By 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 turns out to be a rant against Perry Mehrling-style central banking *
some investors opt for a strategy of betting against big, unexpected moves in market prices. Most of the time investors will do well by this strategy, since big, unexpected moves are outliers by definition. Traders will earn above-average returns in good times. In bad times they won’t suffer fully when catastrophic returns come in, as sooner or later is bound to happen, because the downside of these bets is partly socialized onto the Treasury, the Federal Reserve and, of course, the taxpayers and the unemployed.
…Betting against a big decline in home prices is analogous to betting against the Wizards [the local pro basketball team]. Every now and then such a bet will blow up in your face, though in most years that trading activity will generate above-average profits and big bonuses for the traders and CEOs.
…A key lesson to take from all of this is that simply railing against income inequality doesn’t get us very far. We have to find a way to prevent or limit major banks from repeatedly going short on volatility at social expense. No one has figured out how to do that yet.
*I say that tongue-in-cheek. I presume it was written before Tyler saw Merhling’s book. Also, Tyler’s attitude about government bailouts of big banks is less one of outrage and more one of eyebrow-raised resignation: What can you do?