Lord Keynes: A Hayekian Appreciation

by Mario Rizzo

 

No, I haven’t gone crazy. John Maynard Keynes’s economics is not Austrian economics. He and Friedrich Hayek had serious disagreements over economic theory and policy.  I believe that Hayek was largely right in these disagreements. Nevertheless, Keynes was personally kind to Hayek. He found him a place to stay in Cambridge during the Nazi bombing of London. He also had some good things to say about Hayek’s controversial and, at the time, underappreciated book, The Road to Serfdom.

 

But, of course, this is not all. They shared a deep appreciation of the humanistic (for lack of a better word) aspect of economics. In effect, they looked at it as a “philosophical science” – a term that today might be considered a contradiction in terms.

NYU’s Economics Department Ranked Seventh in the World

by Mario Rizzo   

 

Since we live in a ranking- and list-fetish world, I present the latest ranking of Economics Departments. (HT to Greg Mankiw. Harvard is first.) No one should react mechanically to these. Look beneath the surface and pursue your interests.

 

Musings on prose and poetry, music and economic modeling

by Sandy Ikeda

I seem to remember a good example of the difference between real time and merely dimensional (“Newtonian”) time, probably in O’Driscoll and Rizzo’s The Economics of Time and Ignorance.
Perhaps someone can find the correct reference.  In any case, they observed that you can’t listen to music that is condensed in time.  You can’t speed listen to Bartok’s “Concerto for Orchestra” at x10 without losing the music.

Their point was that just as time as duration is indispensible in the appreciation of music, one cannot abstract from real time, and all of its complications, when theorizing about economics without losing something essential.  It’s been a long time since I came across that example, wherever it was, but it has always stuck in my mind.

Now, when I studied music I could glance at a sheet of music and get a sense of what it “sounds” like.  As I read it closer to real time, however, the time in which it was meant to be played, the more the music was able to emerge from the page.  Something essential was lost then the more I abstracted from real time.

No Charges, but Police Keep the Cash

by Roger Koppl

That’s the headline in the Journal Gazette of Fort Wayne:  No charges, but police keep the cash.  (HT Michelle Thomas.) Yep, property seizures do not require that the persons from whom the property was seized be actually, you know, like guilty of a crime or anything. The police found $26,000 cash in a traffic stop. No charges beyond the speeding ticket, but they kept the cash. The Journal Gazette reports, “Having that much cash is not a crime, but police have the right to seize it if they suspect it has been used or procured through criminal means. Most of the money seized comes from drug cases and can then be used by various law enforcement agencies.” The head of the vice unit of the local Sheriff’s office explains matter-of-factly, “If it’s way, way over and above what a normal person will carry, and if things don’t add up (on how it was acquired), we take the money.” Explain yourself! And if we don’t like your explanation, we get to keep the money.

The Fed Against Equilibration

by Mario Rizzo

 

Reality is more complex than our models. Free-market forces are asserting themselves but the Fed is also intervening and trying to affect those forces. Real-world data is the result of both factors.

 

The Commerce Department  has issued some new data showing that house sales are rebounding (but still off their year-ago levels) and that house prices are falling. This is to be expected as supply and demand begin to equilibrate.

Reflating the Housing Bubble?

by Mario Rizzo

 

In an effort to prevent deflation, the Fed has now decided to do more quantitative easing, that is, to buy with newly created high-powered money various assets aside from short-term Treasury securities. Over the next six months it will buy up to $300 billion in long-term Treasury bonds.

 

It will also purchase additional mortgage-backed securities (MBS) in the amount of $750 billion as well as up to $100 billion in additional securities of Fannie and Freddie (to a total of $200 billion). These are the parts of the new policy that concern me most. They are bad ideas.

The Quality of Price Signals

by Mario Rizzo

In an under-appreciated book, The Foundations of Morality (1964), the Wall Street Journal and New York Times economic journalist, Henry Hazlitt, wrote that the price system does not send accurate signals in the absence of private property rights.

“It is important to insist that private property and free markets are not separable institutions… If I am a government commissar selling something I don’t really own, and you are another commissar buying it with money that really isn’t yours, then neither of us really cares what the price is” (p. 304).

The so-called Geithner (U.S. Treasury) plan to purchase toxic assets from banks disregards the relationship between an adequately functioning price system and property rights.

Infrastructure: Here’s what Robert Moses would do today

by Sandy Ikeda

(Map by “vanshnookenraggen.”)

With your indulgence, I’ll get to my main point, and this map, in a moment.

But first, as we all know, the House has just passed a special ex post tax on bonuses awarded to individuals working for companies that received bail-out money. (One egregious violation of the rule of law deserves another then?) Over at Marginal Revolution they’re blogging about one really bad consequence of this hasty piece of policy-making: It seems that any family earning more than $250K with a member connected to a bailed-out institution will be marginally taxed at 90%. If it passes, I’m sure this in turn will give rise to further interventions as Congress tries to deal with THAT snafu (assuming the Supreme Court doesn’t overturn it).

The AIG fiasco is just one, economically insignificant but politically sensitive, instance of the countless unintended consequences that we should expect in the coming months and years issuing from the various bailouts and stimuli.

Bang Bang Policy

by Roger Koppl

In the mathematics of “optimal control theory” you can sometimes get a system to slam violently between two extremes. You alternate between stepping on the gas as hard as you can and slamming the brakes on full.  Mathematicians call such violent swings a “bang bang solution.”  With today’s bill to tax the AIG bonuses at 90%, Congress is making bang bang policy.  Bang!  Take this money.  Bang!  Give it back. 

What China Legitimately Fears

 

by Mario Rizzo

 

The U.S. Treasury, the State Department, and Larry Summers are all keen to convince the Chinese government that all they have to fear is fear itself when it comes to their investments in Treasury securities. After all, the U.S. will honor its obligations.

 

Frankly, I am amazed at the U.S. response. Yes, I realize that there is little else they could say. The default risk of holding U.S. securities is indeed quite low. But you don’t have to be very smart to realize that this is not the relevant risk.