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The Curious Capitalist
Commentary on the economy, the markets, and business
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From Chicago School to just another (excellent) economics department

Posted by Justin Fox
January 5, 2010 at 9:58 pm
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Whoops, sorry. I got so caught up in a must-write-column trance today that I forgot to blog. I did briefly consider saying something about John Cassidy's edifying and entertaining New Yorker piece on Chicago School economics, which I read while eating breakfast and making Curious Capitalist Jr.'s lunch this morning. But when I looked it up online, I discovered it's not online. Well, not unless I could type in my subscriber number. And guess what? I have failed to memorize my New Yorker subscriber number! There is an audio interview with Cassidy available to all. And as I'm about to go work at a place that puts lots and lots of stuff behind a paywall, I really better not complain too much. But still: Frustrating!

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Related Topics: Wall Street, economics, efficient market, regulation,

Low interest rates weren't to blame for the housing bubble

Posted by Barbara Kiviat
January 4, 2010 at 12:19 pm
9 Comments

That was one of the themes of Ben Bernanke's speech to the American Economic Association yesterday. And this is the nifty chart he used to make his case:

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Related Topics: federal reserve, real estate, regulation, , , ,

Weekday video: You'll never find a surer friend than Gazprom

Posted by Justin Fox
January 4, 2010 at 11:42 am
1 Comment

Lucy Kellaway mentioned this Gazprom corporate anthem in her FT column today. So I checked it out, and determined that it must be shared:

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How to catch terrorists (and lots and lots of non-terrorists)

Posted by Justin Fox
January 4, 2010 at 10:54 am
2 Comments

A passage from chapter 36 of Sam Savage's excellent book The Flaw of Averages:

So how many true terrorists do you think are currently in the United States? ... I have no idea myself, but for the sake of argument, suppose there are 3,000. That is, in the total U.S. population of 300 million, one person in 100,000 is the real deal.

Now consider a magic bullet for this threat: unlimited wiretapping tied to advanced voice analysis software on everyone's phone line. The software can detect would-be terrorists within the utterance of three words ... Assume that the system is 99 percent accurate; that is, if a true terrorist is on the line, it will notify the FBI 99 percent of the time, whereas for nonterrorists, it will call the FBI (in error) only 1 percent of the time. ...

When the FBI gets a report from the system, what is the chance it will have a true terrorist?

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Related Topics: miscellany, , ,

How do you get both equity and prosperity?

Posted by Justin Fox
December 31, 2009 at 10:54 am
15 Comments

Here's Jim Manzi (no, not that one; this one), writing in National Affairs (via Michael Pettis) on the question, addressed here a couple of days ago, of balancing economic security with economic dynamism:

Conservatives have ..., as a rhetorical and political strategy, downplayed the problems of cohesion — problems like inequality, wage stagnation, worker displacement, and disparities in educational performance — to emphasize the importance of innovation and growth. Liberals, meanwhile, have correctly identified the problem of cohesion, but have generally proposed antediluvian solutions and downplayed the necessity of innovation in a competitive world. They have noted that America's economy in the immediate wake of World War II was in many ways simultaneously more regulated, more successful, and more equitable than today's economy, but mistakenly assume that by restoring greater regulation we could re-create both the equity and prosperity of that era.

Manzi goes on in this vein, very thought-provokingly, for 7,000 words. In the end, he's got four five recommendations:

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Related Topics: economy, education, inequality, regulation, technology, ,

What to do about those danged bank lobbyists

Posted by Justin Fox
December 30, 2009 at 11:31 am
15 Comments

Barry Ritholtz has a good summing-up of a new paper (pdf) by three IMF economists on the link between lobbying and risk-taking by lenders. The gist: Firms that made the riskiest loans spend the most on lobbying Congress. And what were their lobbying aims?

• prevent  any tightening of lending laws that reduce the benefits of short-termist strategies over long-term profits;

• allow systematic underestimation of default probabilities by overoptimistic bankers;

• not just to originate loans that carry more risk, but to convince legislators that such lending is prudent;

• to thwart bills aimed at lax lending standards and riskier loans;

• to tighten regulations that restrict entry by others preventing competition;

• to have a higher probability of receiving preferential treatment in a crisis.

The Huffington Post also has an epic new examination of what it calls "the cash committee"—the House Committee on Financial Services. The gist is that the committee's Democratic ranks are heavy on  moderate-to-conservative first- and second-termers that House leadership put on the committee so they could raise lots of money from financial interests, thus increasing their chances of getting reelected but decreasing the committee's chances of passing meaningful financial reform.

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Related Topics: Wall Street, bailouts, banks, real estate, regulation

Visiting Ron Paul's Fed-free utopia

Posted by Justin Fox
December 29, 2009 at 2:22 pm
95 Comments

After being urging to do so by several readers, I finally read Ron Paul's End the Fed. I was about to buy it for the Kindle I got for Christmas, but when I got to work Monday morning there was a package in my mailbox from Gary Howard at Paul's Campaign for Liberty with two copies of the book. I gave one to my colleague Stephen Gandel, and started reading the other. I had told Hunter Lewis that I was going to read his Where Keynes Went Wrong first, but when I saw how short End the Fed was (and how few words per page it contained) I figured I could finish it in a couple of hours. It took about three, and it was worth the time and effort. I didn't learn anything new about monetary economics or the Federal Reserve, but I did learn a lot about the thinking of Ron Paul. It turns out to be a curious mix of the sensible and the delusional. To put it differently, Paul has wrapped a mostly cogent critique of central banking in general and the Fed in particular inside a decidedly utopian view of what a world without central banks would look like. At one point in the first chapter he warns that "ending the Fed is not a magic pill to usher in Utopia." Then, throughout the rest of that chapter and the rest of the book he describes how ending the Fed would usher in a state of affairs that sounds an awful lot like, well, Utopia.

Here's the list of happy consequences that Paul says ending the Fed would bring, with my annotations in italics:

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Related Topics: Wall Street, bailouts, banks, federal reserve, regulation, taxes, ,

Is there a tradeoff between growth and security?

Posted by Justin Fox
December 28, 2009 at 10:20 am
8 Comments

I'm back in the office on what is shaping up to be an extremely slow news day, which is why I find myself reading things like a little Q&A with economist Raghuram Rajan on the WSJ's Real Time Economics blog. Here's one of the Qs the resulting A:

How do you expect the U.S. model of capitalism to change as a result of the crisis? Can it regain its credibility?

Given the other models that we've tried in the past, this one seems to work pretty well. It's sort of like democracy — the greatest good to the greatest number of people.

The question is how you get the benefits without the excess volatility that's now in the system. I think that's what we will tackle over the years. We are going to question whether we need a better safety net, we are going to question whether finance should be as risky as it has been.

We may well want to choose more safety and less risk, but we should go into it with open eyes. We can't have the dynamism and at the same time expect a lot more security.

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Related Topics: economic development, economics, social security, ,

Christmas eve video: Please be patient

Posted by Justin Fox
December 24, 2009 at 8:34 am
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My favorite song from last year's Colbert Christmas show is Colbert's own "Cold, Cold Christmas." But I can't find a video of that. So here's Feist:

          

Related Topics: music

The latest economic indicators: We're doing better than 5th century Britain!

Posted by Justin Fox
December 23, 2009 at 11:27 am
2 Comments

TIME is "dark" this week—that is, we've got no magazine to put out and not many people in the office. But we still have a Website, so I volunteered to pay attention to this week's economic releases and post on them when they seemed to merit attention. Well, today we've got personal spending up 0.5% and personal income up 0.4% in November, and new home sales down 11.3% (pdf) for the month. That last number looked at first like it might be significant. The decline was certainly bigger than forecasters expected. But it comes with a margin of error of plus or minus 11 percentage points. And yesterday's existing home sales figure was up by more than expected. I'll go with the verdict of Ian Shepherdson at High Frequency Economics: "this number tells us nothing at all about the future."

So my attention drifted to the FT, where Oxford historian Bryan Ward-Perkins makes the point that, while the economic downturn that seems now to be fitfully receding into the past has been really bad, it hasn't been nearly as bad as the economic downturn that followed the departure of the Romans from Britain in AD 410:

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Related Topics: bailouts, banks, recovery, regulation, ,