Archive for March 2009

 
 

Common sense and the economistic worldview

It’s Sunday and thus time for another break from monetary economics.  Because of heavy grading early this week, I may not post anymore for 3 or 4 days.  But I have a couple interesting ideas for later in the week.

A New York Times article once reported that economists in academia tend to vote about 3 to 1 Democratic, whereas other academics vote about 7 to 1 Democratic.  Of course the general public tends to split about 50/50 between Democratic and Republican voters.  What should we make of this pattern?  A few years ago I began thinking about this issue and came up with a hypothesis that is based on the distinction between worldviews and values.  I think economists tend to be people with liberal values and a right wing worldview.  BTW, I haven’t had time to do much research in this area, so I claim no originality for the ideas here.  (Indeed, I believe that Bryan Caplan is far ahead of me in exploring the worldview issue that I discuss here.)  However in future posts on issues like political art, I think I might be able to make some original observations.


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AIG, moral hazard, and “depression economics.”

I don’t have much to say about the initial financial crisis, other than lots of bankers made lots of bad decisions.  And through experience I have found that virtually nobody finds that bland explanation satisfactory.  At the same time I have always had a nagging feeling that moral hazard played a bigger role in the financial crisis than was apparent at first glance.   A very interesting recent post by James Hamilton shows how moral hazard contributed to the crisis.  He described the insurance giant AIG as a sort of hedge fund, which made an enormous bet insuring mortgage-backed bonds, even though:

AIG lacked the financial resources to make good on those contracts in the event that the housing downturn became as severe as it has now proved to be.


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Robert Hall and the Monetary Transmission Mechanism

When I discovered Nick Rowe’s blog a few days ago, I told Nick it was nice to find someone who approached monetary issues from a similar perspective.  I had no idea how similar.  I was all set to write a post today on the distinction between temporary and permanent monetary injections, and also Krugman’s expectations trap, when I noticed that yesterday Nick had already done so here.  Because I agree with what he has to say (and he says it in a much more straightforward way than I will), I’ll try to approach the issue from a slightly offbeat perspective in the hopes that readers will benefit from both posts.


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George Selgin on Deflation and Nominal Income Rules

Before beginning this post I should mention that I don’t have Selgin’s most important book on deflation (Less than Zero) in front of me, rather I am reacting to a recent article from The American Conservative that George sent me.  Even so, given all the comments that I have received about the relative merits of inflation and deflation, I thought it would be worth discussing his ideas.


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According to Goldman Sachs, we’ll soon need bigger wallets.

I hope someone can telling me what I am missing, because the debate over quantitative easing seems to be taking on an increasingly surreal quality.  A recent Goldman Sachs study concludes that it would take another $7 to $11 trillion dollars of asset purchases by the Fed to achieve the necessary 6 percentage point reduction in the real interest rate implied by the Taylor Rule formula.  Lucas Critique anyone?


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