Who Were the Sea Peoples?

An interesting answer one can glean from Scott Sumner's The Midas Paradox is.... America' oldest enemy, France! "France was easily the largest gold hoarder during the Great Depression. Her monetary gold stock rose almost continually from $711 million in late 1926 to over $3.2 billion at the end of June 1932 (nearly 30% of the world total)" (p. 138).

"While working on this project I have gradually come to the conclusion that modern macroeconomics, macro history, and the history of thought are a seamless whole; it is impossible to really understand any one filed without also having deep knowledge of the other two." -- Scott Sumner, The Midas Paradox , p. 357

"in order to understand the October [1929] crash, one needed to explain why it would have been sensible for investors to be highly optimistic in September 1929, and somewhat pessimistic in November 1929." -- Scott Sumner, The Midas Paradox , pp. 60-61 Again, Sumner is introducing his conclusions as a criterion for what facts will be acceptable. Of course, no one embarks on an attempt to explain some historical episode with a "blank slate": every effort at understanding is an effort to understand better what is to some extent already understood. There is nothing wrong with Sumner starting with the hypothesis that investors were "sensible" in September 1929, and seeing if it holds up. But here Sumner posits their being sensible, not as a conjecture to be explored, but as a given which any explanation must incorporate. And given that is a pre-condition he has placed on any acceptable explanation of what occurred, it is inevitable that the end result of hi...

"On June 4, 1928, the New York Times (p. 4) reported 'Credit Curb Hinted by Reserve Board.' The market actually rose slightly on June 5, but then, over the following week, the Dow plunged 7 percent. Policy news ought to be incorporated into securities prices almost immediately, and thus, it is unclear whether the Fed's announcement had any impact on the markets." -- Scott Sumner, The Midas Paradox , p. 47 This is a funny way to do historical research: one goes in knowing what should happen -- "policy news ought to be incorporated into securities prices almost immediately" -- and then creates the facts -- "it is unclear whether the Fed's announcement had any impact" -- based on the pre-existing theory. There is a way to determine whether the news about the Fed was what "caused" this drop: detailed examination of the journals, memoirs, letters, newsletters and so on of stock market participants of that time, to see if this wa...

"For instance, Romer argued that the 1929 stock market crash sharply reduced consumer confidence, and that this was a major factor depressing aggregate demand. But the quite similar stock market crash in 1987 seemed to have no impact at all on economic growth, suggesting that the direct impact of stock prices on real output is certainly very small." -- Scott Sumner, The Midas Paradox , p. 39 What we have here is an oscillation between an historical mode of explanation and a scientific one. Science deals in generalizations, and has nothing to say about specific events other than citing them as instances of its generalizations. ("The arrow will fall back to earth, as it was shot in the air with less than escape velocity.") History, on the other hand, deals with particulars, and a resort to scientific generalizations is at most a stopgap in an historical explanation, filling in where we lack actual historical knowledge. ("Although we have no evidence for wha...

"A modern example of this conundrum [of thinking that one can outguess financial markets] occurred when many pundits blamed the Fed for missing a housing bubble that was also missed by the financial markets." -- The Midas Paradox , p. 12 Let's consider a single market, say, for tulips. Obviously it is either a nonsense claim, or a tautological claim that there are no bubbles, to say that if there is a bubble in the tulip market, the tulip market ought to have spotted it. For the tulip market participants themselves to detect a bubble would be for the tulip market participants to prevent said bubble! We can divide bubble theories into three broad categories: collective irrationality theories, partial information theories, and prisoner's dilemma theories. In collective irrationality theories, a "mania" gets going in some market, and market participants buy because they are carried away by their "animal spirits." Per these theories, someone outsi...

Scott Sumner is triumphant about the April jobs number. Monetarism has apparently now been as good as proven. Can you imagine someone from the natural sciences putting forward a claim that a rival school (in Sumner's case, Keynesians) had been entirely vanquished on the basis of similar evidence? Biologist Will Wintner: I have empirical evidence proving the rival school of cancer cell mutation wrong! I am triumphant! Journal Editor: Ah, so this evidence is from repeated, duplicable laboratory experiments with tight environmental controls? BWW: Well, no... JE: Oh, clinical trials, then, dozens of them with hundreds of cases each and well-designed control groups? BWW: Not exactly... JE: So what is this evidence? BWW: Well, I'm pretty sure I saw the mutation happening the way I think it does in nature. JE: No control group to compare to? BWW: Nope. JE: No scientific control of the environment? BWW: None whatsoever. JE: Yes, and how many times did you see this happen? BWW: Just o...

Scott Sumner writes : "Bubbles are caused by asset prices crashes, just as mountains are caused by valleys." Sumner's contention is thatwe only see "bubbles" when NGDP crashes, and leads to a steep price decline in the asset class that we then declare to have been in a bubble. Well, first of all, mountains aren't caused by valleys! The land surface of the Earth would not be a 29,000 plateau if not for those pesky valleys: tectonic plates collide, and lift up mountains. So the metaphor is bad, but what about the economic analysis? Sumner says: "The 1920s and the Great Moderation both saw relatively stable NGDP growth. So why the big bubbles? Because NGDP growth crashed in 1929-30 and 2008-09. In 2008-09 NGDP growth slowed by 9% relative to trend, nothing like that happened in the 1970s. It was the crash that (partly) created the bubble. Without the crashes, we wouldn’t even be talking about the great stock bubble of 1929, or the great housing bu...

But without need! Bob writes: "But what of the second part of Sumner’s quote, where he says: 'The huge decline in house prices between 2006 would not be expected to cause a major recession, and indeed would not have caused one had NGDP not declined.'" "I still say there’s something really screwy about this approach. Absent huge swings in the price level, a recession is the same thing as a drop in NGDP." I believe Sumner thinks like this: In Year 1 (Y1) we have an economy going along nicely, RGDP growth (R) = 3% and NGDP growth  (N) = 5%. In Y2 there is, say, a supply side shock, dragging R down to -1%. But the Fed does its job and, with 6% inflation, keeps N at 5%. Because of the Fed's action in Y2, in Y3, the economy rebounds, with R = 4% and N = 5%. If the Fed had allowed N to drop to 1% (if inflation had stayed the same) or even lower (if the shock had increased liquidity preference) then the economy might have been mired down for several...