Paul Krugman points to the new Federal Reserve senior loan officer survey which reports that standards for commercial real estate loans are tightening creating in Krugman’s words "an incredible credit crunch in progress."

Over at Carpe Diem, however, Mark Perry looks to Federal Reserve data on actual loans and finds that commercial loans from large banks are at an all time high and increasing rapidly.

The credit crunch, if that is what one should call higher standards, appears to be contained to the real estate market.

Best evidence that the merger between Microsoft and Yahoo will increase competition?

Publicly, Google came out against the deal, contending in a statement
that the pairing, proposed by Microsoft on Friday in the form of a
hostile offer, would pose threats to competition that need to be
examined by policy makers around the world.

Here’s an Open Letter on Antitrust Protectionism (pdf) that I drafted nearly ten years ago during the Microsoft trial.  It’s still relevant today.

The fertility rate in the United States is the highest it has been in 35 years.  Are Alan Greenspan and predatory lenders to praise or blame?  You be the judge.

Dubner and Levitt have an article in the NYTimes with three examples of the law of unintended consequences, the Americans with Disabilities Act made it more costly to hire people with disabilities and reduced their employment, ancient Jewish sabbatical law intended to help the poor has made them worse off, and the endangered species act has resulted in habitat destruction.

In light of this Andrew Gelman asks a deep question, What kind of law is the "law of unintended consequences?"

The law of unintended consequences is what happens when a simple system tries to regulate a complex system.   The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives.  Society in contrast is a complex, evolving, high-feedback, incentive-driven system.  When a simple system tries to regulate a complex system you often get unintended consequences.

Unintended consequences are not restricted to government regulation of society but can also happen when government tries to regulate other complex systems such as the ecosystem (e.g. fire prevention policy that reduces forest diversity and increases mass fires, dam building that destroys wet lands and makes floods more likely etc.)  Unintended consequences can even happen in the attempted regulation of complex physical systems (here is a classic example involving turbulence).

The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident.  A regulation requiring apartments to have air-conditioning, for example, pushes the rental contract against the landlord and in favor of the tenant but the landlord can easily push back by raising the rent and in so doing will create a situation where both the landlord and tenant are worse off.

More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences.  Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.

Does the law of unintended consequences mean that the government should never try to regulate complex systems?  No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.

Randy Newsom, relief pitcher for the Cleveland Indians, is selling 4% of his future major league salary.  There are 2,500 shares in the IPO so each share gets you a claim to 0.0016% of his future salary including bonuses.  Shares sell for $20 each.

Hat tip to Mike Makowsky.   Mike, a rookie GMU PhD on the job market, is also entertaining offers for a share of his future salary.  Mike is feeling rather risk-averse so as an insider, I recommend you buy now.  Mike has a great career ahead of him and this opportunity won’t last long!

It looks like we will get some fiscal stimulus, despite my cogent objections (I know, big surprise.)  One part of the stimulus package will probably be an investment tax credit which does have some good properties.  Unlike traditional fiscal policy an investment tax credit cannot be fully crowded out and it works best when it is expected to be temporary. 

Cuts in income taxes and increases in spending must be paid for somehow, so traditional fiscal policy can be crowded out by declines in private spending (My colleague Russ Roberts says fiscal policy is like trying to raise the water level by dipping a bucket in the deep end of a pool and dumping it in the shallow end.)  But an investment tax credit works through a change in incentives – it increases the incentive to invest now, when times are tough, at the expense of less future investment when times are better.

Also, cuts in income taxes stimulate the least when they are expected to be temporary.  But in contrast, an investment tax credit stimulates the most when it is expected to be temporary.  (A temporary credit must be used now or lost while a permanent credit gives you the option to wait).

Thus, a broad-based, temporary investment tax credit has some appeal as fiscal stimulus.   

A French court has ruled in favor of the French Bookseller’s Union that Amazon’s free shipping policy violates a law forbidding booksellers from offering discounts of
more than 5 percent off the list price.
Amazon was told to start charging for shipping within ten days or pay a
daily fine. It must also pay €100,000 to the French Booksellers’ Union.

Amazon CEO Jeff Bezos, however, is refusing to charge for shipping and is taking the case to the French public.  Way to go Jeff!  My advice?  Tell the state, laissez nous faire!

Hat tip to A Chequer-Board of Nights and Days.

Criminals have been able to hack into computer systems via the Internet and cut power to several cities, a U.S. Central Intelligence Agency analyst said this week….

"We
have information, from multiple regions outside the United States, of
cyber intrusions into utilities, followed by extortion demands," he
said in a statement posted to the Web on Friday by the conference’s organizers, the SANS Institute.
"In at least one case, the disruption caused a power outage affecting
multiple cities. We do not know who executed these attacks or why, but
all involved intrusions through the Internet."

I am highly suspicious – why has no one heard of this before? – but every year I do feel more and more like I’m living in a Neal Stephenson novel.

Andrew Samwick at Vox Baby reports on the neuroeconomics sessions at the AEAs.  He is justifiably impressed with the work of David Laibson.  Laibson has pioneered the theory and implications of hyperbolic discounting.

But a clever economist can always come up with a rational (time-consistent) model to explain what appears to be irrational hyperbolic discounting.  Laibson, however, uses fMRI scans to show that different parts of the brain are activated when making decisions at different time-scales.  As Andrew notes, the isolation of the different decisions to different parts of the brain gives Laibson’s argument significant credibility against more standard neo-classical explanations for the same phenomena.

People used to think that more population was bad
for growth. In this view, people are stomachs–they eat, leaving less for
everyone else. But once we realize the importance of ideas in the economy,
people become brains–they innovate, creating more for everyone else….

In the 20th century, two world wars diverted the energy of two
generations from production to destruction. When the horrors ended, the
world was left hobbled and split. Communism isolated much of the world,
reducing trade in goods and ideas–to everyone’s detriment. World
poverty meant that the U.S. and a few other countries shouldered the
burdens of advancing knowledge nearly alone.

The battles of the
20th century were not fought in vain. Trade, development and the free
flow of people and ideas are uniting all of humanity, maximizing the
incentives and the means to produce new ideas. This gives us reason to
be highly optimistic about the future.

That’s me, writing at Forbes.com.  Read more about why the economics of new growth theory gives me reasons to be optimistic here.

Privatizing toll roads in the U.S. may result in significant diversions
of truck traffic from privatized toll roads to "free" roads, and may
result in more crashes and increased costs associated with use of other
roads, according to a new study.

It’s interesting how congested, dangerous, public roads are framed as a problem of safe, fast, toll roads!  The problem, however, is easily solved.  Price all the roads!  Unrealistic?  Foolish?  Not at all, especially not for large trucks which are the focus of the above study.  The key is to tie the price to the truck not to the road.  With today’s GPS technology trucks can be outfitted with GPS devices that can price all roads according to time, congestion, quality and a variety of other factors.  In fact, just such a system is working in Germany right now.

In other congestion news the DOT is finally allowing airports to charge landing fees based on congestion.  This is good news for travelers who can thank the economically-astute, Harley riding, no-nonsense Secretary of Transportation, Mary Peters.

By the way, Transportation Secretary Peters wrote the foreword to Street Smart: Competition, Entrepeneurship and the Future of Roads, a very good book on road pricing and privatization edited by Gabriel Roth and published by the Independent Institute (where I am the director of research.)