Bryan Caplan and David Henderson

Arnold Kling: February 2011

An Author Archive by Month (49 entries)

The Hobgoblin of Simple Minds

Growth: Consequences
Arnold Kling
Tyler Cowen notes the apparent inconsistency between supporting both labor unions and aggregate demand expansion during a recession. The one seeks to raise real wages and the other seeks to lower them. I think it is hard to maintain a... MORE

Benevolent Autocrat Theory

Central Planning vs. Local Knowledge
Arnold Kling
Christopher Faris writes, it's easier to tell and believe narratives about heroic individual leaders than about complex self-reinforcing political and economic systems; Read the whole thing. It summarizes a talk by Bill Easterly. Pointer from...Easterly's co-blogger, Laura Freschi. It is... MORE

Libertarian Tribalism

Economics and Culture
Arnold Kling
In a thought-provoking post on what he calls the libertarian penumbra, Bryan writes, Are there any [beliefs that fall within this penumbra] that make you cringe? I am tempted to say that the question itself is an example of something... MORE

Job Losses vs. Unemployment

Labor Market
Arnold Kling
Christian Stucchio writes, it looks like job losses in construction and manufacturing are huge! In contrast, job losses in finance or business are much smaller, government is flat, and health and education have actually gained jobs! On his post, you... MORE

You Call this Stagnation?

Information Goods, Intellectual Property
Arnold Kling
Tyler Cowen writes, The deeper point is that the revenue growth/utility growth gradient has fundamentally changed, due to the "real shock" (as they call it) of the internet. Facebook is fun but it doesn't produce a proportional amount of revenue,... MORE

Mubarak, Freddie, and Fannie

Finance: stocks, options, etc.
Arnold Kling
I write in the latest Weekly Standard, Like Mubarak, the GSEs have seen their once formidable political position reduced to one of helpless isolation, abandoned by all former supporters. However, as in Egypt, deposing former leaders does not by itself... MORE

The Expert-Hubris Industries

Growth: Consequences
Arnold Kling
Steven Randy Waldman elaborates on some ideas that I set out in response to his initial post. service providers in these industries are themselves uncertain of the value they are able to provide. Yet providers work hard to hide and... MORE

The Bernank on What Caused the Bubble

Finance: stocks, options, etc.
Arnold Kling
Ben S. Bernanke, Carol Bertaut, Laurie Pounder DeMarco, and Steven Kamin write, Europe did not run a current account surplus as did the GSG countries [Global Savings Glut countries, such as China], and thus was not a net exporter of... MORE

Solving Othello: a Follow-Up

Game Theory
Arnold Kling
This is an off-topic response to comments on my earlier off-topic post on the board game Othellotm. I believe that it could be solved using today's computers, by truncating the decision tree whenever a player is in a clear losing... MORE

My Othello Career

Growth: Consequences
Arnold Kling
Mostly off topic, but Tyler Cowen sent me a cryptic email asking about it. I can refer him to this essay.from 1998. With apologies to Robert Fulgum, everything I ever learned about competition I learned by playing Othello(tm owned by... MORE

Agent-Based Modeling: Promises and Pitfalls

Economic Methods
Arnold Kling
Which of the following impediments to economic adjustment do you believe to be the most important? a) the cost of establishing a new enterprise b) the cost of integrating new workers and equipment into an existing enterprise c) the cost... MORE

Rescued from the Comments

Economics of Health Care
Arnold Kling
On this post, Shangwen wrote, So far in this project, I've found that for a particular disorder, clinicians employing a rigorous and objective diagnostic tool can cure a patient for about $4,000. Left to their own devices, hunches, and bias,... MORE

A Budget Paradox

Fiscal Policy
Arnold Kling
Consider the following two sentences: 1. It is very difficult to cut Federal government spending, because so much of it is mandatory. 2. It is very difficult to increase Federal government spending, because so much of it is mandatory. Reciting... MORE

Steve Randy Waldman writes, I think of government, education, health care, and finance collectively as the "information asymmetry industry", and I find it terrifying that many people presume that they are the future growth industries for the United States. Waldman... MORE

David Brooks, Tyler Cowen, and PSST

Growth: Consequences
Arnold Kling
David Brooks writes, In other words, as Cowen makes clear, many of this era's technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity. This is Tyler Cowen's Internet story. Lots of value, but not much economic activity.... MORE

What is Economic Activity?

Macroeconomics
Arnold Kling
Maybe I should write something the length of a Kindle single on Patterns of Sustainable Specialization and Trade. Below might be a way to write the opening.... MORE

This is one of his better summaries of his brand of monetarism and how it contrasts with other views. He writes, Rather than assume current changes in M affect future AD with long and variable lags, I assume current changes... MORE

A Scott Sumner Post to Ponder

Politics and Economics
Arnold Kling
He classifies political affinities along a 6-spoke wheel: progressives, pragmatic libertarians, dogmatic libertarians, conservatives, corrupt Republicans, corrupt Democrats. He writes, I would like to argue that most of the really important public policy issues are not even part of the... MORE

The McCloskey's Speech

Growth: Causal Factors
Arnold Kling
Outstanding, even with the occasional stammer. If you like what Nick Schulz and I call Economics 2.0, you will loves this talk.... MORE

Lessons of Smoot-Hawley

Books: Reviews and Suggested Readings
Arnold Kling
In Peddling Protectionism: Smoot-Hawley and the Great Depression, Douglas A. Irwin writes on p. 99-100: In terms of political strategy, the Smoot-Hawley tariff represented a huge miscalculation by progressive Republican insurgents...to address the farm situation through a tariff revision. The... MORE

The Author of the Administration's Housing Finance Report

Finance: stocks, options, etc.
Arnold Kling
As reporters ask me about the report, I in turn ask them where the real report is. I mean, I cannot believe that such a sketchy, half-baked proposal was given an official seal (two of them, one each from HUD... MORE

Housing Finance Reform: My Most Cynical Take

Finance: stocks, options, etc.
Arnold Kling
If you know your Murray Edelman, then you know that politics is a game in which insiders divide up the goodies while giving the broader public symbolic reassurance. That framework can be used for housing finance. In housing finance, the... MORE

The Obama Administration on Housing Finance

Finance: stocks, options, etc.
Arnold Kling
The long-awaited report has been released. I will have extended comments below the fold. Overall, I was disappointed to see that the report is heavily waited toward strategy and tactics, without adequate consideration of objectives. Nobody seems to want to... MORE

Housing Finance Reform

Finance: stocks, options, etc.
Arnold Kling
While I await the release later today of the Administration's white paper, I have received from Princeton University Press an advance copy of Guaranteed to Fail, a new book by Viral Acharya, Matthew Richardson, Stijn Van Nieuwerbergurgh, and Lawrence J.... MORE

Compensation of Bank Executives

Business Economics
Arnold Kling
Simon Johnson writes, New evidence in favor of the second interpretation [that bank executives were evil] has just become available, thanks to the efforts of Sanjai Bhagat and Brian Bolton. These researchers went carefully through the compensation structure of executives... MORE

Peter Berkowitz on Elites

Political Economy
Arnold Kling
He writes, today more than ever conserving liberty and maintaining democracy require an elite whose members possess advanced learning, professional expertise, and wisdom born of extended experience. ...To obtain the elites we deserve, nothing is more urgent than redoubling reform... MORE

Public Policy Bounty Hunting?

Central Planning vs. Local Knowledge
Arnold Kling
David Leonhardt writes, nonprofit groups like foundations pay the initial money for a new program and also oversee it, with government approval. The government will reimburse them several years later, possibly with a bonus -- but only if agreed-upon benchmarks... MORE

Foreclosures and House Prices

Finance: stocks, options, etc.
Arnold Kling
Atif R. Mian, Amir Sufi, and Francesco Trebbi write, We show that states that require judicial process for a foreclosure sale have significantly lower rates of foreclosures relative to states that have no such requirement. Using state laws requiring a... MORE

GSE Reform and Tail Risk

Finance: stocks, options, etc.
Arnold Kling
The Wall Street Journal reports that the Administration is going to release its overdue white paper on Friday. The administration's proposal to Congress is likely to assess the merits and drawbacks of each of the three options. The most conservative... MORE

My Tax Dollars at Work

Politics and Economics
Arnold Kling
Crime in the work place is a problem, whether it takes place in the public sector or the private sector. But one advantage of having goods and services provided by private firms rather than by government is that you put... MORE

Classics from the American Economic Review

Economic Education
Arnold Kling
This list, compiled by a committee that includes Kenneth Arrow and several other superstars, consists of twenty articles. I think one could make a pretty good case that a professional economist ought to be familiar with every article. For example,... MORE

The Entrepreneurial Mind

Business Economics
Arnold Kling
Inc Magazine writes, Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they... MORE

Empathizers and Systemetizers

Political Economy
Arnold Kling
Mike Rizzo reminds me of one of my classic essays. I wrote, The analytical brain uses the principles of science. It learns to make predictions of the form, "When an object is dropped, it will fall toward the earth." The... MORE

Excellent Sentences

Macroeconomics
Arnold Kling
From Karl Smith: Getting a job decreases the amount of work it takes to live. That's why jobs are good. This is very consistent with the PSST story. Economic activity consists of people specializing and doing things for one another.... MORE

The Wallison Dissent

Finance: stocks, options, etc.
Arnold Kling
In his dissent from the Financial Crisis Inquiry Commission majority report, Peter Wallison writes, in other developed countries--many of which also had large bubbles during the 1997-2007 period--the losses associated with mortgage delinquencies and defaults when these bubbles deflated were... MORE

A Thought to Ponder

Finance: stocks, options, etc.
Arnold Kling
From Jeremy Siegel: The major reason for the dramatic drop in these real yields is the unprecedented - and in my opinion unwarranted - level of pessimism and risk aversion that has gripped investors since the financial crisis. Siegel argues... MORE

Three Amusing Links

Labor Market
Arnold Kling
1. AOL buys Huffington Post for over $300 million. I did not realize that April 1st came in February. 2. A License to Shampoo. The WSJ covers a topic that would be my focus is somebody made me "jobs czar."... MORE

Another Half-Baked Model

Labor Market
Arnold Kling
This is an attempt to get at the notion of real adjustment costs in a model of Patterns of Sustainable Specialization and Trade. It is something like the Fischer Black model of macro, which influenced Tyler Cowen and me to... MORE

Ideology and Tyler Cowen's Stagnation Thesis

Growth: Causal Factors
Arnold Kling
In this interview with Nick Schulz, Tyler Cowen discusses his stagnation hypothesis. He complains that he is getting unexpected pushback from market-oriented economists, but he does not complain about unexpected support from journalists on the left. Perhaps one reason for... MORE

Mankiw vs. PSST

Macroeconomics
Arnold Kling
A commenter on this post points to a paper that Greg Mankiw wrote on real business cycle theory. If workers were unemployed voluntarily in recessions because they were moving to new jobs in other sectors, we would expect high unemployment... MORE

The Housing Market

Finance: stocks, options, etc.
Arnold Kling
Tim Cavanaugh writes, So what will this mean when the last moratorium is lifted, the last show-me-the-note lawsuit gets thrown out of court, and the last loan modification has failed? Well by that time you'll probably be able to buy... MORE

Milton Friedman vs. PSST

Macroeconomics
Arnold Kling
The "natural rate of unemployment, in other words," is the level that would be ground out by the Walrasian system of general equilibrium equations, provided there is imbedded in them the actual structural characteristics of the labor and commodity... MORE

Government Workers

Politics and Economics
Arnold Kling
Iain Murray tries to count how many there are. When we add up the true size of the federal workforce -- civil servants, postal workers, military personnel, contractors, grantees, and bailed-out businesses -- and add in state- and local-government employees... MORE

Real Adjustment Costs

Macroeconomics
Arnold Kling
I am disappointed by some of the reactions to my macro play. People are not being deliberately obtuse, but they are being obtuse. That is what happens when you are committed to one paradigm and someone tries to suggest something... MORE

A Macro Play in Three Acts

Macroeconomics
Arnold Kling
The characters: Bao, Esteban, Leroy, and Marcel Act One (the boom): Bao and Leroy have opened a restaurant, as have Esteban and Marcel, serving curried baked beans and Pupusas in mushroom-wine sauce, respectively. There is a lot optimism and economic... MORE

Grist for Bryan

Economics of Education
Arnold Kling
Lauren Rivera, an assistant professor at Northwestern's Kellogg School, has written a paper on the way that elite employers screen resumes (no ungated version found). Her claim is that top law firms and investment banks select for prestige in academic... MORE

Win Jason Furman's Money

Labor Market
Arnold Kling
Or something like that. Via Greg Mankiw, I learn that the Hamilton Project has launched a prize competition to identify new and innovative thinking about policies to create jobs in the United States and enhance productivity. My suggestion would be... MORE

Two Good Sentences

Finance: stocks, options, etc.
Arnold Kling
Via email, from John Hempton: Frannie is a terribly inefficient way to generate subsidies for people in the 60th income percentile (ie very marginal home buyers). I am sure I could do better with cash and a helicopter and some... MORE

What I'm Watching

Microeconomics
Arnold Kling
This MIT symposium. In the first session, Jerry Hausman winds up talking about a paper he did on the demand for energy-efficient air conditioners. For what it's worth, I was the research assistant for that paper. He found that consumers... MORE

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