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Yesterday morning I was very pleased to encounter, in The Wall Street Journal, a report by Brian Blackstone on deflation in Switzerland. In it Blackstone observes that the Swiss case appears to contradict the widespread belief among economists (“as close to an economic consensus as you can get,” he says) that deflation is necessarily a bad thing.

Blackstone’s report pleased me because, as many readers will know, I’ve been banging the drum for “good” deflation for decades. I started doing so with The Theory of Free Banking (1988), when I imagined that I’d made a new discovery. There I observed, among other things, “that a fall in prices in response to reduced per-unit costs is, not only consistent with, but essential to the maintenance of equilibrium” (p. 99) and that “What is needed is a policy that prevents price changes due to changes in the demand for money relative to income without preventing price changes due to changes in productive efficiency” (p. 101). Not quite a decade later, in Less Than Zero: The Case for a Falling Price Level in a Growing Economy , I developed the same arguments, defending what I then called a “productivity norm” ideal for price-level movements, at much greater length. By then I’d also learned that, despite the consensus to which Blackstone refers, the idea I was defending was anything but new: in fact, until the Keynesian revolution came along, economists who accepted it outnumbered those who didn’t.[1]

Although the “long deflation” of 1873-1896 was roughly consistent with a productivity norm, albeit one adhered to more by accident than by design, and more specifically with “good” deflation, one rarely witnesses good deflation these days. The Swiss case appears to be a rare exception. As Mr. Blackstone reports,

evidence of deflation’s pernicious side effects—recession, weak employment, rising debt burdens—is pretty much nonexistent in Switzerland. Its economy is expected to expand this year and next, albeit slowly, in the 1% to 1.5% range. Unemployment was just 3.4% in September. Government debt is low.

Nor have Swiss wage earners had to tighten their belts:

Although wage growth has slowed in Switzerland, it was 0.6% on an annual basis in the second quarter, which combined with falling prices means strong real pay gains, boosting spending power.

Precisely. Even if the number of Swiss Francs Switzerland’s workers take home isn’t increasing all that rapidly, the fact that prices are falling means that their real wages may be improving at a healthy clip. And if prices are falling because unit costs are falling — if cuckoo clocks, chocolate bars, and watches cost less but are also cheaper to produce than before — Swiss industry is none the worse for it.

Concerning the crucial distinction between “good” and “bad” deflation, Mr. Blackstone quotes Swiss economist Alexander Koch. “You have to distinguish between good and bad deflation,” Koch told him. “There’s no crash, no strong increase in unemployment in manufacturing and as there are no bursting bubbles in other sectors, domestic demand and the labor market are quite resilient.” A few B.I.S. economists, Blackstone notes, have also “challenged some of the conventional wisdom on deflation’s pernicious effects.”

Toward the end of his article Mr. Blackstone asks, quite appropriately, “So why aren’t central banks embracing the Swiss example?” “Analysts note,” he writes in answering the question, “that it’s difficult to distinguish between good and bad deflation until it’s too late.” However, that answer simply won’t do, because distinguishing between good and bad deflation is as simple as noting whether or not nominal spending (NGDP or domestic final demand or their equivalents) are growing at healthy rates.

Finally, Mr. Blackstone reports that it may not be easy for the Swiss to keep up their regimen of good deflation, and particularly so if the ECB further eases its own policy. I hope he’s wrong, or at least that the Swiss manage to keep their experiment going long enough to erase any lingering doubts concerning both the practical possibility of benign deflation, and its merits as a monetary policy objective.

[Cross-posted from Alt-M.org]

The town of Red Wing, Minnesota, has passed a resolution urging that assaults on police be made a hate crime, a position urged for some years by the Fraternal Order of Police (FOP) union. How bad an idea is this? A very bad one indeed, I argue in an op-ed for the Minneapolis Star-Tribune:

Critics argue that [existing hate-crime] laws in effect play favorites, departing from the spirit of equal protection under law that aims at treating all victims of personal assault as equally important.

Because they seem to put an official public seal on a narrative of oppression, such laws are also lobbied for in me-too fashion by other groups that rightly or wrongly see themselves as oppressed….

Not only are lethal assaults on police declining, I note, but the vast majority of them do not arise from any supposed prejudice or animus against cops, nor do such crimes go neglected and unprosecuted. Besides, most states already allow sentence enhancements on other grounds for crimes against police:

…what would [such a change in law] symbolize? The merely absurd proposition that police in the U.S. today are an oppressed minority group? Or the downright dangerous proposition that the law should step in to chastise and rectify the attitudes of a public that may not be as supportive of police wishes and demands as cop advocates would like?

Read the whole thing. Incidentally, the town council voted last week to let its Human Rights Commission review the resolution, a possible step toward reconsidering it. Some earlier Cato commentary on hate-crime laws hereherehere, and here.

One of the joys of working on the subject of human progress is learning about the many ways in which the world is becoming a better place. Keeping up with all of the scientific and technological breakthroughs is, of course, impossible. And so, here is a sliver of the good news that caught my eye last week.

We are one step closer to solving the problem of organ shortages

Harvesting organs from animals may provide the solution to the shortfall of human donors. However, two technical obstacles need to be overcome before animal-human transplants can become a medical reality. One is that human immune systems often reject foreign tissue. The second problem comes from the risk of disease transfer. According to George Church of Harvard Medical School, genetically engineering pigs may provide the key to overcoming this second problem.

Due to their size, pigs are natural candidates for animal-human transplants, but their DNA is naturally rife with dangerous PERVs, or porcine endogenous retroviruses. An innovative gene-editing technique known as CRISPER/Cas9 has the capacity to identify and delete specific sequences out of the genome. Upon discovering that a single porcine gene enables PERVs to infect human hosts, Dr. Church and his colleagues turned CRISPER/Cas9 against the culprit. Initial results suggest that this procedure may be a success, preventing human infection without compromising the pig cells.

Dissolving stent for heart arteries is coming to the hospital near you  

The Absorb stent, a dissolvable heart stent that is already marketed in Europe, has passed its first major test in a large study, paving the way for FDA approval in the United States. Heart stents are tiny cages inserted into an arterial passage to keep blood vessels from reclogging after specific angioplasty procedures. While metal stents are already available in the United States, they sometimes result in long term complications such as inflammation. In contrast, Absorb stents are designed to stay intact for a certain period, and then harmlessly dissolve, resulting in fewer such complications in the long-term. 

Looking to the animal kingdom for cancer cure

Two animals, elephants and naked mole rats, experience dramatically lower rates of cancer, which may provide inspiration to cancer researchers looking to tackle the problem in humans.  Since cancer is the result of errors in cell division, one would expect larger organisms with longer lives to experience higher cancer rates. Contrary to these predictions, elephants die from cancer in much lower rates than humans. A gene responsible for repairing DNA, TP53 gene is likely responsible for this disparity. While Elephants posses 20 copies of the TP53 gene, human only posses 1.

Naked mole rats also provide potential insights for fighting cancer since they apparently never develop it. Researchers discovered a polymer between naked mole rat cells, called hyaluronan. Experiments suggest that hyaluronan prevents cancer growth through regulating whether a cell grows or not.

Machine upgrades for the brain?

Cathy Hutchinson lost control of limbs due to brain-stem stroke at age 53, but advances in computer/brain interfacing have returned her ability to lift things on her own. As a research subject for the company Cyberkinetics, Cathy had a pill-sized brain implant inserted that enables her to control robotic limbs. This procedure works through converting the brain’s neural signals into a language comprehensible to computers. Computer/brain interfacing has the potential to link the brain to countless digital environments such as internet browsers and computerized exoskeletons.

Genetically modified cassava could help combat Vitamin B6 deficiency

Cassava is a staple of the sub-Saharan African diet, yet this plant contains woefully low levels of vitamins. As a consequence, vitamin B6 deficiency is prevalent in sub-Saharan Africa, which results in higher rates of cardiovascular and nervous diseases. However, a group of Swiss plant scientists claim to have engineered a genetically modified cassava with a several-fold increase in B6 levels over natural varieties. These scientists identified the two enzymes responsible for B6, PDX1 and PDX2, and introduced genes to augment their production. Field tests of these modified cassava plants resulted in stable yields under a variety of growing conditions, thereby confirming is potential efficacy as a means of reversing sub-Saharan Africa’s widespread B6 deficiency problem.

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