A blog of the NYU Colloquium on Market Institutions and Economic Processes
by Jerry O’Driscoll
In today’s Wall Street Journal, there is an article titled “Returning Workers Face Steep Pay Cuts.” The article cites research by Kenneth Couch of the University of Connecticut that returning workers are taking on average a 40% pay cut from their old jobs. This is first and foremost a personal tragedy for those affected. The question we must ask as economists is why? Read the rest of this entry »
by Mario Rizzo
I have taken a quick look at some of the provisions of the recently-passed House healthcare bill. What I want to do here is determine how it will affect me and others in a similar situation. I do not think my own situation is exceptional. I urge others to determine how it will affect them. Read the rest of this entry »
by Mario Rizzo
Our first post was on November 11, 2008. We are one year old and going strong.
My motivation in founding ThinkMarkets was to address the issues regarding the financial crisis and subsequent recession. We have had many posts on many topics since that day.
Thanks go to all of our contributors as well as to those who have made comments on the posts. We are on our way to saving the world.
by Mario Rizzo
I am deeply impressed by Henry Kaufman’s opinion piece in today’s Wall Street Journal. I think he makes a very good case for breaking up financial institutions deemed too-big-to-fail as opposed to the regulatory alternatives being contemplated. As much as it pains me to think about the government regulating the size of any firm, this may be an option that is far, far better than the politically feasible alternatives. You can imagine the horrors that are out there being proposed.
Many of my readers will disagree but I am very willing to be persuaded otherwise.
by Gene Callahan
I happened to be reading R. G. Collingwood’s famous essay (at least famous in my circles!) with the above title. While similar in some ways to Mises’s philosophical analysis of the concept of action, there are some quite significant differences present as well, and I thought that Think Markets readers might enjoy a brief discussion of one of them.
Perhaps the most notable difference between Mises and Collingwood is that the latter denies the possibility of interpersonal exchange! Read the rest of this entry »
by Chidem Kurdas
As Fannie Mae goes for its next withdrawal from the $200 billion kitty the US Treasury graciously made available to this government-created and -sustained mortgage financer, it may be useful to look beyond the current housing slump and consider what it augers for the future.
Having made yet another loss, the government-sponsored enterprise needs more money. A report Fannie filed with the Securities and Exchange Commission attributes the $19 billion third-quarter loss to the housing slump and mortgage defaults. “We do not expect to operate profitably in the foreseeable future,” says the company.
I always thought it was a great triumph of government public relations to come up with the sweet-sounding Fannie Mae moniker for an entity officially called the Federal National Mortgage Association. Now I understand what the nickname really means—a pain in the taxpayers’ backside for the foreseeable future.
The business has been adversely affected by helping delinquent or imminently-in-default borrowers to modify their mortgages so as to reduce their monthly payments. As the economy recovers, defaults will decline, and presumably this aid will no longer be needed. But it is not clear when – or even if – the subsidy program will end.
In fact, it may be extended. Fannie “may recommend supplementing the program with other initiatives that would allow us, pursuant to our mission, to assist more homeowners.” Read the rest of this entry »
by Glen Whitman
New paternalists often rely on the phenomenon of “hyperbolic discounting” to justify their policies. Hyperbolic discounting is difficult to define in a non-mathematical way. It is sometimes summarized as excessive impatience, but that’s an over-simplification. A person with a high-but-consistent rate of time discounting would not be a hyperbolic discounter. What hyperbolic discounting really means is having inconsistent rates of time-discounting. One consequence is that a hyperbolic discounter may exhibit “time inconsistency,” a tendency to make choices and then reverse them. After explaining hyperbolic discounting (in more technical terms that I have here), Mario and I explain how paternalists have made unjustified leaps in their use of the concept (pp. 699-700):
In short, hyperbolic discounting means that people at first make long-term plans for saving or dieting but then, when the time comes to implement these plans, they succumb to the desire for short-term gratification. For the new paternalists, this type of behavior suggests an opening for paternalist intervention or correction. Examples include the previously mentioned proposal to automatically enroll people in savings plans, and to impose a sin tax (on unhealthy foods, cigarettes, and so forth) to provide additional incentive for impatient people to resist their temptations. Read the rest of this entry »
by Andreas Hoffmann and Gunther Schnabl*
With central bank balance sheets and government debt levels exploding, discomfort about future inflation arises. A discussion about the appropriate exit strategy from low-interest rate policies has started. The standpoints of central banks are different. The ECB seems more decisively in favour of an early exit. The Federal Reserve discusses the technical aspects rather than an early timing (see Mario’s earlier blog entry). The Bank of Japan is said not to exit earlier than in five years. What situation are we facing? A return to monetary policies that are neutral to inflation and bubbles is unlikely for four reasons: Read the rest of this entry »
by Glen Whitman
A key conclusion of the literature on slippery slopes is that they are especially likely in the presence of gradients — meaning situations in which there is a relatively smooth continuum from one policy to another, and in which it is difficult to draw sharp distinctions. Gradients don’t guarantee slippery slope events, but they increase their probability in the presence of other slope processes.
In “Little Brother,” Mario and I review the literature on gradients and slippery slopes, and then we consider how the new paternalists deliberately frame policy choice in terms of gradients (pp. 693-694):
The new paternalist paradigm, as presented by its leading advocates, relies on discarding sharp distinctions in favor of gradients. Specifically, they reject standard distinctions between choice and coercion and between public and private action. Cass Sunstein and Richard Thaler minimize the importance of the distinction between paternalism in the private and in the public sectors. In explaining their concept of “libertarian paternalism,” they say that the distinction between libertarian and non-libertarian paternalism “is not simple and rigid.” Moreover, they explicitly state that libertarian and non-libertarian paternalism lie on a continuum: “The libertarian paternalist insists on preserving choice, whereas the non-libertarian paternalist is willing to foreclose choice. But in all cases, a real question is the cost of exercising choice, and here there is a continuum rather than a sharp dichotomy . . . .”
Sunstein and Thaler thus present us with a gradient on which choice is characterized by low costs of escaping the prescribed course of action, while coercion corresponds to higher costs of escape. Who imposes the costs of escape and how these costs are imposed are regarded as unimportant questions. Read the rest of this entry »
by Jerry O’Driscoll
In today’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.” Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.”
Spitznagel deals with The Theory of Money and Credit and does a good job presenting its principal arguments. What I found most interesting, however, is the author’s argument that the book is a warning today. Read the rest of this entry »
