Keynes’s Innocence of Microeconomics

by Mario Rizzo  

I was recently accused in a private email by a very smart economic journalist of not knowing the difference between macro and microeconomics. At first, this got me quite annoyed. But then I thought more calmly about why Keynes rarely talked about issues relating to the efficient allocation of scarce resources. This is not simply a doctrine-historical matter. It is intimately connected to his views of macroeconomic policy. It might also be informative to those modern-day “Keynesians” who retain his policy vision but do not know how, at least, he grounded it.

Old Wisdom for New Year

by Chidem Kurdas

 

New year, new government, new policies, new promises. How about some wisdom distilled from the past? Here is a selection of quotes I find illuminating.

 

Since (the legislature) possesses authority to arrange everything, it cannot refuse responsibility for anything. There will be no particular grievance which it will not be regarded as capable of removing … However, it is a fact that most of the grievances of particular individuals or groups can be removed only by measures which create new grievances elsewhere. …

Friedrich Hayek, Law Legislation and Liberty; v. 1, University of Chicago Press, 1973, pp. 143-144

Tyler Cowen is Right about Stimulus — Niggling or Not.

by Mario Rizzo

From Tyler Cowen at Marginal Revolution:

Note that under standard theory neither monetary nor fiscal policy will set right the basic problems from negative real shocks and indeed the U.S. economy is undergoing a series of massive sectoral shifts.  That includes a move out of construction, a move out of finance, a move out of debt-financed consumption, a move out of luxury goods, the collapse of GM, and a move out of industries which cannot compete with the internet (newspapers, Borders, etc.).

 

I’ve never seen a stimulus proponent deny this point about real shocks but I don’t see them emphasizing it either.  It should be the starting point for any analysis of fiscal policy but so far it is being swept under the proverbial rug.

 

I think that Tyler Cowen is right on this issue. What follows is my congruent take on the issue, without implicating him in the details. Or implicating me in the details of his own view.

The Disorderly Bankruptcy of the Welfare State

by Mario Rizzo

In his recent statement regarding the auto bailout, George Bush expressed concern that if the Big Three were not to get assistance from the Treasury there would be a likelihood “disorderly bankruptcy.” This brought to mind whether he or any other politicians are prepared for the coming disorderly “bankruptcy” of the welfare state.

A Keynesian Christmas Miracle: Stones into Bread

by Mario Rizzo

Some mainstream opponents of Austrian economics have complained over the years that Austrian economics is a “religion.” I have no doubt that in the hands of some it is so. I shall leave it to others to explore this. However, in this post I want to give the reader a taste of the secular religiosity of Keynes’s 1940s followers.

 After reading this, the reader should consider to what extent the intolerance to non-Keynesian ideas shown today by not-a-few journalists and economists wearing journalist hats is in the religious tradition of these early “Keynesians.”  I simply post some excerpts from an article by Ludwig von Mises, addressed to the general public, called “Stones into Bread: The Keynesian Miracle” originally published sixty years ago in 1948. It was reprinted in a volume called Planning for Freedom.

Ken-Ichi Sasaki on “Urban Tactility”

by Sandy Ikeda

One of the most striking things about the Tokyo skyline, at least for me, is how striking it isn’t. Viewed from afar — e.g., from its very-expensive-to-use elevated expressways (Narita Airport is too far from the city center to afford a decent panorama from the air) — the city, with few exceptions (such as Tokyo Tower), looks boxy and visually uninteresting.

This may be partly because much of Tokyo’s skyline was rebuilt after a terrible earthquake in 1923 and bombing in World War II. Yet the skylines of San Francisco (after the 1905 earthquake) and London (also the target of bombing during the war) are more interesting today than Tokyo’s.

The contrast between street-level and bird’s-eye views, on which Jane Jacobs based her opposition to modernist urban planning, is true to some extent of nearly all great cities, but in Tokyo’s case it’s especially stark. When I visualize New York or London, for example, in addition to the busy street life I also imagine their iconic landmarks, like the Wall Street and Midtown skylines or the Tower Bridge and Parliament. When I try to visualize Tokyo, only the street life comes to mind. Its almost insane busyness squeezed among impossibly compact city blocks can cause sensory overload.

Microfoundations are not a “Morality Tale”

by Mario Rizzo

 

In his column today in the Financial Times the often-excellent Martin Wolf drops the ball. He endorses the view which he associates with J.M. Keynes “that one should not treat the economy as a morality tale.”  

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis. ……

This same moralistic debate is with us, once again. Contemporary “liquidationists” insist that a collapse would lead to rebirth of a purified economy. Their leftwing opponents argue that the era of markets is over.

The “Unreasonable” Cost of Medical Insurance

by Mario Rizzo

People quite rightly complain about the cost of health insurance and bemoan the fact that, for some, insurance is out of financial reach. The following article from the New York Times  points to a factor that no doubt is illustrative of one source of the problem. This factor is just one of the mandates the Congress or individual states have created.  

Every year, state and federal governments spend more than $15 billion, and insurers at least $5 billion more, on substance-abuse treatment services for some four million people. That amount may soon increase sharply: last year, Congress passed the mental health parity law, which for the first time includes addiction treatment under a federal law requiring that insurers cover mental and physical ailments at equal levels.   

Many clinics across the county have waiting lists, and researchers estimate that some 20 million Americans who could benefit from treatment do not get it.

Yet very few rehabilitation programs have the evidence to show that they are effective. The resort-and-spa private clinics generally do not allow outside researchers to verify their published success rates. The publicly supported programs spend their scarce resources on patient care, not costly studies (Emphasis added).

 

 

 

 

 

 

 

No Palazzo Chupi in Bedford Falls

by Sandy Ikeda

(Photo by Erik J. Sommer)

This is artist and film-maker Julian Schnabel’s fantastical condo, “Palazzo Chupi,” a multi-story, candy-colored “palace” planted onto an old garage in the West Village in Manhattan. More on this in a moment. But first I’d like to talk about the Christmas classic, It’s a Wonderful Life.

Finding Prisoners’ Dilemmas

by Gene Callahan

It’s instructive and entertaining to locate real life prisoners’ dilemmas. I spotted one at the baggage carousel at JFK Airport yesterday. Everyone lines up tightly around the edge of the carousel to get a shot at getting their bag as soon as it comes off. Of course, if everyone didn’t crowd around the carousel, everyone could get their bag with no trouble at all. But, since no one can trust anyone else not to crowd around the carousel, everyone does it, causing most people to have longer waits for their bags than if we had all simply relaxed and hung back a bit.