Bryan Caplan and David Henderson

Arnold Kling: September 2010

An Author Archive by Month (68 entries)

Washington Ideas Forum

Economics of Education
Arnold Kling
You can watch the main event here, still going on this afternoon and tomorrow. I participated in a side show, not video streamed, about the future of the middle class. This was a large-group discussion, which was recorded, and at... MORE

Outlier Doubts

Political Economy
Arnold Kling
I think it is fair to say that my free-market views are more extreme than most. Non-economists do not appreciate how well markets work. Most other economists do not, in my opinion, appreciate how poorly government works. Naturally, I expend... MORE

Unchecked and Unbalanced Watch

Political Economy
Arnold Kling
Eric Falkenstein writes Back in the bubble, the one thing everyone (regulators, academics, politicians, journalists) thought banks were doing right, was mortgage lending. This conventional beltway wisdom now has more power. Read the whole post, which consists of a 2003... MORE

Rothbard on the Depression

Austrian Economics
Arnold Kling
I started to read it. Should I finish? Some excerpts and my comments. the timidity and confusion of Reagonomics make very clear what its choice will be: massive inflation of money and credit, and hence the resumption of double-digit and... MORE

The Theory of Consent

Political Economy
Arnold Kling
Bart Hinkle poses an issue. Last week a Chesterfield circuit court ruled Romito has no obligation to pay dues to the homeowners' association in the tony Bexley neighborhood. Romito bought his property two decades ago, when membership in the association... MORE

Recalculation differs from textbook structural unemployment. In textbook structural unemployment, there are two GDP factories, one in the north and one in the south. There is a shortage of workers in the south, and there are too many workers in... MORE

Why Don't U.S. Corporations Threaten to Exit?

Political Economy
Arnold Kling
A reader has the following question: corporations have the power to exit, by locating headquarters overseas, essentially trading its "US citizenship" for one of a number of more attractive locations. Though I admit, corporations can't do this costlessly. Why is... MORE

Funding Dis-Education

Business Economics
Arnold Kling
Mike Gibson points me to this story. [Peter] Thiel is starting a new initiative that will offer grants of up to $100,000 for kids to drop out of school. His goal is to get college students to work in business... MORE

A Libertarian One-Liner

Political Economy
Arnold Kling
from Kevin D. Williamson: If you're not willing to have somebody hauled off at gunpoint over the project, then it's probably not a legitimate concern of the state. Implicit in this point of view is the presumption that voluntary cooperation... MORE

Gridlock at the Worst Time

Politics and Economics
Arnold Kling
Tyler Cowen writes, More and more laws will be frozen in place. This already seems to be the case with immigration policy. More and more expenditures will be frozen into place. Politics will become more symbolic, and in some ways... MORE

The Bernanke View

Finance: stocks, options, etc.
Arnold Kling
Ben Bernanke says, The notion that financial assets can always be sold at prices close to their fundamental values is built into most economic analysis, and before the crisis, the liquidity of major markets was often taken for granted by... MORE

The Lost History of Volcker-era Monetary Policy

Economic History
Arnold Kling
Karl Smith writes, Its as close to a test of modern macro theory as we have. We thought if we shrank the growth rate of the money supply we would get a recession but we also lower the rate of... MORE

Culture and Institutions

Books: Reviews and Suggested Readings
Arnold Kling
Fred Pryor has a new book, called Capitalism Reassessed, a title which does not really say what the book is about. He uses various qualitative data sources to classify OECD economies into subsets. Some excerpts from the book below the... MORE

A Book I Wish Someone Else Had Written

Books: Reviews and Suggested Readings
Arnold Kling
The book is Intellectual Capital. Forty Years of the Nobel Prize in Economics, by Thomas Karier, and I was sent a review copy. It appears that the author culled through the economics Nobel web site to obtain material. There are... MORE

Alan Blinder Testifies

Macroeconomics
Arnold Kling
He says, the days of what I call the "Field of Dreams" strategy--build a bigger GDP, and the jobs will come--should be over. It's a sensible strategy in many contexts, but it has two serious drawbacks in the present situation.... MORE

I, Super-Senior CDO Tranche?

Finance: stocks, options, etc.
Arnold Kling
We know Leonard Read's famous "I, Pencil" essay, where he says that nobody knows how to make a pencil. Somehow, the market arranges it so that wood, graphite, dyes, cutting tools, and other inputs come together to make a pencil.... MORE

A NCPA study finds When adjusted using a more appropriate discount rate, however, states' unfunded obligations were 22 percent of U.S. GDP. All but 10 states and the District of Columbia have total adjusted unfunded liabilities above 15 percent of... MORE

Daughter of Lucy

Macroeconomics
Arnold Kling
In August of 2003, I wrote about my preferred economic indicator, which I called a labor capacity utilization index, or LUCY. I want to update it. Back then, I used an index of aggregate hours worked, which I assume meant... MORE

Comments on Various Links

Politics and Economics
Arnold Kling
I think all of these come from Mark Thoma. 1. Robert Reich writes that fiscal and monetary policy will not get us out of the recession. So what's the answer? Reorganizing the economy to make sure the vast middle class... MORE

When Did House Prices Get Out of Hand?

Finance: stocks, options, etc.
Arnold Kling
One of the talking points among those who deny that Freddie and Fannie played a large role in the housing bubble is that the agencies lost market share in 2003 and 2004, and that is when house prices took off.... MORE

Same Topic, Same Week, Different Panelists

Upcoming Events
Arnold Kling
On Tuesday, September 28, the title of the conference is "The workforce of the future," the location is the Ronald Reagan Building, and the sponsor is the National Journal. The keynote speaker is supposed to be National Economic Council director... MORE

Two Links

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
1. File this story under "collapsing center watch." (Yesterday, I linked to my response to a NYT question about the state of the economy. In that response, I changed the subject in order to mention my view that the political... MORE

L-data and D-data

Macroeconomics
Arnold Kling
Nick Rowe writes, When we go into a recession, many things become easier to buy and harder to sell. And when we go into a boom, those same things become easier to sell and harder to buy. A recession has... MORE

Did the Recession End 15 Months Ago?

Macroeconomics
Arnold Kling
The official committee of the National Bureau of Economic Research says, "Yes." The New York Times asked "Really?" Many bloggers answered "no." I was one of them. Employment declined by nearly one million workers in the four months after the... MORE

Top Ten Economic Contractions?

Economic History
Arnold Kling
What are the ten most important episodes of economic contraction to study? Some obvious ones: 1. The Great Depression in the U.S. 2. The Great Depression in Europe 3. The Japanese slump of the 1990's and beyond 4. The oil... MORE

A Few Links

Labor Market
Arnold Kling
James Hamilton on the JOLTS data, which I have also been pushing. Caroline Baum on the Kling view of the job creation problem. Arthur Brooks on the Arthur Brooks controversy.... MORE

Outline for a Talk

Politics and Economics
Arnold Kling
To be given next month, not open to the public, on the widely-unread Unchecked and Unbalanced. 1. We are in the midst of three crises--a financial crisis, a political crisis and a sovereign debt crisis. I will propose that they... MORE

Liberty and Me

Books: Reviews and Suggested Readings
Arnold Kling
Guinivere Liberty Nell and I discussed her book, Rediscovering Fire, at an event at Heritage last week. Here is the video. I start at about minute 26. Nell used a lot of cartoons in her talk, which may give the... MORE

My Hammer and Some Nails

Political Economy
Arnold Kling
My solution is competitive government. I do not think that wanting to live in Silver Spring Maryland should automatically subject me to the local school monopoly, the national pensions system monopoly, and so on. I would like to be able... MORE

Michael Mandel's Indicator, along a Margin

Economics of Education
Arnold Kling
Michael Mandel writes, college costs have kept rising, while the real earnings of young college grads have gone down since 2000. In particular, since the recession started in 2006, real tuitions and fees have skyrocketed, while real earnings have plummeted.... MORE

Gary Gorton's Latest

Finance: stocks, options, etc.
Arnold Kling
Gary B. Gorton and Andrew Metrick write, If the growth of shadow banking was facilitated by regulatory changes, then why not just reverse all these changes? Would such reversals bring us back to a safer system dominated by traditional banks?... MORE

In Pursuit of Empirical Macroeconomics

Macroeconomics
Arnold Kling
The following should not be construed as advice to graduate students. Let someone else try it first. 1. Forget the national income and product accounts. Pay no attention to the arbitrary classification of output as C,I,G, and NX. 2. Instead,... MORE

Colander on the Economics Profession

Economic Methods
Arnold Kling
A commenter points to a post from Pete Boettke a couple months ago, where he quotes testimony from David Colander. One would think that competition in ideas would lead to the stronger ideas winning out. Unfortunately, because the macroeconomy is... MORE

We Don't Know

Business Economics
Arnold Kling
Russ Roberts discusses some survey data in which small businesses report that their biggest problem is lack of sales. Some economists have leaped on this as a decisive data point demonstrating that the problem in the economy is aggregate demand,... MORE

A Rationally Optimistic Price?

Books: Reviews and Suggested Readings
Arnold Kling
A reader alerted me that the current Kindle-edition price of The Rational Optimist is zero. At that price, you simply must download it.... MORE

Self-Discrediting

Economic Methods
Arnold Kling
This study comes from the Economic Policy Institute. The study analyzes workers with similar human capital. It controls for education, experience, hours of work, organizational size, gender, race, ethnicity and disability and finds that, compared to workers in the private... MORE

We Need a Tea Party

Politics and Economics
Arnold Kling
Russ Roberts points to an interesting article on the decentralized organization of the tea party. I could not find much in Montgomery County, Maryland, where Russ and I live. Yesterday, I voted in our Democratic primary. I voted for any... MORE

Northern Evangelicalism

Politics and Economics
Arnold Kling
The social fabric is fraying. Human capital is being squandered. Society is segmenting. The labor markets are ill. Wages are lagging. Inequality is increasing. The nation is overconsuming and underinnovating. China and India are surging. Not all of these... MORE

David Warsh on Tyler Cowen

Economic Education
Arnold Kling
Warsh writes, Sometimes Cowen, 48, seems to have nothing but outside interests, as his readers know from Marginal Revolution Noting that Cowen directs the Mercatus Center, recently mentioned in the context of Jane Mayer's conspiratorial portrayal of the Koch brothers,... MORE

The Output Gap Story

Macroeconomics
Arnold Kling
Russ Roberts asks whether spending creates prosperity. has foreign aid spending created prosperity in those countries? Usually not. Or maybe never. The money gets spent and then it's over. The multiplier never materializes. And that's because these economies are broken.... MORE

The Dynamics of Creative Destruction

Macroeconomics
Arnold Kling
Dane Stangler and Paul Kedrosky write, When they come into existence, for example, startup firms create, on average, three millions jobs per year. Many of these jobs are lost and new ones are created, but employment at the moment of... MORE

The Cost of High Taxes

Fiscal Policy
Arnold Kling
Richard Rogerson writes, In 1960, hours of work were actually higher in Germany, France, and Belgium than they were in Canada, the United States, and Australia. That is, 50 years ago the relative work levels of these countries were reversed.... MORE

Arthur Brooks of AEI

Politics and Economics
Arnold Kling
I went to a Cato annual picnic yesterday. Several of my Cato friends were not there. Brink Lindsey, obviously.* But there happened to be some no-shows among folks who I know that are still there. You know who you are... MORE

Amar Bhide (WSJ, subscription) makes a good case that it is just corporate welfare. Big companies with large R&D budgets, unsurprisingly, favor the proposal. But it's a bad idea. Tax credits for R&D don't encourage the broad-based innovation that is... MORE

The Era of Expert Failure

Central Planning vs. Local Knowledge
Arnold Kling
I also have a new essay for Cato. Ironically, whenever government experts fail, their instinctive reaction is to ask for more power and more resources. Instead, we need to step back and recognize that what we are seeing is not... MORE

Macroeconomic Costs of Credentialism

Macroeconomics
Arnold Kling
My latest essay: Entrepreneurs in healthcare and education face unusually strong barriers to entry. Both industries are credentials cartels. Licensing and accreditation are key requirements to compete in those fields, and incumbents are in control of the process. In addition,... MORE

I Can Only Sputter

Politics and Economics
Arnold Kling
WSJ Real Time Economics reports, Republicans have held up Mr. Diamond's confirmation because he is not an authority on monetary policy. Peter Diamond is well qualified to be a Fed Governor. In my opinion, those who oppose him need to... MORE

Money, Inflation and Debt

Fiscal Policy
Arnold Kling
An excellent podcast, featuring Jeffrey Rogers Hummel. He argues that there is not enough tax revenue available from seignorage for governments to inflate their way out of their debts. Because of financial innovation and money substitutes, it would take hyperinflation... MORE

The Future of Finance

Books: Reviews and Suggested Readings
Arnold Kling
That is the title of a new book that resulted from this symposium sponsored by the London School of Economics. Chapters can be downloaded individually here. They do not add up to a coherent whole, and some appeal to me... MORE

Morning Reading

Economic Education
Arnold Kling
Ed Pinto writes, Here's my proposal to bring Congress's penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have... MORE

The Role of the State: Who Decides?

Political Economy
Arnold Kling
Martin Wolf writes, [Libertarianism] is hopeless intellectually, because the values people hold are many and divergent and some of these values do not merely allow, but demand, government protection of weak, vulnerable or unfortunate people. Moreover, such values are not... MORE

Jay Heflin writes, An August report by the Kellogg Graduate School of Management at Northwestern University found government pension programs in as many as 31 states are headed for financial disaster by 2030 and that taxpayers will likely wind up... MORE

What I'm Reading: 2

Books: Reviews and Suggested Readings
Arnold Kling
Teach Like a Champion, by Doug Lemov. As a teacher, I find it helpful. However, with apologies to James C. Scott the book could have been entitled "Seeing like a teacher." An excerpt: the "plane" of your classroom is the... MORE

What I'm Reading: 1

Books: Reviews and Suggested Readings
Arnold Kling
Boomergeddon, by James A. Bacon. He sent me a copy after he saw my piece on guessing the trigger point for a sovereign debt crisis. Years ago, I read Boomernomics by William Sterling. That book also raised the issue of... MORE

Knowledge-Power Discrepancy

Central Planning vs. Local Knowledge
Arnold Kling
I discuss knowledge and power with Russ Roberts. The central theme of Unchecked and Unbalanced is that we live an a world with increasingly important dispersed knowledge and yet in a structural sense power is becoming more complicated. The result,... MORE

Government in the Mortgage Business

Finance: stocks, options, etc.
Arnold Kling
The New York Times reports, "This is subprime lending done right," said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. He is talking about... MORE

Stop Calling it the Retirement Age

Social Security
Arnold Kling
Ezra Klein writes, there is one thing that both parties increasingly seem to agree on: You should work longer. Klein's thinking is that people do not want to work longer, so raising the Social Security "retirement age" is a bad... MORE

Mandatory Bad Customer Service

Economics of Health Care
Arnold Kling
Uwe E. Reinhart writes, The recently passed Affordable Care Act requires heath insurance issuers to use at least some minimum fraction of revenue from the premiums it receives on medical services. While the idea might sound straightforward, this fraction, known... MORE

Payroll Tax Holiday and the Trust Funds

Social Security
Arnold Kling
Megan McArdle writes, Politically, this has one major drawback: it's going to put huge holes in the Social Security and Medicare trust funds. Since I think those trust funds are meaningless accounting devices, I don't think this has any practical... MORE

Mortgage Credit and the Housing Bubble

Finance: stocks, options, etc.
Arnold Kling
Adam J. Levitin and Susan M. Wachter write, the bubble was a supply-side phenomenon, attributable to an excess of mispriced mortgage finance: mortgage finance spreads declined and volume increased, even as risk increased, a confluence attributable only to an oversupply... MORE

Technocratic Fundamentalism

Finance: stocks, options, etc.
Arnold Kling
Barry Eichengreen writes, Those root causes were an ideology of market fundamentalism and the policies flowing from it. The idea that markets get it right and governments only get in the way, what I refer to here as market fundamentalism,... MORE

Bond Bubble Watch

Cross-country Comparisons
Arnold Kling
Jonathan D. Ostry, Atish R. Ghosh, Jun I. Kim, and Mahvash S. Qureshi write, at 5 percent of GDP below the debt limit, the government should be able to borrow at the risk-free rate; but as debt rises by a... MORE

If I Taught Greg Mankiw's Seminar

Books: Reviews and Suggested Readings
Arnold Kling
His list of books for a freshman seminar in economics includes a diverse selection, including Bryan's Myth of the Rational Voter, which is the only one that I would duplicate. Offhand, I would pick 1. Jerry Muller, The Mind and... MORE

Unchecked and Unbalanced Watch

Public Goods
Arnold Kling
Pete Peterson writes, the Los Angeles City Council is expected to overturn the 36-year-old policy of city-funded sidewalk repair, returning responsibility to property owners. The city is attempting to narrow a nearly half-billion-dollar budget gap. The sidewalk repair program costs... MORE

Is the Taylor Rule Really a Rule?

Monetary Policy
Arnold Kling
John Taylor writes, The Taylor rule says that the federal funds rate should equal 1.5 times the inflation rate plus .5 times the GDP gap plus 1. Currently the inflation rate is about 1.5 percent and the GDP gap is... MORE

Lawrence Lindsey Vs. Christy Romer

Macroeconomics
Arnold Kling
She says, by June, before the Recovery Act could have had much of an impact, it was 9½ percent. That is, our projection turned out to be wrong even before the Recovery Act had a chance to get off the... MORE

Oil Bubble Talk is Back

Energy, Environment, Resources
Arnold Kling
CNBC quotes Peter Beutel, I honestly think that if there were no investors using oil as an asset that the price of oil right now would be $10 or $15 or $18, but it wouldn't be anywhere near where it... MORE

Thomas Sargent, Master Macroeconomist

Economic Methods
Arnold Kling
In an interview, he says, the more dynamic, uncertain and ambiguous is the economic environment that you seek to model, the more you are going to have to roll up your sleeves, and learn and use some math. Pointer from... MORE

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