Bryan Caplan and David Henderson

September 2008

A Monthly Archive (139 entries)

Son of Chrysler: The Stealth Bail-Out

Regulation and Subsidies
Bryan Caplan
When's the best time to beg for a bail-out? When everyone's talking about another, bigger bail-out, of course! Via James Hamilton:The US Senate Saturday approved 25 billion dollars in loan guarantees for the financially strapped US auto industry... The bill,... MORE

Paulson as a High-Pressure Telemarketer

Finance: stocks, options, etc.
Bryan Caplan
A few years ago, I was tormented by an aggressive broker who kept calling me at 6 AM to sell me stocks. I always hung up on him; but even when I was slamming down the phone, I could still... MORE

We're still likely to see a bail-out in the near future. So here's a question: If the bail-out happens, how will we know if it prevented disaster? If unemployment stays under 8%, proponents will say that the bail-out prevented a... MORE

Public Opinion and the Bail-Out

Politics and Economics
Bryan Caplan
Is the public fur it or agin it? The major surveys conflict:A poll by Rasmussen Reports early in the week found that 44% of Americans opposed the plan and 25% supported it. However, a USA Today/Gallup poll released Thursday showed... MORE

Revolt of the Elites

Politics and Economics
Arnold Kling
I am getting ready to take a couple days off from blogging. If I could count on Congress to leave town now, I would put in an order to increase my holdings of stock index funds. But I'm going to... MORE

My Current Feelings on the Bailout

Finance: stocks, options, etc.
Arnold Kling
1. During the crash of 1929, the gossip sheet Variety ran a famous headline, "Wall Street Lays an Egg." In those days, that was what you said about a show that the audience hated. If things keep going the way... MORE

Canadian Caplania

Behavioral Economics and Rationality
Bryan Caplan
I was on CTV this morning. As usual, the media wanted to talk about a few obscure paragraphs in my book where I suggest that we reconsider franchise restrictions. A year ago, I might have been scared to say this... MORE

I Don't Want to Be a Paul Ehrlich

Economic Methods
Bryan Caplan
I've figured out a way to operationalize a bail-out bet. Method: In five years, the government itself is supposed to publicly announce whether the bail-out lost money. I propose to use the government's self-assessment in five years to adjudicate the... MORE

Political Put-Down of the Year

Behavioral Economics and Rationality
Bryan Caplan
"Gov. Palin is merely less skilled in passing off inanities and claptrap as profundities." Ouch! I'm glad the poison pen who said it likes me.... MORE

Good Issue of JEL

Macroeconomics
Arnold Kling
Ordinarily, I don't care much for the Journal of Economic Literature, the American Economic Association's periodical selection of survey articles and book reviews. But the September 2008 issue is excellent. If any diligent commenters can find links to any of... MORE

Opposition to the Bail-Out: Strange Bedfellows

Political Economy
Bryan Caplan
From ABCNews:The main opposition in Congress has come from GOP conservatives, especially in the House. Democrats also hope that, after the compromises, enough House Republicans will vote for the package to give Democrats political cover.From FOXNews:Lawmakers had to navigate between... MORE

What Warren Buffett Wants

Finance: stocks, options, etc.
Arnold Kling
He favors the bailout. Without in any way impugning his motives, let me state the impact on Warren Buffett personally if the bailout is enacted. Think of the mortgage securities market as the World Series of Poker. In fact, a... MORE

Getting to Bet

Economic Methods
Bryan Caplan
In the comments, Patri Friedman points out that Barry Ritholtz has already offered a $1M bet that the bail-out loses money. Alas, though I agree with (and even chuckle with) Ritzholtz's conclusion, this is not yet a serious bet. Problems:... MORE

I'm a Media Star

Finance: stocks, options, etc.
Arnold Kling
I look like a cornered criminal, but this episode of Free Will gives me good exposure to explain how we got where we are today. Find out why Will Wilkinson considers Arnold Kling "The most sober crackhead I've ever met."... MORE

Two Thoughts

Finance: stocks, options, etc.
Arnold Kling
1. I read in the paper that Nancy Pelosi said they were going to post the legislation on the Web 24 hours before they voted on it. That means it should be up by now, right? Anyone know where to... MORE

What if it's a Wealth Shock?

Finance: stocks, options, etc.
Arnold Kling
For a different and important perspective on the financial crisis, I want to draw your attention to Robert Merton's remarks at Thursday's Harvard forum, linked to here. The Nobel Laureate begins with a back-of-the-envelope calculation. Data suggest that between June... MORE

Two Quick Takes

Macroeconomics
Arnold Kling
1. Tyler Cowen asks Will the commercial paper market dry up? The Fed had to deal with this in 1970, when the Penn Central Railroad went bankrupt. In this narrative, "the Fed's index finger started to bleed" from dialing up... MORE

Mankiw, Rogoff, and Merton

Finance: stocks, options, etc.
Arnold Kling
Harvard put together a faculty roundtable on the financial crisis. Thanks to Alex Tabarrok for the pointer. I skipped over much of it to listen to the three last panelists. Greg Mankiw (starts about minute 44) said that chapter 26... MORE

Where are the Macro Theorists? Help Me Out

Economic Education
Arnold Kling
What macroeconomic theory says that we run the risk of a Depression if we don't have a bailout? Try to come up with an argument that is either already in a textbook or that you would put in a textbook.... MORE

Too Clever

Finance: stocks, options, etc.
Arnold Kling
Five B-school professors from the University of Chicago write, we believe that it might be even better if the Treasury plan was divided into two components -- a plan to "liquify" certain moribund markets, thus allowing financial institutions to sell... MORE

How Progressive Corporatism Works

Finance: stocks, options, etc.
Arnold Kling
Greg Mankiw gets an email from Robert Shimer, who writes, looking back over the last 13 months, it should be clear that the Fed and Treasury have repeatedly underestimated the extent of the problem. In such an environment, the distributed... MORE

The Profit Opportunity

Finance: stocks, options, etc.
Arnold Kling
William R. Cline writes, The challenge is for the Federal Reserve and Treasury to develop internal reference prices applicable to each rating class and vintage of mortgage-backed securities that reflects reasonable medium-term values. These should be based on default probabilities... MORE

Hold a Hearing

Finance: stocks, options, etc.
Arnold Kling
With so much riding on the pending bailout, I would ask Congress to hold a hearing this weekend, with two people testifying: Ben Bernanke and Roger Cole. Cole is head of the Federal Reserve's Division of Bank Supervision and Regulation,... MORE

The House Republicans

Finance: stocks, options, etc.
Arnold Kling
They propose that all holders of private mortgage securities get together and form an insurance fund to guarantee their values. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance. As... MORE

Why Did Financial Markets Like Nixon's Price Controls?

Finance: stocks, options, etc.
Bryan Caplan
It's easy to explain why financial markets like the bail-out - it's a big transfer from tax-payers to investors. But Arnold points out that the market liked Nixon's price controls, too: "In 1971, the market gave a huge thumbs-up to... MORE

Nailing Down a Kessler Bet

Economic Methods
Bryan Caplan
Several readers suggest that I bet Andy Kessler about the U.S. government turning a profit on its bail-out. Here's Kessler's claim:My calculations, which assume 50% impairment on subprime loans, suggest it is possible, all in, for this portfolio to generate... MORE

Ben and Me

Finance: stocks, options, etc.
Arnold Kling
Ben Bernanke and I went to the same graduate school. We're on opposite sides of the bailout issue. My joke is that one of us is on crack, and it's probably me. My more serious answer is in this Cato... MORE

My Talking Points

Finance: stocks, options, etc.
Arnold Kling
For not doing a bailout: 1. We don't need to bail out Wall Street to protect Main Street. All we have to do is make sure that sound borrowers, especially small businesses, have access to credit. Banks can do the... MORE

The Pity Fund

Income Distribution
Arnold Kling
Maybe some distressed borrowers should have known better, and maybe some were innocent victims. I think it's impossible to generalize. I think that whether an individual home owner or home borrower was a victim is something that ought to be... MORE

It's Small Business, Stupid

Finance: stocks, options, etc.
Arnold Kling
As I continue to be in demand in obscure alternative media, I appeared on another radio program this morning. I was asked to comment on the proposal by the Congressional Republicans to create an insurance fund for mortgage securities. My... MORE

Reduce Bank Capital Requirements

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen joins the club calling for lower capital requirements. At least, that is what I think he is doing by referring to a paper by Kashyap, Rajan, and Stein. Tyler writes, Their phrase "recapitalization as a public good" should... MORE

The Hold-to-Maturity Nonsense

Finance: stocks, options, etc.
Arnold Kling
This morning, I realized why people think you can make money holding mortgage securities to maturity. They think that these securities are bonds. In reality, they are (or include) short option positions.... MORE

My Attempts to Stop the Stampede

Finance: stocks, options, etc.
Arnold Kling
Hear I am on the radio. I start at about minute 5:30. There is a little back and forth including other guests before they finish with me near the end. Late this afternoon, Bill Niskanen of Cato and I met... MORE

Will the Paulson Plan Turn a Profit? Let's Bet

Economic Methods
Bryan Caplan
Bush says that the Paulson Plan might turn a profit:The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal. And when that... MORE

Dodd, Frank apply lipstick to Paulson's Pig

Finance: stocks, options, etc.
Arnold Kling
I found this story too depressing to finish. It says that we have a bipartisan agreement on a bailout, and I read only as far as the proud quotes from Chris Dodd and Barney Frank. The unemployment rate is 6.1... MORE

Here's one of Heinlein's modest proposals for improving democracy:A state that required a bare minimum of intelligence and education - e.g., step into the polling booth and find that the computer has generated a new quadratic equation just for you.... MORE

Is the Bail-Out Based on Debt Illusion?

Finance: stocks, options, etc.
Bryan Caplan
My conjecture: If Paulson's bail-out were funded by a permanent tax increase sufficient to raise $700B in present value terms, it wouldn't stand a chance. The minimal public outcry, therefore, hinges on "debt illusion" - the mistaken view that debts,... MORE

Ridiculous Regs the Median Voter Doesn't Want

Political Economy
Bryan Caplan
The median voter isn't to blame for everything wrong with the world. Check this out: In Maryland, it's illegal to massage a horse!Mercedes took an eight-month equine massage course and hung up her shingle. She said she so enjoyed massaging... MORE

The Case Against the Bailout

Finance: stocks, options, etc.
Arnold Kling
I will elaborate on the following points. 1. Today's economy differs from that of the 1930's. Then, it may be that the financial sector may have contributed to the downturn elsewhere. Today, the financial sector is the downturn. 2. The... MORE

Are Credit Markets Locked Up?

Finance: stocks, options, etc.
Arnold Kling
Depends who you ask. Robert Higgs says no. Commercial and industrial loans of all commercial banks, which are reported monthly, have grown rapidly. The most recent report, for August 2008, shows outstanding loans of $1,514 billion, an all-time high. This... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
I will update this post as new items merit attention. First, my latest essay opens, I am concerned that the bailout might be the cause of the problem that it purports to solve. I am re-using Karl Kraus' famous quip... MORE

The Ignorance Behind the Paulson Plan

Finance: stocks, options, etc.
Arnold Kling
From The PBS News Hour on September 23: JEFFREY BROWN: Let me ask you, stay with you. One of the issues that we heard raised in the hearing was the question of whether anybody can fairly value the bad assets... MORE

More Experts

Finance: stocks, options, etc.
Arnold Kling
A long list. Thanks to Alex Tabarrok for the pointer. UPDATE: two more, one pro and one con... MORE

The Experts Strike Back

Finance: stocks, options, etc.
Bryan Caplan
Just when I was starting to feel disillusioned in my profession, the Stiglitz/DeLong/Edlin edited Economists' Voice lashes out against the Paulson bail-out. Just let me add: If we've learned anything from the Iraq War, it's that it's a good idea... MORE

I'm Going to See Singapore for Myself!

Cross-country Comparisons
Bryan Caplan
After many posts about Singapore, I'm finally going to see it first-hand. I'll arrive on 11/16 and leave on 11/24, with a side trip to Kuala Lumpur toward the end. Besides giving talks, I'll also be doing some field work.... MORE

Hold-to-Maturity Pricing

Finance: stocks, options, etc.
Arnold Kling
Mark Thoma writes, Now I just have to figure out how the "hold to maturity" price is to be determined, and how purchasing at that price minimizes losses. Suppose that you owe $110,000 on your mortgage, due in one payment... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
The Wall Street Journal has the prepared testimony of Ben Bernanke and Henry Paulson. Neither one spells out exactly what sorts of financial institutions are in difficulty and how that difficulty translates into problems elsewhere in the economy. Neither prepared... MORE

Hunger in Maus

Books: Reviews and Suggested Readings
Bryan Caplan
I recently re-read both volumes of Art Spiegelman's Maus. If you've never heard of it, it's an autobiographical graphic novel where the author gets his father to tell the story of how he survived the Holocaust. The Jews are mice,... MORE

Good Question

Finance: stocks, options, etc.
Arnold Kling
Anil Kashyap and Jeremy Stein ask whether the purpose of the Paulson plan is to buy good assets cheap or buy bad assets dear. When a strong leader offers a solution to a crisis, you're not supposed to ask those... MORE

Friend or Foe?

Political Economy
Arnold Kling
I am cited by, of all people, David Brooks, for coining the term "progressive corporatism." I guess it goes down easier than "liberal fascism." My original post is here. Should I be happy or unhappy with the way I appear... MORE

Strong Leadership

Economic History
Arnold Kling
Many of us are grasping at historical analogies to the current financial crisis, and the 1930's keep coming up. One of the lessons of the 1930's is that in times of crisis people want strong leadership. In the 1930's, that... MORE

Delusions on Both Sides

Finance: stocks, options, etc.
Arnold Kling
Many people, including Mark Thoma (also here) are interested in the question of whether it was private markets or government regulators who got us into this mess. My answer is, "yes." There were delusions on both sides. In the private... MORE

Supporting Goldin-Katz

Economics of Education
Arnold Kling
Jason Malloy writes, merely earning a Bachelor's degree is a golden ticket. People with average and below average IQs are getting just as much of a financial return out of their 4-year degree as those above the 85th percentile. This... MORE

A Simpler Solution

Finance: stocks, options, etc.
Arnold Kling
On many occasions, including my Cato paper, I have suggested that we can solve the problem by reducing capital requirements for banks on an interim basis. Nobody seems to be listening to this idea, or even discussing it. It has... MORE

Where Are the Demagogues When You Need Them?

Behavioral Economics and Rationality
Bryan Caplan
Googling "bail-out rich" basically kicks back a bunch of libertarians. Where are the left-wing demagogues denouncing the bail-outs as "welfare for the rich"? Where are the right-wing demagogues denouncing the bail-outs as "foreign aid for the rich"? Whatever demagogues are... MORE

Why Only Bush Could Bring Socialism to America

Behavioral Economics and Rationality
Bryan Caplan
Recent events remind me of Cowen and Sutter's 1998's article on "Why Only Nixon Could Go to China." From the abstract: "Right-wing politicians sometimes can implement policies that left-wing politicians cannot, and vice versa. Contemporary wisdom has it that 'only... MORE

Wishful Thinking

Finance: stocks, options, etc.
Arnold Kling
Concerning the $700 billion bailout proposal, Brad DeLong writes, I beg the Democrats in congress: write a bill that makes sense. I probably should have warned you to put your coffee down first. Now that you're finished guffawing, here's my... MORE

An Open Letter to Ben Bernanke

Finance: stocks, options, etc.
Arnold Kling
Dear Ben, The Wall Street Journal reports, "If it doesn't pass, then heaven help us all," responded Mr. Paulson He is referring to legislation to authorize the next round of bailout activity by the Treasury, with rules, methods and accountability... MORE

Modern Financial Systemic Risk: A Primer

Finance: stocks, options, etc.
Arnold Kling
What is financial systemic risk? How do derivatives and leverage figure in? What should be done about it?... MORE

Morning Reading

Finance: stocks, options, etc.
Arnold Kling
Who was asleep while financial markets ran amok? On Freddie and Fannie, the Bush Administration says, not us. Read the whole timeline. Greg Mankiw, who is mentioned in the statement, provided the pointer. Is Henry Paulson a hero? Not to... MORE

Progressive Corporatism

Political Economy
Arnold Kling
Roderick Long writes, The vast regulatory apparatus that emerged in the late 19th and early 20th centuries was thus specifically campaigned for by the business community. ..The supposedly pro-labour legislation that emerged from this area was also mostly bogus, a... MORE

Chief Financial Plumber

Finance: stocks, options, etc.
Arnold Kling
A Treasury Department press release offers a statement from Secretary Paulson. The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off... MORE

SEC Demagoguery

Finance: stocks, options, etc.
Bryan Caplan
When someone predicts imminent financial doom, economists almost always taunt him, "If you're right, why don't you sell short?" If recent events prove anything, it's that short-selling is easier said than done. If we wanted advance warning of financial troubles,... MORE

Klein, Clark, and the Liberty Maxim

Economic Philosophy
Bryan Caplan
Dan Klein and Michael Clark have a very thoughtful new working paper. Lead-in:Again, we embrace Rothbard’s definition of liberty. We reject, however, some of Rothbard’s major claims for liberty. He tended to frame the liberty principle as an imperative, as... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
A bunch of thoughts: 1. On the new Resolution Trust Corporation, several people agree with me that it is nothing like the old RTC, echoing what I wrote ages ago Wednesday. The old RTC got handed to it the assets... MORE

We Don't Need No, Continued

Economics of Education
Arnold Kling
Steven Yamarik writes, Labour economists have estimated the micro-Mincerian wage equation using different time periods, samples, and econometric techniques. For the US, the private return to schooling ranges from 4 %to 16% with a consensus estimate is around 10%. The... MORE

Rumor: Government to Buy Bad Mortgage Securities

Finance: stocks, options, etc.
Arnold Kling
According to this story: One way the agency reportedly under discussion could work is by setting up bulk auctions to buy mortgage debt from financial institutions. The auctions would be for set dollar amount purchases. Companies that want to offload... MORE

Barney Frank goes Jacksonian

Political Economy
Arnold Kling
The Wall Street Journal reports, "No one in a democracy, unelected, should have $800 billion to spend as he sees fit," said Mr. Frank. Andrew Jackson felt similarly, which is why he refused to renew the charter of the second... MORE

Instructive Commentary

Finance: stocks, options, etc.
Arnold Kling
From Doug Diamond and Anil Kashyap. Self-recommending, as Tyler would say. Diamond's paper "Financial intermediation and delegated monitoring," is the technical version of what I tried to describe earlier today. They point out that financial firms are tightening up. One... MORE

Thoughts on Short-Selling

Finance: stocks, options, etc.
Arnold Kling
What is short-selling? How can short-selling destroy a good company?... MORE

Two Interesting Things James Hamilton Told Me

Energy, Environment, Resources
Bryan Caplan
Noted energy economist James Hamilton just spoke at GMU. The two most interesting things he said: 1. OPEC has almost no effect on world oil prices; most countries produce less than their quota, and when countries want to produce more,... MORE

What do Financial Intermediaries Do?

Finance: stocks, options, etc.
Arnold Kling
When I wrote that financial intermediation inherently replaces transparency with trust some people found that comment enigmatic. So I'll elaborate. Suppose I have some savings, and I would like to invest them. I would like a nice return, but I... MORE

Leaning Against the Wind

Finance: stocks, options, etc.
Arnold Kling
Edmund L. Andrews writes, As recently as last summer, the central bank’s entire vault of reserves — about $800 billion at the time — was in Treasury securities. By last week, the Fed’s holdings of unencumbered Treasuries had dwindled to... MORE

Afternoon Commentary

Finance: stocks, options, etc.
Arnold Kling
Bloomberg interviews William Poole. Bloomberg doesn't permalink their video interviews, so I just linked to the page where I found it. It's not necessarily worth watching the whole thing. The essential message is that he doesn't like leverage. He even... MORE

An Ex Ante Aneurysm

Behavioral Economics and Rationality
Bryan Caplan
From Shenkman, Just How Stupid Are We?:The economist and liberal columnist Paul Krugman is convinced that the dawn of a new liberal era is upon us. If it is, one can be certain that liberals will stop complaining about the... MORE

Who Said It?

Economic Philosophy
Bryan Caplan
"It would be as unnatural to refer the choice of a proper magistrate to the people as it would to refer the choice of colors to a blind man." (quoted in Rick Shenkman, Just How Stupid Are We?)... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
Lawrence B. Lindsey writes, Many assets are highly illiquid and the institutions that hold them, such as banks, are in the business of providing liquidity to the economy and holding such assets as collateral. Making those assets "mark to market"... MORE

Another Definition of Democracy

Political Economy
Arnold Kling
From David Brooks. Democracy is not average people selecting average leaders. It is average people with the wisdom to select the best prepared. I still prefer the quote of the day. When I read Bobos in Paradise several years ago,... MORE

More Commentary

Finance: stocks, options, etc.
Arnold Kling
I'll get to current events in a moment. First, Bob Shiller writes, Consider investors in Fannie and Freddie bonds. While the US government never officially promised to bail them out, it did create a special agency, the Office of Federal... MORE

What Should Government Guarantee?

Finance: stocks, options, etc.
Arnold Kling
Megan McArdle writes, our regulatory model still works on the assumption that the technocrats can figure out what is safe, and then let the public buy it, and nothing will ever go wrong. Oh, maybe it's not working that way... MORE

Nudging Marriage

Family Economics
Bryan Caplan
If you think that Nudge doesn't matter, take a look at marriage. Only 5-10% of marriages have prenups; everyone else goes with the "default option" - the family law of the state in which they reside. Why do people go... MORE

Priceless Anecdote

Price Controls
Arnold Kling
From Don Boudreaux, This morning your reporter interviewed a resident of Galveston, Texas, about the effects of hurricane Ike. The person interviewed said that she went to the gasoline station before Ike hit to "top off" her tank. But she... MORE

Quote of the Day, II and III

Finance: stocks, options, etc.
Arnold Kling
The highly quotable Nassim Taleb has a new essay. In some situations, you can be extremely wrong and be fine, in others you can be slightly wrong and explode. If you are leveraged, errors blow you up; if you are... MORE

Quote of the Day

Political Economy
Arnold Kling
Robert Higgs writes, Call it democracy in action or utterly corrupt governance; they are the same thing. He wrote this in regard to the Fannie-Freddie implosion, also known as "last week's news." Next Monday, in Hartford, I will be arguing... MORE

Health Care: Obama, McCain, Hanson, and Utopia

Economics of Health Care
Arnold Kling
David Cutler, Brad DeLong, and Ann Marie Marciarille write, One-third of medical costs go for services at best ineffective and at worst harmful. Fifty billion dollars will jump-start the long-overdue information revolution in health care to identify the best providers,... MORE

Hurricane Lehman Update 4:30 EST

Finance: stocks, options, etc.
Arnold Kling
Kind of a mixed day on Wall Street. Dow down 500. Indexes down about 4-1/2 percent. The market stayed open. Right now, it feels to me like the second round of our fantasy baseball auction.... MORE

Is FDA Paternalism a Public Good?

Regulation and Subsidies
Arnold Kling
Daniel Klein writes, knowledge has certain public goods properties. But the public-goods point in no way justifies the restrictions we see; it could only justify government subsidization of knowledge production. He is writing about FDA regulation of pharmaceuticals. Think of... MORE

The Shadow Knows

Finance: stocks, options, etc.
Arnold Kling
The Shadow Financial Regulatory Committee, that is. They meet quarterly, under the auspices of the American Enterprise Institute, and their latest meeting took place while the real financial regulators were deciding to let Lehman walk the plank. Today, shortly after... MORE

Hurricane Lehman Update, 10 AM EST

Finance: stocks, options, etc.
Arnold Kling
Floyd Norris writes (see the 10:10 AM post), It may sound foolish to see an encouraging sign in the fact financial stocks are only down about 3.5 percent so far today. But it is encouraging. I don't think he's foolish... MORE

Russ Roberts and Bob Shiller

Finance: stocks, options, etc.
Arnold Kling
The latest econtalk podcast. The housing bubble and the subprime crisis are the theme. Around minute 40, Roberts asks if this really is a crisis. Shiller starts to answer, and he sort of explains why he thinks the Bear Stearns... MORE

Hurricane Lehman Update, 7 AM EST

Finance: stocks, options, etc.
Arnold Kling
Brad DeLong writes, If the Federal Reserve thought that Wall Street would have a big impact on Main Street--a bigger impact than they thought it would have last week--they would have cut interest rates tonight rather than just agreed to... MORE

My Most Incorrect Belief

Economic History
Arnold Kling
Gavin Kennedy and Mark Koyama are still beating me to a pulp. Koyama writes, Polanyi and the historians and sociologists who have been inspired by Polanyi mainly claim that markets didn't exist before 1800 or 1750 because they don't know... MORE

U.S. States and Five-Factor Personalities

Behavioral Economics and Rationality
Arnold Kling
Razib has the story. I do want to note the correlations between Openness and the following metrics on the state level: % Arts and entertainment = 0.23 % Computer and mathematical = 0.24 Patent production per capita = 0.28 Of... MORE

Bryan Takes Over the Treasury

Finance: stocks, options, etc.
Arnold Kling
Bloomberg reports, ``The collapse of this deal casts a dark cloud over Wall Street,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``It also sends a message... MORE

Twilight of the Idols

Economic Philosophy
Bryan Caplan
Putin defends Russia's new history textbook with the classic excuse of "The other kids are doing it too":Mr Putin ...described Stalin’s Great Purge of 1937, in which 1.5 million people were imprisoned and 700,000 killed, as terrible “but in other... MORE

Will Supplies Last?

Books: Reviews and Suggested Readings
Arnold Kling
George Will writes, The spontaneous emergence of social cooperation—the emergence of a system vastly more complex, responsive and efficient than any government could organize—is not universally acknowledged or appreciated. It discomforts a certain political sensibility, the one that exaggerates the... MORE

Today's Freddie-Fannie Commentary

Finance: stocks, options, etc.
Arnold Kling
Mark Thoma writes, if someone without a life-preserver who is struggling in the water grabs someone who is wearing one, and in the process takes them both down, that doesn't mean that the life-preserver failed to do its job. What... MORE

How I Lost My Macro Religion

Macroeconomics
Arnold Kling
At lunch, Nick Schulz asked me what Robert Hall is known for. I said that Hall changed my view of macroeconomics. Even today, Hall's work influences how I think about global warming. So pull up a chair, grab a cup... MORE

Will Wilkinson's Intellectual Standards

Behavioral Economics and Rationality
Arnold Kling
David Brooks is not up to them. Shock me, shock me.... MORE

No Price Gouging Here!

Price Controls
Arnold Kling
The Knoxville Sentinel reports, Knoxville-area drivers are seeing more bags on gasoline pumps today as a petroleum shortage spreading throughout the Southeast hits local gas stations, groceries and convenience stores. But thank goodness there is no price gouging. Russ Roberts... MORE

Thoughts on Financial Regulation

Finance: stocks, options, etc.
Arnold Kling
1. I think that financial markets are inherently imperfectly transparent. The reason that we have financial intermediaries is to save the final investor the work of evaluating the risk of the ultimate borrower. Markets promote a phenomenal division of labor.... MORE

Thoughts on Housing Policy

Finance: stocks, options, etc.
Arnold Kling
I am getting my thoughts together for a piece on what to do in the long term about financial markets and housing policy. Here are a couple of thoughts on housing policy. 1. Why subsidize home ownership among people who... MORE

Two Aphorisms

Political Economy
Arnold Kling
Steve Horvitz highlights a quote from Jonathan Sacks, the Chief Rabbi of Great Britain: It is through exchange that difference becomes a blessing, not a curse. Alex Tabarrok nominates that for sentence of the year. Next, Jonathan Haidt writes, politics... MORE

The Financial Invasion Continues

Finance: stocks, options, etc.
Arnold Kling
The next redoubt to fall is Lehman. Steven Pearlstein writes, the government now finds itself hip-deep in the direct management of the financial system, rescuing four of the country's biggest financial institutions -- Bear Stearns, Fannie Mae, Freddie Mac and... MORE

A Deleted Scene from MRV

Behavioral Economics and Rationality
Bryan Caplan
I'm currently writing replies to eight critiques of my book for a forthcoming issue of Critical Review. In Jon Elster and Helene Landemore's critique, they raise the self-referential objection: Doesn't your book's thesis apply to you? This reminded me that... MORE

When Is It Wrong To Vote?

Economic Philosophy
Bryan Caplan
Philosopher Jason Brennan defends a very Caplanian answer to this question in a forthcoming paper, "Polluting the Polls: When Citizens Should Not Vote":Irresponsible individual voters ought to abstain rather than vote badly. This thesis may seem anti-democratic. Yet it is... MORE

In Praise of Corny Canadian Politicians

Behavioral Economics and Rationality
Bryan Caplan
Yesterday, I was on Canada's CBC Radio's "The Current." Today, I'm at #132 on amazon.ca. In part, I gave my standard spiel about irrational voters. But they also gave me a chance to make an original point. In the podcast,... MORE

Putin's backing new textbooks for social studies and modern Russian history, and they sound awful. The Times says that the social studies book:...presents as fact Mr Putin’s view that the Soviet collapse was “the greatest geopolitical catastrophe of the 20th... MORE

Can our Government Default?

Social Security
Arnold Kling
Continuing our discussion, Felix Salmon doesn't think so. And yes, Uncle Sam will always be able to borrow. That's what "risk-free rate of return" means. Is it possible to conceive of scenarios where the US defaults? Yes -- but under... MORE

When Your Uncle sets up a Trust Fund

Social Security
Arnold Kling
Felix Salmon writes, the obligations of the [Social Security] trust fund aren't tangible obligations fungible with other government debt. But at the same time they are obligations: they oblige the government to issue debt in the future, insofar as its... MORE

We Need Less

Economics of Health Care
Arnold Kling
Robert J. Samuelson writes, The central health-care problem is not improving coverage. It's controlling costs...Countless studies have shown that many tests, surgeries and medical devices are either ineffective or unneeded. Greater health-care spending forfeits any superior moral claim on our... MORE

The No-Bailout Option

Finance: stocks, options, etc.
Arnold Kling
Bryan writes, The U.S. has just missed a golden opportunity to credibly signal to the world for decades to come that "no guarantee" means "no guarantee." Suppose that we describe a miniature Fannie Mae as follows. One year from now,... MORE

Mankiw, Tyler, and Me

Finance: stocks, options, etc.
Bryan Caplan
Mankiw has some wise observations on the GSE takeover. Here's a particularly excellent parethetical:(And before anyone emails me that the GSE equity holders are not exactly getting a good deal here, let me point out that the debt holders are.... MORE

How Banking Panics Worked Before the Fed

Monetary Policy
Bryan Caplan
Princeton has re-released Friedman and Schwartz's The Great Contraction. Ben Bernanke's speech in honor of Friedman's 90th birthday is now the book's epilogue. The highlight, for me, is Bernanke explaining how banks dealt with panics before the Fed existed:Before the... MORE

Who Fails to Comprehend?

Finance: stocks, options, etc.
Arnold Kling
Menzie Chinn writes, I would have hoped to have more comprehension from a candidate at a time when the estimate of a resulting $300 billion taxpayer liability is viewed as plausible. He is referring to Republican VP candidate Sarah Palin's... MORE

What's the Legal Basis for the Freddie/Fannie Takeover?

Finance: stocks, options, etc.
Bryan Caplan
Could someone who knows the law explain the legal basis for the Treasury's takeover announcement? The Wall Street Journal simply describes it as a "seizure." But the last time I checked, the legal procedure for the U.S. government taking stuff... MORE

Give Me Some Fair Questions

Behavioral Economics and Rationality
Bryan Caplan
I think that people are a lot more rational (and better-informed) as consumers than they are as voters. Other people disagree. Pointing to existing surveys isn't a very helpful way to resolve this debate: If people get 70% on a... MORE

Beating the Dead Horses

Finance: stocks, options, etc.
Arnold Kling
A while ago, Cato asked me to explain Freddie Mac, Fannie Mae, and what to do about them. In this briefing paper, I will suggest ways that Congress could gradually extricate housing policy from its dependence on the GSEs. While... MORE

Greg Clark and Jane Jacobs

Economic History
Arnold Kling
Wolfgang Kasper weaves them together in an interesting essay. Anyone who has spent only a few days working in different cultures will realise how influential and pervasive these differing attitudes are. During three days’ work, say, in Shanghai, you will... MORE

Competitive Government

Political Economy
Arnold Kling
I will be a participant in a seminar in a couple of weeks called making democracy smarter. My essay is called competitive government vs. democratic government. I make the case against democracy. Democratic government in the United States today offers... MORE

Two Essays on Today's Youth

Economics of Education
Arnold Kling
From William Pannapacker, aka Thomas H. Benton, here and here. From the second essay: Essentially I see students having difficulty following or making extended analytical arguments. In particular, they tend to use easily obtained, superficial, and unreliable online sources as... MORE

If I Were Mortgage Czar

Finance: stocks, options, etc.
Arnold Kling
If I were the czar of the mortgage market, I would attempt to bring back the 30-year amortizing fixed-rate mortgage with a 20 percent down payment. As recently as fifteen years ago, this was the workhorse of the housing market.... MORE

Recession-Proof

Political Economy
Arnold Kling
A newspaper in Anne Arundel County, Maryland reports, the number of school employees earning more than $100,000 doubled from 213 in 2007 to 450 in fiscal 2009, which started in July. ...62 school employees received pay hikes of more than... MORE

How Dems and Reps Differ: Against the Conventional Wisdom

Behavioral Economics and Rationality
Bryan Caplan
A little while back, Greg Mankiw praised Peggy Noonan for "summarizing a key difference between the political parties." As Noonan puts it:Neither party ever gets it quite right, the balance between the taxed and the needy, the suffering of one... MORE

What I'm Reading

Books: Reviews and Suggested Readings
Arnold Kling
Mountains Beyond Mountains, by Tracy Kidder. The book profiles Paul Farmer, a physician who has dedicated his life to improving health in underdeveloped countries, particularly Haiti. Farmer is at least as comfortable living and healing amid squalor as he is... MORE

Freddie, Fannie: No Exit?

Finance: stocks, options, etc.
Arnold Kling
We now have the latest plan. The real legacy of the Bush Administration may turn out to be Washington's invasion of financial markets. Five years from now, we could find ourselves with no exit strategy. My guess is that we'll... MORE

Five Myths of the Rational Voter

Political Economy
Arnold Kling
Rick Shenkman writes, by most measures, voters today possess the same level of political knowledge as their parents and grandparents, and in some categories, they score lower. In the 1950s, only 10 percent of voters were incapable of citing any... MORE

Shiller Interviewed on the Subprime Crisis

Books: Reviews and Suggested Readings
Arnold Kling
Greg Mankiw has the 8-minute video. It's worth watching. Shiller is a very independent thinker. He says that what we need is more financial innovation, not less. He says that we should not have been trying to urge so many... MORE

The Future of U.S. Health Care

Economics of Health Care
Arnold Kling
The Washington Post reports, Facing a severe budget shortfall, Rhode Island officials are seeking unprecedented authority to rein in Medicaid spending in a move that has alarmed Democrats in Congress and advocates for the poor. Read the whole story. I... MORE

Do I Take Teasing Too Seriously?

Microeconomics
Bryan Caplan
When phone companies, ISPs, cable companies, and the like offer "teaser rates" ("$50 for the first three months"), I assume the worst. If their regular rate were good, they would tell me upfront. So if they won't tell me what... MORE

The Binary Fallacy

Political Economy
Bryan Caplan
When I was at the APSA meetings, the famed Arthur Lupia gave yet another speech in defense of voter competence. He offered a long list of arguments. But his most important mistake, in my view, was his claim that voters... MORE

Squandering their Cognitive Surplus

Economic Education
Arnold Kling
Mama, don't let your boy grow up to be a campaign economic adviser. Look at what happened to Jason Furman and Doug Holtz-Eakin, two very nice, very smart guys. Because they are on different sides of the Presidential campaign, they... MORE

The Age of Non-government Public Goods

Information Goods, Intellectual Property
Arnold Kling
Clay Shirky says, all of Wikipedia, the whole project—every page, every edit, every line of code, in every language Wikipedia exists in—that represents something like the cumulation of 98 million hours of human thought. I worked this out with Martin... MORE

Why Parties Won't Deliver

Political Economy
Arnold Kling
Tyler Cowen types, I also think, though, cynically, that the GOP knows that "delivering" on the abortion issue would spell their doom and thus they won't ever do it. I have thought that this holds for the Democrats and universal... MORE

Stiglitz the Omniscient

Finance: stocks, options, etc.
Arnold Kling
Joseph Stiglitz writes, there have been more than one hundred financial crises worldwide in the last 30 years or so. Here in the United States alone, we have had the S&L crisis in 1989, the dot-com/WorldCom/Enron problems of the early... MORE

Nonprofit Exit Rate

Business Economics
Arnold Kling
Teresa D. Harrison and Christopher A. Laincz write We find that [nonprofit] entry behavior resembles that of for-profits but greatly differs on the exit side. New public charities begin smaller than incumbents. The survivors grow much faster than incumbents while... MORE

Public choice scholars often say that democracy underperforms the market because of: 1. Infrequent choice. In the market, consumers can continuously change their minds. In politics, however, voters are stuck with their choice until the next election. 2. Bundled choice.... MORE

Pete Leeson Guest Blogging at Freakonomics

Behavioral Economics and Rationality
Bryan Caplan
My wunderkind colleague (and former student) Pete Leeson kicks off his first day at Freakonomics with reflections on the Bigfoot/UFO correlation:States with more U.F.O. sightings also have more Bigfoot sightings. In fact, six of the top ten U.F.O. and Bigfoot... MORE

The Difficult Concept of Evolution

IQ in Economics
Arnold Kling
David Friedman writes, It is hard to see how humans could have evolved intelligence if intelligence is not heritable. I hope that the notion that there is zero heritability of intelligence is a straw man. The debate ought to be... MORE

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