Scientific American blogger John Horgan wants ban on Race/IQ research; Scientific American commenters want ban on John Horgan

scientific american writer john horgan (this douchebag)

says:

I don’t say this lightly. For the most part, I am a hard-core defender of freedom of speech and science. But research on race and intelligence—no matter what its conclusions are—seems to me to have no redeeming value.

and

Scientists and pundits who insist on recycling racial theories of intelligence portray themselves as courageous defenders of scientific truth. I see them not as heroes but as bullies, picking on those who are already getting a raw deal in our society. It’s time to put these destructive theories to rest once and for all.

some select commenter responses:

Does it really not occur to this author that in the day of Darwin, it was also widely thought that the science of evolution was deeply damaging to society and the public morality, because it undermined belief in religion, which was held to be the font of all morality? In what important way would the result that races differ on average IQ be any more damaging to society and public morality than the theory of evolution in Darwin’s time? Is it really possible that we couldn’t succeed in adjusting our moral and political principles to the new reality? Really, Horgan is just one more Church Lady, atremble that the pat, absolute, sacrosanct rules of her carefully constructed world is going to fall apart. And if a rigidly (perhaps even brutally?) enforced suppression of the truth is the only way he or she can get his or her world to hang together, so be it.

“no redeeming value”? Is knowledge not a redeeming value in and of itself? This article is sickening. I’m sure you’re a very “hard-core defender of freedom of speech and science”, at least until science begins investigating questions whose potential answers make you uncomfortable. Your opinion doesn’t trump the advancement of human knowledge, nor should the opinion of anyone else.

For God’s sake, would someone lynch this guy?

Horgan, Sounds like you are up for a good old fashioned book burning.

The Tribunal of the Holy Office of the Inquisition sure could have used a guy like you.

John Hogan is spouting unadulterated nonsense. Minnesota reared-apart, monozygotic twins studies, in addition to numerous other studies and data bases overwhelming prove that the major contributor to IQ is genetics, no matter how politically incorrect it is to state that fact. If Scientific American considers political correctness to be more important than science, I will have to cancel my subscription.

I remember reading about a period in history called THE CRUSADES… yeah, among other things, they banned books and other forms of knowledge that didn’t fit within their worldview. They had good reason, of course… I mean, everything they banned had no redeeming value, as far as they were concerned… in fact, it was all quite negative, really… taking people away from God, and all that jazz. The point, sir, is that NO… it should not be banned. Who are you (or anyone else, for that matter) to decide what knowledge has value and what doesn’t? As far as I’m concerned, ALL knowledge has intrinsic value.

I decreed the discovery of fire was not relevant to the tribe as all it was good for was burning up my fellow tribe members.
I decreed the discovery of the Wheel was not relevant to the communities as all it was good for was making everyone weak as newborns and would undermine the well established pecking order established by the strong.
I decreed the discovery of numbers was not relevant to anyone as everyone new that if you didn’t like what going on you just beat the crap out of whom ever and took what you wanted.
I decree that any discovery that doesn’t fit my world view and understanding is not relevant to anyone ESPECIALLY IF IT CAUSES DISCOMFORT.
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”
George Bernard Shaw
Irish dramatist & socialist (1856 – 1950)

Having read many of his other blog posts, I am fully prepared to believe he wrote this with profound sincerity.
I can’t imagine a greater condemnation than that.

Here is what this is all about. Every generation has its religion and its dogma. In the 17th century it was conventional Christianity. Now its “diversity”, “multiculturalism”, and Open Borders. Things change. However, some things don’t change.
The dominant elites are always intent on suppressing dissent to the dogma of the day, because the dominant dogma always reinforces the power of the elite. They are frequently quite successful. Science on the other hand is based on facts. Of course, sciences allows new facts to be discovered and added to mankind’s compendium of knowledge.
Back then the scary idea of the day was the heliocentric solar system and the earth orbiting the sun. Galileo Galilei (and others) demonstrated that the dogma of the day was wrong. Since this undermined the dogma (and power) of the church it was unacceptable. Galileo was prosecuted, threatened with torture, and placed under house arrest for the rest of his life.
In our time, the scary ideas are race as a biological / genetic fact and the existence of group differences. Of course, these ideas challenge the dominant elite orthodoxies of “diversity”, multiculturalism, Open Borders, etc. Hence, every effort must be made to suppress them.
However, science isn’t that friendly to anyone’s ideas. Research of the last few decades has established the biological / genetic basis for race. Stephen J. Gould has been shown to be a fraud (probably a deliberate fraud). Lewontin’s notions of gene variability have been superseded by full genome studies. This list goes on and on.
All of this is deeply threatening to the elite establishment as it clings to its preferred worldview and policies. Worse it is a threat to their power.
Galileo said it all.
“Eppur si muove” – And yet it moves.

and it goes on. 

discover magazine's genetics blogger razib khan speaks uncensored truth. if the tone of scientific american's comment section is representative of their general readerships views on the topic, discover mag might be gaining some market share soon.

Excerpts from Market Monetarism by Marcus Nunes and Benjamin Cole

market monetarism by marcus nunes and ben cole is the best book on macro ever written for a popular audience (hetzel's great recession is likeminded but a much harder read). buy it. excerpts from the book below.

The key was that the Fed never slavishly targeted inflation, but rather kept nominal GDP (i.e. total spending) growing at close to a 5.5% trend line. 

that's in reference to the great moderation. they argue greenspan's actions resembled ngdp targeting more than inflation targeting.

NGDP “level targeting.” More recently, Mark Carney endorsed the idea. Carney’s endorsement represents an important breakthrough, as he will assume leadership at the Bank of England later in 2013.

carney's taking over right now.

It is important to recognize that a demand rule is consistent with any desired price-level path, including a stable price level. My primary point is that a demand rule is potentially superior to a price rule, whatever the desired price-level path, because of the different response to changes in supply conditions. A central bank following a demand rule would not respond to either positive or negative supply shocks; such shocks would lead to a one time change in the combination of price and output changes in that year, but would not lead to a long term change in the inflation rate. A central bank following a price rule, in contrast, would increase the monetary base in response to a positive supply shock and would tighten the base in response to a negative shock, thereby increasing the variance of output. Similarly, a demand rule is potentially superior to a money-supply rule because it accommodates unexpected changes in the demand for money. The general case for a demand rule, thus, is that it minimizes the variance in output in response to unexpected changes in either supply or demand...

inflation and ngdp targeting usually give the bank the same signal. an example of when they differ would be mid-2008 when the economy was weakening and oil prices were pushing headline inflation higher. fed stayed pat and members such as richard fisher were pushing for rate increases. whoops.

And, as 2012 drew to a close, the concept of a central bank targeting nominal GDP or national income growth was discussed in detail by Mark Carney, Governor of the Bank of Canada who in June 2013 will head the Bank of England.


first economic school to be born out of the blogosphere,

market monetarism that is

And what is this policy, dubbed Market Monetarism? Most basically, it is the announced, public, transparent and resolute targeting of nominal GDP—level targeting—by central banks, by all available means, including interest-rate adjustments, quantitative easing and the raising or lowering of interest paid by central banks to commercial banks on “excess” bank reserves.


Not Keynes vs. Hayek, But Cassel and Hawtrey


Beyond that, the Hawtrey-Cassel insights explain the relative severity of the Great Depression and the sequence of recovery in different countries, there being an almost exact correlation between the severity of the Great Depression in a country and the existence and duration of the gold standard in the country. In no country did recovery start until after the gold standard was abandoned, and in no country was there a substantial lag between leaving the gold standard and the start of the recovery. So not only did Hawtrey and Cassel predict the Great Depression, specifying in advance the conditions that would, and did, bring it about, they identified the unerring prescription—something provided by no other explanation—for a country to start recovering from the Great Depression. The much-touted Hayek, on the other hand (along with von Mises), advocated precisely the wrong policy, namely, tightening money, in effect increasing the monetary demand for gold. Hayek also welcomed deflation as the necessary price for maintaining the gold standard. In a modern economy, the ravages of deflation, on lenders and real estate, appear nearly lethal to an economy. The experience of Japan with deflation and related subnormal growth should be lesson enough for anybody.


During the inflation of the 1970s, monetary policy was viewed by Arthur Burns, then Chairman of the Federal Reserve as “inoperative” against the entrenched market power of large price-setters, such as OPEC, unions and gigantic manufacturers and retailers, who together created “cost-push” inflation. Tight money would not reduce inflation—cut prices—much, but would reduce real output.

monetary/macro ideas have undoubtedly improved. it's strange how reluctant people are to admit that.

With the inimitable Alan Greenspan (Federal Reserve Board Chairman 1987 - 2006) we arrive at the “Great Moderation,” a desirable era of low or moderate inflation and stable economic growth. In an era of higher interest rates than today, what was often and essentially nominal GDP level targeting could masquerade as inflation-targeting or a mix between growth- and inflation-targeting.

again, the claim is that actual policy during the great moderation resembled ngdp targeting more than anything else, even if the fed never admitted it.

There was steady resistance to crediting monetary policy, let alone something as unknown as nominal GDP level targeting.

too few people realize the primary cause of the great moderation was improved money. not positive technology/supply shocks. not just in time inventory management. not the service sector shift.

Thinking in terms of the GDP components can produce interesting conjectures. One of the most perplexing is the following, frequently found after the data release: “If imports (M) had not increased so much, GDP growth would have been even higher.”  

he goes on to criticize thinking in terms of gdp components.

The Sumner blog post title was inspired: “C+I+G+NX=Gross Deceptive Partitioning”. Sumner writes: When I discuss the effect of monetary stimulus on aggregate demand with other economists, I notice that they often want an explanation couched in terms of the major components of GDP. I find this very frustrating,

sumner continues

So let’s look at FDR’s most effective stimulus–dollar devaluation. How does one explain its effect using the famous four components of GDP? One might have expected a sharp increase in the NX component, as a lower dollar boosted exports and discouraged imports. Output did soar after the dollar was devalued, but it wasn’t because of a rise in NX, rather it was despite a sharp fall in NX. Imports rose much faster than exports, as the “income effect” outweighed the “terms of trade effect.”

a recent blog post by lars christensen expanding on the idea that monetary expansion does not work primarily through stimulating exports.

What this implies is that nominal spending stability is a necessary condition for real growth stability, but inflation stability can be obtained without nominal spending stability, as long as spending is below an adequate trend level, and remains depressed.

this is in reference to the weak post 2009 economic conditions in the US. we've avoided deflation, but ngdp remains below trend.

A surprising result was to discover, contrary to the idea mentioned in Taylor´s The Long Boom that after 1983 the Fed reacted more strongly to inflation, that in fact the opposite is evidenced, with the Fed Funds (FF) rate showing no significant response to inflation.

This quote is from a Bernanke, Gertler and Watson 1997 paper entitled, Systematic Monetary Policy and the Effects of Oil Price Shocks (our emphasis): Macroeconomic shocks such as oil price increases induce a systematic (endogenous) response of monetary policy. We develop a VAR-based technique for decomposing the total economic effects of a given exogenous shock into the portion attributable directly to the shock and the part arising from the policy response to the shock. Although the standard errors are large, in our application, we find that a substantial part of the recessionary impact of an oil price shock results from the endogenous tightening of monetary policy rather than from the oil price shock.

bernanke wrote this in 1997. then didn't follow his own advice when oil price shock hit in 2008.

Although he was no longer a policymaker, even so eminent an economist as James Tobin hewed to the original view of the Phillips Curve. In May 1971, he published an influential article, Living With Inflation, in the New York Review of Books (Tobin, 1971). It is worth quoting at length as it so clearly represents the consensus of the mainstream economics profession at the time. The lack of monetarist perspective is also notable.

famous mainstream economists said retarded things about money during the 70's.

And so it came to be that on August 15, 1971, a conservative Republican president, Richard M. Nixon, imposed a 90-day wage- and price-freeze on the nation, an action today that would be unthinkable. And on the same day President Nixon closed the “gold window,” in effect ending the convertibility of the U.S. dollar breaking with the Bretton Woods system of fixed exchange rates, and meaning the U.S. Treasury would no longer exchange gold in the vaults for U.S. currency. A 10% fee on imports into the United States was enacted as well. In the space of a few months the dollar dropped 15% relative to the yen and 9% relative to the German mark. As for inflation and unemployment, Chart 3.4 shows what transpired after Nixon did his deeds: Inflation came down significantly, but unemployment remained elevated.

bad as macro policy is today, it was much worse in 1971! price controls and wage freezes from a republican?

Burns shared the conventional business and Keynesian view that monetary policy was an unduly blunt instrument for controlling inflation. Almost from the beginning of his tenure as Fed Chairman, he pushed for government intervention to restrain prices and wages.


Interestingly enough, the oil shocks of the decade were a public relations “blessing in disguise” for policymakers, especially for the Federal Reserve policymakers. The public understands gasoline prices every well, and they are posted on nearly every major boulevard in the United States, on big signs. And so OPEC states were easily painted as the inflation-heavies, the bad guys who curtailed supply of this most basic commodity. In popular commentary and perception, OPEC – not the Federal Reserve – became the cause of spiraling inflation.

oil price shocks helped the fed shift blame for the great inflation.

real value of stocks in 1982 back to the level that had prevailed in 1950.

buy and hold baby.

Volcker boldly outlined a plan that would revolutionize the Federal Reserve´s operating procedure. One sentence captures the essence of the plan: The FOMC would seek to hold increases in the monetary base and other reserve aggregates to amounts just sufficient to meet monetary targets and to help restrain growth in bank credit, recognizing that such a procedure could result in wider fluctuations in the shortest term money market rates

We define the seven-year period going from the fourth quarter of 1979 to the fourth quarter of 1986 as the “Volcker Transition.” That is when the US economy transitioned from a high inflation and high volatility economy, to one characterized by more-stable real output and lower and steadier rates of inflation. The result of the Volcker Transition is the “Great Moderation” that extends from 1987 to 2007. We provide a visual analysis of the period from the perspective of NGDP growth—the primary Market Monetarist measure of the ease or tightness of monetary policy.


Alternate FOMC member Frank Morris, President of the Federal Reserve Bank of Boston said (our emphasis): I think we need a proxy–an independent intermediate target– for nominal GDP, or the closest thing we can come to as a proxy for nominal GDP, because that’s what the name of the game is supposed to be. … Nominal GDP, if we were to use that as a target, would be a politically sensitive target, and we ought to avoid it for that reason. But we need a proxy for it.


We argue that Morris was correct in his views (although he does not give a reason for why a nominal GDP target would be “politically sensitive”), and that it was Alan Greenspan’s implicit targeting of NGDP..."

their claim that greenspan targeted ngdp is strengthed by the dual facts that 1) ngdp targeting was already talked about in 1982 and 2) it was considered politically sensitive, but not a bad idea. so why not target it w/ out telling anyone?

Why was there a Great Moderation? 1. Was it due to circumstances—for example, a changed economic structure reflected in the rise of the service sector, more stable than manufacturing? Or the rise in imports into the United States economy, preventing price increase across a broad range of products? Or the steady de-unionizing of the private-sector workforce? 2. Was it due to technological improvements that allowed, for example, better control of inventories (“Just in Time”), or rapid comparison of price via the Internet? 3. Was it plain luck, resulting from fewer and weaker shocks relative to those like the big oil shocks of the 1970s? 4. Was it the result of better economic policy, particularly monetary policy? 5. Was it a “mirage,” something that slowly nudged the economy—mainly through the building of “bubbles”—leading towards debacle, and the Great Recession beginning in 2008?

The rise in importance of the service sector, for example, is a gradual process that had been going on—and continues to do so—for a long time; “just in time” inventory control technology does not help explain the fact that when you take inventories out and consider only final sales, the observed reduction in volatility after the mid-80s is comparable; “luck” is unexplainable, and in any case twenty-plus years would be an “unlikely” long streak of good luck. International trade and the de-unionization of the U.S. economy have been proceeding apace through all three periods also. Moreover, during the Great Moderation there were significant shocks impacting on the economy; there was the 1987 October stock market crash (when the Dow dropped 22.6 percent on Black Monday), the rise in oil prices in the Gulf War, the Asian and Russian crises of 1997-98, Y2K, trust-sapping corporate shenanigans (Enron et al). In addition, there was 9/11, not one but two hugely expensive wars (Afghanistan and Iraq), and renewed oil price shocks after 2003. The “mirage” explanation reflects the views of those who believe that economic stability breeds all sorts of bubbles that inexorably will lead the economy into trouble. In other words, “too much stability may be hazardous to the economy´s health,” a concept which we find hard to swallow (and the related sullen school of economic thought, that it is better to stay in a recession than enjoy robust growth that might lead to inflation, and thus Fed tightening, leading to recession. Better a perma-recession).


Volcker—gifted with a powerful intellect, strong character and considerable personal bearing—forcefully brought to the fore of policy discussions the importance of inflation expectations and the question of central bank credibility


Thus, we argue, the important and key difference between the Burns and Volcker approaches is not the change in the Fed´s responsiveness to inflation (as argued by Taylor and Bernanke), but rather the changed responsiveness to aggregate demand or nominal income growth.



Indeed, all during the Great Moderation the famously opaque Greenspan and the FOMC never explicitly targeted anything—inflation or nominal income (also called aggregate demand) growth—but in effect targeted or promoted nominal AD along a 5.5% growth path.



Herein lies a problem for advocates of inflation targeting. The occurrence of real shocks, such as productivity or oil price shocks , makes both interest rate and inflation targeting more unstable, leading to more volatile real GDP movements due to the fact that real shocks cause monetary policy to be procyclical.

The Fed over-stimulated in the late 1990s, then had to correct. By mid-2001 nominal spending had returned down to trend, but then nominal spending continued to fall despite the continued drop in the FF rate. Following an inflation rule, the Fed was ever behind the curve, tightening or loosening after the fact, so to speak.


In 2002 things came to a head. Greenspan made the first move in a speech on November 13: There is an implication that the notion (of fighting deflation risks) that we are restricted solely to overnight funds. But our history as an institution indicates that there have been innumerable occasions when we have moved out from short-term assets and invested in long term Treasuries. We do have the capability, if required to do so, to go well beyond activities related to short-term rates.


Although the FF rate didn´t change, remaining at 1%, the new words, more recently labeled forward guidance, arguably did the trick. As can be observed in charts 5.4 and 5.6, spending growth and real output growth rose markedly and unemployment trended down. Other indicators of the market´s appreciation of the stance of monetary policy reacted accordingly. In chart 5.9 we show the behavior of the stock market (S&P 500) and of the yield on the 10 year Treasury Bond. The “pessimistic” decline in those indicators prior to the Fed´s policy change was immediately reversed. The stock market, being more forward looking, reacted earlier. Chart 5.10 illustrates the behavior of 5 year expected inflation (from the Cleveland Fed). Any concern for an unwelcome additional fall in inflation was immediately forgotten!



Consistent with our narrative, it may be better to view monetary policy as promises made, and kept. This last is also consistent with the requirement that the central bank have credibility. (And maybe good PR.) And a central bank must not only have credibility as an inflation-fighter, but as an institution willing to wage sustained war for overall macroeconomic stability, when that is necessary as well.



In 1997 Bernanke (with Mark Gertler) wrote Systematic Monetary Policy and the Effects of Oil Price Shocks. Their conclusion: Substantively, our results suggest that an important part of the effects of oil price shocks on the economy result not from the change in oil prices per se, but from the resulting tightening of monetary policy. This finding may help explain the apparently large effects of oil price changes found by James Hamilton (1983) and many others.  


So, was it the oil shock or monetary policy ‘enhancing’ the oil shock that was responsible for the “greatness” of the recession? Two back to back moments allow us to test the hypothesis. The charts show oil prices from 2004 to 2006 (Jan 2004=1) and from 2007 to 2008 (Jan 2007=1). If oil is determinant, as argued by Hamilton, the recession should have happened much sooner.


While under Greenspan NGDP kept ‘chugging’ along at a ‘constant’ rate, under Bernanke, with the FOMC very much concerned with the possible inflationary consequences of the oil price rise, monetary policy soon turned contractionary and NGDP growth quickly began to fall. (Corroborating evidence: In the transcripts of the June 08 FOMC meeting we read that participants felt that the next move in rates would be up!).


shaded area in each chart represents the period during which interest rates have been deemed (by some) as “too low for too long,” and Greenspan was overly accommodative. But contrary to the conventional wisdom, house prices do not respond uniformly to this period of supposed overstimulation. The “too low for too long” argument has very limited explanatory power for house price behavior.


Between 1997 and 2005 the average price of a house in the United States more than doubled. It wasn´t simply a speculative bubble. Much of the rise in housing prices was the result of public policies that increased the demand for housing. These points are consistent with the widely diverse behavior of house prices in different regions, with the price diversity being explained by the different supply conditions prevailing in each city, state or region.


As Roberts’ points above suggest, the home ownership incentives for the lower income population were the driving force in the rise in demand for and prices of houses. Between 1994 and 2006, overall homeownership climbed from 64% to 70%. Among Hispanics it went up by 20.2%, for Asians the increase was 17.2% and for African Americans 14%. Among non-Hispanic whites the increase was 8.2%.


California and Texas have 46% of the Hispanic/Latino population of the United States, and 39% of the Asian population in the country, and 15% of the national African-American population. So we would expect that house prices in these two states would come under pressure. But as Chart 6.11 shows, the behavior of house prices in the two states is markedly different. A few years ago Harvard´s Ed Glaeser argued that zoning laws were important in constraining house supply and that these laws were more restrictive in the American West than in the South. This helps to explain a significant part of the difference in house price behavior. Apparently in the Pacific, “affordable” housing was not so affordable after all! 


While psychology is not our field, it may be that Bernanke felt a need to prove his inflation-fighting mettle to the market at the outset of his administration, for personal, institutional and professional reasons. One must concede that it would be a challenge for any brand-new Fed Chairman to immediately initiate bold expansionary moves that would be characterized by many, however unfairly, as reckless and inflationary.


The minutes of the June 2008 FOMC meeting, released on July 16, were more “bad news.” After a lot of discussion on the risks of inflation and inflation expectations taking off, readers learn on page 8 that: With increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate; indeed, one member thought that policy should be firmed at this meeting

For example, as late as the June and August meetings, with the FF rate at 2%, Dallas Fed president Richard Fischer voted in favor of an increase in the FF rate!

i wish someone would ask him if he'd change his vote in retrospect. he's such an arrogant douche.

An economic slowdown, or even a “normal” recession, was perhaps inevitable given the magnitude of the shocks from house and oil prices. What was NOT inevitable was the recession becoming The Great Recession. The depth and duration of the Great Recession—just as with length of the Great Moderation—and the sluggishness of the recovery, are explained primarily by Fed policy.

major conclusions follow:

The Great Recession was a result of a monetary policy focused on restraining headline inflation—even while nominal GDP was retreating,


2. That there appears to be no systematic connection between the size of an expansion and the succeeding contraction. Importantly, description #2 casts serious doubts on those theories that see the source of the Great Depression in the excesses of the prior expansion.


1990s—in short, the idea that a long “good times” expansion must result in an economic “hangover” is just anthropomorphism of the economy.

it's funny that milton friedman figured most of this stuff out decades ago and yet conservatives who claim to worship him are seem unaware of his actual beliefs.

Notwithstanding the evidence on the importance of monetary policy, it is fiscal policy, in particular the importance of government spending in sustaining the recovery, that gets press coverage and the punditry into action. In a post from December 2009, at the time of Paul Samuelson´s death, Nobel Prize winning economist Paul Krugman wrote on Samuelson, Friedman, and Monetary Policy: Paul Samuelson was a great economic theorist. But he was also an acute observer of the real world, to such an extent that many of the things he said in his 1948 textbook ring truer than what many, perhaps most economists believed on the eve of the current crisis. This is especially true with regard to monetary policy. By the 1980s, I think it’s fair to say that the vast majority of economists had been convinced by Milton Friedman’s assertion that aggressive monetary policy could have prevented the Great Depression. Some of us started to have doubts after contemplating Japan’s troubles in the 1990s; but as late as 2002 Ben Bernanke declared, on behalf of the Federal Reserve, “You’re right. We did it. But thanks to you, we won’t do it again.” Krugman may have been somewhat selective in his observations. Paul Samuelson, from pages 353-4 of his 1948 textbook: Today few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle. Purely monetary factors are considered to be as much symptoms as causes, albeit symptoms with aggravating effects that should not be completely neglected. But Krugman neglects to show that two decades later, in the 1967 edition of his textbook, Samuelson wrote: monetary policy had an important influence on total spending


Two decades on, in the 1985 edition of the textbook, Samuelson goes much further: Money is the most powerful and useful tool that macroeconomic policymakers have, and the Fed is the most important factor in making policy. So by 1985 Samuelson had come to agree, at least on certain monetary issues, with Milton Friedman. Samuelson had traveled a long road from his 1969 Newsweek column in which he implicitly referred to Friedman by saying: There´s no sight in the world more awful than that of an old-time economist, foam-flecked at the mouth and hell-bent to cure inflation by monetary discipline. God willing, we shan´t soon see his like again. It seems our present day monetary policy makers have to relearn Friedman’s lessons.



7.1 Japan: Monetary Purgatory The feeble, even pathetic economic performance of Japan since 1992 is a monument to rigid central banking, and the folly of fiscal stimulus (national government deficits), especially when married to tight-money inflation-fighting regimes.


The seeds of the Bank of Japan’s errors were planted in 1971, with the end of the Bretton Woods system of fixed exchange rates among major economies, which is also when United States President Richard Nixon closed the “Gold Window.” The United States dollar subsequently depreciated. In early 1973 the Bretton Woods system, which defined the currency exchange architecture among major nations since WWII, was formally abandoned. National currencies could and did float against each other.



Growth picks up again in 1972 and 1973 but inflation also increases, aggravated by the OPEC oil shocks of 1973-4. In 1974 recession hits, while inflation skyrockets to 24%--the modern-day macroeconomic nightmare of “stagflation.” That is the sort of double-digit inflation that gives central bankers sleepless nights, and certainly it is a rate too high—high enough to create a new and seemingly permanent monetary culture in Japan that considers itself a bulwark against inflation.

Most observers, even professional economists and financiers (possibly including policymakers at the BoJ), look at the near zero interest rates and conclude monetary policy is expansionary. But a simple review of Japan’s M2 (a measure of the money supply) reveals that money growth has been quite “tight” since the early 1990s!


There is something desperate about the attempts to deny the flop that is Japan’s monetary policy—yet Japan from 1990 to present stands as the best and longest experiment in tight money. And even monetary contraction. The empirical evidence against resolutely tight money is copious.


To say the weak economies of 2012 are caused solely by “structural problems” is to leave hanging the question why such economies prospered up until 2007. Indeed, the United States had a superlative run from 1980 to 2007—and then, we are to believe, suddenly structural problems emerged and undermined prosperity? Or five percent of the population overnight decided it no longer wanted to work? This strains credulity.

yup.

Despite all the “austerity” talk in the UK, Sweden has been much more “austere.” During the crisis, mostly due to automatic stabilizers, government spending in Sweden went up by 3.2% of GDP. In Britain it went up by a whopping 7%. Since 2009 in Sweden it has dropped back to the initial level, but in Britain it is still more than 5% above. But that hasn´t helped British growth, which has remained well below Sweden´s.

It is a chart that trumpets monetary resolve and success—and yet also a chart that suggests that a page is turning in central bank annals, and new constraints and challenges may become, if not the norm, then commonplace. The chart is of long-term interest rates on sovereign bonds of some of the major Western economies around the world, from 1991 to present. The yields sink across the years and then the decades, unsteadily yet remorselessly or favorably down, depending upon how the investor is positioned. Of course, in general, lower interest rates are good, signaling less-expensive capital for business expansion, and granting relief to homebuyers and borrowers of all stripes. But, as Milton Friedman pointed out, low interest rates may be a sign that money has been tight that investors expect tight money. As 2013 unfolds, with capital abundant and interest rates so low, business is not booming in a global economic hothouse. Instead, the word “bust” is more often heard. Japan is in a perma-gloom, Europe is sinking


Indeed, just as central banks led the way in beating inflation, so they must now lead the way to prosperity in global environment of low inflation and widespread “zero bound.” It will be a challenge for central banks and for central bank culture. Especially as central banks are independent. Indeed, students of organizational and bureaucratic behavior might be surprised if central banks can appropriately respond. Long noted has been the tendency of public organizations to ossify—market forces do not compel, in central banks as they do in private companies, the flexibility needed to survive. There is no “change or die” ultimatum for public agencies, especially independent central banks. Creative destruction is not a feature of central bank failures.

what was more courageous, jason collins uncloseting as a homosexual, or jason richwine's uncloseting as a race realist?

jason collins uncloseting last week made him the first ever active NBAer to do so. he was (unanimously) lauded for his courage. read the following links, starting with this one regarding the treatment jason richwine is receiving by media for some true but politically incorrect stuff he wrote in his college thesis. then decide what kinds of speech require courage in modern america.

His research advisors- the guys who signed off on his dissertation- attempt to cover their asses. Pathetically.

Media points, sputters, rages...offers no criticism of substance

A psychologist offers to buy a bottle of wine for anyone who can show that hispanic intellectual capabilities are equivalent to euro-americans'

Loads of data showing that Richwine is right

Chris Jencks, a respected LEFT of center social scientist who signed off on Richwine's dissertation basically agrees with Richwine's conclusions

The New York Times acting like the New York Times

And now an entire post from Occam's Razor containing lots more links (some of his links are duplicates of mine):

Roundup of the Heresy of Jason Richwine: Guilty of preferring truth to PC

Under the Cathedral, perhaps the single greatest form of heresy is the denial of blank-slate racial egalitarianism.  Nevermind that evolution and loads of data say racial egalitarianism is a fiction. This even strengthens the mindset of the believers, elevating such a belief to a religious doctrine, which means that those who poke holes in the dogma are castigated like heretics.  To the believers in the Cathedral, this is not a rational debate, it is an affront to their religious worldview — the religion being one of racial egalitarianism.

This week Jason Richwine has been found guilty for having noticed what you’re not supposed to notice:  that some racial groups, like Hispanics / mestizos, have lower average IQs than European Americans.  As Sailer notes, Philip L. Roth, looking at 39 studies with a 5,696,529 sample size, found the average IQ of Hispanics to be about 11 points lower than whites.  But don’t expect this data, or any other substantial points, to be brought up in the public lynching of Richwine.

The parts are already in motion. Richwine recently helped author a study by the Heritage Foundation showing that mass amnesty would cost tax payers around $6.3 trillion, since, to put it bluntly, most of these immigrants are Third World rejects who will use more in government services than pay in taxes.  Since this study is generally sound — and since the Cathedral wants nonetheless to flood the USA with the Third World — someone went back and found Richwine’s Harvard dissertation, “IQ and Immigration Policy,” where Richwine wisely argues against flooding the USA with low-IQ hordes. (They also recently discoveredthat Richwine penned an article or two for Alternative Right.)  Somehow, if the Cathedral points and sputters enough, this indignation will, by association, discredit the Heritage study.  Or so they hope.

Pointing and sputtering is here, here, here, here, here, here, here, here, here, etc.

Substantial discussions here:

Steve Sailer: “NYT: Dr. Richwine guilty of not being oblivious to the obvious,” “Washington Post: Crimethink!,” “Ortiz & Telles: Mexican-Americans lag for 4 generations (at least),” “Hispanic economic productivity: the New Mexico case study,” “White v. Hispanic cognitive gap across 39 studies with 5,696,529 sample size,” “Christopher Jencks – ‘Who Should Get In?’ – New York Review of Books“

Derbyshire: “‘Burn The Witch!’ Heritage Foundation Scuttles Away From Jason Richwine—And The Cold Hard Facts“

James Fulford: “Jason Richwine, Low IQ Immigrants, And the Washington Post“

Richard Spencer:  “The Jason Richwine Affair“

Michelle Malkin: “The Crucifixion of Jason Richwine“

Updates:

Please references other substantial articles or blog posts in the comments below and I’ll add them to roundup.

James Thompson: “Jason Richwine and a bottle of Rich Wine“

Gucci Little Piggy:  “Richwine Roundup“

HBD commenters are ruling the roost in the comments section of this Atlantic piece.

sumner called the Japan rally; krugman's a hack

http://www.themoneyillusion.com/?p=21161&cpage=1#comment-247517

lessons:

• divergence in the price action of one asset compared to other normally correlated assets is a clue something is up. find out what caused the divergence. maybe a start of a trend. japan popped last november when it looked like abe might get elected. other markets were down that day.
• money is potent! 68% rally in japan in 6 months. real indicators surging too.
• most economists are hacks. krugman's been pushing fiscal stimulus full bore for years. his view was that at the zlb money might be stimulative if the central bank could find a way to credibly signal its intention to be loose for a long time and thus shift expectations. japan's bank shows how easy it was. shows they never really tried before, as sumner has always said. 
• krugman, rather than generalizing the result- that money is a bazooka and fiscal is a bb gun at best- krugman seems to suggest that recent events in japan like the tsunami finally created the conditions necessary to convince the public that their bank would stimulate persistently. lol. so don't dare generalize the result in japan! full speed ahead with fiscal stimulus for the US and europe. oh and conservatives like martin feldstein are incapable of revising their views too.

in other news, the mainstream media is well on their way to ending the career of some poor 20 something named jason richwine who dared to mention the wikipedia acknowledged fact that iq's differ by country and that maybe our immigration policy ought to take that into account. krugman adds to the debate by calling him a white supremacist . 

update on richwine from derbyshire:
http://www.vdare.com/articles/burn-the-witch-heritage-foundation-scuttles-away-from-jason-richwine-and-the-cold-hard-fact

japan's earnings expectations skyrocket following monetary easing (lars christenson)

http://marketmonetarist.com/2013/05/09/monetary-policy-works-just-fine-exhibit-14743-the-case-of-japanese-earnings/



hawks used to claim that QE at the zero lower bound had no affect on anything. experience in the US after QE 1, 2, operation twist and infinity proved that QE affects asset markets at the very least. so the hawks acknowledged that but claimed no effects on the real economy- employment, inflation, growth, etc. they were wrong. it was already obvious they were wrong. but japan will prove it as their NGDP, RGDP and earnings accelerate in the next year.

also, if the stance of fiscal policy matters at all for aggregate demand, the effect is obviously dwarfed by money.

BCBP shows how to prop your crappy bank stock up in five easy steps

1) Delay taking credit losses for as long as possible!

If done correctly, your income statement should look like BCBP's. Nicely profitable in 2008, 2009, 2010 and 2011.  And accelerating losses in 2012. I guess Bayonne, New Jersey's business cycle is out of phase with the rest of the country's.

It's also important to let your bad loans build indefinitely. A mortgage in foreclosure can be valued imaginatively until property is sold. So if you're delaying credit losses properly, then your bad asset levels should be higher than at least 85-90% of your peers and your allowances for loan losses ought to be lower than 90% of your peers. Check and check. (Allowances/Loans at BCBP are 1.06%, at the 9th percentile among peers, even as their bad assets (OREO+nonaccruals+restructured loans) equal 63% of their equity, triple the 21% peer average.)

Alas, all good things come to an end. But only fools take losses before their regulator steps in.

2) Repurchase your own stock is sufficient quantities to prevent it from declining!

According to BCBP's 3Q12 10Q, 283,237 shares were repurchased during the quarter, including 147,281 in August 2012 alone. Take a look at this monthly historical price and volume data for BCBP. Average daily volume was about 8k, 15k and 9k for July/August/September 2012. That means about 315k shares were traded in August and BCBP was the purchaser on 147k of those 315k. They accounted for about 45% of the August trading volume. And the proportions are similar for July and September.

Why did volume spike in August?  Because BCBP's remarkable streak of uninterrupted profits ended with their 8/9/12 2Q12 earnings release. They took a loss on a bulk sale of problem loans, which I assume was forced by their regulator. Though BCBP did their best to obscure the result- no 8-K, no press release picked up by any media outlets- the stock came under selling pressure. So BCBP, proactive as always, acted as their own (one-sided) market maker for the next 30 days.

3) Pay a dividend in excess of your earnings!

BCB Bancorp, Inc., Bayonne, N.J. (NASDAQ:BCBP – News), announced that the Board of Directors has unanimously approved a quarterly cash dividend of $0.12/share to shareholders in its common stock of record on February 7, 2013, payable on February 19, 2013. Donald Mindiak, President & CEO commented that, “This marks the 24^th consecutive quarter of paying a cash dividend to our common shareholders and the 17^th consecutive quarter that we have maintained that dividend at $0.12/share. The maintenance of our dividend, despite a persistently challenging economic environment, is a testament to the confidence our Board of Directors and Executive Management team has in our ability to provide our shareholders with a competitive return on their investment. As we continue to navigate through a complex and challenging economic and regulatory environment, we will strive to explore and implement strategies and initiatives that have the capacity to increase franchise and shareholder value.”

BCBP lost $0.52 in the last six months and lost $0.35 YTD. Their bad asset levels are high and allowances are low. Additionally, their last 10Q warned:

On October 29^th and 30^th, 2012, Hurricane Sandy struck the Northeast section of the country. The Bank’s market area has been significantly impacted by the storm which resulted in widespread flooding, wind damage and power outages. The storm temporarily disrupted our branch network and our ability to service our customers, however within one week, all of our offices were fully functional. We have begun the process of assessing whether the underlying collateral of any loan facilities we have in those areas affected by the storm have suffered damage and possible loss of value. Additionally, we are in the process of determining whether or not the storm has impacted our borrowers’ ability to repay their obligations to the Bank. The Bank is generally named as a loss payee on hazard and flood insurance policies covering collateral properties and carries both mortgage impairment and business interruption insurance. These policies could mitigate losses that the Bank may sustain due to the effects of the hurricane. Presently, that process remains on-going and it is premature to determine what, if any impact this may have on our level of loan losses or non-performing loans. Predicated upon the completion of the aforementioned, the Company may experience increased levels of non-performing loans and loan losses which may negatively impact future operating results.

Clearly their dividend is appropriate and sustainable.

4) Issue press releases only when good things happen!

Look. The kinds of people who invest in small community banks are retarded. They're not gonna open your 10Qs and Ks. All they see is what shows up in the Yahoo Finance news section. If it doesn't show up in Yahoo, IT DID NOT HAPPEN.

BCBP policy appears to be to issue press releases and 8K's for profitable quarters and to announce dividend ex-dates. But not unprofitable quarters. Here's a google search for "bcb bancorp announces"; lots of dividend announcements and profit announcements from 2011 and 2010, but nothing about the last few quarters. Check any news outlet and you'll see the same thing.

5) Bold culture. It requires a certain kind of bold culture to excel at this stuff. That's why Pamrapo Bancorp was such a good fit to merge with BCBP a couple years ago. Pamrapo was bold.

For example, Pamrapo's board members didn't see fit to disclose their holdings in BCBP stock.

 The Company recently became aware that a complaint had been filed on December 2, 2009 in the Superior Court of New Jersey in Hudson County against the Company, the Bank, and each of its directors. The action was brought by William J. Campbell, who is the largest shareholder of the Company and was the Bank’s former President and Chief Executive Officer from 1970 until February 13, 2009. The complaint alleges, among other things, that the directors of the Company are in breach of their fiduciary duties to shareholders in connection with the Company’s entry into an agreement and plan of merger, dated as of June 29, 2009, with BCB (the “Agreement”), pursuant to which the Company will merge with and into BCB, with BCB as the surviving entity. Additionally, the complaint alleges that the Company failed to disclose that Kenneth Poesl and Robert Doria, former directors of BCB and now directors of Pamrapo, still own BCB stock. While the Company and directors believe the directors’ ownership of BCB stock is immaterial, set forth below is the share ownership of each Pamrapo director in Pamrapo stock and BCB stock:

Pamrapo board member Poesl owned 3.6% of BCBP! 168k shares valued at around $1.6m. eh, immaterial. That's bold. But that's how Pamrapo rolls.

As previously reported, Pamrapo Savings Bank, S.L.A. (the “Bank”), the wholly-owned subsidiary of Pamrapo Bancorp, Inc. (the “Company” or “Pamrapo”), received federal grand jury subpoenas from the U.S. Attorney’s Office for the District of New Jersey (“U.S. Attorney’s Office”). The subpoenas were issued to the Bank in connection with an ongoing investigation being conducted by the U.S. Attorney’s Office, the Internal Revenue Service, and the Department of Justice (the “DOJ”) regarding the Bank’s anti-money laundering and Bank Secrecy Act compliance during the period from 2003 to the end of 2008. Certain individuals, including the Bank’s senior officers and directors, have received grand jury testimony subpoenas in connection with this investigation. In addition, the Bank and its wholly-owned subsidiary, Pamrapo Service Corporation, have also received federal grand jury subpoenas from the U.S. Attorney’s Office relating to certain commissions paid to the manager of Pamrapo Service Corporation through the first quarter of 2009. 

Like I said, BCB and Pamrapo were a match made in heaven. It's too bad this guy isn't with the merged companies anymore though.


BCB trades at about 1x book, which is about average. But there's nothing average about the Bank. They're posting losses as bank profits are hitting multi-year highs. Their bad assets are triple the norm and allowances are lower than 9 out of 10 peers. Their ratio of bad assets to allowances is a complete outlier. They appear to be purposely supporting the stock with heavy share repurchases. Their selective issuance of 8Ks and press releases misleads investors and resulted in their 2Q12 earnings showing up on an FDIC data page before it was presented to investors through an SEC filing. That's a big no-no. And this just represents what we know. Given the shady Pamrapo merger process the odds that there's more fire behind the obvious smoke is high.

I'm short.

Did The Greenspan Put Cause the Great Moderation? The relationship between Fed policy and stock market anomalies.

How do stocks fare in the next 12 months when they are above/below their six-month trailing moving average? With a trailing horizon of 6 months and a forward horizon of 12 months, is momentum a good or bad thing?

I don't want to get bogged down in the specific numbers, but based on this post from John Hussman and some data I've crunched, I can summarize the historical results of a momentum strategy like this:
-Momentum worked tremendously well between 1940-2008. (See Hussman data)
-Its worked atrociously since 2009. Instead, buying on dips has generated massive returns.
-Breaking down the 1940-2008 data, I find that it worked great from 1940-1983 and was irrelevant between 1983-2006 (no correlation between past 6 month and future 12 month returns).
-Somewhere around 1983- the beginning of the Great Moderation- the positive correlation between past 6-12 month and future 6-12 month returns broke down.

The time-varying success of momentum based investing is not a random statistical fluke. Taking the 1940-2008 period as a whole, stocks rose 14% annually when in an uptrend, 4% when trending down. (The 14% and 4% numbers are future returns.) These differences are too large to be a fluke.

Forget the specific numbers. Accept the basic patterns; momentum worked for awhile, then it was irrelevant, and recently reversal has dominated. (Reversal means negative correlation between past and future returns).

What might generate these patterns? Why might momentum work for decades, not matter for a few decades and then get you utterly destroyed post-2009?

I propose that changes in the Fed Policy Regime is a leading candidate.

A Fed that is too slow to react to changes in economic conditions may enable momentum based strategies to work by exacerbating booms and busts. A weakening economy causes the stock market to trade below its six month moving average. At that point the outlook for stocks will be determined by the path of the economy. Does weakness accumulate into a full-blown recession as the Fed sits on its hands as it did in the Stop/Go period of the 1970s? Or does the Fed proactively stimulate, and return the economy towards its growth trajectory? The Fed response to modest stock market and economic weakness may determine whether a six month market decline should be interpreted as a sell-signal, or an opportunity to buy on the dip.

When the Fed stimulates following stock market weakness, critics cry foul, accusing Greenspan/Bernanke of providing fat cat investors with "put options". The Fed has supposedly been carelessly propping up investors since 1987. And much of the this recent Hussman piece is spent bemoaning the fact that recent Fed interventions have prevented his momentum strategies from working as they're supposed to.

I have some questions for Fed critics. Why does the "Greenspan/Bernanke Put Option" era overlap with the Great Moderation? Back in the good old days before the Greenspan Put, when short-run stock market weakness predicted deepening stock market weakness, were the repeated recessions that coincided with those market patterns coincidental? Can you recommend a Fed policy that "sticks it" to investors while sparing the real economy? Because based on historical data, it sure looks like investors and employees rise and fall together.

I think the time-varying performance of stock market momentum strategies reflects changes in Fed policy. When the Fed reacts to economic weakness more slowly than investors expect and more slowly than the economy requires, then poor market returns will tend to predict continued poor market returns as modest economic weakness leads to a full blown recession. A more proactive Fed ruins the momentum anomaly by responding to economic weakness as investors expect and as required by the economy.

In short, what some call the Greenspan Put was actually a major cause of the Great Moderation.

This post is a continuation of a theme I've been working on. Purely statistical economic and stock market forecasting can be improved with theory and judgement. In this case, it needs to be recognized that the strong momentum anomaly that shows up in the 1940-2008 data died around 1983. It existed prior to 1983 because the Fed too-often exacerbated booms and busts beyond what investors expected at the time. Going forward, if the Fed is successful at preventing modest economic weakness from accumulating into a full-blown recession, I'd lean towards reversal-based stock market strategies.