Bryan Caplan and David Henderson

December 2008

A Monthly Archive (111 entries)

A Weak Case for Free Trade

International Trade
David Henderson
Today's Wall Street Journal published one of the weakest cases for free trade it has ever published. The Journal, which is traditionally quite pro-free trade, published an op/ed by former Democratic congressman James Bacchus. In it, Bacchus talks up the... MORE

Try This on Your Favorite Curmudgeons

Economic History
Bryan Caplan
If your holiday season was anything like mine, you've heard some elderly relatives denounce the "kids these days."  "They don't read the newspaper!"  "They don't know when World War II ended!"  "How can democracy survive with this level of ignorance?!"... MORE

Tyrannicide: Now in a Theater Near You

Economic Philosophy
Bryan Caplan
Valkyrie, Bryan Singer's film about the 1944 officers' plot against Hitler, is worth seeing.  But I'm admittedly a little biased.  After all, my first academic publication (in the Humane Studies Review) has a whole section on the philosophy of tyrannicide.  In hindsight, I'm... MORE

Jenkins on CAFE

Energy, Environment, Resources
David Henderson
My favorite Wall Street Journal columnist, Holman W. Jenkins, Jr., has another good column today on how the Corporate Average Fuel Economy law hampers the Detroit-based auto companies (note: not the U.S. auto industry.) Jenkins points out that in an... MORE

Downgraded into Bankruptcy?

Finance: stocks, options, etc.
Arnold Kling
The final chapter in the Washington Post's telling of the AIG saga is the most exciting--and the most frustrating. In the end, it is still not clear whether there was anything fundamentally wrong with AIG's portfolio. After all their research,... MORE

I Refused to Shake His Hand

Economics of Health Care
Bryan Caplan
I truly need a vacation from my vacation.  After my kids were diagnosed with bronchitis, I decided I probably had the same ailment.  I'm a member of Kaiser, but since I'm out-of-state, my only in-plan option in California was to... MORE

Krugman's Tin Ear

Public Choice Theory
David Henderson
I could just as easily have titled this post "Krugman's Achilles Heal." Basically, it's that Paul Krugman seems never to take account of the findings of public choice. Even a basic understanding of public choice would make him question his... MORE

AIG, CDS, Suits, and Geeks

Finance: stocks, options, etc.
Arnold Kling
The Washington Post is in the middle of a three-part series on AIG and credit default swaps. A lot of the focus is on corporate infighting. A Brooklyn College graduate, the 42-year-old [Joseph] Cassano was not one of the "quants"... MORE

Bailout Rage

Finance: stocks, options, etc.
Arnold Kling
Reason TV has a video of a panel discussion that really articulates the frustration that libertarians feel about the financial bailout. As Tim Cavanaugh points out, the bailout redistributes from the prudent to the profligate. As Veronique de Rugy points... MORE

Inclined to Liberty

Political Economy
Arnold Kling
Louis E. Carabini writes, There are those inclined to liberty--freedom of the individual to live his or her life in any peaceful way. And there are those who are inclined to mastery--permitting others to live their lives only as another... MORE

Tom Friedman's Gas Tax

Energy, Environment, Resources
David Henderson
I think people make the worst cases for their policy proposals when they write or speak as if they think there is no credible intellectual argument against their position. A case in point is a column in today's New York... MORE

Larry Summers, Neo-Galbraithian

Fiscal Policy
Arnold Kling
He sets out criteria for a stimulus package. Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national... MORE

Mark Thoma on the Risk Premium

Finance: stocks, options, etc.
Arnold Kling
He writes, Tyler Cowen focuses on the misallocation of risk due to government induced moral hazard. My own view is that misallocation of risk did play a role, but I think risk misallocation due to market failures, i.e. the failure... MORE

Krugman's View of Corruption

Economic History
David Henderson
In his column in today's New York Times, Paul Krugman claims that Franklin D. Roosevelt's New Deal was "clean" and avoided corruption. So clean was FDR's Works Progress Administration, writes Krugman, that "when a Congressional subcommittee investigated the W.P.A., it... MORE

Gullibility, Madoff, and Fiscal Stimulus

Behavioral Economics and Rationality
Arnold Kling
Stephen Greenspan, a psychiatrist who lost money in the Bernard Madoff scam, writes, Gullibility is a sub-type of foolish action, which might be termed "induced-social." It is induced because it always occurs in the presence of pressure or deception by... MORE

The Law: Going from Bad to Worse

Economic Philosophy
Bryan Caplan
At risk of offending my many friends in the legal academy, I think that law is a shockingly phony discipline.  Virtually everyone - liberal, conservative, Marxist, libertarian, or whatever - imagines that the law conveniently agrees with what they favor... MORE

History + Comedy = Rothbard

Books: Reviews and Suggested Readings
Bryan Caplan
For centuries, the State (or more strictly, individuals acting in their roles as "members of the government") has cloaked its criminal activity in high-sounding rhetoric. For centuries the State has committed mass murder and called it "war"; then ennobled... MORE

Lectures on Macroeconomics, No. 11

Macroeconomics
Arnold Kling
This lecture discusses what I think of as the Leijonhufvud interpretation of macroeconomics as an attempt to characterize an economy that is far from classical equilibrium.... MORE

Banana Republic Economics, Continued

Finance: stocks, options, etc.
Arnold Kling
Carmen Reinhart and Ken Rogoff write, We find that banking crises almost invariably lead to sharp declines in tax revenues as well significant increases in government spending (a share of which is presumably dissipative). On average, government debt rises by... MORE

Theory, Explanation, and Policy

Macroeconomics
Arnold Kling
Josh Hendrickson writes, there are many so-called Keynesians who have been out there promoting policies that are quite the opposite. They have been promoting the re-capitalization of banks, forcing banks to lend, automotive bailouts, and a push toward developing "green"... MORE

Education, Ideology, and Awkward Weddings

Politics and Economics
Bryan Caplan
Left-right ideology is by far the strongest predictor of party identification.  Education, in contrast, has very little connection to partisanship.*  However, when you look at opinions about specific issues, ideology and education are both extremely important.  For example, conservatives and... MORE

Finally, Some Good Economic News

Supply-side Economics
David Henderson
From today's Wall Street Journal, an article titled, "IRS Audits of Large Companies Decline for 3rd Year in Row." The article goes on to say: According to 2008 IRS enforcement data released Monday, the IRS audited 15.3% of returns of... MORE

Which Sector Should Lead?

Macroeconomics
Arnold Kling
Tyler Cowen writes, I think markets are failing to solve an economic calculation problem. The economy needs some new things to do but another bubble will not work, much of finance is frozen or contracting, and economic and political uncertainty... MORE

A Microfinance Skeptic

Growth: Causal Factors
Arnold Kling
A reader points me to this letter from Milford Bateman about the impact of microfinance. first, a serious shortage of funds for small and medium-sized enterprises, which is deeply damaging because SMEs have by far the most sustainable growth and... MORE

Holiday Reading

Books: Reviews and Suggested Readings
Arnold Kling
During this season of good cheer, I am reading A World Undone, G.J. Meyer's history of the first World War. Men with the power to decide the fate of Europe did the things that brought the war on and failed... MORE

Separating Twins as Economic Illiteracy

Behavioral Economics and Rationality
Bryan Caplan
Schools usually try to put twins in different classes.  In part, it's for the convenience of the teacher - identical twins can be hard to tell apart.  But the main rationale is that if you separate twins, they will make... MORE

Subsidizing Mortgages

Finance: stocks, options, etc.
Arnold Kling
One prominent proposal comes from Glenn Hubbard and Christopher Mayer. In support of their mortgage subsidy idea, Brad DeLong writes, I am, however, gobsmacked to see Glenn Hubbard proposing it. What has me gobsmacked is that DeLong, who usually has... MORE

The Brains of TSA

Regulation
David Henderson
Lesley Stahl did a moderately good job on "60 Minutes" this evening in her story on the Transportation Security Administration (TSA). Why good and why just moderate? Good for two reasons. First, she actually interviewed a critic who pointed out... MORE

The Essence of Scrooge

Political Economy
David Henderson
We often hear the word "Scrooge" used to refer to people who oppose government programs for the poor. Yet a close reading of Charles Dickens' A Christmas Carol shows that this usage is in appropriate. In fact, early in the... MORE

Health Care Policy Update

Economics of Health Care
Arnold Kling
Ezekiel Emanuel with a solution based on vouchers. I think we have to head in that direction. With vouchers, you can put a finite budget on government health care subsidies. With service reimbursement programs, like Medicare, you have an open-ended... MORE

Madoff as Metaphor

Fiscal Policy
Arnold Kling
Paul Krugman writes, How different, really, is Mr. Madoff's tale from the story of the investment industry as a whole? Meanwhile, I've been thinking that Madoff is a perfect analogy for the public sector. The government gives people money, which... MORE

Patterns of Financial Crises

Finance: stocks, options, etc.
Arnold Kling
Michael Bordo writes, A well known tradition in monetary economics which goes back to the nineteenth century and in the twentieth century was fostered by Wesley Mitchell ( 1913), Irving Fisher (1933), Hyman Minsky( 1977), Charles Kindleberger and others. It... MORE

Tales of Rationing

Price Controls
David Henderson
In yesterday's post, I stated: David Kennedy makes the claim that rationing was not used extensively in the United States during World War II. I think he's wrong. Read sometime about how people couldn't drive their cars due to gas... MORE

DeLong vs. Kling

Macroeconomics
Arnold Kling
He writes, The only answer I can think of is for the U.S. to then become the world's largest private-equity fund: they lend us their money, and we then invest the money back in their economies--in industries and companies that... MORE

Lectures on Macroeconomics, No. 10

Macroeconomics
Arnold Kling
A long-standing controversy in monetary theory and macroeconomics involves the question, "Is it money, or is it credit?" In most of the macro theory of the past thirty years, the focus is on money. This is nice because you get... MORE

What's Wrong with Deleveraging?

Finance: stocks, options, etc.
Arnold Kling
In a previous post, a commenter asked a good question about what bothers me about deleveraging. Deleveraging in the nonfinancial sector means that consumers buy less on credit and firms use less debt financing. That is obviously necessary, because we... MORE

If You Want Peace, Prepare for Peace

Behavioral Economics and Rationality
Bryan Caplan
Since 9/11, you've heard it a thousand times: "If you want peace, prepare for war."  My question: What about your enemies?  If they want peace, should they prepare for war, too?Yes, it's a trick question.  Who's going to say, "If... MORE

National defense, for instance, benefits the special interests that President Eisenhower identified as the military-industrial complex, and governments therefore tend to provide too much of it.  Whether the U.S. government specifically does so is controversial, but we can know with... MORE

New Deal Panel, II

Economic History
David Henderson
I heartily second Bryan Caplan's endorsement of the Canadian TV show on the New Deal. Bryan focused on the economic content and I want to add my own thoughts to that, but beyond that is the amazing tone of the... MORE

Dreaming the Simonian Dream

Labor Mobility, Immigration, Outsourcing
Bryan Caplan
Thought experiment: What would the world look like if every bit of land had the population density of Singapore?  With roughly 149 million square km of land on the planet, and a density of 6489 people per square km in... MORE

I Believe in Quantitative Easing

Finance: stocks, options, etc.
Arnold Kling
James Hamilton writes, Will [purchases of mortgage securities and other assets by the Fed] succeed if we just do it on a sufficiently large scale? I'm not at all convinced that it would. Our standard finance models treat interest rate... MORE

The Parrot Shows Signs of Life

Finance: stocks, options, etc.
Arnold Kling
Bloomberg reports, The difference between yields on Fannie's two-year debt and two-year Treasuries narrowed 18 basis points to 75 basis points, the lowest since Sept. 19, data compiled by Bloomberg show. The article says that Fannie mortgage-backed securities are trading... MORE

Janeway on McArdle's Law

Finance: stocks, options, etc.
Arnold Kling
In an interview, William Janeway says, When I was a kid growing up in this business in the 1970s, we thought of illiquidity and insolvency as two fundamentally different conditions. You were illiquid if the expected net present value of... MORE

Longevity and the Work Ethic

Economics of Health Care
Bryan Caplan
A new meta-analysis in Health Psychology finds that people with more conscientious personalities live longer:Howard Friedman and Margaret Kern at the University of California at Riverside found that people who were less conscientious were 50 per cent more likely to... MORE

New Deal Panel

Economic History
Bryan Caplan
I enthusiastically recommend this panel discussion on the New Deal, featuring Russ Roberts, Lee Ohanian, David Kennedy, Eric Lascelles, and Joe Martin.  Random observations:1. Kennedy and Lascelles, the most pro-Roosevelt guys on the panel, strangely torpedo their own cases by... MORE

Bruer Update

Books: Reviews and Suggested Readings
Bryan Caplan
After my my previous post  on John Bruer's The Myth of the First Three Years, I sent him the following email:Hi John, I just blogged *The Myth of the First Three Years*, and my readers were interested in knowing your... MORE

Deleveraging

Finance: stocks, options, etc.
Arnold Kling
The Washington Post has one of its better stories on the rise and fall of mortgage securitization. My favorite anecdote in the story is on the last page, concerning the head of a firm that evidently sold a credit default... MORE

Today's Theme: Regime Uncertainty

Business Economics
Arnold Kling
Russ Roberts and Bob Higgs discuss the concept on this week's econtalk. Nassim Taleb tells Charlie Rose that we are headed for Capitalism 2.0, in which stock prices are much lower, and banks are treated like public utilities--their job is... MORE

Banana Republic Economics

Finance: stocks, options, etc.
Arnold Kling
A reader emails, what is a sustainable level of US debt % to GDP? I usually think of our debt as government debt. But adding up total private and public debt, we have something like 350 percent for a debt-GDP... MORE

Scary Words from Bernanke

Central Planning vs. Local Knowledge
David Henderson
This morning's Wall Street Journal quotes a 1999 paper by Ben Bernanke as follows: Roosevelt's specific actions were, I think, less important than his willingness to be aggressive and to experiment -- in short, to do whatever was necessary to... MORE

The Zorn Effect

Business Economics
Arnold Kling
Management systems degrade. As a manager or a regulator, if you stand still you fall behind. This year, the Washington Redskins hired a new coach, Jim Zorn. They started out 6-2, but they have since lost 5 out of 6... MORE

Financial Panic

Finance: stocks, options, etc.
Arnold Kling
Felix Salmon writes, In times of turmoil, we start worrying less about not having enough money in 20 years, and more about not having enough money in 20 weeks. (What if I lose my job? What if my investments fall... MORE

The Aristocracy of Pull

Public Choice Theory
David Henderson
One of Ayn Rand's best scenes in Atlas Shrugged has her hero Francisco d'Anconia complete the statement of one of her villains with a surprise ending. Villain James Taggart states: We will liberate our culture from the stranglehold of the... MORE

Where Are All the Jerks in My Life?

Economics and Culture
Bryan Caplan
Do you deal with unpleasant, petty, and/or vicious people during your typical day?  I don't.  As far as I can tell, I personally know a strangely small number of jerks.  As an econo-nerd, of course, I can't just be thankful... MORE

John Taylor: The Fed Done It

Macroeconomics
Arnold Kling
He is a leading macroeconomist, and he is out with a serious paper, in which he blames the Fed for excessively low interest rates from 2002-2004. Pointer from James Hamilton, who does not agree. Hamilton writes, I feel he overstates... MORE

Why I Think the Multiplier is Large

Macroeconomics
Arnold Kling
Mark Zandi says A payroll tax holiday and a permanent payroll tax credit would be effective tax cuts, particularly if designed to help harder-pressed lower- and middle-income households and smaller businesses. Tyler Cowen also favors payroll tax cuts. I like... MORE

Cold Spouses

Family Economics
Bryan Caplan
I've previously argued that the avoidance of spousal scorn is one of the main reasons why we buy insurance, and pointed out our lack of sympathy for men.  But nothing prepared me for this piece on cryonics and the family:One... MORE

The CDS Debate Continues

Finance: stocks, options, etc.
Arnold Kling
John Dizard takes my side. Felix Salmon doesn't. He writes, If you buy a bond, you get a steady income stream, while running the risk that you might lose substantially all your money. If you sell default protection, you get... MORE

The Economic Outlook

Macroeconomics
Arnold Kling
I'm trying to sort through my thoughts on the economic outlook.... MORE

What's Wrong With Urban Politics?

Political Economy
Bryan Caplan
David Schleicher continues to turn his powerful intellect to the under-studied subject of urban political economy.  Lack of information is always a problem in democracy, but......voters in national elections are provided with a coping mechanism, a bit of publicly provided... MORE

Alternative History

Finance: stocks, options, etc.
Arnold Kling
The Congressional committee at which I appeared the other day got a lot of documents from Freddie Mac and Fannie Mae, many of which they leaked. The Wall Street Journal writes, One Fannie Mae document from March 2005 notes dryly,... MORE

Obama's Economics: Bad and Good

Regulation
David Henderson
On Meet the Press last Sunday, President-elect Obama showed some of his fuzziest thinking and some of his clearest thinking on economics. First the bad. In a discussion of the auto industry, interviewer Tom Brokaw said: As soon as gas... MORE

Schleicher's Model of One-Party Democracy

Political Economy
Bryan Caplan
As promised, Volokh guest blogger David Schleicher posted his preferred explanation for the persistence of one-party urban democracy.  As first glance, his story seems pretty different from mine.  Here's his lead-in: "I argue that the lack of competition in city... MORE

Mortgage Loan Restructuring

Finance: stocks, options, etc.
Arnold Kling
Thomas Cooley writes, The most important role for public policy is to provide incentives for servicers to restructure and modify loans, to make certain that shared appreciation contracts are part of the policy mix, and to address the legal barriers... MORE

The Puzzle of One-Party Democracy

Political Economy
Bryan Caplan
Over at the Volokh Conspiracy, guest blogger David Schleicher tries to explain why so many cities are, like Singapore, one-party democracies.  He begins by pointing out that the "obvious" explanation is wrong:It is true that in almost all major American... MORE

No Further Questions, Your Honor

Finance: stocks, options, etc.
Arnold Kling
Felix Salmon testifies in defense of credit default swaps. I just had a long conversation with Kai Gilkes of CreditSights, who confirmed for me that it's pretty much impossible, in this market, to back out implied default rates from CDS... MORE

An AP Stats Lecture

Statistical theory and methods
Arnold Kling
Because yesterday's hearing ran so late, I missed my AP stats class. Here is the way I would explain what went on to my students.... MORE

Hearing Post

Finance: stocks, options, etc.
Arnold Kling
After the hearing on Freddie and Fannie, my wife said, "You know, after I was finished with jury duty, I was feeling pretty patriotic. I wasn't feeling patriotic after this." C-span took this photo. The hearing covers two c-span videos,... MORE

The written testimony is over 9000 words, which I calculate would take about 75 minutes to read out loud. Below is what I planned to say in my five minutes. [UPDATE: My written remarks are here. Other folks' written remarks... MORE

The Immortal Dilemma

Economic Philosophy
Bryan Caplan
Suppose you were offered the following gamble:1. With probability p, you will live forever at your current age.2. With probability (1-p), you instantly, painlessly die.What is your critical value of p?  If you combine expected utility theory with the empirical... MORE

Neuroscience and Policy: Bait and Switch

Books: Reviews and Suggested Readings
Bryan Caplan
I read John Bruer's The Myth of the First Three Years en route to Singapore.  You might be expecting a rehash of The Nurture Assumption, but this book focuses specifically on attempts to use neuroscience to establish the existence of... MORE

I humbly submit that The Painted Veil contains the most amazing scene of gender conflict ever filmed.  Watch the scene on Youtube, and tell me I'm wrong - and give your alternate selection while you're at it.  While you're watching... MORE

Brad DeLong on the Crisis

Finance: stocks, options, etc.
Arnold Kling
He writes, In normal times, our models predict, with the ability to diversify portfolios that exists today the risk discount on assets like corporate equities should be around 1% per year. It is more like 5% per year in normal... MORE

Management without Responsibility

Business Economics
Arnold Kling
In his latest podcast, Russ Roberts interviews Steven Lipstein the CEO of the large hospital that shunted my father around to 8 different units over a two-week period. What strikes me about Lipstein is how little responsibility he wants to... MORE

Smothers Brothers: The Missing Story

Regulation and Subsidies
David Henderson
For decades, I believed, as I think almost everyone who followed the issue did, that the Smothers Brothers Comedy Hour was yanked by CBS because of CBS's objection to the Smothers Brothers' edgy commentary about social issues. Various "public" television... MORE

I'm admittedly a sucker for a period piece.  But 2006's The Painted Veil is fantastically good.   It's mostly a love story about two British ex-pats living in China during the 1920s.  But it's set against a vivid background of Chinese... MORE

Too Much Deregulation?

Regulation
David Henderson
In the latest issue of the Cato Institute's Policy Report, I have the lead article. It's title: "Are We Ailing from Too Much Deregulation?" In it, I quote from articles by Los Angeles Times reporter Peter Gosselin and Washington Post... MORE

A Rating Agency Example

Finance: stocks, options, etc.
Arnold Kling
Gretchen Morgenson writes, The safest slice of the security held $165 million in loans. When it was issued on Aug. 17, 2006, Moody's and S.& P. rated it triple-A. Just eight months later, Moody's alerted investors that it might downgrade... MORE

Lectures on Macroeconomics, No. 9

Macroeconomics
Arnold Kling
The nonfinancial sector wants to hold risk-free short-term assets and issue risky long-term liabilities. To accommodate this, the financial sector does the opposite. If the financial sector suddenly contracts, the nonfinancial sector gets stuck with an asset mix that is... MORE

Health Care, Education, Spending, and Outcomes

Economics of Education
Arnold Kling
I attended a Cato event at which Glen Whitman and Ezra Klein discussed health care spending. The main stylized fact is that those who spend more on health care do not necessarily get more. As Ezra puts it The evidence... MORE

Crisis Prophet

Economic History
Bryan Caplan
Stiglitz is bragging about his amazing foresight:Rereading some of my papers in preparing for the publication of the second volume of my Selected Works (to be published by Oxford University Press), I came across a paper, written almost two decades... MORE

Barney Frank Admits "Mistake"

Regulation and Subsidies
David Henderson
On CNBC this morning, Congressman Barney Frank was shown making his opening statement in the hearings on the bailout of GM, Ford, and Chrysler. He actually admitted that Congress had made mistakes and mentioned one such mistake. Perhaps, you might... MORE

Percent Job Loss

Labor Market
David Henderson
On CNBC this morning, the talking heads pitched the new job loss figures in the most negative way. They focused on the fact that the 533,000 jobs lost (according to payroll data) were the highest in years, but they compared... MORE

Another Elite Blog

Economic Methods
Arnold Kling
It comes from Eric Drexler, the nanotech visionary. Pointer from Robin Hanson who I'm sure understands much more of what Drexler says than I do. My guess is that at the margin, scientific communication would benefit from more blogging and... MORE

Thoughts on the Employment Situation

Labor Market
Arnold Kling
Bloomberg reports, Factory payrolls fell 85,000 after decreasing 104,000 in October. The return of 27,000 striking machinists at Boeing Co. last month helped limit the drop, economists said... Payrolls at builders dropped 82,000 after decreasing 64,000. Financial firms decreased payrolls... MORE

Ponzi Finance

Finance: stocks, options, etc.
Arnold Kling
Russ Roberts writes, the traditional investors in this market who had demanded insurance or other forms of protection from credit risk, stepped to the sidelines and were replaced by investors who didn't care. Very interesting. Something changed. What was it... MORE

Moderate Muslim Malaysia: What I Saw

Cross-country Comparisons
Bryan Caplan
People often point to Malaysia as a good example of a "moderate Muslim nation."  So when I took a side trip to Kuala Lumpur and Malacca, I was curious to see moderate Islam with my own eyes.  What's it like... MORE

Another Stake in the Taxpayers' Heart

Finance: stocks, options, etc.
Arnold Kling
Don Boudreaux writes, Detroit auto executives advocate "government getting a stake in the auto companies that would allow taxpayers to share in future gains if they recover" ... I remind these executives that each American is already perfectly free and... MORE

Subprime Lenders Still Soaking Taxpayers

Finance: stocks, options, etc.
Arnold Kling
Business Week reports (I can't find the article on line, but they do have a podcast), [UPDATE: story here. Thanks to the first commenter.] But Premier didn't just close down. Since it declared bankruptcy, federal records show, it has issued... MORE

Great White Parenthetical

Economic Methods
Bryan Caplan
From Larry White's target essay on Cato Unbound:(One can't explain an unusual cluster of errors by citing greed, which is always around, just as one can't explain a cluster of airplane crashes by citing gravity. Anyway, the greedy aim at... MORE

Kane's Pledge

Microeconomics
Bryan Caplan
After defending bankruptcy for the Big Three, Tim Kane pioneers a new way to put your money where your mouth is:  [T]t is not true that customers won't buy from a bankrupt company.  Happens all the time. So I have... MORE

Shocking News

Central Planning vs. Local Knowledge
David Henderson
A news story in today's Boston Globe titled, "Auditors Fault Treasury Policing of Bailout Funds," cites a report by federal government auditors at the Government Accountability [sic] Office. The GAO criticized the Treasury for not making sure banks comply with... MORE

The Financial Crisis in One Sentence

Finance: stocks, options, etc.
Arnold Kling
Justin Fox writes, the vast securities-manufacturing business that evolved over the past three decades and went into overdrive after 2000 may never recover. This is my view. I think of securitization as like the dead parrot in the famous Monty... MORE

In Praise of Tobin's q

Finance: stocks, options, etc.
Arnold Kling
Felix Salmon writes, In Tobin's Q, you don't want to know what those assets cost, you want to know what their replacement value -- their current cost --is. He is picking a nit with analysis by PIMCO's Bill Gross. Gross... MORE

John Baden Joins the Pigou Club

Energy, Environment, Resources
Arnold Kling
He writes, Rather than a bailout, free the Big Three. Dump CAFE altogether and replace it with an honest and surely more efficient energy tax. Mr. Obama could transcend stalemates and end the 30-year-old fraud of our CAFE fuel-economy rules.... MORE

Inflation as Generic Debt Forgiveness

Finance: stocks, options, etc.
Arnold Kling
Ken Rogoff writes, Price inflation forces creditors to accept repayment in debased currency. Yes, in principle, there should be a way to fix the ills of the financial system without resorting to inflation. Unfortunately, the closer one examines the alternatives,... MORE

Many economists, including me, think that Larry Summers is quite bright. But how good is his judgment? In my most recent Forbes.com article, "Larry Summers' Judgment," I address this issue. I highlight two things: 1. His 1982 prediction, co-authored with... MORE

Tuesday, December 9 on Capitol Hill

Upcoming Events
Arnold Kling
I received this from Congressman Henry Waxman: Dear Dr. Kling: I am writing to request your testimony at a hearing on December 9,2008, at 10:00 a.m. before the Committee on Oversight and Government Reform. The hearing will examine the financial... MORE

The Immigrant in My Basement

Economic Philosophy
Bryan Caplan
When I advocate open borders (and I mean truly open borders, not the 95% closed borders of the U.S.), critics often respond like EconLog reader Carter did: [Caplan] said: "But there are literally billions of lower-skilled workers who would... MORE

Crowding Out or Crowding In?

Macroeconomics
Arnold Kling
Greg Mankiw writes, I am not sure how convinced I am by these findings. And even if they are correct, I am not sure what model I should use to explain them and to what extent that model would apply... MORE

State GovernmentPensions

Fiscal Policy
Arnold Kling
Robert Novy-Marx and Joshua D. Rauh write, The true extent of public pension underfunding has been obscured by governmental accounting rules, which allow pension liabilities to be discounted at expected rates of return on pension assets. This paper takes stock... MORE

One-paragraph Macro

Finance: stocks, options, etc.
Arnold Kling
Brad DeLong writes, In normal times, when one investor wants more liquidity or safety, another will be willing to take on duration and risk, and they will simply swap portfolios at current market prices. But in abnormal times, they cannot:... MORE

Are Government Subsidies to Higher "Education" Justified?

Economics of Education
David Henderson
This month's featured article on Econlib is George Leef's "Are Government 'Investments' in Higher Education Worthwhile?" In his article, Leef points out that one cannot use decades-old data on the private return to spending on higher education to draw conclusions... MORE

Two Bad Ideas

Economics of Education
Arnold Kling
Louis Gerstner writes Abolish all local school districts, save 70 (50 states; 20 largest cities). Some states may choose to leave some of the rest as community service organizations, but they would have no direct involvement in the critical task... MORE

Best Banking: Animal Analogy Ever

Monetary Policy
Bryan Caplan
Arcane banking regulations matter, but it's hard to communicate anything about them to a broader audience.  Alex Tabarrok rises to the occasion with an elegant analogy: When no interest was paid on reserves banks tried to hold as few as... MORE

Return to Neptune, III: Do Tax Breaks Mimic the Market?

Politics and Economics
Bryan Caplan
Rod seems to see tax breaks purely through a special interest lens: Corporations lobby the government for a special deal, and governments respond at the expense of less organized interests.  I agree that this is a conceivable scenario.  But at... MORE

Return to Neptune, II: The Corporate Income Tax

Political Economy
Bryan Caplan
While we're on the subject of differential tax treatment, I don't think Rod or his critics ever mentions the notorious double taxation imposed by the corporate income tax.  This tax matters less than it used to, but the U.S. federal... MORE

Return to Neptune, I: Incidence

Political Economy
Bryan Caplan
As I've said before, the conversation sparked by Rod Long's Cato Unbound essay has been rididulously lively.  Now I'd like to append a few points that - as far as I can tell - no one else has made.  (Please... MORE

I will miss Doris "Tanta" Dungey

Finance: stocks, options, etc.
Arnold Kling
The New York Times offers an obituary. Until I read it, I did not realize that Bill McBride, not Tanta, was the main blogger at Calculated Risk. In July, I made extensive comments on one of her posts. She had... MORE

He is a Pirate King

Books: Reviews and Suggested Readings
Bryan Caplan
It's amazing that during a resurgence of Somali piracy, I have a colleague who is an expert on both Somalia and piracy.  He's Peter Leeson, the Pirate King of Fairfax.  And now you can finally pre-order his new economic history... MORE

Our Response to Selgin

Monetary Policy
David Henderson
Early in November, Jeff Hummel and I had a paper published by the Cato Institute in which we defended Alan Greenspan from the critics who claimed that his monetary policy was the primary cause of the current financial crisis. We... MORE

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