Bryan Caplan and David Henderson

October 2008

A Monthly Archive (124 entries)

Health Care Free Lunch

Economics of Health Care
Arnold Kling
Brad DeLong and David Cutler promise one, on behalf of Barack Obama. As the reforms take hold, costs will drop. As costs drop, insurance will become more affordable. Millions previously priced out of the market will be able to buy... MORE

Bernanke Could Use a Clue

Finance: stocks, options, etc.
Arnold Kling
Lots of big names at a Berkeley symposium on housing finance, including Ben Bernanke. Reportedly, Bernanke focused on the need to rework the government guarantee of mortgage securities. I really believe that is wrong. Moreover, he knows less about it... MORE

Left versus Right: What's the Big Deal?

Politics and Economics
Bryan Caplan
Call me crazy, but I think that McCain and Obama are basically the same.  You might like to persuade me otherwise, but you've got to understand where I'm coming from.  First, when I classify people's politics, I think in terms... MORE

How to Kill Drug Development

Regulation
David Henderson
My co-author and former student, Charles Hooper, has written an excellent article on today's Forbes.com. In the article, Hooper calls himself a "drug killer," telling why he advises firms to "kill" even drugs that have promising uses. Here's a quote:... MORE

Anti-Democratic Lunch with Me

Econlog Administrative Issues
Arnold Kling
Reader George Paci suggested that I attempt to convene a lunch where locals can join me in batting around ideas, or I suppose just bat me around. Fellow DC-area bloggers as well as readers are welcome to attend. In the... MORE

Difficult Facts About Housing

Finance: stocks, options, etc.
Arnold Kling
It is interesting to go back and read of the papers delivered at a Fed conference in Jackson Hole in 2007. Tanta was on top of them.... MORE

The Wonders of Democracy

Political Economy
Arnold Kling
Some random thoughts. 1. In my county, and in many locations in the U.S., we have had one-party government for longer than the Communists had control of Eastern Europe. 2. In spite of the fact that Congressional approval ratings are... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
The New York Times has a story about borrowers who worry that they are hurting themselves by paying their mortgages and perhaps missing out on a bailout. "If the government says, 'Prove that you can't afford your house and we'll... MORE

Highlights from Hayek

Political Economy
David Henderson
I hadn't read Friedrich Hayek's The Road to Serfdom cover to cover for over 20 years. Today I did. I knew it was a good book but I concluded today that it's a great book. Here are two of the... MORE

From The Tax Foundation The Treasury action invalidating SILO depreciation deductions encouraged the banks to look for any opportunity to get out of the contracts. The situation is exacerbated by an IRS settlement offer to banks that lets them keep... MORE

Politics and Identity

Behavioral Economics and Rationality
Arnold Kling
I recommend this lecture from Bill Bishop. By the way, I am finding an incredible amount of interesting videos these days. I think that somebody who is motivated to learn and has some good sources of recommendations could get do... MORE

Could a Libertarian Buy Iceland?

Political Economy
Arnold Kling
Tyler Cowen writes, I wonder what it is like for a country to be truly, permanently bankrupt. And a further difficulty lies on the horizon. Circa 2000, fish accounted for 70 percent of the country's export earnings. Here are many... MORE

The Security Rating Game

Finance: stocks, options, etc.
Arnold Kling
Joshua D. Coval, Jakob W. Jurek, and Erik Stafford write, First, the securities' credit ratings provided a downward biased view of their actual default risks, since they were based on the credit ratings agencies' naïve extrapolation of the favorable economic... MORE

The S Word

Finance: stocks, options, etc.
Arnold Kling
One word I never see in the press coverage of the housing crisis is "speculator." Whether it is yet another silly economist's op-ed* or a front-page story, the press talks about distressed homeowners, not the people with second and third... MORE

Subtle Wisdom

Political Economy
Arnold Kling
From Don Boudreaux. The fact that each of us depends upon the efforts of millions of others does not mean that some "society" transcending individuals produces our prosperity. Rather, it means that the vast system of voluntary market exchange coordinates... MORE

If This is Polite Society, What is Rude Society Like?

Behavioral Economics and Rationality
Bryan Caplan
Brad DeLong sounds like he advocates ostracizing Douglas Holtz-Eakin for (a) working for McCain and (b) calling Obama a "redistributionist."  At least that's how I read Brad's approving quotation of an unnamed source saying:Someone needs to tell Holtz-Eakin he can't... MORE

Channel Charles Murray

Economics of Education
Bryan Caplan
No one in the Cato Unbound exchange on Charles Murray's education book responded to my closing questions.  I asked Murray:In your view, why precisely does the market financially reward students for taking lots of classes that at best seem distantly... MORE

Stossel Parody

Behavioral Economics and Rationality
Bryan Caplan
The parody of John Stossel "Should Some People Not Vote?" has five times the Youtube count as the original.  Why am I not surprised?P.S. I wish I was as persuasive as the guy who's supposed to be me...... MORE

What Next?

Fiscal Policy
Arnold Kling
John Baden writes, there is diminishing support for institutions that generate wealth rather than redistribute it...both positive and negative values increasingly converge and agglutinate. This promotes substantial class differences. If one is blessed with responsible parents, intelligence, favorable genetics, health,... MORE

Greenspan, Bernanke, and Bubbles

Finance: stocks, options, etc.
Arnold Kling
Brad DeLong says I am wrong about his views of Greenspan. I now think he was wrong not to move aggressively to curb the housing bubble of the 2000s. But I think all in all he did a very good... MORE

The Camden Bobos Proposal

Politics and Economics
Arnold Kling
Below is a list of Ten Proposals for the next Administration, which came from a talk by Juan Enriquez. I thought that the main point of the talk is that politicians are dealing in unreality. Certainly, in the debates, every... MORE

A sort-of Blog to Follow

Finance: stocks, options, etc.
Arnold Kling
The Kellogg School (Northwestern University's Business School) has a sort of blog, featuring several professors there. One of them, my former grad school classmate Bob McDonald, is the author of a definitive textbook on derivatives. In one post, he writes,... MORE

McCain vs. Obama

Fiscal Policy
David Henderson
Forbes.com published an article by me today comparing some of the economic policies of McCain and Obama. Note my criticism of both of them for voting to move toward central government planning of financial markets.... MORE

Corrupt Bargains

Behavioral Economics and Rationality
Bryan Caplan
A standard complaint about libertarians is that they want to commodify the sacred.  I've often heard, for example, that selling organs is just plain wrong.  Money has no place here (unless "here" is Iran); the only legitimate motive for an... MORE

Are We in a Liquidity Trap After All?

Macroeconomics
Bryan Caplan
A while back, I argued that we're not in a liquidity trap.  But then Greg Mankiw pointed out that the two series on his webpage had different endpoints, leaving the matter again in doubt.  Now Jeff Hummel says that excess... MORE

Central Bankers and History

Finance: stocks, options, etc.
Arnold Kling
Brad DeLong writes, The current financial crisis has its roots in Greenspan's decision to keep interest rates very low in 2002 and 2003 to head off the danger of a deflation-induced double-dip recession, and his subsequent decision that the costs... MORE

Bailout Watch

Finance
David Henderson
"Rescue Plan Faces Delay in Hiring Asset Managers." So reads the headline of a news story in today's Wall Street Journal. The story goes on to say: Treasury won congressional approval for the program on Oct. 3. It said at... MORE

A Pareto-Optimal Move

Economics of Health Care
David Henderson
Economists often talk about Pareto-optimal moves, that is, changes in policy that make some people better off without making anyone else worse off. But we have trouble coming up with any real examples. It's an easy exercise to show that... MORE

Where Is the Political Flynn Effect?

Behavioral Economics and Rationality
Bryan Caplan
According to IQ tests, we're getting smarter.  But when I was reading Warren Harding's "Return to Normalcy" speech, it seemed way over the heads of a modern audience.  The anomaly inspired me to plug Harding's words into an online grade... MORE

Government Conspiracy to Silence Mankiw

Microeconomics
Bryan Caplan
Mankiw calculates that McCain's tax plan slashes his return to work by 83%.  Obama's plan slashes his return to work by 93%.  Doesn't anyone in politics want Greg to keep working?  The funny thing about his post is that it... MORE

The Tallest Pygmy

Finance: stocks, options, etc.
Arnold Kling
Why is the U.S. dollar strengthening, given the crisis that is taking place here? I remember that Steve Roach once used the metaphor of the tallest pygmy to explain how the strength of the dollar. Maybe once again we are... MORE

Precogs at the Onion

Economic History
Bryan Caplan
No joke - The Onion really did run this story for Bush's first inauguration:Mere days from assuming the presidency and closing the door on eight years of Bill Clinton, president-elect George W. Bush assured the nation in a televised address... MORE

Whatever Happened to Gridlock?

Politics and Economics
Bryan Caplan
Until recently, the nice thing about American democracy was that it was hard for policy to rapidly get worse.  What happened?  Robin Hanson points to the amazing epidemic of deference to doom-saying economists.  Is that the real story?  If it... MORE

Recession During the Cold War: What Was It Like? What's Wrong With Us Now?

Behavioral Economics and Rationality
Bryan Caplan
Unemployment is 6.1%, and we're running around like chickens with our heads cut off.  It makes me wonder: What were recessions like during the Cold War?  Back in those bad old days, the Worst Case Scenario was truly grim.  With... MORE

Energy Independence

Energy, Environment, Resources
David Henderson
Unfortunately, or fortunately, depending on how you look at it, presidential campaign years give us economists a lot of "teaching moments," that is, chances to educate the public about basic, important economic truths. This campaign year is no different. I... MORE

My First EconLog Blog

Finance
David Henderson
First, thank you, Bryan, for your warm welcome. And thank you also to the commenters. Before I get to my first topic, I want to appreciate Bryan back. I'm a big fan of his work. My favorite is his piece... MORE

We're Not in a Liquidity Trap

Macroeconomics
Bryan Caplan
Mankiw shows two diagrams that many will misinterpret as evidence that we're in a Keynesian liquidity trap.  What's a liquidity trap?  Roughly speaking, it's a situation where monetary policy has no effect on aggregate demand because interest rates are too... MORE

Tabarrok Truth-Tracker

Finance: stocks, options, etc.
Bryan Caplan
Tyler has often said that his co-blogger Alex Tabarrok is the best truth-tracker in our lunch posse.  Alas, Tyler fails to take his own assessment seriously.  See their exchange on the myths of the credit "crisis":Phase 1. Alex summarizes the... MORE

The Underground Economist

Economic Methods
Bryan Caplan
No, not The Undercover Economist.  The Underground Economist.  That's the theme of a new symposium that Dan Klein, intellectual entrepreneur extraordinaire, is soliciting for Econ Journal Watch:Fyodor Dostoevsky's novella Notes from Underground (1864) is a classic of introspection and confession.... MORE

Narratives of Knowledge and Arrogance

Finance: stocks, options, etc.
Arnold Kling
Megan McArdle has written about the evil man theory (also here). The key to a narrative of evil is that someone knew. Early in the crisis, we were hearing that banks knew that the loans they were making were headed... MORE

EconLog Welcomes Guest Blogger David Henderson

Economic Education
Bryan Caplan
I first encountered the mind of David Henderson when I was 18 years old, and read his introduction to a Cato reprint of Yale Brozen's "Is Government the Source of Monopoly."  I liked Brozen's essay, but it was Henderson's intro... MORE

In Which Winnie-the-Pooh Uses a Bank

Finance: stocks, options, etc.
Arnold Kling
In an ongoing dialog with Mencius Moldbug, I changed from my favorite fruit tree metaphor.... MORE

Mark Thoma's Question

Finance: stocks, options, etc.
Arnold Kling
He writes, I always wonder if the people making the decisions actually had these thoughts, i.e. if they explicitly made decisions based upon the assumption that there was a large possibility of a bailout if they blew things up. Do... MORE

Economic Crisis: Lessons from 1932

Economic History
Bryan Caplan
We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of... MORE

The Call for a Commission

Finance: stocks, options, etc.
Arnold Kling
The Hill Reports, An independent financial oversight committee should be established to examine what led to the economic meltdown, House Republicans on the Oversight and Government Reform Committee said Wednesday. The National Journal's Congress Daily (subscription required) reports, Democratic leadership... MORE

A Pat on the Back for Macro

Macroeconomics
Arnold Kling
It comes from Olivier Blanchard. a largely shared vision both of fluctuations and of methodology has emerged. Not everything is fine. Like all revolutions, this one has come with the destruction of some knowledge, and suffers from extremism, herding, and... MORE

Work-Safe Readings for Macro

Austrian Economics
Arnold Kling
In response to my post on the porn that is modern macro, readers naturally asked me for alternatives.... MORE

Economists with Pseudo-Knowledge

Finance: stocks, options, etc.
Arnold Kling
I am shocked at the behavior of my fellow economists during this crisis. They are claiming to know much more than they do about causes and solutions. Rather than trying to understand and explain what is going on, they are... MORE

Department of "What?"

Behavioral Economics and Rationality
Bryan Caplan
Here's an eyebrow-furrowing 1-star review of an anti-Obama book I haven't read.  I guess the reviewer is serious, but you tell me:There will always be skeptics and nonbelievers. In "The Obama Nation," Dr. Corsi makes clear he is no believer... MORE

Thoughts on Banking: An Example

Finance: stocks, options, etc.
Arnold Kling
My earlier post left people confused. Let me give an example to clarify my model of financial intermediation with no information asymmetries.... MORE

Is Obama the Next FDR?

Politics and Economics
Bryan Caplan
I've previously said that I'll count myself lucky as long as Obama doesn't turn out to be the next FDR.  Now the affable Paul Rubin's arguing that my luck won't hold:Barack Obama is one of the most liberal members of... MORE

How to Scare a Kid

Behavioral Economics and Rationality
Bryan Caplan
What's the best way to scare a kid?  You wouldn't just put on an ugly mask and chase him.  He might think it was a big joke and start laughing.  To be confident of a successful scare, you'd lay some... MORE

What Are Good Financial Institutions?

Finance: stocks, options, etc.
Arnold Kling
An interesting dialog between Dani Rodrik and Steve Randy Waldman. Some excerpts from the latter: The purpose of a financial system is to solve a collective optimization problem whose solution we cannot guess a priori. If we are very sure... MORE

Thoughts on Banking

Finance: stocks, options, etc.
Arnold Kling
This post returns to the deep topic of banking theory. I am very unhappy with the state of banking theory in economics. People make very strong empirical claims about what they call the risk-taking process based on shallow thinking about... MORE

Why Don't the Chinese Learn from Singapore?

Cross-country Comparisons
Bryan Caplan
I can vaguely understand why Western democracies won't deign to emulate Singapore's miraculously cheap and effective health care system.  But when the Chinese ignore Singapore and copy Western socialized medicine, I can only roll my eyes in disgust:China has unveiled... MORE

Taxation Under Tiebout

Labor Mobility, Immigration, Outsourcing
Bryan Caplan
The economist Charles Tiebout is famous for analogizing local government to perfectly competitive firms.  His model inspired this question on my last public finance midterm: If the Tiebout model were correct, how would you expect local governments to raise revenue? ... MORE

Too Many Bad Banks to Fail?

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen has a new variation of the too-big-to-fail story. He quotes Anna Schwartz to the effect that insolvent banks need to be shut down. Tyler replies This is almost certainly true if the number of "problem banks" is sufficiently... MORE

Clay Shirky Podcast

Information Goods, Intellectual Property
Arnold Kling
Great Interview with Russ Roberts and Clay Shirky. I find lots of the interview fascinating. One of Shirky's comment on Wikipedia is that it is low-cost to remove vandalism, and that helps to drive out vandalism. I hope he is... MORE

The Original Sinn

Finance: stocks, options, etc.
Arnold Kling
Hans-Werner Sinn writes, The lack of equity resulted largely from the concept of "limited liability," which provided an incentive for excessive leveraging. Earnings left inside a financial institution can easily be lost in turbulent times. Only earnings taken out in... MORE

An Interesting Editorial

Finance: stocks, options, etc.
Arnold Kling
In The Washington Post. when government favors a particular economic activity, however validly, it must seek countervailing control to ensure the sustainable use of public resources. This is why banks must meet capital requirements in return for federal deposit insurance.... MORE

Fundamental Causes

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen invokes Fischer Black. in his 1991 book, "Business Cycles and Equilibrium," and his 1995 work, "Exploring General Equilibrium," he argued that major business downturns could be caused by a combination of excess risk-taking and simple bad luck. If... MORE

The CBO Offers Hansonian Charts

Economics of Health Care
Arnold Kling
Ezra Klein highlights them. They show little difference in outcomes between genuine treatments and placebos. The implication of course is that it's far cheaper to give someone a chest incision than an angina, and far cheaper to give them a... MORE

Why Are Bartenders So Rude?

Microeconomics
Bryan Caplan
This past year I've often found myself in the company of avid barhoppers.  Since I don't drink, it's no surprise that I don't appreciate the experience.  But I'm surprised by how truly awful the experience is - why pay good... MORE

Becker on the Pundits that Cried "Wolf!"

Behavioral Economics and Rationality
Bryan Caplan
Why did so many people ignore so many warnings of impending economic crisis?  Gary Becker's got a nice story: We're usually right to ignore such warnings:While Roubini and others who warned about weaknesses in the mortgage market and other parts... MORE

Sub-Prime Education

Economics of Education
Bryan Caplan
Over at Cato Unbound, I praise Murray for highlighting the fact that many "investments" in education end in foreclosure - also known as "dropping out":[L]abor economists normally estimate the return to completed education.  It only takes a small drop-out rate... MORE

Mussolini and World Equity Markets

Finance: stocks, options, etc.
Arnold Kling
It's not a good idea to try to interpret stock market moves as if they were rational. It's also not a good idea to refer to the U.S. Treasury Secretary as "Mussolini." I'll consolidate both of these ideas in this... MORE

Gasoline Delivery: Inside the Black Box

Energy, Environment, Resources
Bryan Caplan
Yesterday I had two lucky breaks at the gas station.  First, they cut the price while I pulling up to the pump.  Second, a delivery man was refilling the station's tanks, which gave me a chance to ask him some... MORE

The Political Economy of the Bailout

Finance: stocks, options, etc.
Arnold Kling
Tyler keeps wondering whether the bailout (or "bank recapitalization") is going to work. He is asking the wrong questions. Whether the economy needs a "plan," or whether the plan will help the markets, is beside the point. The plan serves... MORE

Misleading Story

Finance: stocks, options, etc.
Arnold Kling
Today's Washington Post gives us the inside story of how some regulators sought to put derivatives under and exchange. They met with resistance from other regulators. It is all very entertaining, but at the end of the day, an organized... MORE

Murray and Me

Economics of Education
Bryan Caplan
Over at Cato Unbound, Murray seems to be missing how much I agree with him:I guess I'm asking my colleagues to step back from a system that worked for them and consider the large majority of young people who are... MORE

Klein Answers the Davos Question

Cost-benefit Analysis
Bryan Caplan
The Davis Question asks: What one thing do you think that countries, companies, or individuals must do to make the world a better place in 2008?Dan Klein vlogs his answer: Deregulate the drug approval process.My answer, of course, would be... MORE

The Fantasy Testimony Continues

Finance: stocks, options, etc.
Arnold Kling
Below is the longest blog post ever. It contains the "written remarks" that extend my fantasy testimony. Update: I will have to revise this to take a more conservative view of the proportion of investor loans. A reader sent me... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
The amazing Mark Thoma has already read everything in the links below. The rest of you could benefit from reading my excerpts and commentary.... MORE

Bank Telethon

Finance: stocks, options, etc.
Arnold Kling
Imagine an announcer came on TV and said, "Welcome to the 2008 Bank Telethon. You've heard all the horror stories. Now, with the holiday season approaching, I know you'll want to reach deep into your pockets to lend a hand."... MORE

Howard Stern Gets Hansonian

Behavioral Economics and Rationality
Bryan Caplan
Robin Hanson tells us that politics isn't about policy. I think he exaggerates, but in the interest of fair disclosure, here's an amusing Howard Stern clip to back Robin up.HT: Mark Steckbeck... MORE

Questions I Would Like to See Asked

Energy, Environment, Resources
Arnold Kling
I would love to see this question asked at a Presidential debate: If half of the troubled mortgage loans are for non-owner-occupied homes, that is for houses owned by speculators, do your proposals still make sense? My understanding is that... MORE

Paul's Nobel: Nicht Ein Unrecht

Economic Education
Bryan Caplan
Gordon Tullock is always my first choice for the Nobel prize, but Paul Krugman's win is, as the Germans say, nicht ein Unrecht - not an injustice. Yes, he's often screamed himself silly, but the best fifth of Krugman's corpus... MORE

Congratulations, Paul Krugman

International Trade
Arnold Kling
He wins this year's Nobel in economics. Tyler Cowen has an excellent commentary and links. Before Krugman, the only explanatory variable in international trade was factor endowments. You produced stuff because you happened to have the right type of land,... MORE

Derivative Exchanges and Systemic Risk

Finance: stocks, options, etc.
Arnold Kling
One suggestion that often crops up is to create an exchange for derivatives, such as credit default swaps. In my view, this probably would solve the problem of counterparty risk. However, the more important problem, systemic risk, would be left... MORE

Panic Puzzle

Behavioral Economics and Rationality
Bryan Caplan
Last week was the most plausible example of a psychologically-driven financial panic that I've ever lived through. I have to think that most of the people who sold did so because they were scared by falling prices. Falling prices, in... MORE

Scratch Beginnings and the Philosophy of Immigration

Books: Reviews and Suggested Readings
Bryan Caplan
Scratch Beginnings is a chronicle of recent college grad Adam Shephard's fascinating self-experiment:I am going to start almost literally from scratch with one 8' by 10' tarp, a sleeping bag, an empty gym bag, $25, and the clothes on my... MORE

More Fantasy Testimony

Finance: stocks, options, etc.
Arnold Kling
I am in the process of writing expanded fantasy testimony. Below are what I call "oral remarks." I am also working on some support material that I call "written remarks." My goal in writing this is primarily therapeutic. There is... MORE

The Duelling Guarantee

Finance: stocks, options, etc.
Arnold Kling
The myth is that mortgage securitization reflects the genius of Wall Street. The reality is that it reflects the stupidity of the way that regulatory capital requirements are calculated. The market for low-risk loans is dominated by Freddie and Fannie... MORE

Oh, No!

Arnold Kling
The Wall Street Journal reports, The government's plan to buy equity in financial institutions, announced Friday by Treasury Secretary Henry Paulson, is an idea that many academic economists have championed from the start of the crisis. The Paulson plan was... MORE

He writes, During a bubble buyers are everywhere. Then, suddenly, they disappear, waiting, watching, delaying, reluctant to buy assets that others might not. That buyers will disappear in a bubble is predictable, what is never predictable is the timing. In... MORE

Chuck's Great Question

Behavioral Economics and Rationality
Bryan Caplan
Here's a great question from Chuck in the comments:Do you have a reply to those who might say that the rationality of voters is largely irrelevant since election outcomes can be predicted by macro factors like income and GDP growth?Yes,... MORE

It is natural to look at the collapse of stock prices and say, "See? Social Security privatization would be a disaster." But consider two possibilities: 1. The market is down because future U.S. wealth is down. In that case, government-provided... MORE

Futarchy in Camden, Maine

Game Theory
Arnold Kling
Do you like prediction markets as much as Bryan and Robin? Then try Pop!Tech prediction market.... MORE

Stossel and Me

Behavioral Economics and Rationality
Bryan Caplan
My 20/20 segment - or at least part of it - is already up on Youtube.  The title: "Should Some People Not Vote."  It would have been nice to get more airtime, but it's an honor just meeting Stossel and... MORE

1. An FDIC document on the risk weights of different bank assets. The higher the weight, the more capital the bank has to hold against that asset. As I read table 1 and table 3, if you originate a loan... MORE

Joe Stiglitz. Word!

Arnold Kling
I probably am misusing the teenage slang. I mean to say that I agree with what Stiglitz says here. (Fast-forward until you get to the first seated panelist speaking.) 1. He says that macroeconomics of the past 30 years has... MORE

Why Charles Murray Should Take Signaling Seriously

Economics of Education
Bryan Caplan
I critique Charles Murray's work on education at the latest Cato Unbound.  My thesis: Murray is great on the facts, but muddled on theory.  He's one of the few scholars to notice the flimsiness of the connection between higher education... MORE

I've often catalogued the errors of my dear friend Tyler Cowen. (See here, here, here, and here for starters).  But I can't stand to see him attacked unfairly.  The unfairest of the unfair: The strangely common charge that Tyler is... MORE

Bet Update

Finance: stocks, options, etc.
Bryan Caplan
It looks like I have two takers in the comments: Michael K and Steve Roth.  To seal the deal, I just need you guys to email me and give me enough info so I can identify you "in real life"... MORE

See Blindness

Bryan Caplan
It's been years since I saw a movie like Blindness.  I spent the last half hour savoring that rare thought: "I have no idea what's going to happen next."  The premise: A plague of infectious blindness erupts, and turns the... MORE

Continuing this thread, which had some very interesting comments. The reason that this is important is that when this financial crisis is over, we want to know what might work to prevent another one. We know how to prevent another... MORE

Frankly Fundamentalist

Economic Philosophy
Bryan Caplan
One good thing to come out of the bailout: Barney Frank gave me another nice example of what I call "democratic fundamentalism."  If you don't want politics in this process, you probably shouldn't be handing it over to 535 politicians.... MORE

Morning Commentary

Arnold Kling
1. The debate was truly awful. The financial crisis was caused by greed (McCain) and deregulation (Obama). We need energy independence. Our priority is to do everything at once (McCain). We will cut spending by spending more (Obama). We can... MORE

The Bailout Will Lose Money, and I'm Ready to Bet On It

Finance: stocks, options, etc.
Bryan Caplan
I'm locked and loaded to bet on the bailout.  My muse is none another than H.R. 1424, section 134:SEC. 134. RECOUPMENT.Upon the expiration of the 5-year period beginning upon the date of the enactment of this Act, the Director of... MORE

From Mark Steyn's America Alone:As for the allegedly inevitable superpower of the coming century, if China ever does achieve that status, it will be because the People's Republic learned more from British Hong Kong than Hong Kong ever did from... MORE

Who is a Realist?

Finance: stocks, options, etc.
Arnold Kling
I did not care for Paul Romer's claim that realists support the Paulson plan, while model-addicted fundamentalists oppose it. In my view, there are realistic reasons to oppose the Paulson plan. First, many "realists" say that we need to boost... MORE

What Samuelson Said About Inflation in the 70s

Monetary Policy
Bryan Caplan
New Keynesian economics has been around for so long that it's hard to remember what Old Keynesian economics was like.  Here are two quotes (via Garett Jones via Robert Hetzel) from Samuelson to remind us of the days when... MORE

Monetary Institutions

Austrian Economics
Arnold Kling
Mencius Moldbug sent an email asking me to comment on this post, and we have been corresponding back and forth. I should say that monetary theory gives me a headache.... MORE

My Fantasy Testimony

Arnold Kling
This weekend I typed up "draft testimony" on what caused the mortgage/financial crisis. Like anyone wants to hear it. Anyway, I'll paste it in below the fold. UPDATE: If you follow the links in James Hamilton's post, during his talk... MORE

An Education Debate

Arnold Kling
It starts with Charles Murray, but we already know what he thinks. And although Kevin Carey's essay will appear later, we know what he thinks, too. I'm curious how Bryan Caplan will weigh in. We know he's a big fan... MORE

Megan McArdle quotes Richard Feynman's analysis of the Challenger disaster. I was drawn to this paragraph in particular: why do we find such an enormous disparity between the management estimate and the judgment of the engineers? It would appear that,... MORE

Other People's Money

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen puts a lot of the blame for the financial crisis on leverage. He links to Robert Frank, who writes, In financial markets, asset bubbles cause real trouble when investors can borrow freely to expand their holdings. To... MORE

In a forthcoming issue of Critical Review, several of my critics basically say, "Make up your mind, Bryan.  Are voters ignorant, or are they dogmatic?"  My response: "Both."  It may seem strange, but it doesn't take a lot of knowledge... MORE

The Lamps Are Going Out

Finance: stocks, options, etc.
Arnold Kling
No major newspaper would run any op-ed from me. I gave up and sent one to American.com, which you can see here. The bottom line: The financial bailout isn't as bad as Main Street thinks. It's worse. I think... MORE

That rhetorical question is the title of my new piece in the Economists' Voice.  My favorite part:Once researchers accept the fact that noneconomists tend to see international trade as azero-sum game, though, the democratic longevity of protectionism becomes easy to... MORE

Credit Default Swaps

Finance: stocks, options, etc.
Arnold Kling
The Washington Post tries to explain them. So far, I think that I am the only commentator who has offered a theory of how credit default swaps create systemic risk. I'm not saying that I'm the only person with... MORE

How Government Used Fannie and Freddie

Finance: stocks, options, etc.
Arnold Kling
Russ Roberts writes, Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize... MORE

The International Angle

Finance: stocks, options, etc.
Arnold Kling
The Daily Telegraph reports, We now know that it was French finance minister Christine Lagarde who begged Mr Paulson to save the US insurer AIG last week. AIG had written $300 billion in credit protection for European banks, admitting that... MORE

Cochrane and Rogoff on the PBS News Hour

Finance: stocks, options, etc.
Arnold Kling
I'll try liveblogging.  Here is a transcript.  For what Rogoff was thinking the other day, see this op-ed.  (We exchanged emails briefly on Saturday.  He mentioned he was writing something, and it sounds like he's shifted a bit between then... MORE

He says, In light of the dramatic events that have occurred in global financial markets, the Oversight Committee will hold five hearings in October to examine the regulatory mistakes and financial excesses that led to the market breakdowns on... MORE

A new op-ed by John Lott finds that elite economists join the general public in opposing the Paulson bailout:Interviews conducted with a dozen prominent academic economists, Obama supporters as well as McCain supporters, found little support for the bailout bill.... MORE

Browse it here. It is also what is behind the tab "encycopedia" on the header of this blog. It's a great resource. If you need to look up an economic term, chance are that you will find it in... MORE

Radio Commentary

Arnold Kling
I am one of two guests who appeared live on this program. They really put it up on their web site quickly. It's mostly about the financial crisis, but as a bonus you get to hear me correct the other... MORE

Explaining Inequality

Income Distribution
Arnold Kling
Nick Schulz and I write, It might seem natural to pin the blame for the disappointing rate of high school graduation and college training on America's education system. However, Heckman and others find little evidence that education can reduce differences... MORE

Here's another section that didn't make it into the final draft of my book:Mutual cancellation of errors does happen on occasion. Beliefs about inflation are my favorite example. Most economists who tally the costs of inflation conclude that - at... MORE

My Views on the Crisis -- A Summary Statement

Finance: stocks, options, etc.
Arnold Kling
First, read Tyler Cowen's post of the same title. 1. Causes In hindsight, I think that the crisis was caused by a) creation of the secondary mortgage market (50 percent) b) low down payment mortgages (30 percent) c) the "suits... MORE

Net Worth Certificates

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen endorses the idea of recapitalizing banks using government-issued "net worth certificates." He has links to more explanation. Steven Pearlstein disagrees. Many academic economists argue that if taxpayers are going to rescue the financial system, their money should be... MORE

New Site Design Oct. 2

Econlog Administrative Issues
Lauren Landsburg
Econlib, EconLog, and EconTalk will be implementing a new website design and update the morning of Thursday, October 2. You may experience a brief period in the morning when you are unable to post comments. We appreciate your patience. The... MORE

What the Bail-Out Crowded Out

Economics and Culture
Bryan Caplan
Amidst all the chaos, I forgot to remind readers about the premiere of season 3 of the incomparable Dexter. (Here are all my previous posts on the show). If you like drama infused with philosophy, psychology, and (of course) economics,... MORE

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