EconLog Archive
Finance: stocks, options, etc.
Securitization and Credit Default Swaps
The latest issue of FinReg21 looks at them. First, Charles Davi makes a big deal out of the fact that credit default swaps are derivatives, which allow institutions that do not own securities to make side bets on the value of those securities. I need to think about this more, but my initial instinct is .. MORE
Economic and Political Philosophy
Utility Isn’t Everything
Scott Sumner is one of the great monetary thinkers of our age. But the news isn’t all good – he’s also a utilitarian. I am frankly mystified by the enduring popularity of a moral theory subject to so many simple but devastating counter-examples. My best guess is that people stick with utilitarianism because competing moral .. MORE
Fiscal Policy
Krugman on Federal Debt
Read the following from Paul Krugman in 2003 when the irresponsible people increasing the federal debt (he and I agree here) were Bush and the Republican Congress. Two highlights: That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2 ? make that 3, O.K., maybe 4 ? percent of .. MORE
Finance: stocks, options, etc.
Questions About Financial Crises
Neither a borrower nor a lender be. That’s the way I feel after reading This Time is Different, by Carmen M. Reinhart and Kenneth S. Rogoff. This is certainly one of the must-read books of the year. Some thoughts after reading it. 1. Considering the propensity for governments to default and for financial institutions to .. MORE
Economic Education
Basic Economics Is Intuitive
Economists often off-handedly remark that basic economics is “counterintuitive.” In one of the papers he presented at GMU, Scott Sumner has a whole appendix on “Why is economics so counterintuitive?” Even my hands aren’t clean here: In The Myth of the Rational Voter, I wrote that “…Smith’s thesis [the harmony of private and public interest] .. MORE
Macroeconomics
Responses to Two Critics
I have been making the following claims about macro. 1. Major surges in unemployment are due to Recalculations. A sudden, large shift in demand across industries can occur in such a way that employment falls sharply in the receding sector(s). Meanwhile, it takes a long time for potentially expanding sectors (a) to realize that they .. MORE
Monetary Policy
Sumner on Why Friedman Was Too Klingian
Milton Friedman famously argued that “money matters,” but he had a caveat: Money matters with long and variable lags. Over at Cato Unbound, Sumner suggests that even Friedman was far too Klingian: Most economists assume that interest rates or the money supply are good indicators of the stance of monetary policy. Because of this they .. MORE
Economic Growth
Caught My Eye
Esther (genius grant) Duflo and Abhijit Banerjee are interviewed. They are known for doing experimental tests of anti-poverty tactics. In one project we gave away a kilo of lentils for each immunization given to a child, and it had a huge impact on getting parents to bring their children in for immunizations. Pointer from Tyler .. MORE
Regulation
Consumer Warning on Drugs
An Indiana woman was recently charged with a crime for buying cold medicine. It’s due to a bill signed by that great believer in freedom, George W. Bush, in 2006. Many state governments, including Indiana’s, followed suit with their own laws. The government’s stated goal is to prevent people from buying “too much” pseudoephedrine and .. MORE
Family Economics
A Guess and a Test
From Will Wilkinson, in a 100+ comment discussion at Overcoming Bias: I would guess that number of children is negatively correlated to number of sexual partners. According to the General Social Survey, Will’s guess is… correct! The correlation between number of children and PARTNRS5, its best measure of total number of sexual partners, is -.26. .. MORE
Business Economics
How to Kill Entrepreneurship
Make it an exercise in obtaining government money. Fisker Automotive, a private company based in Irvine, Calif., has received a $529 million loan from a Department of Energy program designed to fund the development of alternative vehicles. This was announced by the energy secretary who famously said that Americans are teenagers who need their government .. MORE
International Trade
Weird Economics at G-20 Summit
From the September 22 Wall Street Journal: Those countries running current account deficits, most notably the U.S., would have to define ways to boost savings. Nations running surpluses — China, Germany and Japan, among others — would detail how they propose to reduce any reliance on exports. The U.S. would likely need to commit to .. MORE
Finance: stocks, options, etc.
Why Not Restore Glass-Steagall?
David Moss writes, The fifty years of relative financial calm that followed the Glass-Steagall Act of 1933, the Securities Exchange Act of 1934, and the Banking Act of 1935 strongly suggest that sound public risk management can make a positive difference. Thanks to James Kwak for the pointer. If you think that New Deal regulation .. MORE
Macroeconomics
Tyler Cowen on Macro (and me on Bizarre Monetary Theory)
Read the whole thing. He likes the Recalculation story, which he points out he articulated last December. But he doesn’t really buy my bizarre monetary theory. He writes, “I see the Fed as controlling nominal gdp but not always real gdp.” Let me start this way. There is a short run in which monetary policy .. MORE
Uncategorized
Attention, Twits
Give your advice and help in the comments. I am now a twit. A newbie twit. I set up an account on twitter. David Henderson has one, too. What should we do with these? Should we have some “follow me on twitter at ____” on this page? My cell phone does not interface with twitter .. MORE
Economics of Health Care
Government Spending on Health Care is Industrial Policy
Strange as it may seem, Scandinavia now has free-market admirers, most notably Will Wilkinson and especially Scott Sumner. The heart of their case: If you ignore their welfare states, Denmark has one of the freest economies in the world, and even Sweden doesn’t look too bad. As Sumner writes: Can “socialist” Denmark really be the .. MORE
Macroeconomics
Bizarre Monetary Theory, Once Again
Bill Woolsey writes, it is not difficult to see that a large shift in the composition of demand would result in larger shifts in resource utilization, higher structural unemployment, and slower growth in the productive capacity of the economy. For monetary disequilibrium theorists, this would be described as a higher natural unemployment rate, along with .. MORE
Finance: stocks, options, etc.
Felix Salmon vs. Olivier Blanchard
Salmon writes, At heart, it all comes down to information: loans are stronger and more desirable than bonds, because a bank intends to hold its loan to maturity and does a lot of underwriting, shoring it up with covenants. Bonds, by contrast, are often held only briefly, and are often bought by investors who do .. MORE
Economics of Health Care
Data on Canadian Medical Care
“The plural of anecdote is data.” (attributed to George Stigler) My wife had breast cancer in 1986 and is an active consumer of information about breast cancer. A few days ago she gave me a link to a web site in which breast cancer survivors, almost always women, discuss their experiences. A number of the .. MORE
Labor Market
Good News About Subsistence
Robin’s sounding strangely like a doom-sayer* lately: But as long as enough people are free to choose their fertility… then in the long run we should expect to see a substantial fraction of population with an heritable inclination to double their population at least every century. So if overall economic growth doubles less than every .. MORE
Uncategorized
War Debt and Entitlement Debt
As John Taylor points out, our debt situation today is much scarier than it was after World War II. When the war ended, we stopped accruing war debt. As GDP grew, the ratio of debt to GDP shrank. I would describe our current debt not as war debt but as entitlement debt. Entitlement debt is .. MORE