Bryan Caplan and David Henderson

Arnold Kling: November 2010

An Author Archive by Month (64 entries)

Housing Finance Reform

Finance: stocks, options, etc.
Arnold Kling
Kevin Villani writes, The systemic failure of 2008 reflects the accumulated distortions of the political response to past failures with political causes. Portfolio lending savings and loan associations, the traditional backbone of the US housing finance system, were forced to... MORE

The Non-TARP Bailout

Finance: stocks, options, etc.
Arnold Kling
Peter Wallison and Ed Pinto write, While everyone has been watching Fannie and Freddie, the administration has quietly shifted most federal high-risk mortgage credit initiatives to FHA, the government's original subprime lender. Along with two other federal agencies, FHA now... MORE

The Phillips Curve as a Straight Line

Macroeconomics
Arnold Kling
In an attempt to view macroeconomics through a 1970 lens, I decided to model the Phillips Curve as a simple linear trade-off, using the period 1956-1968. In those years, the inflation rate averaged 2.19 percent and the unemployment rate averaged... MORE

Jeffrey C. Fuhrer wrote in a 1995 article entitled, "The Phillips Curve is Alive and Well." Overall, then, conventional tests of the stability of the Phillips curve indicate remarkable stability. There may be no other macroeconomic relationship that could perform... MORE

The County Where I Live

Politics and Economics
Arnold Kling
The Washington Post editorializes, In other localities, officials have taken a more matter-of-fact approach to painful cost-cutting, including layoffs, furloughs and salary freezes. In Montgomery, where unions boast openly about their ability to install and remove the very elected officials... MORE

Macroeconomics with Diffuse Priors

Economic Methods
Arnold Kling
Below, I elaborate on two claims. 1. Macroeconometrics requires the imposition of prior beliefs. 2. If one has diffuse prior beliefs, the correct macroeconomic policies are not easily formulated.... MORE

The Suffering of Mortgage Borrowers

Finance: stocks, options, etc.
Arnold Kling
The Wall Street Journal reports, The average borrower in the foreclosure process hadn't made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of... MORE

Macroeconomics, Circa 1970

Macroeconomics
Arnold Kling
According to Prad Krulong, macroeconomists had it and then lost it. They lost it some time after 1970. We had this magic formula, call it M70, and somehow we let it slip from our collective memory. But what was M70?... MORE

The State of the European Crisis

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
Tyler Cowen writes, In a nutshell, we're watching the most pitched, highest-stakes, most determined battle between politics and finance which has been staged. I am expecting finance to win. The question is whether the Eurocrats can beat back the speculators.... MORE

What I'm Reading

Books: Reviews and Suggested Readings
Arnold Kling
The Emperor of All Maladies: A Biography of Cancer, by Siddhartha Mukherjee. I am less than half-way through. This one deserves its place on top book lists (such as this one). So far, I think it gives The Rational Optimist... MORE

Commenting on my post where I questioned the charitable value of donations to organizations of policy wonks, he wrote: Give a man a fish, he'll eat for a day. Teach him to take fish from others, ...... MORE

The Park Ranger, Stability, and Resilience

Economic Education
Arnold Kling
From Ashwin: The relevant insight in Holling's work is that resilience and stability as goals for an ecosystem are frequently at odds with each other. In many ecosystems, "the very fact of low stability seems to produce high resilience". Conversely,... MORE

Thoughts on Charity

Political Economy
Arnold Kling
Ezra Klein thinks that political organizations are worthwhile charities. If you donate money to a food bank, it can provide only as much food as your money can buy. If you donate it to a nonprofit that specializes in food... MORE

The Park Ranger Metaphor, Further Continued

Political Economy
Arnold Kling
Here are some responses to comments on my original post and the follow-up. Again, the idea is that the park ranger represents someone who is not convinced that he or she can improve on the natural rain forest, despite what... MORE

Not Who You Think

Politics and Economics
Arnold Kling
1. Not Mencius Moldbug: But a king--a king without any real power, that is--is such an ennoblingly arbitrary, such a tender and organically human institution. It is easy to give our loyalty to someone whose only claim on it is... MORE

INET Will Not be New

Economic Education
Arnold Kling
A press release from the Institute for New Economic Thinking: Led by INET's Executive Director Dr. Robert Johnson, the outreach program has already reached six institutions of higher learning, and has included presentations and discussion from INET Advisory Board members... MORE

Last Stand of the WORST

Politics and Economics
Arnold Kling
In an earlier post, I described the 2010 election as the last stand of the white, older, rural and small town voters. Now, the Washington Post reports, The Republican Party's big gains in the House came largely from districts that... MORE

Park Ranger, Continued

Economic Methods
Arnold Kling
My earlier post drew a number of helpful comments, including one from Karl Smith on his own blog. it is right that take the knowledge of market failure that we have and do what we can to alleviate what suffering... MORE

The Park Ranger and the Museum Curator

Economic Methods
Arnold Kling
Below is a metaphor I am working on. Feel free to comment.... MORE

Political Morality and the SS Trust Fund

Social Security
Arnold Kling
John Holbo writes, it's perfectly reasonable to worry about how the US is ever going to manage to pay for stuff it needs/wants. But accusing the Social Security Trust Fund of being a mere accounting fiction does not 1) do... MORE

More on What Technology Wants

Books: Reviews and Suggested Readings
Arnold Kling
Russ Roberts is also a fan of Kevin Kelly's new book. I still have not finished, but it continues to be interesting. One aspect is that an invention goes through a life cycle. At first, it is "stuff that does... MORE

The Politics of the Mortgage Interest Deduction

Politics and Economics
Arnold Kling
Ed Glaeser is naive. He writes, Wyden-Gregg option is to limit the mortgage deduction to exclude second homes, home equity lines, and mortgages over $500,000. Lowering the upper limit on the home mortgage interest deduction should appeal to progressives, who... MORE

Voucherization of Medicare

Economics of Health Care
Arnold Kling
The Washington Post reports, President Barack Obama's deficit commission on Wednesday debated a dramatic plan to gradually turn Medicare from a system in which the government pays most beneficiaries' medical bills into a program in which seniors would purchase health... MORE

Seeing Like a Central Planner

Central Planning vs. Local Knowledge
Arnold Kling
Mike Konczal writes, The government's workforce is more educated than the private workforce. For instance, the government's "college plus" level is 54%, while all private workforce is 35%. "Some college" is 14% of government workers, 19% of the private workforce.... MORE

Books of the Year?

Books: Reviews and Suggested Readings
Arnold Kling
Tyler Cowen gives us his list. The only one I have read, Max Hastings' Winston Churchill's War, I found not so interesting. In fact, the 2010 crop of books did not produce many keepers, from my perspective. Matt Ridley's The... MORE

What Technology Wants

Institutional Economics
Arnold Kling
That is the title of Kevin Kelly's new book. I am only about one-fifth into the book, but I wanted to share an excerpt on the topic of slums. San Francisco was built by squatters. As Rob Neuwirth recounts in... MORE

Maryland's State Pension Blues

Public Choice Theory
Arnold Kling
The Examiner reports, State teacher pension payments will grow 10 percent annually and its benefits contributions will grow 8 percent annually, while General Fund revenues -- responsible for all teacher pensions and 60 percent of benefits -- will increase only... MORE

The Shifty Economy

Growth: Causal Factors
Arnold Kling
John Hagel writes, the Shift Index focuses on return on assets (ROA) for all public companies in the US since 1965. The bottom line: ROA has collapsed by more than 75% over this period. Thanks to Patri Friedman for the... MORE

Portrait of an Elitist

Energy, Environment, Resources
Arnold Kling
In today's business section, the Washington Post profiles energy secretary Steven Chu. Aides say Chu's ability to understand and absorb technical information sets him apart from the previous 11 energy secretaries... "People don't appreciate what's going on," he says, "that... MORE

Can I Have My Prize Now?

Fiscal Policy
Arnold Kling
I played the deficit reduction game at the New York Times. I stopped playing when I had already eliminated the 2030 deficit without raising taxes. The choices that did the most for me were capping Medicare growth after 2013 (I... MORE

Posing the Macroeconomic Question

Macroeconomics
Arnold Kling
Brad DeLong writes, All five of these theories are best taught sympathetically by being taught historically: as long traditions of thought that smart people have used to try to understand a changing and confused world. Thus Minskyism from its nineteenth... MORE

Health Care and Socialist Calculation

Economics of Health Care
Arnold Kling
Uwe E. Reinhardt writes, Soviet label notwithstanding, the relative fee structure underlying the Medicare fee schedules imposed in 1992 -- the so-called "resource-based relative value scale" -- has by now been widely adopted by many private health insurers in the... MORE

Deficit Reduction and Tax Policy

Tax Reform
Arnold Kling
Mark Thoma writes, Why, for example, are tax cuts included in a proposal to reduce the national debt? That makes no sense at all except as an attempt to impose a particular ideology on the tax code. For decades, economists... MORE

Deficit Reduction Politics

Politics and Economics
Arnold Kling
Steve Teles writes, The party base has significantly more leverage over elected officials in the Republican than the Democratic party. The chance of being successfully "primaried" if you are a Democrat is low, and in any case there is not... MORE

Two Strains of Conservatism

Political Economy
Arnold Kling
I found this Jonah Goldberg interview worthwhile. It's three hours! This is from a show where listeners could call in. Goldberg's adversaries strike me as petty. I don't think they raise issues with his views of the relationship between progressivism... MORE

Speaking of the Fed...

Economic History
Arnold Kling
George Selgin, William D. Lastrapes, and Lawrence H. White have a long paper comparing economic performance before and after the Fed was created. They make a strong case that performance has not improved. I think this history is well worth... MORE

Random Thoughts on the Bowles-Simpson Plan

Fiscal Policy
Arnold Kling
Washington Post story starts here. One quote: The Bowles-Simpson blueprint would leave in place the vast expansion of health-care coverage enacted this year, rejecting GOP calls to repeal "Obamacare." 1. This is the huge carrot that Bowles-Simpson offers to Democrats.... MORE

Deficit Commission Co-Chairs' Draft

Fiscal Policy
Arnold Kling
The powerpoint is here. Thanks to Greg Mankiw for the pointer. Lots of tax reform (get rid of the mortgage interest deduction, the health care deduction), and no VAT. Cuts in Social Security benefits, but trying to maintain benefits for... MORE

Good Sentences

Political Economy
Arnold Kling
from Steve Randy Waldman: To DeLong, Robert Rubin remains a pontiff of the "bipartisan technocrats". To the rest of us, Rubin has become an icon of self-delusion, corruption, and arrogance. There is more, in what Tyler Cowen calls "The best... MORE

Budget Myths and Reality

Social Security
Arnold Kling
This paper on the long-term budget outlook was just released. My guess is that I will refer to it often in the future. I encounter a number of arguments that purport to explain why we do not have to restructure... MORE

All the Devils are Here

Books: Reviews and Suggested Readings
Arnold Kling
Alex Tabarrok likes the book. My review was also very favorable.... MORE

Rare Agreement?

Finance: stocks, options, etc.
Arnold Kling
one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace... MORE

Scott Sumner Explains Himself

Macroeconomics
Arnold Kling
First, he writes, I see a three step process. A monetary shock (money supply or demand) causes flexible asset prices to change immediately (stocks, commodities, exchange rates, etc.) This causes output to rise, and consumer prices and wages respond with... MORE

Latest Employment Data

Labor Market
Arnold Kling
After a report showing a gain of 150,000 jobs last month, Mark Thoma says that the glass is half empty. it could have been worse, but in past recoveries we've had job growth of hundreds of thousands, far more that... MORE

Milton Friedman and the Phillips Curve

Macroeconomics
Arnold Kling
I have agreed to write something on the history of the Phillips Curve, so I may post on the topic from time to time. The heyday of the Phillips Curve was 1956-1969. In that fourteen year period: --unemployment was below... MORE

The Mixed Blessing of Price Discrimination

Information Goods, Intellectual Property
Arnold Kling
Gabriel Rossman gives an excellent explanation of price discrimination in the context of cable TV bundling. He writes, A switch to a la carte will probably result in an increase in consumer surplus per unit demanded but a drastic decrease... MORE

Who is a Middle American?

Labor Market
Arnold Kling
Both Joel Kotkin and David Brooks seem to be struggling with this issue. They agree that middle America is in trouble. But who are we talking about? Kotkin writes, Since Obama's inauguration all the economic statistics vital to their lives--job... MORE

Noontime Concert at Pepperdine, Nov. 18

Upcoming Events
Arnold Kling
The topic will be themes from Unchecked and Unbalanced. The location will be room 175 of the School of Public Policy. Look here for the Drescher College map or the full campus map. If I had known that I would... MORE

My Sexism

Behavioral Economics and Rationality
Arnold Kling
David points to an example in which Madeleine Albright is willing to see Iraqi children die, presumably because of American policy. That may be cruel, but it is not an example of the pathology that I was describing. What Angelo... MORE

A Must-Read on Social Security

Books: Reviews and Suggested Readings
Arnold Kling
A Well-Tailored Safety Net should be read by every policy wonk or would-be wonk who is focused on the long term fiscal outlook in general and on Social Security in particular. There are two reasons to read it. 1. Author... MORE

Three that Caught My Eye

Economics of Education
Arnold Kling
1. William Easterly on the $320,000 kindergarten teacher story. Under the project studied, there were random assignments of teachers and students to classes. The striking thing in the findings is the identification of "Good" and "Bad" kindergarten classes, as shown... MORE

Meet the Suits

Books: Reviews and Suggested Readings
Arnold Kling
You simply must make room on your financial crisis porn bookshelf for the forthcoming All the Devils are Here, by Bethany McLean and Joe Nocera. The worst financial crisis books, such as David Wessel's undeservedly popular tripe, focus their narrative... MORE

The Strangest Macro Model Ever

Macroeconomics
Arnold Kling
I think that I usually understand what Paul Krugman is saying, even when I disagree with him. However, I do not think that I understand Why Inflation Targets Need to be Higher well enough to say whether or not I... MORE

Exit Polls

Politics and Economics
Arnold Kling
I find these fascinating. Note that this link takes you to the first of four pages. These are for House races. It seems that of those who were polled, 46 percent recalled voting for Obama in 2008 and 45 percent... MORE

Me and the Elephants

Political Economy
Arnold Kling
I like this talk a lot, particularly since right afterward I did not think it had gone well. This was the talk where I thought that I was speaking to backers of the Republican establishment, and what I told them... MORE

If Government Were a Rich Man

Political Economy
Arnold Kling
Wintercow20 writes, The US government (all levels) has 20% more resources itself than the largest economy in the world does yet it cannot take care of health care for the poor and chronically infirm? Where on the list of priorities... MORE

Russ Roberts and John Papola are at it again. They are interviewed after the rapping (they are not the rappers), and I like the way Papola scorns the GDP factory.... MORE

What Could Go Wrong?

Monetary Policy
Arnold Kling
Suppose Scott Sumner or his evil twin took over the Fed. The Fed would try to create expectations of returning nominal GDP back to trend relatively soon. These expectations would hit financial markets before they hit goods markets. They will... MORE

Demographics and my Pre-Mortem

Politics and Economics
Arnold Kling
In response to Bryan's pre-gloat, some commenters seem to suggest that demographics are over-rated as an electoral force. You might want to look at Red States and Blue Cities. William Easterly comments, We now see that there are really no... MORE

The Technofuture

Growth: Causal Factors
Arnold Kling
Christian H. Nesheim asks folks which technology will have a big impact over the next twenty years. A sample response: But from an ethical perspective, I think the single most important technological development will be the mass-production and consumption of... MORE

A Subtitle to Ponder

Finance: stocks, options, etc.
Arnold Kling
A Home Without Equity Is Just a Rental With Debt. It comes from an analysis written in 2001 (!) by Wall Street economist Josh Rosner. Read the whole thing, but keep in mind that many of us believe that the... MORE

Two Events

Upcoming Events
Arnold Kling
1. Sick and Sicker, a documentary about health care policy, is now available. I was interviewed, but I think I won't appear until the sequel. 2. Celebrity Death Match featuring Paul Ryan and David Brooks, with the latter defending big-government... MORE

The Problem of Fraud

Political Economy
Arnold Kling
A reader recommends a paper by William K. Black. "Control fraud" theory explains why the most damaging forms of fraud are situations in which those that control the company or the nation use it as a fraud vehicle. The CEO,... MORE

The Socialist Calculation Debate, 2010 Edition

Austrian Economics
Arnold Kling
Joseph Antos writes, The problem for a government price controller is that he can never know when the price structure is "right." He can know when physicians are unhappy with their prices because they will complain, but that does not... MORE

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