Arnold Kling  


The Commission, the Deficit, a... Macroeconometrics and Science...

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 threatening) or dominance-status (very threatening)? I doubt that everyone has the same perception.

[UPDATE. Also, don't miss the follow-up post where Robin writes "status theory suggests not so much that academics try to do things that are hard, but that they try to do things that can be reliably credentialed as hard."]

Tyler Cowen quotes a commenter saying that technocratic governance works better in Canada's parliamentary system, where each politician's individual accountability is reduced. I will offer some pushback: do we see competent technocratic governance in other parliamentary systems? are we taking into account the fact that Canada has a population the size of California, and Canada also runs a fairly federalized system? are we gazing longingly at Canada's political system because when they voted for a conservative leader they got one, and when we voted for a conservative leader we got Bush?

Mike Konczal (pointer from Mark Thoma) suggests that the GSE's were used as "a garbage bag for the private sector's bad bets, a bag taxpayers have to eat out of." That may be true. It is similar to the argument I have been making about the Fed, that it has been demoted from a central bank to a piggy bank.

"Macroeconomic Resilience" (another pointer from Mark Thoma) suggests that we can reconcile the Jeffrey Friedman view that bankers did not understand the risks that they were taking with the view that moral hazard is what caused them to take risks. That is, over time the market selected executives who took risks, because they earned higher profits. I think this fits well with what Russ Roberts says and what I would say. Basically, if you made highly levered bets on risky securities, your bank had a higher return on equity than if you did not, in part because of capital requirements, and in part because your creditors expected to be bailed out.

COMMENTS (3 to date)
John Thacker writes:

I don't understand how Mike Konzcal can say that it was "most surprising" that the GSEs were used to buy off all the worst bets of the banking industry. Isn't that what everyone expected? Is that what the Cassandras railing against the GSEs warned about since 2003 and before?

Yes, the government used the GSEs to bail out the banks by buying the worst loans. But perhaps if the GSEs hadn't been willing to buy the worst loans, the banks wouldn't have made those bets.

q writes:

what's the rate of non-performing loans for mortgages held/guaranteed by the GSEs compared to the rate for those which are not? (ie if you think that the GSEs were used as a big garbage bag for the worst of the private sector mess, you should be able to show it with hard data.)

Loof writes:

At times, Arnold, you’re brilliant at juxtaposing opposing extremes to see a pattern which connects. And, perhaps, sometimes, unconsciously juxtapose topically without seeing a connection: i.e. Macroeconometrics and Science AND Recommended→Macroeconomic Resilience→Self Deception and Natural Selection. It’s ‘as if’ self-deception and natural selection is to the body about Economics as macroeconometrics and science is to minds in economics. The double negative of the two topics creates a positive dialectical understanding for me (only?).

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