When I was younger I though that sound money would be the solution to every problem. I chose the moniker of ‘Libertarian’ and, though I could not manage John Galt’s monologue, thought Ayn Rand was really something. When the Keynes vs Hayek: Fight of the Century videos started making the rounds on YouTube I watched it so many times that I learned the words by heart.
Thaler has moved me to being a “Libertarian Paternalist” and I had probably already moved in my mind to the idea that central banks should probably target slightly higher inflation. We could probably get away with 3% and maybe even 4%. Therefore perhaps I was open to some new ideas other that the book being perfectly argued but I now have some new tools to use as I think about the world.
The congressional babysitting circle raised an interesting example that I have not seen well before and made a lot of sense. People were willing to look after each others’ kids but everyone wanted to have a small number of sessions stocked up in reserve in case their congressman needed them for a period when they wouldn’t be able to reciprocate. Thus as the number of chits in circulation was about three each there was no possibility for demand and supply to meet. However, since the unit of account was controlled arbitrarily by a central committee there was essentially no possibility of real “saving” at all. It was really a zero sum game. I look after your kid one unit of account is moved but the total is unchanged. The most sticky of sticky numbers, 0, acting as a floor was actually irrelevant. There would always be some people who were ahead and some who were behind setting the base line unit of account at 10 may have improved the situation, though (of course) setting it too high would likely make it difficult to get anyone to value.
Once you accept this example it becomes impossible not to think a central bank and fiat money may have some uses. The example is strong and I am more surprised than anyone that I might be a Keynesian now. However, I would claim that as in the British system the pound sterling has only very modest privileges by law it is still a Hayekian solution of sorts: devalue too much and people would switch to a different unit of account.
The interesting “counter example” of the prison camp recession was interesting too. It is clearly very difficult to tell what is causing your inflation and the social power of “sticky prices” has long been something with which I am fascinated. genuinely suspect that if “price gouging” were both socially and legally acceptable it would, consequently, never actually occur. Provided that frictions meant that storage continued to be expensive and monopoly’s were strongly resisted.
Efficiency wages and the claim that Ford invented unemployment was very interesting to me. Given that most people are very poor financial planners it is no surprise at all to me that a woman paid $5 a day when the going rate is $3 is likely to be an “exceptional worker” though they will likely be reluctant to take risks too. This means that in a manufacturing job where the boss-man can describe to you exactly how to do your job there is some benefit but I suspect efficiency wages probably back fire in creative roles.
The discussion on the lack of good understanding of the quality f managers was not a surprise to me at all. It is very clear that it is basically almost impossible task to measure almost anything. Consequently, of course we can’t tell who the good and bad mangers are. If anyone ever invents a way to measure it it will almost certainly become arbitraged in a couple of years and how to beat the system tough and coached to those getting MBAs. It was interesting to read Harford’s thoughts on this but I saw little that I will be able to put into practice if I ever run a team.
Philips analogue computer for modelling the economy is something my father told me about when I was a boy. It was interesting to read about it in the book. The story matched almost precisely with the story I have heard from my farther. Next time I am in Cambridge I may see if I can call in a favour to go and see the damn thing.
In conclusion this book has convinced me that Bermuda should give strong consideration to removing itself form the dollar and allowing her currency to float freely.
In the coming economic apocalypse that will follow covid nothing else will allow the government to get itself back to work: especially with the issues of sticky wages and prices that have persisted since the Great recession. This would have been a better choice that allowing persons to raid their pensions.