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April 15, 2005

Why Oh Why Can't We Have a Better Press Corps? (I've Got to Stop Saying "National Review Has Reached Its Nadir" Department)


I've got to stop saying, "National Review has reached its nadir." This is worse than anything I've seen before, worse than I had imagined possible.

Do I thank or curse Mark Thoma for flagging it?

National Review Online (http://www.nationalreview.com): Voodoo Volckernomics: The former Fed chair gets trade deficits all wrong. By John Tamny: [F]ormer Federal Reserve chairman Paul Volcker weighed in with a Washington Post editorial that mixed myth and contradiction to bolster his contention that the trade and budget deficits have our economy ‘skating on increasingly thin ice.’.. ‘disturbing trends, huge imbalances, disequilibria, [and] risks’ that weigh it down....

Unless Volcker possesses more wisdom than the infinite collective insights that comprise the marketplace, he’s got things backward. That money flows into the U.S. so plentifully at such low rates is a pretty unambiguous sign that ‘disturbing trends’ and ‘risks’ exist everywhere but in the U.S....

Alas! The money that is flowing into the United States is--as Tamny does not know--money from foreign central banks interested in putting off the dollar's fall, not money from private foreign sources that think the U.S. is a good place to invest.

Later in the editorial Volcker offered up his contention that ‘personal savings in the United States have practically disappeared.’ Leaving aside the fact that the government statistic Volcker cited cannot reliably track the myriad ways Americans save, his assertion is belied by a recent Bear Stearns report on savings. In it David Malpass (NRO financial writer and Bear Stearns chief economist) shows per capita assets in the U.S. of $89,800 that make us the top saving country in the world....

Alas! Tamny does not seem to know that the savings rate that Volcker is talking about is not the level of Americans' savings but the change in their savings, adjusted for asset valuation effects and measured as a share of GDP.

Volcker argued for a ‘combination of measures’ from the government that would reduce the U.S.’s ‘import demand.’ But as classical economists from Adam Smith to Robert Mundell have reminded us, ‘any decision to reduce imports involves a corresponding decision to reduce exports.’

Alas! Tamny does not seem to know that Adam Smith, Robert Mundell, and the other classical economists assumed that international capital flows were stable at their equilibirum levels. If they aren't--as they are not today--the principle does not hold.

Lastly, Volcker falls into the trap that many do in attempting to distinguish between foreign and domestic capital inflows.... In truth, there is no difference. Capital knows no color or country; it only knows relative safety and returns....

Alas! Tamny does not seem to know about the enormous "home bias" in international investment positions: American-owned capital greatly prefers to be in America; Japanese-owned capital greatly prefers to be in Japan; European-owned capital greatly prefers to be in Europe. If you want to analyze international capital flows, "home bias"--the fact that today capital very definitely knows its country--is one of the places from which you have to start.

But the point isn't to provide or critique economic analysis, is it? The point isn't to inform the readers of National Review, is it? The point is that Paul Volcker--chosen by Republican Richard Nixon's staff to be Undersecretary of the Treasury for Monetary Affairs, chosen by Republican Arthur Burns to be President of the Federal Reserve Bank of New York, chosen by Republican Ronald Reagan's staff to be Chairman of the Federal Reserve Board--has written something inconvenient for the Bushies inside the White House. And so National Review undertakes the mission of trying to murk the waters with clouds of ink.

And in this squid-like task, actual knowledge of the economy or of economics is a positive hindrance. The less the writer knows, the better.

Enter John Tamny. Even more pathetic than the others.

Posted by DeLong at April 15, 2005 03:23 PM