Assorted links

by on July 6, 2012 at 1:57 pm in Uncategorized | Permalink

1. IMF podcast for An Economist Gets Lunch.

2. Finland may be the first out of the eurozone after all.

3. Winning and leading submissions for the Wolfson Prize on leaving the euro.

4. Update on Austro-Chinese business cycle theory, funny about that excess capacity isn’t it?

5. Summary coverage of the LIBOR scandal, from The Economist.

6. Arnold Kling on the economics of PEPCO.

7. New urbanization blog by Paul Romer and Brandon Fuller.

8. Josh Barro is completely correct and many commentators on my original post failed a reading test.

John Thacker July 6, 2012 at 2:13 pm

#8: To my mind, once you accept the claim of yours (and Josh Barro’s), then the distinction between “some healthcare for all” through subsidized insurance premiums and “some healthcare for all” through free emergency room service for the poor (plus Medicaid) becomes not so much a moral difference in kind as a different in degree and a question of efficiency. (From what I recall, the size of the insurance subsidies is on the same order as the size of the emergency room subsidies under the current system.)

But obviously at some point there are certain treatments that cannot be afforded by everyone. I just doubt that there’s any way to move to Josh’s preferred outcome (“some healthcare for all” seems more achievable through the inefficient emergency room option), given the American experience with Medicare compared to other countries. We seem much more capable of limiting healthcare when it’s a program limited to the poor rather than a universal program aimed at the middle class at all. (Certainly for many people, that inability to limit programs when expanded to the middle class is a feature, not a bug.)

TallDave July 6, 2012 at 2:42 pm

“Collective responsibility for other countries’ debt, economics and risks; this is not what we should be prepared for. ”

Splitters!

Bill July 6, 2012 at 2:43 pm

# 8
Josh Barro is completely right, as you said.

I assume though that you are talking about his recent Bloomberg Article on Austrian Economics:

“Richard Posner gave an interview to NPR this week in which he blasts current-day conservatives and says today’s “goofy” Republican Party has made him less conservative. Over the last 10 years, he said, “There’s been a real deterioration in conservative thinking. And that has to lead people to re-examine and modify their thinking.”

Posner is probably the most respected judge in America who doesn’t sit on the Supreme Court, and a key thinker in the law and economics movement. His alienation is a reflection of how hostile the conservative movement has become to intellectuals.

Of course, conservatives will tell you they care a lot about intellectual grounding. These days, they especially love Austrian economists, such as Friedrich Hayek and Ludwig von Mises. I have a whole bookshelf dedicated to duplicate copies of Austrian economics books that conservative and libertarian organizations have given to me for free. I have four copies of The Road to Serfdom, which is like Dianetics for libertarians.

There are two big reasons today’s right loves the Austrians. One is that Austrian economists reject empirical analysis, and instead believe that you can reach conclusions about correct economic policies from a priori principles. It’s philosophy dressed up as economics; with the Austrians, there is never any risk that real-world events will interfere with your ideology.

The other big advantage is that the main Austrian thinkers, Friedrich Hayek and Ludwig von Mises, are dead, so they can’t argue with your interpretation of their work. This is especially important with Hayek, who got sort of squishy later in life.
And that is how so many on the right have pulled off the remarkable feat of going through the 2008 crisis and its aftermath without revisiting any of their policy views. Mine have certainly changed a lot — I have a much different outlook on monetary policy and bank regulation than I did four years ago. Posner had a big shift on fiscal policy.

But if you have Mises at your side, you “know” that empirical findings have no bearing on what policy should be. Leaning on Austrian thinkers is a great way to avoid further thinking. If Posner feels like he’s no longer welcome on the right, it’s probably because the right has decided it no longer needs people like Posner.”

Here is the link: http://www.bloomberg.com/news/2012-07-06/who-needs-posner-when-you-have-mises-and-hayek-.html

Norman Pfyster July 6, 2012 at 3:31 pm

Posner has never been a conservative, either of the social type or the limited government type.

Bill July 6, 2012 at 4:46 pm

Norm.

You can always find someone to the right of someone else and say that “He’s not a conservative because he is to the left of Adoph Hitler’

Political Labels don’t make much sense unless you are seeking to influence others and lead them by the nose with the characterization of someone you, at this moment, disagree with.

TallDave July 6, 2012 at 7:01 pm

The Adolph Hitler who was a well-known advocate for limited government, the right to bear arms, free markets, property rights, and the promotion of personal responsibility over welfare programs? Or the National Socialist one?

Norman Pfyster July 6, 2012 at 7:27 pm

Yes, and the people to the “right” of Posner constitute the vast majority of people we refer to as “conservatives” in this country. He is not even conservative in the context that the term is used in legal circles (which, admittedly, has a very diffuse meaning). Posner does not identify himself as a conservative; he identifies himself as a pragmatist. That Posner’s application of microeconomic reasoning to law is considered to be “conservative” indicates far more about liberals than it does about Posner.

Bill July 6, 2012 at 7:57 pm

Maybe Posner will become the new Krugman that people will reflexively react to when his name is mentioned.

Interesting how the world changes.

Careless July 6, 2012 at 9:09 pm

Well, yes, he’s noticeably to the left of actual American conservatives, but lawyers judge them on a scale relative to lawyers and judges, and that makes him a conservative.

The Original D July 6, 2012 at 5:54 pm

Posner is not a true Scotsman!

TallDave July 6, 2012 at 5:08 pm

Well, you can’t expect Barro to be right every time.

Andrew' July 6, 2012 at 6:28 pm

Bill,

Is that you or Barro mis-representing Austrian economics?

TallDave July 6, 2012 at 6:51 pm

Ask his commenters.

Andrew' July 6, 2012 at 7:10 pm

Barro never actually makes any claims, so I have to read between the lines to speculate on the nature of his error.

What I think Austrians object to is studies like ones where someone “proves” that raising the unemployment rate doesn’t increase unemployment…except what you actually did was raise it in one county relative to an adjacent county giving people a raise to cross the street. Barro gets it partially backwards. The Austrians are saying things are so complex, you probably forgot something. They have intellectual humility.

KLO July 6, 2012 at 3:06 pm

#6: Arnold Kling is too smart for his own good. We already know how much people are willing to pay for reliability above and beyond what Pepco provides, as the last line of his blog post seems to show he understands. People who want more reliable electricity delivery can buy generators, which a quick check of the Home Depot’s website reveals range in price from $150 to over $16,000 (shipping included!) depending on one’s needs and budget. We do not need some needlessly complex insurance scheme that compensates people for power outages to determine how much people value reliable electricity delivery.

Zachary July 6, 2012 at 4:18 pm

Agreed. He proposes a fine model that need not be implemented by the state, but could be profitably implemented by PEPCO. Those people that do demand an ensured supply of electricity DO buy generators. His system does provide an incentive to PEPCO to minimize outage time (Though politically untenable – Rich folk would receive preferred treatment by the public utility). But it provides a DISINCENTIVE for people to buy generators if they think that PEPCO will improve its performance. I think that this is where the debate would lie: Which system would be be better [or utility maximizing/welfare maximizing/financially cheap/outage minimizing]? (Whatever that means)

Zachary July 6, 2012 at 4:19 pm

Agreed. He proposes a fine model that need not be implemented by the state, but could be profitably implemented by PEPCO. Those people that do demand an ensured supply of electricity DO buy generators. His system does provide an incentive to PEPCO to minimize outage time (Though politically untenable – Rich folk would receive preferred treatment by the public utility). But it provides a DISINCENTIVE for people to buy generators if they think that PEPCO will improve its performance. I think that this is where the debate would lie: Which system would be be better [or utility maximizing/welfare maximizing/financially cheap/outage minimizing]? (Whatever that means)

Zachary July 6, 2012 at 4:19 pm

Agreed. He proposes a fine model that need not be implemented by the state, but could be profitably implemented by PEPCO. Those people that do demand an ensured supply of electricity DO buy generators. His system does provide an incentive to PEPCO to minimize outage time (Though politically untenable – Rich folk would receive preferred treatment by the public utility). But it provides a DISINCENTIVE for people to buy generators if they think that PEPCO will improve its performance. I think that this is where the debate would lie: Which system would be be better [or utility maximizing/welfare maximizing/financially cheap/outage minimizing]? (Whatever that means)

Zachary July 6, 2012 at 4:20 pm

OOPS!

Thor July 8, 2012 at 1:13 am

Don’t you mean “oops”, “oops” and “oops”?

Anthony July 7, 2012 at 10:51 am

PEPCO would have to get permission from the state(s) to implement that model, and by the time the regulators were through with it, the incentives might not work. While the politics will look bad, because people will assume that the “rich” will receive preferntial treatment, will it really be the rich who pay extra, when they’re the ones with the greater ability to cope with or avoid power outages? I’d expect industrial and commercial customers to be the ones most likely to pay extra for extra reliability.

It might make sense from an overall utility-maximizing point of view to offer the plan only to commercial and industrial customers, because that will be more politically palatable, and preventing or fixing large-area problems will improve service for residential customers, too.

sort_of_knowledgable July 6, 2012 at 6:56 pm

Apartment and condominium residents probably have a limited ability to install generators.

Wonks Anonymous July 6, 2012 at 3:41 pm

On #8, I’m sympathetic but a writer cannot always blame readers. You have a message and want to get it across, so you need to be very clear. But Tyler enjoys being clever and cryptic.
Bill, I think it’s wrong to say Hayek was a squish “later in life”. I would have thought that the more common view was that he was a squish from the beginning but hardened later on.

The Original D July 6, 2012 at 6:06 pm

“a writer cannot always blame readers”

+100

Andrew' July 6, 2012 at 6:54 pm

They can sometimes blame their readers.

When they are being intentionally obtuse in order to be intentionally malicious, it’s on them.

MD July 6, 2012 at 8:28 pm

I like Cowen, but he writes the way he does to push page views. He could have explained his position in clear language, like Barro did, but did not. By writing something provocative, but not explaining it, he achieved his goal: get linked and get traffic.

byomtov July 6, 2012 at 9:48 pm

Yes.

Rather than accusing his readers of failing a reading test, maybe he shoud consider whether he may have failed a writing test.

The idea, as expounded by Barro, seems straightforward enough. Is it possible Cowen was playing games, pretending to some unwarranted profundity, rather than explaining things in plain language? I think so.

Andrew' July 7, 2012 at 4:26 am

He writes the way he does to contrast with unthinking.

I already explained what Barro explained. Noone engaged. The critics just wanted a nice tee ball to whack a plausible critique of libertarians and thinking would have gotten in the way.

Why do people think that we (politicians) are trying to cut healthcare costs? They don’t because they don’t want to think.

Andrew' July 7, 2012 at 4:35 am

How, by the way, have the critics proposed that treatments will be denied? They haven’t. They propose fairy tales and unicorns. They know nothing. They propose forcing people to pay up. That is because all they really care about is government finances.

What we could do is use the information from end-of-life care to determine treatment effectiveness. We are already doing human experiments. We just aren’t benefitting from it because we don’t admit it. We could do fundamental research on making treatments cheaper. We could pursue anti-aging which is the basis of nearly all disease (at least the ones we are concerned about). But no, there is going to be some panel in DC who will magically know what is effective a priori. Of course they won’t. They will primarily look at how old the patient is. That is why they really are death panels. But I’m open-minded. Maybe there really will be rainbow-crapping unicorns.

Until you make treatment cheaper, people will die from lack of resources. By wetting their pants over future budget problems (because current healthcare costs are manageable) the government is being the first enforcer.

MD July 7, 2012 at 5:02 pm

A’, please stop trying to make me argue something that I’m not arguing.

dearieme July 6, 2012 at 4:37 pm

“it’s important to remember why we have transfer payments in the first place” was followed by an economists’ fairy story. We have transfer payments because robbing Peter to pay Paul gets Paul’s vote – and Pauls outnumber Peters.

TallDave July 6, 2012 at 5:32 pm

I thought it was a fair point, since he also acknowledged the incentive problem. You hardly ever see someone make that argument with the appropriate caveat.

OTOH it would have been a much stronger piece if he had also acknowledged that countries with more socialized systems already do far more rationing than we do — they have to, since they’re poorer (that’s another downside of those labor laws we’ve been talking about; a six-week vacation is nice, but tanstaafl and medical treatment ain’t free either!) — rather than complaining about Republicans who warn that Americans won’t like gov’t rationing.

Andrew' July 6, 2012 at 6:57 pm

In aggregate dollars, only Norway and Luxembourg have a more socialized system than we do.

TallDave July 6, 2012 at 7:29 pm

Our Medicaid+Medicare per capita exceeds their per capita spending? That sounds about right, but again that’s largely because of various kinds of rationing vs our gold-plated system (as well-described by Kling’s Crisis of Abundance). Perhaps “more generous than”?

Floccina July 6, 2012 at 6:24 pm

3. Winning and leading submissions for the Wolfson Prize on leaving the euro.

It seems to me that going into the euro was a big deal with all kinds of potential problems. I think that we are in those problems now. It was predictable that problems like they are having now would occur with such a huge change.

So Much For Subtlety July 6, 2012 at 9:08 pm

From the Finland story:

Finance minister Vassos Shiarly said the nation went into the red only after paying “a very heavy price” to enable Greece to write off more than €100bn of debt owed to private banks. Cypriot banks held massive amounts of Greek debt, Cyprus lost €4.2bn.

This was not a fair way to deal with it. It was a European problem. I believe we should have shared that loss fairly on a level playing field.

I am not sure how to respond to this. I feel like saying that bail outs ought to copy the Eurovision song contest – those countries that vote for their friends in the Eurovision competition ought to pay for their friends debts. Except it seems the Cypriots have proven they already do. Or in the case of Finland, are about not to.

The Eurovision as a predictor of this financial crisis? Hmm, I smell a mildly interesting article.

Euripides July 6, 2012 at 9:11 pm

#1
The IMF lady interviewing Tyler sounds like she is one of the snobby high school girls in “Mean Girls”

Ray Lopez July 6, 2012 at 9:15 pm

#5 – LIBOR scandal– biggest story of the year.

Facts: LIBOR was fixed (too low) during the “Great Moderation”–it was fixed says the Economist for decades.
LIBOR therefore was not an accurate measure of interbank risk. Yet after the Lehmann Bro bankruptcy of Sept. 2008, US Treasury Secr Hank Paulson used LIBOR as evidence of the “end of the world” unless a bailout was granted by US Congress over the weekend (it was not, and the world did not end, but ultimately Paulson got what he wanted–a bailout for his friends on Wall Street).

Question: if in fact the situation in September 2008 was not so bad as to warrant a bailout (in fact, credit default spreads peaked in early 2009, not 2008, see the graphic here: http://raylopez99.blogspot.com/ from Forbes magazine, which argues that the worse was not in Sept 2008 when the bailouts were first proposed in the USA), then ergo it follows the bailouts of 2008 were unnecessary.

John July 7, 2012 at 1:13 am

Is this your record for links in an “assorted links”?

mulp July 9, 2012 at 4:05 pm

#6 As a liberal, I first look for a capitalist solution for market problems, but I notice Kling struggles to find central planning solutions to fix a market failure to deliver choice. Kling did not suggest that he was looking for a market fix that would serve the minimum wage worker, a wage he considers excessive by government intervention, but instead a market solution that serves the wealthy. Offering different levels of reliability means that in a massive storm damage situation, all the resources would be focused on the premium customers, followed by life critical, with the poor left to the last.

Today’s system often puts the wealthy behind the poor – the wealthy live in rural areas with the FDR command and control power grid framework, while the poor live in denser and older areas built out by the power companies, who with other utilities, set the standards for community design in conjunction with city planners. Thus it is harder in many places to restore power to the wealthier, middle class customers, who live in the rural areas of the 50s with power lines built to REA standards: power to farms which are self sufficient.to improve life and production – electric lights and milking machines and fans.

In Africa, the solution for rural farms and communities is not REA supported utilities, but capitalism. Selling each family the means to generate power for themselves with the opportunity to sell it to others. Solar panels charging batteries which power LEDs and charge cell phones. Solar or wind powered water pumps.

Green tech in the US has a subtext of individualism – build your own home to be self sufficient with local electric and local heat and cool. In suburban communities, solar arrays on the roof are the first step. The arrays produce DC which is then converted to A/C. Add in batteries and now you can generate your own power. A connection to the grid allows you to trade electric power in a regulated utility market and also use the grid to backup your capital to reduce your investment.

Odds are, Kling’s electric power is the result of the REA which killed off the capitalist individualism of self generate power that was spreading among farmers in the 30s – a wind generate at 40V charging batteries in the barn with lights and appliances (washing machines, pumps, lighting), powered by 40 volt DC. The REA certainly provided inexpensive power faster by government supported and promoted capitalism – utilities had government incentives to increase their capital because they got a government assurance of 8-10% return on invested capital.

Even after REA was eliminated in 1996, government still supports putting hundreds of thousands into stringing power lines to serve a single home which could put in its own electric power plant for $50-100K – the home owner was charged only $50K but the payment was spread over 20 years with very low interest, and if other customers connected to the line, they would share the cost and the homeowner might get a rebate on their payment. But the majority of the power line cost was added to the rate base to be recovered over the expected centuries of the power line’s existence.

So, even today, central planners promote socialist central capitalism with individuals getting a uniform service at a uniform price regardless of the cost of capital required to serve each individual – Kling in the suburbs pays the same rates as the city dweller even tho more capital per customer is required to serve his community.

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