Assorted links

1. One constructive suggestion for the eurozone; there should be more of this.  This is an actual situation requiring actual solutions, not a pond for fighting ideological battles.

2. My favorite Desmond Dekker compilation, and the fiscal effects of the Federal Reserve (significant).

3. Ask Cowen anything (on food), via Andrew Sullivan.

4. Recapturing the Friedmans.

5. Karl Smith on the UK.

6. The rate of U.S. household formation seems to be rising again.

7. Will this be the most debated book of the year?


Bottom link doesn't appear to work fyi

Thanks, fixed...

He is correct about the Desmond Dekker comp.

4: I think the Friedmans' three foundations are still true. Is there any way to move beyond the priors? I don't think so.

To the fighting pond!

Right now we are borrowing half our budget, most of that from a Communist country.

I have no idea what people are talking about.

Does it matter if you borrow from a Communist or a Capitalist?


#4: So let me get this straight. The Friedmans are wrong because the U.S. isn't a utopia as Brad would like it to be. Yet, Brad doesn't show much evidence that the U.S. has implemented the major reforms they advocated for. Furthermore, he's judging them by the yard stick of equal income distribution, which I don't think the Friedmans cared about per se. They were more concerned about lifting the fortunes of those at the bottom.

When was it that the U.S. government "stood back from the economy and provided nothing but a minimal safety net, courts, and a constantly growing money supply"? Was it when government expanded under Reagan or Bush II? Yes, government "stood back" in some ways that it hadn't when they wrote Free to Choose, but it certainly stood forward in many other ways, too.

Actually I prefer the Desmond Dekker Definitive Collection ( deeper into his catalog with some classics missing from other collections ("It's Gotta Be So", the "Ob-La-Di Ob-La-Da" medley), remixed with that Trojan stamp of approval.


I'm curious (as are many others, I expect) what you think of the DeLong post.

RE: #4,

I disagree with his all three of his assertions, but I will address #2. The world does not begin and end in the 50 United States. There's extremely obvious evidence (and some technical work too) that the income distribution for the entire planet has gotten much more equitable (as well as moved significantly to the right [income]). "The common man" isn't a US automotive factory worker, he's a 26 year-old Chinese or Indian guy who has low skills but is no longer limited to near-subsistence agriculture.

I have not read "Free to Choose", but if Delong's description of the arguments in the book is accurate (and I'm aware Delong can be slippery on occasion), its pretty clear that the book was addressing the situation in the United States, and advocating policy changes for the United States and similar governments.

The book appears to assume that there will be continued to be some government intervention in the market, a scaled back version of what the federal U.S. government was in fact doing in the 1970s. Delong pointed out the assumption that there would still be a central bank formulating monetary policy in order to shape the economy. I have some sympathy for the Austrian school claim that Friedman really wasn't a libertarian at all.

I argued with a co-worker about housing subsidies. He said that one of his business professors held up Fan/Fred as one of the "proofs" of government intervention. I'd like to ask the co-worker "how 'bout now?" To come to DeLong's conclusion, you just have to believe that all this mess had nothing to do with the government interventions. How can anyone be sure about that?

Friedman later repudiated his own views and said it would be a good idea to do away with a central bank.

And I have it on good information that he did this because of Brad DeLong.

But seriously folks, after the government takes responsibility for guessing the right money level for the economy, there is NO free market position within those constraints. How can people tell us what we should think about this?

The government doesn't guess the right money supply. In the long run, money is neutral. The market sets prices given the money supply. If wages, savings and prices suddenly doubled, everyone would be indifferent. The fed makes marginal, countercyclical changes based on the situation to mitigate the short term effects of money supply fluctuations.

I'm the most free market-oriented person I know, and even I acknowledge that market failures exist. The market for money isn't always perfectly efficient. A central bank can solve a lot of those problems. It can cause problems too, but fortunately the US Fed has been very efficient since Volcker.

Also to the point made above- Friedman thought the Fed could be abolished, but replaced with a computer that implements a rule-based monetary policy. Since the early 80's, that's essentially what we've had.

Dekker's Israelites stays high on my most played list in iTunes.

#1 - Is it possible to endorse this?

The Kantoos proposal suggests central planning of macroeconomic variables on a fairly grand scale. Wouldn't Hayek have laughed it off as student level constructivist rationalism?

As for Kantoos asking Paul Krugman to be the neutral referee of the debate… Well.

#2 - Stock market bulls frequently point to rising corporate profits and a rebounding financial sector to promote their views. Do these statistics include the profitability of the Fed, which is not really part of the private sector? If so, without the Fed’s “profits”, how would current corporate and financial sector profits compare with similar data from before the recession?

Fed profits can't really be measured properly, because the fed is the headquarters of what amounts to a banking cartel.

It doesn't only have its own profits, it increases the profits of its stockholders.

1. "limit investment and consumption in Germany, and encourage it in Spain." In other words, divert investment from the most productive economy to the least. Constructive!

This is what stimulus usually entails, and one reason I think it merely prolongs recessions. Its not ideology, just common sense.

Germans aren't too enthusiastic about Keynesianism anyway, and this advice is the last things most Germans would want to hear. DOA

I reported on the rise in household formation back in September.

#7 ... I wonder if he's acquainted with the work of Upton Sinclair?

You mean the novels that had no basis in reality?

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
― Upton Sinclair, I, Candidate for Governor: And How I Got Licked

Seems pretty solidly grounded in reality.

Well, my first attempt was eaten by the comment traffic cop.

7: It seemed to me that the author was taking advantage of his position as moderator and giving himself the last word on each point, making sure to state Conard's points steeped in the author's own moral judgments. It's telling that the first comment listed when I read the piece started, "What a monster."

There is a bigotry festering in our culture, contra Bourgeois Dignity, which does not bode well. Whether one agrees with him or not, Conard is making a reasonable argument, and is not calling for hateful or thoughtless policies, as far as I can tell. The fact that he can't have that conversation without being maligned with trumped up moralism and populist furor is frightening.

Normally, I might agree, but having listened to Davidson's awesome Planet Money podcast, I give him the benefit of the doubt. He's very fair-minded, and his Global Pool of Money piece for This American Life did a great service in explaining the mortgage crisis.

I was impressed by the relative evenhandedness of the article. It reads like the guy went into the interview expecting to completely disagree with everything Conard said, but came away impressed with his arguments even if he ultimately disagreed.

#7 - It's always difficult to judge a book that hasn't been published yet but is the subject of a lengthy NYT Magazine piece. Obviously things are filtered through Adam Davidson, the author of the piece. However, just a couple points make me wonder if Conrad is living in the real world of the 99.9%. Anyone who believes that it was a "bank run" that caused the financial meltdown ought to read anyone of the numerous well thought out books on what happened during the build up and the meltdown. Mr. Conrad, it wasn't a run on banks that caused it. The more egregious mistake is the concept that if we just all become risk takers and invest all will be well. As a number of CEOs (and economists) have noted there is no demand out there. Sure some of us are still in decent financial shape and spend money but overall there isn't a lot of demand for products whether they are old or new. I think this is one book that I am destined not to read.

What? In the U.S. spending is close to trend and at an all-time high.

Lehman was a run on a bank... A thoroughly insolvent one, as it turned out. It was insolvent because a lot of greedy assholes who worked there took stupid risks that didn't pan out. Definitely a business that needs stronger government guarantees.

Stronger government guarantees? You mean protect the "greedy assholes who worked there took stupid risks" and systematize the risk?


"A central problem with the U.S. economy, he told me, is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money....

"“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said. That way, the art-history majors would feel compelled to try to join them."

As stated, this argument appears to be ridiculous. If my chances of winning are low (say 1%), but the prize for winning is high, say, $10 million, doubling the prize to $20 million is not going to do much for me. $10 million would be fine. Once the payoff is of a certain size, it's the risk and the costs that are the problem, not the payoff.

An interesting test of this strikes me: how does the number of *unique* lottery participants vary with the size of a megamillions jackpot? For me, I am indifferent to the different payoffs between a $10 million dollar jackpot and a $500 million dollar jackpot. Ok, that's not entirely true, I actually thought about maybe buying a ticket when I heard about the latest $500 whatever million dollar pot, but the costs are incredibly low. Holding odds of success constant, I'd expect unique buyers to increase at a increasingly decreasing rate as jackpots rise. If someone didn't buy in at 1 billion they're not going to buy in at 50 billion, unless the costs or the odds change. 1 billion is already funny money.

But with entrepreneurialism there also seems to be a potential endogeneity problem with the chance of success. Increase unique participants -> increased competition -> increased chance of failure, perhaps. The fewer fish in the pond, the more likely I'm the big fish. The more fish in the pond, the more likely I'm the small fish. The more entrepreneurs in teh game, the harsher the market discipline for not-quite-good-enough plans. The more cost-cutting innovations, the more likely my innovation isn't innovative enough.

And further, by his own lights people's preferences already reveal the contrary - those 'art history majors' and 'lawyers' would rather have lower payoffs with lower risk and lower potential costs.

So the solution, then, would seem to be to increase the chances of success and/or decrease the costs of failure.

The payoffs are more than high enough. No one is eschewing entrepreneurialism because Zuckerburg, Gates, Thiel, Romney, and Conard didn't win enough bank.

In fact, we already have this place where incredibly talented people work like dogs taking experimental risks that often do not pay off. They do it for relatively little money compared to successful entrepreneurs, but the risks of failure are relatively quite low, because they will receive a decent income regardless. As a price for such security, the money gained from success is mostly appropriated and redistributed by a centralized public (or privately subsidized) authority. It's called tenure at a research university.


It's fine to compose hymns to people who take substantial risks and improve everyone's lives when they work out, but Conard is talking primarily about people who take risks with other people's money, i.e. himself in his former profession. On the one hand he talks up investors and the great rewards they deserve, and on the other hand blames them for the financial crisis when they desperately try to get out of the insane bets that people like him are making. It seems he only likes "investors" as long as they're not pension-fund managers or other people who don't represent the class of super-risk-loving overlords (who rarely play with their own money).

I'm familiar with some of the deals that Bain have done over the years and at least two of their major successes (Sports Authority & Office Depot). What I don't know is how much they did in the real venture capital arena in terms of funding new technology startups. If one is to accept, Conrad's thesis about taking risks, it is this latter area that the real risk is there and the chances for failure quite high (Internet, biotech, etc. where there are lots of failures). Sports Authority and Staples did provide a service when they were founded but did they revolutionize anything?

#1: "...essentially, we want Germany to have higher inflation, to reduce its current account surplus, and the periphery to do the reverse."

Isn't that going to be kind of hard to do when Germany and the periphery have a common currency and open borders?

Regarding link 7:

Please do not conceal full URLs by using shortened URLs, especially to sites that limit free visits. In this case you are inducing people to visit a NYT page, thereby using up one of their ten free monthly visits, without their knowing what they're visiting.

Desmond Dekker's fine.

GMOs may be mostly fine. But on some future occasion, will you please engage the interesting open questions? Why do you think the seemingly smart folks at Monsanto got surprised by glyphosate resistance? What is your opinion of the quality of statistical analysis in the FDA comparison of GMO to conventional salmon? Do you have no concerns about using patents as the principal source of investment incentives for agricultural technologies with strong public goods characteristics? What fraction of the yield gains from modern biotechnology can be achieved without recombinant DNA techniques? At your level of play, we'd love to see you tackle the clever GMO critics not just the silly ones.

But don't listen to me. I find Marley more profound, too, so I may be a lost cause.

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