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Category Archives: links to my essays
My Latest Review Essay
About The End of Power by Moises Naim, I write.
Naim combines strong conceptual thinking with an ability to summon impressive statistical evidence. His book is particularly valuable in showing the importance of growth and change happening in the emerging economies of the world. If those of us who lean libertarian differ from Naim’s conclusions, we should still be aware that his views are much closer than ours to those of most of the world’s elite.
It might be interesting to compare and contrast his book with my book on the knowledge-power discrepancy.
The Tea Party vs. The Common Core
It is the lead story in today’s Washington Post.
Lawmakers have responded by introducing legislation that would at least temporarily block the standards in at least nine states, including two that have put the program on hold. The Republican governors of Indiana and Pennsylvania quickly agreed to pause Common Core, and Michigan Gov. Rick Snyder (R), a vocal supporter of the plan, is nevertheless expected to accept a budget agreement struck by GOP legislators that would withhold funding for the program pending further debate.
I strongly support the Tea Party on this one. I was an early opponent of national testing. Ten years ago, I wrote
For the standardized testing approach to accountability, success by definition means making schools responsive to top-down control. In the case of the Bush administration “reforms,” standardized testing increases the leverage of the Federal government over local schools. Any conservative ought to think twice about supporting such a trend.
New Commanding Heights Watch
there are clearly countries that spend less per student than you would expect given their level of per capita GDP, like Iceland, which is labelled, and Italy, which is the unlabelled point more-or-less under Spain. There are also countries that spend more per student than you would expect given their GDP, including Ireland, Canada, and especially the United States.
He is referring to higher education.
Returning to the Oregon Medicaid study, Tyler Cowen writes,
The key question here is how we should marginally revise our beliefs, or perhaps should have revised them all along (the results of this study are not actually so surprising, given other work on the efficacy of health insurance). For instance should we revise health care policy toward greater emphasis on catastrophic care, or how about toward public health measures, or maybe cash transfers? (I would say all three.) One might even use this study to revise our views on what should be included in the ACA mandate, yet I haven’t heard a peep on that topic. I am instead seeing a lot of efforts to distract our attention toward other questions.
Nick Schulz and I have referred to health care and education as the new commanding heights. That is, they are as important in the 21st century as steel and electric power were in the 20th. However, steel and electric power had major scale economies that lent themselves to top-down, bureaucratic management. Health care and education do not.
What I think this means that those who want to apply centralized, technocratic solutions in health care and education (“Obamacare,” “No Child Left Behind”) are on the wrong side of history. Perhaps my views are mistaken. But in any case, I wish that people were less emotionally invested in the technocratic approach, so that if it does prove to be dysfunctional they are able to back off.
Clans, Contracts, and Liberty
My full review of Mark Weiner’s book. It begins,
Mark S. Weiner’s The Rule of the Clan makes a libertarian case for a strong central state. In it, he directly challenges what many libertarians currently believe.
Scott Sumner Explains the Monetary Approach to Macroeconomics in Nine Lessons
The index is here. Highly recommended.
For my perspective on this topic (including where I disagree with Sumner), see my “million mutinies” essay series:
In the last essay in my series, I wrote
For mainstream economists, the financial crisis has produced a new intuitive model of the economy which has yet to be articulated in any formal theory.
Scott Sumner, on his blog The Money Illusion, articulates what I believe would have been the consensus five years ago, which is that fiscal and monetary policy (he emphasizes the latter)—as opposed to bank capital management—are the tools of macroeconomic stabilization. Today, his views are classed as “heterodox.”
I write so much that I sometimes forget earlier pieces that meant a lot to me, such as this one. I was looking for some more “color” to add to this post, and I stumbled on the series.
My New Book on Kindle
It’s called The Three Languages of Politics. It’s an extended take on the three-axis model. Get it! Write a charitable review! Use this post to give me your comments!
Charles Calomiris on Politics and Banking
That anti-populist political system — known in political science as liberal constitutionalism or liberal democracy — is a key ingredient in Canada’s stable banking track record, Mr. Calomiris contends in his paper, which is a summary of a much longer book he’s written with Stephen Haber due out in September. That’s because this kind of political system makes it difficult for political majorities to gain control of the banking system for their own purposes, the authors contend.
Having only experienced the American system, I think of politics and banking as hopelessly entangled. As I recently put it,
Politicians want to make credit allocation decisions. Whatever its nominal purpose, bank regulation is used to enable politicians to undertake credit allocation.
Calomiris seems to take the same point of view, but he argues that some political systems are less susceptible to interest groups gaining control of bank regulation. I am interested in reading more about the research. Meanwhile, you should at least read the whole WSJ piece.
Kling’s Law of Bank Capital Regulation
Thomas L. Hogan, Neil Meredith, and Xuhao Pan write,
we find that the standard capital ratio is significantly better than the RBC ratio as an indicator of bank risk and performance and that using both ratios simultaneously does not produce better results. Taken in conjunction with the other available evidence, our findings indicate that RBC regulations lead to more risk-taking by individual banks, and more overall risk in the banking system, without improving the effectiveness of the Fed’s capital regulations.
RBC = risk-based capital. Kling’s law is that the capital measure used by regulators will, over time, come to be outperformed by a measure that the regulators are not using. So, if you are using standard capital, risk-based capital measures will better predict bank risk, and conversely.
The reason can be found in my essay, The Chess Game of Financial Regulation.
Regulatory systems break down because the financial sector is dynamic. Financial institutions seek to maximize returns on investment, subject to regulatory constraints. As time goes on, they develop techniques and innovations that produce greater returns but which can also undermine the intent of the regulations.
A Book I Will Not Review
Because I contributed a chapter. The book is the Routledge Handbook of Major Events in Economic History, edited by Randall E. Parker and Robert Whaples. The handbook tends to be U.S.-centric, with some surprising exceptions, such as a brief, fascinating chapter on World War I. The chapters are predominantly about events in the twentieth century. The book is priced out of your range, unless you are a library.
My chapter is called The 1970’s: The decade the Phillips Curve died. My main point is that except for the 1970’s, the Phillips Curve has performed really well. However, because of the 1970’s, macroeconomics went through great contortions from which it has not recovered.
This is not to say that we should go back to the macroeconomic consensus as it existed in 1970 (although that is where I see Paul Krugman coming out). But I do not think that the macroeconomic consensus as it existed in 2007 was any better. Hence PSST.
There is another chapter on the 1970’s by Robert Hetzel, which covers much of the same ground as my chapter. And he got to use graphs, which makes me jealous (my chapter would have worked better with graphs).
He and I would differ in our interpretation of the 1980-1983 period. Hetzel writes,
The Volcker-Greenspan FOMCs succeeded in controlling inflation without the need to engineer periodic bouts of high unemployment.
But we had the highest spike in the unemployment rate since the Great Depression–higher than the peak unemployment rate in 2009.