Tag Archives: Frederic Bastiat

A little light reading…

I had printed out a bunch of entries by Andy Harless, and they’ve been sitting in my To Read pile for a couple of weeks. I know they’re dense, so I had been putting them off.

  1. In Case of Emergency Break Glass, a brilliantly-titled piece on Frédéric Bastiat’s well-known Parable of the broken window. He explains why the fallacy doesn’t hold true today with modern consumers’ consumption and saving habits. Essentially if we break a window today, our present consumption isn’t lessened. Instead, we save a bit less, and because we don’t know when we will die, our future consumption likely isn’t impacted much if at all, either. This results in a net gain to the macroeconomy.
    While Andy is correct about consumer behavior, I do find myself wondering if M. Bastiat was also correct — in his own time. In poorer times, might a broken window have actually led to lower present and future consumption? I suspect so, especially without ready access to easy consumer credit.
  2. To Monetize or Not to Monetize: Who Cares?, a look at the interplay between the Fed and the Treasury with respect to expected consumer behavior and the fungibility of T-bills vs money. I must confess that I don’t understand most of it, yet.
  3. Dynamic Scoring, a shorter entry on real costs of stimulus relative in terms of tax revenue and GDP. This particular sentence caught my attention and simultaneously boggled my mind:

    So if a tax cut or an expenditure increase were expected to create, say, a million extra jobs, then, under normal economic conditions, the Fed would simply raise interest rates enough (according to its best estimate) to destroy a million jobs. (If the Fed didn’t think the demand for those million jobs would be potentially inflationary, then it would already have tried to create them.)

    Emphasis his. The idea of the Fed doing something to destroy jobs seems non-sensical at first, even though I know it makes perfect sense.

Even though I am an econ major in my last semester, I don’t have any formal macroeconomics under my belt, nor do I have any finance/monetary policy anywhere, either. I’m getting all of that in the next three months. Despite this, I do have a pretty good grasp of macro theory in general, though I do feel the distinct lack of framework on which to hang this kind of material when I read it. Thankfully that will be remedied quickly.

(You’ll notice that it doesn’t stop me from jumping into the deep end, because that’s just the way I roll…)