Bryan Caplan and David Henderson

Arnold Kling: August 2009

An Author Archive by Month (59 entries)

Greg Mankiw's Problem

Books: Reviews and Suggested Readings
Arnold Kling
No, it's not that he's going to get fired by Harvard for casually invoking the Great Unmentionable to explain intergenerational income correlations. It's that he is teaching a seminar at Harvard for first-year economics students. What 10 books to assign?... MORE

Some Morning Links

Economic History
Arnold Kling
Profit from bank bailouts--so far. The profits come from banks that have paid back the government, and recall that some banks were forced to take bailout funds in the first place. We will see what happens to the full sample.... MORE

Ed Leamer's Head Fake

Books: Reviews and Suggested Readings
Arnold Kling
Ed Leamer's new book is called Macroeconomic Patterns and Stories: A Guide for MBA's. I do not know why he positioned it as a guide for MBA's. It is clearly a treatise, aimed at the economics profession, to try to... MORE

Hydraulic Macro: A Fable

Macroeconomics
Arnold Kling
I came up with this while thinking of a way to explain the Keynesian model to my high school class. But scroll to the end to see comments related to the recalculation model.... MORE

Apologies to Menzie Chinn

Econlog Administrative Issues
Arnold Kling
He takes offense at my earlier post. I meant to poke fun, not to dismiss Chinn as ranter or an ideologue. What I am poking fun at is the habit that people on the left have of calling themselves and... MORE

Solvency is No Free Lunch

Finance
Arnold Kling
Bryan writes, Suppose for example that you've got $100,000 in assets. You know with virtual certainty that the market will eventually fall from its present level of 100 down to its fundamental value of 50. The catch: You don't know... MORE

Mencius Moldbug, Sighted but Uncited

Political Economy
Arnold Kling
Edward Stringham writes, In an alternative conception of a non-government monopoly system, which is composed of vertically integrated proprietary communities that provide law, each region may include only one law enforcer but one that is private and motivated by... MORE

Tyrone on the Bailouts

Political Economy
Arnold Kling
Tyler Cowen (or perhaps his evil twin) writes, So if you're "opposed to financial bailouts," as a libertarian, you're not for the market. You're saying that one scheme for governmental disposition is better than another. Of course you are entitled... MORE

Pile on James Kwak Day

Finance: stocks, options, etc.
Arnold Kling
Many of these links come from the indispensable Mark Thoma. First, we have Gender and banking: Are women better loan officers? by Thorsten Beck and others. And yes, it does strengthen my priors. The Fed's profits are turning higher. Perhaps... MORE

If the Median Economist Set Health Care Policy

Economics of Health Care
Arnold Kling
Bryan writes, Contrary to Arnold, I think it would be a vast improvement over the status quo. I've talked to plenty of left-wing economists about this topic. On balance, their views are much more reasonable than the median non-economist's. The... MORE

Why I am not a Caplanian

Economic Education
Arnold Kling
From Bryan's talk in Sweden. With rational voters, policy-makers have to do whatever the public wants; they can't "make a difference." With irrational voters, in contrast, policy-makers may be able to give the public the policies that it needs, rather... MORE

Why I am Not a Republican, Continued

Economics of Health Care
Arnold Kling
Jeff Miron explains, Medicare should be reduced or eliminated. Opposing government health insurance by defending government health insurance is disingenuous, at best, and utlimately counterproductive. Read the whole thing. Meanwhile, Nick Gillespie writes about the late Massachusetts Senator, In an... MORE

Earthquake Science

Economic Methods
Arnold Kling
Mark Thoma writes, even though earthquakes cannot be predicted, at least not yet, it would be wrong to conclude that science has nothing to offer. First, understanding how earthquakes occur can help us design buildings and make other changes to... MORE

Bloggers on Video

Business Economics
Arnold Kling
We were filmed in Kansas City in February. My first appearance is at 9:23. One theme of the video is the similarity between blogging and entrepreneurship. Catch Tyler about 18 minutes in (he also speaks earlier in the video).... MORE

Unchecked and Unbalanced Watch

Political Economy
Arnold Kling
Joel Kotkin writes, American cities are at a critical moment. Our competitive, commercial urban tradition certainly has its flaws, but it also has produced the advanced world's most dynamic roster of modern cities and regions. Ceding the power of urban... MORE

Random Financial Commentary

Finance: stocks, options, etc.
Arnold Kling
Razib points to a paper that supports my hormone-based approach to regulating financial risk. Rocco Huang and Lev Ratnovski say that Canadian banks did relatively well because they relied more on deposits. To me, this says that securitization is not... MORE

Seasteading and Singularity

Upcoming Events
Arnold Kling
The Seasteading Conference is Sept. 28-30, in San Francisco. The Singularity Summit is October 3-4, in New York. I won't be at either, but Robin Hanson appears to be on the bill for the singularity summit. Both of these conferences... MORE

Bagehot vs. Bernanke/Paulson

Finance: stocks, options, etc.
Arnold Kling
David Warsh links to an interesting letter sent by the British Academy Forum on why economists did not predict the financial crisis. They write, A generation of bankers and financiers deceived themselves and those who thought that they were the... MORE

"Winterspeak" wonders if I would bet on the U.S. defaulting. Here are the alternatives that I can think of, and the odds I would give to them: 1. Muddle through. No major change in policy, and no major change in... MORE

More Thoughts on the Great Recalculation

Macroeconomics
Arnold Kling
In a comment on an earlier post, Hal Varian writes, The recalculation model is appealing, but is there any empirical evidence for it? I don't think that the 1930s would provide useful evidence since the production patterns after the Great... MORE

Will the United States Default?

Fiscal Policy
Arnold Kling
Someone asked for my comments on the Jeffrey Rogers Hummel piece. I think that the U.S. government would enact a wealth tax rather than default on its debt. Other countries that have defaulted have not had the option of enacting... MORE

Bernanke Breaks His Arm at Ski Resort

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
His speech today at the famous Jackson Hole conference. This strong and unprecedented international policy response proved broadly effective. Critically, it averted the imminent collapse of the global financial system, an outcome that seemed all too possible to the finance... MORE

Charles Darwin and Adam Smith

Central Planning vs. Local Knowledge
Arnold Kling
Today, generally, Adam Smith is claimed by the Right, Darwin by the Left. In the American South and Midwest, where Smith's individualist, libertarian, small-government philosophy is all the rage, Darwin is reviled for his contradiction of creation. Yet if... MORE

Status, Greed, and Power

Behavioral Economics and Rationality
Arnold Kling
Matt Yglesias wonders why politicians are not more strongly motivated by higher ideals. Selling the public good down the river to bolster your re-election chances isn't like stealing a loaf of bread to feed your starving children. The welfare rolls... MORE

A Fact for Tyler Cowen

Macroeconomics
Arnold Kling
The New York Times reports, While the private sector has shed 6.9 million jobs since the beginning of the recession, state and local governments have expanded their payrolls and added 110,000 jobs For some reason, Tyler buys into the Paul... MORE

Rethinking Macroeconomics, Continued

Macroeconomics
Arnold Kling
Two links to discuss in this post. First, David Altig discusses the "output gap," which I put in scare quotes because it is a concept that I am about to attack. Pointer from the indispensable Mark Thoma, who also provided... MORE

A Reader's Question on Health Care

Economics of Health Care
Arnold Kling
He writes, It seems to me that you are saying two different things about healthcare: 1) the way we think about health care and paying for it is out of whack. 2) the government is not (is not going to... MORE

Elite Self-Perpetuation

Behavioral Economics and Rationality
Arnold Kling
Robin Hanson pulls together various threads and concludes, So it seems the US has a finance and policy elite defined by college ties and related social connections, an elite with a strong sense that only people in their circle can... MORE

Elizabeth Warren

Finance: stocks, options, etc.
Arnold Kling
talks for ten minutes without saying much that I disagree with. Quite remarkable. Note particularly at the very end, when she suggests that her gut feeling is that the "dinosaurs" helped by Paulson's bailout may not have been as critical... MORE

Who Likes Democracy?

Political Economy
Arnold Kling
Alex Tabarrok finds a screed by Bill Maher on the ignorance of voters. People bitch and moan about taxes and spending, but they have no idea what their government spends money on. The average voter thinks foreign aid consumes 24%... MORE

Morning Commentary

Finance: stocks, options, etc.
Arnold Kling
Richard Posner writes, The efficient markets theory, when understood not as teaching merely that markets are hard to beat even for experts and therefore passive management of a diversified portfolio of assets is likely to outperform a strategy of picking... MORE

Flubs

Finance: stocks, options, etc.
Arnold Kling
Here is a fact about the financial crisis that I had missed: the Federal Home Loan banks supplied almost half the funding for two large private lenders, Countrywide and Indy Mac, that later failed. This is from Allan H. Meltzer's... MORE

Real Health Care Reform

Economics of Health Care
Arnold Kling
David Goldhill makes a lot of the points that I have been making. Two excerpts: But fundamentally, the "comprehensive" reform being contemplated merely cements in place the current system--insurance-based, employment-centered, administratively complex. It addresses the underlying causes of our health-care... MORE

One Ply Look-Ahead

Finance: stocks, options, etc.
Arnold Kling
Jacopo Carmassi, et al write, the key to avoiding repeating this crisis is setting adequate capital requirements that cannot be circumvented for all intermediaries able to raise funds redeemable on demand at par. The simple way of doing it is... MORE

Exit, Voice, and Freedom: An Example

Political Economy
Arnold Kling
Following up on this post and this one, let me try to offer a hypothetical example of freedom without democracy. Maybe Will Wilkinson can comment on the example in a way that sheds light on what he is thinking, because... MORE

Exit, Voice, and Real Freedom, Again

Political Economy
Arnold Kling
My impassioned post draws a response from Will Wilkinson that is self-refuting. He writes, I've noticed that Arnold complains a lot about Montgomery Country, MD, but as far as I know hasn't moved. In other words, he would argue that... MORE

I Agree With

Economics of Health Care
Arnold Kling
John Mackey on free-market health care reform; Alex Tabarrok on consumer-driven health plans; and Ken Rogoff that the financial crisis was more than just a loss of confidence.... MORE

Banana Republic Watch

Political Economy
Arnold Kling
William D. Cohan gives the play-by-play of the Merrill-BofA-government saga. Lewis said Bernanke told him, "We view you as strong and having acted appropriately in difficult circumstances ... We'll make sure you continue that way ... We want to do... MORE

Not Your Father's Real Business Cycle

Macroeconomics
Arnold Kling
Two helpful critiques of my post on non-hydraulic macro. I will address both of them in more detail below, but let me start by questioning the label "real business cycle model." Back before I tuned out of academic macro, Franco... MORE

What is Real Freedom?

Political Economy
Arnold Kling
Will Wilkinson writes, What the example of Hong Kong communicates is that authoritarian, illiberal, undemocratic regimes need not feel threatened by semi-independent city states with working "liberal" market institutions. It says to rulers that their countries can get rich without... MORE

My Economic Forecast

Macroeconomics
Arnold Kling
It is here. This is a very difficult thing for me to do, because economic forecasting is done under the hydraulic paradigm that I think we should try to abandon. Anyway, a sample: Traditionally, fiscal stimulus would increase the demand... MORE

Progressivism--My Most Generous Interpretation

Political Economy
Arnold Kling
Inspired by Tyler Cowen, let me offer my most generous characterization of progressivism: Progressives are the proud heirs to a tradition of experiments in public policy that brought about significant social improvements. Its antecedents go back before the Civil War... MORE

An Alternative to Hydraulic Macro

Macroeconomics
Arnold Kling
Mainstream macroeconomics is "hydraulic." There is something called "aggregate demand" which you adjust by pumping in fiscal and monetary expansion. I wish to reject this whole concept of macroeconomics. Instead, I want to get economists to think about unemployment in... MORE

One-Party State Watch

Political Economy
Arnold Kling
Mark Thoma highlights a story that I had missed--a bargain between the pharmaceutical industry and the Obama Administration on health care reform.... MORE

Bruno Leoni vs. Paul Romer

Institutional Economics
Arnold Kling
In 1961, Leoni wrote, In reality, the law is something which is not pre-fabricated in some specially-designated place, by some specially-designated producer and with some pre-established technique. In much the same way, no followers of the artificial languages such as... MORE

Financial Regulation and Public Choice Theory

Finance: stocks, options, etc.
Arnold Kling
An outstanding guest post by "bond girl" at Baseline Scenario. I would argue that the fundamental flaw in financial regulation is that it is based on the assumption that regulators are not self-interested individuals like the rest of us. We... MORE

Paul Romer Video

Arnold Kling
He explains his charter cities concept.... MORE

From Poverty to Prosperity Watch

Books: Reviews and Suggested Readings
Arnold Kling
Tyler Cowen points to a fascinating paper that measures prosperity by looking at how much light shows up on a satellite image. It turns out that Nick Schulz was thinking along the same lines when he suggested that the cover... MORE

Do Progressives Believe This?

Political Economy
Arnold Kling
I am going to write down what I think progressives believe. If I'm creating a straw man, then y'all can correct me where you think I need correcting. You believe that: 1. Unfettered free markets nearly always produce sub-optimal outcomes.... MORE

The Heterogeneous Labor Market

Labor Market
Arnold Kling
The McKinsey Global Institute writes, 71 percent of U.S. workers are in jobs for which there has been a decrease in demand from employers, an increase in supply of eligible workers, or both. I gather that this was as of... MORE

Are Progressives Totalitarian?

Political Economy
Arnold Kling
In comments on this post, SydB argues that I have created a straw-man characterization of Progressivism when I suggest that the Progressive mindset sees a technocratic solution to every problem. He writes, In Mr Kling's analysis, L's are associated with... MORE

Think of three points on an ideological triangle: 1. Point L, where you believe that markets are effective at processing information and solving problems. This position is to take a radically pro-market view, and to let markets fix their own... MORE

Exit, Voice, and Health Insurance

Economics of Health Care
Arnold Kling
Here are my thoughts on the role of reputation in health insurance markets, a topic that Bryan has raised. I think that reputation matters when exit matters. That is, if people will switch suppliers based on word of mouth, then... MORE

Readings on the Financial Crisis

Finance: stocks, options, etc.
Arnold Kling
From the Stern Business School. Strongly recommended. One excerpt: The whole purpose of securitization is to lay risks off the economic balance-sheet of financial institutions. But the way securitization was achieved, especially during 2003-2Q 2007, was more for arbitraging regulation... MORE

Defending the Massachusetts Plan

Economics of Health Care
Arnold Kling
It's working, according to the Massachusetts Taxpayers Foundation, a non-partisan think tank that consistently advocates higher government spending and taxes in Massachusetts. From a base of $1.04 billion in fiscal 2006, the state is projected to spend $1.75 billion on... MORE

Various Links

Monetary Policy
Arnold Kling
I've been away, mostly in Prague (where the big economic question is why so many older buildings have so many fancy details. My answer is that there must have been a very unequal distribution of wealth, so that rich folks... MORE

Masonomics Watch

Arnold Kling
Robin Hanson describes a new book by Eric Falkenstein. My best guess is that Eric is basically right. In fact, I'd guess lower returns for the highest risk investments come from enough investors being risk-loving in relative wealth; they are... MORE

Scott Sumner vs. Milton Friedman

Macroeconomics
Arnold Kling
Tyler Cowen writes, Professor Sumner's views differ from the monetarism of Milton Friedman by emphasizing expectations rather than any particular measure of the money supply. Allow me to expand on the history of monetary thought embedded in that statement.... MORE

Life Expectancy Statistics

Economics of Health Care
Arnold Kling
Tyler Cowen writes, Matt Yglesias and Paul Krugman weigh in on interpreting life expectancy statistics across the U.S. and the Netherlands. The fact under consideration, from a few days ago, is that the U.S. has low life expectancy overall but... MORE

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