It looks like tonight is all about grinding old axes with SL. In Steven Landsburg's book "The Armchair Economist" there is a wonderful essay on interest rates called "Ideas of Interest". But in the middle of this lucid essay is this odd and inappropriate insult...
Flood the economy with money and the nominal interest rates go up in lockstep with inflation to keep the real rate constant, not down, as the typical Wall Street journal reporter seems to expect.
- "The Armchair Economist" page 183
Well, you heard it here first, folks. Not only are Wall Street Journal reporters stupid, but so are many economists that foolishly believe that if prices don't adjust immediately, then changes in the money supply can cause changes in the real interest rate
. Obviously, expectations and price rigidity don't matter! Thanks for the beacon of insight, Steven.
I kid. I kid. We all know that Landsburg realizes that his statement isn't unconditionally true. In fact, he briefly mentions the possibility that changes in the money supply might affect the real interest rate in a footnote, but in very little detail. So little detail in fact that unless the reader is already educated on the subject he or she probably won't realize how much Landsburg is leaving out of his presentation. This could lead the reader to a serious misunderstanding of how interest rates actually behave. This misunderstanding is only re-enforced by the fact that when Landsburg talks directly about how changes in the money supply affect interest rates his language isn't conditional. He plainly says that an increase in the money supply will increase nominal interest rates leaving the real interest rate unchanged. No ifs, ands, or buts.
So, I just wonder why he did it. Why did Landsburg make such a strong statement if it wasn't totally accurate? Maybe Because a more complex treatment is too much for an introductory essay? I wouldn't think so, but if it were, then Landsburg should have been even more careful to use conditional language to avoid oversimplifications.
The only explanation I can think of is that Landsburg decided to sacrifice precision for punch. It was more important to him to buck "popular convention" and to insult the Wall Street Journal than to lay things out carefully. And If you look at Landsburg's other popular writings there is nothing he loves doing more than defying convention for the sake defying convention. In short, Steven Landsburg is a troll--one who argues for the sake of argument or entertainment.
I still love you. *smooch*