Bryan Caplan and David Henderson

Arnold Kling: January 2012

An Author Archive by Month (73 entries)

Per Request: Podcasts

Fiscal Policy
Arnold Kling
For those who prefer to listen in the gym, Mercatus has put up Kling-Jones and Minarik-Wallison on prospects for a sovereign debt crisis in the U.S.... MORE

Betting Indicators

Economics of Education
Arnold Kling
Bryan writes, Arnold, would you care to bet that the number of full-time faculty of traditional 4-year colleges will decline by more than 10% by 2022? Something else? I'd prefer to stretch out the time frame at least a few... MORE

Michael Greve on Fiscal Federalism

Fiscal Policy
Arnold Kling
He describes the growth of state and local spending, the incentive for the Federal government to enact soft bailouts, and finally a future in which we come to resemble Argentina. Medicaid represents well over 40 percent of all federal transfer... MORE

The Education Revolution

Economics of Education
Arnold Kling
Charlotte Allen summarizes a lot of recent developments that I think are going to change higher education. It's happening, almost overnight: what could be the collapse of the near-monopoly that traditional brick-and-mortar colleges and universities currently enjoy as respected credentialing... MORE

Taylor Rules

Books: Reviews and Suggested Readings
Arnold Kling
John Taylor's First Principles argues for (p.18): predictable policy framework rule of law strong incentives reliance on markets clearly limited role for government On p. 25, he points out that a policy can follow one principle but violate others. An... MORE

Freddie Mac and Inverse Floaters

Finance: stocks, options, etc.
Arnold Kling
A new scandal from reporters for ProPublica and NPR. In 2010 and '11, Freddie purchased $3.4 billion worth of inverse floater portions -- their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for... MORE

Alex Tabarrok on Innovation

Energy, Environment, Resources
Arnold Kling
At The Atlantic. The U.S. Department of Energy, for example, estimates that small and environmentally friendly hydro-electric projects could generate at least 30,000 MWs of power annually. That's equivalent to the generating capacity of about 30 nuclear power plants. Moreover,... MORE

De-fund College Libraries

Information Goods, Intellectual Property
Arnold Kling
Joshua Gans writes This is disappointing on a number of fronts. First, BE Press never informed us. They did send out a letter to paying subscribers but not to authors or to people who serve on their editorial boards; both... MORE

The Bubble Quiz

Income Distribution
Arnold Kling
We've been discussing Charles Murray's Coming Apart, and now there is a quiz you can take to find out if you are living in an elitist bubble. My score was reported as "between 5 and 8," which is weird, since... MORE

The Prospects for a U.S. Default, Continued

Fiscal Policy
Arnold Kling
Nick and I discuss this with Joseph Minarik (former OMB economist under President Clinton) and Peter Wallison. The full half-hour video is here. Below is a 3-minute preview.... MORE

An Empirical Disagreement

Labor Market
Arnold Kling
Bryan focuses our disagreement: when 10% of the workers in an occupation lose their jobs, or 5% of firms in an industry go out of business, continuity isn't merely a convenient assumption. It's a hard fact. So now it boils... MORE

A Different Mr. Negative

Income Distribution
Arnold Kling
Mark Thoma writes, I hate to be Mr. Negative today, but I'm less than fully convinced that we are anywhere near embarking on a path that places the welfare of the middle class at the forefront of economic decisions. One... MORE

Discontinuity, Revisited

Macroeconomics
Arnold Kling
Bryan writes, (c) Workers continue to be employed at their old job for 5, 10, or 20% lower wages until an entrepreneur makes (b) happen. So, if the demand for mortgages collapses, all it takes to get back to 2006... MORE

Educational Disintermediation

Economics of Education
Arnold Kling
Felix Salmon writes, Stanford was willing to spend hundreds of millions of dollars building a new physical campus in New York City -- but it isn't willing, it seems, to help Thrun build a free virtual campus which could reach... MORE

One-Sentence Tax Reform

Tax Reform
Arnold Kling
Richard Green writes, Let's just start by designing a code that requires that as adjusted gross income rises, the effective tax rate may not fall. That way taxpayers would be able to look at their own effective rate, and know... MORE

PSST and Recovery

Macroeconomics
Arnold Kling
Bryan asks, without nominal rigidities, why doesn't the PSST model specifically predict that prices will adjust to restore full employment? Suppose that a bunch of mortgage underwriters get laid off. There are two possible full employment equilibria. (a) They can... MORE

Nominal GDP and Employment

Macroeconomics
Arnold Kling
The ratio of nominal GDP to employment is NGDP/L, where L is the level of employment. This can be decomposed into: NGDP/L = (NGDP/RGDP) x (RGDP/L) = the GDP deflator x productivity As long as inflation and productivity growth are... MORE

Gridlock vs. Compromise on the Deficit

Fiscal Policy
Arnold Kling
Reihan Salam writes, Suffice it to say, the thought of Chinese military officials deciding on how large a military the U.S. is allowed to retain is a sobering thought. But that, alas, is a foreseeable outcome from the brand of... MORE

Thoughts on Education Reform

Economics of Education
Arnold Kling
Larry Summers writes, it makes sense for students to watch video of the clearest calculus teacher or the most lucid analyst of the Revolutionary War rather than having thousands of separate efforts. True enough, but I think one should try... MORE

The Economists We Have

Economic Methods
Arnold Kling
David Colander writes, not only are economists as a group not humble enough, what lay people are presented as economist's policy recommendations are often the policy recommendations of the least humble economist. In summary, my argument is that lack of... MORE

The Business Reporters We Have

Business Economics
Arnold Kling
Once again this week, the Washington Post Outlook section is an exercise in feeding its readers' anti-market prejudices. One prominent feature is an article by Jia Lynn Yang, a business reporter. The nagging problem with the consulting worldview, however, is... MORE

Mainstream Views of the Gold Standard

Monetary Policy
Arnold Kling
The IGM economists are unanimously against a gold standard. One of the arguments is that the relative price of gold is too volatile. That strikes me as the wrong argument to make. For one thing, if you had a gold... MORE

A Default Scenario

Fiscal Policy
Arnold Kling
There is a compendium of papers in Econ Journal Watch on the prospects for a U.S. debt default. Garett Jones and I authored two of the papers. We discussed the topic on Friday with Reihan Salam. A preview is below.... MORE

Economists and Influence, A Depressing Take

Politics and Economics
Arnold Kling
Jim Tankersley writes, "If you bat .300, you're going to win the National League [batting title]. But if you bat .100 as an economist in D.C., you're going to go to the Hall of Fame." So mused conservative economist Douglas... MORE

Financial Regulation: Three Confirmations

Finance: stocks, options, etc.
Arnold Kling
First, Paul Romer confirms some of my views when I wrote "The Chess Game of Financial Regulation." That is, eventually, all fixed rules will be gamed. He calls this "Myron's law" in deference to Myron Scholes. Second, Sheila Bair says... MORE

Why Health Care Costs are Hard to Reduce

Economics of Health Care
Arnold Kling
Megan McArdle writes, I think the central difference between me, and the people who think that IPAB's reimbursement-rate powers will be a big help in controlling health care costs, is that the latter group tends to think that a lot... MORE

Shocks and Deficits

Fiscal Policy
Arnold Kling
Alan Blinder writes, The CBO projects federal spending on all purposes other than health care and interest to be roughly stable as a share of GDP from 2015 to 2035, and then to drift lower. So no, America, we don't... MORE

Ferguson on Murray

Politics and Economics
Arnold Kling
Niall Ferguson writes, As Murray shows, there is a conservative solution to the problem of inequality. Scrap the failing welfare programs of the '30s and '60s before they bankrupt America. Ensure that everyone has a basic income. Then simplify the... MORE

Health Care Costs are Hard to Manage

Economics of Health Care
Arnold Kling
CBO's Doug Elmendorf writes, In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations--6 in the first category and 4 in the second--that have been evaluated by independent researchers. CBO finds that most programs tested in... MORE

Making Taleb's Point

Institutional Economics
Arnold Kling
Frances Beinecke writes, Over the past several weeks, the Food and Drug Administration (FDA) has been in the news for its stance on antibiotic use in farm animals. Yet instead of making good on its 1977 promise to limit these... MORE

Blogs, Journals, and Economists

Economic Methods
Arnold Kling
Paul Krugman writes, doesn't this [the Internet] allow a lot of really bad economics to circulate? Yes, but is it really any worse than it used to be? As I've tried to explain, the notion of journals as gatekeepers was... MORE

Nassim Taleb on His Next Book

Books: Reviews and Suggested Readings
Arnold Kling
He talks with Russ Roberts. It's about how we should act when we don't know what we are doing. It's a great conversation. Note the case that Taleb makes for simple heuristics.... MORE

A Shortage of Safe Assets?

Finance: stocks, options, etc.
Arnold Kling
Timothy Taylor discusses this hypothesis. He quotes from a paper by Gary Gorton and others. Over the past sixty years, the total amount of assets in the United States economy has exploded, growing from approximately four times GDP in 1952... MORE

Education and Cartel Membership

Economics of Education
Arnold Kling
Tyler Cowen writes, It is an embarrassing question for signaling models to ask: with what lag do employers get a good estimate of a worker's marginal product? If you say "it takes 37 years" it is hard to account for... MORE

Saving and Investment: My (Keynesian) Take

Macroeconomics
Arnold Kling
I am going to try to stick to substance, and not do name-calling. But I think I am articulating a model that is in the spirit of Keynes, which probably puts me on the Brad DeLong and Paul Krugman side... MORE

Euro-Optimism

Game Theory
Arnold Kling
C. Fred Bergsten and Jacob Funk Kirkegaard (BK) write, There are only two alternatives. Europe can jettison the monetary union. Or it can adopt a complementary economic union. This brief argues that, for all the turmoil, Europe is well on... MORE

Re-Org Proposal

Politics and Economics
Arnold Kling
You may recall that I wrote an article proposing that the executive branch of the government be re-organized. Coincidentally, President Obama asked for the power to reorganize and made an initial suggestion related to commerce. It seems to me to... MORE

No Comment

Income Distribution
Arnold Kling
Richard Bookstaber writes, I believe we are seeing the twilight of the era of conspicuous consumption. Jessica Wakeman writes, Beyoncé's Birthing Suite Is Nicer Than My Apartment Pointers from Tyler Cowen and Glenn Reynolds, respectively.... MORE

The MIT Connection

Economic Education
Arnold Kling
Bloomberg News has an article on the many MIT economics Ph.D's currently in top policy slots at central banks around the world. The article paints a rosy picture of grad school life during the period when we were there, including:... MORE

We Are All Austrians Now?

Austrian Economics
Arnold Kling
There is a YouTube going around in which Ron Paul's applause line at a rally is "We're all Austrians now!" Conveniently enough, in this interview, Pete Boettke explains Austrian economics superbly. Austrians want to talk about the institutional environment within... MORE

We are All Sumnerians Now?

Monetary Policy
Arnold Kling
A great sentence: But I'm not sure Ben Bernanke, Tim Geithner, and the others were in fact making any major mistakes in 2006 beyond underestimating how inept they would be in the fall of 2008 and the winter of 2008-9.... MORE

Business Experience

Business Economics
Arnold Kling
Will Wilkinson summarizes some discussion of the relevance of business experience to being President. One of the tropes that he mentions (without endorsing it) is that "business people don't realize that when you come to Washington you just can't boss... MORE

Access to Academic Research Papers

Information Goods, Intellectual Property
Arnold Kling
Megan McArdle writes, Kevin Drum takes a courageous and rare stand on the internet, arguing that yes, downloading millions of files from JSTOR while evading attempts by both JSTOR, and the owner of the network you're using, to stop you,... MORE

Why Derivatives?

Finance: stocks, options, etc.
Arnold Kling
A reader asks. why would one consider hedging/derivative strategies, e.g., longs and shorts, collars and arbitrage? Stated differently (I think), a long term buy and hold of this assumed portfolio would seem to maximize its return without these hedging strategies.... MORE

Easier to Break than to Fix

Macroeconomics
Arnold Kling
Nick Rowe writes, Negative AD shocks will do harm to PSST, but positive AD shocks cannot do good to PSST. The issue of asymmetry in macroeconomic phenomena is important. I would speculate that in a modern economy the process of... MORE

The AI Cure

Economics of Health Care
Arnold Kling
Vinod Khosla writes, I was asked about a year ago at a talk about energy what I was doing about the other large social problems, namely health care and education. Surprised, I flippantly responded that the best solution was to... MORE

For Students

Economic Education
Arnold Kling
Students might be interested in a set of imitation Sal Khan videos that I made to cover AP economics. There are roughly 70 videos, typically 10-15 minutes each. I start with some basic economic concepts, then proceed to macro (starting... MORE

The Real Concentration of Power

Political Economy
Arnold Kling
Robert Lawson and Richard Alm write, In 2010, a tiny cabal of 535 individuals -- just 0.00017% of the population -- spent $3.5 trillion, or about 23% of the $14.5 trillion U.S. economy. That leaves 77% for the other 99.99983%... MORE

Tevi Troy on Think Tanks

Politics and Economics
Arnold Kling
Nick Schulz and I talk with him in this video. Comments welcome. What can we do to make this a regular program that you look forward to every week? The conversation raises doubts about whether the emerging trends in think... MORE

What is a Structurally Impaired Job?

Labor Market
Arnold Kling
Walter Kurtz writes, Credit Suisse defines structurally impaired sectors to "include real estate related industries, finance, manufacturing, and the state and local government sector." These are the sectors that at least in part rode the "bubble" economy wave. Many of... MORE

AEA Panel on Economics Blogging

Economic Methods
Arnold Kling
A Chronicle of Higher Education article: The role of economics blogs started changing noticeably around 2008, said Alex Tabarrok, an associate professor of economics at George Mason University. Before then, blogs were expected to be clever and entertaining, and little... MORE

What Banks are (not) Doing

Finance: stocks, options, etc.
Arnold Kling
Eric Falkenstein writes, A friend shares with me the following anecdote. He thinks real estate is cheap, and wants to buy houses, and make money renting them. Ultimately, he would sell out of the homes when they recover in value.... MORE

The Case for a Re-org of the Executive Branch

Business Economics
Arnold Kling
My latest essay: As an example of careless organizational structure, consider that prior to the financial crisis the Federal Reserve Board was responsible for consumer protection with respect to mortgages, while the Department of Housing and Urban Development was responsible... MORE

Capitalism Without Capital

Institutional Economics
Arnold Kling
John Kay writes, The critical resources of today's company are not its buildings and machines but its competitive advantages - its systems of organisation, its reputation with suppliers and customers, its capacity for innovation. These attributes are not, in any... MORE

Why Foreclosure Prevention is Not Helpful

Finance: stocks, options, etc.
Arnold Kling
Bruce Judson writes, the fear of a continuing loss of wealth (which is a cushion against job loss or other economic emergencies), the fear of job loss itself, the negative effects of underwater homes, lack of forbearance for unemployment (a... MORE

The Great Transformation

Growth: Consequences
Arnold Kling
Larry Summers writes, The nature of the transformation is highlighted by the 50 fold change in the relative price of a television set of a constant quality and a day in a hospital over the last generation. While it is... MORE

Today on the Eurozone Crisis

Eurozone crisis
Arnold Kling
Tyler Cowen writes In the meantime, doesn't every euro -- a few sticky grannies aside -- leave the Italian banking system? Presumably the new lira is not pegged at 1-to-1 forever. He is referring to an op-ed by Robert Barro... MORE

An Answer to Truman's Prayer?

Efficient Markets Hypothesis
Arnold Kling
Claudia Goldin, William Nordhaus, Richard Schmalensee, and Anil Kashyap write, Each week since late September, along with 37 other economists at top universities, we have been answering questions on major public policy issues... Schamelensee was on my dissertation committe. President... MORE

Devaluation and the Real Exchange Rate

International Macroeconomics: Exchange Rates, International Debt, etc.
Arnold Kling
John Cochrane writes, If the Drachma goes from 1:1 Euros to 2:1 Euros and Greek prices and wages double, nothing happens. On the other hand, if prices and wages don't change, then Greek goods are cheaper and Greece will produce... MORE

Mark's Monetary Matters

Monetary Policy
Arnold Kling
Mark Thoma has many interesting links today, in part because the American Economic Association meetings have generated coverage in the media and in the blogosphere. For example, we have Ryan Avent paraphrasing Robert Hall: (i) A little more inflation would... MORE

Arguments in the Economics Blogosphere

Economic Methods
Arnold Kling
Ryan Avent writes, The discussion is not always polite. It is interesting and enlightening, however. And it disciplines participating thinkers in a way that few other mediums manage. I have just started reading David Weinberger's new book, Too Big to... MORE

Tyler Cowen Makes a Suggestion

Growth: Causal Factors
Arnold Kling
He writes, It is also a good paper for Arnold Kling to comment on I take this as a suggestion that I read the paper, by Richard Baldwin. Actually, I am not sure that I have many comments. Here is... MORE

The Future of Talking Heads?

Politics and Economics
Arnold Kling
A half-hour discussion that Nick Schulz and I held on line, with James Pethokoukis as our guest. We talked about his blog post on economic policy ideas. We conducted this using a Google+ hangout. I recorded it using Camtasia Studio... MORE

Francis Fukuyama on Public Administration

Institutional Economics
Arnold Kling
He writes, anyone who has spent time in government realizes that the real questions that preoccupy officials have to do with implementation, or rather, the impossibility of implementing many desirable policies because of the huge number of constraints under which... MORE

Worth Reading

Finance: stocks, options, etc.
Arnold Kling
The latest issue of National Affairs has a number of interesting articles. Scott Winship challenges the claim that economic life has become more risky. Note that this is separate from Winship's article on income mobility, which also is worth a... MORE

The Indian Economies

Cross-country Comparisons
Arnold Kling
Timothy Taylor has a nice summary of a very long article on India. (Another article in this issue of the Journal of Economic Literature, on labor supply elasticity, clocked in at over 100 pages. If you are looking for an... MORE

Is Bank Regulation This Easy?

Finance: stocks, options, etc.
Arnold Kling
Amar Bhide writes, governments should fully guarantee all bank deposits ­ and impose much tighter restrictions on risk-taking by banks. I emailed him to say that I thought that this assumed that regulators would know when banks are taking risks.... MORE

Some Questions About Government

Political Economy
Arnold Kling
These are rhetorical. 1. Is government subject to diminishing returns to scope? In the business world, it is usually considered a better strategy to stick to one purpose rather than to constantly get into new lines of business. The thinking... MORE

Today on the Eurozone Crisis

Eurozone crisis
Arnold Kling
First, listen to Scott Sumner argue that monetary policy in the U.S. was unintentionally contractionary in 2008. Then, read Izabella Kaminsky on monetary policy today in Europe. the central bank transmission mechanism has been compromised because expansion or contraction of... MORE

The Bell Curve or The Bimodal Distribution?

Income Distribution
Arnold Kling
Charles Murray writes, As recently as half a century ago, Americans across all classes showed only minor differences on the Founding virtues. When Americans resisted the idea of being thought part of an upper class or lower class, they were... MORE

Christina Romer Breaks with President Obama

Fiscal Policy
Arnold Kling
She writes, We already have a blueprint for a bipartisan solution. The Bowles-Simpson Commission hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade.... MORE

Klingian Paradox of Thrift Watch

Growth: Causal Factors
Arnold Kling
Michael Mandel writes, Let me repeat that: Government net investment as a share of net domestic product is at a 40-year low. I had to check this last one a couple of times to make sure it was really true.... MORE

Sentences to Ponder

Finance: stocks, options, etc.
Arnold Kling
Let's start the new year with a quote from April of 2010. If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take. And,... MORE

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