Arnold Kling  

Three from the JEL

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I rarely find the book reviews in the Journal of Economic Literature worthy of comment, but the December 2010 issue has three.

1. Tim Conley has a review of Leamer's Macroeconomic Patterns and Stories. Like me, he thinks that the book is miscast as an MBA textbook. Conley writes, "every graduate student in economics should read this book."

2. Tyler Cowen reviews Allan Meltzer's volume two of his history of the Fed. Tyler writes,


I no longer believe that money supply regulation, even if combined with price inflation targeting, is "enough." It seems that, slowly but surely, financial systems build up pressures for extreme and unwarranted risk-taking and that the previous period's successes make this subsequent risk-taking even worse...It's an open question whether the financial system has long-run balance and perhaps that should induce a deeper revaluation of which Fed policies were successes and which were not. Meltzer's history instead reflects the point of view that an ongoing even keel is more or less feasible.

Tyler seems to be taking Minsky over Sumner.

3. Jeremy Stein reviews a conference volume on Ending Government Bailouts as We Know Them. He, too, seems to fear a natural risk-taking propensity in financial markets, which he believes involves more than just the moral hazard of too-big-to-fail. He points out, as have many commenters on my posts, that correlated failures among small institutions can have the same effect as the single failure of a large institution.

I believe that all of these reviews are gated. If anyone finds ungated online copies, please leave a pointer in the comments.


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COMMENTS (4 to date)
Philo writes:

In writing that, "slowly but surely, financial systems build up pressures for extreme and unwarranted risk-taking," Tyler is over-generalizing. He should have confined his remark to financial systems that include a lot of moral hazard from government "guarantees."

Andy writes:

What is the gist of Conley's review? I'm unable to find it, but I'm making my way through Leamer's book.

Doc Merlin writes:

@Philo:
OOO I can overgeneralize too:

Tyler always does that.

Scott Sumner writes:

I also have doubts about money supply regulation combined with inflation targeting. And I agree the financial system is prone to excessive risk-taking, at least since FDIC was established (but not before.) The question is what do we do about it. The financial system's problems can be addressed in many different ways, none of which involve monetary policy. The problems with inflation targeting can be addressed with NGDP targeting.

Tyler might disagree with me, but it's hard to tell from that quotation. What sort of monetary policy does Tyler favor? What sort of financial system regulation?

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