Dean Baker and Arnold Kling

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We both went to Swarthmore College. Maybe that explains why we are on the same page on what to do about Freddie and Fannie, namely nothing. He writes,

In the years immediately following the financial crisis, there were few people who would have bet that, in 2018, the GSEs would still be in a conservatorship in which they are effectively publicly owned companies. Nonetheless, inertia has proven to be a powerful force. In this case, I would argue that it has been a force for good in the housing market. The current system is one that minimizes the problem of moral hazard in housing finance, which was so important in the run-up in prices in the housing bubble years. It also is the most efficient mechanism for financing mortgages, as it requires fewer resources to be wasted on housing finance.

I disagree about getting rid of mortgage-backed securities. I approve of risk being transferred to the private sector.

Go back to what I wrote in November.

the current system works about as well as one could hope. With the backing of the Federal government, agencies like Freddie Mac and Fannie Mae can keep the market supplied with adequate capital to provide 30-year fixed-rate mortgages. At the same time, by using securitization and credit risk transfers, the agencies off-load the greatest proportion of risk to private entities.

Of course, if you gave us carte blanche to change the system, Baker and I would go in very different directions.

Russ Roberts and me

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A podcast on Economics for the 21st century. An excerpt:

And I think–I listed, in the essay, four key research areas. And one of them is what I call Firm Interaction. And this question of how the ecosystem operates now, in these various industries, is a really important question. As is what the traditional boundaries of the firm question: what should be done inside the firm and outside the firm? I mean, I’m shocked at the breadth of Amazon. I mean, it’s incredible, the breadth of that firm. I don’t think any theory of the firm that economists–economists haven’t done much with their theories of the firm, because again it becomes an intangible issue of, you know, what should you do inside the firm and outside the firm. It all depends on intangible things, and economists don’t do well with intangible things. But, I don’t think anybody, from Coase, or Williamson, or anyone who has looked at that would have told you that something with the breadth of Amazon would have emerged.

I was referring to this essay.

The authoritarian moment

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David Brooks writes,

progressives are getting better and more aggressive at silencing dissenting behavior. All sorts of formerly legitimate opinions have now been deemed beyond the pale on elite campuses. Speakers have been disinvited and careers destroyed. The boundaries are being redrawn across society.

There seems to be a bit of a trend. Putin is getting more authoritarian. Erdogan is getting more authoritarian. Xi Xinping is getting more authoritarian.

I know I’m not saying anything original here. But I wonder what it will take to turn things around.

Trump and TLP

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Handle points out that the emergence of Donald Trump has scrambled the model of the Three Languages of Politics. For example,

Even since Trump started his campaign, it seems to me that the progressives have been using “civilization vs. barbarism” rhetoric all the time. Not just the “breakdown in civility,” but also complaining about “chaos” and the potential collapse of the “international order” that was based on American strength guided by a progressive vision and set of values.

My thoughts:

1. I do think that Trump created a new axis, of Bobo vs. anti-Bobo.

2. I think that progressives want to throw everything possible at Trump at see what sticks. But they have certainly not given up on the oppressor-oppressed frame. They still make the “white nationalist” charge.

3. As Jeffrey Friedman pointed out long ago, libertarians go back and forth between arguing for liberty as a value in itself and arguing for it as instrumental to social improvement, particularly economic prosperity and growth. I don’t think we are seeing anything new from libertarians. They argue differently depending on the issue, putting more emphasis on liberty as a value in discussing free speech and putting more emphasis on economic consequences when arguing for free trade.

4. Libertarians have got to be feeling pretty badly these days. I cannot imagine anyone talking about a “libertarian moment” without being laughed out of the room. In Europe, it looks more like a “fascist moment” nowadays. In the U.S., referring to Google, Facebook, et al, Joel Kotkin writes,

Whether one sits on the progressive left or the political right, this growing hegemony presents a clear and present danger. It is increasingly clear that the oligarchs have forgotten that Americans are more than a collection of data-bases to be exploited. People, whatever their ideology, generally want to maintain a modicum of privacy, and choose their way of life.

And of course, everyone’s idea of fighting the corporate hegemony involves enhancing the hegemony of bureaucrats in Washington.

Subjective well-being

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Angus Deaton writes,

The measure I use is an evaluative measure of well-being that asks people to report, on an eleven-point scale, from 0 to 10, how their life is going. The question is originally due to Cantril (1965), and is asked in exactly the same way of all individuals sampled by Gallup in their World Poll. The question is “Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally stand at this time?” There is no mention of happiness, so the ladder is explicitly not a hedonic measure that enquires into momentary mood or feelings. Rather it asks people to assess how their life is going “at this time,” an answer to which requires cognitive effort by the respondent, and which is a more considered assessment of well-being than trying to weight together or average the host of emotions and feelings that make up the evanescent texture of everyday life. In the surveys I use here, the Cantril ladder question is immediately followed by a question identical to the ladder question but with the last sentence replace by, “Just your best guess, on which step do you think you will stand in the future, say about five years from now?” I shall use this question too.

I think that as intangible goods and services become increasingly important, economists are going to have to resort to subjective measures. This means that, like Deaton, we will have to think carefully about how we take those measurements.

Kling on Niall Ferguson’s latest

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My review of The Square and the Tower.

I think it is very difficult to show that a particular technology favors peer relationships over hierarchical relationships.

I think that many of us made this mistake when we projected the social consequences of the Internet. Because the Internet is obviously a peer-to-peer network, we assumed that it would break down hierarchies. But the social world is its own sphere, and it does not necessarily mirror the technical world. Groups that are peer-oriented can use the Internet, but so can hierarchies. Perhaps some of the social changes that have taken place in recent decades disrupt hierarchies, including changes that were facilitated by the Internet. However, it is a fallacy to insist that just because the Internet is peer-to-peer, human groups necessarily must array themselves in that fashion in order to be successful in the current technological setting.

This is Nassim Taleb Week

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Russ Roberts does a podcast Nassim Nicholas Taleb on Skin in the Game. Listen to the whole thing or read the transcript. One random excerpt:

Crossing the street reduces your life expectancy by 1 in 47,000 years. It’s not a big deal. So, the–crossing the street basically is close to zero risk for me, because my life expectancy is not infinite. But if you made humanity cross the street, that would be a problem, because it would reduce life expectancy commensurably.

So, the problem of these analyses that people throw around is that they ignore the value from life expectancy of whatever you are threatening.

Taleb on challenging orthodoxy

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He has a chapter that speaks to the topic of my recent essay on when to defy orthodoxy. His answer depends on whether you have skin in the game, meaning that there are personal adverse consequences if you are wrong.

If you have skin in the game, then Taleb would say that you are entitled to challenge orthodoxy, and indeed you should. People with skin in the game who defy orthodoxy are free. People with skin in the game who do not defy orthodoxy are slaves. So working for a large corporation makes you a slave.

Without skin in the game, you cannot be a good person no matter what you do. If you do not defy orthodoxy, you are a toady, trying to get ahead by going along. You are a journalist or academic who repeats what other journalists or academics are saying. If you defy orthodoxy you are dangerous, because without skin in the game you are risking other people’s lives and other people’s money but not your own. You are a banker taking in huge bonuses from bets that pay off in the short term, and when the bets turn sour you are long gone.

At least, that is how I read what he is saying.