Some Morning Links
By Arnold Kling
Profit from bank bailouts–so far. The profits come from banks that have paid back the government, and recall that some banks were forced to take bailout funds in the first place. We will see what happens to the full sample.
Suppose in the end that the government makes a profit of $50 billion on banks, but loses $100 billion on Freddie and Fannie. How should we count that? I would be inclined to count it as a loss on bank bailouts, because the subsidies to Freddie and Fannie end up bailout banks, which were creditors of those institutions.
David Warsh on the origins of money. I think of money as originating as a way of paying soldiers. This raises for me the question of how conquerors funded large armies before the invention of money, which Warsh says took place around 600 BC. The problem is this: you are an emperor who wants to go marauding. You want your soldiers to remain loyal for months, during which you may not win much loot. How do you provide credible promises to the soldiers that they will get a fair share of loot?
Without rendering my own opinion on Ohanion’s work, I find it interesting that the New Deal narrative is defended so ferociously. I fear that the same thing will happen with the current episode. The mainstream narrative is that it was caused by bankers acting without sufficient adult supervision, and that Paulson and Bernanke saved us from having a much worse fire. My narrative would be that it was caused at least in part by the adult supervisors encouraging too much housing and too much leverage. Moreover, I think that the size of the recession was determined primarily by the size of the adjustment needed in home construction (down from 2 million units at an annual rate to 0.5 million units at an annual rate) needed to correct the imbalance. That is, the magnitude of the recession had little or nothing to do with the travails of the bankers.
In any case, the narrative may be the most important long-term effect of the crisis. If the mainstream narrative holds, we will have much more government intervention and much less economic liberty for generations to come. If alternative narratives compete successfully, we will have more liberty and less intervention.