Bryan Caplan and David Henderson

January 2012

A Monthly Archive (136 entries)

Arnold and Education: Getting to Bet

Economics of Education
Bryan Caplan
Arnold counter-offers to my proposed education bet.  Arnold's in blockquotes.I'd prefer to stretch out the time frame at least a few years. Maybe let's pick 5 indicators, and winning means at least 3 out of 5.Fair enough, though it does... MORE

Report on the Austrian Economics Conference, 1975

Austrian Economics
David Henderson
Many people have written about the first Austrian economics conference, the one held in 1974. I remember it well and have many reminiscences. But that's not my purpose here. In going through a box of correspondence this morning, I found... MORE

Name Michael Huemer's New Book

Books: Reviews and Suggested Readings
Bryan Caplan
Philosopher Michael Huemer has almost finished a book-length defense of radical libertarianism.  I've read virtually every book ever written on this topic.  Huemer's is the best.  It's so good, in fact, that I've promoted him from my "favorite living philosopher"... MORE

Per Request: Podcasts

Fiscal Policy
Arnold Kling
For those who prefer to listen in the gym, Mercatus has put up Kling-Jones and Minarik-Wallison on prospects for a sovereign debt crisis in the U.S.... MORE

Betting Indicators

Economics of Education
Arnold Kling
Bryan writes, Arnold, would you care to bet that the number of full-time faculty of traditional 4-year colleges will decline by more than 10% by 2022? Something else? I'd prefer to stretch out the time frame at least a few... MORE

Michael Greve on Fiscal Federalism

Fiscal Policy
Arnold Kling
He describes the growth of state and local spending, the incentive for the Federal government to enact soft bailouts, and finally a future in which we come to resemble Argentina. Medicaid represents well over 40 percent of all federal transfer... MORE

Bet for Arnold: Education Is Stably Wasteful

Economics of Education
Bryan Caplan
I've already bet David Henderson that the percent of 18-24 year-olds in traditional 4-year colleges will decline no more than 10% by 2019.  Now Arnold tempts me to double down:I see the potential for a dramatic reduction in the labor... MORE

The Education Revolution

Economics of Education
Arnold Kling
Charlotte Allen summarizes a lot of recent developments that I think are going to change higher education. It's happening, almost overnight: what could be the collapse of the near-monopoly that traditional brick-and-mortar colleges and universities currently enjoy as respected credentialing... MORE

Social Capital, Property Values, and Salam

Economic Philosophy
Bryan Caplan
Reihan Salam replies to my case for free immigration, emphasizing the importance of "social capital":It is possible that cash transfers are the most appropriate vehicle for addressing problems that stem from cultural and economic isolation and family breakdown, but my... MORE

Adam Davidson Turns Mercantilist

International Trade
David Henderson
The currency intervention also functions as a massive inequality-creation machine. U.S.-based behemoths, which own or use many of those exporting Chinese factories, benefit, as do their shareholders. And because more than 90 percent of U. S. stocks are owned by... MORE

An Answer to a Monetary Riddle

Money
David Henderson
Last quarter, I received the following "riddle" from a student in my class: It's a slow day in some little town........ The sun is hot....the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.... MORE

Taylor Rules

Books: Reviews and Suggested Readings
Arnold Kling
John Taylor's First Principles argues for (p.18): predictable policy framework rule of law strong incentives reliance on markets clearly limited role for government On p. 25, he points out that a policy can follow one principle but violate others. An... MORE

Freddie Mac and Inverse Floaters

Finance: stocks, options, etc.
Arnold Kling
A new scandal from reporters for ProPublica and NPR. In 2010 and '11, Freddie purchased $3.4 billion worth of inverse floater portions -- their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for... MORE

Two New Blogs

Taxation
David Henderson
I recommend two new blogs that I've been reading in the past week. What they have in common, besides being good, is that both bloggers have been frequent commenters on Econlog. One is "PrometheeFeu's Blog." This recent post on tax... MORE

Alex Tabarrok on Innovation

Energy, Environment, Resources
Arnold Kling
At The Atlantic. The U.S. Department of Energy, for example, estimates that small and environmentally friendly hydro-electric projects could generate at least 30,000 MWs of power annually. That's equivalent to the generating capacity of about 30 nuclear power plants. Moreover,... MORE

There have been a lot of good comments on Arnold Kling's post on Charles Murray's "bubble" and a few on mine. On Arnold's post, Tom West makes a good point about not taking any particular question of the 20 too... MORE

De-fund College Libraries

Information Goods, Intellectual Property
Arnold Kling
Joshua Gans writes This is disappointing on a number of fronts. First, BE Press never informed us. They did send out a letter to paying subscribers but not to authors or to people who serve on their editorial boards; both... MORE

Life in the Bubble

Revealed Preference
David Henderson
I've been busy all week teaching an intense course. Thus the hiatus in my blogging. I took the Charles Murray quiz that Arnold suggested and I scored, depending on the definition of a close friend, either 12 or 13 points... MORE

The Bubble Quiz

Income Distribution
Arnold Kling
We've been discussing Charles Murray's Coming Apart, and now there is a quiz you can take to find out if you are living in an elitist bubble. My score was reported as "between 5 and 8," which is weird, since... MORE

The Prospects for a U.S. Default, Continued

Fiscal Policy
Arnold Kling
Nick and I discuss this with Joseph Minarik (former OMB economist under President Clinton) and Peter Wallison. The full half-hour video is here. Below is a 3-minute preview.... MORE

Why Should We Restrict Immigration?

Economic Philosophy
Bryan Caplan
The Cato Journal's special immigration issue is now out.  I have the lead article, entitled "Why Should We Restrict Immigration?"  My piece sums up everything I've been saying about immigration since I joined the blog: (a) Common-sense morality implies a... MORE

An Empirical Disagreement

Labor Market
Arnold Kling
Bryan focuses our disagreement: when 10% of the workers in an occupation lose their jobs, or 5% of firms in an industry go out of business, continuity isn't merely a convenient assumption. It's a hard fact. So now it boils... MORE

A Different Mr. Negative

Income Distribution
Arnold Kling
Mark Thoma writes, I hate to be Mr. Negative today, but I'm less than fully convinced that we are anywhere near embarking on a path that places the welfare of the middle class at the forefront of economic decisions. One... MORE

Discontinuity and the Real World

Labor Market
Bryan Caplan
Arnold writes:So, if the demand for mortgages collapses, all it takes to get back to 2006 levels is for mortgage underwriters to take a 20 percent pay cut? In a world with no discontinuities, we would not get crazy subprime... MORE

Discontinuity, Revisited

Macroeconomics
Arnold Kling
Bryan writes, (c) Workers continue to be employed at their old job for 5, 10, or 20% lower wages until an entrepreneur makes (b) happen. So, if the demand for mortgages collapses, all it takes to get back to 2006... MORE

Wing-Walking Revisited

Labor Market
Bryan Caplan
Arnold writes:Suppose that a bunch of mortgage underwriters get laid off. There are two possible full employment equilibria. (a) They can be instantly employed as dishwashers at 20 cents an hour. (b)They can be employed as health insurance claims processors... MORE

Educational Disintermediation

Economics of Education
Arnold Kling
Felix Salmon writes, Stanford was willing to spend hundreds of millions of dollars building a new physical campus in New York City -- but it isn't willing, it seems, to help Thrun build a free virtual campus which could reach... MORE

Next week, I'm going to debate Modeled Behavior's Karl Smith on "How Deserving Are the Poor?"  Logistics:Date: Wednesday, February 1Time: 6:00-9:00 PMLocation: Johnson Center Meeting Room A, George Mason University (Fairfax Campus)My strategy, as usual, is to use an uncontroversial... MORE

One-Sentence Tax Reform

Tax Reform
Arnold Kling
Richard Green writes, Let's just start by designing a code that requires that as adjusted gross income rises, the effective tax rate may not fall. That way taxpayers would be able to look at their own effective rate, and know... MORE

Nominal GDP and PSST

Macroeconomics
Bryan Caplan
Arnold tells us:The PSST story is equally consistent with a correlation between employment and nominal GDP. It just interprets the causality as running the other way. If a bunch of workers are laid off, for whatever reason, nominal GDP will... MORE

PSST and Recovery

Macroeconomics
Arnold Kling
Bryan asks, without nominal rigidities, why doesn't the PSST model specifically predict that prices will adjust to restore full employment? Suppose that a bunch of mortgage underwriters get laid off. There are two possible full employment equilibria. (a) They can... MORE

Nominal GDP and Employment

Macroeconomics
Arnold Kling
The ratio of nominal GDP to employment is NGDP/L, where L is the level of employment. This can be decomposed into: NGDP/L = (NGDP/RGDP) x (RGDP/L) = the GDP deflator x productivity As long as inflation and productivity growth are... MORE

Gridlock vs. Compromise on the Deficit

Fiscal Policy
Arnold Kling
Reihan Salam writes, Suffice it to say, the thought of Chinese military officials deciding on how large a military the U.S. is allowed to retain is a sobering thought. But that, alas, is a foreseeable outcome from the brand of... MORE

Murray's Blind Spots

Books: Reviews and Suggested Readings
Bryan Caplan
I'm an admirer of Charles Murray's Coming Apart.  But two big blind spots stand out:1. Drugs.  Murray chronicles the massive increase in the U.S. prison population without mentioning, much less condemning, the War on Drugs.  [S]urveys on drug use wouldn't... MORE

A Little Optimism from Walter Block

Politics and Economics
David Henderson
This is part of economics professor Walter Block's answer to someone who expressed deep pessimism about the prospects for liberty in the future: I agree with your negative assessment of short term success. It is due to biological hard wiring,... MORE

Thoughts on Education Reform

Economics of Education
Arnold Kling
Larry Summers writes, it makes sense for students to watch video of the clearest calculus teacher or the most lucid analyst of the Revolutionary War rather than having thousands of separate efforts. True enough, but I think one should try... MORE

The Economists We Have

Economic Methods
Arnold Kling
David Colander writes, not only are economists as a group not humble enough, what lay people are presented as economist's policy recommendations are often the policy recommendations of the least humble economist. In summary, my argument is that lack of... MORE

Antitrust Kills

Cost-benefit Analysis
Bryan Caplan
Since 2007, Bill Gates has given away $28B, 48% of his net worth.  Frugal Dad estimates that he's saved almost 6 million lives.  I haven't double-checked his sources, but it's a plausible estimate.Back in the nineties, Bill Gates was experiencing... MORE

The Business Reporters We Have

Business Economics
Arnold Kling
Once again this week, the Washington Post Outlook section is an exercise in feeding its readers' anti-market prejudices. One prominent feature is an article by Jia Lynn Yang, a business reporter. The nagging problem with the consulting worldview, however, is... MORE

Mainstream Views of the Gold Standard

Monetary Policy
Arnold Kling
The IGM economists are unanimously against a gold standard. One of the arguments is that the relative price of gold is too volatile. That strikes me as the wrong argument to make. For one thing, if you had a gold... MORE

For males, the college premium and the marriage premium are roughly equal.  In the NLSY, for example, you earn 34% more if you're a college grad, and 44% more if you're a married male*: When people - economists and non-economists... MORE

Quiggin on the Caplan-Quiggin Bet

Economic Methods
Bryan Caplan
In 2009, I bet John Quiggin that Europe's unemployment would average at least 1.5 percentage-points higher than the United States over the following decade.  Quiggin's update:Until now, I've been consistently ahead. EU-15 and US unemployment rates were very close during... MORE

A Default Scenario

Fiscal Policy
Arnold Kling
There is a compendium of papers in Econ Journal Watch on the prospects for a U.S. debt default. Garett Jones and I authored two of the papers. We discussed the topic on Friday with Reihan Salam. A preview is below.... MORE

Economists and Influence, A Depressing Take

Politics and Economics
Arnold Kling
Jim Tankersley writes, "If you bat .300, you're going to win the National League [batting title]. But if you bat .100 as an economist in D.C., you're going to go to the Hall of Fame." So mused conservative economist Douglas... MORE

Krugman's Evidence for Ricardian Equivalence

Fiscal Policy
David Henderson
Paul Krugman has been an outspoken critic of Ricardian Equivalence, David Ricardo's idea, revived by Robert Barro in 1974, that, holding government spending constant, when the government cuts taxes and increases deficits, people will save more to pay the inevitably-higher... MORE

A SOPA Analogy

Information Goods, Intellectual Property
David Henderson
I've been trying to understand what the Stop Online Piracy Act (SOPA) would or wouldn't do. Would it simply protect intellectual property? Then I'm somewhat sympathetic. Why just "somewhat?" See my previous post and the links therein. Or would it... MORE

Financial Regulation: Three Confirmations

Finance: stocks, options, etc.
Arnold Kling
First, Paul Romer confirms some of my views when I wrote "The Chess Game of Financial Regulation." That is, eventually, all fixed rules will be gamed. He calls this "Myron's law" in deference to Myron Scholes. Second, Sheila Bair says... MORE

Why Health Care Costs are Hard to Reduce

Economics of Health Care
Arnold Kling
Megan McArdle writes, I think the central difference between me, and the people who think that IPAB's reimbursement-rate powers will be a big help in controlling health care costs, is that the latter group tends to think that a lot... MORE

Jeff Tucker on Intellectual Property

Information Goods, Intellectual Property
David Henderson
Might it be that some of the users' shared content on Megaupload was copyright protected? Absolutely. It is nearly impossible not to violate the law, as shown by SOPA sponsor Lamar Smith's own campaign website, which used an unattributed background... MORE

Shocks and Deficits

Fiscal Policy
Arnold Kling
Alan Blinder writes, The CBO projects federal spending on all purposes other than health care and interest to be roughly stable as a share of GDP from 2015 to 2035, and then to drift lower. So no, America, we don't... MORE

Most of the discussion by economists of the appropriate capital gains tax rate is about a very narrow criterion: the effect of capital gains tax rates on capital gains tax revenues. But in a 2009 study done for the Institute... MORE

The Present Value of a Sheepskin

Economics of Education
Bryan Caplan
When economists measure the return to education, they usually assume that all years of schooling increase earnings by the same percent.  A standard regression would be:log (Earnings in dollars)= a + b*(Education in years)where b is the measured return to... MORE

Me on Stossel: The Video

Political Economy
David Henderson
Here's a link that takes you to the video of my appearance on John Stossel's show last night. Three comments: 1. One thing that surprised me, when I researched to prep for the "debate," is how small a percent of... MORE

Ferguson on Murray

Politics and Economics
Arnold Kling
Niall Ferguson writes, As Murray shows, there is a conservative solution to the problem of inequality. Scrap the failing welfare programs of the '30s and '60s before they bankrupt America. Ensure that everyone has a basic income. Then simplify the... MORE

The aptly-named Institute for Justice is challenging another democratic achievement: Regulations requiring useless expenditures.May the government force entrepreneurs to do useless things, like build extra rooms in their stores that they do not need and will never use, just to... MORE

Tell Me the Difference Between My Lai and Hiroshima

Economic Philosophy
Bryan Caplan
In the My Lai Massacre, a company of American ground troops killed between 347 and 504 unarmed Vietnamese civilians in a village suspected of harboring Communist guerrillas (the VC).  After the massacre became public knowledge, Captain Ernest Medina denied giving... MORE

Jeff Sachs is Right--and Misleading

Economic Philosophy
David Henderson
My friends Steve Horwitz and Don Boudreaux have taken strong exception to a recent piece by Jeff Sachs. But I think Sachs got this one right, at least on the particular passage to which Steve and Don take exception. Here's... MORE

Health Care Costs are Hard to Manage

Economics of Health Care
Arnold Kling
CBO's Doug Elmendorf writes, In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations--6 in the first category and 4 in the second--that have been evaluated by independent researchers. CBO finds that most programs tested in... MORE

Making Taleb's Point

Institutional Economics
Arnold Kling
Frances Beinecke writes, Over the past several weeks, the Food and Drug Administration (FDA) has been in the news for its stance on antibiotic use in farm animals. Yet instead of making good on its 1977 promise to limit these... MORE

Blogs, Journals, and Economists

Economic Methods
Arnold Kling
Paul Krugman writes, doesn't this [the Internet] allow a lot of really bad economics to circulate? Yes, but is it really any worse than it used to be? As I've tried to explain, the notion of journals as gatekeepers was... MORE

Nassim Taleb on His Next Book

Books: Reviews and Suggested Readings
Arnold Kling
He talks with Russ Roberts. It's about how we should act when we don't know what we are doing. It's a great conversation. Note the case that Taleb makes for simple heuristics.... MORE

Henderson on Stossel

Politics and Economics
David Henderson
I red-eyed it to NYC Monday night to tape a segment on John Stossel's show on Fox Business Network. I returned the same day. Total time in NYC: 11 hours. The segment was a debate with Colonel David Hunt, who... MORE

Tyler's Embarrassing Question and Major Concession

Economics of Education
Bryan Caplan
Tyler's has renewed our debate about signaling (see here for earlier rounds):It is an embarrassing question for signaling models to ask: with what lag do employers get a good estimate of a worker's marginal product?  If you say "it takes... MORE

A Shortage of Safe Assets?

Finance: stocks, options, etc.
Arnold Kling
Timothy Taylor discusses this hypothesis. He quotes from a paper by Gary Gorton and others. Over the past sixty years, the total amount of assets in the United States economy has exploded, growing from approximately four times GDP in 1952... MORE

Education and Cartel Membership

Economics of Education
Arnold Kling
Tyler Cowen writes, It is an embarrassing question for signaling models to ask: with what lag do employers get a good estimate of a worker's marginal product? If you say "it takes 37 years" it is hard to account for... MORE

Great Stagnation or Great Vacation?

Labor Market
Bryan Caplan
Keynesians have long mocked their critics as people who believe that the Great Depression was really a "Great Vacation."  Charles Murray's new book makes a decent case that working class men have indeed taken a Great Vacation over the last... MORE

Moneyball

Human Capital: Returns to entrepreneurs, skills, etc.
David Henderson
I'm tooling along in an American Airlines flight from JFK to SFO and I just finished watching the movie Moneyball. I had blogged about the book (here and here), but this is the first time I've actually seen the movie.... MORE

Saving and Investment: My (Keynesian) Take

Macroeconomics
Arnold Kling
I am going to try to stick to substance, and not do name-calling. But I think I am articulating a model that is in the spirit of Keynes, which probably puts me on the Brad DeLong and Paul Krugman side... MORE

An Optimist's Take on Charles Murray's Coming Apart

Income Distribution
Bryan Caplan
On Friday, I read Charles Murray's new book, Coming Apart: The State of White American, 1960-2010, cover to cover.  Murray's given the world another social science page turner, written with earnest eloquence and full of fascinating information.  His main claim:... MORE

Ludwig von Mises on Entrepreneurs Under Socialism

Central Planning vs. Local Knowledge
David Henderson
A popular slogan affirms that if we think less bureaucratically and more commercially in communal enterprises, they will work just as well as private enterprises. The leading positions must be occupied by merchants, and then income will grow apace. Unfortunately... MORE

Seven Myths about Free Markets

Upcoming Events
David Henderson
On Wednesday, January 18, I'll be giving a talk, "Seven Myths about Free Markets" to students, faculty, and the general public at California State University, East Bay in Hayward, California. It will start at 2:00 p.m. It's sponsored by the... MORE

Euro-Optimism

Game Theory
Arnold Kling
C. Fred Bergsten and Jacob Funk Kirkegaard (BK) write, There are only two alternatives. Europe can jettison the monetary union. Or it can adopt a complementary economic union. This brief argues that, for all the turmoil, Europe is well on... MORE

Re-Org Proposal

Politics and Economics
Arnold Kling
You may recall that I wrote an article proposing that the executive branch of the government be re-organized. Coincidentally, President Obama asked for the power to reorganize and made an initial suggestion related to commerce. It seems to me to... MORE

No Comment

Income Distribution
Arnold Kling
Richard Bookstaber writes, I believe we are seeing the twilight of the era of conspicuous consumption. Jessica Wakeman writes, Beyoncé's Birthing Suite Is Nicer Than My Apartment Pointers from Tyler Cowen and Glenn Reynolds, respectively.... MORE

The MIT Connection

Economic Education
Arnold Kling
Bloomberg News has an article on the many MIT economics Ph.D's currently in top policy slots at central banks around the world. The article paints a rosy picture of grad school life during the period when we were there, including:... MORE

We Are All Austrians Now?

Austrian Economics
Arnold Kling
There is a YouTube going around in which Ron Paul's applause line at a rally is "We're all Austrians now!" Conveniently enough, in this interview, Pete Boettke explains Austrian economics superbly. Austrians want to talk about the institutional environment within... MORE

We are All Sumnerians Now?

Monetary Policy
Arnold Kling
A great sentence: But I'm not sure Ben Bernanke, Tim Geithner, and the others were in fact making any major mistakes in 2006 beyond underestimating how inept they would be in the fall of 2008 and the winter of 2008-9.... MORE

Business Experience

Business Economics
Arnold Kling
Will Wilkinson summarizes some discussion of the relevance of business experience to being President. One of the tropes that he mentions (without endorsing it) is that "business people don't realize that when you come to Washington you just can't boss... MORE

Access to Academic Research Papers

Information Goods, Intellectual Property
Arnold Kling
Megan McArdle writes, Kevin Drum takes a courageous and rare stand on the internet, arguing that yes, downloading millions of files from JSTOR while evading attempts by both JSTOR, and the owner of the network you're using, to stop you,... MORE

Real Real GDP

Growth: Causal Factors
Bryan Caplan
Gross Domestic Product is staunchly atheoretical.  If someone spends money on X, X is GDP - even if "someone" is Congress, and X="a bridge to nowhere."  There are exceptions; most notably, the stats supposedly exclude "intermediate goods" to avoid double... MORE

Why Derivatives?

Finance: stocks, options, etc.
Arnold Kling
A reader asks. why would one consider hedging/derivative strategies, e.g., longs and shorts, collars and arbitrage? Stated differently (I think), a long term buy and hold of this assumed portfolio would seem to maximize its return without these hedging strategies.... MORE

Don Lavoie on Soviet "Growth"

Central Planning vs. Local Knowledge
David Henderson
Today there is a growing consensus that the contemporary Soviet economy serves the consumer very poorly (e.g., see Goldman 1983), but this criticism is often accompanied by a concession that the Stalinist model is suitable for rapid development and fails... MORE

Easier to Break than to Fix

Macroeconomics
Arnold Kling
Nick Rowe writes, Negative AD shocks will do harm to PSST, but positive AD shocks cannot do good to PSST. The issue of asymmetry in macroeconomic phenomena is important. I would speculate that in a modern economy the process of... MORE

The AI Cure

Economics of Health Care
Arnold Kling
Vinod Khosla writes, I was asked about a year ago at a talk about energy what I was doing about the other large social problems, namely health care and education. Surprised, I flippantly responded that the best solution was to... MORE

For Students

Economic Education
Arnold Kling
Students might be interested in a set of imitation Sal Khan videos that I made to cover AP economics. There are roughly 70 videos, typically 10-15 minutes each. I start with some basic economic concepts, then proceed to macro (starting... MORE

Planets, Life, and the Fermi Paradox

Economic Methods
Bryan Caplan
Since junior high, I've believed that the galaxy is full of planets and intelligent life.  But it wasn't until I was in my thirties that I heard of the Fermi Paradox.  You can boil the paradox down to a sentence:... MORE

The Real Concentration of Power

Political Economy
Arnold Kling
Robert Lawson and Richard Alm write, In 2010, a tiny cabal of 535 individuals -- just 0.00017% of the population -- spent $3.5 trillion, or about 23% of the $14.5 trillion U.S. economy. That leaves 77% for the other 99.99983%... MORE

Tevi Troy on Think Tanks

Politics and Economics
Arnold Kling
Nick Schulz and I talk with him in this video. Comments welcome. What can we do to make this a regular program that you look forward to every week? The conversation raises doubts about whether the emerging trends in think... MORE

Caplan, Kahneman, Bastiat, and the First Amendment

Economic Education
David Henderson
Bryan Caplan's post earlier this week, "Eureka! Economic Illiteracy as Mental Substitution," is one of his best ever. And that's a high bar. Bryan applies the insight from Kahneman--that people answer the question they want to answer rather than the... MORE

What is a Structurally Impaired Job?

Labor Market
Arnold Kling
Walter Kurtz writes, Credit Suisse defines structurally impaired sectors to "include real estate related industries, finance, manufacturing, and the state and local government sector." These are the sectors that at least in part rode the "bubble" economy wave. Many of... MORE

Give Me A Dozen Examples

Behavioral Economics and Rationality
Bryan Caplan
People often estimate probabilities based on how easy it is to think of examples.  Tons of examples pop into your head: High probability.  Zero examples come to mind despite brow-furrowing: Low probability.  This is known as the "availability heuristic."  I've... MORE

AEA Panel on Economics Blogging

Economic Methods
Arnold Kling
A Chronicle of Higher Education article: The role of economics blogs started changing noticeably around 2008, said Alex Tabarrok, an associate professor of economics at George Mason University. Before then, blogs were expected to be clever and entertaining, and little... MORE

What Banks are (not) Doing

Finance: stocks, options, etc.
Arnold Kling
Eric Falkenstein writes, A friend shares with me the following anecdote. He thinks real estate is cheap, and wants to buy houses, and make money renting them. Ultimately, he would sell out of the homes when they recover in value.... MORE

The Case for a Re-org of the Executive Branch

Business Economics
Arnold Kling
My latest essay: As an example of careless organizational structure, consider that prior to the financial crisis the Federal Reserve Board was responsible for consumer protection with respect to mortgages, while the Department of Housing and Urban Development was responsible... MORE

Don Lavoie on the Socialist Calculation Debate

Central Planning vs. Local Knowledge
David Henderson
The late Don Lavoie was one of the most informed and insightful modern economists on the ins and outs of the famous "socialist calculation debate." One socialist economist who thought he had solved the problem was Fred M. Taylor, who... MORE

Capitalism Without Capital

Institutional Economics
Arnold Kling
John Kay writes, The critical resources of today's company are not its buildings and machines but its competitive advantages - its systems of organisation, its reputation with suppliers and customers, its capacity for innovation. These attributes are not, in any... MORE

The Demented Pacifism of Irving Fisher

Economic Philosophy
Bryan Caplan
On July 15, 1915, the New York Times ran an interview with legendary economist Irving Fisher.  His response to the Great War was staunchly pacifist:After this war is over, of course, Europe will find herself prostrated economically, by the destruction... MORE

Return to "What Could President Paul Actually Do?"

Politics and Economics
Bryan Caplan
I was going to write a post called "What Could President Paul Actually Do?" until I realized I already wrote it four years ago.  Since it still seems current, I'm reposting it instead: What would happen if Ron Paul actually... MORE

Why Foreclosure Prevention is Not Helpful

Finance: stocks, options, etc.
Arnold Kling
Bruce Judson writes, the fear of a continuing loss of wealth (which is a cushion against job loss or other economic emergencies), the fear of job loss itself, the negative effects of underwater homes, lack of forbearance for unemployment (a... MORE

The Great Transformation

Growth: Consequences
Arnold Kling
Larry Summers writes, The nature of the transformation is highlighted by the 50 fold change in the relative price of a television set of a constant quality and a day in a hospital over the last generation. While it is... MORE

Eureka! Economic Illiteracy as Mental Substitution

Behavioral Economics and Rationality
Bryan Caplan
Here's another revelation from Kahneman's Thinking, Fast and Slow, from his chapter on "Answering an Easier Question."  The lead-in:A remarkable aspect of your mental life is that you are rarely stumped.  True, you occasionally face a question such as 17... MORE

Mitt Romney on Mercantilism

International Trade
David Henderson
But they [the Chinese] sell us this much stuff [holding his hands far apart.] We sell them this much stuff [holding his hands close together.] Tell me, who doesn't want the trade war? They don't want it real bad. And... MORE

Today on the Eurozone Crisis

Eurozone crisis
Arnold Kling
Tyler Cowen writes In the meantime, doesn't every euro -- a few sticky grannies aside -- leave the Italian banking system? Presumably the new lira is not pegged at 1-to-1 forever. He is referring to an op-ed by Robert Barro... MORE

Kahneman, Mental Effort, and the Scary Parole Study

Behavioral Economics and Rationality
Bryan Caplan
Critics of The Myth of the Rational Voter often attack it as psychologically implausible.  (See especially Bennett and Friedman's critique in Critical Review).   If, as I maintain, rationality responds to incentives, doesn't this mean that people make conscious decisions... MORE

An Answer to Truman's Prayer?

Efficient Markets Hypothesis
Arnold Kling
Claudia Goldin, William Nordhaus, Richard Schmalensee, and Anil Kashyap write, Each week since late September, along with 37 other economists at top universities, we have been answering questions on major public policy issues... Schamelensee was on my dissertation committe. President... MORE

Bryan Caplan on Income Inequality

Labor Market
David Henderson
The Power of Partial Derivatives Bryan Caplan's reasoning on income inequality is correct. Some of the commenters who think they disagree are pointing to the fact that rich people are often honored and praised. That's correct. They often are. That... MORE

Devaluation and the Real Exchange Rate

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
John Cochrane writes, If the Drachma goes from 1:1 Euros to 2:1 Euros and Greek prices and wages double, nothing happens. On the other hand, if prices and wages don't change, then Greek goods are cheaper and Greece will produce... MORE

Mark's Monetary Matters

Monetary Policy
Arnold Kling
Mark Thoma has many interesting links today, in part because the American Economic Association meetings have generated coverage in the media and in the blogosphere. For example, we have Ryan Avent paraphrasing Robert Hall: (i) A little more inflation would... MORE

"Economic growth seems like an extremely good thing.  But growth could have undesirable side effects so severe that growth is actually bad."  This position is totally reasonable - and totally uninteresting.  Could?  Could?!  If something seems extremely good, you need... MORE

How Egalitarianism Increases Inequality

Income Distribution
Bryan Caplan
All else equal, people in respected professions make less money.  The mechanism is simple:1. People like to be respected.2. People know that if they enter a respected profession they will personally enjoy more respect.3. This increases the supply of people... MORE

Sylvia Nasar's Grand Pursuit

Books: Reviews and Suggested Readings
David Henderson
The idea that humanity could turn tables on economic necessity--mastering rather than being enslaved by material circumstances--is so new that Jane Austen never entertained it. With an opening sentence like that, I thought, Sylvia Nasar's Grand Pursuit: The Story of... MORE

Arguments in the Economics Blogosphere

Economic Methods
Arnold Kling
Ryan Avent writes, The discussion is not always polite. It is interesting and enlightening, however. And it disciplines participating thinkers in a way that few other mediums manage. I have just started reading David Weinberger's new book, Too Big to... MORE

Tyler Cowen Makes a Suggestion

Growth: Causal Factors
Arnold Kling
He writes, It is also a good paper for Arnold Kling to comment on I take this as a suggestion that I read the paper, by Richard Baldwin. Actually, I am not sure that I have many comments. Here is... MORE

The Future of Talking Heads?

Politics and Economics
Arnold Kling
A half-hour discussion that Nick Schulz and I held on line, with James Pethokoukis as our guest. We talked about his blog post on economic policy ideas. We conducted this using a Google+ hangout. I recorded it using Camtasia Studio... MORE

Bastiat's Insight on Government Inaction

Regulation and Subsidies
David Henderson
I've noticed in discussions--in person, on Facebook, and in blogs--how hard it is for most people to see that opposition to having the government subsidize or require activity X does not mean that one opposes activity X. Frederic Bastiat addressed... MORE

Francis Fukuyama on Public Administration

Institutional Economics
Arnold Kling
He writes, anyone who has spent time in government realizes that the real questions that preoccupy officials have to do with implementation, or rather, the impossibility of implementing many desirable policies because of the huge number of constraints under which... MORE

Democracy: Worse Than I Thought

Political Economy
Bryan Caplan
The main problem with democracy, I keep arguing, is that harmful policies reliably win by popular demand.  But there are exceptions.  Take Obamacare.  It appears to be genuinely unpopular.  But not only did Obama pass it; it's now very likely... MORE

Macaulay on Signaling

Economics of Education
Bryan Caplan
Probably the most eloquent passage on the signaling model of education I've ever encountered, from Thomas Macaulay's Government of India:It is proposed that for every vacancy in the civil service four candidates shall be named, and the best candidate selected... MORE

Worth Reading

Finance: stocks, options, etc.
Arnold Kling
The latest issue of National Affairs has a number of interesting articles. Scott Winship challenges the claim that economic life has become more risky. Note that this is separate from Winship's article on income mobility, which also is worth a... MORE

Correction on the Swedish Consequentialism Study

Economic Philosophy
Bryan Caplan
In the comments, Olof Johansson-Stenman points out an error in my post on his consequentialism study:The third choice alternative is actually not "The extent to which the action infringes upon someone else's NATURAL rights" but simply "The extent to which... MORE

The Indian Economies

Cross-country Comparisons
Arnold Kling
Timothy Taylor has a nice summary of a very long article on India. (Another article in this issue of the Journal of Economic Literature, on labor supply elasticity, clocked in at over 100 pages. If you are looking for an... MORE

Back in 2009, before Obamacare became the law of the land, I pointed out its disemployment effects, and criticized Krugman for failing to consider them during a serious recession.  Me:The Krugman we've got is sold on the House health bill. ... MORE

Ed Leamer on "Pure" Economics

Macroeconomics
David Henderson
Messieur Walras...was one of the first "mathematical economists," who chose the title Elements of Pure Economics for his 1874 book...Do you wonder what is "pure" economics? It's not an epithet, like pure baloney. "Pure" is a reference to the language... MORE

Is Bank Regulation This Easy?

Finance: stocks, options, etc.
Arnold Kling
Amar Bhide writes, governments should fully guarantee all bank deposits ­ and impose much tighter restrictions on risk-taking by banks. I emailed him to say that I thought that this assumed that regulators would know when banks are taking risks.... MORE

Some Questions About Government

Political Economy
Arnold Kling
These are rhetorical. 1. Is government subject to diminishing returns to scope? In the business world, it is usually considered a better strategy to stick to one purpose rather than to constantly get into new lines of business. The thinking... MORE

Sins of Omission: What's Wrong With Gruber's Health Care Reform

Books: Reviews and Suggested Readings
Bryan Caplan
Given my interest in health economics and graphic novels, I was initially hopeful about Jonathan Gruber's graphic novel, entitled Health Care Reform: What It Is, Why It's Necessary, How It Works.  But in all honesty, the book is awful.  Gruber... MORE

My Hoover colleague Paul Gregory has an interesting op/ed on how things would look if the media treated Republican congressmen the way they treat Democrats. He takes a New York Times story and rewrites it the way people who oppose... MORE

Today on the Eurozone Crisis

Eurozone crisis
Arnold Kling
First, listen to Scott Sumner argue that monetary policy in the U.S. was unintentionally contractionary in 2008. Then, read Izabella Kaminsky on monetary policy today in Europe. the central bank transmission mechanism has been compromised because expansion or contraction of... MORE

The Bell Curve or The Bimodal Distribution?

Income Distribution
Arnold Kling
Charles Murray writes, As recently as half a century ago, Americans across all classes showed only minor differences on the Founding virtues. When Americans resisted the idea of being thought part of an upper class or lower class, they were... MORE

Kahneman, Greed and Success

Income Distribution
Bryan Caplan
I just finished Daniel Kahneman's Thinking, Fast and Slow.  The book is a masterpiece.  Most popular science books are 10% substance, 90% fluff.  Kahneman reverses those percentages - yet remains a breezy joy to read.  Thinking taught me much about... MORE

The Microeconomics of "Stimulus" Policy

Fiscal Policy
David Henderson
But couldn't economic productivity be increased by targeting federal spending on hiring the unemployed either directly to work for government or by subsidizing private firms to hire them? Such an approach makes sense only if it produces more value than... MORE

Christina Romer Breaks with President Obama

Fiscal Policy
Arnold Kling
She writes, We already have a blueprint for a bipartisan solution. The Bowles-Simpson Commission hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade.... MORE

Correcting For Ability Bias By Measuring Ability

Economics of Education
Bryan Caplan
There are two conceptually distinct problems with standard estimates of the return to education (see here, here, and here for more).Problem #1: Ability bias.  People with traits the labor market values (intelligence, work ethic, conformity, etc.) tend to get more... MORE

Klingian Paradox of Thrift Watch

Growth: Causal Factors
Arnold Kling
Michael Mandel writes, Let me repeat that: Government net investment as a share of net domestic product is at a 40-year low. I had to check this last one a couple of times to make sure it was really true.... MORE

Robert Frank's Narrow View on Schools

Information Goods, Intellectual Property
David Henderson
When I posted on Facebook a link to my recent blog post and book review [scroll down to the third page] of Robert Frank's latest book, a George Mason University economist friend wrote, "David, your critique is spot on, but... MORE

Sentences to Ponder

Finance: stocks, options, etc.
Arnold Kling
Let's start the new year with a quote from April of 2010. If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take. And,... MORE

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