Bryan Caplan and David Henderson

Arnold Kling: October 2009

An Author Archive by Month (72 entries)

Did the Lehman Failure Do It?

Finance: stocks, options, etc.
Arnold Kling
William Sterling writes, In contrast to the analysis of Lehman skeptics such as John Taylor (2008, 2009) and John Cochrane and Luigi Zingales (2009), the evidence we present supports the view of many practitioners that the decision not to rescue... MORE

Changing People's Minds

Behavioral Economics and Rationality
Arnold Kling
What causes people to change their minds? On this blog, I have argued that people do not change their minds on ideological issues. I have argued that econometric regression results typically do not change people's minds. Why is that?... MORE

Robin Hanson Argues from Authority

Economic Methods
Arnold Kling
He writes, Economists should listen more to techies on what techs will be feasible at what costs, but techies should also listen more to economists on the social implications of tech costs. Alas, just as economists prefer to rely on... MORE

The State of the Economy, II

Business Economics
Arnold Kling
I don't think yesterday's GDP report matters. Historically, cyclical movements in GDP are just blips. It is the long-run trend of productivity that matters. This news from Scott Shane might be disturbing. The self-employment rate is now below pre-recession levels.... MORE

The State of the Economy, I

Economic History
Arnold Kling
The financial crisis creates significant opportunity for long-term pessimists. Again, I recommend the podcast featuring Ken Rogoff and Niall Ferguson. Rogoff has been a gloomy person (in a fun way) for as long as I have known him, which is... MORE

This Time is Different in Concert

Books: Reviews and Suggested Readings
Arnold Kling
I've talked before about the new book by Ken Rogoff and Carmen Reinhart, titled This Time is Different, which is about how financial crises have been around a long time and have a lot in common with one another. (You... MORE

Questions about the Public Option

Economics of Health Care
Arnold Kling
Steven Landsburg is now blogging. One of his first posts is on health reform. Concerning the public option, he writes, A more efficient bureaucracy? But if there were a way to save money by streamlining the bureacracy, why wouldn't all... MORE

One Estimate of Multipliers

Fiscal Policy
Arnold Kling
Alberto Alesina and Silvia Ardagna write, Our results suggest that tax cuts are more expansionary than spending increases in the cases of a fiscal stimulus. Based upon these correlations we would argue that the current stimulus package in the US... MORE

Russ Roberts on Capitol Hill

Politics and Economics
Arnold Kling
At a hearing on the "pay czar," he doesn't mince words. We don't need a Special Master to level the playing field. We just need to take the crony out of crony capitalism so we can get back to the... MORE

Book Update

Books: Reviews and Suggested Readings
Arnold Kling
1. From Poverty to Prosperity is supposed to ship to distributors next week. I'll believe it when I see it. So far, I have not seen any printed version--only electronic galleys. There will be no review copies available prior to... MORE

Zingales to Republicans: Go Jeffersonian

Politics and Economics
Arnold Kling
Luigi Zingales writes, The Republican Party has to move from a pro-business strategy that defends the interests of existing companies to a pro- market strategy that fosters open competition and freedom of entry. ...A pro-market party will fight tirelessly against... MORE

Robin Hanson on Ethics

Behavioral Economics and Rationality
Arnold Kling
He writes, Humans overwhelmed by the social complexities of helping a bum nearby think they know enough about societies far away, so that ethics becomes the main concern there... Beware the easy confidence of advising worlds far from your knowledge... MORE

The Singularity: What's in it for Me?

Growth: Consequences
Arnold Kling
Tyler Cowen tries to answer. I'll add my comments.... MORE

The Pay Czar's Diversion

Political Economy
Arnold Kling
David Brooks writes, Ninety-four percent of college professors believe they are above average teachers, and 90 percent of drivers believe they are above average behind the wheel. Researchers Paul J.H. Schoemaker and J. Edward Russo gave computer executives quizzes on... MORE

Calomiris on the Crisis

Finance: stocks, options, etc.
Arnold Kling
Charles Calomiris talks with Russ Roberts. It is a long podcast, and it is perhaps the best ever. I hope that it gets transcribed, published, and widely disseminated. Consider the following statement: Deposit insurance is the _____ for banking crises.... MORE

Data and Dogma

Economic Methods
Arnold Kling
(i). Bob Sutton quotes a meta-analysis by Frank Schmidt and John Hunter published in 1998 on the factors found to affect job performance. 1. GMA tests ("General mental ability") 2. Work sample tests 3. Integrity tests: surveys design to assess... MORE

Political Economy, Banking, and Capitalism

Finance: stocks, options, etc.
Arnold Kling
Luigi Zingales writes, The real effect of Gramm-Leach-Bliley was political, not directly economic. Under the old regime, commercial banks, investment banks, and insurance companies had different agendas, and so their lobbying efforts tended to offset one another. But after the... MORE

The Longstanding Debate over National Defense

Political Economy
Arnold Kling
When Elbridge Gerry proposed in the [Constitutional] Convention that no standing army exceed three thousand men, Washington is supposed to have made a countermotion that "no foreign enemy should invade the United States at any time, with more than... MORE

Chauffered America, Strip Mall America

Books: Reviews and Suggested Readings
Arnold Kling
"Hold on, hold on," [Ruth] Porat said in disbelief. "You're calling me on a Sunday night saying that we just spent the entire weekend on Lehman and now we have this [AIG]? How the [foul language] did we spend... MORE

The Stimulus and the Economy

Fiscal Policy
Arnold Kling
John Taylor cuts through the BS. the latest Department of Commerce estimates of ... the improvement in GDP growth from the first to second quarter. Growth improved by 5.7 percent (from -6.4 percent to -0.7 percent). Private investment was by... MORE

The Bonus Issue

Politics and Economics
Arnold Kling
I was against the bailouts from day one, and I have not changed that position. Government spent my money without my permission on bailing out AIG, Goldman, and the rest. I won't repeat my references to Henry Paulson as a... MORE

Health Care: The Facts that Matter

Economics of Health Care
Arnold Kling
In The Freeman, I write, Overall, I would argue that on the demand side, the United States healthcare system is essentially socialized. The fact is that close to 90 percent of health-care spending is paid for by third parties, which... MORE

The Tonkin Principle

Politics and Economics
Arnold Kling
FinReg21 reports, While emergency bailout funds helped avert a collapse of the financial system, the Treasury Department now thinks the money should be diverted to helping small businesses and homeowners, a Treasury official said. Speaking before the Congressional Oversight Panel... MORE

They Laughed at Me When I Said it

Energy, Environment, Resources
Arnold Kling
The Dominion Post reports The eco-pawprint of a pet dog is twice that of a 4.6-litre Land Cruiser driven 10,000 kilometres a year, researchers have found. Thanks to a reader for the pointer (no pun intended).... MORE

What I'm Reading

Books: Reviews and Suggested Readings
Arnold Kling
Empire of Liberty, by Gordon Wood. Part of the Oxford series on American history, it focuses on the period 1789-1815. So far, I find myself thinking about it in the context of the Cowen-Hanson theory of political behavior and also... MORE

A Recalculation Data Point

Macroeconomics
Arnold Kling
From David Altig, via Mark Thoma. This statistic, the percentage of job losses that are permanent, is a useful way to distinguish Keynesian recessions from Recalculations. In a Keynesian recession, you are temporarily laid off because of excess inventories and... MORE

Turning Back the Financial Clock

Finance: stocks, options, etc.
Arnold Kling
Yves Smith writes, Now you could in theory go back to having much more on balance sheet intermediation (finance speak for "dial the clock back 35 years and have banks keep pretty much all their loans"). Conceptually, that is a... MORE

Irony in the News

Political Economy
Arnold Kling
Car Czar says GM mismanaged. Watchdo excoriates execution of TARP. Of course, in the case of GM, the CEO was fired.... MORE

The Recalculation Model in a Journal

Macroeconomics
Arnold Kling
Brad Cornell writes (don't expect the link to work smoothly) The recession is due primarily to a widespread mismatch between current conditions and previous plans, relationships, and contracts. As a result, consumer desires, resources, and production technology are also misaligned.... MORE

Health Reform and Vietnam

Political Economy
Arnold Kling
Michael Cannon writes, Massachusetts also demonstrates that compulsory health insurance enables, and ultimately requires, politicians and government bureaus to control nearly all aspects of health care and medical practice. Lately, I've been thinking about Vietnam analogies. For example, mandatory health... MORE

James Hamilton Estimates a Phillips Curve

Macroeconomics
Arnold Kling
He finds, the forecast of the model for the average inflation rate between 2009:Q4 and 2011:Q4 is -0.5%. ...If for further evidence on inflationary expectations you looked at the gap in yields between nominal Treasuries and TIPS, you'd say inflation... MORE

The M Word

Finance: stocks, options, etc.
Arnold Kling
I have a new statistic to track--the use of the word "mortgage" in discussions of causes of the financial crisis. See, for example, my statistical report on Ben Bernanke's arm-breaking speech. I predict the following: The use of the M... MORE

A Proposal for Masonomics Fieldwork

Behavioral Economics and Rationality
Arnold Kling
A comment on my last post on political dispositions: The real reason people with high IQs lack common sense is neurological. You can't be cerebral without sacrificing cunning. It takes real live brain matter to support each. Unless you've got... MORE

Political Dispositions

Political Economy
Arnold Kling
Daniel B. Klein takes a shot at something I have tried to do, namely, sort out the dispositions of progressives, conservatives, and libertarians. The configuration presupposed by social-justice leftists and social democrats generally is that all resources in society are... MORE

Populism, Left and Right

Finance: stocks, options, etc.
Arnold Kling
Shane Greenstein writes, Russ Roberts is normally a free market economist, but in his essay he sounds like an old fashioned populist. When a firm does something to turn Russell Roberts into a populist then -- perhaps -- something is... MORE

On "job creation"

Macroeconomics
Arnold Kling
Mort Zuckerman writes, the US lost 44m jobs in the last two decades of the 20th century, but simultaneously created 73m private sector jobs. A stunning 55 per cent of the total workforce was in new jobs by the turn... MORE

Now I Believe the Insurance Industry Study

Economics of Health Care
Arnold Kling
The Washington Post reports, An internal industry study released earlier this week found that the Senate reform bill would cause premiums to rise sharply, but the report's findings have been widely disputed... Pelosi said the House may adopt a Senate... MORE

Conservative != Libertarian

Political Economy
Arnold Kling
Daniel Klein and Jason Briggeman find that leading conservative magazines are not libertarian. This is no surprise. Read Jordan J. Ballor. He cites an essay by Russell Kirk. This essay leaves no doubt about the distinction between Kirk's conservatism and... MORE

Suits vs. Geeks Watch

Business Economics
Arnold Kling
Calvin Trillin interviews a Wall Street old-timer. When the smart guys started this business of securitizing things that didn't even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the... MORE

Wesley Mouch Award

Central Planning vs. Local Knowledge
Arnold Kling
Biofuels digest reports, In Washington, the US Secretary of Energy, Dr. Steven Chu, broke with Obama administration renewable energy policy, telling stunned alternative energy developers at a recent meeting on alternative fuels that "if it were up to me, I... MORE

The Kool-Aid Factor

Finance: stocks, options, etc.
Arnold Kling
Nobel Laureate Eric Maskin says, I think most of the pieces for understanding the current financial mess were in place well before the crisis occurred. If only they hadn't been ignored. We're not going to eliminate financial crises altogether, but... MORE

Certainty, Uncertainty, and Macro

Macroeconomics
Arnold Kling
Steven Randy Waldman writes, A housing boom, any kind of boom, is attended by an increase in certainty. Information is stimulus, confusion is contraction. A bust occurs when the market is unsure of everything, when market participants perceive better risk-adjusted... MORE

Thoughts on Probability and Uncertainty

Behavioral Economics and Rationality
Arnold Kling
Eric Falkenstein watched the Youtube of the Caplan-Boettke debate on Austrian economics. Falkenstein concludes, What is needed is something constructive, something the Austrians, Post-Keynesians, or Taleb, have failed to do. Let me place this in the context of my introduction... MORE

Explaining Oliver Williamson

Business Economics
Arnold Kling
I think Alex Tabarrok is the most helpful of the bloggers thus far. Lynne Kiesling is helpful on Williamson as well as on Elinor Ostrom, the other new Nobel Laureate. I think of Oliver Williamson in terms of the 1980's... MORE

Economic Models, the Bond Market, and Monetary Policy

Finance: stocks, options, etc.
Arnold Kling
In a comment on this post, Bryan asked whether I should not be betting on treasury-indexed securities. I'll answer that one below the fold. What I have been thinking about is this. 1. In general, I do not think that... MORE

R&R: It's the Leverage, Stupid

Finance: stocks, options, etc.
Arnold Kling
Reinhart and Rogoff are interviewed. Rogoff says, This idea that we'll get rid of too-big to fail banks and we'll be OK -- that's nuts because a really big bank is only going to fail if there's a systemic crisis.... MORE

Nobel for Institutional Economics

Institutional Economics
Arnold Kling
When I was in Bloomington, Indiana last week, Justin Ross and I talked about the "Bloomington school of public choice," meaning Elinor Ostrom. (see Aligica and Boettke.) Little did I know that she was about to be awarded a Nobel... MORE

A Sentence to Ponder

Macroeconomics
Arnold Kling
Gap-based theories of inflation were badly discredited in the 1970s. That is James Bullard. Pointer from WSJ real time economics. To the Krugmans and DeLongs of the world, it is intuitively obvious that with unemployment approaching 10 percent we... MORE

The Pleasure of Telling Others What to Do

Behavioral Economics and Rationality
Arnold Kling
Humans clearly attend closely to status, an important part of status is dominance, and a key way we show dominance is to tell others what to do. Whoever gets to tell someone else what to do is dominating, and... MORE

More Scott Sumner

Macroeconomics
Arnold Kling
Here. after July 2008 there were many other indicators that money was far too tight. About this time the dollar began rising sharply against the euro; and commodity prices began a sharp decline. Real interest rates rose from less than... MORE

Thoughts on a Second Stimulus

Fiscal Policy
Arnold Kling
Greg Mankiw recommends reading Emil M. Sunley on the Carter era job creation tax credit. Sunley wrote, No student of public fınance, if left alone, would design a tax incentive as complicated as the jobs credit. Surely the arbitrary distortions... MORE

Health Care Reform: Two Important Points

Economics of Health Care
Arnold Kling
1. The "score" of the Baucus bill as not adding to the deficit is far too generous. CBO Director Douglas Elmendorf writes, The projected savings for the proposal reflect the cumulative impact of a number of specifications that would constrain... MORE

More on Recalculation and Asymmetry

Macroeconomics
Arnold Kling
James Hamilton writes, I'd like to add a paper I published in 1988. There I presented a model in which unemployment arises from a drop in the demand for the output of a particular sector. The unemployed workers could consider... MORE

Government Failure

Finance: stocks, options, etc.
Arnold Kling
In Washington, "affordable housing" equates to cheap, lenient mortgage credit. Ed Pinto keeps trying to explain the consequences of this to Congress. His September 16 testimony is on the Community Reinvestment Act and affordable housing goals for Freddie and Fannie.... MORE

Afternoon Commentary

Finance: stocks, options, etc.
Arnold Kling
1.Paul Krugman ask another question. why does it have to be a return to shadow banking? The banks don't need to sell securitized debt to make loans -- they could start lending out of all those excess reserves they currently... MORE

Politics is Not About Policy

Political Economy
Arnold Kling
David Harsanyi improves on David Broooks. Mr. Hoover knows everything. He attended a high-brow graduate school and worked as a Senate aide before becoming a policy expert. (He even pretends to understand Jeremy Bentham.) He is a man who craves... MORE

Scott Sumner, on One Foot

Monetary Policy
Arnold Kling
From his own blog I have a very unconventional way of thinking about the monetary transmission mechanism. A monetary shock is essentially a change in the future path of the money supply relative to velocity, in other words, a change... MORE

Education and Growth

Growth: Causal Factors
Arnold Kling
Ed Glaeser writes, no variable from 1900 better explains success in 2000 than investment in education. That is, if you had a high percentage of the school-age population enrolled in school in 1900, you would have a high GDP per... MORE

Hayek Said the Sky is Blue

Austrian Economics
Arnold Kling
My favorite line from Bryan's debate about Austrian economics. Substantively, though, I would disagree with Bryan on the issue of entrepreneurship. I do not think of entrepreneurship in terms of search theory. In From Poverty to Prosperity, we describe the... MORE

What Did the Regulators Know, and When?

Finance: stocks, options, etc.
Arnold Kling
I say Plenty, and long before most people had heard of CDS, CDO, or SIV. a review of the history of the past few decades shows that regulators were aware of these innovations. They approved of these innovations. They collaborated... MORE

Paul Krugman asks a Question

Macroeconomics
Arnold Kling
He argues that the Recalculation story falls apart when you ask why, say, a housing boom -- which requires shifting resources into housing -- doesn't produce the same kind of unemployment as a housing bust that shifts resources out of... MORE

Big Finance and Big Government

Finance: stocks, options, etc.
Arnold Kling
Andrew Ross tells us what the big boys were doing during the crisis. Neil Barofsky says that the government was playing a confidence game. The fact that there is some populist anger in the country these days is not a... MORE

From Poverty to Prosperity Watch

Growth: Causal Factors
Arnold Kling
Bill Easterly interviews Paul Romer. Romer says, To understand how to alleviate poverty, we must understand growth and progress. Progress comes from new and better ideas. Ideas come in two flavors, technologies and rules. To foster growth and development, the... MORE

Moral Hazard and Bank Policy

Finance: stocks, options, etc.
Arnold Kling
These issues are discussed by Russ Roberts and Gary Stern. There are two issues that they keep circling around. One is the effect on capital structure of policies and practices that routinely protect creditors and counterparties. The other is what... MORE

Recalculation and State and Local Relief

Fiscal Policy
Arnold Kling
Tyler Cowen finds and responds to some criticisms of the Recalculation story. Avent and Yglesias suggest that Kling is making up his own macro but the innovation is simply to call the adjustment process "recalculation," to give it a more... MORE

M as a weighted average

Money
Arnold Kling
How does monetary policy work? Think of it this way: Fiscal policy adds or subtracts government liabilities. Monetary policy swaps government liabilities.... MORE

Business vs. Markets

Political Economy
Arnold Kling
This post is in part inspired by the "sentence to ponder" quoted by Tyler Cowen. Consider the following matrix: Pro-BusinessAnti-BusinessPro-MarketAnti-Market The point is that there really are four separate categories, not just the two pro's and the two anti's. On... MORE

The Stimulus Debate, Revisited

Fiscal Policy
Arnold Kling
Mark Thoma is raising the issue that it is too soon to back away from economic stimulus. See, for example, Paul Krugman, Robert Reich, Tim Duy, and other recent posts. All of these appeared before this morning's employment release, which... MORE

Glass-Steagall 2.0?

Finance: stocks, options, etc.
Arnold Kling
Bruce Judson writes, this post is linked to a petition asking the Financial Crisis Inquiry Commission and the Treasury Secretary to explain in detail their reasons for recommending, or not, a system that relies on a highly concentrated, limited number... MORE

Attention Hoosiers

Economics of Health Care
Arnold Kling
On Tuesday, October 6th, I will be speaking at Indiana University. The time is 1PM. The location is the SPEA Atrium--I guess if you are familiar with the university, you know where that is. My topic will be health care... MORE

Risk-averse Risk Takers

Finance: stocks, options, etc.
Arnold Kling
Felix Salmon writes, Financial complexity and innovation, on this view, are essentially tools of obfuscation. And it's easy to hide risks when risk-averse investors want debt-like products which retain their face value: such instruments tend to have very low volatility,... MORE

Morning Commentary

Fiscal Policy
Arnold Kling
Most of these are links in posts by Mark Thoma. Richard Robb says that letting Lehman fail really did cause big problems. However, he concedes, There is plenty of room to debate the larger counterfactual: if the government had never... MORE

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