Bryan Caplan and David Henderson

Arnold Kling: December 2010

An Author Archive by Month (77 entries)

Three from the JEL

Books: Reviews and Suggested Readings
Arnold Kling
I rarely find the book reviews in the Journal of Economic Literature worthy of comment, but the December 2010 issue has three. 1. Tim Conley has a review of Leamer's Macroeconomic Patterns and Stories. Like me, he thinks that the... MORE

Where I Differ with Some Libertarians

Political Economy
Arnold Kling
I don't know what exactly inspired this post (probably Bryan's writing on patriotism and political correctness). Anyway, here are a couple of issues where not all libertarians agree. 1. I just cannot buy into pacifism as some libertarians express it.... MORE

Financial Regulation Questions

Finance: stocks, options, etc.
Arnold Kling
Both from readers. 1. Is it more dangerous for TARP to succeed or to fail? Interesting question. Think of four possibilities, based on perceptions and reality 1. TARP is perceived as a success, and it really was a success. 2.... MORE

Political Sentiment

Economics and Culture
Arnold Kling
Bryan writes, The full-blown triumph of political correctness, of hypersensitivity plus one-sided education, is patriotism. A few random comments. 1. Piers Brendon, in The Dark Valley says that Adolf Hitler's policies, although they produced full employment, served to impoverish Germans.... MORE

Agriculture in the 1930s

Economic History
Arnold Kling
Again, from Piers Brendon's The Dark Valley. Half a million Americans moved from city to country in search of subsistence... In Montana thousands of acres of wheat went uncut because they would not pay for the price of harvesting--sixteen bushels... MORE

Stories of the 1930s

Economic History
Arnold Kling
I am reading The Dark Valley: A Panorama of the 1930s, by Piers Brendon. Much of it annoys me. For example, he writes, Nor did he [President Hoover] attempt to reduce financial inequalities, perhaps the most fundamental cause of the... MORE

Economic Slack

Income Distribution
Arnold Kling
Shalah M. Mostashari writes, As more firms take advantage of the cost savings of an increasingly international division of labor, continued growth in the variety of imports coming from developing nations can be expected. Pointer from Mark Thoma. Let me... MORE

Cost-of-Living Arbitrage

Income Distribution
Arnold Kling
Ed Glaeser writes, If economic productivity - created by low regulations or anything else - was causing the growth of Texas, Arizona and Georgia, then these places should have high per capita productivity and wages. Yet per capita state product... MORE

Does Education Matter?

Economics of Education
Arnold Kling
Tino writes, The mean score of Americans with European ancestry is 524, compared to 506 in Europe, when first and second generation immigrants are excluded. He concludes that the American school system is actually better, if one makes what he... MORE

Semi-Austrians

Austrian Economics
Arnold Kling
On my post on Pete Boettke's podcast, a commenter wrote, The big thing now is combining institutional economics with general equilibrium analysis. This is what Daron Acemoglu has been doing for the last decade now. Which is obviously the way... MORE

The Dispersion of Knowledge: A Data Point

Growth: Consequences
Arnold Kling
The Bureau of Labor Statistics has updated its job classification system. Theresa Cosca and Alissa Emmel report, Compared with the 2000 SOC system, the 2010 SOC system realized a net gain of 19 detailed occupations, 12 broad occupations, and 1... MORE

An Influential Blogger has Died

Information Goods, Intellectual Property
Arnold Kling
Denis Dutton founded Arts and Letters Daily in 1998. I believe that when I launched "Great Questions of Economics," the blog that preceded EconLog, I cited ALdaily as one of my influences. I cannot find where I wrote that, but... MORE

An Article on Libertarianism

Political Economy
Arnold Kling
In New York Magazine, by Christopher Beam. (I got the link from Tyler Cowen.) The writer says, Libertarian minarchy is an elegant idea in the abstract. But the moment you get specific, the foundation starts to crumble. Say we started... MORE

Teacher Evaluations and Superstition

Economics of Education
Arnold Kling
Megan McArdle has a long post on the issue of measuring teacher quality. Meanwhile, The New York Times profiles James Heckman, whose careful research suggests that by the time a child reaches school age it is too late to make... MORE

Two Views of Class Struggle

Political Economy
Arnold Kling
Jeff Sachs writes, Since Ronald Reagan became President in 1981, America's budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, the richest 1% of American households now has a... MORE

Recognized but Marginalized

Austrian Economics
Arnold Kling
In this week's conversation with Russ Roberts, Pete Boettke talks about Ludwig von Mises. A number of interesting issues come up. One phrase that recurs a few times is "recognized but marginalized," which describes the fact that although many Austrian... MORE

Trends to Watch, Updated After Five Years

Growth: Consequences
Arnold Kling
Five years ago, I wrote As an end-of-year type post, here is a list of economic stories that I think will be worth following next year. Note that all of them are long-term stories, which won't be resolved in 2006... MORE

Credential-Free Zones

Political Economy
Arnold Kling
Let me offer a random idea for a political or real-estate entrepreneur. That is, carve out a community of at least 10,000 people in a larger metropolitan area and have it be credential free. In theory, the 10,000 people would... MORE

Money Substitutes and Velocity

Monetary Policy
Arnold Kling
David Beckworth writes, referring to 1960-1979, The Fed's performance in stabilizing the growth of nominal spending was abysmal Really, read Beckworth's post. The graphs are more important than the text. My comments will be in Q&A format. The issue is... MORE

CBO on GSE Reform

Finance: stocks, options, etc.
Arnold Kling
I am currently drafting something on the same general topic, so I will add comments based on my current thinking. The folks at CBO discuss three options--purely public, purely private, and a hybrid. They find drawbacks to every option. They... MORE

Combining Stupid and Clever Bank Regulation

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen and Eric Falkenstein raised doubts about the efficacy of leverage regulation of banks. Here is how I think about it. 1. We assume that banks have a government backstop that is either explicit or implicit. the object of... MORE

Inevitable Bank Risk

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen writes, Bondholders don't and can't have much idea what is going on inside the trading book of a bank. It doesn't matter how financially sophisticated the bondholders are; the point is that the trading book must remain fairly... MORE

Russ Roberts and Joe Nocera

Finance: stocks, options, etc.
Arnold Kling
In this podcast, they get into a number of interesting issues regarding the financial crisis. Among the things that struck me was Nocera's negative take on the bailout of Bear Stearns, which Nocera evidently thinks was not too big or... MORE

An Instructional Video

Political Economy
Arnold Kling
Reason TV walks through a series of thought experiments about income redistribution. It's pretty much libertarianism 101, likely to please those who agree and put off those who disagree. One point that the video raises (perhaps the main point) is... MORE

Crime Without Hate, Hate Without Crime

Economic Philosophy
Arnold Kling
The topic of hate has come up in disparate places lately. On the one hand,Mark Thoma points to Daniel Little, who offers an analysis of conservatives as motivated by hate. On the other hand, Matthew J. Franck calls this "playing... MORE

Reflections on a Metaphor

Political Economy
Arnold Kling
On p. 114 of The Symbolic Uses of Politics, Murray Edelman writes, Force signals weakness in politics, as rape does in sex. Some reactions to this metaphor: 1. This suggests that there is political power that is not based on... MORE

The Unconscious Mind of the 1950's

Political Economy
Arnold Kling
Tyler Cowen has found a new game: Google's Ngram. I decided to play it using the word "unconscious." Consistent with what I wrote in my review of Murray Edelman, usage of the word in books in American English peaks in... MORE

It's Not the prices, after all?

Economics of Health Care
Arnold Kling
Uwe Reinhardt's latest: The difference between the growth in Medicare fees and the growth in Medicare spending is, of course, the growth in the volume of services sold, so to speak, to Medicare. The chart that accompanies his post shows... MORE

Jeffrey Friedman on Edelman and Caplan

Political Economy
Arnold Kling
In an email, he writes, Like the Frankfurters (and Caplan), Edelman simply couldn't understand why everyone didn't agree with him--his own (Marxist) views were so self-evidently true!--that he reduced the views of those with whom he disagrees to dark drives.... MORE

Obamacare's Mandate: Should We Hold Teach-Ins?

Political Economy
Arnold Kling
Megan McArdle writes, If I do a transaction for no business purpose other than to minimize my tax liability, the IRS will dub this a sham transaction and make me pay the taxes anyway. Similarly, I think sham laws aimed... MORE

A Must Read

Books: Reviews and Suggested Readings
Arnold Kling
I finally got around to reading the book that possibly has been my strongest intellectual influence, and certainly the most long-lasting. I will explain below the fold. The book is The Symbolic Uses of Politics, by Murray Edelman. As recently... MORE

Price Discrimination Explains Everything

Microeconomics
Arnold Kling
The Washington Post reports, If you have ever had the annoying experience of buying a plane ticket through a portal such as Kayak, then seeing the final price jump $10 or $40 at check out, you have probably found yourself... MORE

Picking up Nickels

Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen writes, In part the financial sector does the equivalent of writing "naked puts," namely taking risks which usually yield extra income but occasionally blow up and bring large losses, part of which are socialized. He is trying to... MORE

President Obama vs. the WOGs

Politics and Economics
Arnold Kling
I am reading The Symbolic Uses of Politics by Murray Edelman, a book first published in 1964 that is of great personal significance to me, as I will explain in a later post after I finish the book. Meanwhile, I... MORE

Nominal GDP Targeting

Monetary Policy
Arnold Kling
Because of a cold, i will be missing an invitation-only event featuring Scott Sumner. In the spirit of sharing my ideas without my germs, let me offer some thoughts on nominal GDP targeting. 1. For the Fed, a target represents... MORE

A Challenge to Libertarians

Political Economy
Arnold Kling
Eric Liu and Nick Hanauer throw down this gauntlet: Market fundamentalists would have us believe that our success comes in spite of government. There is literally no evidence for this. If less were always better, then the least regulated economies... MORE

Self-Recommending

Income Distribution
Arnold Kling
1. Deirdre McCloskey interviewed about her latest book. (Elsewhere, David Brooks channels her, but without any citation. This shabby treatment contrasts with his generous treatment of Nick and me a year ago.) 2. Tyler Cowen, ostensibly on inequality. But it... MORE

An Indispensable Book

Money
Arnold Kling
I've read through Perry Mehrling's The New Lombard Street, and I need to read it again. Meanwhile, some thoughts. 1. Mehrling is an outstanding and engaging intellectual historian, but he fails to appreciate financial crisis porn. I'll explain below. 2.Tyler... MORE

Rationing and Recalculation

Macroeconomics
Arnold Kling
I offer a new insight into the Recalculation Story. It is inspired by this quote from p.66 of Leuchtenberg's The FDR Years, the essay on the way that many policy makers and pundits were calling on the government to mobilize... MORE

Scott Sumner on NGDP Targeting

Monetary Policy
Arnold Kling
He makes his case in National Review.* In 2009, the U.S. saw the biggest fall in nominal GDP (NGDP) since 1938. It is thus no surprise that we had a debt crisis: Borrowers almost always have trouble repaying debts when... MORE

What Franklin Roosevelt Accomplished

Books: Reviews and Suggested Readings
Arnold Kling
I have been reading William E. Leuchtenburg's The FDR Years, a collection of essays by the author. Jonah Goldberg had recommended one of the essays, called "The New Deal and the Analogue of War," written in 1964. I should hasten... MORE

The Guild Problem

Economics of Education
Arnold Kling
Walter Russell Mead writes, Most intellectuals today still live in a guild economy. The learned professions - lawyers, doctors, university professors, the clergy of most mainline denominations, and (aspirationally anyway) school teachers and journalists - are organized in modern day... MORE

A Barbershop Quartet Metaphor

Macroeconomics
Arnold Kling
In the comments on what I am hoping will be a classic post (my rant against monetarism), Bill Woolsey insists [and Nick Rowe echoes] [if] we see lower demands for nearly all goods, low hires everwhere, low vacacancy rates, reduced... MORE

From the Recommendations for Further Reading column by Timothy Taylor in the Journal of Economic Perspectives fall issue. I eagerly look forward to this regular feature, which was started by the late Bernie Saffran, the beloved Swarthmore economics professor. My... MORE

The Morning Newspaper

Books: Reviews and Suggested Readings
Arnold Kling
1. Tyler Cowen writes in the New York Times, Wealthy people will always be able to buy most of what they want. But for everyone else, if we stay on the current course, the lines are likely to get longer... MORE

A Rant Against Monetarism

Macroeconomics
Arnold Kling
Starting with Mark Thoma I landed on a comment by Nick Rowe. My position is that a general glut can *only* be caused by an excess demand for the medium of exchange. Oy. Such confusion. And this is nothing personal... MORE

Statistical Perils: Interpreting Alpha

Economic Methods
Arnold Kling
Let me follow up on this post. I try to drill into my high school students that in classical statistics we make probability statements about our methods, not about the unknown real-world parameters. (I can't believe what I first wrote... MORE

The Perils of Published Studies

Economic Methods
Arnold Kling
Jonah Lehrer writes, The therapeutic power of the drugs appeared to be steadily falling. A recent study showed an effect that was less than half of that documented in the first trials, in the early nineties. The article is interesting,... MORE

Medicare and the Socialist Calculation Problem, Continued

Central Planning vs. Local Knowledge
Arnold Kling
The latest in a series of posts by Uwe Reinhardt. Surely there is something absurd when a nation pays a primary care physician poorly relative to other specialists and then wrings its hands over a shortage of primary care physicians.... MORE

Donations vs. Taxes

Political Economy
Arnold Kling
David Welker writes, Arnold Kling rejects the idea of having any duty to society, even while he has enjoyed countless benefits from society. Including receiving a world-class education of the sort enjoyed by a tiny elite. Basically, what Kling does... MORE

Local Government Fiscal Stress

Fiscal Policy
Arnold Kling
The Congressional Budget Office discusses the problem here. Where I live, the source of the problem is pretty obvious. The Washington Post editorializes, Since salaries and benefits amount to 80 percent of county spending - and almost 90 percent of... MORE

College Education at the Margin

Economics of Education
Arnold Kling
Richard Vedder writes, approximately 60 percent of the increase in the number of college graduates from 1992 to 2008 worked in jobs that the BLS considers relatively low skilled--occupations where many participants have only high school diplomas and often even... MORE

Amar Bhide Responds

Books: Reviews and Suggested Readings
Arnold Kling
To my earlier posts. You will see below that Bhide expresses some nostalgia for the regulatory regime of the 1950's and 1960's, as he did in his book. However, that period included interest rate ceilings on deposits and banks and... MORE

Thoughts on Finance

Finance: stocks, options, etc.
Arnold Kling
Reading Amar Bhide's new book made me wish that more people shared my outlook on banking, finance, and financial regulation. I think it helps to keep in mind the following (continued below). 1. In the nonfinancial sector, people want to... MORE

A Call for Judgment

Books: Reviews and Suggested Readings
Arnold Kling
That is the title of Amar Bhide's new book. In the end (p.290), he writes I propose we reinstate old-fashioned banking, where bankers know their borrowers, by tightly limiting what banks can do: nothing besides making loans to individuals and... MORE

Ricardian Equivalence and Stimulus Failure

Macroeconomics
Arnold Kling
The graph at John Taylor's blog explains stimulus failure. (I wrote about the Cogan-Taylor work earlier, but it bears repeating.) Everyone, including Keynesians, agrees that if Ricardian equivalence holds, then stimulus does not work. Ricardian equivalence means that the folks... MORE

Reflections on Freddie Mac

Finance: stocks, options, etc.
Arnold Kling
This morning, I was interviewed for background about Freddie Mac. Two interesting questions that were asked: 1. Given that I now believe that Freddie and Fannie should be phased out, how did I feel about working for Freddie? At the... MORE

Symposium on Bank Size

Finance: stocks, options, etc.
Arnold Kling
at the New York Times. Several interesting contributions. Jeremy Stein offers a reasonable technocratic approach, consisting largely of higher capital requirements for large banks. My problem with this is that any time you have a regime in which government guarantees... MORE

A Sentence to Ponder

Political Economy
Arnold Kling
From the comments on this post. most people are libertarian with regards to their own lives and people they like, statist with regards to people they don't know, and positively fascist about people they dislike, stereotype, or don't understand. What... MORE

What is a Bubble?

Finance: stocks, options, etc.
Arnold Kling
Scott Sumner writes, if the term "bubble" is to mean anything useful, it must contain an implied prediction of the future course of asset prices. I read this as saying that a bubble is when someone can correctly predict that... MORE

54 Libertarians Tell Their Stories

Books: Reviews and Suggested Readings
Arnold Kling
The book is Why Liberty, compiled by Marc Guttman. The 54th chapter comes from Vince Miller, a Canadian, who writes, My own experience suggests maybe an innate sense of justice is required. What makes some people take action when they... MORE

Does Liberty Come from the State?

Political Economy
Arnold Kling
Daniel B. Klein writes, I believe that President Obama sees himself as the duly appointed officer of the overlord. This overlord is the collectivity called "the people" or "the state." It is one big voluntary club. Its officers are government... MORE

Morality, Rhetoric, and Politics

Political Economy
Arnold Kling
Dwight R. Lee meditates, Still, as long as there are people who cannot resist the appeal of morality on the cheap, the political process will continue to serve up cheap morality. And the result will continue to be neither moral... MORE

Theory X?

Macroeconomics
Arnold Kling
A new paper by David Levine. capitalist economies by virtue of being efficient employ longer and more specialized production chains than more poorly organized economies. This raises output, welfare and utility, but it also leads to more "crises" than shorter... MORE

What Was Rational Expectations? Bueller?

Economic Methods
Arnold Kling
When I wrote that rational expectations was a theory Y, a commenter asked me to explain rational expectations. I will do so below the fold.... MORE

Regulation of, by, and for Big Business

Economic History
Arnold Kling
Michael Strong points out this forty-year-old essay by Roy Childs. What Kolko and his fellow revisionist James Weinstein (The Corporate Ideal in the Liberal State, 1900-1918) maintain is that business and financial leaders did not merely react to these situations... MORE

Regulation and the Second Best

Regulation and Subsidies
Arnold Kling
Scott Sumner writes, I resent my tax money insuring banks that make sub-prime mortgage loans, or risky construction loans. I'd like to ban FDIC-insured banks from making housing loans with less than at least 20% down. I am not opposed... MORE

Theory X and Theory Y

Economic Methods
Arnold Kling
Nick Rowe writes, Then theory Y suddenly appears. Theory Y is new, and has lots of unexplored areas that you have the skills to work on. You don't believe in theory Y, but you could make a useful contribution to... MORE

Farmers, Foragers, and Bourgeios Virtues

Growth: Causal Factors
Arnold Kling
Deirdre McCloskey interviewed. In her view, about 200 years ago there was in northwest Europe a shift in values regarding merchants and people engaged in commerce. Previously, they were treated as low status. Now, they were given respect. She argues... MORE

Small Government vs. Conservative Government

Politics and Economics
Arnold Kling
Paul Ryan debates David Brooks. What I heard at the debate was shaped by Jonah Goldberg's description of libertarians and conservatives. The conservative wants the government to be conservative, with little concern about its size. The libertarian wants the government... MORE

Options for Europe

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
I have a hard time getting a grip on the European situation. The economics are complicated enough. But the political issues turn it into a three-dimensional chess game that is too deep for me. Anyway, perhaps this Bruno Leoni Institute... MORE

My views here may have been unclear. I said it better in my Hydraulic Macro Fable. In a diverse economy with extensive division of labor, it is inefficient to pay people in the form of output. If I am the... MORE

Estate Tax Bootleggers

Regulation and Subsidies
Arnold Kling
Tim Carney and Dick Patten write, It's no surprise then that the life insurance industry, which stands to gain an estimated 10 percent of its revenues from estate tax policies, is leading the charge to ensure that the estate tax... MORE

Morning Mark

Finance: stocks, options, etc.
Arnold Kling
Not atypically, I start the morning with links from the indispensable Mark Thoma. 1. Steven Randy Waldman waxes Austro-Keynesian. Read the whole thing. His peroration: It is not technocratic economists who will win the day and pull us out of... MORE

U.S. Health Care Costs

Economics of Health Care
Arnold Kling
John Goodman is indispensable on the topic of health care economics. In this instance, he points to a study of a hospital that delivers babies of at-risk mothers with good results at low cost. So why not replicate Parkland's baby... MORE

Body Scans and WikiLeaks

Growth: Consequences
Arnold Kling
Tyler Cowen writes on Wikileaks. He links to Ross Douthat, who writes, WikiLeaks is at best a temporary victory for transparency, and it's likely to spur the further insulation of the permanent state from scrutiny, accountability or even self-knowledge. I... MORE

Morning Commentary

Macroeconomics
Arnold Kling
On three links from Mark Thoma, on macro theory, the euro, and the stalled housing market. 1. Nick Rowe writes, If people could trade goods and labour directly at zero transactions costs, without having to use monetary exchange, all Keynesian... MORE

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