Sunday, September 30, 2012

The Narrative Structure of Global Weakening

This brings us to the importance of stories – and very far from the kind of statistical analysis exemplified by Stock and Watson. Psychologists have stressed that there is a narrative basis to human thinking: people remember – and are motivated by – stories, particularly human-interest stories about real people. Popular stories tend to take on moral dimensions, leading people to imagine that bad outcomes reflect some kind of loss of moral resolve.

Robert J. Shiller is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. His book Irrational Exuberance presciently warned of the dot-com bubble, and a second edition, released in 2005, predicted the coming collapse of the real-estate bubble. His most recent book, co-written with George Akerlof, is Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism.

I would love to read his new book Finance and the Good Society with our book club.

Shiller is suggested as a possible Nobel Prize winner “for pioneering contributions to financial market volatility and the dynamics of asset prices”

But it is not for these accurate market forecasts or for his index that he may be in the running for Nobel honors. Rather, it is for his many studies of volatility in asset prices. In particularly, his 1981 article in American Economic Review, “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends,” is a classic and highly cited study that challenged the widely accepted Efficient Market Hypothesis. This paper has been cited more than 700 times, is Shiller’s most cited journal article, and is listed in a summary on what mattered most in economics since 1970 and as one of the 20 most influential articles ever published in the American Economic Review, a study authored by several past Nobel Prize (see: http://economics.mit.edu/files/6349).

Saturday, September 29, 2012

No monetary cost kindle from Amazon?

"Once again, I smell a bluff. The free Kindle plan sparks two questions. Why would Amazon give away an e-reader, and how could it afford to do so? Dig into each and you arrive at the same place: Amazon will make its Kindle free sooner or later. The only question is whether it will do it now, next year, or the year after that."

http://www.slate.com/articles/technology/technology/2012/08/free_kindle_next_week_or_next_year_amazon_will_start_giving_away_its_e_reader_here_s_why_.html

4 more years

The IEM http://iemweb.biz.uiowa.edu/quotes/Pres12_quotes.html

Friday, September 28, 2012

Another great possibility for bookclub


NEW PREFACE TO CHARLES KINDLEBERGER, "THE WORLD IN DEPRESSION 1929-1939"

The University of California Press is going to put out a new edition of Charles Kindleberger's World in Depression early next year.
The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening. We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.
Both the existence of these parallels and their tragic nature would not have escaped Charles Kindleberger, whose World in Depression, 1929-1939 was published exactly 40 years ago, in 1973.[1]  Where Kindleberger’s canvas was the world, his focus was Europe. While much of the earlier literature, often authored by Americans, focused on the Great Depression in the US, Kindleberger emphasised that the Depression had a prominent international and, in particular, European dimension. It was in Europe where many of the Depression’s worst effects, political as well as economic, played out. And it was in Europe where the absence of a public policy authority at the level of the continent and the inability of any individual national government or central bank to exercise adequate leadership had the most calamitous economic and financial effects.[2]


http://delong.typepad.com/sdj/2012/06/new-preface-to-charles-kindleberger-the-world-in-depression-1929-1939.html

2013 Book Club Titles for Consideration

2013 Book Club Titles for Consideration

A Capitalism for the People: Recapturing the Lost Genius of American Prosperity

A Revolution of the Mind: Radical Enlightenment and the Intellectual Origins of Modern Democracy

Constitution 3.0: Freedom and Technological Change

Currency Wars

“Economic Incentives and Social Preferences: Substitutes or Complements”

Fairness and Freedom

Finance and the Good Society – Shiller appeared on the recent short list for nobel

How Children Succeed

Stealth of Nations: The Global Rise of the Informal Economy

The Land of Promise

The Moral Molecule: The Source of Love and Prosperity

The Revenge of Geography: What the Map Tells Us About Coming Conflicts and the Battle Against Fate

Unchecked and Unbalanced –Kling will be honors speaker at MCCD – Phoenix College Feb. 20, 2013

Why Capitalism

Bill Boyes

I finished the Zingale book (A Capitalism for the People: Recapturing the Lost Genius of American Prosperity); second half was not as gooid as the first half. I have also just read a book that is perfect for our book club. It is called "Currency Wars" by James Rickards. Fantastic

Stealth of Nations: The Global Rise of the Informal Economy

Journalist Neuwirth points out that it accounts for a growing amount of trade, and that, united in a single nation, it would be the world’s second-largest economy, trailing only the United States in financial might. Stealth of Nations offers an inside look at the thriving world of unfettered trade and finds far more than a chaotic emporium of dubious pirated goods. http://www.npr.org/player/v2/mediaPlayer.html?action=1&t=1&islist=false&id=141503411&m=141714911 (15 minute NPR overview of the book) The Land of Promise – Michael Lind

http://www.amazon.com/Land-Promise-Economic-History-United/dp/0061834807/ref=sr_1_1?s=books&ie=UTF8&qid=1348077213&sr=1-1&keywords=land+of+promise

Lind follows Joseph Schumpeter in arguing that there have been three major technological transformations in U.S. history (p. 5). According to Lind each technological transformation has changed the republic itself. The initial American republic was preindustrial, but quickly gave way to the first industrial revolution founded on water and steam power, fueled by cotton production (pp. 81 - 186). The second industrial revolution ushered in the third American "republic" and was driven by the automobile, electricity and mass communication (pp. 187 - 392). The third industrial revolution occurred with the emergence of information technology (pp. 393ff), and seems to be ushering in a transformation toward a fourth republic.

The essence of Lind's book is that eras of technological change correspond to eras of political change with respect to regulations, laws and political institutions. However, whereas Schumpeter argued that technological change happens abruptly, Lind emphasizes changes in regulations, laws, and institutions do not!

A Revolution of the Mind: Radical Enlightenment and the Intellectual Origins of Modern Democracy

http://www.amazon.com/Revolution-Mind-Enlightenment-Intellectual-Democracy/dp/0691152608/ref=wl_it_dp_o_pdT1_S_nC?ie=UTF8&colid=2UA85R8AJKWYS&coliid=I287GZHRHZLQBE

Originating as a clandestine movement of ideas that was almost entirely hidden from public view during its earliest phase, the Radical Enlightenment matured in opposition to the moderate mainstream Enlightenment dominant in Europe and America in the eighteenth century. During the revolutionary decades of the 1770s, 1780s, and 1790s, the Radical Enlightenment burst into the open, only to provoke a long and bitter backlash. A Revolution of the Mind shows that this vigorous opposition was mainly due to the powerful impulses in society to defend the principles of monarchy, aristocracy, empire, and racial hierarchy--principles linked to the upholding of censorship, church authority, social inequality, racial segregation, religious discrimination, and far-reaching privilege for ruling groups.

In telling this fascinating history, A Revolution of the Mind reveals the surprising origin of our most cherished values--and helps explain why in certain circles they are frequently disapproved of and attacked even today.

The Revenge of Geography: What the Map Tells Us About Coming Conflicts and the Battle Against Fate

http://www.amazon.com/The-Revenge-Geography-Conflicts-Against/dp/1400069831/ref=wl_it_dp_o_pC_nS_nC?ie=UTF8&colid=2UA85R8AJKWYS&coliid=I3P3AINVJE7N6U

In The Revenge of Geography, Kaplan builds on the insights, discoveries, and theories of great geographers and geopolitical thinkers of the near and distant past to look back at critical pivots in history and then to look forward at the evolving global scene. Kaplan traces the history of the world’s hot spots by examining their climates, topographies, and proximities to other embattled lands. The Russian steppe’s pitiless climate and limited vegetation bred hard and cruel men bent on destruction, for example, while Nazi geopoliticians distorted geopolitics entirely, calculating that space on the globe used by the British Empire and the Soviet Union could be swallowed by a greater German homeland.

Kaplan then applies the lessons learned to the present crises in Europe, Russia, China, the Indian subcontinent, Turkey, Iran, and the Arab Middle East. The result is a holistic interpretation of the next cycle of conflict throughout Eurasia. Remarkably, the future can be understood in the context of temperature, land allotment, and other physical certainties:

How Children Succeed introduces us to a new generation of researchers and educators who, for the first time, are using the tools of science to peel back the mysteries of character. Through their stories—and the stories of the children they are trying to help—Tough traces the links between childhood stress and life success. He uncovers the surprising ways in which parents do—and do not—prepare their children for adulthood. And he provides us with new insights into how to help children growing up in poverty.

Early adversity, scientists have come to understand, can not only affect the conditions of children’s lives, it can alter the physical development of their brains as well. But now educators and doctors around the country are using that knowledge to develop innovative interventions that allow children to overcome the constraints of poverty. And with the help of these new strategies, as Tough’s extraordinary reporting makes clear, children who grow up in the most painful circumstances can go on to achieve amazing things. In Unchecked and Unbalanced, At the heart of Kling's argument is the growing discrepancy between two phenomena: knowledge is becoming more diffuse, while political power is becoming more concentrated.

Kling sees this knowledge/power discrepancy at the heart of the financial crisis of 2008. Kling warns that increased concentration of power is a problem, not a panacea, for our modern world and suggests reforms designed to curb the growth of government and allow citizens greater control over the allocation of public goods.

Fairness and Freedom compares the history of two open societies--New Zealand and the United States--with much in common. Both have democratic polities, mixed-enterprise economies, individuated societies, pluralist cultures, and a deep concern for human rights and the rule of law. But all of these elements take different forms, because constellations of value are far apart. The dream of living free is America's Polaris; fairness and natural justice are New Zealand's Southern Cross.

Fischer asks why these similar countries went different ways. Both were founded by English-speaking colonists, but at different times and with disparate purposes. They lived in the first and second British Empires, which operated in very different ways. Indians and Maori were important agents of change, but to different ends. On the American frontier and in New Zealand's Bush, material possibilities and moral choices were not the same. Fischer takes the same comparative approach to parallel processes of nation-building and immigration, women's rights and racial wrongs, reform causes and conservative responses, war-fighting and peace-making, and global engagement in our own time--with similar results.

On another level, this book expands Fischer's past work on liberty and freedom. It is the first book to be published on the history of fairness. And it also poses new questions in the old tradition of history and moral philosophy. Is it possible to be both fair and free? In a vast array of evidence, Fischer finds that the strengths of these great values are needed to correct their weaknesses. As many societies seek to become more open--never twice in the same way, an understanding of our differences is the only path to peace.

Technological changes are posing stark challenges to America's core values. Basic constitutional principles find themselves under stress from stunning advances that were unimaginable even a few decades ago, much less during the Founders' era. Policymakers and scholars must begin thinking about how constitutional principles are being tested by technological change and how to ensure that those principles can be preserved without hindering technological progress.

Constitution 3.0, a product of the Brookings Institution's landmark Future of the Constitution program, presents an invaluable roadmap for responding to the challenge of adapting our constitutional values to future technological developments. Renowned legal analysts Jeffrey Rosen and Benjamin Wittes asked a diverse group of leading scholars to imagine plausible technological developments in or near the year 2025 that would stress current constitutional law and to propose possible solutions. Some tackled issues certain to arise in the very near future, while others addressed more speculative or hypothetical questions. Some favor judicial responses to the scenarios they pose; others prefer legislative or regulatory responses.

Shiller is suggested as a possible Nobel Prize winner “for pioneering contributions to financial market volatility and the dynamics of asset prices”

Shiller is best known to the public as the author of the bestseller Irrational Exuberance (Princeton 2000) which presciently warned of a bubble in the stock market. He also warned of an impending bubble in real estate values in a paper in 2003 and in the second edition of Irrational Exuberance in 2005. He is also the co-inventor of the widely quoted Case-Shiller index tracking real estate prices. But it is not for these accurate market forecasts or for his index that he may be in the running for Nobel honors. Rather, it is for his many studies of volatility in asset prices. In particularly, his 1981 article in American Economic Review, “Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends,” is a classic and highly cited study that challenged the widely accepted Efficient Market Hypothesis. This paper has been cited more than 700 times, is Shiller’s most cited journal article, and is listed in a summary on what mattered most in economics since 1970 and as one of the 20 most influential articles ever published in the American Economic Review, a study authored by several past Nobel Prize (see: http://economics.mit.edu/files/6349). More recently, he published, with the 2001 Nobel Laureate George A. Akerlof, Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism (Princeton, 2009).

Why Capitalism

Disenchantment with the market economy has reached the point that many even question capitalism itself.

Allan H. Meltzer disagrees, passionately and persuasively. Drawing on deep expertise as a financial historian and authority on economic theory, he provides a resounding answer to the question, "why capitalism?" Only capitalism, he writes, maximizes both growth and individual freedom..

Vigorously argued, sweeping in scope, Why Capitalism? reminds us of the fundamental vitality of the one economic system that has survived every challenge, and risen to dominate the globe.

Paul Zak. Remember the name. No, you need not. His name will come back time and again. He is a shooting star in economics and neuroeconomics. Moral Molecule is a terrific book. Great science and great storytelling. In traditional economics, morality is an add-on. Something that must be constructed or realized through man-made rules and constitutional constraints on people's collective decision making, and for market-based decision making to work at all. Zak points to how such constraints might not have a prayer of making markets viable without the evolved chemistry of the brain that makes cooperation and trust self-rewarding.

JEL article

Economic Incentives and Social Preferences: Substitutes or Complements? Samuel Bowles and Sandra Polania-Reyes

http://tuvalu.santafe.edu/~bowles/EconomicIncentives-new.pdf

Wednesday, September 26, 2012

Who /Really/ Invented the Internet?

Provocative illustration of an emergent system shaped by individuals, organizations and the government. http://www.economicprincipals.com/issues/2012.08.06/1402.html

Tuesday, September 25, 2012

Another possible book club title . . .

http://www.coordinationproblem.org/2012/09/is-hayeks-argument-for-liberal-government-incoherent.html

Is Hayek's Argument for Liberal Government Incoherent?

Peter Boettke writes in what might be a consideration for our book club

I have been reading Stephen Elkin's Reconstructing the Commerical Republic (Chicago, 2006) and I find the book to be very challenging despite my ultimate disagreement with his criticisms of the classical liberal project as I envision it. I recommend it to all who think of themselves as doing constitutional political economy in the Hayek and Buchanan tradition.

Curbing the predatory capacity of private as well as public actors is necessary for our collective efforts to live better together, and to realize the social gains from cooperation under the division of labor that modernity has presented us with. Without such binding rules, the productive capacity of mankind will not be realized and the gains from trade and the gains from innovation will be left lying on the proverbial sidewalk.

Economic and Business History Paperbacks

http://exchange-bhc.blogspot.com/2012/08/books-of-interest-new-in-paperback.html

Monday, September 24, 2012

Atlas Spurned

"In so doing, modern conservatives ignore the fundamental principles that animated Rand: personal as well as economic freedom. Her philosophy sprang from her deep belief in the autonomy and independence of each individual. This meant that individuals could not depend on government for retirement savings or medical care. But it also meant that individuals must be free from government interference in their personal lives.

Years before Roe v. Wade, Rand called abortion “a moral right which should be left to the sole discretion of the woman involved.” She condemned the military draft and American involvement in Vietnam. She warned against recreational drugs but thought government had no right to ban them. These aspects of Rand do not fit with a political view that weds fiscal and social conservatism.

Mr. Ryan’s selection as Mr. Romney’s running mate is the kind of stinging rebuke of the welfare state that Rand hoped to see during her lifetime. But Mr. Ryan is also what she called “a conservative in the worst sense of the word.” As a woman in a man’s world, a Jewish atheist in a country dominated by Christianity and a refugee from a totalitarian state, Rand knew it was not enough to promote individual freedom in the economic realm alone. If Mr. Ryan becomes the next vice president, it wouldn’t be her dream come true, but her nightmare."

http://www.nytimes.com/2012/08/15/opinion/ayn-rand-wouldnt-approve-of-paul-ryan.html?_r=1&hp

Sunday, September 23, 2012

How To Build a Better Teacher

http://www.slate.com/articles/business/the_dismal_science/2012/07/how_to_improve_teaching_new_evidence_that_poor_teachers_can_learn_to_be_good_ones_.html

The conversation about how to improve American education has taken on an increasingly confrontational tone. The caricature often presented in the press depicts hard-driving, data-obsessed reformers—who believe the solution is getting rid of low-performing teachers—standing off against unions—who don’t trust any teaching metric and care more about their jobs than the children they’re supposed to be educating.

Saturday, September 22, 2012

Eight of the World’s Top Young Economists Discuss Where Their Field Is Going

http://bigthink.com/power-games/empirics-and-psychology-eight-of-the-worlds-top-young-economists-discuss-where-their-field-is-going?page=all

To get the pulse of a field in flux, I asked eight of the world’s top young economists to identify the biggest unanswered questions in economics and predict what breakthroughs will define it a decade or two hence.

Our book club anticipated one of the young 8 in our reading of Why Nations Fail although his view seems to differ markedly from the institutionalism analysis of Acemoglu and Robinson:

NICHOLAS BLOOM

Stanford University; 39

Why are developing countries poor? In terms of impact on mankind globally, this strikes me as probably the biggest and most important current economic question. I think the answer is complex and linked to a combination of factors around history, geography, luck, etc. I am personally working on management practices: people in developing countries are poor because wages are low, and wages are low because firms are very unproductive, and firms seem to be unproductive in large part because of bad management.

Tuesday, September 18, 2012

A Great Line From Thomas Sowell

“Some people think that nonsense is too silly to answer. But not answering it can just allow nonsense to prevail.” — Thomas Sowell

A Great Line From Thomas Sowell

Book review - Land of Promise: An Economic History of the United States

Jack Rakove teaches history and political science at Stanford University.
Land of Promise: An Economic History of the United States
by Michael Lind
Harper, 592 pp., $29.99
IN OUR CURRENT slough of economic despair, is it time for Americans to recognize that we should all become Hamiltonians, following the genius of our first and greatest Secretary of the Treasury? That is the appeal that Michael Lind makes in Land of Promise (a title that faintly echoes the work ofThe New Republic’s founding co-editor, Herbert Croly, in The Promise of American Life.) Lind has already gained a pair of appreciative (but hardly uncritical) nods in the New York Times, one in a book review by David Leonhardt, the other in a column by David Brooks. True, both journalists take issue with some aspects of Lind’s Hamiltonianism. Leonhardt wonders whether other nations have not pursued more Hamiltonian policies than Americans have, but with lesser results. Brooks goes much further, arguing that Lind is seeking to turn the true Hamiltonian philosophy “into something that looks like modern liberalism.” A real Hamiltonian, Brooks suggests, would favor “long-term structural development” above “providing jobs right now,” while fostering “national power and eminence” over individual wealth or social equality.
History News Network

Monday, September 17, 2012

Student Loans: Debt for Life

http://www.businessweek.com/articles/2012-09-06/student-loans-debt-for-life

Barofsky on Bailouts | EconTalk | Library of Economics and Liberty

Barofsky on Bailouts | EconTalk | Library of Economics and Liberty

Neil Barofsky, author of Bailout and the former Special Inspector General for the TARP program, talks with EconTalk host Russ Roberts about his book and the government bailouts by the Bush and Obama Administrations. Barofsky recounts what he learned about how Washington works and the incentives facing politicians and bureaucrats. His book and this interview are a workshop in public choice economics. Along the way he unravels some of the acronyms of the last few years including TARP, TALF, and HAMP. The conversation concludes with lessons learned by Barofsky and what might be done in the future to prevent the corruption and ineffectiveness of past bailouts.

Sunday, September 16, 2012

A must read

Back to School
 
The Chicago teachers strike was an interesting skirmish in whatWashington Post columnist Harold Meyerson last weekdescribed as a civil war within the Democratic Party. As far as I could tell, the walkout was a contest between the Billionaire Boys Club, its program fronted by Mayor (former Wasserstein Perella investment banker and ex-White House chief of staff) Rahm Emanuel, and a tough-talking union chief, Karen Lewis, who had no difficulty mustering a 95 percent strike vote.
Since it is too early to tell who won on the ground in Chicago, I took the opportunity to read as much as I could of the Harkin Report, which last month adduced a lot of useful information about another skirmish in the same battle – the controversy over the free-wheeling profit-driven companies that have invaded the markets for college and graduate education, attracting mainly non-traditional students hoping to improve their financial situations.
 

Greg Mankiw plugs Unintended Consequences by Edward Conard

http://gregmankiw.blogspot.com/2012/07/what-ive-been-reading.html What I've been reading I am down here on Long Beach Island, NJ, visiting my mom with my younger son. It has given me a chance to catch up on some reading, and I have a recommendation to pass along: Unintended Consequences by Edward Conard. The subtitle (Why everything you've been told about the economy is wrong) is unnecessarily contentious and not really an accurate description. But the book, written by a former Bain partner, gives a good overview of the forces behind the financial crisis. It is far smarter and more thought-provoking than most economics written for the general public. You can read the beginning of the book by clicking here. Be sure to check out Figure 1-6 on page 22, which I found quite illuminating.

Friday, September 14, 2012

ASET Book Club - Why Nations Fail - Sept. 20

ASET Book Club

Join the Arizona Society of Economics Teachers Book Club to discuss current popular economics books.

Thursday, September 20, 2012: Why Nations Fail by Daron Acemoglu and James Robinson

Time:

5:45 - 7:45 p.m.

Location:

Arizona Council on Economic Education office

3260 North Hayden Road, Suite 207

Scottsdale, Arizona 85251

Upcoming Dates:

Wednesday, October 24, 2012: The Next Convergence by Michael Spence

Thursday, December 6, 2012: The Race Between Education & Technology by Goldin and Katz

Questions for discussion

Based on your reading, has you thinking about any of the following changed? If so, what in the book lead your thinking to evolve?

Convergence

Development

Institutions

Virtuous circles

Catch up effect

1. Jared Diamond’s review: “My overall assessment of the authors’ argument is that inclusive institutions, while not the overwhelming determinant of prosperity that they claim, are an important factor. Perhaps they provide 50 percent of the explanation for national differences in prosperity.” Do you disagree? If so, what other factors might account for the remaining 50%?

2. Warren Bass’s review: ““Why Nations Fail” isn’t perfect. The basic taxonomy of inclusive vs. extractive starts to get repetitive.” Does the strategy of repetition strengthen or weaken the argument? Why?

3.Vuk Vukovic ‘s review: “The outcome of this insightful thesis originating from the works of Adam Smith can often depend on random historical events. They refer to these as the critical junctures of history that exploited the initial small institutional differences and led to diverging development paths of nations.” What can you point to in either your reading or thinking about the argument in the book that would suggest that random historical events are critical to development. If, these type of events are critical how are inclusive institutions more suitable for sustained growth than are extractive ones?

4.If inclusive institutions are necessary, how do they come about?

5. On page 43 we read: ". . . it is politics and political institutions that determine what economic institutions a country has." How well is this assertion developed and in what ways does this view differ from the opposite – that economic institutions determine political ones.

6. Acemoglu and Robinson argue that diffusion is key to the mechanism of convergence.

7. Is institutional drift a valid/useful mechanism to apply to understanding the process of economic change?

8. How convincing did you find the dichotomy between virtuous and vicious circles?

9. (74-5) This is an interesting list - beginning with the universal of private property rights as an institutional foundation for an inclusive or, to use North's terminology, open access society, the authors insert the notion that some public provision of services is necessary for societies to grow and develop. I anticipate a heated discussion on this point. OK, will there be?

10. Chapter 13 - Why Nations Fail Today – what is the reason advanced? How convincing do you find this response? Could one of the theories of growth described and rejected by the authors offer a convincing explanation?

11. One of my persisting questions is the role of the "degree of state centralization" (441) as it seems that centralization at the supranational level and at the subnational levels (to use the terminology employed by North in Violence and the Social Order) plays a part in both circles and both types of institutional evolution. What was your reaction to centralization as key to growth?

Z The Next Convergence – Michael Spence

Tyler Cowen

“I enjoyed reading this book. It is an entirely sensible take on catch-up growth, a topic which is lacking a good popular treatment and yet deserves one. I found each of the short chapters well-written and to the point.”

Washington Post

“Spence offers deep insights with a winning, refreshing humility rarely seen in Nobel Prize-winning economists. While Spence has written a book about what will happen in 2050, he concludes by similarly conceding that all crystal balls are hazy. “We do not know, and probably cannot calculate, what the medium-term destination will be,” he writes. “It is not that the principles and forces aren’t understood. It is rather that the system is too complex to lend itself to forecasting.”

Financial Times

“More important, the analysis of the resource requirements of a world in which 6bn-7bn people live as 1bn people do now is superficial and over-optimistic. True, he is in good company. But I wonder whether such a world will prove sustainable. Certainly, far more rigorous analysis is needed.”

Tuesday, September 11, 2012

Dodd Frank

From Cafe Hayek

The entertaining part is the arguments they get into. The illuminating part is that TWO YEARS after Dodd-Frank passed, its provisions are not completely specified. Frank resents the claim that it’s not even half done, but that’s quibbling. The point is that two years after this legislation passed, its provisions remain incompletely unspecified. What the heck is that about? There is no way to measure the impact of this kind of uncertainty on the economy in the middle of a recession with any precision, but it’s not a good thing. We’re not talking about the uncertainty of what the consequences are of the legislation. We’re talking about the uncertainty over what’s in the legislation.

And it’s not good for democracy. What does it mean to pass legislation if the specifics are worked out over more than two years through an opaque process where the actual decision-makers are not accountable to the voters?

Monday, September 10, 2012

The Nobel Symposium on Growth and Development

The Nobel Symposium on Growth and Development in Stockholm last week produced no great surprises. The conveners sought to stimulate conversation among participants in three or four different areas, macro and micro, in which significant developments had occurred during the past twenty-five years. These included:

Growth theory (Paul Romer, of New York University, and Robert Barro, of Harvard, led the program, discussed by Peter Howitt, of Brown and Philippe Aghion, of Harvard; by Robert Lucas, of the University of Chicago; and by Sendil Mullainithan, of Harvard);

Development economics (Mark Rosenzweig, of Yale, spoke first, followed by Robert Townsend, of the Massachusetts Institute of Technology, and Angus Deaton, of Princeton); Discussant: Claudia Goldin,* Harvard University 

Policy evaluation (Michael Kremer, of Harvard, and Esther Duflo, of MIT, discussed by Nancy Stokey, of the University of Chicago, and Guido Tabellini, of Bocconi University);

And the new institutional economics (Daron Acemoglu,** of MIT, discussed by Andrei Shleifer, of Harvard).

The presenters’ slides are here. The proceedings themselves are scheduled to be broadcast on Swedish television in October. The rest is up to the people who called the meeting.

*Co author of our December book club book - The Race Between Education and Technology

**Co author of our Sept. Book club book - Why Nations Fail.

Saturday, September 8, 2012

Milton Friedman on equality and freedom

"The society which puts equality before freedom will end up with neither."

Friday, September 7, 2012

Book club suggestion - The Price of Inequality

The Daily Show with Jon StewartMon - Thurs 11p / 10c
Joseph Stiglitz
www.thedailyshow.com

Daily Show Full EpisodesPolitical Humor & Satire BlogThe Daily Show on Facebook
NPR interview - excellent - 19 minutes - http://www.npr.org/2012/06/05/154345390/growing-economic-inequality-endangers-our-future

I have ordered this book and plan to read. While our ASET book club would resist this type of text for analysis it would be useful to read together. I lament the trend in libertarian circles in general and in my limited band of fellows to dismiss alternative analysis and views of society.  Russ Roberts shared this lament in his NPR interview of last month.  In talking about the current state of discourse in our country, Roberts said:

"It's not so much the partisanship, which has always been a part of our lives. It's the unwillingness to imagine that someone on the other side of the ideological fence might have an interesting idea, and I think that's a very dangerous situation for a democracy."

The 5 minute interview is well worth a listen and outlines why I think Stiglitz's book would be an important read.
http://www.npr.org/2012/08/26/160063499/looking-at-the-economy-on-the-campaign-trail



Reviews

The Price of Inequality is a powerful plea for the implementation of what Alexis de Tocqueville termed "self-interest properly understood". Stiglitz writes: "Paying attention to everyone else's self-interest – in other words to the common welfare – is in fact a precondition for one's own ultimate wellbeing… it isn't just good for the soul; it's good for business." Unfortunately, that's what those with hubris and pleonexia have never understood – and we are all paying the price.

http://www.guardian.co.uk/books/2012/jul/13/price-inequality-joseph-stiglitz-review

Stiglitz describes the purpose of his book:

This book is about why our economic system is failing for most Americans, why inequality is growing to the extent it is, and what the consequences are. The underlying thesis is that we are paying a high price for our inequality - an economic system that is less stable and less efficient, with less growth, and a democracy that has been put into peril. But even more is at stake: as our economic system is seen to fail for most citizens, and as our political system seems to be captured by moneyed interests, confidence in our democracy and in our market economy will erode along with our global influence. As the reality sinks in that we are no longer a country of opportunity and that even our long-vaunted rule of law and system of justice have been compr
omised, even our sense of national identity may be put into jeopardy. The problem is global, not just a US phenomenon. In some countries the Occupy Wall Street movement has become closely allied with the antiglobalization movement. Stiglitz has long held that the problem is not that globalization is bad or wrong but that "...governments are managing it so poorly - largely for the benefit of special interests. The interconnectedness of peoples, countries, and economies around the globe is a development that can be used as effectively to promote prosperity as to spread greed and misery."

Stiglitz has the same basic attitude toward markets as globalization:

"...the power of markets is enormous, but they have no inherent moral character. We have to decide how to manage them. At their best, markets have played a central role in the stunning increases in productivity and standards of living in the past two hundred years - increases that far exceeded those of the previous two millennia."

http://politicalaffairs.net/review-of-the-price-of-inequality/

I anticipate Stiglitz's support from the highlighted contention above, as I see markets embedded with a strong moral element.








Thursday, September 6, 2012

The Deadwood of Crony Capitalism | Online Library of Law and Liberty

The Deadwood of Crony Capitalism | Online Library of Law and Liberty

Much of the recent rhetoric surrounding the supposed need to “create jobs” as a core goal of public policy has focused on the way in which government can, by promoting job creation in particular industries through subsidies and the like, also promote “sustainability” in both the economy and the environment. One need only consider how much political energy has been spent arguing for “green jobs” as part of the stimulus program as well as the longer term policy and budget goals of the Obama Administration.

Unfortunately, as the recent example of Solyndra demonstrates, these sorts of subsidy programs, and related public-private partnerships, have shown themselves to be failures at both job creation and economic growth. As I shall discuss below, the failure of Solyndra, after being given a $527 million government loan and being touted by the President as the exemplar of the “new economy,” “green jobs,” and the future of public-private partnerships, is a point-by-point example of what’s wrong with this approach. At best, such programs are a particularly insidious form of crony capitalism that enriches a small group of people with access to those in political power distributing the economic goodies while wasting valuable economic resources in the process. Continuing to funnel resources into such wasteful programs deprives the market of much needed capital, which entrepreneurs who are calculating on the basis of genuine market prices and profits and losses will use far more efficiently. In other words, the perhaps well-intentioned policies meant to produce a sustainable economy inevitably turn into a form of crony capitalism that is itself not sustainable.

Wednesday, September 5, 2012

New IEA Discussion Paper on the Great Recession

"Earlier today the Institue of Economic Affairs released my Discussion Paper "Causes and Cures of the Great Recession." There's not much that's new in there, but I do think it's a handy summary of some of the things I've been writing on this topic over the last few years. The IEA blog has a condensation here. A snippet: The recession and recovery are the economy attempting to shed capital and labour from where it is no longer profitable and then figuring out where it would be better used. This process takes time, which is why recessions have unemployment and slow growth. Boosting aggregate measures of consumption and investment through government stimulus will not help, as the problem lies not in macroeconomic aggregates but in the microeconomic allocation of resources. Only those located in the context of the market have the knowledge and the feedback processes provided by prices and profits to make the decisions that will reallocate resources as quickly and effectively as possible. The decentralised decision-making and learning processes of the free market, and not more of the government intervention that caused the problems, can accomplish the millions of corrections are needed to get resources where they belong and return to a sustainable pattern of high employment and growth." Executive Summary: For many, the Great Recession and the boom that preceded it are evidence of the failure of the supposed deregulation of financial markets in the last decade and therefore constitute an indictment of capitalism more broadly. However, a closer look at both monetary policy and the effects of other government interventions on the financial system tells a very different story. The Great Recession was not a failure of free markets. Rather it was a classic example of the undesirable unintended consequences of government intervention, both through expansionary monetary policy and misguided attempts to bolster the housing market in the USA. This combination produced an unsustainable boom in the years following 9/11, with the focus of that boom being a policy-induced asset bubble in housing and the resulting collection of financial instruments built on that bubble. Because the boom involved the misallocation of resources due to false interest rate signals, it is proper to characterise the boom as the making of the mistakes and the inevitable bust as their correction. The only way to correct that misallocation is to let entrepreneurs guided by market prices, profits and losses figure out where resources now need to go. Government spending programmes are both too blunt and too politicised an instrument to do the job. In the long run, the way to prevent the damage of the boom and bust cycle is to cut the problem off at the root by reform of the monetary system that will end the privileges accorded to central banks. Getting government out of banking is the best way to get the banks out of government and to end the disastrous boom and bust cycles that have characterised the last century and a half. http://www.coordinationproblem.org/2012/07/new-iea-discussion-paper-on-the-great-recession.html

Monday, September 3, 2012

IIES

Next week, the IIES turns fifty.  It is celebrating by hosting a Nobel Foundation symposium, a public session with an all-star panel at the university (among the best known names are Hans-Werner Sinn, of the University of Munich; Sir Nicholas Stern, of the London School of Economics; Jeffrey Sachs, of Columbia University’s Earth Institute; Dani Rodrik, of Harvard University; and Esther Duflo, of the Massachusetts Institute of Technology);  a conference of its own on Climate and the Economy, and a gala dinner at the Stockholm Opera House.

http://www-2.iies.su.se/Nobel2012/press.pdf

Regulatory Capture - Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

Into the Bailout Buzz Saw By GRETCHEN MORGENSON IT might seem remarkable that there’s more to say about our late Bailout Age. But there is more — a lot more. Neil Barofsky’s book traces his effort to police the TARP bailout. Nearly four years after Washington began its huge rescues of banks with taxpayer dollars, an important player in this, one of the great financial dramas of all time, is offering a damning account of how the Bush and Obama administrations handled the whole episode. He is Neil Barofsky. Remember him — the man whose job it was to police the $700 billion Troubled Asset Relief Program? And his new account, a book titled “Bailout” (Free Press), to be published on Tuesday, is a must-read. His story is illuminating, if deeply depressing. We tag along with Mr. Barofsky, a former federal prosecutor, as he walks into a political buzz saw as the special inspector general for TARP. Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating http://www.amazon.com/Bailout-Account-Washington-Abandoned-Rescuing/dp/1451684932/ref=sr_1_1?ie=UTF8&qid=1343309331&sr=8-1&keywords=bailout+neil+barofsky

Sunday, September 2, 2012

Comic-con

I attended my first Comic-con with my son in May. Wild event, and I happened across this blog post regarding the event. This author is writing about the San Diego version, my son and I attended the Phoenix event. I’ve also been trying to sort out my feelings about Comic-Con as an entity. It’s big and loud and exhausting and expensive to participate in, but at the same time it’s this amazing passel of energy that assembles, charges itself up like a lightning storm, and then disassembles in the space of a week, leaving no trace. It’s like Burning Man in that way, except where Burning Man isn’t concerned with commerce, Comic-Con is exquisitely concerned with commerce. And it’s one of these things in life that’s now so big that it can only be appreciated in facets. http://wondermark.com/some-thoughts-on-comic-con/

Saturday, September 1, 2012

The Iceland and Ireland Banking Crises: Lessons for the Future | Mercatus

Tyler Cowen writes

When the tale of these two crises is told, the conclusion is typically that one set of policies was more beneficial than the other. In this paper we have shown that the truth lies somewhere in the middle. Icelanders have benefited by evading a debt overhang through an undue bank bailout that has shielded entrepreneurs and investors from losses. The Irish commitment to open capital flows and willingness to reduce domestic prices to regain competitiveness has allowed prices to return to levels necessary for entrepreneurs to use as signals to invest. Countries facing similar crises—be they currency, banking, or general economic crises—would be well-advised to heed these two lessons when drafting recovery plans of their own.

http://mercatus.org/publication/iceland-and-ireland-banking-crises-lessons-future

I, Pencil

Stay tuned . . . http://cei.org/i-pencil

I, Pencil

The Competitive Enterprise Institute is proud to announce a new ambitious film project: an animated adaptation of I, Pencil by Leonard Read.

The film is soon to be released to the public. For a sneak peek, check out the movie trailer below.