People are always blaming their circumstances for what they are.
I don't believe in circumstances.
The people who get on in this world are
the people who get up and look for the circumstances they want,
and, if they can't find them, make them.
George Bernard Shaw
Michael Phelps
Win (15), Place (2) or Show (2)
and Counting...
The Greatest Olympian Ever
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| Courtesy of David Gray/Reuters and The Guardian |
I watched Phelps' attempt to three-peat in the 200M butterfly: his signature event which he hadn't lost since 2000. His last full stroke basically left him just inches shy of the wall and coasted to the finish--just enough of a hesitation to allow South African swimmer Chad le Clos to touch the wall .05 seconds sooner. As a fellow perfectionist and hard worker, I'm sure that Phelps will probably relive this disappointment for the rest of his life: woulda, coulda, shoulda. Nevertheless, Phelps' second silver of the games tied him with Soviet gymnast Larisa Latynina for 18 medals.
Could Phelps shake off the disappointing loss and anchor his 4 x 200M freestyle team to victory? Of course: that's the mark of a true champion--to move on and win the next contest. Congratulations, champ!
World Champion Gymnast Jordyn Wieber Fails to Qualify
for Olympics Women's All-Around Competition?
Thumbs DOWN!
I realize that this story has been around for a couple of days, but one of the reasons I'm bringing this up in a political blog is because I don't like politically correct quota systems. There is a rule in the Olympics that only the first two gymnasts from any country qualify, even if the third, in this case, the reigning world champion in the sport, has outscored at least one of the other country gymnasts moving on. I think this notion is overtly political and contrary to the spirit of sport: when you win, you want to win beating the best.
The American women today won the team gymnastics championship, including America's sweetheart, Jordyn Wieber! Good job, ladies!
King for the Week: Edward Yardeni: Thumbs UP!
James Pethokoukis quotes Dr. Yardeni solving the world's problems in 70 words or less. I will point out that in this blog, I have specifically and previously been backing the Bowles-Simpson bipartisan deficit reduction plan, pushing public sector pensions to adjusted social security age, splitting the German mark from the euro, and having Greece crack down on tax evaders. So here's what Yardeni, an obviously brilliant fellow, suggests that he would do if he was King of the World for a week:
In the US, I would implement Simpson-Bowles in full. I would mandate that public employees can collect their benefits only when they turn 67, not when they retire. In Europe, I would take Germany out of the euro zone, and let the euro plunge. I would lower tax rates in Europe and enforce strict tax collection. In China, I would privatize state-owned companies. I would outlaw the Communist Party.
The Centennial Birthday of An American Icon
Milton Friedman
"We Are All Monetarists Now"
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| Milton Friedman - Nobel Prize, Economics 1976 July 31, 1912 – November 16, 2006 Courtesy of Time Life Pictures / Getty Images / American Academy of Achievement |
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| Fed Reserve Chairman "Helicopter Ben" Bernanke and co-pilot Treasury Secretary Tim Geithner Monetary and Fiscal Policy Activists Raining Dollars All Over the World Courtesy of the NY Post |
In yesterday's post, I was particularly irritated by Wapshott's suggestion that Tea Party conservatives are all tied to the Austrian School of Economics. In fact, I will admit that over the past year or so I have been looking more at the Austrian School as I've transitioned to a more libertarian perspective. There is something instinctively appealing about looking at interest rates as some sort of a thermostat: as interest rates increase: there is more of an incentive to defer consumption, and capital expenditures or various business projects to become less feasible (and vice-versa as an investor flight to low-risk instruments naturally drives down interest rates). And I'm definitely unhappy with the Fed manipulating interest rates. If you accept the concept of lagging effects of monetary policy decisions, it's very easy how to see how persistently artificially low interest rates can exacerbate boom/bust market sector overcapacity or asset bubbles like we've witnessed since the turn of the century.
Of course, I do understand central banker logic: pushing the adjusted interest rate below zero essentially taxes people for saving, providing them more of an incentive to consume or invest. Overextended consumers and businesses are naturally trying to deleverage; this is good as part of a long-term process--but not unduly at the expense of the ongoing economy. I'm a little confused why, if I'm a central banker, I haven't also been looking at deviations from long-term savings rates and considering or encouraging relevant fiscal and monetary policies. For example, it seems to me like there's been disproportionate consumption for years, which would suggest (like many other countries) the need for relevant taxes (e.g., the VAT) and/or otherwise discouraging a spending bias (e.g., raising interest rates or bank reserve requirements, implementing more restrictive lending practices, eliminating or at least capping/reducing interest deductibility).
There are other central bank decisions I don't quite understand either, e.g., paying interest on reserves. It would seem you would want to use that tool to discourage excess lending. If the rationale for pushing nominal interest rates to zero is to encourage spending or investment (note that that's clearly what the Fed is intending--notice how proudly Bernanke accepts responsibility for rising equity markets), why are you then raising the opportunity costs of lending (i.e., I can making money simply by sitting on reserves versus taking on the risks of lending in a sluggish economy)?
Going on with the discussion of a split between the monetarists and the Austrian School, if you've gone through the history of this blog, during the first 2 or 3 years, I regularly cited the Chicago School (and particularly Milton Friedman), and over the past few weeks, I've been tilting back towards a monetarist perspective. In part, this reflects my perspective as an empirical researcher. There are also a few things that have been bothering me: the lack of pervasive inflation (the billion prices project) and/or loan pickup, despite accommodative actions by the Fed. I'll call this my "Potter Stewart criterion of monetary policy": I know stimulative monetary policy when I see it.
The reader might argue: wait a minute, Ronald: shouldn't you be against activist policy, period? Well, I'm a pragmatic libertarian; I think that we are dealing with a convoluted government regulatory regime, and we in the long term need to restore banking to a true free market. In the interim I live in a world where the Federal Reserve is a fact. I do want to depoliticize the Fed, making it more rule-based, e.g., Friedman's k-percent rule. As a pragmatist and a theoretical central banker, I have to look at the policy tools I have available: I can buy and sell securities, I can modify key interest rates and reserve requirements, etc. If a certain stimulative tool isn't working (e.g., dropping interest rates, lowering reserve requirements or buying securities), maybe my dosage has been too weak: maybe I need to buy magnitudes higher securities (say, problematic mortgage notes, mortgage backed securities) until I see GDP growth pick up and then I fine-tune the process until GDP growth is organic.
Incidentally, one could only hope that legislators could learn lessons on the fiscal side. For example, take the inflation-bound health care sector and relevant delusional progressive policies. What is patently obvious is that when the government is doing half the spending in the sector (and that would increase under radical Medicaid expansion under ObamaCare), we are facing the same kinds of decisions like the Federal Reserve in combating inflation, just on the fiscal policy side. If we're trying to lower sector costs, we need to discourage spending--e.g., raise deductibles (just like raising the reserve requirement), reduce government subsidies (pretax basis under employment) and benefit mandates (lowering interest rates), eliminate barriers of entries to the medical profession, etc.
Going back to monetary policy, I've also been intrigued by Friedman's argument that the Japanese were pursuing tight money policies in the "lost decade" of the 1990's, even with interest rates pushing zero, and suggesting other monetary policies, such as quantitative easing (buying bonds on the open market). Why would he suggest that after arguing activist errors by central bankers, lag effects for such policies (e.g., overshooting targets)? This seems curious given Friedman's free market policies--but then former Fed Reserve chairman Alan Greenspan has described himself a lifetime libertarian Republican (just like Friedman).
I do think it's reasonable to distinguish between ordinary recessions and periods of economic shock, like the economic tsunami. Friedman generally prefers rules versus discretionary activist monetarist actions, although I suspect under unusual circumstances that he would recommend some commensurate monetary action (to be assessed for fine-tuning against relevant criteria (e.g., GDP growth)). I've been intrigued by "market monetarist" Scott Sumner's discussions (e.g., see here for his argument Friedman would have encouraged monetary stimulus after the economic tsunami; James Pethokoukis makes a similar point about "too tight" Fed policy here). The nature of the policy would be driven by contextual factors; for example, if loans are low because borrowers have a number of questionable high risk mortgage-backed securities, the Fed could buy these securities.
Milton Friedman and the Great Depression Myth
Musical Interlude: My Favorite Groups
Blondie, "Rapture". This is the last of my series on Blondie. Next up: Frankie Valli and the Four Seasons.
