Bryan Caplan and David Henderson

Arnold Kling: July 2010

An Author Archive by Month (76 entries)

Books Pertaining to Information

Books: Reviews and Suggested Readings
Arnold Kling
Tyler Cowen recommends five. I thought about what books I might recommend, and I realize that I have stopped reading books on information technology. Unless you count Cowen's Age of the Infovore, I may not have read any in this... MORE

Banks, Private Benefits, and Social Benefits

Finance: stocks, options, etc.
Arnold Kling
Samuel Hanson, Anil K. Kashyap, and Jeremy C. Stein write, If significant increases in capital ratios have only small consequences for the rates that banks charge their customers, why do banks generally feel compelled to operate in such a highly-leveraged... MORE

Some Further Comments on Blinder-Zandi

Economic Methods
Arnold Kling
Ezra Klein writes, The Kling post goes a bit far. Plenty of respected macroeconomists still use macroeconomic models, which is in itself a refutation of the idea that "the profession has decided that this macroeconometric project was a blind alley."... MORE

What if the Fed Bought Euros?

Monetary Policy
Arnold Kling
Scott Sumner writes, The US can't really use the exchange rate as a policy tool, it is too controversial. And so, we have to turn to less controversial tools, like pouring more wood on what the CBO says is a... MORE

Unemployed Houses: A Recalculation Story

Macroeconomics
Arnold Kling
Alex Tabarrok writes, The U.S. housing vacancy rate--an unemployment rate for home--is at its highest level since at least 1965 (see figure). Why? Is it sticky prices? Lack of aggregate demand? Structural? For labor, the recalculation story says that employment... MORE

What Blinder and Zandi Don't Know

Economic Methods
Arnold Kling
What the Blinder-Zandi paper does is explore the properties of a macroeconometric model. The economics profession abandoned those models thirty years ago, so the tool they are using is like a fossil, frozen in time. Of course, there have been... MORE

How the Blinder-Zandi Study Was Done

Economic Methods
Arnold Kling
Alan Blinder and Mark Zandi used Zandi's econometric model as the basis for a claim that the stimulus and the TARP worked. Thirty-five years ago, I was Blinder's research assistant, doing these sorts of simulations on the Fed-MIT-Penn model for... MORE

Resolution Authority for Governments

Political Economy
Arnold Kling
Paul Romer is always interesting, and especially in this podcast with Paul Kedrosky. In the last quarter of the interview, the discussion turns to badly-performing cities, and Romer speculates that we need a workout procedure that would allow a city... MORE

CBO Says: Have a Nice Day

Fiscal Policy
Arnold Kling
I mean, nothing says "have a nice day" like an issue brief from the Congressional Budget Office on the prospects for a U.S. sovereign debt crisis. On the potential for inflating away the problem, the brief says, On balance, the... MORE

This Mimic is Different

Finance: stocks, options, etc.
Arnold Kling
Eric Falkenstein offers a theory of financial manias. Sometimes, the investors (dupes) think a certain set of key characteristics are sufficient statistics of a quality investment because historically they were. Mimic investors seize upon these key characteristics that will allow... MORE

Where is the Future?

Growth: Consequences
Arnold Kling
Bruce Charlton writes, A decade ago people all over the place were saying confidently that the economic effect of the internet would outstrip the effects seen by the invention of railways and telecommunications, and that new synergies from fast and... MORE

Thoughts on Academic Tenure

Economics of Education
Arnold Kling
Megan McArdle writes, When an academic starts pushing the tenure model for anywhere outside academia, I will find their defense of its use in academia more convincing. I think that tenure is only a subset or symptom of a larger... MORE

Structural Unemployment

Macroeconomics
Arnold Kling
The Economist asks about it. Paul Seabright answers: this recession, more than most, seems likely to have produced a great increase in the mismatch, due to the unsustainable patterns of consumption and investment induced by the credit boom that preceded... MORE

The Recalculation Story: A Summary

Macroeconomics
Arnold Kling
I have had a number of requests for this. I will put it below the fold.... MORE

Journolist Ethics

Politics and Economics
Arnold Kling
Mark Thoma has written a couple of posts about the Journolist story. I have to say that very few of the comments that I have seen, pro or con, have dealt with the issues that concern me. When people on... MORE

Expectations, Once Again

Macroeconomics
Arnold Kling
Nick Rowe writes, That's the real dichotomy. Habits never change, vs habits instantly change to be consistent with the new world. And most reasonable economists would want to go somewhere in between those two extremes. If you expect the new... MORE

Why We Have Freddie and Fannie

Public Choice Theory
Arnold Kling
The Wall Street Journal reports, The Securities Industry and Financial Markets Association, Wall Street's main lobbying group, said in a proposal submitted to the Obama administration on Wednesday that the government couldn't completely exit the mortgage market without sending costs... MORE

The Macro Doubtbook, Installment 9

Macroeconomics
Arnold Kling
The previous installment was here. This installment discusses expectations. [UPDATE: This installment happens to contain what I would say is my answer to the question posed today by Tyler Cowen.|... MORE

The Austerity of 1945-1947, a third time

Economic History
Arnold Kling
I want to return to the Vedder-Galloway paper, that I mentioned here. I want to make it clear that I have a lot of problems with that paper, and I will not be basing my own views on it. More... MORE

Robert Solow on Dark Age Macro

Macroeconomics
Arnold Kling
He writes, I do not think that the currently popular DSGE models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying... MORE

Structural Decline in Democracy Watch

Political Economy
Arnold Kling
An LA Times editorial notes, that raises the question of whether Congress itself should increase the size of the House, not only to minimize disparities but to take at least some account of the population explosion that has occurred since... MORE

The Vague Fed

Monetary Policy
Arnold Kling
This story says, In the testimony, Sen. Shelby asks Bernanke what everyone wants to know: what more can the Fed do for the economy, if needed. Bernanke replies that the Fed has options from lowering the interest on reserves rate,... MORE

The Austerity of 1945-1947, Again

Economic History
Arnold Kling
In 1991, Richard K. Vedder and Lowell Gallaway wrote, The smooth transition to peace was accomplished despite the existence of a fiscal policy that was the very antithesis of Keynesian economic prescriptions to deal with falling aggregate demand. The most... MORE

Lyrics Without Music

Books: Reviews and Suggested Readings
Arnold Kling
Craig Wieland sent me a copy of Pointed Poems, a book of conservative poetry that he has composed. Since this is a unique book, it is difficult to know what standards to use to evaluate it. I am inclined to... MORE

The Austerity of 1945-1947

Economic History
Arnold Kling
Official data are somewhat sparse. I would appreciate pointers to any better data or additional information. I am also curious about what newspapers and magazines were reporting at the time about postwar conversion--how well it was going, what was working,... MORE

Technocracy

Political Economy
Arnold Kling
David Brooks writes, When historians look back on this period, they will see it as another progressive era. It is not a liberal era -- when government intervenes to seize wealth and power and distribute it to the have-nots. It's... MORE

Ways in Which the U.S. has Become Less Democratic

Political Economy
Arnold Kling
My claim is that a number of factors have reduced the impact of the "voice" (voting or other forms of political participation) of ordinary citizens. You can argue that other factors have increased the impact of ordinary citizens. You can... MORE

How Does Narrative Emerge?

Politics and Economics
Arnold Kling
The Daily Caller reports, Spencer Ackerman of the Washington Independent urged his colleagues to deflect attention from Obama's relationship with Wright by changing the subject. Pick one of Obama's conservative critics, Ackerman wrote, "Fred Barnes, Karl Rove, who cares --... MORE

Housing Matters

Macroeconomics
Arnold Kling
Vernon L. Smith and Steven Gjerstad write, In the immediate aftermath of most recessions, housing expands more rapidly than any other component of GDP, and inflation falls. Through the first part of the expansion, housing increases and inflation remains low.... MORE

Previous installment is here. This one deals with international macro. However, the perspective is strictly textbook-ish. The bottom line: From an international perspective, the notion of a liquidity trap becomes more doubtful. The central bank can always buy foreign bonds.... MORE

The Macro Doubtbook, Installment 7

Macroeconomics
Arnold Kling
Previous installment is here. The new installment below discusses finance theory. I happen to think that the relationship between macroeconomics and finance is more problematic than the relationship between macro and any other branch of economics. John Hicks writing in... MORE

The Neo-neoliberals?

Fiscal Policy
Arnold Kling
CNN Money reports, "I don't want to see revenue as a percentage of GDP be much higher than 21%," Bowles said. "At the same time we have to work to make the tough choices to bring spending down to the... MORE

The ZMP Hypothesis

Labor Market
Arnold Kling
Tyler Cowen writes, In general, which hypotheses predict lots more short-term unemployment among the less educated, but among the long-term unemployed, a disproportionately high degree of older, more educated people? This stylized fact seems to point toward search and recalculation... MORE

The Neo-Reactionaries

Political Economy
Arnold Kling
Angelo M. Codevilla writes, The ruling class's appetite for deference, power, and perks grows. The country class disrespects its rulers, wants to curtail their power and reduce their perks. The ruling class wears on its sleeve the view that the... MORE

The Employment Recovery

Macroeconomics
Arnold Kling
Tyler Cowen asks, Why does it take so long? This isn't one of those West European scenarios where, due to benefits, being unemployed is permanently somewhat attractive alternative for some subset of the work force. Nor is the United States... MORE

Textbook Macro, Sumner's Macro, My Macro

Macroeconomics
Arnold Kling
I use the term "textbook macro" a lot. I want to stop and define it. In textbook macro, sometimes there is excess supply of labor and sometimes there is not. That is the supply side of the economy. The demand... MORE

What is Job Creation?

Macroeconomics
Arnold Kling
Russ Roberts writes, I'm not saying Keynes (or Obama or Larry Summers) is wrong because all spending does is bid up prices and wages. I'm not trying to prove that the stimulus failed. I'm challenging the standard macro textbook story... MORE

Financial Reform: A Brief Take

Finance: stocks, options, etc.
Arnold Kling
Mark Thoma gives his view, then asks his readers, What's your view of the bill? What offends me about the bill is that it serves to raise the status of those who least deserve it. Start with the name, "Dodd-Frank... MORE

Where Do Libertarianst Belong, Continued

Political Economy
Arnold Kling
Nick Schulz puts in his $.02 The original fusionist project of Frank Meyer and others was predicated on a belief that libertarians and conservatives (social/religious/paleo) actually agreed on some basic philosophical principles, not just shared goals such as opposing Soviet... MORE

Who Are You Calling Agreeable?

Behavioral Economics and Rationality
Arnold Kling
The British Psychological Society blog reports, Among the most strong and intriguing correlations were: Neuroticism correlated with use of 'irony' and negatively correlated with 'invited'; Extraversion correlated with 'drinks' and negatively correlated with 'computer'; Openness correlated with 'ink'; Agreeableness with... MORE

What is the Fed Thinking, 2?

Monetary Policy
Arnold Kling
Yesterday, I offered two ungenerous interpretations of the Fed's unwillingness to take steps to boost the economy. If the Fed believed in textbook macro, then I would think that, if nothing else, they would stop paying interest on reserves. Today,... MORE

The Somali Model

Political Economy
Arnold Kling
I enjoyed Ben Powell's lecture on Somalia, although on my computer the volume was barely audible. Among the points of interest: --cell phone spectrum is provided competitively without an FCC. --there is competitive virtual government, in the sense that you... MORE

What is the Fed Thinking?

Monetary Policy
Arnold Kling
Read Tyler Cowen, Paul Krugman, Brad DeLong, and Scott Sumner to catch up. Basically, all of them support having the Fed try to undertake expansionary monetary policy, although Krugman thinks it might not work. As you know, I believe in... MORE

The Stimulus Worked

Macroeconomics
Arnold Kling
The Council of Economic Advisers says so. The reason that the Council has about as much credibility as Baghdad Bob is that chart that everyone has seen showing that unemployment with the stimulus is higher than what they predicted without... MORE

Macro Beliefs and Reality

Macroeconomics
Arnold Kling
I am leaning toward a view of macroeconomics in which firms, households, and government face a collision between beliefs and reality. Beliefs tend to be formed out of habitual observation. If certain types of investments in human and physical capital... MORE

Bryan: Define Money

Macroeconomics
Arnold Kling
Bryan writes, Out of all of Arnold's macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables. Here is my problem. Nominal GDP is measured... MORE

Modern Finance vs. Portfolio Balance Theory

Finance: stocks, options, etc.
Arnold Kling
The first chapter of the Macro Doubtbook definitely needs a section on the relationship between finance theory and macroeconomics. I think that relationship is an uneasy one. Macroeconomists use what is called "portfolio balance theory" to argue that changes of... MORE

Libertarians and the Tea Party Movement

Politics and Economics
Arnold Kling
A debate among Brink Lindsey, Jonah Goldberg, and Matt Kibbe. Although it is self-recommending, I have read it. Lindsey says, prior to the rise of the conservative counter-establishment--think tanks, talk radio, websites, and Fox News--the right's dark side was subject... MORE

The Portfolio Separation Theorem

Finance: stocks, options, etc.
Arnold Kling
This is about a theorem in finance. I will put it below the fold.... MORE

Minsky-Jones Answers Tyler Cowen

Macroeconomics
Arnold Kling
Tyler asks, If aggregate demand is so low, why are profits so high? Garett Jones would say that labor is mostly overhead, and firms have shed a lot of overhead. They are sacrificing growth in future capabilities in order to... MORE

Help Me Understand

Finance: stocks, options, etc.
Arnold Kling
this story: What killed AIG was much more likely the financial and managerial collapse within AIG Global Investment Corporation's securities lending program... It was the pure economic loss of capital in its most natural state. It represented the decline in... MORE

Still Jackasses

Macroeconomics
Arnold Kling
Stephen Williamson writes, From a New Monetarist point of view, a key element of the financial crisis relates to the scarcity of liquid assets. There is one type of liquid asset, which is outside money. Currency and bank reserves play... MORE

Macro Doubtbook, Installment 6

Money
Arnold Kling
Here is the long-awaited section on monetary theory. If you ask me the question, what will happen if the Fed stops paying interest on reserves, my answer would differ from Scott Sumner's. I would say, "Not much will happen in... MORE

Moral Failure?

Finance: stocks, options, etc.
Arnold Kling
The Spring Issue of the Harvard Journal of Law and Public Policy is now on line, with a focus on the economic crisis. You will find many familiar names among the authors. This is also the place where I have... MORE

Mark Thoma's Response

Monetary Policy
Arnold Kling
I challenged him, and he graciously responds. I am not convinced that lowering the interest rate on reserves from one quarter of a percent to zero will have much of an effect on investment activity. What we need is a... MORE

Morning Libertarian Rant

Politics and Economics
Arnold Kling
John Shure writes, Those who are blaming states for their severe budget shortfalls and arguing that Congress shouldn't provide much-needed assistance until states "clean up their act" (here's a recent example) are wrong on both counts. Pointer from Mark Thoma.... MORE

An Assignment for Mark Thoma

Monetary Policy
Arnold Kling
He claims that there is not much that the Fed can do to contribute to the recovery. I would like for Mark or for Paul Krugman to write an essay on the topic of what would happen if tomorrow the... MORE

Policy Focus

Macroeconomics
Arnold Kling
Scott Sumner is worried about little things like unemployment and fiscal sustainability. Fortunately, our political leaders are not distracted by such trivialities. The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks,... MORE

Monetary Doubtbook, Installment 5

Macroeconomics
Arnold Kling
Here, I talk about capital theory as a path for macroeconomics. Some recent posts are relevant. Tyler Cowen talks about the saving-investment balance. Paul Krugman implicitly says that investment follows what I call in the installment below the "accelerator model"... MORE

Unchecked and Unbalanced

Politics and Economics
Arnold Kling
Terrence P. Jeffrey writes, In the July 26, 2008 issue of the British Journal of Medicine (BMJ), Dr. Berwick published an article praising the NHS on its 60th birthday and urging Great Britain to reject free enterprise in health care.... MORE

Business Dynamics and Macroeconomics

Macroeconomics
Arnold Kling
Tim Kane finds that the tendency for a firm to add or subtract jobs declines with the age of the firm. Much of the job creation on average comes from startup firms. In fact, Kane puts it this way: without... MORE

Michael Pettis on Financial Fragility

Books: Reviews and Suggested Readings
Arnold Kling
A while back, I mentioned that I was going to get his book. It arrived yesterday, and I have some excerpts below the fold. Meanwhile, James Hamilton asks whether risky assets were undervalued in February of 2009. When the price... MORE

Natural Libertarians?

Politics and Economics
Arnold Kling
Lee Harris pens a provocative essay. To natural libertarians, there can be no more existential conflict than the one they face today. Are they destined to perish from the earth along with their cherished cultural and religious traditions, pushed aside... MORE

This installment, below the fold, discusses real wage rates and employment. The previous installment was here.... MORE

Hayekian Moment Watch

Political Economy
Arnold Kling
Dennis Whittle writes, 1. Who decides which problems aid should address? 2. Who comes up with the solutions? 3. Who gives the funding? 4. Who competes to implement the solutions? 5. Who gives feedback on how well the solutions work?... MORE

Saving and Identities

Macroeconomics
Arnold Kling
Yves Smith and Rob Parentau write, Over the past decade and a half, corporations have been saving more and investing less in their own businesses. A 2005 report from JPMorgan Research noted with concern that, since 2002, American corporations on... MORE

Sarah Palin's First Hundred Days*

Politics and Economics
Arnold Kling
She comes to office in January of 2013 with three priorities in economic policy. These are restoring the health of the private nonfinancial sector, putting entitlements on a sustainable path, and reversing the trend toward centralization of power. 1. A... MORE

Paging Hyman Minsky

Finance: stocks, options, etc.
Arnold Kling
Why Are Firms Saving So Much?, asks The Economist. A number of economists offer thoughts, including Hal Varian, Brad DeLong, and Mark Thoma. Andrew Smithers points to some data. despite the rise in US corporate cash flow, non-financial corporate balance... MORE

Another Macro Metaphor

Macroeconomics
Arnold Kling
Howard Bloom writes, Over three billion years ago, bacteria already had a cycle of boom and bust built into their DNA. The cycle of boom and bust is a search strategy. It's a cycle that uses us to explore the... MORE

Green Jobs!

Energy, Environment, Resources
Arnold Kling
The latest announcement about U.S. industrial policy says, Abengoa SA... was offered a $1.45 billion loan guarantee by the U.S. Department of Energy to build a 250-megawatt solar plant in Arizona, and Abound Solar Manufacturing was offered a $400 million... MORE

Cato's Voice of Moderation

Books: Reviews and Suggested Readings
Arnold Kling
Brink Lindsey reads Arthur Brooks' new book and gives it a thumbs down. Figuring out how to restore growth and how to construct an effective but affordable safety net, are questions for debate, analysis, and democratic decision-making. My answers to... MORE

Robert Hall Interview

Macroeconomics
Arnold Kling
Mark Thoma points to an interview with Robert Hall, who I consider the Don Sutton of the economics profession.* Read the whole thing. Here are some excerpts from the interview, with my comments. Issuing what appear to be overvalued public... MORE

Various

Macroeconomics
Arnold Kling
Doc Merlin is among those linking to a New York Times story about manufacturers having difficulty finding skilled workers. I would love to say that I find that the story validates my views macroeconomics. Instead, I just find the story...odd.... MORE

What Health Insurance Reform Means

Economics of Health Care
Arnold Kling
The Boston Globe reports, The number of people who appear to be gaming the state's health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the... MORE

Macroeconomics Doubtbook, Installment 3

Macroeconomics
Arnold Kling
This discusses labor markets. I also discussed them in my macro lectures, and I may want to integrate more of that material here. The full installment is below. This was the previous installment. Here is an excerpt of the current... MORE

Temporary Layoffs in Postwar Recessions

Labor Market
Arnold Kling
James Hamilton writes, Suppose you adopted Feldstein's perspective that those individuals who fully expected to get back their old jobs soon are not really unemployed, but should instead be viewed the same way we treat workers who remain employed but... MORE

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