Bryan Caplan and David Henderson

Arnold Kling: August 2010

An Author Archive by Month (77 entries)

Exchanging Nickels for Dimes?

Finance: stocks, options, etc.
Arnold Kling
James Hamilton writes, Suppose that the Federal Reserve were to sell off all its Treasury securities of less than one-year maturity, and use the proceeds to buy up all the longer term Treasury debt it could. For example, in December... MORE

The Desire to See Others Suffer

Behavioral Economics and Rationality
Arnold Kling
James Lewis argues that fascism involves the political use of sadism to recruit millions of followers in a campaign of pleasurable punishment against a scapegoated person or group. I found the essay provocative, which is a term I apply when... MORE

Inflation Regimes: the 5.5 percent barrier

Macroeconomics
Arnold Kling
As Bryan offers data for study, let me suggest that in the United States the regime changes somewhere between 5.0 and 6.0 percent for the annualized "core" inflation rate (the CPI excluding food and energy). 1. Take the moving six-month... MORE

The Unemployment Problem

Labor Market
Arnold Kling
Megan McArdle writes, How much unemployment reduction you get for a given amount of stimulus spending is, obviously, at best an imperfect estimation. But let's take the CBO's estimates as representing a rough consensus of those who favor stimulus: for... MORE

Dodd-Frank-Enron

Finance: stocks, options, etc.
Arnold Kling
Peter Wallison writes, The dominant theme of the 2,300-page Dodd-Frank Wall Street Reform and Consumer Protection Act is fear of instability and change...Where [non-bank] financial firms once focused on beating their competitors, they will now focus on currying favor with... MORE

Russ Roberts and Dan Pink

Business Economics
Arnold Kling
They discuss motivation and incentives. Very enjoyable conversation. If anything, it is a little too fast-paced. One point is that people seek autonomy, mastery, and purpose. I think that is very true in people's avocations, or hobbies. I think, though,... MORE

Bond Bubble Watch

Fiscal Policy
Arnold Kling
Nobel Laureate Gary Becker comments on the possibility of a debt crisis. Morgan Stanley's report argues debt/GDP is not a good measure of default risk, and suggests instead the ratio of debt to government revenues. On this measure, the US... MORE

How Toggling Works (I Think)

Macroeconomics
Arnold Kling
Bryan asks how I think that the Fed can make big changes in inflation regime but not make small changes within a regime. Again, my thinking is based almost entirely on my reading of postwar U.S. monetary history, which went... MORE

Two Tyler Retweets

Finance: stocks, options, etc.
Arnold Kling
The sole purpose of this post is to retweet two of Tyler Cowen's assorted links. 1. How to tell when a CEO is lying. I was expecting to click through and read, "His lips are moving," but in fact it... MORE

The Upcoming November Election

Politics and Economics
Arnold Kling
Larry Sabato writes, the main cause of Democratic distress isn't promoting liberal legislation but simply being in charge when bad things are happening to the nation's economy. So, we have high unemployment, and the party in power is being blamed.... MORE

Three Inflation Regimes

Monetary Policy
Arnold Kling
Bryan's question on testing for inflation regimes drew interesting comments. Some notes: 1. The idea that the rate of inflation and its variability are correlated is not original with me. I know the observation was made earlier in the literature,... MORE

Austrian Resurgence

Austrian Economics
Arnold Kling
The Wall Street Journal profiles GMU's Pete Boettke. The resurgence of Austrian economics does have its hazards, Mr. Boettke says. The antigovernment fervor on cable-television shows and the Internet may have popularized its theories, but it also "reinforces the idea... MORE

Bond Bubble Watch

Fiscal Policy
Arnold Kling
Brian Riedl of Heritage gives us the good cheer on the Budget. Over the past 50 years, Washington has collected 18 percent of GDP while spending 20.3 percent of GDP. Annual figures have not deviated much from these averages. Even... MORE

Where I Believe that I was Most Wrong

Finance: stocks, options, etc.
Arnold Kling
Brad DeLong started this one, and Tyler Cowen picked up on it. Megan McArdle has the longest list (which by no means implies that she was the most often wrong.) 1. My way of thinking about the price/rent ratio for... MORE

She writes, There is no such thing as a perfect Fed; it's always going to err on one side or another. You said you wanted a Fed that didn't err on the loose side; now you have it. This is... MORE

Bond Bubble Watch

Fiscal Policy
Arnold Kling
Morgan Stanley's Arnaud Mares writes, The sovereign debt crisis is not European: it is global. And it is not over. Pointer from WSJ Real Time Economics. Mares points out that the current debt/GDP ratios are not the problem. It is... MORE

A Nice Sentence

Monetary Policy
Arnold Kling
from Mark Thoma. To me, some of the beliefs held by the other side are astoundingly unbelievable, but they would, of course, say the same thing about me. He then links to a piece by the evil twin of Andy... MORE

Monetary Theory Question

Money
Arnold Kling
There has been a lot of drama among monetary theorists in the blogosphere, and I have been waiting for Scott Sumner to join the fray. He writes, Thus the question is never whether low rates unfairly subsidize borrowers, or whether... MORE

Spending vs. PSST

Macroeconomics
Arnold Kling
Mark Thoma articulates the conventional view. It's useful to break down the economy into four major sectors -- households, businesses, government, and the foreign sector...lower consumption growth will be a substantial drag on the economy...looking to housing to lead the... MORE

More Predatory Education

Economics of Education
Arnold Kling
The Washington Monthly has the scoop: The Washington Monthly and Education Sector, an independent think tank, looked at the 15 percent of colleges and universities with the worst graduation records--about 200 schools in all--and found that the graduation rate at... MORE

Brink Lindsey, Will Wilkinson

Business Economics
Arnold Kling
They are leaving Cato, and bloggers are gossiping. Here is my $.02: 1. I get paid by the piece writing for Cato occasionally, and they give me the title "adjunct scholar." But I have no office or salary there. I... MORE

Sovereign Debt Wonkery

Fiscal Policy
Arnold Kling
I wrote Guessing the Trigger Point for a U.S. Debt Crisis for Mercatus. Don't assume that you understand it the first time you read it. This is a really difficult, subtle issue. Think of the following as an analogy. A... MORE

A Consensus to Question

Finance: stocks, options, etc.
Arnold Kling
Felix Salmon writes, the main message from the big conference on Fannie and Freddie is that there's a broad-based consensus, Rick Santelli rants notwithstanding, that large-scale government participation in the housing market is necessary to prevent further house-price declines. Old... MORE

American Health Care Policy Issues

Economics of Health Care
Arnold Kling
That is the title of this paper, in which I trace the history, politics, and economics of our health care system The bottom line: The health care reforms that were debated in 2009 and 2010 did not address the fundamental... MORE

More Bond Bubble Talk

Finance: stocks, options, etc.
Arnold Kling
At The Economist, pointer from Tyler Cowen. Laurence Kotlikoff writes, current bondholders will get hurt in two ways. The prices of their bonds will fall due to concern about future money creation and the current price level will jump due... MORE

Evolution, Economics, and Education

Alternative Economics
Arnold Kling
Mike Gibson points to a sequence of posts by D.S. Wilson. They start here (with some broken links in the first paragaph--I needed to use Google to follow up on one of them), and proceeds rather slowly for my taste.... MORE

Gender and the Financial Crisis

Finance: stocks, options, etc.
Arnold Kling
Anthropologist Lionel Tiger says, in general I think it's the case that females don't go for that kind of money because they don't want to. I have said on a number of occasions that if someone put me in charge... MORE

Locavores vs. Basic Economics

Central Planning vs. Local Knowledge
Arnold Kling
Steven Landsburg writes, How many grapes were sacrificed by growing that California tomato in a place where there might have been a vineyard? How many morning commutes are increased, and by how much, because that New York greenhouse displaces a... MORE

Macroeconomic Puzzles

Finance: stocks, options, etc.
Arnold Kling
Paul Krugman writes, Right now, the Mankiw indicator is -8.5 -- core inflation at about 1, unemployment at 9.5. As you can see, that implies a majorly negative interest rate; what we actually get is zero. He suggests that the... MORE

AD or AS?

Labor Market
Arnold Kling
Minneapolis FRB President Narayana Kocherlakota says, I mentioned that the relationship between unemployment and job openings was stable from December 2000 through June 2008. Were that stable relationship still in place today, and given the current job opening rate of... MORE

Twenty-Somethings

Income Distribution
Arnold Kling
From a long piece in the New York Times Magazine: How about expanding programs like City Year, in which 17- to 24-year-olds from diverse backgrounds spend a year mentoring inner-city children in exchange for a stipend, health insurance, child care,... MORE

In the Name of "Affordable Housing"

Public Choice Theory
Arnold Kling
Greg Mankiw prints some notes from Philip Swagel from last week's conference on the future of housing finance. Conference participants from industries involved with the financing and construction of homes assert that no American will ever buy a home again... MORE

Parking, Once Again

Regulation and Subsidies
Arnold Kling
Tyler Cowen offers a number of links. I clicked on this op-ed, by Donald Shoup. To prevent shortages, some cities have begun to adjust their meter rates (using trial and error) to produce about an 85 percent occupancy rate for... MORE

On National Education Policy

Economics of Education
Arnold Kling
George Leef writes, The first point to observe is that "our" college graduation rate is just a statistical artifact, like "our" home ownership rate and "our" voting rate. To people imbued with a central planning mindset, such statistics betoken national... MORE

Ed Pinto on Mortgages

Finance: stocks, options, etc.
Arnold Kling
The short version, in the Wall Street Journal (subscriber-only). The long version, which is the definitive work on how housing policy affected mortgage lending. Pinto has access to good data. He has the institutional knowledge. He doesn't have an address... MORE

The Government Mortgage Subsidy

Finance: stocks, options, etc.
Arnold Kling
ABC News quotes PIMCO's Bill Gross. "Without government guarantees, mortgage rates would be hundreds -- hundreds of basis points higher, resulting in a moribund housing market for years." Is he just talking his book, or is he serious? The standard... MORE

David Kennedy talks to Russ Roberts

Economic History
Arnold Kling
In this podcast, where the topic is the history of the Depression. Kennedy's book, Freedom From Fear, is one that I read recently and enjoyed. I find it quite interesting that the standard narrative is that Hoover was non-interventionist and... MORE

Computer Models as Autocrats

Finance: stocks, options, etc.
Arnold Kling
Amar Bhide writes, In recent times, though, a new form of centralized control has taken root--one that is the work not of old-fashioned autocrats, committees, or rule books but of statistical models and algorithms. These mechanistic decision-making technologies have value... MORE

Predatory Educating

Economics of Education
Arnold Kling
Steve Eisman says, There are two kinds of accreditation -- national and regional. Accreditation bodies are non-governmental, non-profit peer-reviewing groups. Schools must earn and maintain proper accreditation to remain eligible for Title IV programs. In many instances, the for-profit institutions... MORE

Left, Right, and Wrong

Politics and Economics
Arnold Kling
Brink Lindsey is interviewed by Jonathan Rauch for the "five books" series. Lindsey's book choices are not as interesting as his comments on the role of the progressive left and the traditionalist-conservative right. At any given time truth is partly... MORE

Parking: What is the Relevant Margin?

Regulation and Subsidies
Arnold Kling
In a comment, Robin Hanson asks (or re-asks) why parking should be free, when there are thousands of other goods with low marginal cost that are not free. My basic answer is that there are thousands of other goods with... MORE

The Leamer Indicators

Macroeconomics
Arnold Kling
Now, I am getting to the part of Macroeconomic Patterns and Stories where Leamer gets very conventional. Economic activity equals spending, monetary policy equals the Fed Funds rate, and all the fiscal and monetary dials work as they do in... MORE

Price Discrimination Explains...Macro?

Macroeconomics
Arnold Kling
In chapter 10 of Macroeconomic Patterns and Stories, Ed Leamer writes, in recessions, the most price sensitive customers drop by the wayside, and what remains are the wealthy who don't care much about price. Facing this kind of customer base,... MORE

Leamer on the Current Recession

Macroeconomics
Arnold Kling
Obviously, I am going through Macroeconomic Patterns and Stories chapter by chapter. It is really too bad that he positioned it as a textbook, because I think that the rest of the profession needs to read it. Anyway, he signed... MORE

Parking Spaces: What is the Free-Market Equilibrium?

Regulation and Subsidies
Arnold Kling
Robin Hanson writes, I didn't see Tyler favoring forcing prices above marginal cost, just opposing laws requiring excess supply. So, there are two issues. a. How much land should be devoted to parking spaces? b. Given the answer to (a),... MORE

Extraterritoriality

Political Economy
Arnold Kling
That is the title of a work from 1925 by Shih Shun Liu. Richard Johnsson has placed it on line. Some quotes. In the earlier stages of human development, race or nationality rather than territory formed the basis of a... MORE

Idle Chatter from Ed Leamer

Macroeconomics
Arnold Kling
Continuing my relatively unplanned commentary on Macroeconomic Patterns and Stories, chapters 7 and 10 are on idleness. One can think of a recession as resources being idle, and then we wonder why they are idle when they could be productive.... MORE

Why is there Free Parking?

Regulation and Subsidies
Arnold Kling
Tyler Cowen's latest column is on the anomaly of free parking. If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation... MORE

Momentum in Employment: Why it Matters

Labor Market
Arnold Kling
The other day, I verified Ed Leamer's finding that there is momentum in payroll employment. This is an extremely important finding, as I will explain below. Just as a teaser, I think it strongly supports Tyler Cowen's ZMP story, but... MORE

Which Jobs to Save?

Labor Market
Arnold Kling
Tyler Cowen writes, In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again, at least assuming those are "good" jobs in the first place. (Yes, people thought they knew... MORE

Momentum in Employment

Labor Market
Arnold Kling
According to Ed Leamer's Macroeconomic Patterns and Stories, chapter 4, payroll employment is not a random walk. The change in payroll employment in August will be highly correlated with the average change from May through July. This was 26,667, according... MORE

Two Provocative Quotes on Education

Economics of Education
Arnold Kling
Both in Forbes blogs. Rich Karlgaard: Self-learning rules. We are at the beginning of the Death of Credentials. The ROI for 95% of college educations will be negative. Bill Gates: If I told you that the best math teacher was... MORE

Nobody Invited Me

Finance: stocks, options, etc.
Arnold Kling
To the Administration's Panel on Housing Policy. Off hand, here is what I would say. 1. Government support of secondary mortgage markets is the worst form of trickle-down economic policy. Many very wealthy people profit from it, and the benefits... MORE

Tyler Cowen on the Paul Ryan Plan

Economics of Health Care
Arnold Kling
He writes, We all know that health care spending has to be restrained in some manner. There are (at least) two approaches: 1. Have the federal government take a more active role in shutting down or limiting some reimbursements, based... MORE

Macro Doubtbook, Installment 11

Macroeconomics
Arnold Kling
The previous installment was here. The installment below discusses macroeconometrics. It is very brief, because I think that the issue is better discussed in the context of the historical perspective that I envision providing in the main part of the... MORE

Seasonal Employment (Not Wonkish)

Macroeconomics
Arnold Kling
Bryan weighs in on an issue of seasonal employment. This issue has produced much controversy among a few wonks. See the post by Mark Thoma. Almost 40 years ago, I was a seasonal teenage worker, in a factory in South... MORE

Trend vs. Random Walk

Macroeconomics
Arnold Kling
I am starting to re-read Ed Leamer's textbook, Macroeconomic Patterns and Stories. Very early, he presents a graph of real GDP from 1955 to 2005 on a log scale, showing that it grows at a trend rate of 3 percent,... MORE

Retirement Risk

Social Security
Arnold Kling
Megan McArdle quotes Jonathan Cohn: To what extent is the problem that the retirement benefits for unionized public sector workers have become too generous? And to what extent is the problem that retirement benefits for everybody else have become too... MORE

Unfair Measure of the Laffer Curve

Supply-side Economics
Arnold Kling
Nick Schulz links to a post by Tino that makes the point that in spite of much lower tax rates, the U.S. government collects more tax revenue per capita than do European governments. If all else were equal, this would... MORE

Strange Question from Ed Glaeser

Finance: stocks, options, etc.
Arnold Kling
He writes, In the case of the housing boom, we can't even answer the basic question of how much approval rates or loan-to-value ratios changed over time for a person with fixed characteristics. The loan approval rate that Glaeser discusses... MORE

The Health Insurance Hurdle

Labor Market
Arnold Kling
Tyler Cowen asks what is wrong with the labor market. He points to David Leonhardt, who writes, the downturn has still exacted a much harsher toll on the less educated. The unemployment rate for college graduates is still just 4.5... MORE

Various Links

Finance: stocks, options, etc.
Arnold Kling
Kevin Villani enters the dispute over what caused the financial crisis on the side of those of us who see misguided policy as a major factor. Philip Greenspun worries about what happens when the marginal product of a worker falls... MORE

Growth Clusters

Growth: Causal Factors
Arnold Kling
From David Halberstam's The Fifties, p. 174: Everyone in this country, he thought, had a car and a family, and sooner or later everyone had to go somewhere. Dorothy Wilson listened to him with growing trepidation--when Kemmons Wilson said he... MORE

Three Dispositions of (Modern) Liberals

Books: Reviews and Suggested Readings
Arnold Kling
When libertarians read Alan Brinkley's The End of Reform, they will frequently nod with approval when Brinkley refers to some faction within the Roosevelt Administration as "statists." Just bear in mind that for Brinkley, that term is not derogatory. After... MORE

Two from the New York Times

Macroeconomics
Arnold Kling
1. Nobel Laureate Edmund Phelps writes, One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects. Another would be to improve corporate governance... MORE

Did Health Care Reform Cure Medicare?

Economics of Health Care
Arnold Kling
The Medicare Trustees issued a report that shows a much lower path for Medicare spending. Mark Thoma has links to two people, including Paul Krugman, who triumphantly say that this shows that health care reform has solved the long-term problems... MORE

Keynes vs. Bohm-Bawerk

Macroeconomics
Arnold Kling
This morning, we will find out whether the recovery remains jobless. Meanwhile, I have an essay, Labor is Capital, that offers an explanation for jobless recoveries. Much of today's American workforce is engaged in roundabout production, which Böhm-Bawerk equated with... MORE

Recalculation Story Watch

Labor Market
Arnold Kling
Joseph Y. Calhoun III points out the Recalculationist implications of Mark Perry's post showing that job openings are increasing much faster than employment. Read for yourself.... MORE

Market-Failure Theory vs. Soviet Theory

Books: Reviews and Suggested Readings
Arnold Kling
I have just started reading Alan Brinkley's The End of Reform, about the evolution of liberalism during the New Deal. Very strongly recommended. It does what Jonah Goldberg claims that the Left refuses to do, which is make a serious... MORE

The Soviet Experiment, Continued

Central Planning vs. Local Knowledge
Arnold Kling
I found the discussion in the comments on my earlier post interesting. I have a lot of follow-up, so I will put this below the fold.... MORE

More on the Austerity of 1945-1947

Economic History
Arnold Kling
I dug up two interesting articles. In case I am more interested in this than you are, I will put this post below the fold.... MORE

The Soviet Experiment

Books: Reviews and Suggested Readings
Arnold Kling
Rediscovering Fire, by Guinivere Liberty Nell, has a basic premise: The Soviet Union was a genuine experiment in trying to fix market failures, and we might want to learn from it. On p. 30, The Bolshevik theory was that the... MORE

Paul Johnson's Peroration

Books: Reviews and Suggested Readings
Arnold Kling
Since we have been discussing his Modern Times, I thought I would excerpt his conclusion, below.... MORE

James Manzi on Experimental Social Science

Economic Methods
Arnold Kling
Strongly recommended. A sample: within this universe of programs that are far more likely to fail than succeed, programs that try to change people are even more likely to fail than those that try to change incentives. A litany of... MORE

Not Robin Hanson or Tyler Cowen

Behavioral Economics and Rationality
Arnold Kling
But Jonathan Haidt sounds like them. The answer, according to Mercier and Sperber, is that reasoning was not designed to pursue the truth. Reasoning was designed by evolution to help us win arguments. That's why they call it The Argumentative... MORE

The Macro Doubtbook, Installment 10

Macroeconomics
Arnold Kling
The previous installment was here. The installment below covers behavioral economics. Recall that the ultimate approach in the Doubtbook will be to stitch together the history of macroeconomic thought with the history of macroeconomic episodes. The opening chapter looks at... MORE

Moral Relativism and Modern Times

Books: Reviews and Suggested Readings
Arnold Kling
Seeing Bryan's previous recommendations, I am reading Paul Johnson's Modern Times for the first time. It is a bracing book, filled with opinions that differ from those of Progressive historians. On a number of minor points, I find Johnson less... MORE

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