David Warsh's Take on New Classical Economics, Circa 1985

For many years, David Warsh has been writing about economists in a weekly column that moved in 2002 from the Boston Globe to his own website economicprinciples.com. On February 24, 1985, in the middle of my time in graduate school, he wrote a piece in the Boston Globe pondering the significance of Robert Barro’s intermediate textbook, which had been out for about a year. Given the heavy-duty discussions of economic methodology in the economic blogosphere in recent years, I thought you might be interested in this excerpt to get a sense of how things looked back then. To begin with, let me say that David Warsh gives a book recommendation:

“Barro certainly has a very optimistic way of thinking about how markets work,” says Wellesley College’s Arjo Klamer, whose book, Conversations with Economists, expertly details the scope and history of the controversy between the New Classicals and everybody else.

David himself gives this description of New Classical Economics: 

The late 1960’s were a time of great ferment in technical economics. Out of the period grew a movement called the “New Classical” economics, designed to depose the Keynesian orthodoxy. At a time when Keynesians were moving to tackle what were viewed as imperfections in markets–sticky wages in particular–the New Classicals chose to see things differently. 

Just suppose, the new view went, that markets, especially labor markets, are working the way they are supposed to. Suppose that those who aren’t working aren’t really involuntarily unemployed, that they simply prefer leisure to the prevailing wage. Suppose also that because people correctly anticipate attempts by government to manage the economy, of the sort designed by Keynes and his followers, these managing effots have little or no effect–or worse, actually contribute to instability. 

If so, then the thing for government to do would be to recognize that all was almost always for the best, and to retreat into following a few simple rules, such as keep money growth steady and government spending down. 

Sound like Reagonomics? Well at a deep and satisfying level, maybe so. It was far more sweeping than monetarism, though in its defiant rejection of the conventional medicine, and in its emphasis on mind over apparent illness, it seemed a little like Christian Science to its detractors. 

Let me make two comments. First, perhaps because I was a student of Greg Mankiw, I have always thought that sticky prices were the issue rather than sticky wages. You can see a discussion of that in “Sticky Prices vs. Sticky Wages: A Debate Between Miles Kimball and Matthew Rognlie.”

Second, David Warsh’s emphasis on involuntarily unemployment makes me wonder how Saltwater and Freshwater economists view the now popular labor market search theory in relation to their perennial debates with one another. I don’t really have a good sense of this, except that the folks in the labor search literature seem to be afraid to talk about labor market demand shocks coming from aggregate demand shocks; the literature routinely moves around labor demand through ritual technology shocks, perhaps to avoid the Saltwater/Freshwater controversy. Since labor demand shocks do the same kinds of things to the labor market regardless of where they come from, this is OK except insofar as unwary listeners are lead to think that aggregate demand shocks don’t exist, or that they don’t matter for the labor market!

“[My daughter Cayley] knows a lot about right and wrong already. She is an active trader in the schoolyard markets for decals, trading cards, and milk bottle caps. Sometimes Cayley wants to trade with her classmate Melissa but Melissa prefers to deal with Jennifer, from the other fourth-grade classroom. Cayley knows how disappointing that can be, but she also knows she can’t force Melissa to trade with her. More important, she knows it would be wrong to try.

Cayley is too morally advanced even to imagine asking her teacher to intervene and prohibit Melissa from trading with ‘foreigners.’ Only a very unpalatable child would attempt such a tactic.

[Pat] Buchanan sees the U.S. Congress as the great national teacher, maintaining order on the schoolyard, making sure that all the children play the way the teachers’ special pets – or special industries – want them to play. My daughter thinks that stinks. She’s right.

Protectionism is wrong because it robs individuals of a basic human right: the freedom to choose one’s trading partners.”

– Steven E. Landsburg, Fair Play, p. 14

John Stuart Mill on the Rich and the Elite

Larry Ellison, 5th richest on the Forbes list, on one of his smaller yachts

Larry Ellison, 5th richest on the Forbes list, on one of his smaller yachts

Not long after I began blogging, in my post “Rich, Poor and Middle-Class,” I wrote:

I am deeply concerned about the poor, because they are truly suffering, even with what safety net exists. Helping them is one of our highest ethical obligations. I am deeply concerned about the honest rich—not so much for themselves, though their welfare counts too—but because they provide goods and services that make our lives better, because they provide jobs, because they help ensure that we can get good returns for our retirement saving, and because we already depend on them so much for tax revenue. But for the middle-class, who count heavily because they make up the bulk of our society, I have a stern message. We are paying too high a price when we tax the middle class in order to give benefits to the middle-class—and taxing the rich to give benefits to the middle-class would only make things worse. The primary job of the government in relation to the middle-class has to be to help them help themselves, through education, through loans, through libertarian paternalism, and by stopping the dishonest rich from preying on the middle-class through deceit and chicanery.

I still feel the same way. I hate bashing of the honest rich. Of course, the dishonest or unworthy rich are a very different matter, as I wrote of in my column “Odious Wealth: The Outrage is Not So Much Over Inequality but All the Dubious Ways the Rich Got Richer.” Whatever arguments one may have for taxing the rich, it is not OK to verbally attack the honest rich. As a society, if we fail to give honor to those who became rich by helping to provide goods and services that we value, then we will have to let them keep more money in order to provide appropriate incentives. On the other hand, the more we honor and tend to the souls of the rich, the more we can tax them and still have adequate incentives. This is the key idea behind these posts and columns:

Envy raises complex philosophical issues for utilitarian social welfare maximization, related to issues about respect for the boundaries between people that I discussed in 

One problem with interfering with conspicuous consumption out of one’s envy is that it has the potential to interfere with the efficient provision of incentives. But envy not only leads to attempts to limit conspicuous consumption, but also often leads to attempts to limit conspicuous excellence. Here is what John Stuart Mill has to say on that, in On Liberty, Chapter IV, “Of the Limits to the Authority of Society over the Individual” paragraph 17:

To imagine another contingency, perhaps more likely to be realized than the one last mentioned. There is confessedly a strong tendency in the modern world towards a democratic constitution of society, accompanied or not by popular political institutions. It is affirmed that in the country where this tendency is most completely realized—where both society and the government are most democratic—the United States—the feeling of the majority, to whom any appearance of a more showy or costly style of living than they can hope to rival is disagreeable, operates as a tolerably effectual sumptuary law, and that in many parts of the Union it is really difficult for a person possessing a very large income, to find any mode of spending it, which will not incur popular disapprobation. Though such statements as these are doubtless much exaggerated as a representation of existing facts, the state of things they describe is not only a conceivable and possible, but a probable result of democratic feeling, combined with the notion that the public has a right to a veto on the manner in which individuals shall spend their incomes. We have only further to suppose a considerable diffusion of Socialist opinions, and it may become infamous in the eyes of the majority to possess more property than some very small amount, or any income not earned by manual labour. Opinions similar in principle to these, already prevail widely among the artizan class, and weigh oppressively on those who are amenable to the opinion chiefly of that class, namely, its own members. It is known that the bad workmen who form the majority of the operatives in many branches of industry, are decidedly of opinion that bad workmen ought to receive the same wages as good, and that no one ought to be allowed, through piecework or otherwise, to earn by superior skill or industry more than others can without it. And they employ a moral police, which occasionally becomes a physical one, to deter skilful workmen from receiving, and employers from giving, a larger remuneration for a more useful service. If the public have any jurisdiction over private concerns, I cannot see that these people are in fault, or that any individual’s particular public can be blamed for asserting the same authority over his individual conduct, which the general public asserts over people in general.

Virginia Postrel: Jet Age Glamour

“Jet Age glamour expressed the longing to experience a world of variety and excitement, a fast-moving, dynamic, and diverse alternative to the familiar and routine. We now inhabit the real version of that world, a world glamour advertised and helped bring about. We can never bring the old illusion back. We can only invent new ones, reflecting new circumstances, new possibilities, new desires, and new versions of yearnings that never go away.”

– Virginia Postrel, The Power of Glamour, p, 199

Quartz #57-->In Defense of Clay Christensen: Even the 'Nicest Man Ever to Lecture' at Harvard Can't Innovate Without Upsetting a Few People

Here is the full text of my 57th Quartz column, “Defending Clay Christensen: Even the ‘nicest man ever to lecture’ at Harvard can’t innovate without upsetting a few people,“ now brought home to supplysideliberal.com. It was first published on December 23, 2014. Links to all my other columns can be found here.

I wrote a version of this first as a blog post. I am delighted that my new editor at Quartz, Paul Smalera, liked it enough to publish it in Quartz. (My previous editor, Mitra Kalita, is now overseeing key aspects of Quartz’s global expansion.)

By the way, since I am blogging through Clay’s books (as I have been blogging through John Stuart Mill’s On Liberty) I have a virtual sub-blog on Clay Christensen:

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

In the column, I give my take on Clay’s theory as well as defending him personally. 

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 23, 2014: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2017. All rights reserved.

**************************************************************************

Clay Christensen is not only the most famous management guru in the world, he is one of the few public figures—other than full time humanitarians or religious leaders—whom people go out of their way to describe as a good person. For example, in the Financial Times in November 2013, Andrew Hill described Clay Christensen, who had just won an award for most influential management thinker for the second time in a row, as “perhaps the nicest man ever to lecture at Harvard Business School.”

So I was surprised to see key Apple executive-turned-tech-entrepreneur Jean-Louis Gassée criticize not only Clay’s theories but also Clay’s character in his Nov. 25, 2014 Quartz article Clayton Christensen should really disrupt his own innovation theories. I want to defend Clay and his theories.

To be clear about where I am coming from, let me say that I can personally vouch for both Clay’s brilliance as a business thinker and his positive personal qualities. On the personal side, I carpooled across the country from Utah to Boston with Clay back in 1977 when I was beginning my freshman year at Harvard College and Clay was beginning to work toward his MBA from Harvard Business School. I have had relatively little contact with Clay since then, but still remember that trip as a bright moment in my life, and consider Clay a friend to this day. My daughter Diana’s experience as a Harvard MBA student in Clay’s class only reinforced my impression that Clay is one of the best human beings I have met.

My views on Clay as a thinker come from reading six of Clay’s books this year:

As an economist, I found them fascinating. One of the hottest areas of economics in the last twenty years has been the border between economics and psychology. One basic idea at that intersection is that people have limitations in their ability to process information and make decisions. This idea that cognition is finite is a key issue in macroeconomics, as Noah Smith and I wrote about in “The Shakeup at the Minneapolis Fed and the Battle for the Soul of Macroeconomics—Again.” But the idea of finite cognition also matters a lot for businesses. Some decisions are hard even for people who spend their careers making those kinds of decisions, and the support of teams of experts.

Clay, in the management theory he has developed with various coauthors, identifies one key factor in how hard a decision is for a generally well-run business: whether it involves taking care of what are already the business’s core customers, or trying to sell to either peripheral customers or people who have never bought from the business before. No business is successful for any significant length of time if it doesn’t do a reasonably good job of taking care of its core customers. But being good at understanding and serving its core customers may make it bad as an organization at understanding and serving peripheral or potential customers.

Clay’s famous warnings about “disruptive innovation” boil down to saying that any set of peripheral or potential customers a business doesn’t serve well—even if those non-core customers look relatively unprofitable—might provide a ladder for a competitor to climb up and eventually overtake that business. And since the main part of a business is designed to serve its core customers, it may need to set up a separate unit to act like a start-up and focus on other potential customers.

When Clay turns to public policy issues in education and health care, the idea of innovative upstarts overtaking an established business by starting with underserved customers or non-customers morphs into the idea of reforming education and health care by finding chinks in the armor of the status quo. The key public policy recommendation I draw from Clay’s logic is that policy should be supportive of organizations doing things in new ways that help people on the margins who find the current systems difficult to navigate, even if those new approaches don’t improve quality for those who are currently well served by the status quo.

Here is Gassée’s own summary of Clay’s theory:

The incumbency of your established company is forever threatened by lower-cost versions of the products and services you provide. To avoid impending doom, you must enrich your offering and engorge your price tag. As you abandon the low end, the interloper gains business, muscles up, and chases you farther up the price ladder. Some day—and it’s simply a matter of time—the disruptor will displace you.

The first charge Gassée makes against Clay is that Clay is a very persuasive, high-priced consultant who advises rival companies:

… in the mid-to-late 1980s, parlayed his position into a consulting money pump. He advised—terrorized, actually—big company CEOs with vivid descriptions of their impending failure, and then offered them salvation if they followed his advice. His fee was about $200,000 per year, per company; he saw no ethical problem in consulting for competing organizations.

In Clay’s case, I get the sense that he is giving almost every company a variant of the same advice, which is more concerned with potential competitors who might not even be in the picture yet, rather than existing competitors. So I can see why two rival companies might both feel comfortable hiring Clay. As to the price, I also find Clay’s insights valuable, so I am willing to go with the default view of economists that if someone is willing to pay a lot of money for something, it is an indication that they find it quite valuable.

Gassée’s next charge is that Clay is arrogant:

The guru and I got into a heated argument while walking around the pool at one of Apple’s regular off-sites. When I disagreed with one of his wild fantasies, his retort never varied: I’m never wrong.

Had I been back in France, I would have told him, in unambiguous and colorful words, what I really thought, but I had acclimated myself to the polite, passive-aggressive California culture and used therapy-speak to “share my feelings of discomfort and puzzlement” at his Never Wrong posture. “I’ve always been proved right…sometimes it simply takes longer than expected,” was his comeback.

Hyperbole—”exaggerated statements or claims not meant to be taken literally”—has its place in conversation (for example, there is every indication that the historical Jesus frequently used hyperbole). So the exact tone of voice and context matter a lot. The management consulting context is one in which hyperbole might be appropriate in order to help counteract an attachment by someone one is advising to the status quo. In that context, saying “I’m never wrong” might mean simply “You should really, really, listen to my advice.” Given the magnitude of Clay’s claims, if Clay sincerely believes in the advice he is giving, as I suspect he does, the sentiment “You should really, really, listen to my advice” is understandable.

Gassée’s last charge is that Clay became defensive and lashed out when his work was challenged by Jill Lepore. Here is what Gassée has to say about that:

Christensen is admired for his towering intellect and also for his courage facing health challenges—one of my children has witnessed both and can vouch for the scholar’s inspiring presence. Unfortunately, his reaction to Lepore’s criticism was less admirable. In a Businessweek interview Christensen sounds miffed and entitled:

“I hope you can understand why I am mad that a woman of her stature could perform such a criminal act of dishonesty”

In this case, fortunately, the context is known. You can see Drake Bennett’s Businessweek interview “Clayton Christensen Responds to New Yorker Takedown of ‘Disruptive Innovation‘” here. Clay told Drake

… she starts instead to try to discredit Clay Christensen, in a really mean way. And mean is fine, but in order to discredit me, Jill had to break all of the rules of scholarship that she accused me of breaking—in just egregious ways, truly egregious ways. In fact, every one—every one—of those points that she attempted to make [about The Innovator’s Dilemma] has been addressed in a subsequent book or article. Every one! And if she was truly a scholar as she pretends, she would have read [those]. I hope you can understand why I am mad that a woman of her stature could perform such a criminal act of dishonesty …

So Clay’s intemperate phrase “criminal act of dishonesty” is about Jill Lepore writing as if Clay hadn’t ever given any answer to the kinds of questions she raises. A specific case later in the interview clarifies what is angering Clay. Here is Drake Bennett’s question:

Another point Lepore makes is that you leave out relevant factors that would challenge your thesis. In the case of the steel industry, you don’t talk about unionization, which was a major difference between U.S. Steel and upstart minimills.

Clay replied:

Yes and no. The world is actually very complicated and big huge books are written about unionization and the impact that it has, and so … other people have addressed that.

If she’s interested, there’s a case that I use in my course about U.S. Steel that occurred in 1989. There the union contract in Mon Valley Works [one of U.S. Steel’s plants] was a huge factor. So, again, if she were thorough on this issue and she Googled it and put in my name and U.S. Steel, that would have come up. But because her purpose was to discredit me rather than look for the truth, she didn’t even look. Are you feeling a little bit about how she’s caused me to feel?

That is, Clay thinks Jill Lepore did not do even the most basic homework to see if Clay had any subtlety to his views. Here, actually, Lepore’s point is about how differential unionization might weaken the evidence for Clay’s theory of disruptive innovation, which Clay’s Harvard Business School case might not have done anything to address, so Lepore’s fundamental point might stand, but she should have made that argument. And while it may be unreasonable to expect someone writing a magazine article to know one’s whole body of work before vigorously criticizing a piece of it, it is reasonable to expect her to try to talk to Clay to get his side before publishing a traditional-style long-read article attacking Clay’s work. This is a point Clay himself makes:

… if she’s interested and wants to help me—she’s just an extraordinary writer—and if she’s interested in the theory or its impact, I mean, come over! I would love to have you openly invite her to come do this, if she’s interested.

(Like Clay, Jill Lepore is at Harvard.)

I think Drake Bennett is right that Clay was quite angry at Jill Lepore’s article:

Consistently described by those who know him as a generous and thoughtful and upbeat person, he is also capable of fury. “Keep asking me questions,” [Clay] said, “it’s helping me.”

But, I am not going to change my view of Clay as one of the best human beings I have met for controlled anger in a situation like that.

No one is perfect. But in order for us to have a hope of becoming better human beings, we need to at least know which direction is up. Despite his flaws, I don’t know anyone who wouldn’t do well to become a little more like Clay in at least some respect.

Matthew Yglesias on the Need to Eliminate the Zero Lower Bound to Avoid Secular Stagnation →

A tweet from Ellie Kesselman pointed me to this piece by Matthew Yglesias. The key passage is

As I’ve been saying for a while, humanity could rid itself of the pesky zero bound problem by eliminating physical currency and creating a situation where nominal interest rates can go negative. Demographic shifts and population aging may someday (like “next few decades” not “later this summer”) soon force us to choose between this option and the world economy falling into a basically permanent recession.

That is, Matthew Yglesias is very worried that the natural interest rate might be below zero on a long term interest rate, and an inability to have negative interest rates would therefore be disastrous. I am less convinced that the natural interest rate will be negative on a long run basis (because I am optimistic about future technological progress), but it is definitely worth being prepared. 

You can see links to what I have written on negative interest rates in my bibliographic post “How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide,” and my discussion of issues surrounding the natural interest rate and secular stagnation in “The Medium-Run Natural Interest Rate and the Short-Run Natural Interest Rate” and “On the Great Recession.”

Greg Shill: So What Are the Federal Reserve’s Legal Constraints, Anyway?

Link to the post on Greg’s blog

Greg Shill is the expert I turn to for a better understanding of legal issues surrounding monetary policy. He is a fellow at New York University Law School and is on Twitter here. This is the first of what I hope are many guest posts by Greg. This one appeared first on his own blog on December 4, 2014. Thanks to Greg for allowing me to reproduce it here. Greg’s words follow: 

Many in the Federal Reserve – both the Board of Governors in DC and the reserve banks around the country – have come to view low inflation as the main threat to the economic recovery. Fed Chair Janet Yellen has repeatedly voiced this concern, which was detailed today by Chicago Fed chief Charles Evans in an interview with the New York Times. The Bank of Japan and the European Central Bank have recently warned of the same problem. Those institutions, and Japanese Prime Minister Shinzo Abe, have staked their reputation on the power of monetary policy to stimulate economic growth, and there are growing calls in and outside the Fed for the US central bank to do more.

The basic problem these institutions are trying to address is that with inflation expectations low – and they have been very low since 2008 – firms and individuals have little incentive to invest or take other economic risks, which means the virtuous cycle of spending and hiring leading to more spending and hiring hasn’t had an opportunity to get rolling yet.

I’m interested in the scope of the Fed’s legal authority to address this collective action problem through so-called unconventional monetary policy, which has come to be defined as the use of unusual monetary measures to stimulate demand. I will soon be writing more about these legal questions here and at Miles Kimball’s blog, Confessions of a Supply-Side Liberal. Miles, an economist at the University of Michigan, has written extensively on how to combat the so-called Zero Lower Bound problem, which is when the economy is stuck in a rut for the long term and the Fed can’t do more to stimulate lending (or inflation) through its conventional policy channels because it can’t take interest rates below zero.

The question I’ll be looking at is, how far can the Fed in unconventional policy go beyond what it’s already done. The Fed’s most prominent use of unconventional policy post-crisis took the form of the three consecutive rounds of “quantitative easing,” during which the bank bought US government bonds and government-backed asset-backed securities (Fannie and Freddie mortgage-backed securities (“agency MBS”)). Many economists believe quantitative easing served as a major stimulus to the economy and was particularly helpful given the inadequacy of the 2008 and 2009 fiscal stimulus measures. However, many “dovish” economists and Fed policy makers, like Evans, would like to see the bank do more.

When I began to look at the legal dimension of monetary policy – after all, that policy is conducted pursuant to a legal mandate – I was surprised to find very little in the way of scholarship or (publicly-available) policy guidance. Until recently, Fed officials and outside observers have strongly suggested that the Fed lacked the authority to expand the bank’s QE program beyond US government bonds and agency MBS. While Fed officials haven’t revised that view publicly, one might reasonably begin to question whether they doth protest too much. In testimony at the ongoing trial of former AIG CEO Hank Greenberg’s lawsuit over the Fed’s bailout of AIG, Fed officials have recently, for the first time, acknowledged the existence of something the NY Fed actually refers to as the “Doomsday Book,” which is a multi-hundred-page book kept in the basement of the NY Fed that outlines the legal parameters of what the bank can do in the event of a crisis (!). The Fed has thus far avoided having to turn this over, so we can only speculate about what it contains.*

As I will discuss in upcoming posts, my initial review of the sources of law governing the Fed (about which very little has been written) suggests that the bank has significantly more monetary policy discretion than is commonly assumed. I personally believe this expansive power is a good thing: the Fed is charged by statute with a dual mission of promoting full employment and “price stability,” and given the importance of that mandate – as illustrated by the continuing weakness of the economy and the extraordinary human suffering it’s caused – it’s important that those terms have real meaning and not be aspirational only. (“Price stability” has normally been taken to require monetary tightening to keep the economy from overheating, but if the Fed’s inflation target is not being met there’s no reason the same term couldn’t permit loosening in order to stimulate the economy.) Further, Congress gave the Fed a broad mandate in the Federal Reserve Act of 1913; for good reasons, it chose not to set monetary policy legislatively. Given how broadly that statute is written, it’s hard not to see the delegation as a deliberate choice, and one that favors a functional interpretation of the statute (literal interpretations of the Federal Reserve Act are often not fruitful exercises).

So those are my (dovish) priors. If one is an inflation hawk, however, there’s even more reason to want a clearer sense of the legal scope of the Fed’s authority. Presumably a hawk would want to restrict the Fed’s authority to stimulate the economy and would want to know where the lines are that circumscribe the bank. Burnishing his hawk credentials, Texas Governor Rick Perry once famously branded then-Fed Chairman Ben Bernanke’s monetary policy “treasonous” and rhapsodized about Texas-style dangers to Bernanke’s safety if he set foot in the state. So it seems it’s safe to say that this subject appeals to cowboys, economists, and policymakers alike, as well as legal academics.

*Interestingly, officials have conceded that the Fed broke the law a few times during the crisis, to facilitate bank rescues (essentially without legal consequences). So there’s even some question about the enforceability of the constraints on the Fed that do exist.

Note: Mike Sankowski told me on Facebook: “Over at monetary realism Carlos R Mucha Cullen Roche and JKH talk about these legal constraints frequently.”

The Race Card Project →

“Look past race to underlying humanity” was my entry for the Race Card Project, which asks for short-form thoughts about race. Here is the link to see other race cards, and here is the link if you want to make a race card yourself. 

Michele Norris, who started the Race Card Project, introduces it this way:

My idea was to use these little black postcards to get the conversation started. But I quickly realized once I hit the road on my book tour that I didn’t really need that kind of incentive. All over the country people who came to hear about my story wound up sharing their own. …

I asked people to think about their experiences, questions, hopes, dreams, laments or observations about race and identity. Then, I asked that they take those thoughts and distill them to just one sentence that had only six words.

Jethra Spector: Using Miles and Noah's Math Column in the Classroom

This is a picture of Jethra Spector at the elementary school where she used to teach. She is now in her 5th year of teaching GED math for Minneapolis Public Schools adult education and her 1st year of teaching developmental math at Minneapolis Community and Technical College. Before that she was an elementary school teacher for 23 years.

I was delighted to get the following email from Jethra Spector to Noah Smith and me about our Quartz column “There’s One Key Difference Between Kids Who Excel at Math and Those Who Don’t,” which was later syndicated to the Atlantic as “The Myth of I’m Bad at Math.” She graciously gave me permission to share it with you. 

I want to thank you again for permission to share your article “The Myth of ‘I’m Bad at Math’” with the students in my remedial math classes at Minneapolis Community and Technical College. Classes started last week, and I assigned the article for homework on the first night of class. 

Here is a link to the student response sheet I made for my students to complete when they were done reading the article. And here is a link to the PowerPoint I made to facilitate a follow-up discussion the next time the class met. 

I thought you might be interested in what I learned from my students’ response sheets and class discussion.

  • Nearly every single one of my students has at some point said that he/she was bad at math, one as early as first grade when other kids laughed at her answers in class. The only students who didn’t say something like that were students who were worse at other subjects like reading, so that made them think math was their strong suit.
  • Almost none of my students had parents who drilled them on math. The few who did were all from other countries.
  • Every single student agreed most with an incremental orientation to intelligence. This was perfect for me because it set them up to realize that they could be successful in my class if they were willing to make the effort and work hard.
  • Most of my students identified with the statement, “I’m not a math person.” But one student wrote that the article changed his perception and he’s not going to say that about himself anymore because now he realizes that with hard work and determination he can master the material. Another student wrote that math is part of our lives, and knowing it could help improve our futures. Many students said that they like math when they get it but feel frustrated when they don’t get it. That just reinforced my belief that as their math teacher one of my goals must be to present the concepts in such as way that they get it. However, I now feel empowered to remind my students that not everyone will get it at the same time, and for some it will take more practice.
  • Everyone agreed that many things can be accomplished through personal perseverance and effort.
  • Only a few wrote about a famous person as a hero or role model (Oprah, Barack Obama, and Nelson Mandela). The rest wrote mostly about family members.
  • I enjoyed reading their responses regarding how much effort they are willing to make to ensure their success in my class. One student wrote 110%. Many wrote, “whatever it takes.” It was a great opportunity for me to remind them that they don’t have to do it alone; the school has many tutors available to help them succeed.
  • Other thoughts about the article included:
  • “It really puts motivation in students to say practice makes perfect. With effort and persistence you can get through anything.”
  • “I think that this was a great article…it has opened up my mind and helped me understand some things that I did not know about being good or bad at math.”
  • “I’m intrigued by the study habits and how many days they go to school in Japan. Even though it seems a lot, one can never have too much education and knowledge.”
  • “It is an eye-opening article. It made me change the way I think about math.”
  • “I knew it! I used to think I was unintelligent, but that was only because I never really tried. Deep down inside I knew I wasn’t putting forth any effort. When I did, I got great results back.”
  • “I learned that I’m not dumb at math. I just have to make the extra effort to succeed at it.”

When I asked my current students if I should have my classes in the future read this article, the overwhelming response was “yes!”

As I collected the student response sheets, some students asked what they should do with the article. I told them to give it to someone else they know who thinks they’re bad at math!

Update–A Note from Jethra: I saw the guest post up last night and already sent the link to a few people. My dad already wrote back and said it brought tears to his eyes. He’s got a PhD in math and taught math at UW-Milwaukee once upon a time.

I hope other people will feel free to use the student response sheet and powerpoint for discussion if they like. As for me, I couldn’t be happier with the results. It was a great learning experience for me because it helped me get to know my students better. It also established the common understanding that students may have to work hard in my class, but that they can and will be successful if they do. One student made a connection to the bible: “As ye sow, so shall ye reap.”

Best to you and Noah, Jethra

Steven Landsburg: Physics or Faith?

In his book Fair Play (pp. 57-59), Steven E. Landsburg writes:

According to the book I’ve just been reading, we are living in the true age of faith. We flip a switch and confidently expect light to flood the room, never stopping to wonder why or how. We fly through the air, cook in microwave ovens, and surf the Web, all with little understanding–and often with even less interest–in the technology that makes it all possible. 

The same book says that our distant ancestors were, by contrast, masters of their reality. When your most advanced achievement is an arrowhead that you crafted by sharpening a stone against a rock, there’s not much danger that your technological reach will exceed your intellectual grasp. 

All of which is worse than nonsense. … Just sitting down on a rock–or a chair–and expecting not to fall right through it is an enormous act of faith for anybody with less than complete command of the quantum mechanical principles that make chairs possible. …

… Let me prove that to you by experiment. Take a twig. Break it in half. Now put the pieces back together. Now let go. Why isn’t the twig back in one piece? All the parts are still there, just as they were before you came along. Now that you’ve put the pieces back together, it appears that all the parts are in the same relative positions they were in before you came along. They had no problem sticking together then. Why won’t they stick together now? What held them together before and why has it stopped working?

Either you can answer those questions or you can’t. If you can’t then your confidence in the basic properties of twigs is a pure act of faith. If you can, then you are probably also the sort of person who has a pretty good idea what makes your lights come on. In either case, twigs are neither more nor less mysterious than house current, and it requires neither more nor less faith to take one for granted than the other.  

I am intrigued at the similarity between the similarity between how Steven is using the laws of physics as a measure of understanding and how I found myself driven to using the laws of physics as a way to distinguish between “natural” and “supernatural” in my post “What Do You Mean by ‘Supernatural’?” Of course, there is some faith left in physics because there are still things we don’t know in physics. But as near as we can tell, there is a bigger fraction of things we don’t understand about most other practical topics that come to mind. 

In particular, contrast physics with social science. When I talk about “The Unavoidability of Faith” in our lives, I point to social science and technological facts that we don’t know and have to guess at. If calculation came free, knowing all the true laws of physics might yield answers to all of the questions of technology, and even social science. But when calculation is not free, one can know the laws of physics but not all the technological facts those laws of physics imply, let alone the social science principles those laws of physics imply.   

To me, religion is the realm of mystery. Not things that will forever be mysteries, but simply things that are mysteries to us now. I put it better in “An Agnostic Grace”: 

Religion is the “everything else” category in our existence in human societies and as individuals after parceling out the things people understand fairly well about human life—just as “natural philosophy” used to be the “everything else” category after parceling out as natural sciences the things people were beginning to understand fairly well about the natural world.
There is still a great deal we don’t understand well enough about our existence in human societies and as individuals to parcel out as generally understood social science knowledge. I am defining “religion” as encompassing all of those areas touching on our human existence where we are still groping for answers and for the meaning of things (or for a meaning of things), even if one has ruled out supernatural answers.     

Although the metaphor is imperfect, when Steven and I reach for a metaphor for something humankind (speaking collectively and not individually) does understand, we turn to physics.

Quartz #56—>The Swiss National Bank Means Business with Its Negative Rates

Link to the Column on Quartz

Here is the full text of my 56th Quartz column, “The Swiss are now at a negative interest rate due to the Russian ruble collapse,” brought home to supplysideliberal.com. It was first published on December 19, 2014. Links to all my other columns can be found here.

I kept something closer to my working title as the title above. This column is in honor of all the amazing people I met at the Swiss National Bank. 

At this writing, this is my 7th most popular column ever, edging out “The National Security Case for Raising the Gasoline Tax Right Now” for that spot.  You can see a list of my most popular columns here.

Paul Krugman links to this column as a news source in his column “Switzerland and the Inflation Hawks.” The link is on the words “charging banks.” 

I knew I needed a big update to this column when I saw that the Swiss National Bank abandoned the ceiling on the value of the Swiss franc. So I wrote another whole column:

Swiss Pioneers! The Swiss as the Vanguard for Negative Interest Rates

I recommend reading that immediately after you read this column. 

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 19, 2014: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2017. All rights reserved.

The initials “SNB” for the Switzerland’s central bank, the “Swiss National Bank” are about to become just as familiar as the initials ECB for the European Central Bank. Today, the SNB announced it would cut interest rates for banks that keep large amounts of money at the SNB to -.25%. Yes – a negative interest rate.

The SNB’s negative interest rate surprise is bigger news than it seems. Switzerland has strong reasons to turn to new monetary policy tools. The lackluster economic growth Switzerland has had since the Financial Crisis in late 2008–visible in the graph of Switzerland’s real GDP in the chart above–has brought inflation down until now it hovers around zero, as shown in the graph below:

The Swiss economy is heavily dependent on exports to the eurozone, which hasn’t fared well lately. And the Swiss economy has had troubles of its own. This past September, BBC News ran the headline “Swiss economy fails to grow as EU stagnates,”  accompanied by this quotation from Maxime Botteron Credit Suisse’s Maxime Botterton:

The trend in exports is not a big surprise. Trade data so far already pointed to a rather weak contribution of exports. What is a bit more surprising is the weak investment spending, especially in the construction sector.

Let me explain why the slowness of Swiss exports matters: Thomas Jordan, the head of the SNB, said during Thursday’s press conference that asset markets have been spooked by the fall of the Russian ruble and are looking for a safe haven. Switzerland has a long history of being just such a safe haven: during times of crisis, money flows in. So the ruble crisis is putting upward pressure on how many euros it costs to buy a Swiss franc, because more investors are trying to buy francs. A more expensive Swiss franc will make Swiss exports even more expensive, making it even harder to sell things produced in Switzerland to the rest of the world. The SNB is determined, therefore, to do whatever it takes to keep the Swiss franc from ever costing more than .833 euros.

The main tool the central bank has had for preventing the Swiss franc from appreciating is buying up enough foreign assets with Swiss francs to guarantee there are enough Swiss francs available in the world for anyone to buy one for .833 euros. The trouble with relying on that approach alone is that Switzerland winds up with a lot of foreign assets that are less safe than Swiss assets would be (especially when the effect of possible future exchange rate changes on those foreign assets are taken into account).

The world is used to positive interest rates: a borrower pays a lender for the use of money. Negative interest rates mean that the lender has to pay the borrower to keep money safe. Negative interest rates are a way for Switzerland to get paid for the safety it provides in a financially dangerous world. Then, if Switzerland ends up with risky foreign assets while foreigners end up with safe Swiss assets, at least Switzerland is getting paid for the difference between the safe assets it provides and the riskier assets it is buying.

The most remarkable thing SNB chief Thomas Jordan added to his initial remarks was the statement that despite already having a -.25% interest rate compared to the ECB’s higher -.2% rate, the SNB is prepared to go even further. As James Shotter and Alice Ross reported in the Financial Times

Mr Jordan said the SNB was prepared to take further steps to protect the minimum exchange rate if needed, including pushing rates deeper into negative territory and lowering the threshold above which the negative rates were charged.

The other hint that the SNB is prepared to go further was in its statement that its band for the Libor interest rate now goes all the way down to -.75 %.

A good question to ask now would be: Why is the SNB confident that it can go down to deeper negative rates? Most central banks are afraid that if they cut their target rates or interest rates on reserves too far into negative territory, people will start piling up paper currency, which may be inconvenient to store, but otherwise pays an interest rate of 0%, which might start looking very good, compared to, say -.75%.

The answer, which most observers don’t realize, is that the SNB can actually inflict a negative interest rate on paper currency as well. In a principle that the underappreciated polymath (art and cultural historian, Biblical scholar and monetary theorist) Robert Eisler groped towards back in 1932, there’s an easy way to exact a negative interest rate: Charge customers an exchange rate between paper currency and money in the bank. More recent economists, notably Willem Buiter (now Chief Economist of Citigroup) further elaborated on this idea.

On July 15, 2014, I gave a presentation at the SNB explaining how to use a fee on paper currency deposited at the SNB by private banks to generate a negative interest rate on paper currency. This was a variant on Robert Eisler’s approach. To generate a negative paper currency interest rate, the paper currency deposit fee has to gradually increase in size. But as soon as interest rates are positive again, the paper currency deposit fee can gradually shrink in size until it finally disappears, and things go back to the way things work now. So the SNB has the idea of a paper currency deposit fee to implement negative interest rates on paper currency in its back pocket.

There is a world of difference between a central bank that cuts some of its interest rates, but keeps its paper currency interest rate at zero and a central bank that cuts all of its interest rates, including the paper currency interest rate. If a central bank cuts all of its interest rates, including that paper rate, negative interest rates are a much fiercer animal.

As a professor who teaches for a living, I care most about whether students learn things in the end. But I can’t help but notice the difference between quick learners and slow learners. When it comes to how to do negative interest rates right, the people at the SNB are some of the quickest learners I’ve seen.

The bottom line is that no one should underestimate the Swiss National Bank when it says that it will do whatever it takes to keep its exchange rate at .833 euros per Swiss franc – even if it requires boldly cutting its interest rates to a depth no central bank has gone to before.

Jonathan Zimmermann—Swiss Franc Shock: Time to Take Advantage of Return Policies

I am very pleased to kick off another season of guest posts from students in my Monetary and Financial Theory class. In this class, every student is required to write 3 blog posts every week. Each of the 40 students chooses 5 over the semester to submit to me, out of which I pick some of the best as guest posts here. (My teaching assistant, Ryoko Sato last year and Adam Larson this year, reads and comments on all of them, 120 a week!)

You can see links to all of the student guest posts from last year here. 

In this guest post, Jonathan Zimmermann is definitely thinking like an economist in the wake of the Swiss franc shock. Note that CHF is the symbol for Swiss francs, and SNB is the abbreviation for “Swiss National Bank.” Here is Jonathan:

In the space of a few minutes, after the decision of the SNB to remove the floor on the EUR/CHF exchange rate, the cost of one Euro in terms of Swiss francs decreased from 1.2 to 0.86. The exchange rate eventually started to stabilize around the 1:1 parity rate, but as I write the Swiss franc is still more volatile than ever.

The repercussions of this decision are gigantic, and many brokers already announced hundreds of millions of losses. As a Swiss national however, I also notice the more direct (and easier to understand) repercussions of this shock. Indeed, most of my revenues and assets being directly indexed to the value of the Swiss franc, my purchasing power for international goods instantly increased by more than 20%.

Of course, our first reaction, we Swiss, is to think “Waouh! I’m rich, everything is cheap now!” Since the prices are likely to readjust progressively in a way or another, we will probably try to buy as many goods as possible from the rest of the world. As for the rest of the world, they will try to buy as few products from Switzerland as possible.

But we also regret everything we bought the previous day: if we had waited a bit more, they would have been much less expensive. And here is where it is interesting: it is actually possible to get some of your money back. Today, more than ever, return policies are powerful free “put options”.

In many physical and online shops, it is possible to return an item up to a few months after having bought it, to get your money back or a credit in the shop. Some stores are more flexible than others, and some even allow you to return an already used item without having to explain the reasons. Let’s say you received a new TV for Christmas last month that cost 1000CHF in Switzerland and was sold for 850 euros in the Eurozone (i.e. more or less the same price with the old exchange rate) only a few kilometers further. Today, by simply returning your TV to the store, changing the Swiss francs you received in euros and re-buying the same model of TV in France, you just earned 150 Swiss francs without losing anything other than time (and a bit of integrity). This is almost a pure form of arbitrage.

But even better: you could use a similar strategy on items you bought in another country, if you paid in Swiss francs with a Swiss credit card. Amazon’s policy, for example, is to refund you in your local currency at the same rate used when you placed the order! Let’s say you bought a pair of shoes last month for $200 (on the US website, but this would work in any country), paying in Swiss francs through the Amazon currency converter when the dollar was at 1.05. If you ask for a refund, Amazon will credit you 210CHF, and if you buy this same pair of shoes again it will now only cost you 180CHF ($200 at the current exchange rate of 0.9 CHF per USD). Amazon does not accept returns on already used items, but since there is no difference between the item you bought last month and the one you can order now, you can simply buy a new pair of shoes and return it as if it was the old one (so you don’t even need to still physically possess the item you purchased in the first place). Here again, without leaving your house you can make an arbitrage gain of 30CHF on a simple pair of shoes.

Of course, the strategy I just described is probably everything but moral, and I wouldn’t advise using it unless you are a huge fan of smoky-tactics-to-spare-a-few-dollars-and-make-you-feel-like-a-smart-guy. I didn’t use this strategy, and I don’t intend to, but I think it is interesting to be aware of and understand this unusual strategy that has never been more efficient than today.

Leon Berkelmans: Why Can't Interest Rates Be Negative?

Dr Leon Berkelmans is Director, International Economy program at the Lowy Institute. Originally published on Lowy Interpreter, December 5, 2014. Republished with permission.

I appreciate Leon’s permission to mirror his post here. I will save my comments until after. Here is what Leon has to say. Some of the intro may be affected by the European Central Bank’s actions tomorrow, but the most important points will not:

Overnight, the European Central Bank once again opted for timidity, with interest rates remaining unchanged. The scale of the deflationary threat Europe faces is awesome. However, with no appetite to engage in quantitative easing, I fear that the bank is not willing to do ‘whatever it takes’ to save the single currency, as someone once said.

This reluctance appears to be fed by a distaste of government debt purchases. If only there were a way to loosen policy without crossing this monetary Rubicon, perhaps the political constraints to quantitative easing will be freed. Well, there is. It is radical, but inevitable. To soften you up to this radical alternative, let me tell you a story that, legend has it, took place in a British bathroom in September 1931.

A British Treasury official was taking a bath when apparently an aid burst into the room proclaiming 'We’re off the gold standard!’ In reply the stunned official said, 'I did not know that was possible’.

We look back patronisingly at this official – of course a currency does not need to be tied to gold. And going off gold was a good thing. When the US went off gold, industrial production grew at its highest rate ever. Keynes called the gold standard a 'barbarous relic’. I think we have another one today, namely the zero lower bound on interest rates.

As things stand, interest rates can’t go too far below zero because if they did, institutions and individuals will prefer to hold physical cash. This preference will cause problems. Banks will withdraw the money they have on deposit at the central bank, transferring it into cash. The consequences of this transfer for the interbank market, through which monetary policy is implemented, are uncertain but likely inimical. Moreover, if banks themselves start to offer negative interest rates to depositors, these depositors will also transfer to cash and banks will face a funding squeeze.

How do we get around this problem? Ken Rogoff of Harvard University has suggested completely abolishing physical currency. This may be feasible in some economies, but even in an economy as sophisticated as the US, vast swathes of the population are unbanked. That problem would need to be dealt with before abolition.

Miles Kimball of the University of Michigan has another idea: have paper money (or in Australia’s case, polymer money) trade at a discount to electronic money. In other words, one dollar in your pocket would no longer be worth one dollar in the bank, so there will be an exchange rate between paper money and electronic money. Then when interest rates are negative, the exchange rate could be set so that physical currency will depreciate in value over time, and there will no longer be an incentive to stuff money into a safe.

In other words, one dollar in your pocket would no longer be worth one dollar in the bank. Then when interest rates are negative, the exchange rate could be set so that physical currency will depreciate in value over time so that banks and depositors will no longer have an incentive to stuff money into a safe.

Kimball’s solution has the central bank setting the price. An alternative is to set the quantity of physical cash in the economy and let the market set the price. I quite like this idea, because then the speculators are speculating among themselves rather than against the government, just like in floating foreign exchange markets.

I’ve heard many objections to the idea of a paper money price. I’m not convinced by them. Will people get angry about having two different prices for their morning cup of coffee – a cash price and a card price? Probably less angry than a 40% youth unemployment rate, which they face in Italy. Besides, in many cases we already receive a discount if we pay cash instead of using our credit card. Will it confuse people? We see exchange rates every day in the news. This would just add one more. But it’s too radical! So was going off gold, at least for some, but the world did so and we were better off.

I think the benefits of breaking the zero lower bound are manifest. The immediate applicability to Europe is obvious, but we are kidding ourselves if we think Australia will forever be immune to these problems. One day we will have the systems available to implement negative interest rates, hopefully soon. Kimball has been taking his ideas around to many central banks, and apparently has received encouraging responses.

Nonetheless, any transition involving a paper money price will, to be sure, require transitionary arrangements. We can’t just flick the switch and have this happen tomorrow. If the government sets the price, careful thought is going to be needed on what the price should be. If the government sets the quantity, then various market conventions will need to be worked out. For example, how is the barista going to figure out what discount to give customers who pay in cash? Presumably the barista’s bank will provide a rate, but there may be other ways.

These are all interesting questions, and there are answers, we just need to get out of the bath and think about it.

Miles: I appreciate Leon’s vote of confidence for my proposal. Let me try to answer one of the questions Leon raises.

I think there is real convenience in having the exchange rate between paper euros and electronic euros (or between paper yen and electronic yen, …) be very predictable and slow moving. (There is even convenience to having the exchange rate be one to one–just not enough convenience to be worth the doldrums the world economy has been in for the last six years.) So I think it is better for the central bank to have a crawling peg for that exchange rate between paper currency and electronic money than to let it float.

Unlike other kinds of exchange rates, the crawling peg between the paper euro and electronic euro (or between paper yen and electronic yen, …) would be totally defensible because the same central bank, under the same authority can issue as much as needed of both paper euros and electronic euros. If people want to trade electronic for paper euros, the ECB can print as many paper euros as needed at the exchange rate peg; and if people want to trade paper euros for electronic euros, the ECB can create as many electronic euros as needed. 

Overall, my aim in designing the details of my proposal to have a proposal that (a) eliminates the zero lower bound and (b) is otherwise as close to the current system as possible. I think a slowly crawling peg satisfies that criterion. A -4% interest rate is a very low interest rate (when inflation is 2%) and probably a more powerful stimulus than would be needed. But even that only changes the exchange rate by 1% every quarter. There is plenty of time for people to get used to the level of the exchange rate at that sedate pace.

The other advantage of a slowly crawling peg over a floating exchange rate is that a slowly crawling peg makes for an easier transition back to par and then staying at par until the next big recession. In that period when it is again appropriate to have positive interest rates, the crawling peg simply stops crawling when it comes back up to 1.

“My favorite teaching tool is a fable based on a tale told by Professor James Ingram of North Carolina State University. It’s the tale of a brilliant entrepreneur who invented a new technology for turning grain into cars. The entrepreneur built a factory by the sea, surrounded its inner workings with secrecy, and commenced production.

Consumers were thrilled to learn that the new cars were better and cheaper than anything Detroit had to offer. Midwestern farmers were thrilled when the factory ordered vast amounts of grain to feed into its mysterious machinery. There was indeed dismay among those autoworkers who had been trained in the old methods, but there was also a general recognition that technological progress, even when accompanied by growing pains, is on balance a very good thing.

One day an investigative reporter managed to locate a disgruntled employee who revealed the entrepreneur’s great secret. The vast factory was hollow. The back wall opened out onto a shipping dock. Grain came in the front door and went out the back, where it was sent to foreign countries in exchange for cars.

The shock of these revelations transformed the entrepreneur from a public hero to a public villain.”

– Steven E. Landsburg, Fair Play, pp. 12-13

Quartz #55—>Righting Rogoff on Monetary Policy

Link to the Column on Quartz

Here is the full text of my 55th Quartz column, “Righting Rogoff on Monetary Policy,” now brought home to supplysideliberal.com. This column was first published on December 15, 2014. 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 15, 2014: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2017. All rights reserved.

This column is meant to back up my tweet:

Ken Rogoff is wrong when he says the BOJ’s Kuroda has done “whatever it takes” monetary policy for Japan: http://www.project-syndicate.org/commentary/japan-slow-economic-growth-by-kenneth-rogoff-2014-12…

One other note: Ken sent a nice reply to the email I sent him about my work on eliminating the zero lower bound, soon after I sent it. 

After the text of the column, which focuses primarily on monetary policy, you can see the text of an update to my companion post, which revisits in greater depth Carmen Reinhart and Ken Rogoff’s research on the effects if government debt on economic growth. 

Carmen Reinhart and Ken Rogoff’s 2010 academic paper “Growth in a Time of Debt” was influential in giving policy-makers the impression that higher levels of government debt would lead to slower economic growth. In Spring 2013, University of Massachusetts Amherst graduate student Thomas Herndon and his faculty coauthors Michael Ash and Robert Pollin announced that they had discovered a spreadsheet error marring Reinhart and Rogoff’s work. News of that error led to a broader reevaluation of Reinhart and Rogoff’s claims. My own embarrassment at having relied on Reinhart and Rogoff’s claims led me to examine their claims closely myself, in two Quartz columns coauthored with University of Michigan undergraduate Yichuan Wang. We found no evidence in Reinhart and Rogoff’s data that national debt slows down economic growth at all. Indeed, after taking into account past growth rates, many economies have grown surprisingly fast despite high levels of government debt.

As Reinhart and Rogoff’s claims fell apart, they came under particular criticism for allowing policy-makers to believe they had conclusive evidence that higher government debt slowed down growth at the same time their more cautious words to their fellow economists indicated that they knew the evidence at best only suggested such a view, pending further analysis. Between Reinhart and Rogoff, it was clear this criticism was directed primarily at Rogoff, in view of his greater stature and influence with policy-makers.

Despite his mistakes in badly overstating the evidence that government debt retards growth, Ken Rogoff is a brilliant economist, who has greatly advanced many areas of economics and has a deep concern for real-world economic policy. So it is disappointing to see his analysis of Japanese economic policy limited so sharply by conventional wisdom in his recent Project Syndicate article “Can Japan Reboot?” Indeed, Rogoff makes an unforced error in that article that is every bit as consequential for economic policy as his errors in relation to debt and economic growth.

Rogoff writes:

My own view is that the “three arrows” of Abenomics 1.0 basically had it right: “whatever it takes” monetary policy to restore inflation, supportive fiscal policy, and structural reforms to boost long-run growth. But, though the central bank, under Governor Haruhiko Kuroda, has been delivering on its side of the bargain, the other two “arrows” of Abenomics have fallen far short.

This is wrong. Both the Bank of Japan and Ken Rogoff know that “whatever it takes” monetary policy goes beyond anything the Bank of Japan has done. Governor Kuroda has not been delivering on his side of the bargain. “Whatever it takes” monetary policy would involve cutting the interest rates determined by the Bank of Japan below zero. The fact that paper currency, according to current practice, earns a zero interest rate causes serious complications, but the Bank of Japan knows, at a detailed level, how to implement a negative interest rate on paper currency, too. I know the Bank of Japan knows how to do it because I went to the Bank of Japan in June 2013 to explain the details in an official seminar, to both staff economists and high Bank of Japan officials, and returned in August 2014 to remind them.

On this, my second visit, I spoke about “Portfolio Rebalancing in General Equilibrium” in my official seminar, but I used that visit as an opportunity to talk about negative interest rates in side conversations. And before the financial crisis that precipitated the Great Recession, I spent enough time in residence at the Bank of Japan that I have many friends among the staff economists at the Bank of Japan who have followed my work on negative interest rates closely.

I know that Ken Rogoff appreciates the power of negative interest rates to provide economic stimulus because he has advocated adding negative interest rates to the monetary policy tool kit for exactly that purpose himself. And when I realized from his May 2014 Financial Times opinion piece in that vein of his advocacy of negative interest rates, I emailed him to let him know of my efforts to work out details of implementing negative paper currency interest rates to make deep negative interest rates practical now, instead of a decade or two from now. Thus, Ken Rogoff’s characterization of current Japanese monetary policy being willing to do “whatever it takes” is not just an error, but an unforced error.

The most likely reason Rogoff made the error is because he is too quick to assume the existence of political constraints on monetary policy in Japan. While they may exist today, they could be swept away tomorrow, if Japan’s economy falls deeper into the mire. To my mind, it is the responsibility of an economist giving serious advice to point out what can and should be done even if that may not be politically feasible at the moment. Of course, one should then go on to give the best advice one can within whatever political constraints exist at the moment, as I did when I gave my opinion to the Bank of Japan that quantitative easing would be more powerful if they focused their asset purchases on risky assets.

But progress is ill served if economists fail to point out areas where a government should try to expand the range of what is politically possible. Many economists explain the benefits of free trade, for example, even when the tide of politics is running toward greater protectionism. And many economists explain the benefits of dramatically more open immigration, even when the tide of politics is running toward greater immigration restrictions.

Indeed, while Ken Rogoff has not yet shown the courage of his convictions in his public advice to Japan about monetary policy, he does show the courage of his convictions in tough words about Japan’s immigration policy. He writes:

There has been no significant progress on supply-side reforms, especially on the core issue of how to expand the labor force. With an aging and shrinking population, Japan’s government must find ways to encourage more women to work, entice older Japanese to remain in the labor force, and develop more family-friendly labor policies. Above all, Japan needs to create a more welcoming environment for immigrant workers.

That is all good advice.

While immigration policy can, for the most part, be cleanly separated from monetary policy, monetary policy and fiscal policy are unavoidably intertwined. Rogoff has this to say about Japan’s recent and possible future increases in its consumption tax:

The timing of the April 2014 consumption-tax hike (from 5% to 8%) was also unfortunate. It would not have been easy for Abe to postpone the move, given that it had been locked in place by broad-based political agreement before he took office. But the government could have engaged in more aggressive fiscal stimulus to counteract the hike’s short-term effects. Instead, two successive quarters of negative growth have had a dispiriting psychological impact. …

Mind you, Japan’s outsize government debt and undersize pension assets are a huge problem …

It is clear from these passages that Rogoff wants lower taxes to stimulate the economy (or to keep from creating a drag on the Japanese economy), but worries about the effect of lower taxes on the already supersized national debt of Japan. But if Japan supercharged its monetary policy with negative interest rates, the fiscal drag from higher consumption taxes would be overwhelmed by the monetary stimulus, so that Japan’s tax policy could be focused on the long-run issue of stabilizing its debt level.

In “Can Japan Reboot,” Ken Rogoff presents himself as someone despairing of the potential for better monetary policy to dramatically improve the situation in Japan, and therefore turning to supply-side measures as the main hope for getting the Japanese economy back on track. In my view, Japan can dramatically improve both its monetary policy and its supply-side policies. I have heard the argument that tight monetary policy can foster supply-side reform by holding an economy hostage until politicians enact the supply-side reforms they know their economy needs, but I don’t believe it. (Fortunately, Rogoff makes no such claims.)

Instead, good monetary policy, by keeping the economy at the level of output consistent with stable prices reveals and highlights supply-side issues that need to be addressed. When people believe, with good reason, that bad monetary policy is part of what ails the economy, it is not surprising that they underestimate the need for supply-side reforms such as loosening immigration restrictions and making it easier for new, innovative firms to enter old, jaded markets. Repairing monetary policy clears the way for repairing the underlying ability of an economy to produce the goods and perform the services that enrich people’s lives with material abundance.

In both the reinforcement he gave to policy makers more worried by the effects of debt on economic growth than by the disastrous human consequences of the persistent worldwide slump, and in his current advice to Japan, Ken Rogoff has erred in the direction of making it easy for people who believe a questionable conventional wisdom to continue in that belief. Economists concerned with real-world economic policy should aim higher. It is all well and good to give a verdict on current policy controversies, as they have been framed by politics as usual. But those who know there is a better way need to say so, with patience and tenacity.

Update December 19, 2014: Although the main point of my column is to emphasize the importance of putting negative paper currency interest rates in the monetary policy toolkit now rather than a decade or two from now (with particular urgency for the European Central Bank and the Bank of Japan), I know that for many readers, the reprise of the Spring 2013 media furor about Carmen Reinhart and Ken Rogoff’s work is equally salient. Personally, I believe eliminating the zero lower bound is much more important as whether debt lowers economic growth even when it doesn’t cause a debt crisis, but the issue of debt and growth does need to be addressed as well. 

I had a chance to read Ken Rogoff’s and October 2013 FAQ http://scholar.harvard.edu/rogoff/publications/faq-herndon-ash-and-pollins-critique. Substantively, I think this is a good response to the Thomas Herndon, Michael Ash and Robert Pollin paper (linked there) that started the media furor in Spring 2013. But my own substantive concerns are not those. They are the concerns that Yichuan Wang and I detail in our two Quartz columns and two other posts on Reinhart and Rogoff’s work:

In my view, these posts by Yichuan Wang and me are a good example of how, in Clay Christensen’s terms, the disruptive innovation of the economics blogosphere is beginning to move upscale and challenge traditional economics outlets such as working papers and journal articles.

I hope that, taken as a whole, what I write on my blog puts things in the context of the literature, and—through links—gives the kinds of references that are rightly considered important for academic work. In any case, for me the major source of the not inconsiderable number of references I have had in my academically published work come from other people telling me about work related to my own. The same thing happens online. I deeply appreciate the many links people send me in tweets and in more private communications. 

Although it is natural for an individual blog post to be be much less complete than a working paper or journal article, I hope to achieve a reasonable balance between breadth and depth in this blog as a whole. And of course, the relative difficulty of putting mathematical equations in Tumblr means I will choose the working paper format once the number of equations needed to make a point exceeds a certain threshold. 

To repeat, although Thomas Herndon, Michael Ash and Robert Pollin’s paper definitely piqued my interest and Yichuan’s interest and so led to our analysis of Carmen Reinhart and Ken Rogoff’s postwar data, I am critical of the substance of Carmen and Ken’s work based on my work with Yichuan, not based on the work of Thomas Herndon, Michael Ash and Robert Pollin.

In relation to our own critique of Carmen and Ken’s work, let me make three substantive points:

  1. Nonlinearity. In our last piece on Reinhart and Rogoff’s work, http://blog.supplysideliberal.com/post/55484991854/quartz-25-examining-the-entrails-is-there-any
  2. Yichuan and I look nonlinearly at how different levels of debt are related to growth beyond what one would expect from looking at past growth alone. It would be nice to have more evidence total, but on its face, the hint has a higher growth rate after controlling for past growth at a 90% debt to GDP ratio than at a 50% debt to GDP ratio. And we do suggest that what little evidence there is in the data suggests that, say, 130% debt to GDP ratio is associated with lower growth beyond what would be predicted by past growth than a 90% debt to GDP ratio, though a 130% debt to GDP ratio and a 50% debt to GDP ratio give about the same level of growth beyond what would be predicted by past growth alone. On theoretical grounds, it seems plausible to me, though far from an open-and-shut case that high enough debt levels would cause problems for economics growth. That thinking has led me to argue persistently that monetary stimulus is better than fiscal stimulus because it does not raise national debt. See for example my post “Monetary vs. Fiscal Policy: Expansionary Monetary Policy Does Not Raise the Budget Deficit.”But exactly how high that is matters a lot when people can’t be convinced of the virtues of negative interest rates so that fiscal stimulus remains an issue. I consider the nonlinear smoother result that (given what power there is in the postwar data set) the line is the same at a 130% debt to GDP ratio as at a 50% debt to GDP ratio, even after correcting for “illusory growth” on the part of Ireland and Greece as painting a considerably different picture than someone would get from reading Carmen Reinhart and Ken Rogoff’s, or Carmen Reinhart, Vincent Reinhart and Ken Rogoff’s work.
  3. Is controlling for past GDP growth appropriate? In my view, yes. I consider the past income growth controls important because countries that are generally messed up are likely to have both high debt and low growth. That doesn’t mean the high debt causes low growth. Most of the discussion has focused on reverse causality, but I consider the positive correlation across many dimensions of bad policy to be another big issue. I worry that the past income controls would make it hard to detect whether or not debt overhangs are followed by long-lasting low-growth periods, as Carmen, Vincent and Ken argue. But without some other way to control for the many, many other possible bad policies besides debt (which goes beyond the kind of growth accounting regressions that Ken’s FAQ document points to as strong evidence in favor of the view that debt might slow growth) this seems to me to point toward genuine empirical agnosticism about whether debt lowers growth as the right conclusion. (Theoretical arguments are a different matter.)
  4. Does the prewar data strongly bolster the case the debt slows growth?  Here, it depends on what the question means. The prewar data were not as readily available as the postwar data, so Yichuan and I did not analyze them. And so I don’t know what they say, once subjected to the kind of empirical exercises I would like to subject them to. I would love to see an analysis like the one the Yichuan and I did on the postwar data applied to the prewar data. That said, the prewar data may answer the question of whether a given debt level lowered growth under the gold standard, or with prewar institutions that were weaker than current institutions. So I have my doubts about how much guidance it can give to policy now. Monetary policy in particular, had advanced dramatically since the pre-World War II era, even before the ongoing revolution against the paper currency standard. 

Did Carmen and Ken overstate their case? 

While I feel confident that Yichuan’s and my substantive critique has not been adequately addressed, I am much less confident about claims I made in “Righting Rogoff on Japan’s monetary policy” about how policy-makers interpreted Carmen and Ken’s work (and how they could have been expected to have interpreted it, given what was written).

Ken’s FAQ document points to the 2010 Voxeu article “Debt and Growth Revisited” as something that could have provided more balance to policy makers in interpreting Carmen (and Vincent) and Ken’s work. Because policymakers might be more likely to read a Voxeu article than an academic paper, this Voxeu piece is an important touchstone for whether Carmen and Ken overstated the strength of the empirical evidence in favor of the idea that high public debt slows down growth in the range that was relevant to policy in the last few years.

The issue I have with the Voxeu article “Debt and Growth Revisited” is that it never mentions the fact that the normal standard of establishing causality in economics is to find a good instrument, or some other source of exogeneity or quasi-exogeneity. In other words, the inherent difficulty of establishing causality in this kind of data is never mentioned. Here is how strongly Carmen and Ken suggest in their Voxeu article “Debt and Growth Revisited” that there is causal evidence despite the highly endogenous nature of the data:

Debt-to-growth: A unilateral causal pattern from growth to debt, however, does not accord with the evidence. Public debt surges are associated with a higher incidence of debt crises.9 This temporal pattern is analysed in Reinhart and Rogoff (2010b) and in the accompanying country-by-country analyses cited therein. In the current context, even a cursory reading of the recent turmoil in Greece and other European countries can be importantly traced to the adverse impacts of high levels of government debt (or potentially guaranteed debt) on county risk and economic outcomes. At a very basic level, a high public debt burden implies higher future taxes (inflation is also a tax) or lower future government spending, if the government is expected to repay its debts.

There is scant evidence to suggest that high debt has little impact on growth. Kumar and Woo (2010) highlight in their cross-country findings that debt levels have negative consequences for subsequent growth, even after controlling for other standard determinants in growth equations. For emerging markets, an older literature on the debt overhang of the 1980s frequently addresses this theme. …

… We have presented evidence – in a multi-country sample spanning about two centuries – suggesting that high levels of debt dampen growth.

I appreciate the note of uncertainty in the sentence  

Perhaps soaring US debt levels will not prove to be a drag on growth in the decades to come.  

But I feel that for the typical policy maker reading the Voxeu article, this note of uncertainty is largely cancelled out by the next sentence: 

However, if history is any guide, that is a risky proposition and over-reliance on US exceptionalism may only prove to be one more example of the “This Time is Different” syndrome.

The phrase “if history is any guide” phrase in particular suggests that the historical evidence gives some clear guidance, and the sentence as a whole points to an interpretation of “Perhaps soaring US debt levels will not prove a drag on growth in the decades to come” as simply making a bow toward random variation around a regression line rather than expressing any uncertainty about what the causal regression line for the effect of debt on growth says before other random factors are added in.

In any case, saying “Perhaps soaring US debt levels will not prove to be a drag on growth in the decades to come” is not the same as if Carmen and Ken had said

Of course further research could overturn the suggestion we find in the evidence that high debt lowers growth, and there are always many difficulties with interpreting historical evidence of this kind.

Of course, there is always the possibility that Carmen and Ken said almost exactly that, in a forum that most policy makers would have noticed, but one that Idid not notice. (My own reading is ridiculously far from comprehensive.) If so, I would love to get a link to it. Ideally, I would like to see the main text of Ken’s FAQ document collect in its main text all the details (including of course venue or outlet and date) about all the strongest caveats and cautions against overreading that Carmen, Vincent and Ken wrote about their work. 

One extremely important note that the FAQ document does have is this quotation from Reinhart, Reinhart, and Rogoff (2012), “Public Debt Overhangs: Advanced-Economy Episodes since 1800.” (Journal of Economic Perspectives, 26(3)): 

This paper should not be interpreted as a manifesto for rapid public debt deleveraging exclusively via fiscal austerity in an environment of high unemployment. Our review of historical experience also highlights that, apart from outcomes of full or selective default on public debt, there are other strategies to address public debt overhang, including debt restructuring and a plethora of debt conversions (voluntary and otherwise). The pathway to containing and reducing public debt will require a change that is sustained over the middle and the long term. However, the evidence, as we read it, casts doubt on the view that soaring government debt does not matter when markets (and official players, notably central banks) seem willing to absorb it at low interest rates – as is the case for now.”

This suggests to me that Paul Krugman went overboard in his criticism of Carmen and Ken—at least before he backed off somewhat. I am not up on all the details, but it is my understanding that some of Paul Krugman’s stronger criticisms against Carmen and Ken in terms of providing intellectual backing for austerity might have been better leveled against other influential economists, such as Alberto Alesina. But I would need a lot of help to know whether such criticisms were even appropriate for other influential economists such as Alberto. For the record, the current Wikipedia article on Alberto Alesina says:

In October 2009 Alesina and Silvia Ardagna published Large Changes in Fiscal Policy: Taxes Versus Spending,[3] a much-cited academic paper aimed at showing that fiscal austerity measures did not hurt economies, and actually helped their recovery. In 2010 the paper Growth in a Time of Debt by Carmen Reinhart and Kenneth Rogoff) was published and widely accepted, setting the stage for the wave of fiscal austerity that swept Europe during the Great Recession. In April 2013 some analysts at the IMF and the Roosevelt Institute found the Reinhart-Rogoff paper flawed. On June 6, 2013 U.S. economist and 2008 Nobel laureatePaul Krugman published How the Case for Austerity Has Crumbled[4] in The New York Review of Books, noting how influential these articles have been with policymakers, describing the paper by the ‘Bocconi Boys’ Alesina and Ardagna (from the name of their Italian alma mater) as “a full frontal assault on the Keynesian proposition that cutting spending in a weak economy produces further weakness”, arguing the reverse.

Thus, Wikipedia conflates Carmen and Ken’s views with those of Alberto Alesina and Silvia Ardagna.

But just as Carmen and Ken’s views should not be conflated with Alberto and Silvia’s views, neither should my views be conflated with Paul Krugman’s. Soon after Thomas Herndon, Michael Ash and Robert Pollin’s paper came out, I wrote in Quartz:

Unlike what many politicians would do in similar circumstances, Reinhart and Rogoff have been forthright in admitting their errors. (See Chris Cook’s Financial Times post, “Reinhart and Rogoff Recrunch the Numbers.”) They also used their response to put forward their best argument that correcting the errors does not change their bottom line. Given the number of bloggers arguing the opposite case—that Reinhart and Rogoff’s bottom line has been destroyed—it is actually helpful for them to make their case in what has become an adversarial situation, despite their self-justifying motivation for doing so. And though I see a self-justifying motivation, I find it credible that Reinhart and Rogoff’s original error did not arise from political motivations, since as they note in their response, of their two major claims—(1) debt hurts growth and (2) economic slumps typically last a long time after a financial crisis—the claim that debt hurts growth is congenial to Republicans, while the claim that it is normal for slumps to last a long time after a financial crisis is congenial to Democrats.

The results from the fairly straightforward data analysis that Yichuan and I did made me somewhat less sympathetic to Carmen and Ken. Nevertheless, I think they spoke and wrote in good faith. Errors of omission are a different issue, and there we all stand condemned, in a hundred different directions for each of us. 

It is from the perspective that we all stand condemned for errors of omission of one type or another, that I hope my words in “Righting Rogoff on Japan’s monetary policy” are taken. I also urge you to distinguish carefully between simply reportingone side of the Spring 2013 debate about Reinhart and Rogoff’s work, and things I say on my own behalf: principally that Ken does not challenge policy-maker conventional wisdom as much as I would like to see. 

Carmen and Ken literally did not have time enough to defend themselves adequately back in Spring 2013. Now that the dust has cleared, I would be glad to see them do more to tell their side of the story. 

This update is my effort to make up for some of my own errors of omission when I wrote “Righting Rogoff on Japan’s monetary policy.” In particular, I thought wrestling with Ken’s FAQ document was the least I could do to give a little more voice to Carmen and Ken’s side of the story. (To the extent that you were persuaded by Thomas Herndon, Michael Ash and Robert Pollin’s paper, or were persuaded by unjustified accusations of bad faith on Carmen and Ken’s part, you should take a close look at that FAQ document.)

John Stuart Mill on Freedom from Religion

The US Constitution guarantees freedom of religion, but what we often need is not just freedom of religion, but freedom from religion. It is very common for religions to have prohibitions that seem a very weighty matter to believers, while violating those prohibitions seems a matter of much smaller weight to the non-believers in that particular religion. Yet, prohibitions that at first seem easy to bear for the non-believer grate more and more as time goes on. And in a pluralistic society, accommodating the prohibitions of many religions would add up to a great constriction of life.

Before things get to that point, John Stuart Mill argues that imposing each religious restriction on non-believers (or on believers unwilling to impose it on themselves) is, in any case, illegitimate. Here is what John Stuart Mill writes in  On Liberty, Chapter IV, “Of the Limits to the Authority of Society over the Individual” paragraphs 13-16:

The evil here pointed out is not one which exists only in theory; and it may perhaps be expected that I should specify the instances in which the public of this age and country improperly invests its own preferences with the character of moral laws. I am not writing an essay on the aberrations of existing moral feeling. That is too weighty a subject to be discussed parenthetically, and by way of illustration. Yet examples are necessary, to show that the principle I maintain is of serious and practical moment, and that I am not endeavouring to erect a barrier against imaginary evils. And it is not difficult to show, by abundant instances, that to extend the bounds of what may be called moral police, until it encroaches on the most unquestionably legitimate liberty of the individual, is one of the most universal of all human propensities. 

As a first instance, consider the antipathies which men cherish on no better grounds than that persons whose religious opinions are different from theirs, do not practise their religious observances, especially their religious abstinences. To cite a rather trivial example, nothing in the creed or practice of Christians does more to envenom the hatred of Mahomedans against them, than the fact of their eating pork. There are few acts which Christians and Europeans regard with more unaffected disgust, than Mussulmans regard this particular mode of satisfying hunger. It is, in the first place, an offence against their religion; but this circumstance by no means explains either the degree or the kind of their repugnance; for wine also is forbidden by their religion, and to partake of it is by all Mussulmans accounted wrong, but not disgusting. Their aversion to the flesh of the “unclean beast” is, on the contrary, of that peculiar character, resembling an instinctive antipathy, which the idea of uncleanness, when once it thoroughly sinks into the feelings, seems always to excite even in those whose personal habits are anything but scrupulously cleanly, and of which the sentiment of religious impurity, so intense in the Hindoos, is a remarkable example. Suppose now that in a people, of whom the majority were Mussulmans, that majority should insist upon not permitting pork to be eaten within the limits of the country. This would be nothing new in Mahomedan countries. 1 Would it be a legitimate exercise of the moral authority of public opinion? and if not, why not? The practice is really revolting to such a public. They also sincerely think that it is forbidden and abhorred by the Deity. Neither could the prohibition be censured as religious persecution. It might be religious in its origin, but it would not be persecution for religion, since nobody’s religion makes it a duty to eat pork. The only tenable ground of condemnation would be, that with the personal tastes and self-regarding concerns of individuals the public has no business to interfere.

To come somewhat nearer home: the majority of Spaniards consider it a gross impiety, offensive in the highest degree to the Supreme Being, to worship him in any other manner than the Roman Catholic; and no other public worship is lawful on Spanish soil. The people of all Southern Europe look upon a married clergy as not only irreligious, but unchaste, indecent, gross, disgusting. What do Protestants think of these perfectly sincere feelings, and of the attempt to enforce them against non-Catholics? Yet, if mankind are justified in interfering with each other’s liberty in things which do not concern the interests of others, on what principle is it possible consistently to exclude these cases? or who can blame people for desiring to suppress what they regard as a scandal in the sight of God and man? No stronger case can be shown for prohibiting anything which is regarded as a personal immorality, than is made out for suppressing these practices in the eyes of those who regard them as impieties; and unless we are willing to adopt the logic of persecutors, and to say that we may persecute others because we are right, and that they must not persecute us because they are wrong, we must beware of admitting a principle of which we should resent as a gross injustice the application to ourselves. 

The preceding instances may be objected to, although unreasonably, as drawn from contingencies impossible among us: opinion, in this country, not being likely to enforce abstinence from meats, or to interfere with people for worshipping, and for either marrying or not marrying, according to their creed or inclination. The next example, however, shall be taken from an interference with liberty which we have by no means passed all danger of. Wherever the Puritans have been sufficiently powerful, as in New England, and in Great Britain at the time of the Commonwealth, they have endeavoured, with considerable success, to put down all public, and nearly all private, amusements: especially music, dancing, public games, or other assemblages for purposes of diversion, and the theatre. There are still in this country large bodies of persons by whose notions of morality and religion these recreations are condemned; and those persons belonging chiefly to the middle class, who are the ascendant power in the present social and political condition of the kingdom, it is by no means impossible that persons of these sentiments may at some time or other command a majority in Parliament. How will the remaining portion of the community like to have the amusements that shall be permitted to them regulated by the religious and moral sentiments of the stricter Calvinists and Methodists? Would they not, with considerable peremptoriness, desire these intrusively pious members of society to mind their own business? This is precisely what should be said to every government and every public, who have the pretension that no person shall enjoy any pleasure which they think wrong. But if the principle of the pretension be admitted, no one can reasonably object to its being acted on in the sense of the majority, or other preponderating power in the country; and all persons must be ready to conform to the idea of a Christian commonwealth, as understood by the early settlers in New England, if a religious profession similar to theirs should ever succeed in regaining its lost ground, as religions supposed to be declining have so often been known to do.

Let me point out that the same principle applies to freedom from secular religions and non-supernatural religions. If one avoided all actions that could offend someone according to some deeply felt belief, one would have very little room to move. 

One problem I have with John Stuart Mill’s argument here is that I don’t see the boundary between self-regarding and other-regarding actions as being quite so clear as he does. I discussed some of the tricky issues in “John Stuart Mill on Being Offended at Other People’s Opinions or Private Conduct, but without any resolution. 

If one says that one should be free to choose one’s own self-regarding conduct, the next question is what counts as "self-regarding conduct.” And it would be circular to then say that self-regarding conduct is conduct we should be allowed to choose freely. 

Here is one possibility for the boundary between self-regarding and other-regarding conduct: self-regarding conduct is conduct that even if one fully understood the consequences of the conduct, one would only care about in someone else if one was close to that person emotionally, or one was imbued with a particular meme–what the Wikipedia article “meme” calls “a unit for carrying cultural ideas, symbols, or practices that can be transmitted from one mind to another through writing, speech, gestures, rituals, or other imitable phenomena with a mimicked theme.” Later on, the article says this:

Proponents theorize that memes are a viral phenomenon that may evolve by natural selection in a manner analogous to that of biological evolution. Memes do this through the processes of variation, mutation, competition, and inheritance, each of which influences a meme’s reproductive success. Memes spread through the behavior that they generate in their hosts. 

Genes respect some boundaries between self and other. Relatives end up being counted as in-between self and other as far as genes are concerned, but at least some people are counted as definitely other. Memes respect no such boundaries. The propagation of an untestable and unverifiable idea, religious or otherwise, can be affected by almost anyone’s actions. So memes care (in the sense of having their replication depend on) what everyone does.

To draw a magic circle of liberty around each person, it is necessary to stop at the radius that his genes would care about, and that other people’s genes would not care about, or would care only a tiny bit about.

The upshot of this rule is that people are allowed to do anything that helps out their own genes–or any interest that ultimately derives from the interests of genes, even if it has wandered far afield from direct gene interests (such as the desire of an infertile person for sexual activity)–unless it interferes with the genes or gene-outgrowth interests of others of others. We then have social rules (hopefully fair) about what to do if my gene or gene-outgrowth interests conflict with yours. But if my gene or gene-outgrowth interests conflict your memetic interests, then I have the right to decide what will happen, not some social mechanism. And if your gene or gene-outgrowth interests conflict with my memetic interests, then you have the right to decide. And these rules tend to provide enough guidance on boundaries to help decide conflicts between my memetic interests and yours. 

I don’t know if this account of “self-regarding” versus “other-regarding” actions really works, but it is all I have right now. I would be glad for any other non-circular definitions of what counts as “self-regarding” versus “other-regarding” that you can show give a different answer about the boundary than the boundary I am proposing that accords with the limits of gene and gene-outgrowth interests.

Virginia Postrel: The Glamour of Autonomy and the Glamour of Synchronization

“If autonomy represents the glamour of standing out, synchronization offers the glamour of fitting in. … Here actions, goals, and personalities mesh smoothly. Synchronization encompasses the social glamour of witty repartee–saying the right thing at the right moment, not an hour later–and of camaraderie in a common cause. It intensifies the glamour of fellowship, making the connections between people seem intuitive or telepathic. … Both autonomy and synchronization are illusions, of course, requiring drastic simplifications of reality. Autonomy suggests that we can shed the constraints of complex relationships, whether familial ties or electrical grids, without sacrificing their benefits. Synchronization omits the trials and rehearsal that real coordination requires. It hides conflict and disguises the compromises necessary to achieve apparent harmony. It assumes goals that are not only shared but worthy.”

– Virginia Postrel, The Power of Glamour, pp. 94-95

Swiss Pioneers! What Unpegging the Franc from the Euro Means for the US Dollar

Here is a link to my 59th column on Quartz, “Swiss pioneers! What unpegging the franc from the euro means for the US dollar.”

Update, January 19, 2015: Denmark lowered its interest on reserves from -.05% to -.2%. Danmarks Nationalbank has viewed its currency peg with the euro as the heart of its monetary policy for many decades.

Thanks to Mark Fontana for letting me know in real time about the Swiss National Bank’s and Danmarks Nationalbank’s actions.

Fixpoint Cat Can Has Fixpoint Cat on Fixpoint CatReblogged from econlolcats: Terminated recursion has never been this cuddly. By yeltsin.Fixpoint cat is just right as a harbinger of my new Quartz column revisiting the topic of negative int…

Fixpoint Cat Can Has Fixpoint Cat on Fixpoint Cat

Reblogged from econlolcats: Terminated recursion has never been this cuddly. By yeltsin.

Fixpoint cat is just right as a harbinger of my new Quartz column revisiting the topic of negative interest rates in Switzerland, slated to appear today. I will post a link as soon as I see it up. 

If you haven’t seen my first column about negative interest rates in Switzerland, “The Swiss are now at a negative interest rate due to the Russian ruble collapse,” take a look. I realized I was wrong in predicting the Swiss National Bank would continue to defend its ceiling on the Swiss franc, so a wrote a new column as an update.