Two Takes on Political Donations

by Chidem Kurdas

The Wall Street Journal reports that the biggest campaign spender of 2010 is a public sector union, the American Federation of State, County and Municipal Employees, which lavished $87.5 million on helping Democrats. This single union outspent the US Chamber of Commerce, which came second with $75 million.

Reading the WSJ article by Brody Mullins and John D. McKinnon, I thought that AFSCME is giving taxpayer money to politicians who will help it further pick my pocket.  Whereas had I confined myself to reading the New York Times’ front-page piece on the same topic, I would have had no such concern, because there is no mention of AFSCME.  The NYT campaign finance story focuses entirely on the US Chamber of Commerce and says not a word about the public union.

Macroeconomics from a Pre-Keynesian Perspective

by Mario Rizzo  

The principal component-idea of macroeconomics – aggregate demand and aggregate supply – trades on the analogy with the Marshallian individual market demand and supply analysis. For many students this makes the idea of macro-aggregation seem quite uncontroversial, almost “natural.”  

My “complaint” will not be about aggregation in general. We are always aggregating and disaggregating when the occasion warrants it. My problem is with a particular form of aggregation. Is it useful? Has it led us to an analysis of the right questions? Does it obscure important interrelations?  

Equality Destroyed in the Name of Equality

by Chidem Kurdas

Law and government should treat people equally. This old principle may seem obvious and firmly in place, but in fact it’s much violated. Instead, the focus is on income distribution. Thus Robert H Frank in the NYT points to the bad effects of income inequality – like people spending too much money to emulate the rich – and suggests we “try to do something about it.”

His column about the costs of income differences shows no awareness of the costs of equity-promoting policies.

Attempts to create income equality erode equality  before the law, as F. A. Hayek made clear. The Road to Serfdom – the historic experience as well as the title of Hayek’s book – is paved with egalitarian good intentions.  If you feel “serfdom” is too extreme a word, the operative term here is “the road”.

Up, Up and Away (Again)

by Bill Butos

Federal Reserve Chairman Ben Bernanke is pushing for another significant round of “quantitative easing” – now dubbed “QE2” by Fed observers – on the grounds that the economy’s response to simulative macro policies since 2008 has been anemic.  What the economy needs, this thinking goes, is some inflation.  While much of the public sees the run-up of  growth in government and exploding deficits as keys concerns, Bernanke,  continuing his soft stance on deficits, has argued that fiscal restraint would threaten the recovery.   Instead, he argues that monetary policy still has arrows in its quiver that should be used to lower the unemployment rate and rejuvenate the economy while also preempting the dreaded prospect of deflation . 

When Good Historians Go Bad

by Gene Callahan

I had posted about something that Thomas Sowell wrote on the history of economic thought over at my other blog, and received a comment to the effect that, “You can’t trust Sowell on history: he thinks that England conquered Scotland!” (Rather than the two nations having joined together in a union.)

This comment both illustrates an important misconception as well as highlights an important distinction. The misconception is that someone is a good historian if they know lots of “facts” about history, and rarely get anything wrong.

Brad DeLong Should Read More

by Mario Rizzo  

In March of this year Brad DeLong wrote a post called “More from the History of Economic Thought: John Stuart Mill Contra Say’s Law, 1844”  

It contained a long quotation from John Stuart Mill from his essay “Of the Influence of Consumption on Production,” in Some Unsettled Questions of Political Economy (1844, but written in 1829/30). The quotation purports to show that even John Stuart Mill did not believe “Say’s Law.” However, DeLong leaves out the three final paragraphs of the article. (I append them at the conclusion of this post. The italics are mine.)  

These paragraphs make clear that to say “there cannot be excessive production of commodities in general” is not to say that depressions are impossible. Mill makes clear that this is a wrong interpretation of Say’s Law: “[I]t in no way contradicts those obvious facts.” Furthermore, Mill says that the deniers of general overproduction have never claimed otherwise.  

The only meaning of a general “excess” of commodities that makes sense is a fall of their value relative to money.  In other words, people might want to hold more money as a proportion of their income. Say’s Law does not exclude this.  

What is does exclude is the possibility that production of wealth might not create the potential to demand it. In other words, we need not worry about deficient demand when commodities are produced in the proportions desired by consumers.  

Two Visions Fuel Political Attacks

by Chidem Kurdas

Apparently left-liberal pundits are convinced that people oppose government expansion either out of stupidity or cupidity—not, say, out of a sincere belief in freedom. The oft-repeated story is that ignorant and misguided masses are being led by greedy business interests. Paul Krugman’s recent column is one of  many examples in the genre where billionaires intent on ravaging the country provide the bucks while clueless Tea Partiers provide grass roots brawn.

The best insight regarding this type of criticism comes from Thomas Sowell, whose analysis of two distinct visions of human nature puts current attacks into long-term perspective. Jerry O’Driscoll referred to this work in his comment on anti-intellectualism, a charge often levied by the same left-liberal critics.

In A Conflict of Visions: Ideological Origins of Political Struggles (published 1987, new edition 2007), Professor Sowell contrasted two fundamental views that go back several centuries.

Limited Purpose Banking?

by Jerry O’Driscoll  

The following is a book review from the Cato Journal, Vol. 30, No. 3 (Fall 2010).  

Jimmy Stewart Is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking Laurence J. Kotlikoff      (Hoboken, N.J.: John Wiley & Sons, 2010, 241 pp.)  

Chapter 1 of the book is titled “It’s a Horrible Mess,” and in it Laurence Kotlikoff, a professor of economics at Boston University, reminds the reader of the breadth, depth, and horror of the global financial crisis. It is a cure for the dispassionate observer of events, an indictment that would send all but those with ice water in their veins to sign up for the Tea Party Express. The book is a particularly well-written account of the crisis that begins in housing finance, spreads throughout the financial system, and then throughout the real economy. The crisis hit in tsunami-like waves beginning in 2007 and continued into 2009.  

In Kotlikoff’s words, “We thought we had well-functioning banking and insurance companies with competent directors, world-class managers, responsible regulators, and incorruptible rating companies. But overnight, we it learned it was a sham.”  

Changes in Teaching Economics?

by Mario Rizzo  

The Economist asked how the teaching of economics might change in the wake of the financial crisis and the recession.  

Predictably, some economists said they would teach more about the (shadow) banking system and economic history. That is good. But most will simply tweak their courses. 

The vast majority of economists know what they have been taught. The active researchers also know the models or frameworks that have governed their research. Most are not about to shake up the world of ideas that has been good to them.