Bryan Caplan and David Henderson

July 2010

A Monthly Archive (131 entries)

Books Pertaining to Information

Books: Reviews and Suggested Readings
Arnold Kling
Tyler Cowen recommends five. I thought about what books I might recommend, and I realize that I have stopped reading books on information technology. Unless you count Cowen's Age of the Infovore, I may not have read any in this... MORE

How Bad Was Moral Relativism?

Economic Philosophy
Bryan Caplan
I just finished re-reading Paul Johnson's Modern Times.  According to Johnson, moral relativism was the root of all evil in the twentieth century.  I'm tempted to agree, but ultimately I doubt that meta-ethics played more than a supporting role in the statist horrors... MORE

Banks, Private Benefits, and Social Benefits

Finance: stocks, options, etc.
Arnold Kling
Samuel Hanson, Anil K. Kashyap, and Jeremy C. Stein write, If significant increases in capital ratios have only small consequences for the rates that banks charge their customers, why do banks generally feel compelled to operate in such a highly-leveraged... MORE

Some Further Comments on Blinder-Zandi

Economic Methods
Arnold Kling
Ezra Klein writes, The Kling post goes a bit far. Plenty of respected macroeconomists still use macroeconomic models, which is in itself a refutation of the idea that "the profession has decided that this macroeconometric project was a blind alley."... MORE

What if the Fed Bought Euros?

Monetary Policy
Arnold Kling
Scott Sumner writes, The US can't really use the exchange rate as a policy tool, it is too controversial. And so, we have to turn to less controversial tools, like pouring more wood on what the CBO says is a... MORE

Unemployed Houses: A Recalculation Story

Macroeconomics
Arnold Kling
Alex Tabarrok writes, The U.S. housing vacancy rate--an unemployment rate for home--is at its highest level since at least 1965 (see figure). Why? Is it sticky prices? Lack of aggregate demand? Structural? For labor, the recalculation story says that employment... MORE

"They'll Just Save It."

Macroeconomics
Bryan Caplan
How many times have you heard the following argument in the last two years? Tax cuts/helicopter drops of cash/whatever won't stimulate demand.  People are too nervous to spend.  Whatever you give them, they'll just save it. The problem with this... MORE

What Blinder and Zandi Don't Know

Economic Methods
Arnold Kling
What the Blinder-Zandi paper does is explore the properties of a macroeconometric model. The economics profession abandoned those models thirty years ago, so the tool they are using is like a fossil, frozen in time. Of course, there have been... MORE

Principles of Good Debating

Economic Methods
Bryan Caplan
While ghost-writing for the Conservative Missionary and the Libertarian Missionary, I found myself reflecting on the principles of good debating.  I realize that debating can just be a sophistical exercise.  But it doesn't have to be.  In fact, it has... MORE

How the Blinder-Zandi Study Was Done

Economic Methods
Arnold Kling
Alan Blinder and Mark Zandi used Zandi's econometric model as the basis for a claim that the stimulus and the TARP worked. Thirty-five years ago, I was Blinder's research assistant, doing these sorts of simulations on the Fed-MIT-Penn model for... MORE

My Vacation Plans

International Trade
David Henderson
I'm going on vacation Thursday morning here. I'll be there until August 15. Sometime tomorrow and for a four-hour layover in Denver on Thursday, I'll pre-program some posts on things I've been thinking about. I'll also go on line from... MORE

Resolution Authority for Governments

Political Economy
Arnold Kling
Paul Romer is always interesting, and especially in this podcast with Paul Kedrosky. In the last quarter of the interview, the discussion turns to badly-performing cities, and Romer speculates that we need a workout procedure that would allow a city... MORE

Government as Deus Ex Machina

Regulation
David Henderson
The above title should have been the title of my previous post. The title I gave it, "Mark Thoma Doesn't Get It," was unnecessarily provocative, as one of my co-bloggers has pointed out. I know the myth of male power,... MORE

CBO Says: Have a Nice Day

Fiscal Policy
Arnold Kling
I mean, nothing says "have a nice day" like an issue brief from the Congressional Budget Office on the prospects for a U.S. sovereign debt crisis. On the potential for inflating away the problem, the brief says, On balance, the... MORE

This Mimic is Different

Finance: stocks, options, etc.
Arnold Kling
Eric Falkenstein offers a theory of financial manias. Sometimes, the investors (dupes) think a certain set of key characteristics are sufficient statistics of a quality investment because historically they were. Mimic investors seize upon these key characteristics that will allow... MORE

Mark Thoma Doesn't Get It

Regulation
David Henderson
Government as Deux Ex Machina Almost all economists recognize that there are some market failures that must be corrected by government intervention, the disagreement is over their prevalence. Some economists see widespread and costly market failures, and that government can... MORE

Where is the Future?

Growth: Consequences
Arnold Kling
Bruce Charlton writes, A decade ago people all over the place were saying confidently that the economic effect of the internet would outstrip the effects seen by the invention of railways and telecommunications, and that new synergies from fast and... MORE

Thoughts on Academic Tenure

Economics of Education
Arnold Kling
Megan McArdle writes, When an academic starts pushing the tenure model for anywhere outside academia, I will find their defense of its use in academia more convincing. I think that tenure is only a subset or symptom of a larger... MORE

How Many Jobs, Two?

Labor Market
David Henderson
I said in my previous blog that I would give an unspecified prize to the best proposal for getting rid of a government ban on some peaceful activity. The prize, I said, would likely be simple recognition. I was heartened... MORE

Structural Unemployment

Macroeconomics
Arnold Kling
The Economist asks about it. Paul Seabright answers: this recession, more than most, seems likely to have produced a great increase in the mismatch, due to the unsustainable patterns of consumption and investment induced by the credit boom that preceded... MORE

Education, especially female education, seems to reduce fertility.  Economists standard explanation is that women's foregone earnings are the leading cost of children.  If you raise women's education, you raise their potential income; and as you raise their potential income, you... MORE

That's not the title of a piece in today's San Francisco Chronicle by my friend and Hoover colleague, Joe McNamara. But it could be. One excerpt: Who would buy pot on dangerous streets if they could get it at regulated... MORE

The Recalculation Story: A Summary

Macroeconomics
Arnold Kling
I have had a number of requests for this. I will put it below the fold.... MORE

How Many Jobs?

Labor Market
David Henderson
My wife and I were driving by a P.F. Chang's restaurant in Monterey today and we recalled how much hassle the city government gave the restaurant when it wanted to put a sculpture of a horse in front. The city... MORE

Journolist Ethics

Politics and Economics
Arnold Kling
Mark Thoma has written a couple of posts about the Journolist story. I have to say that very few of the comments that I have seen, pro or con, have dealt with the issues that concern me. When people on... MORE

Expectations, Once Again

Macroeconomics
Arnold Kling
Nick Rowe writes, That's the real dichotomy. Habits never change, vs habits instantly change to be consistent with the new world. And most reasonable economists would want to go somewhere in between those two extremes. If you expect the new... MORE

Objectivist Attacks Property Rights

Property Rights
David Henderson
Sometimes it seems as if the world has turned upside down. Check out this debate between Pamela Geller, an Objectivist who likes the work of Ayn Rand [her blog is www.atlasshrugs.com] and Ibrahim Ramey of the Muslim American Society. Ms.... MORE

Why We Have Freddie and Fannie

Public Choice Theory
Arnold Kling
The Wall Street Journal reports, The Securities Industry and Financial Markets Association, Wall Street's main lobbying group, said in a proposal submitted to the Obama administration on Wednesday that the government couldn't completely exit the mortgage market without sending costs... MORE

The Macro Doubtbook, Installment 9

Macroeconomics
Arnold Kling
The previous installment was here. This installment discusses expectations. [UPDATE: This installment happens to contain what I would say is my answer to the question posed today by Tyler Cowen.|... MORE

Marketing Liberty to Immigrants

Behavioral Economics and Rationality
Bryan Caplan
The Libertarian Missionary remarked:It's possible that immigrants will vote to destroy the system that attracted them, but unlikely.  Immigrants come here because they prefer life here to life at home.  It wouldn't take a marketing genius to win them over... MORE

The Austerity of 1945-1947, a third time

Economic History
Arnold Kling
I want to return to the Vedder-Galloway paper, that I mentioned here. I want to make it clear that I have a lot of problems with that paper, and I will not be basing my own views on it. More... MORE

Robert Solow on Dark Age Macro

Macroeconomics
Arnold Kling
He writes, I do not think that the currently popular DSGE models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying... MORE

Structural Decline in Democracy Watch

Political Economy
Arnold Kling
An LA Times editorial notes, that raises the question of whether Congress itself should increase the size of the House, not only to minimize disparities but to take at least some account of the population explosion that has occurred since... MORE

The Vague Fed

Monetary Policy
Arnold Kling
This story says, In the testimony, Sen. Shelby asks Bernanke what everyone wants to know: what more can the Fed do for the economy, if needed. Bernanke replies that the Fed has options from lowering the interest on reserves rate,... MORE

Gene Healy on Terrorism: Ooh, I'm Scared

Labor Market
David Henderson
You ever get the feeling that some of these guys aren't the sharpest scimitars in the shed? That's what Gene Healy asks in his excellent article on terrorism. Here's another one: The notion of "savvy and sophisticated" Islamist supervillains is... MORE

Arnold Kling and I have been discussing what an incredible counterexample to the Keynesian model the post-WWII years are. It occurred to me to check what Keynesians were predicting would happen after the war ended. Here's one of them: When... MORE

The Austerity of 1945-1947, Again

Economic History
Arnold Kling
In 1991, Richard K. Vedder and Lowell Gallaway wrote, The smooth transition to peace was accomplished despite the existence of a fiscal policy that was the very antithesis of Keynesian economic prescriptions to deal with falling aggregate demand. The most... MORE

Economic Creationism

Economic Education
Bryan Caplan
GMU's former chairman and economic educator extraordinaire Don Boudreaux:And It said "Let there be higher wages. And there was."[...]So why are so many people enthusiastic about statutes such as this one [the living wage]?Proponents of such legislation are economic creationists.... MORE

Lyrics Without Music

Books: Reviews and Suggested Readings
Arnold Kling
Craig Wieland sent me a copy of Pointed Poems, a book of conservative poetry that he has composed. Since this is a unique book, it is difficult to know what standards to use to evaluate it. I am inclined to... MORE

The Austerity of 1945-1947

Economic History
Arnold Kling
Official data are somewhat sparse. I would appreciate pointers to any better data or additional information. I am also curious about what newspapers and magazines were reporting at the time about postwar conversion--how well it was going, what was working,... MORE

Drugs, Death, Censorship, and Singapore

Cross-country Comparisons
Bryan Caplan
Singapore doesn't just execute drug dealers; it censors and arrests those who expose the ghoulish process:A veteran British journalist and author promoting his book on the death penalty in Singapore was arrested in the country today for alleged criminal defamation... MORE

Technocracy

Political Economy
Arnold Kling
David Brooks writes, When historians look back on this period, they will see it as another progressive era. It is not a liberal era -- when government intervenes to seize wealth and power and distribute it to the have-nots. It's... MORE

Ways in Which the U.S. has Become Less Democratic

Political Economy
Arnold Kling
My claim is that a number of factors have reduced the impact of the "voice" (voting or other forms of political participation) of ordinary citizens. You can argue that other factors have increased the impact of ordinary citizens. You can... MORE

Paul Gregory on Communism

Politics and Economics
David Henderson
Although I haven't found time to listen to more than about 20 of Russ Roberts's Econtalk podcasts, one of his latest, his interview with our Hoover colleague Paul Gregory, is one of the best I've heard. Here are some of... MORE

How Does Narrative Emerge?

Politics and Economics
Arnold Kling
The Daily Caller reports, Spencer Ackerman of the Washington Independent urged his colleagues to deflect attention from Obama's relationship with Wright by changing the subject. Pick one of Obama's conservative critics, Ackerman wrote, "Fred Barnes, Karl Rove, who cares --... MORE

Another nail in the coffin of Hong Kong's exceptionalism: Its first minimum wage law passed.Hong Kong's Legislative Council passed the Minimum Wage Bill on Saturday after a debate that lasted 41 hours. The law is set to take effect early... MORE

The Conservative Dissenter

Economic Philosophy
Bryan Caplan
Convincing conservatives to legalize drugs is an uphill battle for the Libertarian Missionary.  But how about for the Conservative Dissenter - the conservative who tries to convince other conservatives to abandon the drug war?  I'm thinking of the late William... MORE

The Rational Voter?

Behavioral Economics and Rationality
David Henderson
In his post earlier today, Bryan writes: It's possible that immigrants will vote to destroy the system that attracted them, but unlikely. Immigrants come here because they prefer life here to life at home. It wouldn't take a marketing genius... MORE

Housing Matters

Macroeconomics
Arnold Kling
Vernon L. Smith and Steven Gjerstad write, In the immediate aftermath of most recessions, housing expands more rapidly than any other component of GDP, and inflation falls. Through the first part of the expansion, housing increases and inflation remains low.... MORE

Previous installment is here. This one deals with international macro. However, the perspective is strictly textbook-ish. The bottom line: From an international perspective, the notion of a liquidity trap becomes more doubtful. The central bank can always buy foreign bonds.... MORE

The Macro Doubtbook, Installment 7

Macroeconomics
Arnold Kling
Previous installment is here. The new installment below discusses finance theory. I happen to think that the relationship between macroeconomics and finance is more problematic than the relationship between macro and any other branch of economics. John Hicks writing in... MORE

The Neo-neoliberals?

Fiscal Policy
Arnold Kling
CNN Money reports, "I don't want to see revenue as a percentage of GDP be much higher than 21%," Bowles said. "At the same time we have to work to make the tough choices to bring spending down to the... MORE

The ZMP Hypothesis

Labor Market
Arnold Kling
Tyler Cowen writes, In general, which hypotheses predict lots more short-term unemployment among the less educated, but among the long-term unemployed, a disproportionately high degree of older, more educated people? This stylized fact seems to point toward search and recalculation... MORE

The Libertarian Missionary

Economic Philosophy
Bryan Caplan
You've already heard from the Conservative Missionary - the hypothetical conservative debater eager to convert libertarians to his side.  Now it's time for the Libertarian Missionary to take the podium. Why Conservatives Should Be LibertariansI agree with my conservative opponent... MORE

The Neo-Reactionaries

Political Economy
Arnold Kling
Angelo M. Codevilla writes, The ruling class's appetite for deference, power, and perks grows. The country class disrespects its rulers, wants to curtail their power and reduce their perks. The ruling class wears on its sleeve the view that the... MORE

The Social Science of German Gaming

Economics and Culture
Bryan Caplan
Undercover Economist Tim Harford puts Germany's mighty gaming industry/culture under his detective's magnifying glass.  Here's five theories: human capital, weak competition from television, tradition/weirdness, low concentration ratios, and Great Man: "There are two schools of thought as to why the Germans... MORE

What's Wrong With Modern Times?

Economic History
Bryan Caplan
In my youth, I was a huge fan of Paul Johnson's Modern Times: The World From the Twenties to the Eighties.  His revised edition pleased me less, but I still loved the book.  But whenever I mentioned Modern Times to... MORE

Hyperinflation

Monetary Policy
David Henderson
One of the most misused terms nowadays, even by economists, is the term "hyperinflation." People have actually referred to the high inflation of the late 1970s as hyperinflation. It wasn't even close. Here's what Michael Salemi wrote in his article... MORE

The Employment Recovery

Macroeconomics
Arnold Kling
Tyler Cowen asks, Why does it take so long? This isn't one of those West European scenarios where, due to benefits, being unemployed is permanently somewhat attractive alternative for some subset of the work force. Nor is the United States... MORE

Textbook Macro, Sumner's Macro, My Macro

Macroeconomics
Arnold Kling
I use the term "textbook macro" a lot. I want to stop and define it. In textbook macro, sometimes there is excess supply of labor and sometimes there is not. That is the supply side of the economy. The demand... MORE

Persuasion

Economic Philosophy
David Henderson
A number of commenters found, as did I, that Bryan's conservative missionary statement was quite powerful. (I'll give my own criticism or two in a later post but that's not what I want to focus on here.) The question is:... MORE

The Conservative Missionary

Economic Philosophy
Bryan Caplan
I had a blast at Wednesday's Libertarianism vs. Conservatism Debate at Cato.  It's great to see students who care enough about fundamental ideas to publicly argue about them.  Some attendees would have preferred a more focused topic, but I would... MORE

What is Job Creation?

Macroeconomics
Arnold Kling
Russ Roberts writes, I'm not saying Keynes (or Obama or Larry Summers) is wrong because all spending does is bid up prices and wages. I'm not trying to prove that the stimulus failed. I'm challenging the standard macro textbook story... MORE

Financial Reform: A Brief Take

Finance: stocks, options, etc.
Arnold Kling
Mark Thoma gives his view, then asks his readers, What's your view of the bill? What offends me about the bill is that it serves to raise the status of those who least deserve it. Start with the name, "Dodd-Frank... MORE

Where Do Libertarianst Belong, Continued

Political Economy
Arnold Kling
Nick Schulz puts in his $.02 The original fusionist project of Frank Meyer and others was predicated on a belief that libertarians and conservatives (social/religious/paleo) actually agreed on some basic philosophical principles, not just shared goals such as opposing Soviet... MORE

In response to my criticism, Arnold writes:So my challenge for Bryan (and for the rest of the profession, because I am the one who is out on a limb on this) is to come up with a definition of money... MORE

Who Are You Calling Agreeable?

Behavioral Economics and Rationality
Arnold Kling
The British Psychological Society blog reports, Among the most strong and intriguing correlations were: Neuroticism correlated with use of 'irony' and negatively correlated with 'invited'; Extraversion correlated with 'drinks' and negatively correlated with 'computer'; Openness correlated with 'ink'; Agreeableness with... MORE

What is the Fed Thinking, 2?

Monetary Policy
Arnold Kling
Yesterday, I offered two ungenerous interpretations of the Fed's unwillingness to take steps to boost the economy. If the Fed believed in textbook macro, then I would think that, if nothing else, they would stop paying interest on reserves. Today,... MORE

Mankiw on the CEA Stimulus Study

Fiscal Policy
David Henderson
Arnold laid out one of the two ways the CEA estimated the effects of Obama's "stimulus" package. Greg Mankiw has a particularly nice statement about the other way. Mankiw writes: That is, the CEA took a conventional Keynesian-style macroeconomic model... MORE

The Somali Model

Political Economy
Arnold Kling
I enjoyed Ben Powell's lecture on Somalia, although on my computer the volume was barely audible. Among the points of interest: --cell phone spectrum is provided competitively without an FCC. --there is competitive virtual government, in the sense that you... MORE

What is the Fed Thinking?

Monetary Policy
Arnold Kling
Read Tyler Cowen, Paul Krugman, Brad DeLong, and Scott Sumner to catch up. Basically, all of them support having the Fed try to undertake expansionary monetary policy, although Krugman thinks it might not work. As you know, I believe in... MORE

Futures Market Exposition

Finance: stocks, options, etc.
David Henderson
When I teach why futures markets are so neat--they help people hedge against risk--I lay out numerical examples with oil or corn. Some of the students always wonder a little about how the actual transactions are made and I tell... MORE

The Stimulus Worked

Macroeconomics
Arnold Kling
The Council of Economic Advisers says so. The reason that the Council has about as much credibility as Baghdad Bob is that chart that everyone has seen showing that unemployment with the stimulus is higher than what they predicted without... MORE

New Richter Podcast

Books: Reviews and Suggested Readings
Bryan Caplan
My new podcast on Eugen Richter's Pictures of the Socialistic Future is up.  The interviewer is the genteel Jeff Tucker, who spear-headed the republication of this neglected dystopian classic.... MORE

Macro Beliefs and Reality

Macroeconomics
Arnold Kling
I am leaning toward a view of macroeconomics in which firms, households, and government face a collision between beliefs and reality. Beliefs tend to be formed out of habitual observation. If certain types of investments in human and physical capital... MORE

Sympathetic Self-Interest Quotes

Economics and Culture
Bryan Caplan
I'm looking for a sympathetic quote about self-interest to open Selfish Reasons to Have More Kids.  The main quotes from Smith are too ponderous, and the main quotes from Rand are too off-putting.  Suggestions?Update: I think J. Daniel Wright's Hamlet... MORE

Bryan: Define Money

Macroeconomics
Arnold Kling
Bryan writes, Out of all of Arnold's macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables. Here is my problem. Nominal GDP is measured... MORE

Like co-blogger Arnold, I enjoyed reading the discussion among Brink Lindsey, Jonah Goldberg, and Matt Kibbe about the Tea Party Movement and whom libertarians should ally with. All three made good points but none of the three addressed a key... MORE

The Productiveness of Conversation: My Ranking

Economics and Culture
Bryan Caplan
Reading the Reason debate between Brink Lindsey, Jonah Goldberg, and Matt Kibbe inspired me to rank how productive I find conservations with the following groups.  #1 = "most productive"; #6 = "least productive":1. Libertarian economists2. Conservative economists3. Libertarian non-economists4. Liberal... MORE

Arnold, Money, and Nominal GDP

Macroeconomics
Bryan Caplan
Out of all of Arnold's macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables.  The latest example:[A]n increase in the supply of money will... MORE

Modern Finance vs. Portfolio Balance Theory

Finance: stocks, options, etc.
Arnold Kling
The first chapter of the Macro Doubtbook definitely needs a section on the relationship between finance theory and macroeconomics. I think that relationship is an uneasy one. Macroeconomists use what is called "portfolio balance theory" to argue that changes of... MORE

Libertarians and the Tea Party Movement

Politics and Economics
Arnold Kling
A debate among Brink Lindsey, Jonah Goldberg, and Matt Kibbe. Although it is self-recommending, I have read it. Lindsey says, prior to the rise of the conservative counter-establishment--think tanks, talk radio, websites, and Fox News--the right's dark side was subject... MORE

The Portfolio Separation Theorem

Finance: stocks, options, etc.
Arnold Kling
This is about a theorem in finance. I will put it below the fold.... MORE

Celebrate Diversity, But Don't Ever Talk About It

Economics and Culture
David Henderson
In a blog post earlier this month, Bob Murphy told of his dilemma with his 5-year-old son and race. Rather than repeating the short story here, I'll let you click on the link. The one part I'll repeat is that... MORE

Minsky-Jones Answers Tyler Cowen

Macroeconomics
Arnold Kling
Tyler asks, If aggregate demand is so low, why are profits so high? Garett Jones would say that labor is mostly overhead, and firms have shed a lot of overhead. They are sacrificing growth in future capabilities in order to... MORE

Last week, I posed the following challenge:[T]he inevitable existence of some statistical discrimination doesn't make the practice immune to criticism.  You can grant that it's OK to some degree, but - even if the law is silent - still limited... MORE

Help Me Understand

Finance: stocks, options, etc.
Arnold Kling
this story: What killed AIG was much more likely the financial and managerial collapse within AIG Global Investment Corporation's securities lending program... It was the pure economic loss of capital in its most natural state. It represented the decline in... MORE

Still Jackasses

Macroeconomics
Arnold Kling
Stephen Williamson writes, From a New Monetarist point of view, a key element of the financial crisis relates to the scarcity of liquid assets. There is one type of liquid asset, which is outside money. Currency and bank reserves play... MORE

Say It Loud, Say It Proud

Economics and Culture
Bryan Caplan
If you were in marketing, would you take this advice?1. To "raise the status of intelligence and analytical thinking," don't......stand for instrumental rationality, for Science, for attitudes which go beyond traditional religion, for the conquering of limits, for probabilistic reasoning,... MORE

Macro Doubtbook, Installment 6

Money
Arnold Kling
Here is the long-awaited section on monetary theory. If you ask me the question, what will happen if the Fed stops paying interest on reserves, my answer would differ from Scott Sumner's. I would say, "Not much will happen in... MORE

Cloning v. Cryonics

Economic Philosophy
Bryan Caplan
Which is more outrageous: cloning yourself and raising the clone as your son, or freezing your head in hope of achieving immortality?  Why?... MORE

Moral Failure?

Finance: stocks, options, etc.
Arnold Kling
The Spring Issue of the Harvard Journal of Law and Public Policy is now on line, with a focus on the economic crisis. You will find many familiar names among the authors. This is also the place where I have... MORE

Why Hold Reserves?

Finance
Bryan Caplan
Suppose you see an individual, a bank, or a corporation sitting on a big pile of money.  What should you conclude?Theory #1: The actor has nothing good to spend it on.  The individual is satiated, at least relative to existing... MORE

Mark Thoma's Response

Monetary Policy
Arnold Kling
I challenged him, and he graciously responds. I am not convinced that lowering the interest rate on reserves from one quarter of a percent to zero will have much of an effect on investment activity. What we need is a... MORE

Morning Libertarian Rant

Politics and Economics
Arnold Kling
John Shure writes, Those who are blaming states for their severe budget shortfalls and arguing that Congress shouldn't provide much-needed assistance until states "clean up their act" (here's a recent example) are wrong on both counts. Pointer from Mark Thoma.... MORE

An Assignment for Mark Thoma

Monetary Policy
Arnold Kling
He claims that there is not much that the Fed can do to contribute to the recovery. I would like for Mark or for Paul Krugman to write an essay on the topic of what would happen if tomorrow the... MORE

Policy Focus

Macroeconomics
Arnold Kling
Scott Sumner is worried about little things like unemployment and fiscal sustainability. Fortunately, our political leaders are not distracted by such trivialities. The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks,... MORE

Lebron and State Taxes

Taxation
David Henderson
I was going to write on the tax advantage to LeBron James in going to income-tax-free Florida until I started to research it and see that, earlier today, Aaron Merchak at the Tax Foundation beat me to it. He did... MORE

Monetary Doubtbook, Installment 5

Macroeconomics
Arnold Kling
Here, I talk about capital theory as a path for macroeconomics. Some recent posts are relevant. Tyler Cowen talks about the saving-investment balance. Paul Krugman implicitly says that investment follows what I call in the installment below the "accelerator model"... MORE

Laffer on Unemployment Insurance

Fiscal Policy
David Henderson
Arthur Laffer, whose work I've often respected and who, I think, has been underappreciated by the economics profession, has a piece in today's Wall Street Journal on unemployment insurance (UI). It's titled, "Unemployment Benefits Aren't Stimulus." I wish I could... MORE

Cryonics and the Hanson Family

Economic Philosophy
Bryan Caplan
Wordsmith Kerry Howley has a great piece on the Hanson family and cryonics in the New York Times Magazine:"I'm just really terribly curious," Robin told me in January over Skype. "Cryonics isn't just living a little longer. It's also living... MORE

Unchecked and Unbalanced

Politics and Economics
Arnold Kling
Terrence P. Jeffrey writes, In the July 26, 2008 issue of the British Journal of Medicine (BMJ), Dr. Berwick published an article praising the NHS on its 60th birthday and urging Great Britain to reject free enterprise in health care.... MORE

Business Dynamics and Macroeconomics

Macroeconomics
Arnold Kling
Tim Kane finds that the tendency for a firm to add or subtract jobs declines with the age of the firm. Much of the job creation on average comes from startup firms. In fact, Kane puts it this way: without... MORE

Michael Pettis on Financial Fragility

Books: Reviews and Suggested Readings
Arnold Kling
A while back, I mentioned that I was going to get his book. It arrived yesterday, and I have some excerpts below the fold. Meanwhile, James Hamilton asks whether risky assets were undervalued in February of 2009. When the price... MORE

No matter what they say, everyone engages in statistical discrimination. (See also here).  Judging everyone as an individual is expensive, and relying on statistical generalizations is a cheap and effective alternative.  You don't clutch your purse when you see a... MORE

Generally Educationally Deficient (GED)

Economics of Education
David Henderson
The General Educational Development (GED) credential is issued on the basis of an eight hour subject-based test. The test claims to establish equivalence between dropouts and traditional high school graduates, opening the door to college and positions in the labor... MORE

Natural Libertarians?

Politics and Economics
Arnold Kling
Lee Harris pens a provocative essay. To natural libertarians, there can be no more existential conflict than the one they face today. Are they destined to perish from the earth along with their cherished cultural and religious traditions, pushed aside... MORE

This installment, below the fold, discusses real wage rates and employment. The previous installment was here.... MORE

Hayekian Moment Watch

Political Economy
Arnold Kling
Dennis Whittle writes, 1. Who decides which problems aid should address? 2. Who comes up with the solutions? 3. Who gives the funding? 4. Who competes to implement the solutions? 5. Who gives feedback on how well the solutions work?... MORE

Saving and Identities

Macroeconomics
Arnold Kling
Yves Smith and Rob Parentau write, Over the past decade and a half, corporations have been saving more and investing less in their own businesses. A 2005 report from JPMorgan Research noted with concern that, since 2002, American corporations on... MORE

Willingham, Flow, and Why Students Don't Like School

Economics of Education
Bryan Caplan
Daniel Willingham is a psychology prof at UVA and author of the American Educator's "Ask the Cognitive Scientist" column.  In Why Don't Students Like School, Willingham tries to popularize psychology's main lessons for practicing educators.  It's a fun read, and... MORE

Sarah Palin's First Hundred Days*

Politics and Economics
Arnold Kling
She comes to office in January of 2013 with three priorities in economic policy. These are restoring the health of the private nonfinancial sector, putting entitlements on a sustainable path, and reversing the trend toward centralization of power. 1. A... MORE

Paging Hyman Minsky

Finance: stocks, options, etc.
Arnold Kling
Why Are Firms Saving So Much?, asks The Economist. A number of economists offer thoughts, including Hal Varian, Brad DeLong, and Mark Thoma. Andrew Smithers points to some data. despite the rise in US corporate cash flow, non-financial corporate balance... MORE

Another Macro Metaphor

Macroeconomics
Arnold Kling
Howard Bloom writes, Over three billion years ago, bacteria already had a cycle of boom and bust built into their DNA. The cycle of boom and bust is a search strategy. It's a cycle that uses us to explore the... MORE

Sumner on Neoliberalism

Growth: Causal Factors
David Henderson
The neoliberal policy revolution that began in the late 1970s might be the most important recent event in world history. But it remains a curiously elusive and underreported phenomenon. Many on the left question the motives behind the reforms, as... MORE

So Why Don't Students Like School?

Economics of Education
Bryan Caplan
I just finished Why Don't Students Like School?  I'll review it shortly, but let me leak my leading complaint: The book is mistitled.  Frankly, it doesn't even try to explain why students don't like school.If you had to answer the... MORE

Exacerbating Problems Always

Regulation
David Henderson
First, the Environmental Protection Agency can relax restrictions on the amount of oil in discharged water, currently limited to 15 parts per million. In normal times, this rule sensibly controls the amount of pollution that can be added to relatively... MORE

Green Jobs!

Energy, Environment, Resources
Arnold Kling
The latest announcement about U.S. industrial policy says, Abengoa SA... was offered a $1.45 billion loan guarantee by the U.S. Department of Energy to build a 250-megawatt solar plant in Arizona, and Abound Solar Manufacturing was offered a $400 million... MORE

What I'm "Dogmatic" About

Economic Philosophy
Bryan Caplan
Tyler recently wrote:If you're very dogmatic in one area, you may be less dogmatic in others.  I've also met people -- I won't name names -- who are extremely dogmatic on ethical issues but quite open-minded on empirics.  The ethical... MORE

Cato's Voice of Moderation

Books: Reviews and Suggested Readings
Arnold Kling
Brink Lindsey reads Arthur Brooks' new book and gives it a thumbs down. Figuring out how to restore growth and how to construct an effective but affordable safety net, are questions for debate, analysis, and democratic decision-making. My answers to... MORE

Robert Hall Interview

Macroeconomics
Arnold Kling
Mark Thoma points to an interview with Robert Hall, who I consider the Don Sutton of the economics profession.* Read the whole thing. Here are some excerpts from the interview, with my comments. Issuing what appear to be overvalued public... MORE

Various

Macroeconomics
Arnold Kling
Doc Merlin is among those linking to a New York Times story about manufacturers having difficulty finding skilled workers. I would love to say that I find that the story validates my views macroeconomics. Instead, I just find the story...odd.... MORE

Time Inconsistency in Government Policy

Public Choice Theory
David Henderson
When I teach various concepts, I try to connect them with specific stories because I find that students remember stories. This is especially important when the concept is labeled with a very abstract label. Take "time inconsistency." When I teach... MORE

What's the Worst War Since WWII?

Economic History
Bryan Caplan
According to Reuters, it's the Second Congo War (1999-2003) aka Africa's World War and the Great War of Africa: (Reuters) - War, disease and malnutrition are killing 45,000 Congolese every month in a conflict-driven humanitarian crisis that has claimed 5.4... MORE

Take That, Keynes and Lerner

Fiscal Policy
David Henderson
Paul Martin, the Minister of Finance for Canada from 1993 to 2002 and Prime Minister from 2003 to 2006, was the person most responsible for bringing down government spending and government debt as a percent of GDP. Between FY 1993-94... MORE

Bumps on the Treadmill

Behavioral Economics and Rationality
Bryan Caplan
This piece in American Psychologist documents five weaknesses of the "hedonic treadmill" hypothesis:First, individuals' set points are not hedonically neutral. Second, people have different set points, which are partly dependent on their temperaments. Third, a single person may have multiple... MORE

What Health Insurance Reform Means

Economics of Health Care
Arnold Kling
The Boston Globe reports, The number of people who appear to be gaming the state's health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the... MORE

Macroeconomics Doubtbook, Installment 3

Macroeconomics
Arnold Kling
This discusses labor markets. I also discussed them in my macro lectures, and I may want to integrate more of that material here. The full installment is below. This was the previous installment. Here is an excerpt of the current... MORE

Temporary Layoffs in Postwar Recessions

Labor Market
Arnold Kling
James Hamilton writes, Suppose you adopted Feldstein's perspective that those individuals who fully expected to get back their old jobs soon are not really unemployed, but should instead be viewed the same way we treat workers who remain employed but... MORE

The Wrong Case for "Green Jobs"

Cost-benefit Analysis
David Henderson
Suppose that you want to build a house, and you solicit two builders for estimates. Builder A's eight employees can build the house in three months for $300,000. Builder B's four employees can build the same house in the same... MORE

The U.S. government does much more to abridge freedom of association than freedom of exclusion.  But I still think freedom of exclusion is worth defending.  Over at Cato Unbound, my friend David Bernstein has presented a libertarian defense of "the... MORE

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