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Finance: stocks, options, etc.

Risk Spreads Widen

By Arnold Kling | Feb 16, 2003

The Economic Report of the President notes that after September 11, all measures of risk spreads widened. the uniformity of stock market movements around the world suggests that a key driver of U.S. stock prices in 2002 was a worldwide decrease in tolerance for risky assets combined with lower projected earnings growth The report also .. MORE

Game Theory

Romance or Signalling Game?

By Arnold Kling | Feb 14, 2003

Economists sometimes seem to be incurable anti-romantics. Consider James Miller’s treatment of Valentine’s Day as a signalling game. Even a woman who hates flowers would be rational in getting mad at her boyfriend for not buying her flowers on Valentine’s Day, because by not wasting resources on her the boyfriend has signaled his disinterest. For .. MORE

Social Security

The Deficit Argument, IV

By Arnold Kling | Feb 13, 2003

Hal Varian gives a clear account of the concern with long-term deficits. A recent study by the economists Alan J. Auerbach, William G. Gale, Peter R. Orszag and Samara R. Potter, “Budget Blues: The Fiscal Outlook and Options for Reform,” lays out the facts… According to the economists’ projections, the spending on Social Security, Medicare .. MORE

Growth: Consequences

Growth in Flour

By Arnold Kling | Feb 12, 2003

Back in December, Virginia Postrel marveled at being able to buy a 5-pound bag of flour for 69 cents. In response, Brad DeLong on his weblog calculated the cumulative gain in productivity over the last 500 years, using flour as the unit of measurement. I used this as an opening anecdote in a talk that .. MORE

Books: Reviews and Suggested Readings

Future Technology

By Arnold Kling | Feb 12, 2003

In reading The Next Fifty Years, a collection of essays edited by John Brockman of, I was struck by the following quote from Rodney Brooks, director of MIT’s Artificial Intelligence laboratory. Our thirty-year goal is to have such exquisite control over the genetics of living systems that instead of growing a tree, cutting it .. MORE


The Budget Debate

By Arnold Kling | Feb 12, 2003

Columnist Robert J. Samuelson describes the Budget debate as each side trying to embarrass the other, without ever confronting the truly important budget issues What both sides are trying to avoid discussing, according to Samuelson, is the anomalous structure of entitlement spending. The Congressional Budget Office projects that from 2000 to 2030, the costs of .. MORE

Income Distribution

Migratory Lucky Duckies

By Arnold Kling | Feb 11, 2003

One of the weaknesses of using income variation in a single year as a measure of the distribution of income is that people change income brackets over time. In general, the trend for any given household is upward, as households move up the ladder and their places on the lower rungs are taken by younger .. MORE

Economic Growth

Bush Administration Embraces New Growth Theory

By Arnold Kling | Feb 10, 2003

In an article for the Concise Encyclopedia of Economics, Paul Romer explains the difference between old and new growth theory. A traditional explanation for the persistent poverty of many less developed countries is that they lack objects such as natural resources or capital goods. But Japan had little of either in 1950 and still has .. MORE

Economic Growth

The Language Barrier

By Arnold Kling | Feb 10, 2003

The Internet has created new opportunities for international trade in information services. In this essay, I argue that this is creating a trade barrier for non-English speakers. For now, the Internet revolution is boosting the economic prospects of the English speakers of the world. This includes the countries where English is the native language, as .. MORE


The Deficit Argument, III

By Arnold Kling | Feb 8, 2003

Responding to my previous post, Brad DeLong offers a theory of government spending that is certainly, well, different. one percent faster real GDP growth does not leave federal spending unchanged. A lot of government services require that bureaucrats be paid salaries: their salaries rise as fast as GDP per worker rises. Still more government programs–Social .. MORE

Growth: Consequences

The Deficit Argument, II

By Arnold Kling | Feb 6, 2003

Liberal and conservative economists are not as far apart on the issues of fiscal policy as it might first appear. Both sides share a concern that government growth could outstrip GDP growth. The position of liberal economists on the U.S. Budget deficit is that in order to keep government from growing too quickly relative to .. MORE


The Deficit Argument

By Arnold Kling | Feb 6, 2003

Kevin Hassett believes that the U.S. budget deficit is a matter more of politics than economics. On the issue of deficits and interest rates, he writes My own view is that there are many close substitutes for U.S. government bonds in the world today (Fannie Mae’s, corporate bonds, foreign government bonds) and that the historical .. MORE

Economic Growth

Japan Needs Revolution?

By Arnold Kling | Feb 5, 2003

Technology analyst Joi Ito offers this diagnosis of Japan’s long slump. Post-war Japan consolidated power in the ruling party. People were educated to be obedient. Harmony was maintained by co-opting or disabling people or organizations that could threaten the system. Diversity in the media, a strong judiciary, diversity in education and political diversity were stifled .. MORE

Public Choice Theory

Tax Reform Timidity

By Arnold Kling | Feb 4, 2003

The New York Times’ Daniel Altman describes the state of the income tax code. Washington managed to hack through much of the underbrush of the tax code in an overhaul that President Ronald Reagan signed into law in 1986. But in the years after, lawmakers started adding dozens of provisions to the individual and corporate .. MORE

Energy, Environment, Resources

Synthetic Fuels Program

By Arnold Kling | Feb 1, 2003

About a year ago, Paul Romer pointed out that In the next century we’re going to be moving back and forth, experimenting with where to draw the line between institutions of science and institutions of the market. In this context, there has been considerable criticism of President Bush’s proposal to spend $1.2 billion on hydrogen .. MORE

Revealed Preference

Income Vs. Happiness

By Arnold Kling | Feb 1, 2003

A short article by Don Peck and Ross Douthat in The Atlantic Monthly summarizes some research on the relationship between income and happiness by Dutch sociologist Ruut Veenhoven. Peck and Douthat interpret the results as suggesting that Above about $20,000 per capita, increases in wealth yield at best minimal increases in happiness. They must mean .. MORE

Economic Growth

The Internet and Productivity

By Arnold Kling | Jan 31, 2003

Yesterday, having been lured downtown by an opportunity to gaze into Virginia Postrel’s eyes, I stumbled on Nobel Laureate Michael Spence giving a talk on the Internet and productivity. Some major points were: 1. Before the Internet, computing was a stand-alone affair. This severely limited the economic benefits of computers. 2. With the advent of .. MORE

Growth: Consequences

Growth and Displacement

By Arnold Kling | Jan 28, 2003

Glenn (Instapundit) Reynolds links to a pessimistic treatment of economic growth by Michael Rogers. In my little part of the world that sample has included advertising agency people, a television executive, two doctors, a lawyer, a retail stockbroker, a building contractor and several business and editorial folks in magazine publishing. None of them was predicting .. MORE

Price Controls

Rent Control’s Sad History

By Arnold Kling | Jan 27, 2003

How has rent control worked in New York City? Exactly as textbooks would have predicted, according to this essay by William Tucker in the New York Post. During the 1920s, builders put up nearly 100,000 new apartment units a year. Today we’re lucky to get 5,000. He points out that rent control leads to a .. MORE

Economic Growth

Lurching toward Utopia?

By Arnold Kling | Jan 27, 2003

Brad DeLong describes the 20th century as “slouching towards utopia.” He views prospects for the next 20 years as even brighter. Today’s ongoing revolutions in biotechnology-and-information technology see technological progress of at least 15% per year in industries that make up 13% of total production — a direct leading-sector boost to economic growth of 2% .. MORE

Supply-side Economics

The Case for Tax Cuts

By Arnold Kling | Jan 26, 2003

For an antidote to the interventionist Atlantic Monthly, see this open letter signed by a number of conservative economists. As a rule, government cannot create wealth or expand the economy. Only the private sector can do that. Government can, however, hinder economic growth through excessive taxes, high marginal tax rates, over-regulation, or unnecessary spending. Accordingly, .. MORE