In a low-trust environment, I must use my scarce disposable income to put bars on my windows; in a high-trust environment I can avoid the expenditure and use the capital to increase my wealth (while remaining susceptible to the occasional glass-breaking hammer-wielding thug.)

One of my aesthetic differences with the Monetary Authority is the idea that iconoclasm in general is thuggery. Hammers and screwdrivers are thuggish without imagination, fairness or consideration; but in the right hands they can penetrate and probe the plush, complacent seat of power.

Whilst I sympathise with the manic monopolist model of memetic production, I think it’s becoming a lost purpose. The original problem was the development of political parties, with very few internal rules in comparison to the existing state, that would eventually compel more obedience. The solution is for the state to protect its evolved, fine structure by having some of its departments, with an institutional interest in defending this state, descend to the level of the herdists.

The lost purpose is when this state, in order to defend memetic monopoly, begins to destroy its own liberal traditions, or cultivates a population that is unable to pump out entropy, or fails to consider that the Internet might be a communication medium that favours liberals more than filthy herdists.

Instead of low- and high-trust societies, I would say there’s an uncanny valley between the intellectually corrupt, stagnant society that’s paranoid about anyone doing anything—even Jesus—and one with more wealth, leisure time and freedom that has to be used responsibly. It’s OK to replace Windows with Linux, as long as we’re able to create a flourishing open source community. Maybe I’m biased, but whereas some would see me as a thug who’s going to push us down into that valley, I am predicting that it’s going to happen and building an elevator on the other side.

I think we are mostly dealing with benign vast, formless things in the 21st century.

And the problem with that is that ‘learning’ and ‘failure’ is a micro / individualized experience. Micro-level decisions may seem perfectly rational in isolation, but cannot process or incorporate information about possible systemic risks. After a systemic crisis, there is not necessarily any micro-level lesson to be drawn, and the same behavior may have a better result this time around. And there is no way for prudential micro-behavior to accumulate into prudential macro-stability in a nominal system.

In the context of political macro-stability here is a relevant passage of Foucault, whom I’ve been assimilating recently:

The importance of economic theory—I mean the theory contructed in the discourse of the économistes and formed in their brains—the importance of the theory of the price-value relationship is due precisely to the fact that it enables economic theory to pick out something that will become fundamental: that the market must be that which reveals something like a truth.This does not mean that prices are, in the strict sense, true, and that there are true prices and false prices. But what is discovered at this moment, at once in governmental practice and in reflection on this governmental practice, is that inasmuch as prices are determined in accordance with the natural mechanisms of the market they constitute a standard of truth which enables us to discern which governmental practices are correct and which are erroneous. In other words, it is the natural mechanism of the market and the formation of a natural price that enables us to falsify and verify governmental practice when, on the basis of these elements, we examine what government does, the measure it takes, and the rules it imposes. In this sense, inasmuch as it enables production, need, supply, demand, value, and price, etcetera, to be linked together through exchange, the market constitutes a site of veridiction, I mean a site of verification-falsification for governmental practice.

This is not inconsistent with prudential management of the economy. My liberal proposal is also susceptible to management, and it would create a truth system for the quality of government in another certain domain, which I believe we can accomplish. Ideally, there would not be a continuity breach in the management.

But the best part of rule-based monetary policy is that the rules can be automated and globalized / de-nationalized. For instance, in future-generations of virtual currency.

As well as rules and discretion, outside economics we can also contrast formal rules and informal, social expectations. If we replace a lot of GUI government with the terminal, or overwrought IDEs with vim, expect a number of benefits. My pet idea which departs most severely from progressivism is that, as long as graphical events aren’t likely to infect the business of government, we can—without coercion—rotate our attitude to health, safety and sensitivity amongst the masses by 180°.

And replace it with what?

So, for example, pension payments, wages (and COLA boosters), minimum-wages, and tax-brackets are adjusted for inflation using the CPI. You can either (1) not adjust them or (2) figure out a fair way to adjust them.

They didn’t adjust the tax-brackets in the 70 and early 80’s, and the high inflation rates brought ordinary earners into the highest brackets, and it became a ridiculous political fight every time they had to push them up. Finally, Reagan pushed through and signed a law to depoliticize that fight by making the adjustments automatic.

The same thing happened with minimum-wage fights at the state level in red-leaning states, but notice not at the federal level, where having the fight every few years is reliably useful to the progressives – which is why they kill every attempt at implementing automatic adjustments in subcommittee.

Now, you could try to get rid of government-calculated CPI, and use market-based metrics like the TIPS-spread. The argument to do this would be a consistent and significant departure of the TIPS-spread vs. CPI.

Notice: This is never the argument anti-CPI folks make, because is it not true. So government is corrupt and arbitrary with regards to it’s PCE-based weightings, but the markets estimates of price-level changes just happen to repeatedly coincide with it? Yeah, right. Come on. I hope Putin is getting his money’s worth with ZeroHedge.

As the late Lawrence Auster would say, ‘Synchronicity!’ Interfluidity, right on cue.

there was surprising agreement among several panelists that speculative bubbles help support innovation. William Janeway distinguished between bubbles in productive vs nonproductive sectors, financed by banks vs nonbanks, and argued that productive-sector, not-bank-financed bubbles promote socially useful innovation at modest social cost, despite high private costs to investors. …. In an earlier panel, Mariana Mazzucato described the importance of “mission-oriented” investment by the public sector. States determined to gain military advantages or put humans in space accept experimentation and failure that would be intolerable to private venture capitalists (whose enthusiasm for risk, she argues, is in general overstated). The common thread in all these accounts is that too much market discipline can be socially counterproductive. If (nonbank-financed) speculative bubbles create social value that exceeds the costs borne by investors and entrepreneurs, then the fact that market participants fail to impose privately optimal discipline on their own portfolios is beneficial. If revolutionary developments in technology depend upon states accepting large, nonrecoverable expenses, a managerialist insistence on quantifiable performance metrics may be foolish. Even in the private sector, powerhouses of invention like Bell Labs and Xerox PARC thrive primarily within cushy monopolies, where they are sheltered from quotidian fretting over the bottom line, where market incentives are present but blunted.

That part about an optimal lack of absolute market-discipline is key, and related to contrast I drew between the risk-tolerant vs. risk-averse economic equilibriums.

“Of course, I’d rather see economic reality — as communicated through hard money — train human expectations (with whatever harshness proves necessary), rather than the concessionary reverse (e.g. NGDP targeting, or some worse kind of sloppy Kenynesianism such as the one we’re afflicted by now). Austerity and deflation are aligned with civilization and liberty, from which any deviation is at least mildly depraved. That hard money would “cause the same cascades upon real shock, but without the possibility of mitigation” strikes me as entirely a point in its favor — money is too valuable as an epistemological instrument to be turned into a shock-absorber by populist government.”

The problem with this theory is that there are multiple social equilibriums, completely analogous to high-trust and low-risk social equilibriums. A high-trust society provides a better life in almost every way, but it is inherently vulnerable to occasional cheating and fraud. Major and harmful cheating events are always possible in a high-trust equilibrium, but don’t disturb the stability until they become too frequent. The problem is that ‘learning’ from a negative event can easily take the form of tipping into the low-trust equilibrium, which, like a black hole, is much more stable, but also awful and hard to climb out of. Productive Cooperation becomes too unlikely, and expenditures on security rise above the efficient level (security and Efficiency being classic trade-offs). In a low-trust environment, I must use my scarce disposable income to put bars on my windows; in a high-trust environment I can avoid the expenditure and use the capital to increase my wealth (while remaining susceptible to the occasional a glass-breaking hammer-wielding thug.)

In economics and finance, there are also high-entrepreneurship / risk-tolerance and low-entrepreneurship / risk-averse social equilibriums, and human nature tends toward the latter, not the former, which requires social institutions that encourage people to take entrepreneurial risks and fail gracefully and start over instead of never trying because one is terrified of failing catastrophically. This is the wisdom embedded in bankruptcy codes, which, since they are known in advance to creditors, treat all parties with fairness and flexibility.

And the problem with that is that ‘learning’ and ‘failure’ is a micro / individualized experience. Micro-level decisions may seem perfectly rational in isolation, but cannot process or incorporate information about possible systemic risks. After a systemic crisis, there is not necessarily any micro-level lesson to be drawn, and the same behavior may have a better result this time around. And there is no way for prudential micro-behavior to accumulate into prudential macro-stability in a nominal system.

One way around the nominal problem would be for people to deal in something like shares of a mutual or hedge fund that invested in futures contracts with the best guess of weightings of future consumption needs. Which … would track nominal aggregate demand exactly. So the value of these hypothetical ‘new-dollars’ should follow a predictable-path in terms of its share of nominal aggregate demand, which is what NGDP-FLT actually does to actual dollars.

When nominal aggregate demand falls short of expectation, nominal debtors and creditors are going to fail and fall, and the question is ‘how far, how hard, and with what cascading effects.’ The bankruptcy and foreclosure system is one attempt at ‘social shock absorbers’, but there is no reason to believe it’s less costly than debt-relief by means of small amounts of additional inflation when output falls short of expectations. The inherent problem, however, is that the government is far from a disinterested and transcendent observer, because it is a debtor too.

Finally, as someone who favors de-politicization, you should favor any rule-based method over a discretionary-method, where the risks of abuse are entirely different. In the first case, the risk is that an announced rule will be violated despite the impact to the Monetary Authority’s credibility (the maintenance of which is of such prime important that it discourages violations except in extremis and the most exigent circumstances). In the second case, the risk is that one can’t even argue that a rule is being broken.
But the best part of rule-based monetary policy is that the rules can be automated and globalized / de-nationalized. For instance, in future-generations of virtual currency.

Your final paragraph throws me into a state of howling moral anguish that I probably need to work on. Aside from religious objections to the abomination of inflation (which I most assuredly have), however, what I’m not seeing is the attraction of an NGDP-based currency except, perhaps, as a medium of exchange. As a store of value it would surely be inferior to hard alternatives — whether metal or 1st gen crypto-currency?

Of course, I’d rather see economic reality — as communicated through hard money — train human expectations (with whatever harshness proves necessary), rather than the concessionary reverse (e.g. NGDP targeting, or some worse kind of sloppy Kenynesianism such as the one we’re afflicted by now). Austerity and deflation are aligned with civilization and liberty, from which any deviation is at least mildly depraved. That hard money would “cause the same cascades upon real shock, but without the possibility of mitigation” strikes me as entirely a point in its favor — money is too valuable as an epistemological instrument to be turned into a shock-absorber by populist government.

And so is macroeconomic policy.

This blog has already dismissed macroeconomic aggregates as politicized ‘garbage‘ — so I agree.

This is a case where my rationalist preference for instrumentally useful memes–with all the necessary caveats–rather than idle, floating epistemic beliefs of pure curiosity, is of benefit.

Take this paragraph from Handle:

The monetary authority’s role is distinguishable. It is not to create the conditions for real growth, but to ensure that the network of expectations and obligations where the real economy interacts with monetary nominal instruments is maintained in such a way so as to avoid various detrimental negative and positive vicious cycles upon the occurrence of unexpected shocks and disruptions.

To me, this is a very strong claim that is also hand-waving and unverifiable. If we replace “monetary authority” by Gosplan, does the sense of it change much? Can you imagine some pompous Soviet arse talking like this?

This is especially true in light of my direct observation of X authority attempting to ensure that stuff don’t go wrong in the thing–to rephrase Handle. I haven’t been impressed.

As a critic with the spirit of Nullius in verba, my meme-paradigm-vector is simple but not foolish. This book is the most devastating critique of anything I have ever read; absolute victory. Hazlitt, like all Austrian economists, would in general use micro-economic, political and game theoretic reasoning, but not macro-economics, these ridiculous equations and imposed symbolic quantities.

The critic’s willingness to recognise a counter-intuitive sense in the (neo-, post-autistic-) Keynesian mendancity, instead of clever-silly-aggression, has to be related to the very poor performance of this part of the modern structure in particular. So, the answer is that if someone like Handle wants the public to believe in NGDP targeting: audit the Fed…every week. If that’s difficult, adapt. Show the world what you are doing to their currencies, make it possible for critics to have an informed opinion on this. As it stands, it’s almost impossible for even the most elite intellects to say more than that the official story is shite.

So, as I–m-m-m-m-m-meeeeeeeeeeee–said: microeconomics good, macroeconomics bad.