Now, you could and should be worried if this thing looked like a great bubble -- if long-term rates looked unreasonably low given the fundamentals. But do they? Long rates fluctuated between 4.5 and 5 percent in the mid-2000s, when the economy was driven by an unsustainable housing boom. Now we face the prospect of a prolonged period of near-zero short-term rates -- I don't see any reason for the Fed funds rate to rise for at least a year, and probably two -- which should mean substantially lower long rates even if you expect yields eventually to rise back to 2005 levels. And if we're facing a Japanese-type lost decade, which seems all too possible, long rates are in fact still unreasonably high.

Brad DeLong offers me a bit of consolation.

The long Treasury market is thinner than many people think: it is not completely implausible to argue that it is giving us the wrong read on what market expectations really are because long Treasuries right now are held by (a) price-insensitive actors like the PBoC and (b) highly-leveraged risk lovers borrowing at close to zero and collecting coupons as they try to pick up nickles in front of the steamroller. And to the extent that the prices at which businesses can borrow are set by a market that keys off the Treasury market, an unwinding of this "carry trade"--if it really exists--could produce bizarre outcomes.

Bear in mind that this whole story requires that the demand curve slope the wrong way for a while--that if the prices for Treasury bonds fall carry traders lose their shirts and exit the market, and so a small fall in Treasury bond prices turns into a crash until someone else steps in to hold the stock

And what about the possibility of a fall in prices forcing speculators to sell and causing a further drop in prices? If you think that is implausible, I've got some houses to sell you at 2006 prices.

Thanks to Tyler Cowen for the pointer.

Upon Singapore's independence in 1965--three years after Jamaica's own establishment as a nation--the two nations were about equal in wealth: the gross domestic product (in 2006 U.S. dollars) was $2,850 per person in Jamaica, slightly higher than Singapore's $2,650. Both nations had a centrally located port, a tradition of British colonial rule, and governments with a strong capitalist orientation. (Jamaica, in addition, had plentiful natural resources and a robust tourist industry.) But four decades later, their standing was dramatically different: Singapore had climbed to a per capita GDP of $31,400 (2006 data, in current dollars), while Jamaica's figure was only $4,800.

While much of the initial growth in Singapore can be attributed to sound macroeconomic policies, political stability, and various other factors, the nation's entrepreneurship initiatives have played an increasingly important role in stimulating growth.

Ygesias says, "I believe that absent the [TARP] bailout, we'd be looking at even higher unemployment today."

I think this is a plausible claim. But I don't know of a satisfactory way to evaluate it. It's plausible because some plausible theories about the nature of the financial economy and its interaction with the real economy imply its truth. But other plausible theories do not. My problem is that I don't know of a satisfactory way to evaluate these theories. I'm not saying that there is no way to evaluate them, only that I don't know what it is. It would be nice to form a responsible opinion about this sort of thing. Can someone please help?

The claim that the economy would be much worse off now without TARP has been repeated so many times that I must infer that it has as much ideological significance as the claim that the New Deal ended the Great Depression. And yet, the claim is rarely backed by evidence.

Some further comments.

1. I will certainly respect you in the morning if you say that we cannot possibly know what would have happened without TARP, because history does not provide us the opportunity to run controlled experiments. But I think that one must try to make intelligent guesses, even though we can not know with high confidence.

2. Textbook macroeconomics would tell you that we did not need TARP. Textbook macroeconomics says that fiscal and monetary policy can deal with a recession. If jobs programs are a third-best policy for dealing with unemployment, then bank bailouts are no more than a fourth-best policy.

3. Ben Bernanke studied the Great Depression, and he found that the loss of banking institutions mattered, because borrower-lender relationship capital was destroyed. But even if we stipulate that his view was correct for the 1930's, it was not necessarily correct for today's economy. What we had last year was not a crisis in ordinary banking, but a crisis in securitization. In my opinion, we can do without securitization. Instead, in my view we can, and probably should, return to ordinary banking.

4. WIthout TARP, policymakers could have focused on the parts of finance that do not relate to securitization. Providing a temporary guarantee for money market fund deposits was probably a good idea. It was probably a good idea to make sure that the commercial paper market kept functioning for ordinary businesses--but not for funding structured investment vehicles filled with mortgage securities.

My view of history is that what TARP accomplished is that it saved the firms that were involved in securitization. If you think that the institutional capital embedded in that industry is really, really valuable, then TARP had benefits that might offset its costs. My own view, having seen first hand how securitization worked when I was at Freddie Mac, is that it relies too much on government guarantees, and old-fashioned banking is a viable alternative. So I would not have been willing to put much effort into saving securitization.

Furthermore, I think that saving securitization produced no short-term benefits for dealing with the recession. If anything, it diverted tax resources from other uses that could have done more to maintain full employment.

Let me begin with a disclaimer: Despite his moral views, Robin is an incredibly nice, decent person...

Nevertheless, Robin endorses an endless list of bizarre moral claims.  For example, he recently told me that "the main problem" with the Holocaust was that there weren't enough Nazis!  After all, if there had been six trillion Nazis willing to pay $1 each to make the Holocaust happen, and a mere six million Jews willing to pay $100,000 each to prevent it, the Holocaust would have generated $5.4 trillion worth of consumers surplus.

Let's consider another example.  Suppose the only people in the world are Hannibal the millionaire, a slave trader, and 10,000 penniless orphan slaves.  The slave trader has no direct use for his slaves, but likes money; Hannibal, on the other hand, is a ravenous cannibal.  According to Robin, the "optimal outcome" is for Hannibal to get all 10,000 orphans and eat them.

Consider slavery. There is an unavoidable tradeoff between letting slaves keep the fruits of their own labor and having that go to the slave owners. How does the Law and Economics crowd respond?

I've always assumed, wrongly it appears, that they would argue that the slaves could never be the least cost avoider. But I stand corrected. I learned in the debate that they would bite the bullet and accept slavery and genocide.

I've always assumed, wrongly it appears, that [libertarians] would argue that the slaves could never be the least cost avoider. But I stand corrected. I learned in the debate that they would bite the bullet and accept slavery and genocide...

The value of physicians' underlying human capital is estimated by forecasting an age-earnings profile for doctors based on the characteristics in youth of NLSY cohort participants who subsequently became doctors. Published estimates are used to measure the total cost (wherever paid) of investments in physician training. These data are combined to compute the societal cost per primary care physician visit. The estimated societal cost per primary care physician visit is much higher than the average co-payment per primary care service and generally higher than the current Medicare compensation rate per service unit

They are certainly going about answering the question in a more economically sensible way than just looking at doctor salaries compared to average salaries and contrasting this with other countries.

Hans Hoppe, hardcore libertarian, once described what may be the crucial difference between a democratic state and slavery: the latter was private and thus unequal. It is a major departure from such private and unequal slavery to posit that everyone can own each other, (even if 'own' is not an attractive word to use, but for analogy's sake). In theory, in a democracy everyone is both 'slave' and 'slavemaster' to everyone else, rendering the concept of 'slave' basically meaningless.

Similarly, many people think that the abolition of government would be unworkable. I put myself in that camp. I think that humans are status-seeking animals, which gives them a tremendous propensity for disputes, most of which are wildly irrational apart from the status issues involved. In the absence of a hegemonic power, I believe that these disputes will escalate into violence.

I call myself a civil societarian. I believe that almost every problem that people look to government to solve could instead be solved by other institutions of civil society. I only want a government that can umpire disputes. The question for someone like me is what stops this umpire from claiming an ever-expanding jurisdiction.

Because I accept this umpiring role as necessary, as far as government goes, I am one of the rationalizers. If abolition of government is the libertarian ideal, then I am a hopeless reactionary.

On the other hand, I am nowhere close to being as romantic about democratic government as the commenter quoted above. Democracy does not mean that everyone is slave and slavemaster to everyone else, as if we have perfect political equality. In the United States today, democracy means that most people have essentially zero political power, and a relative handful of people have almost unimaginable power. The central point of Unchecked and Unbalanced is to call attention to the extreme political inequality that has emerged in the United States, particularly over the past fifty years.

Higgs' analogy appeals to me because I find it totally baffling that so many self-styled progressives are vociferously rooting for this political inequality to increase. They want technocrats making even more decisions, with even fewer political checks and balances. Given my opposition to this growth in political inequality, I find progressive ideology as jawdroppingly appalling as if I had been a 19th-century abolitionist encountering an ideology that says that what the world needs is a lot more slavery.

I think the best way to approach this issue is to use Rorty's maxim "truth is what your colleagues let you get away with."  Truth is socially constructed.

Experience, Management, and Luck: The Keys to Success
Professional Networks, Education, Funding, Personal Networks: Important
Location, Investor Advice, Alumni Networks, and Regional Assistance: Not so Important
Entrepreneurs Perceive Very Few Obstacles for Themselves.
Entrepreneurs Believe Entrepreneurship is Very Risky and is Hard Work
Using Personal Savings is the Norm, Venture Capital Comes to the Experienced, and Friends and Family are Always There
Other Success Factors
Entrepreneurship is Believed To Be Stressful, With Unanticipated Challenges

I personally would emphasize a desire to sell. If you cannot overcome your fears and insecurities about selling (and who doesn't have those fears and insecurities?), then you are very unlikely to be successful. The notion that you can have such a great idea that it will sell itself (or "go viral," as they say) is very seductive and in my view almost always wrong.

From Poverty to Prosperity turned out to have a big focus on entrepreneurialism, in part because of interviews with Edmund Phelps, Amar Bhide, and William Baumol. I created a list of entrepreneurial temperaments and found that when I reversed them--creating an "anti-entrepreneur"--the resulting personality is in fact a typical bureaucrat, colorless and rigid.

There is no question that passing the TARP was the right thing to do. In some countries, the government has the authority to provide fiscal resources directly to the banking system on a huge scale, but in the United States this requires congressional approval. In other countries, foreign loans can be used to bridge any shortfall in domestic financing for the banking system, but the U.S. is too large to ever contemplate borrowing from the IMF or anyone else.

1. Existing Mortgages and home owners.

Actual policy: attempts to implement loan modification programs

My policy: pay the moving expenses of homeowners who default on their mortgages. But do not interfere with the foreclosure process.

2. Mortgage Markets

Actual policy: keep Freddie Mac and Fannie Mae going, and we now have 90 percent of mortgage loans made by federal agencies.

My policy: Limit Freddie Mac and Fannie Mae to their existing oook of mortgage loans (I wrote this in September of 2008) and not allow them to purchase any new mortgages. Let banks take up the slack in mortgage lending.

3. AIG

Actual policy: creditors bailed out 100 percent.

My policy: Send in a "stern sheriff" to protect the liquid assets of AIG from creditors making "collateral calls." I was thinking of a government-suggested mediator, perhaps a former bankruptcy judge. If the parties did not like it, they could go to court. But my guess is that the parties would have preferred a mediated solution.

4. Big banks

Actual policy: bailouts of nearly all of them

My policy: Triage. Shut down the ones that have clearly failed, using FDIC procedures. Those that are clearly solvent should be allowed to proceed. Those that are neither clearly failed nor clearly solvent should be given forbearance, but with tight supervision to ensure that they do not use this forebearance to expand their risk-taking. Again, this was what I advocated in September of 2008.

Conclusion

Overall, the goals of actual policy were to try to achieve a much less painless outcome than what my policies were intended to achieve. In terms of goals, my policies were inferior in that sense.

But what about results? I am struck by the fact that even though banks seem to be doing well, taxpayer losses are going to be high and the recession has been quite severe. From the standpoint of the typical American, the results of the financial rescue policies represent what to me seems like a pretty low bar. Surely, alternative policies could have done better for the average American. I think mine would have.

Is there any reason besides a desire to learn, or to make entry into a Ph.D. programme easier to do a Masters in economics that would not be better served by an alternative option?

I'd be interested to learn the average economist's opinion of net neutrality.

If any, what are your top 3 favorite economics blogs.

What is the one finding or principle in economics that you believe is so strongly supported by evidence and logic that you're shocked that so many other economists disagree with it?

To me, the problem is that economists want to describe markets that only work imperfectly in some easily-modeled way, which can be corrected by the assumed-to-be disinterested omniscient technocrat. My own view is represented by the epigram, "Markets fail. Use markets."

My contention is that the rational expectations models are the intellectual heirs of these central planning models. Not in the sense that individuals in these rational expectations models aim at planning the whole, but in the sense that, as the central planner, they understand the whole picture. These individuals use this superior information to obtain the "optimum optimorum" for their own private welfare. In this sense they are top-down models.

From The New York Times:

"Hindsight is a wonderful thing," said Timothy W. Long, the chief bank examiner for the Office of the Comptroller of the Currency. "At the height of the economic boom, to take an aggressive supervisory approach and tell people to stop lending is hard to do."

Maynard writes,

I don't think there's any mystery here. The reason that unemployment was slower to fall after the last two recessions than in previous recoveries was that GDP growth was anemic.

However, Okun's Law results from two relationships--productivity and labor force participation. Both of these relationships have changed dramatically. We are seeing much higher post-recession productivity growth (reducing the ratio of jobs to GDP) and a larger decline in labor force participation (cushioning the impact on the unemployment rate). Those of us who see the latest two recoveries as jobless recoveries are not idiots. If you look at the unemployment rate, sure, there is nothing unusual to see. But if you look at payroll employment and hours worked, they support the jobless recovery story.

This is a foolish game to play.  There is zero chance Congress would spend enough money on these "third-best" options to make a dent in unemployment.  God only knows what his 4th best option is.

I anticipate participating in a survey project of a sample of AEA members.

Such a survey is an opportunity for throwing in extraneous questions of interest.

Can you think of question or two you think we should throw in? Your thoughts and suggestions are most welcome.