Zimbabwe’s About Turn

By Chidem Kurdas

In developed counties free markets are widely blamed for economic ills as governments take over banks and pundits favor nationalization. By a sad irony, the situation in Zimbabwe is so dire that even President Robert Mugabe appears to be making a concession toward the only way out—reestablishing free markets.

Illusion of Confidence and the Confidence of Illusion

by Mario Rizzo

 

One hears a lot about restoring confidence in the economy these days. What is that? The economy is a complex entity. In fact, Friedrich Hayek wanted to drop the use of the term and replace it with “catallaxy” that is, an abstract order of interpersonal exchanges. The word “economy” has its origins in the idea of household management and consequently of a household manager. It is remarkable how the etymology of the word is preserved in its current meaning (or, at least, connotation). Most macroeconomists seem to believe that the economy can be managed or steered out of its current difficulties. (Is it cheeky to ask how did it get into its current difficulties if management were possible?)

 

Now the latest is Olivier Blanchard arguing that what fundamentally ails us is “Knightian uncertainty.” If this can be made to go away then our economic difficulties would be many fewer and far less severe. To accomplish this, he proposes the usual array of stimulus. So all of that to get to the “consensus policy.”

The Stimulus Rush

by Mario Rizzo

 

The stimulus package which was virtual or notional for a long time was posted on the internet on January 24^th (or thereabouts) – all 647 pages of its provisions. The Congressional Budget Office analysis was issued on January 27^th. And now the House of Representatives has passed the bill on January 28^th.  

 

Why the hurry?

New York, the unfinished city

by Sandy Ikeda

A friend from France, who is both an artist and an economist, on a visit to New York last year said she loves this place so much because every time she comes here she always finds it new and interesting. Well, couldn’t you say that about any great city? Apparently not.

Thomas Bender’s The Unfinished City: New York and the Metropolitan Idea observes:

Those who have Paris or Vienna or Budapest or Mexico City or Buenos Aires (or one of many other cities) in their minds as proper metropolitan centers will be disappointed by New York. From such a point of view New York has not yet completed its progress to full metropolitan status. But that perspective radically mistakes the case. New York’s character is to be unfinished. It is not a failed or incomplete example of something else; it is sui generis…It’s very essence is to be continually in the making, to never be completely resolved.

Max Page describes this process in terms of the dialectic between economic development and city planning, in his interesting and informative book, The Creative Destruction of Manhattan, where he quotes O. Henry’s famous quip: “It’ll be a great place if they ever finish it.”

Keynes as Public Works Skeptic

by Mario Rizzo

Paul Krugman raises a very good point: “Is it too much to ask that someone criticizing Keynes actually, you know, read Keynes…?”  However, I suggest that the point also be applied to those who use Keynes to support their own ideas today. This latter group may be in for some surprises. 

Hope amid Bailout Blues

By Chidem Kurdas

 

It is hard to find another example in history of so much taxpayer money spent with so little understanding as has been the case with the Treasury’s Troubled Asset Relief Fund—though the new stimulus package may involve even more money and less  understanding, as Mario’s posting on the Macroeconomic Knowledge Problem suggests. A few questions posed by Anna Schwartz offer remarkably lucid insight to the TARP mess.

 

TARP was originally supposed to relieve bank balance sheets by buying financial paper for which the demand has disappeared. Instead, the first installment was used to buy the equity of financial companies, making the federal government a big shareholder. Then the automakers went to Washington with their hands out and got a piece of TARP. It is not clear how the Obama administration will spend the rest of the money, but they’re speaking about channeling it to households that are defaulting on mortgages. Meanwhile, toxic debt continues to weigh down bank balance sheets.

The Macroeconomic Knowledge Problem

by Mario Rizzo

 

The Keynesian world view is leading to increasing stridency and dogmatism about economic stimulus. There used to be a joke that you can teach a parrot economics – all it needs to say is “supply and demand.” Now we can say that it is even easier to teach a parrot the policy prescription to prevent or cure a major recession: all it needs to say is “stimulus.” Most of the attention thus far has been on fiscal policy and the gathering of ideas on how to spend federal money. (For example, see the New Yorkers’ wish list.)  

 

The new Obama Administration, like the Bush Administration, has signaled that another part of the stimulus program is to put pressure upon banks that received TARP funds to stop worrying about their balance sheets and get out there and lend. (Query: To whom, for what purposes and at what interest rates?)

 

So how is this stimulus supposed to work?

Regulatory Failure

ThinkMarkets is very pleased to present the following post by the first of our guest bloggers, Jerry O’Driscoll.  Jerry is a senior fellow at the Cato Institute. He has written on a wide variety of subjects in monetary economics and on Hayek’s economics. He and I are also coauthors of The Economics of Time and Ignorance (Routledge, 1996).  

 

by Jerry O’Driscoll

 

Ludwig Lachmann frequently remarked that people learn from experience, but asked “what do they learn?”  The recent financial crisis illustrates his point.  For many, it has been labeled a failure of free-market capitalism. In reality, it was a systemic failure of regulation.  Indeed, I would argue the very idea of government regulation of industry has been tested and failed.

 

With the exception of health care, financial services is the most highly regulated industry in America (and, generally speaking, in all developed countries).  No segment of the industry escaped regulation.  For commercial banks, there were multiple layers of regulation: the Fed; the Office of the Comptroller of the Currency (part of Treasury); the FDIC; and the SEC.  For state chartered banks, a state banking regulator substituted for the OCC.

New York may be among the least lonely places on earth

by Sandy Ikeda

Or so reports an article in the December 1st, 2008 New York Magazine (with the headline, “The Loneliness Myth”) called “Alone together” that my wife, Jenny (aka JW in previous hat-tips), just showed me.  In Manhattan, half of all apartments have only one occupant, 57% of whom are female.  In Brooklyn (29.5%) and Queens (26.1%) the percentages are considerably lower.

Yet the picture of cities—and New York in particular—that has been emerging from the work of social scientists is that the people living in them are actually less lonely. Rather than driving people apart, large population centers pull them together, and as a rule tend to possess greater community virtues than smaller ones. This, even though cities are consistently, overwhelmingly, places where people are more likely to live on their own.

Time for Reflection: Cicero, Liberality and Katrina

by Mario Rizzo

 

Some time ago I came across this quotation from Marcus Tullius Cicero (106 – 43 BC), the Roman orator, senator, philosopher and opponent of the dictatorship of Julius Caesar. I have a picture of stone bust of him both in my office and my home. (Yes, I like him.)  

There are, though, many especially those greedy for renown and glory, who steal from one group the very money they lavish upon another.