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I have very little time for blogging this week. Here are some things that would interest me if it were a normal week:

1. Ronald Bailey on various studies of how libertarians differ from others in terms of moral outlook.


Some of the more intriguing results involve the empathizer/systemizer scale. Empathizers identify with another person's emotions, whereas systemizers are driven to understand the underlying rules that govern behavior in nature and society. Libertarians, unlike both liberals and conservatives, scored very high on systemizing. The authors note, "We might say that liberals have the most 'feminine' cognitive style, and libertarians the most 'masculine.' "

Or most autistic? Read the whole thing, especially Bailey's concluding paragraph.

2. Mark Thoma on Axel Leijonhufvud's description of the mechanism by which monetary expansion takes place. That is, the Treasury issues debt at, say, 3 percent, and then the Fed lends money to banks at close to zero percent to buy that debt. The benefit to banks is pretty obvious. Why this is good public policy is less clear.

3. David Beckworth says that most of the drop in employment in the past two years has not been in the construction sector. I knew that. I do not think that we will be able to tell in the midst of the recession how much of the employment loss is recalculation-related and how much is demand-related. Once it is over, we may be able to see how many workers returned to jobs similar to those they held in 2006 and how many did not. The recalculation story predicts that most will not. In fact, it could turn out that other industries see less of a comeback than construction.

Of course, even if most of the job gains that return the economy to full employment represent new occupations for the workers involved, that will not necessarily prove that demand does not matter. Perhaps demand policies could play a role in speeding the transition.


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COMMENTS (5 to date)
Hunter writes:

Stupid but honest question of the day. Isn't the recalcuation story just a version of Say's law which states that and I'm quoting William L. Anderson here.

Say held that business downturns would be proportional in nature,
that too many goods in one sector—more than would be able to be consumed,
given the preferences and income of consumers—could be produced,
at least temporarily, but that there would be a corresponding
shortfall in the production of other goods.

Dave writes:

When people point to just the construction sector as evidence against the recalculation story, it shows an inability to connect the dots.

The best post I've seen that takes the recalculation story beyond the obvious construction employment decline is from Mish, who goes through the logic of how the housing/credit bust directly impacts:

# Manufacturing
# Retail
# Shipping
# Finance
# Construction
# Travel
# Leisure
# Restaurants
# Energy
# Commodities
# Trucks and SUVs
# City, State, Local Government Spending

The logic can be extended to even more sectors that would be further affected from the demise of those listed above. I think it ties in nicely with the patterns of sustainable specialization and trade.

He also addresses why unemployment is low in the bubble years, but high in the bust years.

David writes:

Did Ron Bailey write that last paragraph, or did Michael Novak?

Steve Sailer writes:

To use Bailey's framework of empathy v. systematizing, I think that the study of economics can help you do both, to learn to put yourself in other people's shoes while still seeing the big picture. The intellectual problem with empathy is that most people feel self-satisfied when they understand how another person feels. Far fewer strive to understand logically why the person feels that way, to understand the incentive structure that this other person faces.

Floccina writes:
the Treasury issues debt at, say, 3 percent, and then the Fed lends money to banks at close to zero percent to buy that debt. The benefit to banks is pretty obvious. Why this is good public policy is less clear.

Wouldn't it be better if it were decentralized and in times of falling loans the banks would expand the money supply by buying what each thinks is the most undervalued assets?

How we get there with the current political realities, I do not know.

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