Bryan Caplan and David Henderson

Arnold Kling: September 2009

An Author Archive by Month (70 entries)

Taking Bryan's Counterintuitive Claim Challenge

Economic Education
Arnold Kling
Recently, Bryan posed a challenge and a follow-up to state a basic economic claim that is difficult to explain simply and intuitively. Of all of Greg Mankiw's Ten Principles of Economics, the one that I think is hardest to explain... MORE

Unchecked and Unbalanced Teaser

Books: Reviews and Suggested Readings
Arnold Kling
Cato's Caleb Brown and I recorded a podcast about Unchecked and Unbalanced, which I gather will appear in late November. If you listen for the eight minutes or so, I think you will get a rough sense of the issues... MORE

Money as a Store of Value

Macroeconomics
Arnold Kling
A commenter asks how I reconcile my assertion that money is a store of vaue with my view that macroeconomics should not emphasize the role of money as a store of value. It is only the second view--that money is... MORE

From Poverty to Prosperity Watch

Growth: Causal Factors
Arnold Kling
Mark Kleiman writes, I'm worried about the tiny budget of the National Science Foundation and other basic-research enterprises, about an increasingly shoddy educational system, and about cooking the planet. The stock of capital plant and equipment, not so much. In... MORE

Monetary Theory, Once Again

Macroeconomics
Arnold Kling
Josh Hendrickson and a reader raise interesting questions.... MORE

Unchecked and Unbalanced Watch

Behavioral Economics and Rationality
Arnold Kling
One of the themes in the second of my forthcoming books is that power is becoming concentrated while knowledge is becoming specialized. David Carr muses about how hard it is to know everything nowadays. In terms of what I call... MORE

Inner Economist Watch

Behavioral Economics and Rationality
Arnold Kling
FuturePundit on the finite supply of willpower.... MORE

Whose Macro is Bizarre?

Macroeconomics
Arnold Kling
Thanks to Mark Thoma for keeping the debate going. In a defense of what Paul Krugman would call Dark Age Macroeconomics, David Beckworth unleashes that most medieval of weapons, the dreaded Vector Autoregression. More on that below the fold. Also... MORE

Securitization and Credit Default Swaps

Finance: stocks, options, etc.
Arnold Kling
The latest issue of FinReg21 looks at them. First, Charles Davi makes a big deal out of the fact that credit default swaps are derivatives, which allow institutions that do not own securities to make side bets on the value... MORE

Questions About Financial Crises

Finance: stocks, options, etc.
Arnold Kling
Neither a borrower nor a lender be. That's the way I feel after reading This Time is Different, by Carmen M. Reinhart and Kenneth S. Rogoff. This is certainly one of the must-read books of the year. Some thoughts after... MORE

Responses to Two Critics

Macroeconomics
Arnold Kling
I have been making the following claims about macro.... MORE

Caught My Eye

Finance: stocks, options, etc.
Arnold Kling
Esther (genius grant) Duflo and Abhijit Banerjee are interviewed. They are known for doing experimental tests of anti-poverty tactics. In one project we gave away a kilo of lentils for each immunization given to a child, and it had a... MORE

How to Kill Entrepreneurship

Business Economics
Arnold Kling
Make it an exercise in obtaining government money. Fisker Automotive, a private company based in Irvine, Calif., has received a $529 million loan from a Department of Energy program designed to fund the development of alternative vehicles. This was announced... MORE

Why Not Restore Glass-Steagall?

Finance: stocks, options, etc.
Arnold Kling
David Moss writes, The fifty years of relative financial calm that followed the Glass-Steagall Act of 1933, the Securities Exchange Act of 1934, and the Banking Act of 1935 strongly suggest that sound public risk management can make a positive... MORE

Read the whole thing. He likes the Recalculation story, which he points out he articulated last December. But he doesn't really buy my bizarre monetary theory. He writes, "I see the Fed as controlling nominal gdp but not always real... MORE

Attention, Twits

Econlog Administrative Issues
Arnold Kling
Give your advice and help in the comments. I am now a twit. A newbie twit. I set up an account on twitter. David Henderson has one, too. What should we do with these? Should we have some "follow me... MORE

Bizarre Monetary Theory, Once Again

Macroeconomics
Arnold Kling
Bill Woolsey writes, it is not difficult to see that a large shift in the composition of demand would result in larger shifts in resource utilization, higher structural unemployment, and slower growth in the productive capacity of the economy. For... MORE

Felix Salmon vs. Olivier Blanchard

Finance: stocks, options, etc.
Arnold Kling
Salmon writes, At heart, it all comes down to information: loans are stronger and more desirable than bonds, because a bank intends to hold its loan to maturity and does a lot of underwriting, shoring it up with covenants. Bonds,... MORE

As John Taylor points out, our debt situation today is much scarier than it was after World War II. When the war ended, we stopped accruing war debt. As GDP grew, the ratio of debt to GDP shrank. I would... MORE

Elves and Helicopters

Macroeconomics
Arnold Kling
Bryan asks, Could the central bank hit a 20,000% nominal growth target, plus or minus 1000%? No. Certainly not next quarter. Maybe it come close if it aimed for such a target in 2014. Consider two thought-experiments, one involving elves... MORE

My Bizarre Monetary Theory, Continued

Macroeconomics
Arnold Kling
Before I respond to Bryan's comments, let me first recommend the two Scott Sumner papers that he mentions. This paper develops a theory that cultural values drive economic policy, which in turn drives economic outcomes. It is an interesting complement... MORE

I Deny (the significance of) MV = PY

Macroeconomics
Arnold Kling
Jeffrey Rogers Hummel writes, Orthodox monetarists attributed such shocks to declines in the rate of monetary growth, whereas traditional Keynesians blamed declining autonomous expenditures. Both of these sources are captured in the well known equation of exchange: MV = Py,... MORE

Kling vs. the International Monetary Fund

Finance: stocks, options, etc.
Arnold Kling
They write, Current reservations about securitization do not invalidate its economic rationale, arguing instead for repairing the flaws exposed by the recent crisis. Securitization alleviates credit constraints and places asset exposures with entities that are more willing to accept and... MORE

Predictability of Crises

Macroeconomics
Arnold Kling
Gilles Saint-Paul writes, any macroeconomic theory that, in the midst of the housing bubble, would have predicted a financial crisis two years ahead with certainty would have triggered, by virtue of speculation, an immediate stock market crash and a spiral... MORE

Ezra Klein Won't Take My Medicine

Economics of Health Care
Arnold Kling
He seems to accept my diagnosis. The average health-care coverage for the average family now costs $13,375, according to Kaiser... About 160 million Americans receive health coverage through their employers. In general, the employer picks up 73 percent of the... MORE

Boettke on Masonomics

Austrian Economics
Arnold Kling
Pete Boettke pens An Open Letter to Tyler Cowen (and Arnold Kling). He has some nice things to say about Tyler.... MORE

Kling on the State of Macro

Macroeconomics
Arnold Kling
Let me tell my story using the following table, which shows the primary causes of economic fluctuations according to different economists.: Animal Spirits,Liquidity PreferenceMonetary ShocksProductivity ShocksRecalculationKeynes, Akerlof-Shiller, KrugmanLucas, Dornbusch, Fischer, BlanchardPrescottClower, Leijonhufvud, Hayek, Kling Macro practitioners (the people who report... MORE

Tyler Cowen on Masonomics

Economic Methods
Arnold Kling
He spoke at a lunch today. I didn't take notes, so I may have some things wrong.... MORE

Poster Child for U.S. Health Care

Economics of Health Care
Arnold Kling
A British reader forwarded this. Note that in order to get life-saving treatment, the boy apparently must go to the U.S. Overall, I am not a huge fan of our health care system, but one thing that I suspect that... MORE

The Biggest Lie on Health Reform

Economics of Health Care
Arnold Kling
Of the following statements made by President Obama in his speech on health reform last week, which is not true? Answer below the fold. a) "if you are among the hundreds of millions of Americans who already have health insurance... MORE

John Quiggin on Macro

Macroeconomics
Arnold Kling
He writes, The appealing idea that macroeconomics should develop naturally from standard microeconomic foundations must be recognised as a distraction. In its place, we must accept, in the language of systems theory that macroeconomic phenomena are emergent, arising from complex... MORE

Audio on the Crisis

Finance: stocks, options, etc.
Arnold Kling
It's here. I start about 7-1/2 minutes in, and Russ Roberts starts about 33 minutes in. Russ sounds great. Mine probably reads better than it sounds. You can read a decent approximation of what I said here. Then listen to... MORE

Suits, Geeks, and Lehman

Finance: stocks, options, etc.
Arnold Kling
From a New York Times story: He recalls vividly the days in early 2007 at Lehman when his financial models began to throw up more warnings showing delinquencies and defaults, and he remembers colleagues on his desk raising questions about... MORE

The Moral Hazard Story

Finance: stocks, options, etc.
Arnold Kling
Russ Roberts told it with great passion today. I'm hoping an audio will be available tomorrow. But he should not feel lonely. Simon Johnson and James Kwak write, creditors had only limited incentives to watch over major banks. Ordinarily, creditors... MORE

Why Get Insurance?

Behavioral Economics and Rationality
Arnold Kling
My best guess is that most insurance is bought not to reduce risk but instead to signal prudence and caring. The first life insurance companies had a terrible time selling "bets on their death," and only succeded when they... MORE

What I'm Saying

Finance: stocks, options, etc.
Arnold Kling
If all goes according to schedule (unlikely), then about the time that this is posted, I should be in the middle of saying something along these lines:... MORE

The Historical Roots of the Financial Crisis

Finance: stocks, options, etc.
Arnold Kling
My paper has been released.... MORE

Laidler and Sumner on the State of Macro

Macroeconomics
Arnold Kling
Will WIlkinson notifies me of Scott Sumner's essay at Cato Unbound. Self-recommending, with interesting commentators lined up. On a related note, David Laidler writes, The point of [Keynes'] liquidity preference theory was that money, whose use as a means of... MORE

Reminder

Upcoming Events
Arnold Kling
The place to be Tuesday morning will be on Capitol Hill.... MORE

More Tea and Sympathy

Politics and Economics
Arnold Kling
Again, off mission so below the fold.... MORE

Blog on Causes of the Crisis

Macroeconomics
Arnold Kling
I am definitely going to be a subscriber to this new blog. Thanks to Will Wilkinson for the pointer. Several of the initial posts are pushback at Paul Krugman's piece on what economists got wrong. Nobel Laureate Vernon Smith chimes... MORE

Tea and Sympathy

Politics and Economics
Arnold Kling
A conservative photo-journalist refers to yesterday's rally in Washington as The Conservative Woodstock. I believe that this day could be referred to in the not too distant future as the day that changed America. This was the day the great... MORE

The View from Outside

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen lets loose with both barrels in today's New York Times. we're still at the point where the medical sector is enshrined as "too big to take a pay cut," which is not so far removed from the banking... MORE

What if Lehman had been Bailed Out?

Finance: stocks, options, etc.
Arnold Kling
Joe Nocera speculates, In truth, a Merrill or A.I.G. default would have created something akin to a financial nuclear bomb -- much worse than Lehman's filing for bankruptcy. Merrill was a much bigger firm, with deep roots on Main Street... MORE

Some Pushback to Krugman

Economic Methods
Arnold Kling
From John Cochrane and from Daniel Klein. Cochrane writes, Most of the article is just a calumnious personal attack on an ever-growing enemies list, which now includes "new Keyenesians" such as Olivier Blanchard and Greg Mankiw. Rather than source professional... MORE

Moral Hazard and Capital Structure

Finance: stocks, options, etc.
Arnold Kling
Russ Roberts is working on a paper suggesting that the fragility of our financial system could be the result of past bailouts, in which unsecured creditors and counterparties of financial institutions were always made whole. In some sense, the fact... MORE

Friday Afternoon Miscellany

Political Economy
Arnold Kling
Keith Hennessey has an interesting question. What thought leader most clearly and effectively presents points of view with which you frequently strongly disagree? He proposes that awards be given. Would Tyrone be considered eligible? Presumably, my nominees have to be... MORE

9-15 anniversary event

Upcoming Events
Arnold Kling
I will be speaking at an event on Capitol Hill on Tuesday, September 15. This is an anniversary of sorts for the financial crisis, and that is the topic for the event. I am planning a really hard-hitting talk. I... MORE

Experts and Government

Political Economy
Arnold Kling
An essay in the The Australian touches on issues that I often write about on this blog. The tendency to regard public opinion as the prisoner of irrationality informed the attitude of the elite towards the public display of emotion... MORE

Shocking Views on Health Policy

Economics of Health Care
Arnold Kling
They come from Richard A. Cooper, a physician (not to be confused with Richard Cooper, the specialist in international economics). Orszag has argued that if Medicare spending could be as low in Newark as it is at Mayo, the nation... MORE

When a Fund Bet on a Bailout

Finance: stocks, options, etc.
Arnold Kling
Bloomberg reports, From July 2007 to July 2008, the commercial-paper portion of Reserve Primary's holdings jumped to almost 60 percent from 1 percent, according to the trade association. The fund's yield rose to 0.4 percentage point above the average among... MORE

Obama Speaks

Politics and Economics
Arnold Kling
[Update: My reactions to the President's health care speech are here.] The folks at Cato think that President Obama's speech to school kids was creepy. I agree. You know what it reminds me of? In 7th or 8th grade, during... MORE

A Contestable Market

Growth: Causal Factors
Arnold Kling
Free to Choose Media asks, What institutions can enable the world's poor to realize their power and achieve prosperity? The best blog answer can win $250. The forthcoming book, From Poverty to Prosperity, by yours truly and Nick Schulz, would... MORE

The Narrative of the Financial Crisis

Finance: stocks, options, etc.
Arnold Kling
In this essay, I write, The dramatic structural changes that took place in the financial industry were not noticed by the general public, and received little coverage even in the financial press. However, it is a myth that financial regulators... MORE

Banana Republic Watch

Political Economy
Arnold Kling
Who wrote this? Answer below the fold. The mystery author writes, The finance sector's increasing concentration and growing political muscle have undermined the traditional American understanding of the difference between free markets and big business. This means not only that... MORE

The Incredible Shrinking Private Sector?

Economics of Health Care
Arnold Kling
Michael Mandel writes, The employment report shows that private sector employment in August 2009 was lower than it was in August 1999 Of course, August of 1999 was near the peak of the dotcom boom, and August of 2009 is... MORE

Boo Alan Blinder

Political Economy
Arnold Kling
He writes, an audit of its monetary policies by the GAO -- which, remember, works for Congress -- could easily develop into something quite dangerous. Here is a not-so-unlikely hypothetical: sometime in 2010, the Fed, wanting to avoid inflation, will... MORE

Book Watches

Books: Reviews and Suggested Readings
Arnold Kling
Both forthcoming books now have Amazon pages. Neither is published yet, but pre-orders would be appreciated. From Poverty to Prosperity. Unchecked and Unbalanced.... MORE

Spontaneous Order Denied

Economic History
Arnold Kling
Doug Rushkoff says that our capitalist society is neither spontaneous nor an order. He thinks it came about because of some decisions made by monarchs in the 13th century. The first innovation was to centralize currency. What better way for... MORE

Mortgage Markets: The Public Option

Finance: stocks, options, etc.
Arnold Kling
The Washington Post reports, Only one lender of consequence remains: the federal government...nearly 90 percent of all new home loans are funded or guaranteed by taxpayers...Government officials generally agree that it would be better for private lenders to resume their... MORE

What Do Conservatives Believe?

Political Economy
Arnold Kling
Tyler Cowen draws up a list. I liked his last point: Responsibility is a more important value than either liberty or equality. The other night, we had a dinner party where my wife and I were the only ones who... MORE

The Recalculation Model, Simplified

Macroeconomics
Arnold Kling
First, I note that Paul Krugman is sounding Austrian. In a follow-up to his longer piece, he writes, the economy is a complex system of interacting individuals -- and these individuals themselves are complex systems. Neoclassical economics radically oversimplifies both... MORE

The G 20 Speaks

Finance: stocks, options, etc.
Arnold Kling
They say, Consistent and coordinated implementation of international standards, including Basel II, to prevent the emergence of new risks and regulatory arbitrage, particularly with regard to Central Counterparties for credit derivatives, oversight of credit ratings agencies and hedge funds, and... MORE

Krugman vs. Blanchard on the State of Macro

Macroeconomics
Arnold Kling
Paul Krugman writes, contra Olivier Blanchard, that The state of macro, in short, is not good. I agree with his diagnosis. But his prescription, to return to some sort of old-time Keynesian religion, is too vague. It would be precise... MORE

The Median Economist Speaks on Health Care

Economics of Health Care
Arnold Kling
Jonathan Gruber writes, Liberals are right that fundamental cost control can only come from the supply side. Consumers are poor and ineffective shoppers in the medical arena. Ultimately, they will do what their doctors tell them to do. ...But here... MORE

Robert Fogel on Health Care Costs

Economics of Health Care
Arnold Kling
His article would be self-recommending, except that Tyler uses that expression to mean something that he has not yet read. I have read Fogel's piece. He writes about rising health care expenditures, The main factor is that the long-term income... MORE

Identity Politics and Phobias

Political Economy
Arnold Kling
In Commentary Magazine, David Wolpe writes, Podhoretz's book is meant to explain why Jews do not vote their self-interest. I would say it is because they vote their self-conception, which is a very different thing. Jews identify with those who... MORE

Tyler Cowen on Bank Bailouts (Again)

Finance: stocks, options, etc.
Arnold Kling
He writes, Two years ago, my view was this: if there is a banking crisis, the Fed should be loose with money and let the market sort out which banks deserve support and which do not. And stop there. When... MORE

Could Freddie Come Baaaack?

Finance: stocks, options, etc.
Arnold Kling
John Hempton writes, Pre-tax, pre-provision operating profits of Freddie Mac are running at over $15 billion. If the government were not demanding 10 percent on its preference shares the companies would be sufficiently well capitalised to repay their interest in... MORE

Paging Scott Sumner

Monetary Policy
Arnold Kling
He needs to clear up some confusion. I think that Penn Bullock, is quite confused about Milton Friedman, monetarism, and the current crisis. In fact, Bullock is so confused that I searched in vain for something to excerpt. On the... MORE

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