Archive for August, 2007|Monthly archive page
Gary Becker has a piece on the blog he shares with Richard Posner regarding infrastructure in the wake of the Minneapolis Bridge collapse.
I find it interesting the way conservative economists always find a way to make every problem call for the same solution — markets, markets, markets. In my soon-to-be-released (2 October) Confiscation of American Prosperity, I compared this attitude to the behavior of a doctor who would prescribe the same procedure for every problem, whether it would be a heart attack or broken leg.
First of all, he uses several tactics to rule out the need for more government spending. First of all, he claims that the roads and bridges are in good shape. The second tactic is far more interesting to me. Often when somebody calls for more government spending or regulation to solve a problem, conservatives claim that an unrelated program would be more cost effective.
Childhood vaccinations are a good example. For example, if somebody recommends policies, such as the regulation of tobacco, conservatives, such as John Graham, later Bush’s regulatory czar, argued that allocating money for regulation rather than spending it on childhood vaccinations or some other worthy purposes is tantamount to “statistical murder” (see Graham 1995).
Graham, John D. 1995. ”Comparing Opportunities To Reduce Health Risks: Toxin Control, Medicine and Injury Prevention (Dallas: National Center For Policy Analysis).
Of course, the people who make such an argument never actively promote the childhood vaccination. Instead, they merely insist on government inaction. In this case, Becker argues that reducing alcohol related deaths would make a greater contribution to safety, without giving any suggestion of how to achieve such a goal.
Finally, Becker makes the case that — surprise surprise — the best approach would be privatization, without explaining how privatization could be accomplished in a way to guarantee better maintenance of the infrastructure.
“… at particular times a great deal of stupid people have a great deal of stupid money …. At intervals … the money of these people — the blind capital, as we call it, of the country — is particularly large and craving; it seeks for someone to devour it, and there is a ‘plethora’; it finds someone, and there is ‘speculation’; it is devoured, and there is ‘panic’.”
Bagehot, Walter. 1856. “Edward Gibbon.” National Review; in Literary Essays. vol 1. The Collected Works of Walter Bagehot. ed. Norman St. John-Stevas (London: The Economist, 1968-1986): pp. 350-95, 351.
I have been interested in corporate jets as an exemplar of capitalist excess. Here is an article describing how corporate jets contribute to airline delays. Here is the punch line:
“The users of corporate jets defend this practice, saying they deserve equal takeoff rights. “On a business flight, you might have people going to Wall Street from companies who are creating jobs and generating billions of dollars in commerce,” Mr. Brown says. “People on a commercial flight might be going on vacation or going to New York to go to the theater”.”
Did you know before that private equity companies and hedge funds are intent on creating jobs? Which of their takeovers bulked up their labor force? In my ignorance, I though that they tended to lay off workers to increase profits.
Here are some notes from the article: Read more »
Here is a revised version of my paper that I will be delivering at Yale next year. It is still very preliminary and very rough. Any pointers would be appreciated.yale2.doc
Wall Street has been hiring mathematicians and physicists to devise sophisticated computer models to beat the market. Here is Goldman Sachs explanation about how its fund lost 30%:
“Goldman Sachs … said that its funds had been hit by moves that its models suggested were 25 standard deviations away from normal. In terms of probability (where 1 is a certainty and 0 an impossibility), that translates into a likelihood of 0.000…0006, where there are 138 zeros before the six.”
Anon. 2007. “The Game Is Up.” The Economist (16 August).
The Wall Street Journal has a front-page story regarding Hyman Minsky, whom it labels an obscure economist. The label, obscure, gives the impression of a crank ignoring the collective wisdom of the economics profession. In fact, Minsky’s obscurity owed more to the willful ideological stubbornness of the discipline that wanted to believe in market efficiency.
The article does not really give much detail about Minsky’s work, except to sum it up: “When times are good, investors take on risk; the longer times stay good, the more risk they take on, until they’ve taken on too much. Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. “This is likely to lead to a collapse of asset values,” Mr. Minsky wrote.” Read more »
A bank in the online game, Second Life, apparently experienced a meltdown, not that different from what is happening in the real world — if finance is part of the real world. Here is part of the Wall Street Journal story.
Here is the funniest explanation I have seen:
“I … lay the blame at the feet of Fannie Mae and Freddie Mac (and their congressional cronies), whose unchecked growth into second mortgages, subprime loans and many other assets — not to mention their continued creep into the upper echelons of the home-mortgage industry through their current lending limit of $417,000 — has pushed other mortgage-market participants further out on the risk spectrum in search of a livelihood.”
Penner, Ethan. 2007. “Fannie, Freddie and the Housing Bust.” Wall Street Journal (16 August): p. A 11.
How much further will the Dow Jones have to fall before we need to go to war with