Big Government

The Transformation of Economics.

by

A great piece in the Wall Street Journal today about what has happened to Economics and Economics education.

I took an Economics class in college in 1957 and it changed me to a Republican. My first vote was for Richard Nixon in 1960. My family was furious as they thought we were related to the Boston Kennedys and they had always been Democrats. I wonder if an Economics class would have that effect today?

And that political economy and my assessment of it has changed over a career spanning more than half a century. Here are five developments I would emphasize:

I agree with his appraisal.

1. Diminishing returns to research. A core economic principle is the Law of Diminishing Returns. If you add more resources, such as labor, to fixed quantities of another resource, such as land, output eventually rises by smaller and smaller amounts. That applies—with a vengeance—to academic research. Teaching loads have fallen dramatically (although the Education Department, which probably can tell you how many Hispanic female anthropologists there are teaching in Arkansas, does not publish regular teaching-load statistics), ostensibly to allow more research. But the 50th paper on a topic seldom adds as much understanding as the first or second.

This has been characteristic of Medicine, as well as other academic subjects.

Emory University’s Mark Bauerlein once showed that scholarly papers on Shakespeare averaged about 1,000 a year—three a day. Who reads them? How much does a typical paper add at the margin to the insights that Shakespeare gave us 400 years ago?

That isn’t all he has shown.

The attitude touches the President’s favorite pastime. Tevi Troy reported in Commentary how much Obama enjoys television, particularly SportsCenter and the middlebrow series Homeland and Mad Men. The New York Times added Breaking Bad and The Wire in its article “Obama’s TV Picks: Anything Edgy, with Hints of Reality,” and while it warned of the foolishness of “psychoanalyzing” a president based on “the books he reads or the music he listens to or the television shows he watches,” the story mentions not a single book. One would expect Marxists, feminists, queer theorists, post-colonialists, anti-imperialists, and media theorists to chide Obama for his bourgeois, masculinist taste, but as far as I know they have remained silent.

Obama’s taste runs more to sports and rap music.

Read more

The Big Middle Finger

by

Honestly, that is the only way that I can account for the out-of-completely-left field popularity of Donald Trump. He is not a notorious small-government libertarian like the Koch brothers, or has any previous political interests of any stripe to recommend him particularly; not even any detectable small-government, free-market and strict Constitutionalist Tea Party sympathies to recommend him.   If anything, he has always appeared to me as one of those big, vulgar crony-capitalist, unserious reality-TV personalities; the epitome of vulgar architectural bad taste and in blithely using his money and influence to cheerfully run over anyone who got in his way. His campaign at first seemed to be a particularly tasteless joke a grab for publicity on the part of a flamboyant personality who never seemed to get enough of it, in a bad or a good way. So all props for having the sheer brass neck to start playing the game, and playing it with calculated skill.

Read more

Negative Interest Rates! What A Great Idea!

by

Japanese Seeking a Place to Stash Cash Start Snapping Up Safes (WSJ, subscription required):

TOKYO—Look no further than Japan’s hardware stores for a worrying new sign that consumers are hoarding cash—the opposite of what the Bank of Japan had hoped when it recently introduced negative interest rates.
 
Signs are emerging of higher demand for safes—a place where the interest rate on cash is always zero, no matter what the central bank does. Cash languishing in safes could thwart the Bank of Japan’s move to get money circulating more vigorously in the economy.
 
Shimachu Co., which operates a chain of stores selling hardware and home products, said Monday that sales of safes in the week that ended Sunday were 2 ½ times higher than in the same period a year earlier.

Of course the Fed would never be so foolish as to institute a negative-rates policy in the hope of getting investors to prop up weakening securities markets. Right?

(Via T. Greer on Twitter)

“Breaking the iPhone: Once again, conservative establishment is urgently, insistently wrong”

by

J. E. Dyer:

But I don’t have any confidence that the Fox panel would have been smarter if its members understood the issue better. The real problem was that they didn’t come down in principle on the side of privacy. They could have at least expressed regret, or been reluctant about siding with the FBI.
 
But they were slavering urgently for whatever measure the FBI demanded to get into Syed Farook’s iPhone as if all our lives depended on giving law enforcement any privacy-busting capability it sees a need for.
 
Technology doesn’t change the fact that this perspective is the opposite of the perspective of the Fourth Amendment. If our highest priority should be opening the people’s lives up to law enforcement, in case there are terror links lurking in our coupon drawers, then we should throw the Fourth Amendment out and require the people to all give the police keys to our homes, so it will be less of a hassle for them to get in whenever they declare a need to.
 
Conservatives are supposed to be smarter than this. Let’s walk through it briefly to clarify why there is no need to bust the built-in security feature of the iPhone for the FBI’s general convenience.

Worth reading in full.

Why the Big Short didn’t work but the next one likely will!

by

In promoting the Hollywood version of The Big Short by Michael Lewis, Paul Krugman (NYT, December 18) misrepresents the central point of this excellent book, previously made by Peter Wallison, who Krugman attacks for his Republican dissent to the 2010 Financial Crisis Inquiry Commission (FCIC) majority Report.

The Hollywood version reflects the Report’s fundamental conclusion that the root cause of the financial crisis was Wall Street greed: hardly newsworthy, disputable or dispositive. The Big Short is about the equally greedy speculators who were shorting the housing market: had they succeeded early on – as they do in less distorted markets – they would have prevented the bubble from inflating to systemic proportions.

Contrary to the “indifference” theorem (i.e., between debt and equity finance) of Nobel Laureates Franco Modigliani and Merton Miller, both household borrowers and mortgage lenders chose to finance almost entirely with debt, a strategy best described as “going for broke.” The first distortion – tax deductibility of debt – makes leverage desirable until discouraged by rising debt costs. The second distortion – federally backed mortgage funding as Depression era deposit insurance became virtually universal and the Fannie Mae “secondary market” facility morphed into a national housing bank – prevented these costs from rising. This highly leveraged strategy was guaranteed to fail systemically if bad loans entered the system.

Read more