Bryan Caplan and David Henderson

February 2010

A Monthly Archive (130 entries)

Boo Jonathan Rauch

Fiscal Policy
Arnold Kling
I often like him, but not this column, in which he writes, Rep. Paul Ryan of Wisconsin, the ranking Republican on the House Budget Committee, who recently unveiled a new edition of what he calls a "Road Map for America's... MORE

Unchecked and Unbalanced Watch

Books: Reviews and Suggested Readings
Arnold Kling
Mark Calabria reviews the widely-unread Unchecked and Unbalanced. He makes it sound better than it really is.... MORE

Oddly

Information Goods, Intellectual Property
Bryan Caplan
Tyler:Oddly, even from intellectuals, you rarely hear what is one of the strongest arguments for the bill, namely that personal genome sequencing might mean -- how many years from now? -- that many more people have pre-existing conditions than we... MORE

Expressive Recycling

Energy, Environment, Resources
Bryan Caplan
Like me, Tyler Cowen often believes that people's beliefs are irrational and their motives are expressive.  But unlike me, he doesn't think that low stakes are an important reason for these tendencies.  In fact, he delights in the counter-intuitive view... MORE

LDC Debt

International Macroeconomics: Exchange Rates, International Debt, etc.
David Henderson
In going through memos I wrote at the Council of Economic Advisers, I came across the following memo that I wrote to Jeff Frankel, who replaced Paul Krugman as the International Finance economist at the CEA. It was about Chapter... MORE

The Case Against Inequality

Income Distribution
Arnold Kling
In an interview, Richard Wilkinson says I think people are extremely sensitive to status differentiation and to being looked down on, or disrespected, and those often seem to be the triggers to violence. We quote an American prison psychiatrist who... MORE

Spermsmanship

Growth: Causal Factors
Bryan Caplan
I heartily recommend David Plotz's The Genius Factory: The Curious History of the Nobel Prize Sperm Bank.  It staddles genres, but you can see it as a work of business history.  Robert Graham, the founder of the "Nobel sperm bank,"... MORE

Demand Stimulus in a Jones-Minsky Economy

Macroeconomics
Arnold Kling
In a Garett Jones economy, a worker represents an investment. A firm can vary its production without adding or subtracting workers. At the margin, what workers do is provide additional capabilities, what Jones calls organizational capital. In a Hyman Minsky... MORE

Sentences to Ponder

Macroeconomics
Arnold Kling
Eric S. Raymond writes, We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up... MORE

Insights on Krugman

Growth: Consequences
David Henderson
The New Yorker carries a long puff piece on Paul Krugman that gives you some insight into the man and his work, especially his New York Times column. One thing I hadn't known was to what extent his wife ratchets... MORE

From Poverty to Prosperity Watch

Growth: Consequences
Arnold Kling
click here for an illustration. Ten years ago, when I had maybe twenty readers, I wrote a similar essay. My guess is that this blog post alone will generate 100 times the number of readers for that essay than the... MORE

Health Care Summit Post-Mortem

Politics and Economics
Arnold Kling
I thought that President Obama did well to convey a willingness to negotiate. If I were the Republicans, I would move off the "scrap the bill" talking point and instead go with something like this. We have some areas where... MORE

Grading the Health Care Summit

Economics of Health Care
Arnold Kling
I sat through the first 2-1/2 hours, and here are my grades. IssueDemocratsRepublicansCostsD+F+Insurance ReformFDDeficitF-F On costs, everyone came out four-square against waste, fraud, and abuse in Medicare. I don't give points for that. If they were serious, they could pass... MORE

Nurture and Orientation Reconsidered

Family Economics
Bryan Caplan
A couple days ago, I mentioned that gays' adopted siblings are gay at six times the normal rate - and called this finding a "smoking gun" proving that family environment has a modest effect on sexual orientation.  This finding has... MORE

Health Care Summit "Mid-Mortem"

Economics of Health Care
David Henderson
I've been watching the health care summit on C-SPAN and I followed the live blogging on Cato's site done by Arnold Kling and others. I could comment on many things but I'll choose three: 1. Obama, at about the 12:48... MORE

Health Care Summit Pre-Mortem

Economics of Health Care
Arnold Kling
By the way, Cato will be having a live blog (link now fixed) of the health care summit, and I am invited to participate in the live blogging. My views on health care have not really changed since I wrote... MORE

Intrade on the Midterms

Politics and Economics
Bryan Caplan
Intrade now hosts fourteen different betting markets on the number of House seats the Republicans gain in the 2010 elections.  "Republicans gain 35 or more seats" is trading at roughly 50/50.  That's not quite enough to instantly win my bet... MORE

A Non-State Within a State?

Political Economy
Arnold Kling
Adam Knott writes, Panarchist society could emerge and proliferate at the same time current society is in place. The community I referred to above would not directly change the coerced wage and trade agreement that we might be subjected to... MORE

CEA on "Reforming Health Care"

Economics of Health Care
David Henderson
The chapter, "Reforming Health Care," in the Economic Report of the President February 2010, is chock full of interesting facts and arguments. There are strengths and weaknesses. What this chapter shares with the other 9 chapters is that it actually... MORE

The Right of Exit

Political Economy
Arnold Kling
Michael Gibson writes, Is a right of exit compatible with our obligations either to community or to a territorial system of governance? This is an excellent question, because it gets to the heart of whether competitive government is a practical... MORE

Keynesian Questions

Macroeconomics
Bryan Caplan
My questions for DeLong sparked two good non-DeLong questions in the comments:From Steve Roth:Employers *are* more likely (than employees) to put the money under their mattress.Perhaps not literally. But actually/practically.Employers spend a smaller percentage of marginal earnings on immediate consumption... MORE

You will be shocked to learn that I am against it. I've already gotten a couple of emails about this piece, or otherwise I would not have seen it. I guess it's a good placement.... MORE

How I Think About Keynesian Economics

Macroeconomics
Arnold Kling
By the way, my panel appearance on jobs is now up on C-span (I start about 45 minutes in. Also, I saved some of my thoughts for the Q&A, which starts about 64 minutes in.) In this post, I want... MORE

With All Due Respect, 2

Finance: stocks, options, etc.
Arnold Kling
My views have been influenced by Gary Gorton, well before his latest paper, but I nonetheless disagree with him on important matters. I view the financial crisis as having four components: Bad Bets Excessive leverage Domino effects 21st-century bank runs... MORE

Questions for DeLong

Macroeconomics
Bryan Caplan
David Henderson replied to this comment by Brad DeLong, but I'm still trying to figure out what Brad's saying.  To requote:So is your argument really that if not for the stimulus package wages would be falling--and falling wages would be... MORE

Reply to DeLong

Fiscal Policy
David Henderson
Brad DeLong, in a belated comment at the end of my post, writes: So is your argument really that if not for the stimulus package wages would be falling--and falling wages would be inducing employers to hire lots more workers?... MORE

With All Due Respect

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen writes, You might wish to go back to "old banking" but according to Gorton that stopped being profitable during the 1980s. There's always an uninsured place to put your money, regulation can't stop that, and such money can... MORE

The Political Scene

Politics and Economics
Arnold Kling
1. I was on a panel at the American Action Network today. My talk got a lot of laughs. At some point, there may be C-span video, but they might not have covered the panels.* There were a number of... MORE

WHINE

Behavioral Economics and Rationality
Bryan Caplan
This may be Mankiw's career-topping one-liner: Maybe President Obama should instead follow in President Ford's footsteps and start wearing a WHINE button on his lapel, for Whip Healthcare Inflation Now, Egads!  He adds, "Feckless would be one step better than counterproductive." ... MORE

What About the Bloggers?

Economic Philosophy
Bryan Caplan
One objection to my meritocratic view of the market (work backwards from here) that I haven't heard: "What about the bloggers?"  Some bloggers are great, some aren't, yet almost all of them earn the same wage - zero.  You could... MORE

Ralph Nader and Campaign Finance

Politics and Economics
David Henderson
At the event I was at on Saturday, Ralph Nader gave an excellent speech. I had seen him speak at UCLA in 1974 and I was unimpressed both by his content and by his delivery. His speech on Saturday was... MORE

Nature, Nurture, and Orientation

Family Economics
Bryan Caplan
My take from Selfish Reasons to Have More Kids:Parents have a small effect on sexual orientation. Psychologists used to label homosexuality a "mental illness" caused by overprotective mothers and distant fathers.[i]  Now we tend to see sexual orientation as a... MORE

Born Gay?

Family Economics
Bryan Caplan
Ryan Sorba, author of The "Born Gay" Hoax, was recently booed at the CPAC convention.  Since I recently read all of the main twin and adoption studies of sexual orientation, I wondered what he had to say.  He focuses on... MORE

Theories of the Recession

Macroeconomics
Arnold Kling
Mark Gertler and Nobuhiro Kiyataki write, As balance sheets strengthen with improved economics conditions, the external …finance problem declines, which works to enhance borrower spending, thus enhancing the boom. Along the way, there is mutual feedback between the …financial and... MORE

Top-Down Health Care Reform

Economics of Health Care
Arnold Kling
From the White House. One key improvement, for example, is eliminating the Nebraska FMAP provision and providing significant additional Federal financing to all States for the expansion of Medicaid. For America's seniors, the proposal completely closes the Medicare prescription drug... MORE

Ignoring: There Is Such a Thing As Free Sleep

Family Economics
Bryan Caplan
New parents' number one complaint has got to be sleep deprivation.  When you've got a newborn, some disruption is inevitable.  But parents' sleep often suffers for years.  I'm pleased to report, then, that children's sleeping problems (and therefore parents' sleeping... MORE

What I'm Reading

Books: Reviews and Suggested Readings
Arnold Kling
The New Holy Wars, by Robert H. Nelson. He seeks to interpret various economic and environmental ideologies in religious terms. Some excerpts follow. [Update: fascinating stuff in the comments section. Let me highlight a couple of links: Peter Taylor and... MORE

Fun With Ralph Nader

Business Economics
David Henderson
Yesterday, I was at an all-day meeting of "left and right" in Washington to see if we could put together a coalition against the various wars that the U.S. is in but not in. (War has not been declared since... MORE

Speaking on Job Creation

Upcoming Events
Arnold Kling
I will be talking here on Tuesday morning. Supposedly will be covered by CSPAN and other media. I think that most in the audience will be looking for concrete policy proposals to create jobs, as opposed to a message that... MORE

The Fear Budget Hypothesis

Behavioral Economics and Rationality
Bryan Caplan
Last night in my graduate Public Choice class, Peter Twieg suggested that people have a fixed mental budget of fear to allocate.  An implication, I suggested, is that non-terrorist fears would decline right after 9/11.  Today I checked.  At least... MORE

Bipartisanship or Irreconcilable Differences?

Politics and Economics
Arnold Kling
Pundits bemoan the absence of bipartisanship. Implicitly, they believe that bipartisanship is necessary and sufficient to solve public policy problems. Another possibility is that our politics today actually involves irreconcilable differences. One picture of American politics is that only about... MORE

Paranoia About Paranoia

Politics and Economics
Arnold Kling
Michael Gerson writes, But there are others, new to political engagement, who have found paranoia and anger intoxicating. They watch Glenn Beck rail against the omnipresent threat of Saul Alinsky, read Ayn Rand's elevation of egotism and contempt for the... MORE

Karacter: From the Cutting-Room Floor

Family Economics
Bryan Caplan
I've very fond of this passage from Selfish Reasons to Have More Kids, but Alex Tabarrok suggested a much more accessible substitute - Johnny Cash's "A Boy Named Sue." In 1997, the Dutch movie Karacter won the Oscar for Best... MORE

Cross-Country Musings

Economic Philosophy
David Henderson
"In the midst of winter, I finally learned that there is within me an invincible summer." --Albert Camus I'm a congenital optimist. I can't tell you why exactly. Maybe it comes from my genes. Maybe it comes from figuring out... MORE

Some Health Reform Ideas

Economics of Health Care
Arnold Kling
From Nick Schulz and me. Not sure why this showed up here. I thought we submitted it somewhere else. Anyway, we say that a better idea would be to move toward a health-care safety net. This should have two components:... MORE

Bailout Ahead

Fiscal Policy
Arnold Kling
The Pew Center reports, $1 trillion. That's the gap at the end of fiscal year 2008 between the $2.35 trillion states had set aside to pay for employees' retirement benefits and the $3.35 trillion price tag of those promises. ...To... MORE

A Strange Preference on Wage Subsidies

Politics and Economics
Arnold Kling
Mark Thoma says that he signed a petition, which reads in part, There are many ways to design an effective hiring tax credit, but in general the beneficial effects will be greater the stronger the hiring incentives and the lower... MORE

Problems with Age-Testing

Microeconomics
Bryan Caplan
Let me clarify my question for David.  I support both means-testing and age-testing, but they're more similar than they seem.  It's true, of course, that you can change your means, but not your age.  But in both cases, there are... MORE

Macroeconometrics and Science

Economic Methods
Arnold Kling
Menzie Chinn writes, the forecasts are generated using old-fashioned models in the spirit of the neoclassical synthesis (demand determined in short run, supply determined in the long run) with (as I understand it) backwards looking expectations rather than model-consistent expectations.... MORE

Recommended

Behavioral Economics and Rationality
Arnold Kling
These are posts that I recommend, without providing excerpts. Robin Hanson offers an illustration of the theory that prestige-status is less threatening to people than dominance-status. So do people perceive the wealth of Bill Gates as conferring prestige-status (not so... MORE

The Commission, the Deficit, and the VAT

Fiscal Policy
Arnold Kling
Greg Mankiw writes, let's suppose that you are a conservative and you want the fiscal commission to succeed. You will have to agree to higher taxes as part of the bargain. But what should you aim to get in return?... MORE

Question for David

Social Security
Bryan Caplan
Don't higher age cut-offs cause most or all of the problems associated with means-testing?  Why are you for the former, yet ambivalent on the latter?... MORE

More on Merit: Reply to Dalmia

Economic Philosophy
Bryan Caplan
Shikha Dalmia's reply on merit tacitly concedes most of my objections to her original piece.  She began by defending the strong position that, "Markets don't reward merit; they reward value--two very different things."  I replied that, "On the free market,... MORE

Raise the Age

Economics of Health Care
David Henderson
Whenever I've talked to college audiences over the last 10 years, I've told them that the biggest domestic political issue for the whole rest of their adult lives is likely to be spending on Medicare, Medicaid, and Social Security. I... MORE

The Health Cost Narrative is Incomplete

Economics of Health Care
Arnold Kling
Stare at the following table, which gives population projections for the elderly in the United States, in millions. Age Group20072020203065-7419.332.338.875 +18.622.533.3 Source: Census Bureau International Population Data Base. Over the next twenty years, we are going to double the number... MORE

The Case for Brain Drains

Labor Mobility, Immigration, Outsourcing
Arnold Kling
Laura Freschi makes it, citing work by William Easterly and Yaw Nyarko. Even using official figures, which likely far undercount the value of remittances by excluding informal channels, remittances sent back by Africans abroad outweigh the cost of educating them... MORE

Martin Feldstein on the Greek Tragedy

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
He writes, The European economic and monetary union is doubly flawed. First, it forces diverse countries to live with a single interest rate and exchange rate that cannot be appropriate for all members. Second, combining a single currency with independent... MORE

Jeffrey Friedman on the Greek Tragedy

Finance: stocks, options, etc.
Arnold Kling
He writes, Today's FT brings the news that "European financial institutions have $235 billion worth of claims on Greek debt, most of which is thought to be in government bonds." Why do they hold so much Greek government debt? Because... MORE

Merit and the Market: A Reply from Shikha Dalmia

Economic Philosophy
Bryan Caplan
Last week, I replied to the Reason Foundation's Shikha Dalmia's pro-market case against market meritocracy.  She has kindly written a detailed reply, and asked me to post it here.  Enjoy. Thanks, Bryan, for your spirited response. A few readers have... MORE

Block's Epicycle

Economic Philosophy
Bryan Caplan
In the latest Libertarian Papers, my long-time debate partner Walter Block adds a strange new epicycle to libertarian absolutism.  Suppose, he asks, that "all-powerful Martians would blow up the entire earth" if various libertarian policies were adopted.  He refuses to... MORE

Budgetary Implications of Defense: Bleg

Fiscal Policy
David Henderson
On the KQED interview I did on the federal budget, I made the following statement: I'm actually an advocate of having the defense budget be the defense budget, not the offense budget. And most of what the government spends now... MORE

Buy Local

International Trade
David Henderson
My friend Ted Levy sent me the following story: I'm walking through a local Phoenix mall and pass a kiosk for Rosetta Stone, the language-learning software. There's a sign indicating $125 off each course. I ask the woman manning the... MORE

Piggy Bank Watch

Monetary Policy
Arnold Kling
James Hamilton writes, Where did the Fed obtain the funds to make all these loans and later buy all this MBS? Mechanically, the Fed implements any of these operations simply by crediting new deposits to the account that the receiving... MORE

Tom Sowell's Latest Book

Books: Reviews and Suggested Readings
David Henderson
My Hoover colleague, Thomas Sowell, has come out with yet another book. Titled Intellectuals and Society, it has been sitting on my pile for about two weeks. (His publisher sends me gratis copies because I review books in Regulation and... MORE

How Normative Should Economics Be?

Economic Philosophy
Bryan Caplan
Almost all economists take one of the following three positions on normative economics:1. Economics should never be normative.  Economics is about what is, not what should be.2. Economics should be normative about government policy, but not individual behavior.  Economics is... MORE

No Conspiracy

Monetary Policy
Arnold Kling
In response to David and Bryan, I do not think that Ben Bernanke and other Fed officials are sitting inside their offices plotting to ruin the economy while saving banks. They have convinced themselves (and most pundits) that saving the... MORE

Are Conspiracies Always Implausible?

Public Choice Theory
David Henderson
Bryan, in posting on Arnold's view of what Ben Bernanke is doing, wrote: Arnold's story fits the facts, but it just seems too conspiratorial. Yet Arnold didn't even hint at the idea of conspiracy. Instead, he was talking about Bernanke's... MORE

Sumner's spent a year or so trying to figure out what Bernanke's thinking.  Pre-crisis, Scott and Ben were in almost perfect agreement.  But when the crisis hit, Bernanke seemed to suddenly come down with amnesia.  What's up with that?Arnold's solution... MORE

Wish You Lived in Europe?

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
Terrific NYU Symposium on the Greek tragedy. Paul Wachtel California is not Greece. I do not know what will happen if California defaults but I do remember what happened when NYC defaulted on its general obligation bonds in 1975 (I... MORE

Will Wilkinson and Brink Lindsey Get the Finger

Politics and Economics
Arnold Kling
from Ed Kilgore, of the Progressive Policy Institute. Certainly, few self-conscious libertarians have much tolerance for racism, but they are encouraging a point of view about "welfare" that has long been catnip to racists. And that's a problem for liberals.... MORE

Interpreting Fed Policy

Monetary Policy
Arnold Kling
1. Ricardo Reis writes, With regards to its interest-rate policy, the Federal Reserve has followed the advice from theory by committing to …deflation and to keep interest rates at zero for the foreseeable future. It has deviated from the theoretical... MORE

Climbing the Meritocratic Pyramid

Economic Philosophy
Bryan Caplan
Economics rests upon subjective value theory.  Once you take that theory seriously, how can you seriously believe that market outcomes are in any sense meritocratic?  I'll tell you, in three easy steps.1. Let's start with the easiest case: meritocracy within... MORE

Response to Tom West

David Henderson
On Wednesday, Tom West asked: Let me ask you again, David. Are they any non-fraudulent contracts between capable parties that you believe *should* be disallowed by law? If your bargaining power is strong enough, is there anything you shouldn't legally... MORE

Michael Kinsley on Disagreement

Politics and Economics
Arnold Kling
He writes, Slate's Jacob Weisberg, wrote over the weekend that the "biggest culprit in our current predicament [is] the childishness, ignorance, and growing incoherence of the public at large." Defending Weisberg, Kinsley goes on to say, it is silly to... MORE

More Jeffrey Friedman

Finance: stocks, options, etc.
Arnold Kling
Here, he writes, Competition puts capitalists' different motives, like their different ideas, to the acid test of consumer satisfaction. This tends to give consumers what they want--or at least what they think they want--and it diversifies a capitalist society's investment... MORE

Why Is An Economist Writing This Book?

Family Economics
Bryan Caplan
In the Preface of Selfish Reasons to Have More Kids, should I explicitly address the question, "Why would an economist write this book?"?Pro: I could talk about how I come out of GMU's wide-ranging, inter-disciplinary, blog-friendly approach to econ.  It's... MORE

The Reality of Meritocracy

Labor Market
Bryan Caplan
Philosopher Rod Long recently argued that government intervention has practically ended the meritocracy of the market; I responded that the meritocracy of the market is still going strong, though it could be even stronger.  Now at Forbes.com, Shikha Dalmia eloquently... MORE

Anti-AARP?

Social Security
Arnold Kling
How snowed in are we? So snowed in that we had the television on when this Charlie Rose interview with David Brooks came on. It was quite good. I agreed with Brooks on many things, and even when I did... MORE

The maximum hours question returned to the United States Supreme Court three years later in Muller v. Oregon with this twist--Oregon's maximum hour statute applied only to women. To shore up its case, Oregon hired Brandeis who wrote the first... MORE

Gary Johnson and Jeff Miron

Politics and Economics
Arnold Kling
Like snow, they are all over the DC area this week, for example at a Reason event that I missed. Jeff Miron is, like me, a graduate of Swarthmore College in the 1970's, an economics Ph.D from MIT in the... MORE

The True Sources of Risk

Finance: stocks, options, etc.
Arnold Kling
Avinash Persaud writes, Credit risk is best hedged through diversification across uncorrelated credits. Liquidity risk is best hedged through diversification across time. Market risk is best hedged through a combination of diversification across assets and time (having time to decide... MORE

Means-Testing Really Is Relatively Awesome

Cost-benefit Analysis
Bryan Caplan
David's not convinced by my case for means-testing.  I'd like to reply to his objections, point-by-point:1. The phase-out issue. Bryan recognizes that you wouldn't want to give benefits below income threshold x and then zero benefits to people above that... MORE

The PIIGS Crisis

Finance: stocks, options, etc.
Arnold Kling
Peter Boone, Simon Johnson,, and James Kwak discuss the current financial situation, focusing on the PIIGS crisis. Their bottom line translates into: have a nice day. The PIIGS crisis seems a bit like the subprime crisis. That is the PIIGS... MORE

Knowledge-Power Discrepancy

Finance: stocks, options, etc.
Arnold Kling
Jeffrey Friedman writes, What I am calling social democracy is, in its form, very different from socialism. Under social democracy, laws and regulations are issued piecemeal, as flexible responses to the side effects of progress -- social and economic problems... MORE

From the Vault: Cuban Immigrants, 1994

Labor Mobility, Immigration, Outsourcing
David Henderson
In going through some articles this weekend, I found the following, reprinted in full. It's titled, "Cubans Want Freedom, Not Welfare" and was published in the St. Louis Post-Dispatch, September 30, 1994. The Chicago Tribune published an almost-identical version around... MORE

When I teach labor economics, I debunk a caricature I call the "Standard History of Labor."  The Standard History goes something like this:1.  In the days before the minimum wage, unions, etc., life was terrible for workers because employers paid... MORE

Bipartisan Health Care Reform: My Bottom Line

Economics of Health Care
Arnold Kling
If I were a Republican, I would use any health care summit to set the following conditions for agreeing to support a bipartisan health plan. 1. All Medicare savings must be used to shore up Medicare. None of those savings... MORE

Pricing the Apple iPad

Business Economics
Arnold Kling
Megan McArdle writes, One estimate is that the cheapest iPad costs $270 to manufacture. Throw in advertising, transportation, distribution, and so forth, and maybe they can cut the price $100 if they're willing to make a slim profit in order... MORE

Adverse Selection on Purpose

Economics of Health Care
David Henderson
In a post a few weeks ago, I stated that I had coined a term in 1994 to describe the effects of a ban on pre-existing conditions clauses in health insurance: adverse selection by law. This weekend, I was going... MORE

Russ Roberts, Meet Paul Krugman

International Trade
Arnold Kling
This week's econtalk is a monologue by Russ Roberts on the topic of trade. My one quibble is that he brings up increasing returns as a source of specialization and trade without mentioning Paul Krugman's work on the topic. That... MORE

The Progressive Tantrum

Political Economy
Arnold Kling
James Surowiecki writes, People want the government to help provide jobs, but they also want it to cut the deficit. His point is that people are inconsistent, so the government just has to ignore them and run a deficit to... MORE

Becker on Adverse Selection via Regulation

Information Goods, Intellectual Property
Bryan Caplan
The problem of adverse selection: Insurance companies can't perfectly tailor rates to risk.  The standard government "solution": Forbid insurers from tailoring rates to risk.  Yet another example, courtesy of Gary Becker:Since private insurance companies are not allowed to charge higher... MORE

Since there was a lot of interest in explaining supermarket shortages the night before the blizzard, I'm back for round 2.  Here goes:I'll probably go to the supermarket tomorrow.  What will the supermarket look like?a. Still stripped bare.  Due to... MORE

Mood and Macro

Macroeconomics
Bryan Caplan
Sumner writes:I'm not convinced mood swings are as obvious as they might seem.  I've argued that the stock market crash of 1929 was a rational response to the sudden awareness that we were rushing headlong into Depression.  I wonder if... MORE

Fantasy Federalism

Political Economy
Arnold Kling
This is going to be a random daydream sort of post. It beats watching Super Bowl pregame or doing pointless snow-shoveling (you loaded 16 tons, what do you get? Another day older and deeper in debt). I want the U.S.... MORE

Morning Commentary

Political Economy
Arnold Kling
1. The New York Times editorializes, Here is an unpopular but undeniable fact of life: When private sector demand is weak, the federal government must serve as the spender of last resort. When the New York Times entitles an editorial... MORE

Survey on the FDA

Central Planning vs. Local Knowledge
David Henderson
I just finished filling out my survey on my views of the Food and Drug Administration's monopoly on approvals of drugs and medical devices. I was one of 305 economists asked by Econ Journal Watch to do so. Most of... MORE

A Puzzle from the Blizzard

Microeconomics
Bryan Caplan
A blizzard is about to hit DC.  As reports of its magnitude spread yesterday, people unsurprisingly rushed to grocery stores to stock up.  Stores unsurprisingly failed to raise prices to cope with this sudden demand shock.  By the time I... MORE

Problems with Means Testing

Cost-benefit Analysis
David Henderson
Bryan posted earlier this week on why means testing is "awesome." While I do think that future budget deficits will push us towards some version of means testing, I can't agree that it's awesome. It just may be less bad... MORE

From Poverty to Prosperity Event

Books: Reviews and Suggested Readings
Arnold Kling
Yesterday, Nick and I spoke at Cato, with comments by Tim Kane and introductory remarks from Brink Lindsey. You can watch or listen to it by going to this page.My personal bit starts at minute 22, or shortly thereafter. Actually,... MORE

Financial Crisis, Phase Two

Finance: stocks, options, etc.
Arnold Kling
Carmen Reinhart talks to the WSJ. historically, following a wave of financial crises especially in financial centers, you get a wave of defaults. You go from financial crises to sovereign debt crises. I think we're in for a period where... MORE

In Defense of Extreme Meliorism

Behavioral Economics and Rationality
Bryan Caplan
When Tyler accused my critique of Eggers and O'Leary (E&O) of being "surprisingly meliorist," I felt a sudden need to check the definition of the word:me·lio·rism Pronunciation: \ˈmēl-yə-ˌri-zəm, ˈmē-lē-ə-\Function: noun Date: 1877 : the belief that the world tends to... MORE

Morning Disturbances

Political Economy
Arnold Kling
From the Washington Post 1. In Finance The Federal Reserve would consider reopening its program to support the mortgage market if interest rates spiked or the economy showed new weakness, Federal Reserve Bank of New York President William C. Dudley... MORE

Anti-EMH and Antitrust

Finance: stocks, options, etc.
Bryan Caplan
Sumner amusingly analogizes opponents of the Efficient Market Hypothesis to proponents of antitrust laws:You have to be impressed by the resourcefulness of the anti-EMH, crowd.  If LTCM and its merry band of Nobel-Prize winning economists had actually beat the market,... MORE

DeLong on Horwitz on Bastiat

Fiscal Policy
David Henderson
Warning: I've got to leave for a seminar in a few minutes and so I'll be brief. I won't explain everything Bastiat said, everything Steve Horwitz said, or everything Brad DeLong said. I just want to home in on a... MORE

Spotted at the Johnson Center

Politics and Economics
Bryan Caplan
At GMU's student center, a group of student activists sat behind a table bearing the following sign:We Will Pay You $1 Cash to Watch a 4-minute Video!I was shocked.  I've never seen another activist group offer cash for attention.  My... MORE

The Inevitability of Medicare Vouchers

Economics of Health Care
Arnold Kling
Tyler Cowen ruminates over Medicare vouchers. He also links to ruminations by Ross Douthat. In my view, the question is not whether you like vouchers are not. Vouchers are inevitable, given the alternatives. Alternative 1 is to keep what we... MORE

EconLog reader Justin Longo asked me to respond to Eggers and O'Leary's "Five Reasons Why Libertarians Shouldn't Hate Government."  Here goes, point-by-point:E&O's Reason #1: Bad government leads to bigger, badder government.[I]n societies where people distrust large institutions--whether government or big... MORE

Libertarian Schisms

Political Economy
Arnold Kling
I started with a post by Jim Manzi, worked back to Jonah Goldberg, and landed on an article by Brian Doherty, about some newly-released writings from Murray Rothbard. The uneasy relationship between Rothbard and Hayek is echoed to this day,... MORE

Rod Long's Non Sequitur

Behavioral Economics and Rationality
Bryan Caplan
I just noticed this comment by philosopher Rod Long:As a wise man once said: when the price of irrationality is low, people buy more of it. My suggested corollary is that when the price of irrationality is difficult to determine,... MORE

The Invention of Enterprise

Books: Reviews and Suggested Readings
Arnold Kling
I am still slogging through the new book edited by Landes, Mokyr, and Baumol. Again, self-recommending if From Poverty to Prosperity left you hungry for more in-depth reading. In chapter 1, Michael Hudson discusses my Most Wrong Belief, which is... MORE

Capitalism and the Jews

Books: Reviews and Suggested Readings
Arnold Kling
That is the title of Jerry Z. Muller's new book. Muller is an outstanding intellectual historian, whose earlier book The Mind and the Market is a classic. His latest book is much shorter, and I read it straight through. Some... MORE

Bravo for Scott Sumner

Public Goods
David Henderson
Co-blogger Bryan posted on one part of Scott Sumner's recent post on non-blog blogging. I find other parts of Sumner's post way more interesting. For example: Now my biggest problem is time--I spend 6 to 10 hours a day on... MORE

Should Macroeconometric Models be Outlawed?

Economic Methods
Arnold Kling
Sometimes, people want something so badly that there is money to be made selling them a defective product. Werner Troesken's paper (full version here) on the history of quack medicines offers an example. No matter how many of these medicines... MORE

Russ Roberts is Wrong

Fiscal Policy
Arnold Kling
He writes, The U.S. government borrows money easily because we're the tallest pygmy. But if we keep spending money like a drunken sailor, we will get shorter and more responsible nations will soon tower over us. We are not the... MORE

Sympathy for the Nobelist

Behavioral Economics and Rationality
Bryan Caplan
Scott Sumner eloquently stretches the limits of our empathy:[A]s you become better known, you don't seem to have any more influence than before.  I used to wonder why Krugman always seemed to downplay his influence.  He's got the best blogging... MORE

Why Aren't the Italians Libertarians?

Behavioral Economics and Rationality
Bryan Caplan
James Buchanan often expresses admiration for Italian political thought - and, by extension, the wisdom of the Italian in the street.  Why?  Because they take it for granted that politics is a corrupt game, and that all the flowery talk... MORE

Economics Bloggers Surveyed

Fiscal Policy
Arnold Kling
by the Kauffman Foundation. It's not a random sample, so the results are not terribly reliable. And even if you had a reliable of sample of economists' opinions, they might disagree on a lot of these issues. And even if... MORE

Obama's Budget Attacked

Fiscal Policy
Arnold Kling
A blogger writes, we will still face unsustainable medium- and long-term deficits. Let us explain this word "unsustainable." For me personally, an unsustainable budget would be if I promised to buy my kids mansions in Paris, Tokyo, and London. I... MORE

Fukuyama's Perfectly Horrifying Example

Economic Philosophy
Bryan Caplan
Ayn Rand's newsletters used to end with a "Horror File" of monstrous but true quotations.  I thought about the Horror File when Ron Bailey's Liberation Biology quoted Frank Fukuyama:Life extension seems to me a perfect example of something that is... MORE

The Political Economy of TARP

Fiscal Policy
Arnold Kling
Among the many faults of TARP, the most enduring is probably the way it discredited the concept of fiscal discipline. Now, all restraints on deficit spending have been lifted. For documentation of the huge rise in spending and deficits relative... MORE

Me on KQED-FM

Upcoming Events
David Henderson
I'll be talking about the Obama budget on KQED-FM, 88.5 in San Francisco at 9:05 a.m., Tuesday, February 2. The person on the other side will be Jean Ross of the California Budget Project. Jean is not an economist. She... MORE

Best Paragraph of the Day

Politics and Economics
David Henderson
We are reminded by Mr. Young that one of Mr. Edwards's early boosters was the late Ted Kennedy, who "saw almost unlimited potential in this young, energetic, well-spoken, good-looking Southerner." In a conversation with Mr. Young, Mr. Kennedy waxed sentimental... MORE

Models and Hunches

Economic Methods
Arnold Kling
I am possibly going to speak on a panel in a few weeks on the issue of U.S. unemployment. I am thinking of trying to convey two ideas (is that too many? I only have ten minutes). 1. Do not... MORE

Will Obama Be a Carter or a Clinton?

Politics and Economics
Bryan Caplan
Two years ago, I was worried by the "Obama as FDR" scenario.  That cloud is lifting.  Now two alternate scenarios for Obama keep coming to mind.Scenario #1: Obama as Carter.  He'll ineffectively stick to his guns, seem weak, become a... MORE

Housing Policy: What Would Reagan Do?

Finance: stocks, options, etc.
Arnold Kling
Tracy Alloway finds a reportthat one of TARP's goals is propping up house prices I remember 1980, when holding down consumer energy prices was the main goal of energy policy. Then Ronald Reagan was elected President, and one of the... MORE

McChesney on Government Pensions

Labor Market
David Henderson
In some areas, the system works in a blatantly self-interested way. Take Baltimore, where the police and firemen pension board recently passed a pension increase that, according to the Baltimore Sun, was "whopping," due to "[h]eavy stock market losses." The... MORE

Two Interesting Health Care Papers

Economics of Health Care
Arnold Kling
1. Leemore Dafny, Katherine Ho and Mauricio Varela write, We estimate that employees would be willing to forego 10 to 40 percent or more of their employer subsidies for the right to apply those subsidies to the plan of their... MORE

Market Failure in Education

Upcoming Events
Arnold Kling
Bill Gates writes, So far technology has hardly changed formal education at all. But a lot of people, including me, think this is the next place where the Internet will surprise people in how it can improve things--especially in combination... MORE

Means-Testing is Awesome

Cost-benefit Analysis
Bryan Caplan
I'm against forced redistribution, even to help the deserving poor.  Still, unless you buy the whole libertarian package, I understand taxing the rich to help the poor.  What I can't understand is taxing everyone to help everyone.  Means-tested programs like... MORE

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