Tuesday, June 21, 2011

Conservative Philosophers

Bryan Caplan asks: "Can you name a post-1900 conservative economist as well-known as Milton Friedman, or a post-1900 conservative philosopher as well-known as Robert Nozick?"

I don't know whether or not he means well-known inside academia or well-known in general. I'll assume he means in general. If we interpret the words conservative and philosopher somewhat broadly, then I'll throw these names out there:
Elizabeth Anscombe
Reinhold Niebuhr
John Courtney Murray
Jacques Maritain
Alasdair MacIntyre
Pope John Paul II
Joseph Cardinal Ratzinger
C.S. Lewis
G.K. Chesterton

As for conservative economists comparable in fame to Friedman, I'll throw in the towel. However, I will say that considered himself "a libertarian with a small 'l' and a Republican with a capital 'R.'" He also called himself a classical liberal. But these descriptions are not so different from what many contemporary conservatives would apply to themselves. And maintaining a long-term connection to the Republican Party, as Friedman did, is something many libertarians would find too distasteful to attempt.

Also, Hayek, though he denied being a conservative, actually was quite conservative in his philosophical views (e.g. a reluctance to tinker with institutions which had presumably evolved that way for a reason.)

Saturday, June 18, 2011

Inflation Target

It's nice to see this. It's amazing that the Fed doesn't already have some sort of explicit target (inflation, price level, NGDP, whatever.) How can we know whether it is effective or not if we don't even know what it's goal is? If the Fed wants to create expectations of price stability, why not tell us what that means so that can know what we should be expecting? This could be one of those cases where being more mysterious gives one more prestige. But I think a predictable Fed is better than a prestigious Fed.

Our country desperately needs more intelligence in the debate over monetary policy. Once in a while, it's good to step back from the newspapers and talk shows and think deeply about these issues.

Monday, June 13, 2011

Contra John Cochrane on QEII

U.Chicago economist John Cochrane recently argued (in a Bloomberg article entitled "Is QE2 a Savior, Inflator, or a Dud?: Business Class") that the Fed is basically impotent, and the evidence for this is that: "QE2 doesn't seem to have lowered any interest rates." For students of Scott Sumner and Milton Friedman, interest rates are known to be quite misleading indicators. Also, interest rates are not the only way to measure the effectiveness of monetary policy. Why not look at inflation expectations themselves? After all, what is monetary policy about if not inflation expectations?

He does mention inflation expectations, but oddly he says: "Expected inflation could explain the sharp rise in long-term yields starting in November. But the rate for 10-year Treasury Inflation Protected Securities, or TIPS, rose in parallel, contradicting that interpretation." Why not look at the TIPS spreads? Look at graph of TIPS spreads above. You can see the 5 and 10-year TIPS spreads rose sharply from August 2010 to late April. Notice also that in that period the S&P rose as well (top graph.) I'm not an expert Fed watcher, but wasn't August around the time Bernanke signaled that he was open to more monetary expansion if needed? Could the decrease seen in both graphs since late April 2011 be partially due to market participants realizing that QEIII would not be coming any time soon?

I'm quite open to correction, but why doesn't Cochrane talk about the most relevant indicators, such as TIPS spreads?

(Sources: TIPS graph made using data from http://www.stlouisfed.org/ and S&P graph from Google Finance.)