Arnold Kling  

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1. Deirdre McCloskey interviewed about her latest book. (Elsewhere, David Brooks channels her, but without any citation. This shabby treatment contrasts with his generous treatment of Nick and me a year ago.)

2. Tyler Cowen, ostensibly on inequality. But it turns out to be a rant against Perry Mehrling-style central banking *


some investors opt for a strategy of betting against big, unexpected moves in market prices. Most of the time investors will do well by this strategy, since big, unexpected moves are outliers by definition. Traders will earn above-average returns in good times. In bad times they won't suffer fully when catastrophic returns come in, as sooner or later is bound to happen, because the downside of these bets is partly socialized onto the Treasury, the Federal Reserve and, of course, the taxpayers and the unemployed.

...Betting against a big decline in home prices is analogous to betting against the Wizards [the local pro basketball team]. Every now and then such a bet will blow up in your face, though in most years that trading activity will generate above-average profits and big bonuses for the traders and CEOs.

...A key lesson to take from all of this is that simply railing against income inequality doesn't get us very far. We have to find a way to prevent or limit major banks from repeatedly going short on volatility at social expense. No one has figured out how to do that yet.

*I say that tongue-in-cheek. I presume it was written before Tyler saw Merhling's book. Also, Tyler's attitude about government bailouts of big banks is less one of outrage and more one of eyebrow-raised resignation: What can you do?


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COMMENTS (3 to date)
roversaurus writes:

That's why I can't stand Tyler.

There is a simple solution - DON'T BAIL OUT FAILURE!

Yet when that was an option he opposed it. He promoted the bank bailouts. Now he laments the banks taking excessive risk. His solution? Probably some form of regulation. And he will call the opponents of said regulation "unreasonable".

Deidre McCloskey is onto something enormously important for the profession of economics, and has been at least since she wrote The Rhetoric of Economics.

Voluntary exchange is the only moral foundation of all human interaction, and certainly economic interaction in a social context, which is an observation I suspect Prof. McCloskey would agree with.

The morality of voluntary exchange (and immorality of all other systems of human interaction) isn't falsifiable using the enlightened Popperian "scientific" methods that modern economics pursues; it stands or falls on human reason, not the adjudication of "empirical questions," just like everything else we take ourselves to know.

Philo writes:

The banking system is semi-socialized because the voters want it that way (similar to their attitude toward health care and the relief of poverty). It is impossible to get them to think deeply enough about the matter to change their minds. Resignation is appropriate; even raising an eyebrow is an over-reaction.

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