment decisions…. Weaker economic conditions in Europe and other parts of the world have also weighed on U.S. exports and corporate earnings.

And rather than being a single crisis that will pass, the European Monetary Union faces a chronic structural problem: a single currency means having a single monetary policy for all of the disparate countries in the euro zone.  So some economists have called for the reintroduction of the German mark. (See for example, Kenneth Griffin and Anil Kashyap’s New York Times op-ed “To Save the Euro, Leave It.”and my own evolution toward that view in “The Euro and the Mark.”)

Beyond whatever hit to confidence the rest of the euro zone would suffer, the problem with reintroducing the deutsche mark is that the inevitable rise in the value of a free-floating mark relative to value of the euro would hurt German exports, as well as increasing imports into Germany, and throw Germany into a recession. The Bundesbank, once again the central bank of Germany, would have difficulty implementing expansionary monetary policy, since interest rates in Germany are already close to zero.

Fortunately, the solution to this problem is ready at hand, since the reintroduction of the mark would be a golden opportunity to implement another dramatic, forward-leaning change to the monetary system in Germany—and perhaps in the rest of the euro zone.  In short, for a smooth transition, a reintroduced mark needs to be an electronic mark. I recently made the case for the electronic dollar in a previous Quartz column, “E-Money: How paper currency is holding the US recovery back.” The trouble with paper money is that the rate of interest people earn on holding paper money puts a floor on the interest rate they are willing to accept in doing any other lending. For the US, I proposed making the electronic dollar the “unit of account” or economic yardstick for prices and other economic values, and having the Federal Reserve control the exchange rate between electronic dollars and paper dollars to make paper dollars gradually fall in value relative to electronic dollars during periods of time when the Fed wants room to make the interest rate negative.

In the case of Germany, there would be no need to reintroduce a paper mark along with the electronic mark, since the euro itself could continue in its current role as a “medium of exchange” for making purchases in Germany, alongside the electronic mark. A “crawling peg” exchange rate could be used to let the electronic mark gradually go up in value relative to the euro, without causing a huge rush into the mark, since with no paper mark other than the euro itself, interest rates in Germany could be close to zero when measured in euros, which would make them strongly negative in terms of marks.

Looking at what would happen from the perspective of the rest of the euro zone makes clear how the economics would work. While prices in Germany would be steady in terms of the electronic mark, they would be gradually increasing, according to plan, when measured in euros. The electronic mark would also tend to rise relative to other currencies, while the euro would tend to fall relative to other currencies. These exchange rate changes would do two things. First, goods in the rest of Europe gradually become more competitive as the German goods they are competing with rise in their euro-equivalent price, and as the euro fell relative to other currencies. Second, knowledge that German goods were rising in price would encourage buyers within the rest of the euro zone and around the world to buy German machine tools and other durable exports now instead of later when those goods would be more expensive. This desire by foreign buyers to accelerate their purchase of German machine tools and other durables due to the upward trend in the electronic mark’s value would provide a powerful stimulus to the German economy that would counteract the short-run negative demand effects from the higher level of the electronic mark’s value. But this buy-it-now effect would fall prey to higher interest rates if a reintroduced paper mark were there, pushing up interest rates.

Overall, there would be a powerful stimulus to both the German economy and the economies in the rest of the euro zone, as long as increase in the electronic mark’s value was fast enough. This is not so surprising when remembering that, from Germany’s point of view, German interest rates would be strongly negative, able to provide as much stimulus as needed. (Indeed, care would be required to avoid too much stimulus.)

Historically, fixed exchange rates, of which such a “crawling peg” is an example, have often been hard to defend. But there is an answer to that objection that is also a partial solution to the political and symbolic problem of having Germany leave the euro zone that Rudi Bachmann and I discussed in our Quartz column,“Symbol Wanted: Maybe Europe’s unity doesn’t rest on its currency. Joint mission to Mars anyone?“ If Germany remained within the orbit of the European Central Bank, or ECB, then the Bundesbank, as the agent of the ECB, would always be able to mint enough euros or electronic marks to defend the crawling peg exchange rate between euros and electronic marks. The details of the crawling peg could be determined, collectively, by the members of the euro zone, with a strong voice for Germany in a decision that would affect it so much. By introducing the electronic mark, but remaining within the orbit of the ECB, Germany would demonstrate that a more flexible monetary and exchange rate policy is consistent with a unified Europe. What Europe needs is more degrees of freedom for monetary policy, not a return to the European rivalries that brought us two world wars.

The Rise and Fall of Venice

From Chrystia Freeland’s book Plutocrats, pp. 278-279:

Venice owed its might and money to the super-elites of that age, and to an economic and political system that nurtured them. At the heart of the Venetian economy was the commenda, a joint-stock company that lasted for a single trading mission. The brilliance of the commenda was that it opened the economy to new entrants…. The commenda was a powerful engine of both economic growth and social mobility–historians studying government documents from AD 960, 971 and 982 found that new names accounted for respectively 69 percent, 81 percent, and 65 percent of all the elite citizens cited.

Venice’s elite were the chief beneficiaries of the rise of La Serenissima. But like all open economies, there was turbulent. We think of social mobility as an entirely good thing, but if you are already on top, mobility can also mean competition from outside entrepreneurs. Even though this cycle of creative destruction had created the Venetian upper class, in 1315, when their city was at the height of its economic powers, they acted to lock in their privilege. Venice had prospered under a relatively open political system in which a wide swath of the people had a voice in the selection of the republic’s ruler, the doge, and successful outsiders could join the ruling class. But in 1315, the establishment, which had been gradually tightening its control over the government, put a formal stop to social mobility with the publication of the Libro D'Oro, or Book of Gold, which was an official registry of Venetian nobility. If you weren’t in it, you couldn’t join the ruling oligarchy. 

This political shift from a nascent representative democracy to an oligarchy marked such a striking change that the Venetians gave it a name: La Serrata, or the closure. And it wasn’t long before the political Serrata became an economic one, too. Under the control of the oligarchs, the Venetian state gradually cut off the commercial opportunities for new entrants. The commenda, the legal innovation that had made Venice (and other Italian city-states) rich, was banned.

Quartz #6—>Obama Could Really Help the US Economy by Pushing for More Legal Immigration

Link to the Column on Quartz

Here is the full text of my 6th Quartz column, “Second Act: Obama could really help the US economy by pushing for more legal immigration,” now brought home to supplysideliberal.com. This column was first published on November 7, 2012. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© November 7, 2012: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

It’s time for US President Barack Obama to think big. Syria’s civil war and Iran’s nuclear capability will continue to give the president plenty of opportunities to make his mark on history in foreign affairs. But the hope of any further major achievement in domestic policy will have to overcome two hard realities: Republican control of the House of Representatives and aging Americans’ effect on the federal budget.

What the president needs is some form of political jujitsu that also solves the country’s long-term budget problems. Meanwhile, one of the biggest messages for Republicans from this election is that their electoral prospects hinge on bringing a larger fraction of Hispanics into the GOP fold. So immigration is an issue that puts them in a box: either they play ball, or they get tarred further as the anti-immigration party, which is politically deadly.

Now is the perfect time for the president to tackle immigration reform. He already has put immigration reform on the agenda, but there is a danger that he will think too small and miss the potential of the right kind of immigration reform to strengthen the economy and shore up the long-run government budget. But the key to the economic and budgetary magic of immigration reform is to dramatically increase the level of legal immigration allowed each year.

Let me be concrete by suggesting an increase of 1 million legal immigrants per year for the next 30 years. If the immigration reform is designed specifically to help the economy, here is what it can do.

First, it can work wonders for the long-run solvency of Social Security and Medicare by increasing the number of young people paying relative to older people receiving benefits.

Second, it can bring in large numbers of highly educated and highly skilled immigrants who can keep the United States at the cutting edge of technical progress.

Third, it keeps America a melting pot while giving it a competitive advantage in the global economy.

Fourth, in general, a group’s wages are raised by increasing the number of workers who are different from that group.

Thus, bringing in immigrants at the bottom and the top of the skill distribution will help the wages of those in the middle of the skill distribution—the middle class that the president promised to help. Additional immigration may cause a problem for native-born Americans who don’t complete high school, but the kind of education reform that will help solve that problem is already one of the president’s strong suits and something strongly supported by Republicans. Finally, since real-estate markets are forward-looking, a commitment to a large increase in legal immigration over the next 30 years would help the economy even in the short run by raising property values, so that fewer homeowners would be underwater, meaning they owe more than their homes are worth.

Done right, and done in a big way, the economic benefits of increased legal immigration are compelling. In the blogosphere, Adam Ozimek and Noah Smith have been some of the most forceful advocates. And on my own blog, I have stressed the moral case for increased legal immigration. (See my post “You Didn’t Build That: America Edition” and its follow-up.) And politically, increased legal immigration designed with the economics in mind is a wedge issue that separates the pro-business part of the Republican coalition from the culturally conservative part of that coalition.

An increase in legal immigration doesn’t solve the problem of illegal immigrants already in this country, but it will ultimately make that issue so much easier to deal with that the issue of illegal immigrants could be safely deferred, if political necessity demands (as it might, given the strong positions to which many Republicans have committed themselves against illegal immigration).

For the sake of our nation, second-term presidents—who no longer face a reelection battle—should be thinking about their place in history. Most Americans today have a positive view of the legal immigration we have had in the past since it’s how most of us got here. On the domestic front, the president has very little room to maneuver. Changing our 21st century approach to immigration is one arena where a bold move can put President Obama forever in the top tier of American presidents who have laid the foundation of American greatness.

Ben Bernanke on Why the Fed Has an Inflation Target of 2%

In making the argument for electronic money, I have argued that the main reason major central banks have an inflation target of 2% rather than zero is because of worries about the Zero Lower Bound. To back that up, here (thanks to Akshay Mishra’s pointer) is a Q&A addressing that issue from the official transcript of Ben Bernanke’s March 20, 2013 press conference, pp. 18-19:

RYAN AVENT. Ryan Avent, The Economist. You’ve noted that most of the committee members don’t expect an increase in rates until 2015 or 2016, and it looks in the projections as though the expectation for the long run rate of the Federal Funds target is around four percent which should below the sort of peak rate we saw before the recession. Given the committee’s concerns about unconventional policy, is there any feeling on the committee that perhaps recovery isn’t going fast enough and that more accommodation would be justified? And has there been any discussion about a change in policy targets to try to stay effective without much of a cushion there between the Fed Funds target rate and the zero lower bound?

CHAIRMAN BERNANKE. Well, as you point out, we’re at the zero lower bound and that makes further accommodation not impossible but more difficult and harder to predict and with more side effects that are difficult to predict. I’m not sure I understand the whole thrust of your question. We have–as, you know, we have given this guideline for–so we call them signposts for how the funds rate is going to evolve over time. And as a lot of academic research shows, you know, when you’re close to the zero lower bound, by telling markets that you’re going to keep rates low for a significant period, that’s one way to get longer term rates down and to provide more stimulus to the economy. And we think this has been a pretty effective tool. Now, we could go further. We could lower even further say the unemployment that rate number that we hit. We’ve discussed variants and at least one member of the committee has suggested that. But for right now, we find that the thresholds that we have put into that rate guidance seemed to be sufficient to approximate the–what’s called the Optimal Control Path of Interest Rates that it seems to give a path of unemployment inflation that’s about as good we can get with the monetary policy tools that we have. It doesn’t mean we’re satisfied. It just means that we don’t have enough fire power to get the economy back to full employment more quickly. I don’t know if that was responsive or not.

RYAN AVENT. I guess I’m not–given the concerns about unconventional policy relative to normal interest rate policy, is there a feeling that more should be done so that in the next potential recession rolls around, we have more room to cut rates, or are you comfortable just using these threshold policies on an ongoing basis?

CHAIRMAN BERNANKE. I see. So you’re talking about the inflation target, basically. Is that fair?

RYAN AVENT. Yeah. I think so.

CHAIRMAN BERNANKE. Yeah. Okay. So historically, the argument for having inflation greater than zero–we define price stability as 2 percent inflation as do most central banks around the world. And one might ask, “Well, price stability should be zero inflation. Why do you choose 2 percent instead of zero?” And the answer to the question you’re raising which is that if you have zero inflation, you’re very close to the deflation zone and nominal interest rates will be so low that it would be very difficult to respond fully to recessions. And so historical experiences suggested that 2 percent is an appropriate balance between the cost of inflation and the cost that you’re referring to. We haven’t contemplated changing that. We just put that number in as, you know, fairly recently. I think at this point, it’s still being debated in academic circles that–you know, and we’ll see what kind of outcome they come up with. But it’s an interesting question to try to quantify. There is research, for example, which asks the question how often do you tend to hit the zero lower bound? And our belief few years ago was that it was a very rare event and now it has become more common. So I’m sure there’d be a lot of thinking about this in academic and other circles.