Assorted links

by on May 5, 2009 at 11:38 am in Economics | Permalink

1. Why the financial sector grew so much in the first place, from James Surowiecki.

2. The Atlantic Dozen, including Richard Posner, Daniel Akst, Richard Florida, and Edward Tenner.

3. The key issue in banking theory.

4. Don't blame Gauguin for van Gogh's severed ear.

5. I agree with Malcolm Gladwell on the financial crisis.

6. In fact a good argument against capitalism.

1 Andrew May 5, 2009 at 11:55 am

“But that’s the Rubin trade: it works until it doesn’t.”

And it doesn’t work because it did work. Finance is awesome!

How much of a lopping off of compound growth with the uber-regulator is it worth to avoid a 10% recession once a generation? None?

People should look and if they aren’t actually putting forth effort, they shouldn’t trust their rising bank account.

2 RZ May 5, 2009 at 12:16 pm

I agree with Gladwell too, and I think you can extend his theory beyond Wall Street to consumers (“Main Street”) since many people spent more than they had, due to overconfidence in their future income, ability to refinance, etc.

3 Pedro May 5, 2009 at 12:46 pm

Golf ‘aint so bad. Just expensive, is all.

4 Matthew C. May 5, 2009 at 12:59 pm

The problem with the financial sector (along with the legal sector) is that is extracts / consumes an inordinate amount of resources versus the value delivered.

Basically, you have the high-IQ class creating rules, regulations, and laws to generate massive amounts of high-salary employment to shuffle paperwork around.

Obamanomics does nothing to reverse this disasterous trend, in fact it only exacerbates it through yet more bureaucracy (“Green” certifications, etc.)

I think Moldbug is right: only a complete “reset” of our politico-economic system has any hope of freeing up resources from this parasitic and paralytic process.

5 Michael F. Martin May 5, 2009 at 2:48 pm

Surowiecki misses the key legal changes. Abolition of fixed commission schedule by SEC and Friedman’s liberation of the bond market. Conglomerates weren’t needed to diversify institutional investors after those changes.

6 Kieran May 5, 2009 at 3:20 pm

Why would somebody not like golf?

Or, to put it another way, Why would anyone like baseball?

7 bjk May 5, 2009 at 4:06 pm

Re Gladwell,

Isn’t every failure by definition due to overconfidence?

8 babar May 5, 2009 at 4:13 pm

overconfidence came from the fact that bankers and the govt were malfeasant for a long time without negative effects. this was a result of the savings glut in asia (ok to squander money because it would just get loaned back to us at low interest) and risk management (distributing risk increased mean time between failure but also intensified failure).

9 floccina May 5, 2009 at 4:25 pm

Socialist countries dominated, absolutely dominated unpopular sports.

10 Michael Webster May 5, 2009 at 8:38 pm

You really ought to read William Black’s account of the S&L disaster and get your head around the fact that there are very bad people out there posing as bankers. Very bad people.

These “errors” are not mistakes – any more than Kid Yellow’s con schemes relied upon people making mistakes or being over confident.

Economists have to pay attention to criminology when massive and systemic fraud takes place. Reading Hare on psychopathy might also help.

11 AADL May 5, 2009 at 9:39 pm

Historically free banking had a much better record than legally restricted/central banking as far as the business cycle is concerned.

And regarding Gladwell’s theory of overconfidence, is he saying that it caused the boom and underconfidence caused the bust?
Sounds like the fist cousin of the “animal spirits” theory. Talk about a flight from economic theory.

12 Tom Burroughes May 6, 2009 at 6:55 am

One cannot really understand the relative growth of the US financial sector, or indeed that of the UK one, for example, without taking into account such things as the low interest policy of the Fed, Bank of England, etc; the growth of public ownership of shares via things like 401k plans, rising prosperity and demand for more financial products, etc. Deregulation of hitherto-sheltered banks also played a part.

13 working class May 7, 2009 at 6:06 pm

ahhh…. malcom gladwell, go away, stop stating the obvious and in the case of this crisis; way too late.

14 COMPAQ Pavilion laptop battery May 18, 2009 at 8:13 am

I agree with Gladwell too, and I think you can extend his theory beyond Wall Street to consumers (“Main Street”) since many people spent more than they had, due to overconfidence in their future income, ability to refinance, etc.

Comments on this entry are closed.

Previous post:

Next post: