Friday, February 24, 2012

Tribulation Force, the Movie, Part 7

Part 7 of Tribulation Force, and the sound continues to be off from the character's mouths. We wrap up the final scene from last time as quickly and mercifully as possible, still on a tense note, but without anything happening to Ray.

They arrive in Jerusalem. Buck is in his hotel room. Apparently he is nervous, fearful that he is being watched and that the Antichrist might be on to him because when he hears a knock on his door, he looks through the peep hole before letting Rayford in. They put Rayford's disk into the laptop to look up Ben-Judah's speech. (For some reason Buck highlights it, as if he wants to edit it).

Then they get to Ben-Judah's reading of purported messianic prophecies. **Eye roll.** Fred Clark criticized the authors of Left Behind for their cut-and-paste approach to biblical prophecy, but the authors of Left Behind are in good company. The Gospels are full of exactly the same cut-and-paste approach, taking a little bit of the Hebrew Bible here and a clip there, completely disconnecting them from their context. and plunking them down in the middle of the Gospel as prophecies that Jesus is the Messiah. No one reading the Old Testament without such preconceptions would reach anything like the interpretations found in the Gospel. That included, say, any Jew interpreting what the Bible says about the Messiah.

"The Messiah will be pierced without breaking a bone," Buck reads, followed by an explanation of how this applies to Nicolae. Okay, I think everyone knows what that refers to. But let's take a few steps back to see if it makes any sense at all for a non-Christian. First of all, out of the four Gospels, it appears only in John. Mark, Matthew and Luke all agree that Jesus was crucified and expired much sooner would normally be expected, by none of them mention either piercing or breaking bones. Matthew and Luke, as well as John, also say that two bandits were crucified along with him. (Mark does not mention them). All four Gospels agree that Jesus was crucified on a Friday. John, and only *John, says that the Jewish authorities did not want men on crosses on the Sabbath, especially during Passover and asked the Romans to finish them off. This was done by breaking their legs, to that they could no longer push upward and would quickly suffocate. Finding that Jesus had already expired, the Romans did not break his legs, but did pierce him with a spear. John says that this was in fulfillment of the prophecies, "A bone of him shall not be broken," and "They shall look upon him whom they pierced."

Tracing these prophecies, we see the no bones broken refers to Exodus 12:46, giving instructions on how to prepare the Passover lamb, saying "Thou shalt not carry forth aught of the flesh abroad out of the house; neither shall ye break a bone thereof." Numbers 9:12 has similar instructions about not leaving any of the Passover lamb until morning, or breaking any of its bones. Presumably this means you are not to eat the marrow. Of course, Christians say the Passover lamb is merely a symbol of Jesus, but a non-Christian would not think that so obvious. Finally, Psalms 34:20. A general hymn of praise it says, "(19) Many are the afflictions of the righteous, bu the LORD delivereth him out of them all. (20) He keepeth all his bones, not one of them is broken."

As for the piercing, that comes from Zechariah 12:10. Chapter 12 is a general prediction that Jerusalem shall be besieged and suffer greatly but ultimately be delivered. Verse 10 says,

And I will pour upon the house of David, and upon the inhabitants of Jerusalem, the spirit of grace and of supplication, and they shall look upon me (sic) whom they have pierced, and they shall mourn for him, as one mourneth for his only son, and shall be in bitterness for him, as one that is in bitterness for his firstborn.

I can see here how a Christian would identify mourning one's only son and God apparently being the one pierced with Jesus as God and the Son of God. But once again, this passage would merely be confusing to a non-Christian. There is nothing here that says it refers to the Messiah, much less the preparation of a Passover lamb. The Bible is a big book, written over centuries. There is no reason, none whatever, for a Jew to regard these passages, in different books, describing unrelated events, and never once mentioning an Anointed (Messiah) as describing a single event that will characterize the Messiah.

Next Buck quotes that the Messiah will travel to Egypt as a child. This one comes from Matthew and only Matthew. According to Matthew, Herod the Great, hearing the Messiah had been born in Bethlehem, ordered every boy under two in Bethlehem to be slaughtered, but Joseph was warned of the impending massacre in a dream and fled to Egypt with Mary and Jesus. First of all, there is no mention of such a massacre anywhere except in Matthew, including Luke, which simply says that Mary and Joseph dedicated Jesus in the temple and then went home to Nazareth. One would think such an atrocity would be recorded somewhere. Second the Flight into Egypt (it is customarily capitalized) is supposedly in fulfillment of the prophecy, "Out of Egypt have I called my son." This is a conveniently clipped quote from Hosea 11:1, "When Israel was a child, then I loved him, and called my son out of Egypt." Okay, so the "son" is clearly the people of Israel, and the calling out of Egypt refers to the events of Exodus. Once again, there is no reason whatever for a Jew to link this to the Messiah.

Anyhow, to get back to the story, Buck realizes that Ben-Judah is about to proclaim Nicolae the Messiah, and that that was Nicolae's true motive in bringing Buck to Israel. Rayford asks, then if the speech is Ben-Judah's, why did Nicolae thank Steve Plank for writing it. They realize that Ben-Judah was going to proclaim Jesus the Messiah, but they changed the speech to proclaim Nicolae instead. This means that Ben-Judah is under Nicolae's power. Um, I don't get it. Clearly being a saved RTC protects you from Nicolae's mind control powers. So if Ben-Judah has figured out that Jesus is the Messiah, doesn't that make him a born again RTC who should be protected? Neither Buck nor Ray (nor the makers of the movie) seem to think of that. Instead, Buck proposes to break Nicolae's power by taking Ben-Judah to the Wailing Wall to meet the Witnesses. Rayford, less heroic, is skeptical.

Incidentally, Fred Clark comments, and I agree, that this is the right way to do the Tribulation Force. They can't stop Nicolae from taking over the world, which is predestined, or interfere with prophecied events. But they can get the Word out and save souls, and they can affect events not covered by prophecy. Ben-Judah proclaiming Nicolae as the Messiah is not prophecied, so they can hope to get him to proclaim Jesus the Messiah instead and carry the message to a huge audience. The only trouble with this plan is that it seems likely to blow their cover and get them executed. Granted, it will be martyrdom in a good cause and they will get their 72 virgins in Heaven, but it will also be the end of the series.

The next scene is in the lobby of a large office building, presumably GNN's Jerusalem headquarters. Buck meets with Steve Plank, asks to speak to the two guys at the Wailing Wall, saying he hopes to discredit them. Steve says no, the Wailing Wall is off limits, the best way to defeat those guys is to deny them attention. He is also clearly under Nicolae's power, saying that Nicolae has everyone's best interests in mind and wants to unify the world, not divide it. Unity is clearly a bad word for RTC's. Fred also notes that, once again, Buck is lying without compunction to the Antichrist (or his agent, anyhow). So much for the book's elaborate scruples on the subject. After all, if lying bothers you, you probably shouldn't be a double agent.

Meanwhile, back at the church, it is once again doubling as a medical center. Okay, we know the patients aren't in the sanctuary because that still gets used as a sanctuary. We know they aren't in Pastor Bruce's office because he needs the peace and quite to study prophecies and hold Tribulation Force meetings. I can only assume it's in Reverend Billings' office, since he doesn't need it anymore. The burn victim who appeared to be dying is still alive, but badly burned and bandaged. Chloe is reading from the Bible to him. He is familiar. Either he is a believer (then why wasn't he raptured?) or a recent convert. Fred comments that while before she lost her nerve and couldn't face the badly burned man, now that she is together with Buck, she can. He sees that as sexist -- men are saved by Jesus Christ and women by their men. I think that is unduly harsh. It is actually a reassuring message, that just because she has taken Jesus Christ as her personal savior doesn't mean she is perfect. Stressing over her feelings toward Buck made her bitchy and faint-hearted. The human problems in her live still need to be dealt with in a human manner.

And speaking of human problems, Ivy comes in, wearing a mini-skirt. They try to reconcile, but their meeting is basically tense and hostile. Ivy looks at Chloe's Bible and says, "So, you believe in that stuff?" Chloe tells her that faith is "not just reading, it's believing." She also says, "I guess it’s like my mom said, faith is a choice. And it comes from the heart, so you either want to believe it or you don’t." So apparently faith is something you can switch on and off at will. Ivy says it has never been a strong point for her, but Chloe has planted a seed, so presumably we will see Ivy saved later on. We end with a brief glimpse of Pastor Bruce watching over so we will know that we are in the church.

In Jerusalem, we see some sort of indoor-outdoor cafe with an open fire, live goats and chickens (on the menu, perhaps?) and Hasidic Jews in broad-brimmed hats, beards and sidelocks. Buck has Ben-Judah's picture. He is wearing a Hasidic hat, but is clean-shaven. When Buck meets the Rabbi, he is actually wearing a yarmulke instead of a broad-brimmed hat. He recognized Buck, with a faint tone of hostility. And he is clearly under Carpathia's spell. He worries about the men at the Wall dividing the world instead of uniting it (again with the fear of unity!) and he says, "There is no Heaven, no Hell. There is only us." Buck is alarmed, seeing the Antichrist at work. He pulls the go to the Wall to discredit them schtick again, and calls Ben-Judah "the world's most knowledgeable and respected religious scholar." He promises to film the whole thing "for the world-wide GNN audience to see." Talk about blowing your cover!

Buck does not seem to be making much headway with Ben-Judah, but Steve Plank is alarmed. He warns Nicolae that Buck is heading to the Wailing Wall to "discredit" the witnesses. Nicolae orders a 24-hour monitor on all GNN broadcasts and immediate notification on any broadcast from the Wailing Wall and issues a press release that all trespassers to the Wailing Wall will be shot on sight. Steve Plank appears to agree, though whether because he is under Carpathia's control or because he is sure Buck will not take the chance is not clear. The segment cuts off in mid-sentence.

It has, however, raised suspense to a high level as we are left to wonder what will happen next.

*Although, to be fair, just because this is not in any other Gospel does not necessarily mean it was not true. Nothing in the passage in intrinsically unlikely. Romans who wanted to finish up a crucifixion did, indeed, do so by breaking the victim's legs. It is entirely probably that the Jewish authorities would not want crucifixions to continue on the Sabbath, especially during Passover. And, obviously, if Jesus had already expired it would be pointless to break his legs. But even assuming John's account is true, his explanation sounds very much like retrofitting Bible passages (that are not even prophecies) to fit events.

Thursday, February 23, 2012


A while back I saw a column [can no longer find] by Matt Yglesias commenting on the growth of barter networks in Greece. These barter networks, he commented, are signs of deflationary pressure. Downward pressure is being exerted on prices, but prices are proving sticky and resisting falling, so instead people build barter networks in order to make trades without the medium of money.

I was glad to hear about that for two reasons. One was, after reading endless stories about the Greeks rioting and burning things down, it was good to hear that the rioters do not speak for all Greeks and that some are responding to the crisis by doing something constructive. The other is that it confirmed my longstanding suspicions of that what was happening in Russia in the 1990’s was actually severe, though disguised, deflation.

So what was happening in Russia in the 1990’s. Basically, currency had stopped circulating. People were working in the coal mines 12 months a year and only getting paid two months a year. Pay was equally rare in other industries, with employers paying in products instead of money. Trades between enterprises were also generally by barter with only a tiny fraction taking place in cash. The Christian Science Monitor (apparently expressing conventional free market wisdom of the time) commented that this system of paying in kind was really just disguised unemployment, and that instead of taking necessary but painful measures, Russians were avoiding the necessary pain of laying all those people off and shutting down industries that couldn’t afford to pay in cash.

Their advice seemed outrageous. Coal miners were working 12 months a year and getting paid for only two months. That is to say, their pay had fallen to a sixth of what it once was, only instead of taking home paychecks for only a sixth of their usual pay, miners were getting their full paycheck only a sixth of the time. Coal was the fuel of much of the Russian economy. Was what it needed really to cut coal production to a sixth of its former level? The article also mentioned heavy boots, a popular and necessary item in Russia. Boot companies were paying in boots instead of cash. Did the Monitor really think Russia would be better off if people stopped making boots and started losing toes to frostbite? Attempting my own analysis, I figured out somewhere along the line that actually what Russia was experiencing was not disguised unemployment, but disguised deflation.

This impression was strengthened when I learned how Russia got into such a mess in the first place. It was a fascinating mirror opposite of the Weimar inflation. Contrary to popular belief, the Weimar inflation did not occur because France demanded unsupportable reparations so Germany responded by printing the money. Or rather, that may be an oversimplified explanation, but it really is not adequate. In fact, the French sought to foreclose such a possibility by demanding reparations in gold or in kind such as coal. The Germans did, indeed, debase their currency to promote exports so they could raise the gold to meet French demands. Inflation was in the double digits in 1920, triple digits in 1921 and quadruple digits in 1922. What sent it from quadruple digits to off-the-chart scientific notation levels in 1923 was that the Germans defaulted on their payments. The French then sent troops into the Ruhr (Germany’s industrial heartland) to collect reparations by force. The people of the Ruhr responded with a general strike. But they could not afford to stay on strike without getting paid, and employers could not afford to pay their workforce if they weren’t producing. So the government sought to fund the resistance by printing money.

Russia, by contrast, was borrowing huge sums and was unable to pay them back. The IMF agreed to give Russia a loan to tide them over, but only on the condition of making major cuts in expenditures, including coal miners’ wages. Presumably this was an attempt to force the Russian government to privatize the coal mines. But the government, fearing the mines would instead shut down and bring the entire economy to a screeching halt, instead took the desperate measure of keeping the coal miners on the job but not paying them. Without paychecks, the miners could not pay cash for groceries, and over time the cash shortage spread throughout the land. In other words, the Weimar hyperinflation was caused by paying people for not working. The Russian hyperdeflation (if there is such a word) was caused by working people without pay.

But it is only very recently that I have begun to understand that deflation is always disguised. This is because wages and prices are sticky and resist falling. Instead, downward pressure introduces distortions into the economy. While I was right to recognize Russia’s switch to a barter system as disguised deflation rather than disguised unemployment, only now am I beginning to understand that unemployment itself is often a form of disguised deflation. Other signs of disguised deflation are growing barter networks, working off the books, and the growth of the “informal sector.” Part of the trick to recognizing deflation is recognizing the distortions that it causes.

Wednesday, February 15, 2012

Why Liberal Should Agree with Friedman on This One

Milton Friedman was famous for urging developing countries to adopt more free market policies. The typical policy package adopted consisted of deregulation, lowering trade barriers, opening up to foreign investment, privatizing public industries, and pegging the currency to the dollar. But, if asked, Friedman would assure you that one of these things was not like the others.

I am well aware that Milton Friedman is a hated name among liberals above a certain age.* But on macro issues we really should listen to him, whatever we think of him on micro issues. Milton Friedman was not, for instance, one of those economists who believed that depressions must be passively endured to shake out earlier excesses; he favored countering them with aggressive monetary expansion. He also, as discussed before, warned against the dangers of fixed exchange rates. Focusing greatly on the importance of money as determining the fortunes of an economy, he warned that fixing exchange rates forced the entire economy to adjust to maintain an exchange rate, rather than allowing an exchange rate to adjust to meet the needs of an economy.**

Until I started in a hard course of self-education since the Crash of 2008, I had no concept of just how economically harmful an overvalued currency is. I realized, of course, that an overvalued currency harms an economy in the sense that it hurts exports by pricing them too high. But surely an overvalued currency was a minor, technical issue that was easily resolved, not one that could inflict serious damage on an otherwise healthy economy. There were several important factors that I missed.

For one thing, I thought from the vantage point of an American. Our economy is large enough that foreign trade makes up a relatively small portion of it. If our economy is otherwise strong, we can make up for a loss of exports by consuming more. But the smaller the economy, the more dependent it tends to be on exports, and therefore the greater the damage from pricing them too high.

Second, an overvalued currency floods the country with cheap imports. This is great fun for consumers, but undermines domestic industry. This is not a protectionist argument. One need not argue that domestic industry should be artificially shielded by protectionist policies to believe that domestic industry should not be artificially undermined by over valuing the currency and allowing imports to be undervalued.

Third, an overvalued currency creates deflationary pressure in export sectors. The smaller the economy, the larger a portion of the economy feels immediate deflationary pressure. But since export sectors necessarily compete for workers with the rest of the economy, deflationary pressure spreads. And deflationary pressure (for reasons I will get to) is devastating.

Finally, measures to keep an exchange rate up worsen the crisis. To keep an exchange rate high, you have to encourage money to come into the country, or at least not to leave. The best way to attract money into a country is to raise interest rates. This makes borrowing painful, chokes off credit, and harms the economy. Economic stress, in turn, makes investors want to take their money out of the country, forcing central banks to raise interest rates even higher to convince them to stay, inflicting further distress and perpetuating the cycle.

None of this is to suggest that devaluation is a painless alternative. It is not. Many people across the political spectrum object to currency devaluation because it raises import prices with no corresponding increase in wages, and therefore hurts living standards. But there is no painless way out of an overvalued currency. A currency crisis usually happens when a country has been importing more than it exports for a prolonged period of time and financing the imports with foreign credit. This state of affairs is not sustainable; sooner or later the foreign credit cuts off. Under these circumstances, living standards cannot be maintained; some decline is inevitable. There are two ways to do it, by currency devaluation, i.e., inflation, and by “internal devaluation,” i.e, deflation.

Currency devaluation lowers real wages by inflation. Import prices rise, with no corresponding increase in wages. The effect of rising import prices spreads throughout the economy (the larger the import sector, the greater the effect). Consumption falls across the board. Everyone is pinched. But exports sectors prosper, and over time domestic industry also grows when no longer undercut by cheap imports.

“Internal devaluation” means lowering wages by deflation. Import (and other) prices remain unchanged, but nominal wages have to fall instead. However, wages tend to be “sticky” and resist falling, so downward pressure on wages leads to unemployment. Declining consumption is unevenly and capriciously distributed. Furthermore, deflation inflates domestic debts and raises the debt burden. It also raises the value of cash savings, even as the value of tangible wealth and most financial investments falls. This encourages hoarding of cash instead of investing it in productive uses. Deflation also makes real interest rates higher than nominal rates, making lending onerous and further discouraging investment. And because prices as well as wages tend to be "sticky," other distortions also enter the system.

In short, currency devaluation is bad, but "internal devaluation" is a lot worse. Milton Friedman got this one right.

*I am also showing my age here. Plenty of younger liberals have never heard of Milton Friedman.
**And, it should be added, he decisively broke with the gold bug faction of libertarianism, regarding it as even more absurd to build an entire economy around the price of a single commodity.

Monday, February 13, 2012

Tribulation Force, the Movie, Part 6

I've had acute withdrawal going for two weeks without any Left Behind posts on Slacktivist, but at last we get Part 6.

I see we have the same hideously mismatched dubbing. We begin completing Buck and Chloe's reconciliation. Chloe figures out that her father lied to her, but doesn't resent it.

Next morning the four are meeting at New Hope Church (lawn covered with trash, vagrants picking for scraps). Buck has Carpathia's approval to cover any story he wants in Israel. Pastor Bruce has misgivings. It seems odd to him that the Antichrist would approve a story that could expose him for what he is. (Uh, yes, that does seem strange). He also fears that Nicolae may have powers they can't even comprehend. But Buck assures him that he has convinced Nicolae it's all for world unity, Chloe will pray for him, and Rayford will be backing him up on the ground, so Pastor Bruce's doubts are overridden.

Meanwhile, Nicolae is, indeed, worried about the witnesses at the Wailing Wall, saying they will promote religious division. But he declines to arrest them, but merely increases the guards on the Wall. ("This isn't a dictatorship." I think the audience is supposed to react much as Republicans reacted when Obama said, "I'm not an ideologue.") Nicolae wants a one-world religion, "Tolerance, harmony and peace." To do this he wants Pastor Billings' video on the rapture off the air (how did it get on the air?) and Buck.

Next scene, Buck and Chloe, now happy together, play and joke around at an airport that is somewhat militarized but, alas, not so far from the norm these days. He even gives her a peck on the cheek before heading through security. She then says a tearful farewell to her father, who will be piloting the plane, and he gives her a fatherly peck on the cheek.

On board the plane, Rayford's copilot is not (I think) Chris, but he does tape pictures of his (presumably raptured) wife and two children to the wall. Rayford steps out of the cockpit, sneaks by Carpathia, Plank and Hattie discussing business (remember, this is furnished with all the comfort of a private plane), and starts rifling through the Antichrist's effects. Someone sneaks up on him, but relax, it's just Buck. Listening in on them from an unoccupied briefing room (that really reminds me of Star Trek), Rayford overhears them talking about revisions to Ben Judah's speech. (Remember Ben Judah? In the last segment Plank told Buck that Ben Judah is about to make an announcement that will be the most important, the biggest story of Buck's career). It is not clear, though, whether Buck has passed this information on to Rayford.

Either way, Ray opens an unoccupied laptop and finds (surprise!) that it is on, that, among several mundane looking items, is a revised version of Ben Judah's speech. When he pulls up the text, we don't see enough to see the speech at any length, but it includes the words "our Messiah" and "our Bible." He downloads it to a disk, hides the disk, and closes the laptop just in time not to be doing anything obviously incriminating when the door opens and the Antichrist steps in. Rayford says he was looking for Hattie to give her their ETA. (Apparently it is acceptable to lie to the Antichrist after all. It's not a very convincing lie, though. Even a jumbo jet serving as a private plane only has so many places to look, and Rayford had to get past the three of them meeting to get to the briefing room in the first place). Carpathia at least pretends to be fooled. He changes to topic to Hattie, asks probing questions, particularly whether their relationship extended beyond the workplace. (Is this a hint that his relationship with Hattie extends beyond the workplace? That was clearly the case in the book. In the movie there has been nothing up till now to suggest it). Ray lies to the Antichrist again and says that it did not extend beyond the workplace.

Then, just as Rayford turns to walk away and the tension seems to ebb, Nicolae says, "Captain, why don't you give me that." Rayford turns around and his face clearly telegraphs alarm. But Carpathia turns down the tension again; he was just asking for the ETA. Rayford, relieved, hands him the ETA. Carpathia takes his hand and suddenly his face turns into a hideous mask of evil. Rayford's face clearly gives away what he is seeing.

Presumably Rayford's RTC power allows him to see the Antichrist for what he is upon touching him. This raises an awkward question of why that didn't happen when Buck shook his hand earlier in the movie, but let that go as one of those annoying plot inconsistencies that never get explained. The Antichrist now presumably knows that Rayford is onto him, and presumably staged the whole scene at least in part because he suspected. That does, indeed, ratchet up the tension about what will happen next time.

Here is Fred Clark's take.

Sunday, February 12, 2012

Last Non-Romney Standing???

Amazing! It actually seems to have happened! Rick Santorum is looking to be the ultimate challenger to Mitt Romney. I'm not sure what to make of this. I can think of three points though:

(1) Give him points for sincerity. I know this isn't an original insight, but Santorum looks to be by far the most honest of the Final Four. Mitt Romney is a shameless panderer, telling audiences anything they want to hear. So is Newt Gingrich, although he channels their anger a lot more convincingly. Ron Paul likes to portray himself as the straight talker in contrast to all those other pandering politicians, but his newsletters prove otherwise. The difference is that Ron Paul was pandering to people so far out of the mainstream that most people have trouble imaging why he would want to. Only Santorum looks like a genuine tell the truth and damn the consequences sort of guy.

(2) Santorum is not one of these people who wants to get government out of our boardrooms and into our bedrooms. He thinks it has a place in boardrooms, too. Mitt Romney is a plutocrat. Santorum is not. He holds decidedly un-Republican views on economic issues. This seems to be a key part of his appeal in rust belt states. It may, after all, make him a more formidable candidate than I am giving him credit for.

(3) In the end, though, I think he takes culture war issues too far. Americans like a culture warrior like Ronald Reagan, who saluted Ozzie and Harriet as the ideal, while blithely ignoring the fact that most Americans (the Reagans included) did not live up to it. This makes culture wars a seriously losing issue for liberals. We tend to attack the Ozzie and Harriet ideal as repressive because we tend to interpret any praise of Ozzie and Harriet as criticism of people who fail to meet the ideal. This is a mistake. For most people, 1950's sitcoms still are the ideal, and hostility to that ideal expresses a hostility to people's deeply held values. But culture war conservatives make the opposite mistake and assume that admiration for Ozzie and Harriet translates into a wish to shame people who don't meet the ideal. The trouble, of course, it that most people don't live up to the ideal and resent criticism on that count. Santorum, to all appearances, has it in spades. My own belief is that whichever side is the aggressor in the culture wars ends up as the loser.

But we will soon see.

Saturday, February 11, 2012

Something I Actually Do Understand About the Economy

I do think that I understand why people are so fearful of inflation right now.* My guess is that there are two reasons.

One is that we are pursuing highly unconventional policies. Since the 2008 crash, the U.S. has been running budget deficits are large as 10% of GDP and pursuing highly expansionary monetary policies. The Federal Reserve has lowered short term interest rate to zero and pursued repeated rounds of quantitative easing, i.e., purchase of long-term treasury bonds to bring down long-term interest rates. This is what critics call financing government by printing money. Under all normal circumstances it is, indeed, inflationary. The thought that there might be exceptions is difficult to fathom.

The other reason is that people tend to think of inflation in terms of rising prices, and ignore rising (nominal) incomes. So, when incomes stagnate, people become highly inflation-averse, fearing any rise in prices, and not taking into account that true inflation will raise their incomes as well.
*And just for the record, although Republican sabotage may be a part of it, I can think of three reasons why other things are at work. (1) Even people of very liberal outlook are on record as fearing inflation. (2) The fear is not limited to the U.S.; Europeans have it too. (3) There were similar fears during the Great Depression which, as now, made it extremely difficulty to counter the downturn with expansionary policies.

Why Are Conservatives So Afraid of Currencies Falling?

An article I saw recently [once again, can’t find link] commented that an economy experiences recession when its domestic consumption and investment have fallen below capacity. That leaves essentially three options for recovery. (1) Government can step up spending to make up for the gap in the private sector. (2) The central bank can expand the money supply to lower interest rates and encourage more borrowing and investment. (3) The currency can fall to make exports cheaper and make up the drop in domestic production by exporting more.

All three options have some tendancy to occur spontaneously. A shrinking economy causes revenues to drop and unemployment payments to rise, forcing government to borrow more to make up for the lack of private borrowing. Lack of private borrowing tends to make interest rates drop and thereby make government borrowing easier, even in the absence of action by the central bank. And currencies of distressed economies fall, boosting exports. The point of the article was that the European Union is hard at work cutting off all three options for distressed members. Another point may be that conservatives seem determined to cut off all three options in all circumstances.

I understand the first one very well. If you regard all government spending as a great evils, then naturally you will regard increased government spending to boost the economy as a monstrosity. The second one is a little more difficult, but not too hard to understand. A central bank, though an independent agency, is ultimately part of the government, so monetary expansion is still government intervention in the economy. Besides, conservatives are famously inflation averse, and monetary expansion is, after all, inflationary, or at least potentially so.

But what is the problem with currency devaluation? It doesn’t call for government action, just for government sitting by and letting nature take its course. And it revives the economy, not by actions in the public sector, but by a private sector boost from exports. Indeed, one of the earliest and strongest champions of flexible exchange rates was no less a conservative and libertarian than Milton Friedman.* Friedman argued as far back as 1953 that it made more sense for exchange rates to adjust to the needs of an economy than the economy to adjust to maintain a fixed exchange rate.

Why floating exchange rates would appeal to liberals is straightforward enough. I read the case clearly made in college by a Keynesian writing in 1951. His words were, “We cannot have fixed exchange rates, full employment, and free trade. We can have any two, but not all three.” This was two years before Friedman warned of the dangers of fixed exchange rates. About a decade later, Robert Mundell made the case that these three items are the impossible trinity. He, too, believed that if one had to go, it was fixed exchange rates. So, if you value being able to fight recessions with expansionary policies (fiscal or monetary) you would prefer not to have your hands tied by maintaining a fixed exchange rate. The ability to fight recessions is a high priority for liberals. If that means fixed exchange rates have to go, so be it.

By contrast, conservatives are more driven by fear of inflation. I suppose this might partially explaint conservative fondness for fixed exchange rates -- as a barrier against inflation. Certainly during the same research in which I found the Keynesian quoted above, I also saw a work by a conservative Briton writing in the late 1960’s, a time when his country really had gone too far in fighting unemployment with fiscal and monetary expansion and was developing a serious problem with inflation.** He pitched fixed exchange rates as a necessary discipline to prevent inflationary policies.

But what if inflation is not a big problem? What if the big problem is recession (or even depression), rather than inflation? Even if the goal is to tie governments’ hands and keep them from intervening to fight recession, fixed exchange rates do not, after all, prevent government intervention in the economy. They simply replace intervention to fight recession with intervention to maintain an exchange rate. What’s so free market about that?
*Of course, these days Friedman is looking more and more like a lefty on macro issues.
**US inflation in the 1970’s peaked around 13% annually. British inflation peaked at about twice that rate, or 27%.

Monday, February 6, 2012

A Note to All Pundits Calling the Election Already

Just shut up and quit, okay? We've got nine months to go. A lot can happen in that time.

Besides, remember when you were calling the primary, and quite possibly the general, for Rick Perry?

Sunday, February 5, 2012

On Actually Reading Irving Fisher

Irving Fisher
Paul Krugman has provided a link to a paper by Irving Fisher, apparently dated 1933, setting forth his debt deflation theory of depressions. I must confess, this was the first time I actually read Fisher as opposed to reading about him. Fisher's essential theory of great depression is that they are caused by too much debt building up in the system and then all having to be paid down at once. It is a sub-category of the credit bubble theory.

Any discussion of Fisher has to compare and contrast with a closely related but decidedly different credit bubble approach to business cycles – the Austrian School. The Wikipedia proposes that the two are complementary halves of a whole – the Austrians show the credit bubble building up, while Fisher shows it crashing own.

Up to a point, their differences are mostly matters of emphasis. Austrians emphasize bad investments, presumably in the sense of physical investment, that must be shaken out. Fisher emphasizes bad investments made with borrowed money, which lead to bad debts. Austrians emphasize too-easy credit as the sole cause of bad investments. Fisher agrees that easy credit is one possible source of bubbles, but not the only one. Another source, depressingly, is inventions and technological improvements leading to very real investment opportunities. In 1837, the culprit was canals spanning the Appalachians, leading to a vast expansion in trade. In 1873, it was a railroad boom.* In the 1920's it was presumably the manufacture of consumer durables. In other words, even without too-easy credit, prosperity and technological innovation are in and of themselves dangerous because they can easily give way to irrational exuberance.

However, their views on a remedy are diametrically opposed. The Austrians might agree with Fisher that bad debts are a major part of the problem, but their response is to call for the debts to be paid off or, as Ron Paul puts it, “debt liquidation.” Fisher’s truly original insight is that such attempts are counterproductive. If everyone starts liquidating debt at the same time, the result is to shrink the economy, cause it to become deflationary and thereby raise the debt burden.

The graph below clearly bears out Fisher’s views. It makes clear that the debt level in 1929 was, in and of itself, manageable. The real spike in debt relative to GDP occurred only after the Depression set in and nominal GDP fell precipitously. Furthermore, as soon as nominal GDP began to recover, the relative debt burden fell just as impressively. This makes clear why nominal GDP is every bit as important as real GDP -- debt cannot exist relative to real GDP, only relative to nominal GDP.
It also explains why Fisher and the Austrians disagree on price stability. Both emphasize its importance, but for opposite reasons. Austrians have an absolute horror of inflation and consider avoiding it to be the defining feature of economic health. So great is the Austrian fear of inflation that they attribute the Great Depression to the "inflationary" boom of the 1920's, even though consumer prices actually fell during that time. Their explanation is that if the Federal Reserve had not been overly expansionary, prices would have fallen even more.**

Fisher, at least in the essay above, does not so much as mention inflation. His great fear is of deflation, which magnifies debts. His remedy was "reflation," or reversing deflation to bring debt back to a manageable level. Far from believing, as the Austrians do, that there is an inevitable bottom that must be reached and any attempt to avoid it merely prolongs the agony, Fisher describes this as “the so-called ‘natural’ way out of a depression, via needless and cruel bankruptcy, unemployment and starvation” and says that insisting that the economy reach an inevitable bottom is “as silly and immoral . . . as for a physician to neglect a case of pneumonia.”

Much of this sounds like what just hit our economy, especially the excess debt part. Other portions sound like things we fortunately avoided, particularly the deflation. Unless you count deflation of asset prices, a subject Fisher does not discuss. In other words, not only are bad investments being made with borrowed money, leading to bad debts, but bad (and often speculative) investments are being made with borrowed money, backed by inflated asset prices. Once asset prices fall back to earth, suddenly good debt becomes bad because it is no longer backed by adequate collateral.

It is odd that Fisher did not discuss this subject because it famously happened in the 1920's. It had happened many times earlier in land bubbles and other speculative bubbles. And, of course, it has happened just recently. As the graph above makes clear, our debt level today dwarfs the debt level of 1929, 0r even 1933.*** We have avoided falling into deflation this time around -- at least, wage and price deflation. But asset prices, especially housing prices, have deflated, leaving a lot of suddenly unsecured or under-secured debt. There is no need to "reflate" wage and price levels because they have not fallen. It also makes little sense to reflate housing prices, since those had become clearly excessive relative to the prices of everything else.

This raises an obvious question. If debt levels are insupportable now, even without wages and prices falling into deflation, and if deflation of the housing that backs our excess debt is necessary in order to bring housing prices realistically in line with income and rental values, where do we go from here?

Would Fisher be willing to go a step beyond mere "reflation " and endorse outright inflation as a way of shrinking debts down to manageable levels?

*The 1837 and 1873 depressions are also neat opposing illustrations of interaction of credit and real investment opportunities. The 1837 depression was caused by irrational exuberance over canals and trans-Appalachian trade, with a bubble abetted by too-easy credit (Jackson de-chartering the national bank and distributing it deposits among private banks). The 1873 depression was caused by irrational exuberance over railroads, with the collapse of the bubble aggravated by too-tight credit (the gold standard).
**And here I must confess to not remembering why Austrians think inflation is so bad. However, during the Depression
Hayek definitely blamed it on the inflationary boom of the 1920's, although he later acknowledged he was wrong. Murray N. Rothbard was still doing so in the 1960's.
***I will note that the source of the debt to GDP graph above mentioned that much of the expansion in debt was financial debt, i.e., debt owed by banks to other banks. This is generally considered less dangerous than other forms of debt because it is a mere reshuffling of money among banks. Excluding financial debt, the expansion of debt is not quite as scary.

Saturday, February 4, 2012

The Economy: It's Groundhog Day!

So, employment is ticking up again in January. That's nice. But forgive me if I don't break out the champagne just yet. You see, we've seen this before. Twice now.

At the end of 2009 and the beginning of 2010, the economy began looking up, jobs began climbing and unemployment began falling. Then around March or April the economy began losing steam. By summer people were talking about a double dip. By August or September, it looked all but inevitable.

But at the end of 2010 and the beginning of 2011, the economy began looking up, jobs began climbing and unemployment began falling. Then around March or April the economy began losing steam. By summer people were talking about a double dip. By August or September, it looked all but inevitable.

But at the end of 2011 and the beginning of 2012, the economy began looking up, jobs began climbing and unemployment began falling. But once again economists doubt that this looks sustainable. The main reason for their doubts is the recovery of the last few months has been based more on inventory growth than actual orders. Once inventories are adequately restocked, the momentum for recovery will end. That means expect the economy to begin losing steam by March or April. Why, by summer people may be talking about a double dip. But don't worry, by late 2012 and the beginning of 2013, I'm sure things will get better.

In all seriousness, what is going on? I don't know, but I have heard at least one plausible suggestion (alas, can't find link). Someone suggested that what may be happening is that the government is failing to properly smooth out seasonable factors. Given the marked seasonality of the economy we have seen thus far, I am inclined to suspect this is what is happening.

Of course, I hope I'm wrong.

Wednesday, February 1, 2012

Why I Like Groundhog Day

Around Christmas I promised to explain why I think Groundhog Day is so much better than A Christmas Carol.

I should also add that one of the signs that Groundhog Day is a really good movie is that so many different kinds of people relate to it at so many different levels. Accustomed as we are to thinking of time as linear, many people obviously related to an expression of time as cyclical; in fact, Groundhog Day has taken on a new meaning as an expression of cyclical time. Soldiers identified with it as expressing the endless slog of an overseas semi-combat deployment. Economists have used it to illustrate the impossibility of perfect information. The National Review listed it in the top conservative movies because of its rejection of self-indulgence and hedonism. Feminists like it because the main character learns to respect, rather than manipulate, women. And many religions* have applauded its moral and spiritual message. To Christians it is the tale of a sinner redeemed. To Jews, it vindicates a this-worldly spirituality. And to Buddhists, it is an illustration of people being trapped in an endless cycle of repetition until they reach the stage of spiritual development to be released. The people of Puxatwaney, of course, love the movie because it promotes their tourist industry. It's also original, extremely funny, heartwarming without being maudlin, and teaches a moral lesson without being preachy.

I like it as an illustration of A Christmas Carol done right.

It should be needless to recap the plot, but here goes. Bill Murray plays Phil Connors, an obnoxious, overbearing jerk of a TV weatherman in Pittsburgh. He gets sent to Puxatawney to report on their annual Groundhog Day celebration. He despises Puxatawney and its people as a bunch of ignorant hicks, but is happy at the chance to hit on his beautiful producer, Rita. At first he doesn't see this as much more than a chance to notch up another score with a beautiful woman. She responds appropriately. Then, of course, he gets stuck on Groundhog Day, reliving the same day over and over. He is understandably horrified until a couple of drunks at the bowling alley point out that this would mean life without consequences -- he can get away with anything he wants. So for a while he parties like there's no tomorrow because there isn't, but after a while this loses its charm. He learns enough about women on one day to seduce them on the next, but realizes that it is really Rita he wants.

So he starts to work on her. What starts with an attempt to score with a beautiful woman turns into more. The more he gets to know her, the more he sees of her character and comes to genuinely love her. To her, on the other hand, it is merely a pleasant date that might develop into something in time, but it's way to early to commit/sleep with him.** And what she sees, after all, isn't really him, it is a deception he is putting on to manipulate her. Invariably she senses it and ends up slapping him. The unspoken subtext is that if she ever agrees, it will break the spell.

Unable to score with Rita, Phil despairs and kills himself. Again and again, all in vain. Then he resorts to the radical measure (and in his case, it really is radical) of telling her the truth. And it gets him further with her than ever before -- to genuine and sincere friendship. She even spends that night -- but as a friend only. Not good enough. She also suggests that instead of considering this a curse, maybe he should treat it as a blessing. Since he has an unlimited number of lives, why not put them to good use.
He starts just by being nice to people. Then he moves on to learning and art. (He learns to play piano and make ice sculptures). Then, when he tries to help an old beggar, but he dies, Phil learns that even on Groundhog Day, there are consequences. Nothing he does can keep the old man from dying, but Phil starts looking for other things that can make a difference and learns that the joy of a good deed never gets old. On his final go-round, he never even attempts to seduce Rita. She sees, without his making any effort, what a great guy he has become. She finally agrees to sleep with him. The spell is broken, and he resumes normal time.

So, how does it get right everything A Christmas Carol gets wrong?

It makes the protagonist an active participant in his own redemption instead of a passive spectator. He learns the only way anyone ever really learns anything -- by doing, again and again and again.
He begins as a credible, human jerk, not a cardboard cutout caricature. He ends as a credible human artist and nice guy, not a cardboard cutout caricature. And he has many credible human intermediate steps, each reasonably flowing from the one before.

It allows him to develop gradually over time, with resistance to learning, setbacks, and relapses, just the way everyone's moral and spiritual development takes place in the real world. Apparently [can't find link] people debate what event in the movie is Phil's turning point. But the beauty of the movie is that he doesn't have definable turning point, just as real world people often don't. To the extent there is a turning point, it is probably when he tells Rita what is happening to him and she tells him that having an infinite number of lifetimes can be a blessing, not a curse.

It isn't preachy. It lets the audience see the message instead of hammering them over the head with it. Yes, Phil gets two pieces of advice. First the drunks at the bowling alley point out that if there is no tomorrow, there are no consequences and he can do anything he wants. Later Rita tells him what a gift this can be. Both have an immense effect on him. But both are a single line. Otherwise it shows rather than tells. It doesn't say that hedonism gets old, but the joy of a good deed never fades. It shows him tiring of hedonism, but not of good deeds.

It stays funny and therefore avoids the trap of sentimentality.

And besides getting right what A Christmas Carol gets wrong, it is a much better guide to healthy love than your average romantic comedy. Most romantic comedies either show the man and woman bickering until they end up kissing, or have the man overcome the woman's resistance by sheer perseverance. Anyone who takes either approach as a guide to actual romance is headed for trouble. Groundhog Day shows true love as working only when the lovers appreciate each other for who they really are.

So, ghost of Charles Dickens, if you can read my blog where ever your are, take my advice on how to write a better and more convincing story of a mean guy turning nice.

*Though presumably not their more conservative members. After all, the movie not only condones sex outside marriage, it strongly implies that it holds the keys to salvation.
**Rita is the modern version of a pure and chaste woman. She has no objection to sex outside of marriage, but only with a man she truly loves.