Christian Kimball on the Fallibility of Mormon Leaders and on Gay Marriage

My big brother Chris gave me permission to post a (lightly edited) email discussion giving his reaction to my post “Flexible Dogmatism: The Mormon Position on Infallibility” that he sent in an email. You will have to read that post first to understand what he is talking about on that. What is of equal interest is what Chris had to say about gay marriage, later on in our exchange.  

Chris: I think you are hypercritical in your post “Flexible Dogmatism: The Mormon Position on Infallibility." Understandable (a common reaction of one who has felt oppressed by the "follow the prophet” meme) but unnecessary.

First, the strong form of “infallibility” (not counting backroom conversations in Seminary and Sunday School) is not “we are right” but “we will not lead you astray”. Logically quite different and the difference matters–one is a truth statement, the other a safety or comfort statement.

Second, your statement that “According to these principles, the Mormon Church can renounce past policies and can renounce past theologies, but it cannot renounce the rightness of past policies at the time they were in effect. “ may be literally correct as qualified by “According to these principles” but I think it is simply wrong as a statement of theology, doctrine, or Church practice. To give credit, the “at the time” theory is frequently used in regard to 19th century polygamy, but I view that as a special (and specially troubled) case from which I would be slow to generalize. (Not that I agree with the theory even in that application.)

Third, the “Race and the Priesthood” statement does say to me “Brigham Young was wrong”. (Notably, it is not a first for Brother Brigham, who said a number of things that have been disavowed.) Extracting from the statement:

In 1852, President Brigham Young publicly announced that men of black African descent … Over time, Church leaders and members advanced many theories to explain … None of these explanations is accepted today …”

Recognizing that for all of the rationalization and reasons-behind-the-reason theories, the preeminent explanation was always “so says the prophet”, this adds up to Brigham was wrong. That doesn’t mean that people who want to rationalize around to a flexible dogmatism can’t find a way to do it. But such rationalizations will always be with us, and nothing anybody can say will end it.

Fourth, your closing reference to the Hopak/Cossack dance/Ukrainian dance doesn’t work literally (the LDS primary music is more like the Hava Nagila if I were looking for a non-Mormon reference, and the music I associate with the Cossack dance is various but more reminds me of what I’d hear in square dance or folk dance, or a circus) and therefore the reference comes across as an expression of your own feeling of oppression that you make vivid by associating it with the old Soviet state (my reaction) or marionettes (perhaps your first meaning).

Miles: By the way, did you see my column on gay marriage, “The case for gay marriage is made in the freedom of religion”?

Chris: I did. I’m not persuaded that SSM is a matter of religious freedom. The Rawlsian move might be effective in a due process or equal treatment argument but doesn’t get me to religious freedom.

Now if you reversed grounds and argued that a man-woman-only rule is an establishment of religion, one that violates the 1st Amendment … I’d have more to think about. I don’t know the Establishment jurisprudence so I can’t judge the strength of the argument, but it sounds good, especially in Utah where the case can be made that the anti-SSM position is state religion.
BTW, opinion polls in Utah are showing a shift, where an anti-SSM amendment would very possibly fail a popular vote today–a reversal of the actual voting in 2004.
Miles: Very interesting. On my “Flexible Dogmatism” post, I added this note: 
I am not making a narrowly legal argument in “The case for gay marriage is made in the freedom of religion.” It as addressed at least as much to current and future voters and legislators as to lawyers crafting arguments for judges.
Chris: It’s probably worth mentioning that my 1998 speech advocated marriage. I refer to it as the speech that made nobody happy: to the one-man-one-woman traditionalist I said “they should get married” and to the gay couple looking for permission but not necessarily obligation I said “you should get married”. There are plenty of churches and religious leaders (now there are, anyway) who are willing and happy to celebrate a same-sex marriage. But I haven’t yet seen a church or religious leader take the completely logical and in my mind necessary step of layering a moral imperative on same-sex marriage. Until that happens, it will be hard to see an affirmative freedom of religion argument for SSM.
I also made a set of questions as if for a law school class on the Mormon Church’s “Proclamation on the Family,” which sets out the Church’s position on gay marriage.

Izabella Kaminska: The Time for Official E-Money is NOW!

Link to the post on FT Alphaville

A few months ago, Izabella Kaminska and I arranged to talk to each other on Skype and had a very interesting discussion. Izabella has written a wonderful column on the Financial Times’s blog Alphaville based on that discussion: “The time for official e-money is NOW!” I was delighted when Izabella told me it was fine to mirror that column in full here. In relation to what follows, let me say that my two-year timeline for a government to get all the legal wrinkles figured out for electronic money is for a government that is making a concerted bureaucratic effort. But I think it will not be too many years before some government does exactly that. 

Now, more than ever, is the time for central banks to launch their own official e-money. We’ve campaigned for this before. But in light of further Bitcoin and altcoin developments, as well as secular stagnation observations by Larry Summers, it’s worth reiterating the argument for an unconventional policy of this sort.

First, it’s important to stress why this wouldn’t in any way be a panicked response to the supposedly destabilising “threat” of Bitcoin.

Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began.

What’s more, the Bitcoin asset bubble is much more likely to be doing the stagnating dollar economy a favour at the moment than a disservice.

For one thing, it’s directing what would otherwise be de-stabilising flows into an entirely synthetic market rather than into real world goods and resources, like houses, art or commodities — in so doing stopping at least some actual consumable goods and resources from being bid up to prohibitively high levels for regular folk. Second, it’s expanding the overall money supply — useful in a disinflationary world which lacks compensatory bank lending. Third, it’s potentially improving the velocity of money. And fourth, it’s created a parallel currency that looks hugely overvalued relative to the dollar, by definition causing Gresham’s law type effects that end up rewarding the dollar with greater use, velocity and competitive advantage.

Most important of all, however, Bitcoin has helped to de-stigmatise the concept of a cashless society by generating the perception that digital cash can be as private and anonymous as good old fashioned banknotes. It’s also provided a useful test-run of a digital system that can now be adopted universally by almost any pre-existing value system.

This is important because, in the current economic climate, the introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible, it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.

Consequently, anyone who believes Bitcoin is a threat to fiat currency misunderstands the economic context. Above all, they fail to understand that had central banks had the means to deploy e-money earlier on, the crisis could have been much more successfully dealt with.

Among the key factors that prevented them from doing so were very probable public hostility to any attempt to ban outright cash, the difficulty of implementing and explaining such a transition to the public, the inability to test-run the system before it was deployed.

Last and not least, they would have been concerned about displacing conventional banks from their traditional deposit-taking role, and in so doing inadvertently worsening the liquidity crisis and financial panic before improving it.

Given the disruptive consequences of such an irreversible move for the banking sector — effectively transforming banking into fund management — the central bank would not have been keen to deploy the strategy until it was sure that secular stagnation was really the result of the crisis and that the conventional banking model was beyond saving.

Almost of all of these prohibitive factors have, however, by now been overcome:

1) Digital currency now follows in the footsteps of a “disruptive” anti-establishment digital movement perceived to be highly accommodating to the black market and all those who would ordinarily have feared an outright cash ban. This makes it exponentially easier to roll out. Bitcoin has done the bulk of the educating.

2) What was once viewed as a potentially oppressive government conspiracy to rid the public of its privacy can be communicated as being progressive and innovative as a result.

3) Banks have been given more than five years to prove their economic worth and have failed to do so. If they haven’t done so by now, they probably never will, meaning there’s unlikely to be a huge economic penalty associated with undermining them on the deposit front or in transforming them slowly into fully-funded fund managers.

4) The open-ledger system which solves the digital double-spending problem has been robustly tested. Flaws, weaknesses and bugs have been understood, accounted for, and resolved.

All that is left is to develop an economically efficient deployment plan! Lucky for us Miles Kimball, professor of economics and survey research at the University of Michigan, has exactly such a plan.

We’ve reviewed Kimball’s dual framework plan before here and here.

Very loosely it involves a central bank centrally issuing e-money and allowing it to trade side by side with paper money for a period of time. Use of e-money could be incentivised by a favourable rate environment for e-money, or by an enticing exchange rate for swapping out of paper money for e-money. In that sense it would be similar to the parallel Rollad system envisioned by Willem Buiter in 2009. Its use could be further encouraged by a general campaign to stigmatise the use of paper cash.

We were originally unconvinced that a transitory dual framework period would be needed. We worried in fact that it might come across as too confusing. The success of Bitcoin, however, shows that the public is more than capable of understanding and adopting a parallel value system which provides it with an explicit interest rate or exchange rate advantage.

Kimball noted to us, however, that before any such system could be deployed the legal status of electronic money would have to be defined by government. But he is optimistic that all the preparations could be completed within two years or so.

And there’s no reason at all why a central e-money system couldn’t replicate many components of the Bitcoin open-ledger system in a way that ensures a similar level of privacy, as well as equally competitive transaction costs (or lower) because the computational costs end up being borne by the central bank directly rather than by miners.

Once everyone was captured by the system, it would then be possible to manage the exchange or interest rates on e-money (relative to cash) in such a way that an implicit negative rate was achieved.

Kimball is confident that it’s a question of when rather than if the system is deployed. He also believes if the US government doesn’t act first some other central bank will instead.

What it would effectively mean is that everyone would via the process be able to bank directly with the central bank if they wished, and only invest in bank deposits if they were prepared to bear the associated risks in exchange for potentially greater payoffs.

If and when an official e-money currency of this sort was launched it’s fair to state it would probably prove a major competitor of Bitcoin or other altcoin systems, offering as it does price stability, trust, liquidity, ubiquity, reputation, mutual interest, a government guarantee system, not to mention protection from overbearing wealth concentration or debasement. All features that happen to depend on the presence of a central planner, who acts in the interests of the people because it is accountable to them.

That’s not to say the incentive to hold or use alternative currencies would be eliminated entirely. It would, however, be linked entirely to those coins’ speculative value rather than their superior functionality, and in that sense be influenced as much by central bank interest rates policy as any other speculative asset class is currently influenced today.

Though, of course, the greater the negative interest rate, the greater the incentive to hold alternative coins. The greater the incentive to hold alternative coins ,the greater the incentive to produce them. The greater the incentive to produce them, the greater the chances of oversupply and collapse. The more sizeable the collapse, the more desirable the managed official e-money system ultimately becomes in comparison.

Either way, the key point with official e-money is that the hoarding incentives which would be generated by a negative interest rate policy can in this way be directed to private asset markets (which are not state guaranteed, and thus not safe for investors) rather than to state-guaranteed banknotes, which are guaranteed and preferable to anything negative yielding or risky (in a way that undermines the stimulative effects of negative interest rate policy).

Related links

Tom Grey’s Excellent Electronic Money Rap

When I followed up “Gather ’round, Children, Here’s How to Heal a Wounded Economy” with a lame rap video version of the storybook, I begged for someone to try their hand at a real rap version. Tom Grey stepped up to the plate and hit a home run. He totally rewrote the words of the story to make it work as a rap, but kept the same essential meaning. Donna D'Souza put the new text together with the pictures and the Tom Grey’s audio track to make the YouTube video.

The video is the spoken rap version without music.  A version with music is coming. If you want to print out the storybook with the rap text, here it is.

I am not proud of my own rap version, but I think my read-aloud version and my operatic ballad version of the story on YouTube are fine. 

Many, many thanks to Tom. A wonderful New Year’s present!

The Institute for Social Research Summarizes the Argument for Electronic Money

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Diane Swanbrow, Susan Rosegrant and Eva Menezes put together the newsletter for the Institute for Social Research at the University of Michigan. They put together a nice summary of my interview with Dylan Matthews of the Washington post “Can we get rid of inflation and recessions forever? (My direct answer to that question is in my companion post.) Here is the summary:

How would you feel if you put $1 into the bank, and when you took it out a year later, it was only worth 95 cents? Probably like it’s not a good time to be saving money. And that’s exactly why ISR researcher Miles Kimball argues that negative interest rates should be one tool available for economic policymakers. In a Nov. 18 Q&A in The Washington Post, Kimball acknowledged that high interest rates often are appropriate, encouraging people and businesses to save. But when economies are in recession, companies become reluctant to borrow or invest and people shy away from buying automobiles and houses, exactly the kinds of activities needed to jump start the economy. Allowing negative interest rates could help spark those activities and more quickly return the economy to health. Moreover, Kimball contends that if governments did most transactions electronically, it would be easier to manage negative interest rates. “Anything you can do to firm up the legal status of electronic money as the real thing makes it easier to do what it takes to go to negative interest rates,” Kimball said.

Bret Stephens and Paul Krugman: What Should a Correction Look Like in the Digital Era?

In my presentation “On the Future of the Economics Blogosphere” I talk about how the websites of newspapers and magazines that began as creatures of print often do things on their websites that are not best practice for online journalism. Underusing links is one example. Another related example is the way corrections are handled. Bret Stephens’s misuse of nominal income statistics in his piece “Obama’s Envy Problem” and the manner of the correction he made provide a good case study. 

To help you get up to speed, let me say that this post is a followup to my posts

One reason I thought a followup would be worthwhile is that my post “The Wall Street Journal’s Quality-Control Failure: Bret Stephens’s Misleading Use of Nominal Income in His Editorial ‘Obama’s Envy Problem’” is at this moment my 3d most popular blog post ever.

In his January 8, 2014 post “Do Publications Have Any Responsibility to Screen Their Editorials? (Part 2)” R. Davis wondered why the original Bret Stephens article as it appears on the Wall Street Journal’s website has no link to Bret Stephens’s correction piece, and indeed no indication of any problem. Paul Krugman took Bret Stephens to task for the same thing in his post “The Undeserving Rich,” writing:

Oh, and for the record, at the time of writing this elementary error had not been corrected on The Journal’s website.

As this sentence stands, it is false, because it says “website” rather than “the version of the original article appearing on the website.” In addition to his correction on January 3, 2014, “About Those Income Inequality Statistics: An answer to Paul Krugman” on the Wall Street Journal's website, there was a formal January 5, 2014 acknowledgement in “Corrections & Amplifications.”

In his followup "Department of Corrections, and Not,“ Paul Krugman gives more precision, saying what counts in his book as a correction:

… you fix the error in the online version of the article, including an acknowledgement of the error; and you put another acknowledgement of the error in a prominent place, so that those who read it the first time are alerted. In the case of Times columnists, this means an embarrassing but necessary statement at the end of your next column.

I fully agree with Paul Krugman about how a correction should be done in the digital era. Arguably, "About Those Income Inequality Statistics: An answer to Paul Krugman,” counts as “the next column,” so Bret seems to have done that. And the Wall Street Journal did what would have been adequate in the paper era in "Corrections & Amplifications.“But in the digital era, that is inadequate. Whenever a correction of a serious error is made, it needs to be either made directly on the web version of the original article or addressed with a clearly signaled link. The Wall Street Journal neglected to do this. To the extent that this is based on a standard practice of the Wall Street Journal, that is the more inadequate, since it will affect many articles.  

In his article "Stephens: Krugman and the Ayatollahs” Bret expresses some pique at Paul’s accusation that the article had not been corrected on the website. He never focuses on the fact that the original article as presented on the website has no clue of the correction, emphasizing his correction on January 3, 2014, “About Those Income Inequality Statistics: An answer to Paul Krugman,” and the formal January 5, 2014 acknowledgement in “Corrections & Amplifications.” Bret should be agitating strongly for a correction to appear on the online version of his original article as well. I look forward to seeing that correction appearing on the website version of the original article–especially if it betokens a general change in the Wall Street Journal's standard procedures for representing corrections on its website.

By the way, according to the principle I am enunciating here, and under the circumstances of a dispute like this, I would urge Paul to make sure that the online version of his column "The Undeserving Rich“ gets a link added to ”Department of Corrections, and Not,“ which provides the necessary clarification for the on-its-face inaccurate statement in ”The Undeserving Rich“ that the Wall Street Journal website had no correction for the error in Bret’s original article.

One final note: I am perfectly comfortable with silent edits of posts if errors are caught before they have become the basis for other people’s posts. I discuss my own policy in that regard in my post "It Isn’t Easy to Figure Out How the World Works” (Larry Summers, 1984)“:

… I routinely allow myself silent edits in my blog posts without an update notification. I am not running for office, I am not on trial, and I already have tenure, so I don’t have to play the game of “gotcha.” In my case, it is my words that matter, not me, and the words that matter are the ones I am willing to stand behind in the end.

One should, of course, forthrightly admit that an error was made previously if anyone asks, but as long as an error is corrected, I see no duty to advertise that previous error. The number one duty is to get things right for the readers. Beyond that, it is a simple matter of honesty about previous errors should the issue come up.

It is only when errors become the basis of other people’s posts or other writings that one needs to clearly signal errors, since knowledge of the error is required for readers to understand what the discussion is all about. Errors that are the basis of comments on the original post are a gray area. If the value of the relevant part of the comment is just to point out the error, then correction of the error respects the point of that comment. On the other hand, if the comment has something brilliant to say that is stimulated by the error, then it would be good form to somehow preserve the record of the error in order to avoid destroying the record of the stimulus for that comment. But the record of the error need not be in the original location; after all, there are other objectives served by having a casual reader able to read something correct straightaway without necessarily going through the whole convoluted path.

Josh Barro: We Need a New Supply Side Economics—Here Are 8 Things We Can Do

 

Noah Smith and Christopher Cordeiro tweeted that Josh Barro’s column “We Need A New Supply Side Economics — Here Are 8 Things We Can Do” sounded like ideas I would favor. They are right. 

I fully agree with Josh’s lead-in:

Demand stimulation remains the right goal today, but it’s not going to be the right goal forever. …

We’re going to need a new supply side economics that encourages people to work, invest and innovate.

Some of Josh’s proposals cost money, for which he proposes more progressive income taxes as a revenue source (as his 8th point). I have proposed tapping the resources of the rich in a different way. I want to  finance an expansion of the nonprofit sector (see the links in “The Red Banker on Supply-Side Liberalism”). To get there politically, I enunciated the principle of “No Tax Increase Without Recompense.” So I cannot go along with Josh’s proposal raise income taxes at the upper end in a conventional way. (Also see the Twitter discussions “Daniel Altman and Miles Kimball: Should We Expand Government or Expand the Nonprofit Sector?” and “Daniel Altman and Miles Kimball: Is It OK to Let the Rich Be Rich As Long As We Take Care of the Poor?”) The expansion of the nonprofit sector that I propose will help the poor tremendously in many ways beyond the dimension Josh is focuses on.

More generally, I think it is better to build progressivity into the spending side of the government’s activities–including transfers–than into the tax side. Instead, I think Josh’s proposed enhancements of programs to direct more resources toward the poor can also serve as ways to compensate the poor for increases in increases in taxes on externalities such as carbon dioxide emissions and the consumption of soft drinks and junk food that affect the behavior of all those around us through not-fully-conscious social influences. 

Here is Josh’s list, minus the income tax increase, with my comments:

1. Invest in smart infrastructure, ideally without building much.

Yes! Noah and I have an column on infrastructure investment. And I agree with Josh that it is a bad habit to get into to think of infrastructure investment as a demand-side thing. We need to keep in our sights getting supply-side benefits from the infrastructure investments that we make. 

I would emphasize government support for basic research in the same breath as infrastructure investment. Indeed, I think there is even more supply-side benefit to be had from government support for basic research than from additional infrastructure investment. 

2. Reform means-tested entitlements without soaking the poor.

Josh wants to phase out aid to the poor more slowly with higher income, in order to avoid discouraging people from working hard and avoid discouraging people from building their careers through education and other means. This is great, but it will cost the government more money. I would like to reward healthy eating and not contributing too much to global warming across the whole population, as well as rewarding the poor for working hard and getting an education. That combination can finance itself.    

3. Move the deregulatory agenda down to the state and local level.

This is one of Josh’s points that I think needs to be shouted from the rooftops. Here is the full text of what he said on this point:

In the 1970s, the big deregulation fights were properly at the federal level. Then the government deregulated airlines and trucking. Though technological change, regulation has become less important in broadcasting and telecommunications. Bank deregulation has been a mixed bag over this period; people talk about it as a cautionary tale, but some of the deregulations (such as ending the limit on savings account interest and allowing interstate banking) have served consumers very well.

The big federal regulatory fights that remain are in mostly areas where the federal government properly uses a heavy hand: banking and securities, and environmental protection.

The next round of big deregulation fights should be at the state and local level. Governments impose pro-incumbent regulations on a variety of industries from barbering to interior design to medicine to restaurants. These rules raise incomes for existing practitioners, but they make it difficult for new practitioners to enter the fields, and they raise consumer prices.

State and local governments should stop doing this.

In the interest of promoting interstate commerce, the federal government should pre-empt many of these regulations. For example, states should be forced to allow a broad scope of practice for nurse practitioners so they can serve as independent primary care providers. This would reduce doctors’ incomes, but it would reduce the cost of health care, raise patients’ real incomes and help to control government expenditure.

What I have said on this topic can be found in my post

4. Deregulate America’s most overregulated industry: real estate.

Here, Josh is on the same side as Matthew Yglesias, who wrote the book on this issue: The Rent is Too Damn High. I am part of the cheering section for their efforts. Given the fraction of household budgets spent on housing, this is a huge issue.  

5. Reform intellectual property — by weakening it.

I endorse this idea in my link post “The Wonderful, Now Suppressed, Republican Study Committee Brief on Copyright Law.” I also muse on how much protection is necessary in my post “Copyright.” Wonderful, amazing new things will happen if we shift to less restrictive intellectual property rules. And if we overshoot in a way that undercompensates creators, that can easily be fixed later. It is high time we experimented with more fluid rules. 

Given the pace of innovation and the rate at which things become obsolete, one change that almost certainly a winner is to shorten the term for patents and copyrights. The only place this seems problematic is in retaining adequate incentives for the development of new drugs. There, combining a shorter period of exclusivity with the government paying for half of the cost of drug trials would probably keep just as much innovation while still helping the government budget, since the government pays for drugs as part of Medicare now.  

6. Improve education, somehow.

I have written a fair amount about education. Improving education will be an ongoing theme for me. Here is a link to my sub-blog on education, and here are some of the most important posts:

7. Admit more high-skill immigrants.

More open borders is something I am passionate about. But I would not limit it to high-skill immigrants. Helping the poor who are currently in other countries is also important. Here are some of my more important posts in that vein:

Genius Can Only Breathe Freely in an Atmosphere of Freedom

Encouraging genius comes at a price: allowing nonconformity. John Stuart Mill makes that case eloquently in On Liberty chapter III, “Of Individuality, as One of the Elements of Well-Being,” paragraph 11:

Persons of genius, it is true, are, and are always likely to be, a small minority; but in order to have them, it is necessary to preserve the soil in which they grow. Genius can only breathe freely in an atmosphere of freedom. Persons of genius are, ex vi termini [from the force of the term], more individual than any other people—less capable, consequently, of fitting themselves, without hurtful compression, into any of the small number of moulds which society provides in order to save its members the trouble of forming their own character. If from timidity they consent to be forced into one of these moulds, and to let all that part of themselves which cannot expand under the pressure remain unexpanded, society will be little the better for their genius.

Shall we try to fit ourselves into boxes?

Quartz #41—>Gather ’round, Children, Here’s How to Heal a Wounded Economy

Link to the Column on Quartz

Here is the full text of my 41st Quartz column, “Gather ’round, children, here’s how to heal a wounded economy,” now brought home to supplysideliberal.com. It was first published on December 17, 2013. Links to all my other columns can be found here.

I did several followup posts to this column, including 4 YouTube videos:

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 17, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2015. All rights reserved.

University of Missouri-Kansas City professor Stephanie Kelton threw down the gauntlet for everyone serious about influencing economic policy into the next generation when she put out her MMT Coloring Book  as a downloadable stocking-stuffer (pdf). (MMT stands for “Modern Monetary Theory,” the name of Stephanie’s viewpoint.) In response, I tweeted:

…and sent out a plea for creative help with a macroeconomic coloring book laying out my views about monetary policy. Donna D’Souza answered my call and did a great job illustrating the story. The downloadable coloring book (pdf) and colored-in storybook (pdf) are our gift to you and your children and grandchildren during this season of lights. You can also read the colored-in storybook version just below, followed by an explanation of the economics behind the story.

Milton the Maltese Falcon represents Milton Friedman, who was one of the greatest champions of monetary policy the world has known and one of the most effective economists ever at explaining economics to the public. Milton Friedman used an equation for the effects of monetary policy that emphasized two things: the quantity of money and the velocity of money. Money sitting in a bank vault or under a mattress has no velocity, and drags down the average velocity of money throughout the economy. It is only when money is being lent out and used (to build factories, buy equipment, build houses, buy cars) that it stimulates the economy.

Of course, too much monetary stimulus is bad because it causes inflation (the balloon about to pop). But too little monetary stimulus is bad because it causes unemployment (the broken balloons). And how much stimulus a given amount of money provides depends a lot on whether it is at work in the economy (running around) or locked away in a bank vault, in a corporate treasury, or under a mattress, doing nothing.

The reason a lot of money has been lying around doing nothing is because the appropriate interest rate for the economy has been very low—below zero. If we had negative interest rates for a year or so, things would get back to normal. Without that tonic, bad times drag on and on.

A key thing to understand is that the rest of the government is preventing the Federal Reserve (Ben the Money Master and his friends) from doing what it needs to do to heal the economy. Here is how: the government prevents interest rates from going below zero by the way it handles paper currency. As things are now, holding a pile of paper currency is a way for people to earn a zero interest rate without putting their money to work in the economy.

There is a solution, due in its modern form to Willem Buiter, now chief economist of CitiGroup, who appears in the story as “Willem the Wise Warlock.” Buiter discusses various options for repealing what economists call “the zero lower bound”: the economically damaging government guarantee that anyone can lend as much as they want to the government at a zero interest rate just by keeping a big pile of cash. I have elaborated on one of Willem Buiter’s ideas in Quartz, on my blog, and in presentations to central banks around the world, including the Federal Reserve Board.

If we do what it takes to make money sitting around doing nothing shrink, it will provide a strong boost to the economy as people put money to work in the economy. Not everyone will like it, but it will quickly bring full economic recovery, without the bad side effects of other means of trying to stimulate the economy (such as budget deficits or encouraging financial bubbles). Once the economy recovers, everything can go back to what people are used to. Some economists talk about the possibility that negative interest rates might be needed for a long time, but I don’t buy it. In my view, negative interest rates should only be needed for a short time during serious economic slumps. If the Fed and other central banks are given that authority, recessions can be brief and people can get back to work again.

One of the most important reasons we need to keep the economy in good working order—in this case with appropriate monetary policy—is so that economics can recede a bit more into the background of people’s lives. Then people can concentrate again on the things that should matter most: nurturing relationships with friends and family, creating wild, wonderful varieties of meaning in their lives, and taking time to stand in awe of the universe.

We all know that the way to prevent the troubles that would be caused by shooting ourselves in the foot is to avoid shooting ourselves in the foot. Just so, our economic troubles have a straightforward cause and a straightforward technical solution. Both the cause of our troubles and the essence of the solution to our troubles are told in Milton the Maltese Falcon’s ballad.

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On the Future of the Economics Blogosphere

Link to the video

On December 16, 2013, I gave a talk at the University of Michigan Library “On the Future of the Economics Blogosphere.” Here is the video of the talk.

Before watching the video, I recommend taking a look at the very high quality storify creation P. F. Anderson put together from the talk, including two sets of live tweets sent out during the talk. This was far, far from being a polished presentation, but there is a lot of substance to the talk, which you can see in P. F. Anderson’s storify piece.

The Powerpoint file is not so interesting all by itself; but here it is, if you want to refer to it. 

You can see other talks in the series here.

Arguing About Gay Marriage →

The general structure of Aldo Raines’s argument in this Twitter discussion sparked by my column “The case for gay marriage is made in the freedom of religion” is worth noting: instead of arguing against legalizing gay marriage, he asserts a strong correlation between support for gay marriage and other beliefs he disagrees with. I don’t think that works, logically. Not only are the posited correlations far from perfect, but it is very easy for someone to be right about some of herhis beliefs and wrong about others. 

Aldo’s presumption that I am gay happens to be false, but is slightly more relevant, since it goes to whether my feelings in this matter are affected by direct personal consequences of the legalization of gay marriage. Fortunately, contrary to Aldo’s supposition, support for gay marriage these days goes far beyond those who are themselves gay.

Flexible Dogmatism: The Mormon Position on Infallibility

For Mormon Church watchers, it was big news when (without any other announcement) the official website of the Mormon Church posted on December 6, 2013 a new article on “Race and the Priesthood.” The subject of the article was this fact: 

… for much of its history—from the mid-1800s until 1978—the Church did not ordain men of black African descent to its priesthood or allow black men or women to participate in temple endowment or sealing ordinances.

The article is remarkable in forthrightly rejecting the racist theories that Mormons had given historically for this policy. As part of the argument against racist theologies as an explanation, the article points to the fact that the Mormon Church ordained men of African descent during the lifetime of its founder, Joseph Smith. Then the ban on people of African descent being allowed to receive the priesthood is presented as an unexplained action of Joseph Smith’s successor, Brigham Young:

During the first two decades of the Church’s existence, a few black men were ordained to the priesthood. One of these men, Elijah Abel, also participated in temple ceremonies in Kirtland, Ohio, and was later baptized as proxy for deceased relatives in Nauvoo, Illinois. There is no evidence that any black men were denied the priesthood during Joseph Smith’s lifetime.

In 1852, President Brigham Young publicly announced that men of black African descent could no longer be ordained to the priesthood, though thereafter blacks continued to join the Church through baptism and receiving the gift of the Holy Ghost. Following the death of Brigham Young, subsequent Church presidents restricted blacks from receiving the temple endowment or being married in the temple. Over time, Church leaders and members advanced many theories to explain the priesthood and temple restrictions. None of these explanations is accepted today as the official doctrine of the Church.

The article does not give examples, but two prominent theories were

  1. God was thought to have punished Cain by denying his descendants the priesthood, and people of African descent were believed to be descendants of Cain.
  2. Before joining their bodies at birth, the spirits of those of African descent were said to have been less strong supporters of Jesus in the “War in Heaven” between Jesus and Satan.  (See the last quotation in my post “The Mormon View of Jesus” for some of the background on the primordial dispute between Jesus and Satan)

Although there is no text of a divine revelation recorded for Brigham Young’s policy of denying people of African descent the Mormon priesthood, Mormon Church leaders believed that a divine revelation was necessary to overturn this policy:

Nevertheless, [in the 1950’s,] given the long history of withholding the priesthood from men of black African descent, Church leaders believed that a revelation from God was needed to alter the policy, and they made ongoing efforts to understand what should be done.

Among the Mormon Church leaders who believed a divine revelation was necessary to change the policy of denying people of African descent the priesthood was my grandfather, Spencer W. Kimball. Consequently, as President of the Church, he sought such a divine revelation. The article “Race and the Priesthood” cites my father Edward L. Kimball's BYU Studies article “Spencer W. Kimball and the Revelation on Priesthood” for a detailed account of my grandfather’s spiritual experience and the spiritual experiences to which he led his colleagues–spiritual experiences which led to the adoption of the Mormon Church’s “Official Declaration 2,” which erases all official racial barriers in Mormonism. (“Official Declaration 1” was the beginning of the renunciation of polygamy.)

Today, the Church disavows the theories advanced in the past that black skin is a sign of divine disfavor or curse, or that it reflects actions in a premortal life; that mixed-race marriages are a sin; or that blacks or people of any other race or ethnicity are inferior in any way to anyone else. Church leaders today unequivocally condemn all racism, past and present, in any form.23

In addition to the renunciation of racist explanations for the pre-1978 ban on people of African descent holding the priesthood, the article “Race and the Priesthood.” is interesting in what it says about the fallibility of Mormon Church leaders. The doctrine of continuing revelation that is so central to Mormonism always implied that church leaders can be wrong about theology. In that spirit, 

Soon after the revelation [in 1978] Elder Bruce R. McConkie, an apostle, spoke of new “light and knowledge” that had erased previously “limited understanding.”22

It is also clear that Mormon Church leaders can change previous policies. But the Church leadership is essentially held to be infallible in major decisions about what the Church should do at a given moment in time. That doctrine was necessary when the Mormon Church turned away from polygamy, to the dismay of many members. “Official Declaration 1” as it appears in Mormon scriptures includes this statement by Mormon Church President Wilford Woodruff:

The Lord will never permit me or any other man who stands as President of this Church to lead you astray. It is not in the programme. It is not in the mind of God. If I were to attempt that, the Lord would remove me out of my place, and so He will any other man who attempts to lead the children of men astray from the oracles of God and from their duty. 

According to these principles, the Mormon Church can renounce past policies and can renounce past theologies, but it cannot renounce the rightness of past policies at the time they were in effect. This subtle position provides the institutional strength that comes from a doctrine of infallibility without the rigidity that would result from a less subtle version of an infallibility doctrine. 

In my reading, the article “Race and the Priesthood” is very careful to avoid saying that Brigham Young made a mistake in denying men of African descent the priesthood–unless the condemnation of “racism, past and present, in any form” is intended as a condemnation of that policy. But I think that wording is intended to be ambiguous and deniable; for example, if God thought the pre-1978 ban was wise for some inscrutable reason, that would not be racism, since God, being perfect, cannot be racist. A possible objective would be to have the words seem to condemn the policy to those who think the policy was racist, but not to seem to condemn it to those who think Church leaders could not make such a big mistake. 

In the 1990’s one of my friends coined the wonderful phrase “flexible dogmatism” to describe the Mormon position on infallibility. The one key difference between flexible dogmatism then and flexible dogmatism now is that the rise of the internet has reduced the extent to which the Mormon Church can pretend beyond historical fact that its current policies held in the past as well. I am impressed by how gracefully the article “Race and the Priesthood” deals with the inability to dissemble in that way, while maintaining the essence of flexible dogmatism. 

As part of what makes flexible dogmatism work, my friend points to “rolling interpretations” of authoritative statements that provide the "authority of the past to the changing present.“ (For example, when Brigham Young said that some day men of African descent would enjoy the blessings of the priesthood, he may have meant they would receive the priesthood in the afterlife. This statement was later interpreted as a foreshadowing the extension of the priesthood to men of African descent in 1978.) 

At the grassroots level, the Mormon version of infallibility is well expressed by the children’s song with these lyrics:

Follow the prophet, follow the prophet,

Follow the prophet; don’t go astray.

Follow the prophet, follow the prophet,

Follow the prophet; he knows the way.

The power of this song is hard to appreciate without hearing the tune, which has always sounded to me like a tune for the kind of Russian dance pictured below:

The Case for Gay Marriage is Made in the Freedom of Religion

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Here is a link to my 44th column on Quartz, “The case for gay marriage is made in the freedom of religion.”

This is a followup to my Christmas column “That baby born in Bethlehem should inspire society to keep redeeming itself.”

I am not making a narrowly legal argument in “The case for gay marriage is made in the freedom of religion." It as addressed at least as much to current and future voters and legislators as to lawyers crafting arguments for judges. 

Noah Smith: Heroes of Blogging →

This was a very interesting post by Noah, even before he added me, as explained in these two tweets.

Noah says some very nice things about me. I thought about copying them out here, but that thought triggered (at least temporarily) even my sorely underdeveloped inhibitions about bragging; so you will have to click the link in the post title to see them, along with Noah’s other Heroes of blogging.

Let me say conversely that Noah is definitely one of my blogging heroes. In fact, there is no blog I would rather read than Noah’s.

The Importance of the Next Generation: Thomas Jefferson Grokked It

Stranger in a Strange Land, the science fiction novel in which Robert Heinlein coined the word “grok.” I use “grokked” here to mean “understood intuitively, to the core of his being.”

In my Christmas column, “That baby born in Bethlehem should inspire society to keep redeeming itself,” I point out how central the fact of generational replacement is to any attempt to influence the long-run future:

For those of us already in the second halves of our lives, the fact that the young will soon replace us gives rise to an important strategic principle: however hard it may seem to change misguided institutions and policies, all it takes to succeed in such an effort is to durably convince the young that there is a better way.

Thomas Jefferson understood this principle. Jack Rakove, writes in his book Revolutionaries: A New History of the Invention of America (pp. 318-319):

Taken as a whole, Notes on the State of Virginia could profitably be read by any enlightened member of the international republic of letters that counted Jefferson, Franklin, and Adams among its citizens. But on the sensitive topics of constitutions and especially the nexus of slavery and race, Jefferson really did intend his thoughts for a generation younger than his own or even the cohort to which Madison, Monsroe, and the martyred John Laurens (children of the 1750s) belonged. In “the interesting spectacle of justice in conflict with avarice and oppression,” he wrote to the English radical Richard Price, he took heart “from the influx into office of young men grown and growing up. These have sucked in the principles of liberty with their mother’s milk, and it is to them I look with anxiety to turn the fate of this question.” Here again was an expression of Jefferson’s deep, even pioneering interest in the concept of a generation, the motif that recurs in his ideas of entail, inheritance, the use of public land, education, religion, and now emancipation. In effect he imagined the future of Virginia as a tale of two rising generations: one to be taught to let their bondsmen go, the other reared for freedom in some unknown Canaan.

Jack Rakove takes up the same theme a few pages earlier as well (pp. 307-308):

Here was another twist on Jefferson’s recurring concern with issues of inheritance, whether from parent to child or from one generation to the next. For Jefferson the concept of posterity was more than a vague reference to those who would come later. His schemes of education and religious freedom, like the abolition of primogeniture and entail and his plans for using public lands to sustain newly married couples, all rested on a concern with the legacy one generation bequeathed to another. That he would think of this in wartime, when the liberty his contemporaries were seeking remained at risk, was again a tribute to a view of the American future that was either wholly optimistic or terribly naive.

More on the Abolition of Entail: Here is more background on Thomas Jefferson’s view on entail (pp. 302,305):

The first [bill Jefferson proposed] on October 14, [1776,] was to abolish entail, a medieaval mode of inheritance that kept estates intact by prohibiting successive eldest heirs from subdividing the entailed property among their descendants. … 

… he was actively pondering the consequences of allowing a relatively small number of families to monopolize so much of the new state’s land.

One fruit of this concern was the act abolishing entail, which Jefferson ushered through the assembly in the fall of 1776. Its passage was uncontroversial because it enabled the gentry to dispose of their property as they wished.

Note that In the case of abolishing entail, moving in a libertarian direction could help move wealth distribution toward greater equality. However, the additional freedom of landholders to subdivide their land came at the cost of the freedom of their ancestors to prevent them from doing so.

Roger Farmer and Miles Kimball on the Value of Sovereign Wealth Funds for Economic Stabilization

As macroeconomic theorists, Roger Farmer and I have very different perspectives, but we have both come the conclusion that advanced economies should create institutions that treat sovereign wealth funds as a tool of economic stabilization. Sovereign wealth funds are already routine for governments that have more paper assets than liabilities. The new idea is that it is worthwhile for governments to borrow if necessary to finance sovereign wealth funds as a tool of economic stabilization. Here is my brief appeal for a US sovereign wealth fund in “Off the Rails: How to Get the Recovery Back on Track”:

Establishing a US Sovereign Wealth Fund to do the purchasing of long-term and risky assets would give the Fed room to maneuver in monetary policy, and restrict its job to steering the economy rather than making controversial portfolio investment decisions. And a US Sovereign Wealth Fund could stand as a bulwark against wild swings in financial markets.

The same argument holds for the UK or any other large advanced economy. 

In his academic research, Roger Farmer focuses on models with multiple rational-expectations equilibria, and takes that perspective in discussing his prescription for dealing with financial instability. By contrast, along with Robert Shiller and George Akerlof, I tend to think of genuine financial instability as arising from irrational swings in expectations with no firm foundation in fundamentals. Despite this stark theoretical difference, our policy views about sovereign wealth funds as agents of economic stabilization are remarkably similar. (This is not just my assessment: Roger was actually the first one to notice the similarity of our policy views some months back, and we have corresponded since then.)

Yesterday’s post by Matthew C. Klein, “Buy $3 Trillion in Stocks. What Could Go Wrong?” is a good source of links to others who are talking about a US sovereign wealth fund. I think what follows answers some of  the objections that Matthew raises. In particular, the institutional architecture for a sovereign wealth fund must be very carefully designed, and should be more like the way central banks are set up than the way current government investment funds are designed. And Roger solves the problem of how to vote shares for what the government owns.

Let me lay out references and quotations for the key elements of our argument.

1. Purchases of Long-Term and Risky Assets Work to Stimulate the Economy, Even When Short-Term Rates are at the Zero Lower Bound, But Such Purchases Deserve a New Institutional Framework

This is the gist of the argument in my first column on this issue:

Several other posts detail my thoughts on setting up such an institution:

Roger calls such an insitution a “fiscal authority,” while I call it simply a “sovereign wealth fund,” even though it would have key new features relative to existing sovereign wealth funds. But our essential idea is the same. Here is the relevant passage Roger’s John Flemming Memorial Lecture, given at the Bank of England on 16 October 2013: “Qualitative easing: a new tool for the stabilisation of financial markets” (pdf):

The institution that I would like to promote is a fiscal

authority, with the remit to actively manage the maturity

structure and risk composition of assets held by the public.

This authority would continue the policy of qualitative easing, adopted in the recent crisis, and by actively trading a portfolio of long and short-term assets it would act to stabilise swings in asset prices. I will show that asset price instability is a major cause of periods of high and protracted unemployment, and I will argue that by varying the maturity and risk composition of government debt, we can control large asset price fluctuations, and prevent future financial crises from wreaking economic havoc on all of our lives.

It is clear from other passages that Roger intends the sovereign wealth fund to deal with risky private sector assets as well.  In the design of how such an institution would handle stock holdings, Roger solved one problem I was stumped by: how to avoid government interference in the private sector by the way the sovereign wealth fund votes the shares of stock it owns. Exchange traded funds provide the solution. Here is the relevant passage from Jason Douglas's Wall Street Journal blog post about Roger’s proposal “How to Stop Financial Panics? Say Hello to Qualitative Easing”: 

In an interview, Mr. Farmer said he isn’t advocating government agencies buy individual stocks in such operations. Buying a stock index through a fund might be a less controversial approach, he said. He added international cooperation between such these qualitative-easing institutions would also be highly desirable.

Roger’s lecture at the Bank of England gives an extended defense of the efficacy of government purchases of long-term and risky assets. Roger uses the term “Qualitative Easing” whenever QE is done as a “twist” without increasing the money supply:

Following the 2008 financial crisis, central banks throughout the world engaged in an unprecedented set of new and unconventional policies. I would like to draw upon a distinction that was made by Willem Buiter, a former member of the Monetary Policy Committee, between quantitative and qualitative easing (Buiter (2008)). When I refer to quantitative easing I mean a large asset purchase by a central bank, paid for by printing money. By qualitative easing, I mean a change in the asset composition of the central bank. (2) Both policies were used in the current crisis, and both policies were, in my view, successful.

But when short-term rates are at zero, either way the oomph from QE comes the purchases of the long-term and risky-assets, not from whether that is done by issuing money or by issuing short-term safe bonds, so I am content to lump both quantitative and qualitative easing together as QE. Here are some things I have written on QE that I especially recommend:

2. Central Banks Should Not Be Too Quick to Worry about Financial Instability as a Result of Central Bank Action

Roger explains how QE works in this way: 

If confidence is low, the private sector places a low value on existing buildings and machines. Low confidence induces low wealth. Low wealth causes low aggregate demand, and low aggregate demand induces a high-unemployment equilibrium in which the lack of confidence becomes self-fulfilling. Qualitative easing works to combat this vicious cycle by increasing the value of wealth as governments absorb the risks that private agents are unwilling to bear.

I would say “partially self-fulfilling” rather than “self-fulfilling,” but otherwise this is very much like what I write in my column

There I argue that monetary policy has to work either through raising wealth or by making it possible for people to borrow who couldn’t borrow before. If increases in wealth due to monetary policy and people who couldn’t borrow before becoming able to borrow are always seen as dangerous financial instability, then there is no room for monetary policy to do its job during a serious recession without someone complaining of dangerous financial instability.

3. A Sovereign Wealth Fund Can Reduce Financial Instability by Countercyclical Investment Policies

Here is the case I make: 

For the case Roger makes, let me start with what Jason Douglas says in his article about Roger’s plan, “How to Stop Financial Panics? Say Hello to Qualitative Easing”:

How can governments stop financial panics wrecking their economies? A paper published by the Bank of England on Friday proposes a radical solution: a new breed of central bank-like institutions that buy and sell assets to prevent destabilizing swings in prices.

Mr. Farmer writes that financial crises are a frequent occurrence and often hurt citizens not yet born, never mind those who have to live through them. Citing evidence from past stock market crashes and the more-recent fallout from the subprime housing collapse in the U.S., Mr. Farmer argues that asset market volatility wreaks havoc in the real world. Some people will pay twice as much for a home than a neighbor who purchased theirs only a few years earlier. School leavers seeking work in a recession may earn far less throughout their lives than near-contemporaries lucky enough to have found a job in a boom. Mass unemployment frequently follows financial collapse.

His solution: “qualitative easing,” and new institutions to implement it.

Here is Roger himself, in his lecture at the Bank of England:

The efficient markets hypothesis has two parts that are often confused. The first, ‘no free lunch’, argues that without insider information, it is not possible to make excess profits by buying and selling stocks, bonds or derivatives. That idea is backed up by extensive research and is a pretty good characterisation of the way the world works.

The second, ‘the price is right’, asserts that financial markets allocate capital efficiently in the sense that there is no intervention by government that could improve the welfare of one person without making someone else worse off. That idea is false. Although there is no free lunch, the price is not right. In fact, the price is wrong most of the time.

The crisis was caused by inefficient financial markets that led to a fear that financial assets were overvalued. When businessmen and women are afraid, they stop investing in the real economy. Lack of confidence is reflected in low and volatile asset values. Investors become afraid that stocks, and the values of the machines and factories that back those stocks, may fall further. Fear feeds on itself, and the prediction that stocks will lose value becomes self-fulfilling. …

In my view, the policy of qualitative easing should be retained as a permanent component and new tool for the stabilisation of financial markets. Initially it was considered a radical step for central banks to control interest rates. The use of interest rate control to stabilise prices has proven to be effective and should be continued. But one instrument, the interest rate, is not sufficient to successfully hit two targets. …  The remedy is to design an institution, modelled on the modern central bank, with both the authority and the tools to stabilise aggregate fluctuations in the stock market.

Since the inception of central banking in the 17th century, it has taken us 350 years to evolve institutions that have proved to be successful at managing inflation. The path has not been easy and we have made many missteps. It is my hope that the development of institutions that can mitigate the effects of financial crises on persistent and long-term unemployment will be a much swifter process than the 350 years that it took to develop the modern central bank.

A Final Thought: High Equity (Capital) Requirements as the Key to Minimizing the Harm from Remaining Financial Instability

A sovereign wealth fund, investing in a contrarian way, can reduce financial instability. But there is likely to be some financial instability remaining. The harm from this remaining financial instability can be reduced dramatically by high equity requirements. What do I mean by dramatically? The Financial Crisis of 2008 is the kind of thing that happens as a result of financial shocks when equity financing is only about 3% of the relevant asset class–mortgage-backed securities in this case. The crash of the internet stock bubble in 1999-2001 is the much less damaging kind of thing that happens as a result of financial shocks when equity financing is more than half of the relevant asset class.

I don’t know Roger’s views on this, and it is something that became clear to me only after much of what I have written on sovereign wealth funds. But I feel passionately about the importance of high equity requirements, which seem highly relevant to the topic of this post. So let me lay out here some of what I have written on high equity requirements as a way to protect the economy from the worst effects of financial shocks:

On the topic of equity requirements, my views are very close to those of Anat Admati and Martin Hellwig, which you can see at their website on this issue:

http://bankersnewclothes.com/