Bryan Caplan and David Henderson

May 2009

A Monthly Archive (115 entries)

Can Risk Buckets Work?

Finance: stocks, options, etc.
Arnold Kling
James Kwak writes, In short, we need a system for risk weighting that is harder to "game" than the current one - and a set of regulators who will enforce it. Given how long Basel II has been going on,... MORE

Speaking of Health Care Reform

Economics of Health Care
Arnold Kling
That's what I'll be doing on Capitol Hill on Tuesday, at noon, for Cato. I have nothing new to say. The facts haven't changed, so I haven't changed my mind since I wrote Crisis of Abundance.... MORE

Health Reform's Savings Myth

Economics of Health Care
Arnold Kling
That is the title of an op-ed piece by Maya MacGuineas that is on the Washington Post web site. I didn't see it in print, because I am still not used to the way they have mixed up the Sunday... MORE

Economics and Modernity

Economics and Culture
Bryan Caplan
Before I came to GMU, I would have completely agreed with David Friedman's economic take-down of modern culture:Suppose you are the two hundred and ninetieth city planner in the history of the world. All the good ideas have been used,... MORE

Hanson on Morality

Economic Philosophy
Bryan Caplan
In other news, my debating partner Robin Hanson has come up with the least plausible moral principle since "Might makes right": [U]sually it is fine to do what you want, to get what you want. Robin manages to make his... MORE

Lectures on Macroeconomics, No. 15

Macroeconomics
Arnold Kling
This lecture is on the household's "make or buy" decision. The more we outsource production, the more economic activity there is. In a recession, we cut back on outsourcing.... MORE

The Road to Serfdom

Political Economy
David Henderson
My review of Friedrich Hayek's classic, The Road to Serfdom, is on-line. In it, I summarize the book's message and discuss its relevance today. One passage: In the United States today, the intellectuals' and the public's belief in freedom seems... MORE

Grasping the Nettle of Personality

Books: Reviews and Suggested Readings
Arnold Kling
A commenter recommended Daniel Nettle's book on Personality. It was a good recommendation. Various lines of evidence suggest that our interest in money--and the material goods it buys--is mainly as a marker of comparative social status. Some more notes and... MORE

Mankiw on Morality

Economic Philosophy
Bryan Caplan
Here's a great passage from the noble Mankiw:A moral and political philosophy is not like a smorgasbord, where you get to pick and choose the offerings you like and leave the others behind without explanation. It is more like your... MORE

Since When...

Books: Reviews and Suggested Readings
Arnold Kling
Did the NBER create an RSS feed for abstracts of new working papers? http://www.nber.org/rss/new.xml I didn't notice this feature at the nber site, but my Google reader suggested it to me.... MORE

Quiggin Takes My Euro-Bet

Labor Market
Bryan Caplan
I'm pleased to report that noted blogger John Quiggin has accepted a slightly revised version of my proposed bet on European unemployment.  The only revision: I sweetened the point spread to 1.5 percentage-points.  Average European unemployment must be at least... MORE

Health Care Economics

Economics of Health Care
Arnold Kling
Atul Gawande writes, many physicians are remarkably oblivious to the financial implications of their decisions. They see their patients. They make their recommendations. They send out the bills. And, as long as the numbers come out all right at the... MORE

The Anti-Stimulus

Fiscal Policy
Arnold Kling
Greg Mankiw reports that the yield curve is steep, meaning that long-term interest rates have risen. In my view, this is perfectly rational, and it shows that the short-run effect of the fiscal stimulus is negative, as Jeff Sachs predicted.... MORE

Afghanistan's Natural State

Political Economy
Arnold Kling
On William Easterly's blog, Laura Freschi writes, Efforts to curb corruption in Afghanistan are failing, says a new USAID report. Based on dozens of interviews and a comprehensive review of existing studies and polls, the report describes the sources of... MORE

Technology and Health Care

Economics of Health Care
David Henderson
Last week, I was at an event in Washington, D.C. with about 20 other people--politicians, economists, journalists, and think tankers. One of the economists, Greg Mankiw, made a presentation in which he discussed the reasons for increasing health expenditures as... MORE

The Nuances of EU Unemployment

Cross-country Comparisons
Bryan Caplan
When I compare U.S. and European unemployment, critics often object that Europe is heterogeneous.  Fair enough, but you can make the same objection to any generalization.  The U.S. is diverse, too.  How often can you silence critics of the U.S.... MORE

How do Political Beliefs Change?

Political Economy
Arnold Kling
Robin Hanson writes, it looks bad to admit we do politics to selfishly show off, instead of to help society make better policy. So we are built to instead talk, and think, as if we do politics for its influence... MORE

Geoffrey Miller on Personality

Books: Reviews and Suggested Readings
Arnold Kling
He writes, many of the new-fangled types of intelligence that have become popular recently...boil down to general intelligence plus some combination of the Big Five personality traits. Social intelligence...seems rather well predicted by a combination of general intelligence and extraversion,... MORE

The Economics of "Going Green"

Energy, Environment, Resources
Arnold Kling
A reporter called me to give the "anti" side of the case for going "green." It's not hard. It is a matter of basic economics. 1. Suppose that a gallon of gas costs $2.50 and an hour of labor costs... MORE

High School: Don't Bother to Graduate [UPDATE--my error]

Labor Mobility, Immigration, Outsourcing
Arnold Kling
David Card writes, I show that evidence from cross-city comparisons is remarkably consistent with recent findings from aggregate time series data. Both designs provide support for three key conclusions: (1) workers with below high school education are perfect substitutes for... MORE

Unlike the authors of the CEPR report, John Quiggin at Crooked Timber is willing to make me a bet about European vs. American unemployment.  However, he wants to adjust for incarceration rates:I'm willing to take Bryan on, with one amendment.... MORE

An Abstract that Whets My Appetite

Labor Market
Bryan Caplan
When I see an abstract like this, the article goes straight to the top of my queue:The ability of personality traits to predict important life outcomes has traditionally been questioned because of the putative small effects of personality. In this... MORE

Public Financing of Political Campaigns

Political Economy
Arnold Kling
Jonathan Chait writes, Do Kling and Schulz think that interest groups can have that much influence over the outcomes of elections -- so much influence that the Democrats will have a near lock on power? If so, shouldn't they support... MORE

The Wonder of Economic Freedom, 2

Political Economy
David Henderson
Pinch me A few months ago, I posted about the economic freedom that allowed my wife and me to help our daughter move from San Jose to San Francisco in less than a day. I had another "pinch me; I... MORE

Government Fundamentalists

Economic Philosophy
David Henderson
What do you call people who want government solutions even when those solutions don't work? In my latest article in The Freeman, I introduce the term "government fundamentalists." Here's a passage: What should we call people who seem to regard... MORE

What is the GDP Gap?

Macroeconomics
Arnold Kling
Doug Elmendorf writes, the difference between the economy's actual and potential output will average 7 percent of GDP (which is equivalent to about a trillion dollars) this year and next, and that gap in output will not close until 2013.... MORE

Two Disagreeable Questions for Ben Bernanke

Finance: stocks, options, etc.
Arnold Kling
Because it was my daughter's law school graduation, I heard this speech. I am surprised that a couple of bloggers linked to it, since Bernanke gave a personal talk, not a financial one. There was a large news media presence.... MORE

Against the Human Development Index

Cross-country Comparisons
Bryan Caplan
The authors of the "U.S. Unemployment Rate Now as High as Europe" report have turned down my bet.  One of the authors did however counter-offer a bet that Scandinavia's scores on the Human Development Index would beat America's at the... MORE

Fuel Economy and Relative Prices

Regulation
David Henderson
The essence of price theory is that relative prices affect allocation and that various shifts in supply and demand, mandated or otherwise, affect relative prices. On Wednesday, I posted on the short-term auto boom that Obama's proposed fuel-economy standards, if... MORE

I'm going to offer the following bet to the authors of the CEPR report:The average European unemployment rate for 2009-2018 (i.e., the next decade) will be at least 1% higher than U.S. unemployment rate.  The bet will be resolved when... MORE

"U.S. Unemployment Rate Now as High as Europe," gloats a new issue brief from the Center for Economic and Policy Research.  The subtext: Europe's heavy labor market regulation isn't so bad after all.  In fact, since the "case for the... MORE

Is There Hope for My Most Wrong Belief?

Economic History
Arnold Kling
David Frum writes, [Peter] Heather takes a less benign view of Rome. Here, he says, is a society of savage aggressiveness, that grew not through productivity improvement but by waging war on its neighbors to enslave their populations. Pointer from... MORE

Geoffrey Miller, Masonomist

Books: Reviews and Suggested Readings
Arnold Kling
Geoffrey Miller writes, Many products are signals first and material objects second. I am only a little way past the introduction to Spent. Tyler has already read it. So has Robin. So far, Miller hasn't told me anything that Robin... MORE

The Irrepressible Boettke

Austrian Economics
Bryan Caplan
My colleague Pete Boettke has been named Faculty Member of the Year by GMU's Alumni Association.  He deserves it.  And while he's got a lot of neat pieces on his vita, many of his bluntest, most perceptive insights are strictly... MORE

Stuck in the Natural State?

Growth: Causal Factors
Arnold Kling
Antonio Fatas and Ilian Mihov write, China has sustained high growth rates in recent years despite its poor institutions because institutional quality is relatively less important in developing economies. However, we find that as their incomes increase, such countries need... MORE

The Coming Auto Boom

David Henderson
An Application of Intertemporal Substitution In its purest form, intertemporal substitution is substitution over time between two goods or services that are identical except for when they occur. So what I'm about to spell out isn't the purest form. At... MORE

After reading Walter Block's excellent defense of economic freedom indices, I made a wish that he would spend "more time doing creative empirical work, and a lot less defending Austrian economic theory against all challengers."  Thanks to David Henderson, I... MORE

Health Care: Mandates or Vouchers

Economics of Health Care
Arnold Kling
Grace-Marie Turner and Joseph R. Antos write about a Republican health care proposal, The nexus of their plan is redirecting the $300 billion annual tax subsidy for employment-based health insurance to individuals in the form of refundable, advanceable tax credits.... MORE

The Other Demographic Suicide

Politics and Economics
Bryan Caplan
Arnold's concerned about demographic projections of impending Democratic super-majorities.  But there's a major demographic trend going the other way: Whites in Republican states have a lot more kids than whites in Democratic states.  My source is none other than Steve... MORE

Memo to Krugman and DeLong: Start a Little Differently

Finance: stocks, options, etc.
Arnold Kling
Paul Krugman writes, Brad DeLong offers a neat little model of speculative fluctuations in asset prices, based on the idea that investors gradually switch strategies based on what seems to work for other people: if people buying stocks seem to... MORE

Warren Buffett, Five

Books: Reviews and Suggested Readings
Arnold Kling
Michael Lewis cribs from Alice Schroeder's biography. He seems always to have been something of a physical and emotional coward. He is actually less wary in his financial life than he is outside of it. He avoids social conflict, unless... MORE

Here's a bizarre set of predictions about the effect of new credit card regs:...Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And... MORE

Bet Accepted

Politics and Economics
Arnold Kling
Bryan writes, I predict that Republicans will regain control of at least one branch of the federal government at some point between now and January 20, 2017 (two inaugurations from now). So Arnold, how about a $100 bet at even... MORE

One-Party Democracy Is Not Coming: I'll Bet on It!

Politics and Economics
Bryan Caplan
Arnold's worried that the U.S. is moving to one-party democracy.  I completely agree with Arnold that one-party democracy is possible.  This is a central theme of my forthcoming article on Singaporean political economy, and over the past six months I've... MORE

Making Capital Disappear

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen points to a terse summary of an idea of Matt King. The only other reference to this idea that I can find is here. In the expansion of the credit bubble, U.S. banks strove to keep their tangible... MORE

The Economics of an Economics Ph.D.

Economic Education
David Henderson
On this blog last month, my fellow blogger Arnold Kling wrote: Then consider the Internet. For an autodidact, this is a golden age. For going to graduate school, not so much. I agree with Arnold totally on the first. When... MORE

Why I Fear a One-Party State

Political Economy
Arnold Kling
Bryan writes, it's not obvious that Republicans actually offer more free-market politics than Democrats do. Probably true, but beside the point. I am not upset with political trends because I want Republicans to win. I am upset because I foresee... MORE

Must-Read Hanson

Cost-benefit Analysis
Bryan Caplan
Robin Hanson surveys the empirical literature on what goods are positional and what goods aren't.  Prepare to be edified.... MORE

The Case Against Libertarian Hispanophobia

Political Economy
Bryan Caplan
When libertarians (as well as economically literate conservatives) worry about immigration, they usually focus on its undesirable political consequences.  As my co-blogger Arnold puts it:The demographic picture, in which traditional Republican voting groups are shrinking as a proportion of the... MORE

Krugman's Baby-Sitting Analogy

Macroeconomics
David Henderson
This is another in an open-ended series on strengths and weaknesses in Paul Krugman's writing. In a 1999 review of Krugman's The Return of Depression Economics, I wrote: One of Krugman's strengths is his talent for analogies that help readers... MORE

Today's Financial Reading

Finance: stocks, options, etc.
Arnold Kling
Two suggestions from Mark Thoma. First, Anne Sibert writes, There is a substantial economics literature on the effect of gender on attitudes toward risk and most of it appears to support the idea that men are less risk averse than... MORE

North, Wallis, and Weingast

Political Economy
Arnold Kling
Indeed, Violence and Social Orders is an important book. My guess is that many reviewers will complain about the editing and organization. Many points are repeated ad nauseum. Some reasonably important points are tossed off more casually. I'll quote some... MORE

The Emerging Stagnant Majority

Labor Mobility, Immigration, Outsourcing
Arnold Kling
William Voegeli, in an article for the Claremont Review called "The Wilderness Years Begin," cites an article by Ronald Brownstein. Start by considering the electorate's six broadest demographic groups -- white voters with at least a four-year college degree; white... MORE

Krugman Killer Quote

Income Distribution
David Henderson
Last week, I highlighted parts of my favorite Paul Krugman book, Pop Internationalism. Here's another of my favorite quotes from Krugman. I used it in a sidebar for the Frank Levy article, "Distribution of Income," in the first edition of... MORE

Should Make-Work Count?

Economic History
Bryan Caplan
According to official numbers, unemployment stayed extremely high through the New Deal.  But some of Roosevelt's defenders say the numbers are misleading.  Bob Murphy, author of The Politically Incorrect Guide to the Great Depression and the New Deal, explains their... MORE

Meritocracy Without Borders

Income Distribution
Bryan Caplan
Once you're familiar with the literature on the intergenerational income correlation, it's easy to be complacent.  But isn't there any unfairness left to get upset about?  Absolutely.  The catch: Government, not "capitalism," is clearly to blame.Yes, income difference inside Western... MORE

Richard Epstein on Happiness, III

Economic Philosophy
David Henderson
This is my last post on Russ Roberts's interview of Richard Epstein on the happiness literature. For the previous installments see here and here. 40:40. Epstein talks about insights from sociobiology, now called evolutionary psychology. He points out their finding... MORE

It's Not Who You Know, It's Who You Are

Income Distribution
Bryan Caplan
Children resemble their parents.  When the resemblance is physical, we usually think it's funny or cute.  But when the resemblance is financial, it's an Issue.  Non-economists debate the merits of the cynic's maxim that, "It's not what you know, it's... MORE

Good Answer!

Public Goods
Bryan Caplan
Here's a spot-on response from my Ph.D. Micro final.The Question: True, False, and Explain:  In signaling models, selfish agents might voluntarily supply public goods. The Answer:True.  Yes, if donating to charities, giving blood, or sponsoring militia units or adopting part... MORE

Thoughts on Comparative Effectiveness Research

Economics of Health Care
Arnold Kling
Tyler Cowen writes, This commission, if it sticks to its statistical mandate, will be able to recommend many more possible cuts than any vote-maximizing administration will be likely to make. Some other principle will be used to determine cuts. Many... MORE

Funniest Macro Line of the Month

Macroeconomics
Bryan Caplan
The prize goes to Scott Sumner for:[I]f you are going to use research by a brilliant Nobel-Prize winning new Keynesian economist in order to attack discredited ideas, then makes sure the discredited ideas being attacked are not... your own.Still, if... MORE

Here's a question from my final exam for Ph.D. Micro.  Care to give it a try in the comments? Suppose that greeting other people is a special kind of Coordination game.  We are in the equilibrium where everyone shakes hands;... MORE

In the latest Econ Journal Watch, Stephenson and Wendt point out that virtually all labor econ textbooks ignore occupational licensing despite its empirical importance.  In particular, they show that licensing matters a lot more in the U.S. than the minimum... MORE

Why Do Politicians Break Their Promises? Part 2

Behavioral Economics and Rationality
Bryan Caplan
Politicians break their promises because voters don't rationally punish political promise-breaking.  But why do politicians want to break their promises in the first place?  What's the point of promising X, then backing out?The simplest answer is just that circumstances change... MORE

Paging Simon Johnson and James Kwak

Finance: stocks, options, etc.
Arnold Kling
One of the themes of their baseline scenario blog is that banking regulators have been captured by large banks. In researching the history of capital regulation, I came across this paper by David Jones, of the Federal Reserve Board. It... MORE

The Washington Post vs. the Obama Administration

Politics and Economics
Arnold Kling
Opening today's Washington Post, there are three editorials. The lead editorial is on Obama's policies with respect to the automobile industry. the spectacle of creditors being stripped of their legal rights in favor of a labor union with which the... MORE

Pro-Autistic Economics

Books: Reviews and Suggested Readings
Arnold Kling
Rightly or wrongly, autistics are often seen as staking out their independence from the group and from group norms. They're seen as questioning the psychological power of the leaders and bullies and indicating that they do not, within their... MORE

Zywicki on Chrysler

Finance
David Henderson
In today's Wall Street Journal, Todd Zywicki lays out how President Obama attacked holders of Chrysler debt. A key paragraph: The Obama administration's behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors --... MORE

I just read Bernanke's 2004 piece on "The Great Moderation."  It's written by the wise Bernanke I remember, not the embarassment he's become.   In hindsight it's tempting to treat Bernanke's analysis as pure delusion.  But in the end, I bet... MORE

I Take (Some of) It Back

International Trade
David Henderson
In my recent post praising Krugman's popular writing on international trade, I highlighted the following quote from one of his essays: the United States is not now and may never be as open to trade as the United Kingdom has... MORE

My co-author Scott Beaulier blogs a meaty question for me:...The policy implication often taken from MRV is an elitist one: the world needs constraints from the mob through franchise restrictions, etc.  While Rothbardhad his elitist moments (and there's plenty in the Austrian... MORE

Power over Pay

Political Economy
Arnold Kling
The Obama Administration wants it. Wall Street pay has long been a hot-button issue in Washington, but the public outrage over excessive compensation has erupted in recent weeks. I interpret the public outrage a bit differently. It seems to me... MORE

The Third Iron Law

Economic Methods
Arnold Kling
William Easterly takes on Paul Collier (and implicitly many other users of regression techniques). Oodles of regressions were run...Oodles of control variables were tried...Sample was sliced up to get results... Read the whole thing. My father used to say that... MORE

We've finished the chapter-by-chapter of Murray Rothbard's For a New Liberty.  Now I'd like to wrap things up by answering most or all of your questions about the book.  Please limit yourself to questions, not statements, phrase them succinctly, and... MORE

Keith Hennessey is Bitter

Economics of Health Care
Arnold Kling
He writes, The President is attempting to claim credit for [health care] savings that (a) do not yet exist, (b) are not backed up by any specific changes in industry practices or government policies, and (c) are related to him... MORE

Congenitally Entrepreneurial

Labor Market
Bryan Caplan
I just came across a fun paper that asks "Is the Tendency to Engage in Self-employment Genetic?" (Management Science 2008).  As usual, the answer is yes.  Based on a sample of over 3000 British twins, the authors estimate that 48%... MORE

The Entitlement Outlook

Economics of Health Care
Arnold Kling
Andrew Biggs writes, Over the next 30 years, population aging is our main entitlements problem and it makes sense to seek solutions that are based on the problem we have, not the problem we want to have. Beyond 30 years,... MORE

Effect of Unions

Labor Market
David Henderson
The discussion of the misnamed Employee Freedom of Choice Act is taking place at the local level as well as nationally. In our local newspaper, Chris Fitz wrote a pro-EFCA letter to which I responded. My response is below: "Let's... MORE

This Changes Nothing

Macroeconomics
Bryan Caplan
"When the facts change, I change my mind."  The crash of 2008 has brought Keynes' famous line back into popular use.  But should it have done so?  Here's my claim:Nothing that happened in the last two years should have significantly... MORE

Costs and Benefits of Beliefs

Behavioral Economics and Rationality
Arnold Kling
Russell Hardin describes an economic theory of what people "know" (I keep wanting to substitute "believe" for "know"). we can explain bits of knowledge that a given person has as being substantially affected by the costs and benefits of obtaining... MORE

Woodward and Hall on Current Policy

Finance: stocks, options, etc.
Arnold Kling
Interesting throughout. They join the rest of what I call the peanut gallery (those of us, left and right, who cannot understand the bank bailouts). The effect of the government's current policy is to pay off all claimants on financial... MORE

The Walled Garden That Never Was

Information Goods, Intellectual Property
Bryan Caplan
I'm old enough to remember the days when many people seriously believed that America Online's gated content was the wave of the future.  Over at Cato Unbound, Adam Thierer takes apart Lawrence Lessig, influential past prophet of techno-doom:Had there been... MORE

The Inflation Illusion?

Macroeconomics
Bryan Caplan
Once I finish refinancing my 30-year fixed-rate mortgage at a ridiculously low nominal rate, a giant inflationary surprise would probably be in my best interest.  But Scott Sumner says I shouldn't get my hopes up.  The first and foremost of... MORE

Krugman on Pop Internationalism

International Trade
David Henderson
In the comments on my post on Paul Krugman's Hooverite view of wages, we had an interesting discussion of Krugman's work over the years. I'm a big fan of much of his work in the 1990s and one of the... MORE

Sacerdote's Dog That Didn't Bark

Economics of Education
Bryan Caplan
I keep thinking about Bruce Sacerdote's Korean adoption study.  I've read every twin and adoption paper I could find about parental influence on kids' educational outcomes.  Sacerdote's is the best of the bunch - the cleanest study, the clearest presentation,... MORE

John Stossel Tonight

Economic Education
David Henderson
On tonight's 20/20 on ABC, John Stossel will, yet again, throw himself into controversial issues. I think he's the most economically literate news person on any of the networks. On The O'Reilly Factor earlier this week, Bill O'Reilly interviewed Stossel... MORE

The Present and the Future

Growth: Consequences
Bryan Caplan
Last night I saw Star Trek with Robin, Alex, and Garett.  The amazing thing to me was how unimpressive Earth looks hundreds of years in the future.  It looks like economic growth in the future has been well under 1%... MORE

Canadian Banks and their Regulators

Finance: stocks, options, etc.
Arnold Kling
Tara Perkins writes, OSFI [Canada's bank regulator] ranks Canadian financial institutions on a ladder according to its perception of how much trouble they might be. Those at the top--that list typically includes the Big Five banks--are the good kids who... MORE

Krugman's Hooverite View on Wages

Macroeconomics
David Henderson
My fellow blogger Bryan has done an admirable job of laying out the problems with Paul Krugman's recent piece on wage inflexibility. I have three things to add. First, Bryan points out that "Krugman forgets that wage rigidity is the... MORE

Gerald Scully, RIP

Labor Market
David Henderson
Gerald W. Scully, a first-rate economist, has died of pancreatic cancer. Jerry authored the article on sports in The Concise Encyclopedia of Economics. Although I chose him as the author and edited his piece, I never met Jerry. But economist... MORE

Wage Cuts: Do Well While Doing Good

Labor Market
Bryan Caplan
At CNN Money, Tyler explains how knowledge of behaviorial labor econ can save your job:Employers looking to cut personnel costs can either lay people off or lower their wages. Though there are exceptions, employers are generally more willing to do... MORE

Test-Marketing

Books: Reviews and Suggested Readings
Arnold Kling
I asked, "If we had a product that allowed us to put questions and answers on your Web site, and this product wouold make all the e-mails go away, would you buy it?" Now here's a good lesson in... MORE

Why Wage Cuts Are Good For Aggregate Demand

Macroeconomics
Bryan Caplan
Krugman's repeating his argument that wage cuts are individually rational, but collectively irrational:[M]any workers are accepting pay cuts in order to save jobs. What's wrong with that?The answer lies in one of those paradoxes that plague our economy right now.... MORE

Let 'em Fail

Finance: stocks, options, etc.
Arnold Kling
Peter Wallison writes, it is my view that only the failure of a large commercial bank can create a systemic breakdown, and that nonbank financial firms--even large ones--are no more likely than GM to have this effect. For that reason,... MORE

Patri Friedman Reads Atlas Shrugged

Books: Reviews and Suggested Readings
Bryan Caplan
I've repeatedly braved mockery by naming Atlas Shrugged as my favorite novel.  So I'm overjoyed to see one smart guy move from mockery to admiration as a result of... actually reading Rand's masterpiece.  From Patri son of David son of... MORE

Sell the Streets?

Central Planning vs. Local Knowledge
David Henderson
In 2004, the Chicago Skyway was leased to a private company for 99 years for more than $1.8 billion. The company has the right to toll and concession revenue and the responsibility to maintain the road. In 2006, the same... MORE

The Dictator's Handbook: Read It

Political Economy
Bryan Caplan
Paul Collier's "The Dictator's Handbook," is truly excellent.  The lead-in:The old rulers of the Soviet Union were terrified of facing contested elections. Those of us who studied political systems presumed they must be right: Elections would empower citizens against the... MORE

Regulatory Dilemmas

Finance: stocks, options, etc.
Arnold Kling
I wrote this for the Mercatus Center. The case for accentuating regulatory differences. We want to provide consumers with bank deposits that are insured. To protect taxpayers, we want to prevent insured banks from taking significant risks. Therefore, banks should... MORE

Whew, we finally made it to chapter 15.  Next week I'll do a final round-up, including a general Q&A.SummaryThis chapter sketches Rothbard's strategy for libertarian victory.  He begins with a call for education:On one point there can scarcely be disagreement:... MORE

Revenue Sharing

Fiscal Policy
Arnold Kling
USA Today reports, In a historic first, Uncle Sam has supplanted sales, property and income taxes as the biggest source of revenue for state and local governments. Thanks to Nick Schulz for the pointer. The gist of the story is... MORE

George Selgin on Free Banking

Money
Arnold Kling
He says in an interview, Free banks compete, as it were, on an even playing field in issuing paper IOUs, which are basically what banknotes are. They have to redeem those IOUs on a regular basis: The competition among different... MORE

The Problem with Democracy

Political Economy
Arnold Kling
Will Wilkinson writes, People who finally gained equal political rights through a long democratic struggle cannot have been unreasonable to see democratic politics as a morally and politically progressive force. Basically, what I read into this sentence is the notion... MORE

Robin's Wishful Thinking

Economic Philosophy
Bryan Caplan
I usually think of my colleague Robin Hanson as a hard-headed, "just-the-facts-ma'am" kind of guy.  But here's just the latest example I've found of Robin's wishful thinking:In our culture we are supposed to oppose ordinary bloody war, preferring peace when... MORE

Why Do Politicians Break Their Promises? Part 1

Behavioral Economics and Rationality
Bryan Caplan
Obama's already breaking his campaign promises.  But you don't really need to read the news to know that, do you?  Virtually all successful politicians break their promises.When you think about it, though, politicians' penchant for promise-breaking is puzzling.  If making... MORE

Scott Sumner's Parenthetical Remark

Political Economy
Arnold Kling
He writes, [BTW, Bill Gates essentially taxed middle class consumers all over the developed world, and is giving almost all of the money to the disadvantged in poor countries. That's something governments don't do, and yet for his "monopoly profits"... MORE

Reformers Against Democracy

Political Economy
Bryan Caplan
A recent piece by Joshua Kurlantzick in Foreign Policy argues that middle-class reformers around the world are turning against democracy:Despite its name, the People's Alliance is explicitly antidemocratic. In its platform, the group seeks election reform measures that are basically... MORE

Ed Leamer

Macroeconomics
Arnold Kling
He is one of the most interesting economic thinkers out there, and Russ Roberts does a nice job interviewing him. The podcast covers the lack of knowledge that we have about macroeconomics, the fact that so many business cycles seem... MORE

True or False?

Energy, Environment, Resources
David Henderson
Econlog is a blog devoted to economics education. So here's a quote from a recent book. Being producers, the advisory group was more concerned with increasing production--for instance, by opening up the Arctic to more development--which would presumably increase its... MORE

More Thoughts on Masonomics

Macroeconomics
Arnold Kling
Tyler and Alex have new textbooks on micro and macro. Both begin with the same anecdote. In 1787, the British government had hired sea captains to ship convicted felons to Australia...On one voyage, more than a third of the males... MORE

Gillian Tett on the Financial Crisis

Finance: stocks, options, etc.
Arnold Kling
The talk is here. Near the end, in response to a question about the Lehman Brothers failure, she explains something that I did not really understand before. My working hypothesis has been that the faliure of securitization was no big... MORE

The Three S's of Finance

Finance: stocks, options, etc.
Arnold Kling
Think of financial intermediation as consisting of three S's: Spreading (that is, using diversification of risk) Selecting (that is, choosing the right risks to take) Signaling (that is, convincing people that the intermediary is sound) In my favorite example of... MORE

Obama's Debt Tsunami

Fiscal Policy
David Henderson
I held off posting on this because I thought the press and the bloggers would be all over it. But one of the most shocking things is how little attention has been devoted to the huge increase in the federal... MORE

Finance as a Network

Finance: stocks, options, etc.
Arnold Kling
Andrew G. Haldane recommends using an ecology/network metaphor to understand the financial system. An external event strikes. Fear grips the system which, in consequence, seizes. The resulting collateral damage is wide and deep. Yet the triggering event is, with hindsight,... MORE

The Case for Libertarian Evangelism

Political Economy
Arnold Kling
Edward P. Stringham and Jeffrey Rogers Hummel write, According to the Mises-Bastiat view, governments are able to get away with as much as they do only because they have the support of enough people. Bad policies persist only because the... MORE

Krugman on Climate

Energy, Environment, Resources
David Henderson
Today, Paul Krugman's New York Times column is one that I don't hate. I don't love it either, but it actually has some strengths as well as weaknesses. Strengths Krugman writes: Yes, limiting emissions would have its costs. As a... MORE

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