Bryan Caplan and David Henderson

October 2009

A Monthly Archive (137 entries)

Did the Lehman Failure Do It?

Finance: stocks, options, etc.
Arnold Kling
William Sterling writes, In contrast to the analysis of Lehman skeptics such as John Taylor (2008, 2009) and John Cochrane and Luigi Zingales (2009), the evidence we present supports the view of many practitioners that the decision not to rescue... MORE

Why Doesn't Parenting Affect Fertility?

Family Economics
Bryan Caplan
Twin and kinship studies find that parenting has little influence on fertility.*  While there is some family resemblance - big and small families run in families - heredity accounts for all or almost all of it.  This is a little... MORE

My Speech in Denver on Monday

Upcoming Events
David Henderson
This coming Monday, November 2, I'll be giving a talk at the Metropolitan State College of Denver. Title: What Health Economists Know that Obama Doesn't Want You to Know. Details here.... MORE

Changing People's Minds

Behavioral Economics and Rationality
Arnold Kling
What causes people to change their minds? On this blog, I have argued that people do not change their minds on ideological issues. I have argued that econometric regression results typically do not change people's minds. Why is that?... MORE

Robin Hanson Argues from Authority

Economic Methods
Arnold Kling
He writes, Economists should listen more to techies on what techs will be feasible at what costs, but techies should also listen more to economists on the social implications of tech costs. Alas, just as economists prefer to rely on... MORE

The State of the Economy, II

Business Economics
Arnold Kling
I don't think yesterday's GDP report matters. Historically, cyclical movements in GDP are just blips. It is the long-run trend of productivity that matters. This news from Scott Shane might be disturbing. The self-employment rate is now below pre-recession levels.... MORE

The State of the Economy, I

Economic History
Arnold Kling
The financial crisis creates significant opportunity for long-term pessimists. Again, I recommend the podcast featuring Ken Rogoff and Niall Ferguson. Rogoff has been a gloomy person (in a fun way) for as long as I have known him, which is... MORE

Do They Care?

Public Choice Theory
David Henderson
While many people dismiss insights from public choice, what's striking is its casual acceptance in conversation and discussion. Keith Hennessey posted today about the odds on various things happening with the Senate's and House of Representatives' proposed tax increases, aka,... MORE

Tullock on The Unpredictability of Dictatorial Succession

Politics and Economics
Bryan Caplan
From Tullock's chapter on "Becoming a Dictator" in Autocracy:Economists know the so-called random walk hypothesis regarding the stock market, which holds that all available information is already incorporated in the market price, with the result that the price or its... MORE

Politics for Kids

Politics and Economics
David Henderson
A few weeks ago, Carl Mounteer, a local lawyer, and I were invited to present our views on a local tax issue to the Monterey County Weekly, the local left-wing weekly. Carl and I had written the ballot argument against... MORE

This Time is Different in Concert

Books: Reviews and Suggested Readings
Arnold Kling
I've talked before about the new book by Ken Rogoff and Carmen Reinhart, titled This Time is Different, which is about how financial crises have been around a long time and have a lot in common with one another. (You... MORE

Questions about the Public Option

Economics of Health Care
Arnold Kling
Steven Landsburg is now blogging. One of his first posts is on health reform. Concerning the public option, he writes, A more efficient bureaucracy? But if there were a way to save money by streamlining the bureacracy, why wouldn't all... MORE

One Estimate of Multipliers

Fiscal Policy
Arnold Kling
Alberto Alesina and Silvia Ardagna write, Our results suggest that tax cuts are more expansionary than spending increases in the cases of a fiscal stimulus. Based upon these correlations we would argue that the current stimulus package in the US... MORE

Chabon's Unkindest Cut

Economic Philosophy
Bryan Caplan
I strongly oppose circumcision.  In fact, I can't think of a good reason why we shouldn't punish it as child abuse.  Whether or not you agree with my conclusion, I think it's hard to deny the following claim: Unless you... MORE

Russ Roberts on Capitol Hill

Politics and Economics
Arnold Kling
At a hearing on the "pay czar," he doesn't mince words. We don't need a Special Master to level the playing field. We just need to take the crony out of crony capitalism so we can get back to the... MORE

Book Update

Books: Reviews and Suggested Readings
Arnold Kling
1. From Poverty to Prosperity is supposed to ship to distributors next week. I'll believe it when I see it. So far, I have not seen any printed version--only electronic galleys. There will be no review copies available prior to... MORE

Caplan-Hanson Debate Redux?

Economic Philosophy
Bryan Caplan
Remember the Caplan-Hanson Liberty v. Efficiency debate?  Robin stood firm for maximizing efficiency in all conceivable circumstances.  I argued, in contrast, that ethical reasoning should begin with simple cases and tentatively generalize:Sensible moral reasoning begins with concrete, specific cases.  For... MORE

Zingales to Republicans: Go Jeffersonian

Politics and Economics
Arnold Kling
Luigi Zingales writes, The Republican Party has to move from a pro-business strategy that defends the interests of existing companies to a pro- market strategy that fosters open competition and freedom of entry. ...A pro-market party will fight tirelessly against... MORE

Robin Hanson on Ethics

Behavioral Economics and Rationality
Arnold Kling
He writes, Humans overwhelmed by the social complexities of helping a bum nearby think they know enough about societies far away, so that ethics becomes the main concern there... Beware the easy confidence of advising worlds far from your knowledge... MORE

Additive Shocks

Macroeconomics
Bryan Caplan
A common complaint about Sumner is that he ignores important real shocks, such as the "Recalculation Problems" that Arnold keeps pushing.  I'm still not convinced that recalculation is a big deal, though this graph that Arnold's promoting is the kind... MORE

The Singularity: What's in it for Me?

Growth: Consequences
Arnold Kling
Tyler Cowen tries to answer. I'll add my comments.... MORE

The Pay Czar's Diversion

Political Economy
Arnold Kling
David Brooks writes, Ninety-four percent of college professors believe they are above average teachers, and 90 percent of drivers believe they are above average behind the wheel. Researchers Paul J.H. Schoemaker and J. Edward Russo gave computer executives quizzes on... MORE

The Decline of the Rabbit Strategy

Family Economics
Bryan Caplan
From chapter 5 of the first draft of Selfish Reasons to Have More Kids: When I was a kid, people often accused others of "breeding like rabbits."  If you know much about rabbits, it's not a pretty picture: Rabbits get... MORE

Pseudo-Competition

Economics of Health Care
David Henderson
The congressional leadership has been very vocal lately about the need for competition in health insurance. These are people who have previously never had a good word to say about "competition" in their entire political careers. They are the very... MORE

Calomiris on the Crisis

Finance: stocks, options, etc.
Arnold Kling
Charles Calomiris talks with Russ Roberts. It is a long podcast, and it is perhaps the best ever. I hope that it gets transcribed, published, and widely disseminated. Consider the following statement: Deposit insurance is the _____ for banking crises.... MORE

Data and Dogma

Economic Methods
Arnold Kling
(i). Bob Sutton quotes a meta-analysis by Frank Schmidt and John Hunter published in 1998 on the factors found to affect job performance. 1. GMA tests ("General mental ability") 2. Work sample tests 3. Integrity tests: surveys design to assess... MORE

Political Economy, Banking, and Capitalism

Finance: stocks, options, etc.
Arnold Kling
Luigi Zingales writes, The real effect of Gramm-Leach-Bliley was political, not directly economic. Under the old regime, commercial banks, investment banks, and insurance companies had different agendas, and so their lobbying efforts tended to offset one another. But after the... MORE

The Longstanding Debate over National Defense

Political Economy
Arnold Kling
When Elbridge Gerry proposed in the [Constitutional] Convention that no standing army exceed three thousand men, Washington is supposed to have made a countermotion that "no foreign enemy should invade the United States at any time, with more than... MORE

Tyler's Triple on Health Care

Economics of Health Care
David Henderson
Hey, it's baseball playoff time and the article is in the New York Times and so of course I'm going to use a baseball metaphor. In his column today, Tyler Cowen addresses many of the problems with having government mandated... MORE

Chauffered America, Strip Mall America

Books: Reviews and Suggested Readings
Arnold Kling
"Hold on, hold on," [Ruth] Porat said in disbelief. "You're calling me on a Sunday night saying that we just spent the entire weekend on Lehman and now we have this [AIG]? How the [foul language] did we spend... MORE

The Incomparable Tullock

Politics and Economics
Bryan Caplan
I am all-in for Gordon Tullock, my Nobel-worthy colleague who retired last year.  He is notorious as a homo economicus reductionist.  If you actually read his works, however, you will see that his view of human nature is far subtler... MORE

The Stimulus and the Economy

Fiscal Policy
Arnold Kling
John Taylor cuts through the BS. the latest Department of Commerce estimates of ... the improvement in GDP growth from the first to second quarter. Growth improved by 5.7 percent (from -6.4 percent to -0.7 percent). Private investment was by... MORE

Randian India?

Economic Philosophy
Bryan Caplan
A piece in Foreign Policy says that Ayn Rand's now big in India:Not only do Indians perform more Google searches for Rand than citizens of any country in the world except the United States, but Penguin Books India has sold... MORE

"National defense" is a textbook example of a public good.  Unlike Austrians, I have no problem with the concept of public goods.  I just deny that national defense is a valid example.  In fact, I will be so bold as... MORE

SuperFreakonomics, II

Book Club
David Henderson
As I work my way through SuperFreakonomics, I'm starting to take back my claim that it's better than Freakonomics. It seems to have the same strength and the same weakness. The strength is its focus on incentives and facts to... MORE

The Bonus Issue

Politics and Economics
Arnold Kling
I was against the bailouts from day one, and I have not changed that position. Government spent my money without my permission on bailing out AIG, Goldman, and the rest. I won't repeat my references to Henry Paulson as a... MORE

Number of google hits for "childfree": 1,350,000.Number of google hits for "grandchildfree": 2,380.... MORE

Anderson on Enron

Economics of Crime
David Henderson
One of the views I had accepted uncritically is that all of the people at Enron charged with crimes really were guilty. But Bill Anderson's interesting article today questions some of that. Also, he points out that Fortune reporter Bethany... MORE

Health Care: The Facts that Matter

Economics of Health Care
Arnold Kling
In The Freeman, I write, Overall, I would argue that on the demand side, the United States healthcare system is essentially socialized. The fact is that close to 90 percent of health-care spending is paid for by third parties, which... MORE

The Tonkin Principle

Politics and Economics
Arnold Kling
FinReg21 reports, While emergency bailout funds helped avert a collapse of the financial system, the Treasury Department now thinks the money should be diverted to helping small businesses and homeowners, a Treasury official said. Speaking before the Congressional Oversight Panel... MORE

Remembering the Collapse of Communism

Economic History
Bryan Caplan
The collapse of Communism in Eastern Europe is - and will probably remain - the most glorious political event of my life.  I'm a little embarrassed to admit that I missed the 20th anniversaries of the end of Communist rule... MORE

They Laughed at Me When I Said it

Energy, Environment, Resources
Arnold Kling
The Dominion Post reports The eco-pawprint of a pet dog is twice that of a 4.6-litre Land Cruiser driven 10,000 kilometres a year, researchers have found. Thanks to a reader for the pointer (no pun intended).... MORE

What I'm Reading

Books: Reviews and Suggested Readings
Arnold Kling
Empire of Liberty, by Gordon Wood. Part of the Oxford series on American history, it focuses on the period 1789-1815. So far, I find myself thinking about it in the context of the Cowen-Hanson theory of political behavior and also... MORE

A Recalculation Data Point

Macroeconomics
Arnold Kling
From David Altig, via Mark Thoma. This statistic, the percentage of job losses that are permanent, is a useful way to distinguish Keynesian recessions from Recalculations. In a Keynesian recession, you are temporarily laid off because of excess inventories and... MORE

Family, Transfers, Pride, and Shame

Family Economics
Bryan Caplan
Contrary to popular belief, the elderly financially support their kids, rather than the other way around.  This was true in hunter-gatherer and peasant societies.  A neat piece in the JEP shows that it was also true in the U.S. in... MORE

Turning Back the Financial Clock

Finance: stocks, options, etc.
Arnold Kling
Yves Smith writes, Now you could in theory go back to having much more on balance sheet intermediation (finance speak for "dial the clock back 35 years and have banks keep pretty much all their loans"). Conceptually, that is a... MORE

Irony in the News

Political Economy
Arnold Kling
Car Czar says GM mismanaged. Watchdo excoriates execution of TARP. Of course, in the case of GM, the CEO was fired.... MORE

The Recalculation Model in a Journal

Macroeconomics
Arnold Kling
Brad Cornell writes (don't expect the link to work smoothly) The recession is due primarily to a widespread mismatch between current conditions and previous plans, relationships, and contracts. As a result, consumer desires, resources, and production technology are also misaligned.... MORE

I Just Pre-Ordered The Cartoon Introduction to Economics

Books: Reviews and Suggested Readings
Bryan Caplan
Today I got a free sample chapter from the Stand-Up Economist's The Cartoon Introduction to Economics.  It was so good that I immediately pre-ordered the complete book.  Keep up the good work, Yoram - you could become the Larry Gonick... MORE

Health Reform and Vietnam

Political Economy
Arnold Kling
Michael Cannon writes, Massachusetts also demonstrates that compulsory health insurance enables, and ultimately requires, politicians and government bureaus to control nearly all aspects of health care and medical practice. Lately, I've been thinking about Vietnam analogies. For example, mandatory health... MORE

James Hamilton Estimates a Phillips Curve

Macroeconomics
Arnold Kling
He finds, the forecast of the model for the average inflation rate between 2009:Q4 and 2011:Q4 is -0.5%. ...If for further evidence on inflationary expectations you looked at the gap in yields between nominal Treasuries and TIPS, you'd say inflation... MORE

Where the Pigovians Are

Cost-benefit Analysis
Bryan Caplan
Scott Sumner's not officially in the Pigou Club - and for the record I'm officially not in the club.  Still, in a just world, Scott's words of wisdom would provoke Pigovians to beg him to become their King:If we set... MORE

I try to write the kind of books I'd like to read, and I try to read the kind of books I'd like to write. This isn't as narcissistic as it sounds.  I'd like to write like Tolstoy or Alan... MORE

The M Word

Finance: stocks, options, etc.
Arnold Kling
I have a new statistic to track--the use of the word "mortgage" in discussions of causes of the financial crisis. See, for example, my statistical report on Ben Bernanke's arm-breaking speech. I predict the following: The use of the M... MORE

Super Freakonomics

Book Club
David Henderson
I'm only 27 pages into Levitt's and Dubner's new book, but already I'm liking Super Freakonomics better than Freakonomics. My problem with the first book was that it tended to emphasize small aspects of some issues and missed the big... MORE

Pessimistic Bias: Crime Edition

Behavioral Economics and Rationality
Bryan Caplan
In chapter 4 of Selfish Reasons to Have More Kids, I try to help parents overcome their pessimistic bias.  Kids over the age of 1 have long been the safest people in our society, we're all much safer than we... MORE

A Proposal for Masonomics Fieldwork

Behavioral Economics and Rationality
Arnold Kling
A comment on my last post on political dispositions: The real reason people with high IQs lack common sense is neurological. You can't be cerebral without sacrificing cunning. It takes real live brain matter to support each. Unless you've got... MORE

Political Dispositions

Political Economy
Arnold Kling
Daniel B. Klein takes a shot at something I have tried to do, namely, sort out the dispositions of progressives, conservatives, and libertarians. The configuration presupposed by social-justice leftists and social democrats generally is that all resources in society are... MORE

Populism, Left and Right

Finance: stocks, options, etc.
Arnold Kling
Shane Greenstein writes, Russ Roberts is normally a free market economist, but in his essay he sounds like an old fashioned populist. When a firm does something to turn Russell Roberts into a populist then -- perhaps -- something is... MORE

On "job creation"

Macroeconomics
Arnold Kling
Mort Zuckerman writes, the US lost 44m jobs in the last two decades of the 20th century, but simultaneously created 73m private sector jobs. A stunning 55 per cent of the total workforce was in new jobs by the turn... MORE

Bye Bye Borders?

Microeconomics
Bryan Caplan
When I read this Amazon review, I got a Christopher Walken-like premonition that Borders will soon die:The bright red cover caught my eye. The title made me smile ("how clever!") and the first sentence I read inside made me laugh... MORE

Economic Naivete

Economic Methods
Bryan Caplan
If I had to sum up the mind-set of my Princeton econ education in one cliche, it would be, "There are those who would strain out a gnat, but at the same time swallow a camel."  Sometimes, the profs could... MORE

Great Moments in Health Economics

Economics of Health Care
David Henderson
From President Obama's Council of Economic Advisers, "The Economic Case for Health Reform," June 2009: In medicine, however, technological progress in recent decades has been almost exclusively cost-increasing, without generating a commensurate increase in value. Undoubtedly, provider incentives, which largely... MORE

Obama's CEA on Adverse Selection

Economics of Health Care
David Henderson
Back in July, Bryan had an excellent post on adverse selection, pointing out that the textbook idea that adverse selection is an important problem in insurance is simply wrong. Krugman seemed to go back and forth on the issue, but... MORE

Wolfers, Ehrenreich, Misery, and Feminism

Behavioral Economics and Rationality
Bryan Caplan
As a loss-leader for her new book against positive thinking, Barbara Ehrenreich is lashing out at Stevenson and Wolfers' work on declining female happiness.  Wolfers responds here.  Some remarkable features of the Ehrenreich-Wolfers exchange:1. Ehrenreich should be happy to learn... MORE

Mad About Trade, II

David Henderson
Further highlights from Daniel Griswold's new book, Mad About Trade, which I first blogged about here. Griswold quotes Jason Furman, now an Obama economic advisor, on the effect of Wal-Mart on consumer prices: The price differences are staggering. Wal-Mart prices... MORE

Living With Your Parents

Family Economics
Bryan Caplan
A striking passage from "Intergenerational Transfers and Inheritance":[A] large and growing difference exists between Germany and Italy in rates of coresidence of young adults with their parents.  In Italy, 50% of young women and 70% of young men still live... MORE

Update on Suicide Bombers and Life Insurance

Information Goods, Intellectual Property
Bryan Caplan
Quick reply to two interesting comments: John Jenkins writes: Does the average suicide bomber make the decision to commit suicide more than 1-2 years in advance? If not (and I would guess that "no" is the right answer), then doesn't... MORE

Was Having Kids Ever a Paying Venture?

Family Economics
Bryan Caplan
One popular story about the decline in family size over the last two centuries goes like this: Back in the old days, having kids paid.  Children started working when they were quite young, and provided for their parents in their... MORE

Now I Believe the Insurance Industry Study

Economics of Health Care
Arnold Kling
The Washington Post reports, An internal industry study released earlier this week found that the Senate reform bill would cause premiums to rise sharply, but the report's findings have been widely disputed... Pelosi said the House may adopt a Senate... MORE

The High Points of Superfreakonomics

Books: Reviews and Suggested Readings
Bryan Caplan
I just read my advance copy of Superfreakonomics.  Overall, it's better than the original.  It's still cutesy, but stronger in the "who cares?" factor.The highlight: "What Do Al Gore and Mount Pinatubo Have in Common?," a surprisingly skeptical look at... MORE

Conservative != Libertarian

Political Economy
Arnold Kling
Daniel Klein and Jason Briggeman find that leading conservative magazines are not libertarian. This is no surprise. Read Jordan J. Ballor. He cites an essay by Russell Kirk. This essay leaves no doubt about the distinction between Kirk's conservatism and... MORE

Are Taxes "Passed On"?

Economics of Health Care
David Henderson
In arguing with the recent study done by Price Waterhouse Coopers for the American Health Insurance Plans (AHIP), the White House bloggers say the following: AHIP CLAIM: Fees on health insurance providers, pharmaceutical manufactures and device makers will be passed... MORE

Suits vs. Geeks Watch

Business Economics
Arnold Kling
Calvin Trillin interviews a Wall Street old-timer. When the smart guys started this business of securitizing things that didn't even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the... MORE

Wesley Mouch Award

Central Planning vs. Local Knowledge
Arnold Kling
Biofuels digest reports, In Washington, the US Secretary of Energy, Dr. Steven Chu, broke with Obama administration renewable energy policy, telling stunned alternative energy developers at a recent meeting on alternative fuels that "if it were up to me, I... MORE

Confucius and Cato

Economic Philosophy
Bryan Caplan
The latest issue of Cato Unbound, with lead essay by editor Will Wilkinson, reminds me of my favorite Confucius quote:If a state is governed by the principles of reason, poverty and misery are subjects of shame; if a state is... MORE

The Kool-Aid Factor

Finance: stocks, options, etc.
Arnold Kling
Nobel Laureate Eric Maskin says, I think most of the pieces for understanding the current financial mess were in place well before the crisis occurred. If only they hadn't been ignored. We're not going to eliminate financial crises altogether, but... MORE

Merit-Based Pay Cuts: Why Not?

Labor Market
Bryan Caplan
Many universities now have pay freezes or even nominal pay cuts.  Under the circumstances, several professors have told me that there's little point in doing faculty evaluations.  If there's zero - or negative - money for raises, why bother saying... MORE

Unbelievably Good News

Economic History
Bryan Caplan
I wish Julian Simon were around to read this passage from "The Low-Fertility Trap Hypothesis: Forces that May Lead to Further Postponement and Fewer Births in Europe":In the past decades, population projections were based on the expectation that after the... MORE

Russ Roberts points out that only a small fraction of the $787B fiscal stimulus has been spent.  I've long scoffed at government inefficiency, but it never occurred to me that a full pork barrel could be so slow to empty. ... MORE

Take That, Math Geeks

Institutional Economics
David Henderson
That was the title I gave my Wall Street Journal article on the Nobel prize that appears on line now and will appear in print tomorrow. Of course, as people who write for newspapers and magazines know, the odds that... MORE

Certainty, Uncertainty, and Macro

Macroeconomics
Arnold Kling
Steven Randy Waldman writes, A housing boom, any kind of boom, is attended by an increase in certainty. Information is stimulus, confusion is contraction. A bust occurs when the market is unsure of everything, when market participants perceive better risk-adjusted... MORE

Thoughts on Probability and Uncertainty

Behavioral Economics and Rationality
Arnold Kling
Eric Falkenstein watched the Youtube of the Caplan-Boettke debate on Austrian economics. Falkenstein concludes, What is needed is something constructive, something the Austrians, Post-Keynesians, or Taleb, have failed to do. Let me place this in the context of my introduction... MORE

Explaining Oliver Williamson

Business Economics
Arnold Kling
I think Alex Tabarrok is the most helpful of the bloggers thus far. Lynne Kiesling is helpful on Williamson as well as on Elinor Ostrom, the other new Nobel Laureate. I think of Oliver Williamson in terms of the 1980's... MORE

Economic Models, the Bond Market, and Monetary Policy

Finance: stocks, options, etc.
Arnold Kling
In a comment on this post, Bryan asked whether I should not be betting on treasury-indexed securities. I'll answer that one below the fold. What I have been thinking about is this. 1. In general, I do not think that... MORE

R&R: It's the Leverage, Stupid

Finance: stocks, options, etc.
Arnold Kling
Reinhart and Rogoff are interviewed. Rogoff says, This idea that we'll get rid of too-big to fail banks and we'll be OK -- that's nuts because a really big bank is only going to fail if there's a systemic crisis.... MORE

Nobel for Institutional Economics

Institutional Economics
Arnold Kling
When I was in Bloomington, Indiana last week, Justin Ross and I talked about the "Bloomington school of public choice," meaning Elinor Ostrom. (see Aligica and Boettke.) Little did I know that she was about to be awarded a Nobel... MORE

Obesity and Dominance Reconsidered

Economics and Culture
Bryan Caplan
Robin chastises:Yet it is completely crazy to imagine that fat folks have not yet heard that fat might be unhealthy or unattractive.  Believe me, they've heard!  If they are choosing to be fat, they are doing so reasonably informed of... MORE

A Sentence to Ponder

Macroeconomics
Arnold Kling
Gap-based theories of inflation were badly discredited in the 1970s. That is James Bullard. Pointer from WSJ real time economics. To the Krugmans and DeLongs of the world, it is intuitively obvious that with unemployment approaching 10 percent we... MORE

Britain's Central Planning Death Panels

Economics of Health Care
David Henderson
Hazel Fenton, from East Sussex, is alive nine months after medics ruled she had only days to live, withdrew her antibiotics and denied her artificial feeding. The former school matron had been placed on a controversial care plan intended to... MORE

Free Market M.D.

Economics of Health Care
David Henderson
The doctor then takes a history and physical, spending about 30 minutes with me, for which the flat fee is $50. He explains his hourly billing is $100-much less than a typical lawyer charges, I'm happy to note. He tells... MORE

Economies of Scale in Compliance

Regulation
David Henderson
This morning, after a highly-productive Liberty Fund seminar in Santa Fe, I went over to Pasquale's for breakfast. I sat with a woman who runs a Mexican restaurant in a small town in Colorado. We talked about various things, including... MORE

Balan's Challenge

Growth: Causal Factors
Bryan Caplan
Here's the noble David Balan's reaction to my review of Gonick's histories:This probably goes without saying, but it's perfectly possible to believe Bryan's basic point (modern economic growth has led us to have it better than anyone ever had it... MORE

The Pleasure of Telling Others What to Do

Behavioral Economics and Rationality
Arnold Kling
Humans clearly attend closely to status, an important part of status is dominance, and a key way we show dominance is to tell others what to do. Whoever gets to tell someone else what to do is dominating, and... MORE

Gonick the Great - and How He Could Have Been Greater

Books: Reviews and Suggested Readings
Bryan Caplan
Larry Gonick has finally completed his magisterial five-volume cartoon history of the universe.  It all started with The Cartoon History of the Universe 1 (1990), followed by The Cartoon History of the Universe 2 (1994), and The Cartoon History of... MORE

More Scott Sumner

Macroeconomics
Arnold Kling
Here. after July 2008 there were many other indicators that money was far too tight. About this time the dollar began rising sharply against the euro; and commodity prices began a sharp decline. Real interest rates rose from less than... MORE

Not From The Onion

David Henderson
Barack Obama wins Nobel Peace Prize.... MORE

Thoughts on a Second Stimulus

Fiscal Policy
Arnold Kling
Greg Mankiw recommends reading Emil M. Sunley on the Carter era job creation tax credit. Sunley wrote, No student of public fınance, if left alone, would design a tax incentive as complicated as the jobs credit. Surely the arbitrary distortions... MORE

The Best of Buchanan

Economic Philosophy
Bryan Caplan
James Buchanan, GMU's first Nobel, turned 90 this week.  But it was only a few months ago that I discovered what has become my favorite Buchanan essay - "Before Public Choice," originally published in 1972 in Explorations in the Theory... MORE

Health Care Reform: Two Important Points

Economics of Health Care
Arnold Kling
1. The "score" of the Baucus bill as not adding to the deficit is far too generous. CBO Director Douglas Elmendorf writes, The projected savings for the proposal reflect the cumulative impact of a number of specifications that would constrain... MORE

This Time Really Is Different

Macroeconomics
Bryan Caplan
Many people compare today's recession to the last big one in 1980-82.  But Scott Sumner keeps insisting that this one is different.  At risk of re-inventing the wheel, I decided to take a look at the nominal GDP (NGDP) data... MORE

More on Recalculation and Asymmetry

Macroeconomics
Arnold Kling
James Hamilton writes, I'd like to add a paper I published in 1988. There I presented a model in which unemployment arises from a drop in the demand for the output of a particular sector. The unemployed workers could consider... MORE

Government Failure

Finance: stocks, options, etc.
Arnold Kling
In Washington, "affordable housing" equates to cheap, lenient mortgage credit. Ed Pinto keeps trying to explain the consequences of this to Congress. His September 16 testimony is on the Community Reinvestment Act and affordable housing goals for Freddie and Fannie.... MORE

Afternoon Commentary

Finance: stocks, options, etc.
Arnold Kling
1.Paul Krugman ask another question. why does it have to be a return to shadow banking? The banks don't need to sell securitized debt to make loans -- they could start lending out of all those excess reserves they currently... MORE

Politics is Not About Policy

Political Economy
Arnold Kling
David Harsanyi improves on David Broooks. Mr. Hoover knows everything. He attended a high-brow graduate school and worked as a Senate aide before becoming a policy expert. (He even pretends to understand Jeremy Bentham.) He is a man who craves... MORE

Scott Sumner, on One Foot

Monetary Policy
Arnold Kling
From his own blog I have a very unconventional way of thinking about the monetary transmission mechanism. A monetary shock is essentially a change in the future path of the money supply relative to velocity, in other words, a change... MORE

What Leonhardt Leaves Out

Taxation
David Henderson
In a positive article, almost a puff piece, on Bruce Bartlett, New York Times reporter David Leonhardt highlights Bruce's advocacy of a value-added tax for the United States. Leonhardt points out that many countries have such a tax and mentions... MORE

Curiosity and Humility

Economic Methods
Bryan Caplan
I had a conversation with a colleague today where he discussed research showing that successful people have (a) the confidence to aim for the top, and (b) the humility to harshly critique their own work.  He went on to argue... MORE

Naming Names

Economics of Health Care
Bryan Caplan
When Gandhi told us, "We must be the change we wish to see in the world," I can only assume he was talking about reputational incentives in the health insurance industry.  So I thought I should finish my "Punk'd by... MORE

Economic Therapy

Economic Education
David Henderson
As events have unfolded during the past year and a half, a growing number of people have asked me what I think of the economy. I've learned two things from these encounters. First, questioners seem to want sound-bite answers. Incisive... MORE

Education and Growth

Growth: Causal Factors
Arnold Kling
Ed Glaeser writes, no variable from 1900 better explains success in 2000 than investment in education. That is, if you had a high percentage of the school-age population enrolled in school in 1900, you would have a high GDP per... MORE

A Footnote to the Economics of Crime

Economics of Crime
Bryan Caplan
From Wikipedia:The word "rob" came via French from Late Latin words (e.g. deraubare) of Germanic origin, from Common Germanic raub- = "clothes", as in old times (before modern cheap mechanized mass production of clothes) one main target of robbers was... MORE

Hayek Said the Sky is Blue

Austrian Economics
Arnold Kling
My favorite line from Bryan's debate about Austrian economics. Substantively, though, I would disagree with Bryan on the issue of entrepreneurship. I do not think of entrepreneurship in terms of search theory. In From Poverty to Prosperity, we describe the... MORE

Boettke-Caplan Debate on Youtube

Austrian Economics
Bryan Caplan
Back in 2002, I debated my colleague Pete Boettke on Austrian economics before GMU's undergraduate econ club.  When I was throwing out my obsolete possessions (it's amazing what a decade of economic growth will do to your stuff), I came... MORE

Scott Sumner on the Multiplier

Fiscal Policy
David Henderson
Multiply Scott Sumner It seems to me that there are two ways of thinking about how monetary policy would react to fiscal stimulus. One approach would be to ask: "What is the optimal Fed response to fiscal stimulus?" And the... MORE

What Did the Regulators Know, and When?

Finance: stocks, options, etc.
Arnold Kling
I say Plenty, and long before most people had heard of CDS, CDO, or SIV. a review of the history of the past few decades shows that regulators were aware of these innovations. They approved of these innovations. They collaborated... MORE

Paul Krugman asks a Question

Macroeconomics
Arnold Kling
He argues that the Recalculation story falls apart when you ask why, say, a housing boom -- which requires shifting resources into housing -- doesn't produce the same kind of unemployment as a housing bust that shifts resources out of... MORE

Big Finance and Big Government

Finance: stocks, options, etc.
Arnold Kling
Andrew Ross tells us what the big boys were doing during the crisis. Neil Barofsky says that the government was playing a confidence game. The fact that there is some populist anger in the country these days is not a... MORE

Ross Douthat's Strange Supply Curve

Income Distribution
David Henderson
In his New York Times column this morning, Ross Douthat considers various ways of reducing income inequality. While not endorsing higher taxes on high-income people, Douthat's takes it as given that such taxes would reduce inequality. Ignore the fact that... MORE

Olympanomics

Central Planning vs. Local Knowledge
David Henderson
Poor Rio, Lucky Chicago Not everyone, however, is convinced that preparing for a 17-day sports event is the best way to undertake socially responsible urban planning. Mr. Garvin himself invokes "the inherent conflicts between great urbanism and a functional Olympic... MORE

From Poverty to Prosperity Watch

Growth: Causal Factors
Arnold Kling
Bill Easterly interviews Paul Romer. Romer says, To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and development, the... MORE

Moral Hazard and Bank Policy

Finance: stocks, options, etc.
Arnold Kling
These issues are discussed by Russ Roberts and Gary Stern. There are two issues that they keep circling around. One is the effect on capital structure of policies and practices that routinely protect creditors and counterparties. The other is what... MORE

The Real Meaning of Privilege

Game Theory
David Henderson
Once we start using the word "privilege" where what we really mean is "wealth," we start applying this term to those who came by their wealth without special privilege-the Bill Gateses of the world, sure, but also the more-common successful... MORE

Are Conservatives Less Utilitarian Than Liberals?

Economic Philosophy
Bryan Caplan
Some utilitarians argue that virtually everyone is a utilitarian; the only difference between people who call themselves utilitarians and those who don't is that the latter won't come out of the closet.  Other utilitarians lament the fact that virtually no... MORE

Mad About Trade

International Trade
David Henderson
I've been enjoying Daniel Griswold's new book, Mad About Trade. It's the best of all the popular books on trade that I've read in the last few years. It's heavy with facts, many of which I "kind of" knew. But... MORE

Recalculation and State and Local Relief

Fiscal Policy
Arnold Kling
Tyler Cowen finds and responds to some criticisms of the Recalculation story. Avent and Yglesias suggest that Kling is making up his own macro but the innovation is simply to call the adjustment process "recalculation," to give it a more... MORE

Clarification on my Punk'd Episode

Economics of Health Care
Bryan Caplan
I finished my Punk'd post with this:Question for Krugman: If our insurer wasn't extremely concerned about its reputation, why would they let a low-level functionary fix a $5k error in the company's favor after a single phone call?In the comments,... MORE

M as a weighted average

Money
Arnold Kling
How does monetary policy work? Think of it this way: Fiscal policy adds or subtracts government liabilities. Monetary policy swaps government liabilities.... MORE

Back in August, Paul Krugman accused me of living in "an alternative universe in which insurance companies would never, never treat their clients badly, because that would hurt their reputations."  Of course, what I really said is that even when... MORE

Business vs. Markets

Political Economy
Arnold Kling
This post is in part inspired by the "sentence to ponder" quoted by Tyler Cowen. Consider the following matrix: Pro-BusinessAnti-BusinessPro-MarketAnti-Market The point is that there really are four separate categories, not just the two pro's and the two anti's. On... MORE

The Stimulus Debate, Revisited

Fiscal Policy
Arnold Kling
Mark Thoma is raising the issue that it is too soon to back away from economic stimulus. See, for example, Paul Krugman, Robert Reich, Tim Duy, and other recent posts. All of these appeared before this morning's employment release, which... MORE

Glass-Steagall 2.0?

Finance: stocks, options, etc.
Arnold Kling
Bruce Judson writes, this post is linked to a petition asking the Financial Crisis Inquiry Commission and the Treasury Secretary to explain in detail their reasons for recommending, or not, a system that relies on a highly concentrated, limited number... MORE

Democracy, Dictatorship, and the Variance of Growth

Growth: Causal Factors
Bryan Caplan
Last night I was writing my lecture notes on dictatorship, and realized that I didn't have a source for a factoid I often tell my students.  Namely: Democracies and dictatorships have the same average growth rate, but dictatorships have higher... MORE

Attention Hoosiers

Economics of Health Care
Arnold Kling
On Tuesday, October 6th, I will be speaking at Indiana University. The time is 1PM. The location is the SPEA Atrium--I guess if you are familiar with the university, you know where that is. My topic will be health care... MORE

Risk-averse Risk Takers

Finance: stocks, options, etc.
Arnold Kling
Felix Salmon writes, Financial complexity and innovation, on this view, are essentially tools of obfuscation. And it's easy to hide risks when risk-averse investors want debt-like products which retain their face value: such instruments tend to have very low volatility,... MORE

Morning Commentary

Fiscal Policy
Arnold Kling
Most of these are links in posts by Mark Thoma. Richard Robb says that letting Lehman fail really did cause big problems. However, he concedes, There is plenty of room to debate the larger counterfactual: if the government had never... MORE

How Growth Happens: CostCo Edition

Growth: Causal Factors
Bryan Caplan
Normally I ignore self-congratulatory corporate publications, but for CostCo, I'll make an exception.  There's a fascinating story about their Kirkland Signature brand in the latest CostCo Connection.  See economic growth at work: How their product designers identify high-quality competitors, and... MORE

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