What About The Fed?

by Jerry O’Driscoll

I have been active in criticizing recent Fed policy, but avoided the controversy over Fed governance (“Audit the Fed”).  I worked for the Dallas Fed for 12 years and believed then, and continue to believe, that there is a legitimate private banking function that the Fed performs.  It was born as a bankers’ bank, a successor to the private clearinghouses.  As explained by Richard Timberlake, legal ambiguity surrounded some of the activities of the private clearinghouses (e.g., provision of reserves in times of distress). The Fed was the compromise.

Goldman Critics vs. Little Goldmans

by Chidem Kurdas

Goldman Sachs has become exhibit number one in attacks on Wall Street and capitalist greed. Last week’s announcement that the bank had strong third-quarter earnings and is on track to pay big bonuses added to the media feeding frenzy.

Let’s look at the logic – to the extent there is logic – in the mass fury.  The assault on Goldman contains at least three, related but distinct, complaints.

• The bank’s profits are not just obscene but the result of reckless bets. “Goldman is back to business as usual: making money by high-risk gambling,” writes Frank Rich in the NYT, to pick one out of a herd of writers sounding the same theme.

Elinor Ostrom and the Relevance of Economics

by Mario Rizzo  

The work of Elinor Ostrom, the first woman to receive the Nobel Prize in economics, is not very well-known among economists. In fact, I would venture the guess than most economists had not heard of her before the prize was announced yesterday morning.  

Two reasons for this are that her degree is in political science and she has written for publications outside of the mainstream economics journals. Additionally, her work, by and large, lacks the high degree of mathematical formalism now so characteristic of economics.  

Yet the Nobel Prize Committee has done a great service to economics and the greater social-scientific community.

Thomas Friedman Is Wrong

by Roger Koppl

Thomas Friedman defends “one-party autocracy” as represented by China. Presumably, his defense is a sardonic. He is trying to smack down the Republican Party in the US for “standing, arms folded and saying ‘no.’” Sardonic tone notwithstanding, he says something revealing. “It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.”

Howard Dean Endorses War Communism

by Gene Callahan

I heard Howard Dean on the radio yesterday morning (CBS AM, for those who care to look for a transcript — I tried but could not locate one) talking about why health co-ops won’t work. “You see,” he said (and I quote from memory — see no transcript note above), “our private health care system is inefficient — not because private enterprise is inherently inefficient, but because the insurance companies are owned by investors, so they need to take some of the premiums and pay out a return on investment. Private insurance only pays about 80 cents on the dollar to actual medical care, while Medicare pays about 97.”

Dean is apparently not aware that most “private enterprises” are owned by investors. The argument he gave is, in fact, a straight up Marxist argument for the inefficiency of capitalism. (Yes, “socialism” and “communism” get tossed around too freely in this debate, but in this case I’m merely being factual.)

So why isn’t Dean in favor of nationalizing the entire economy? Couldn’t we get bread, and computers, and automobiles more efficiently if we just cut out those useless profits? (Oh, forget that last item — I forgot that we are nationalizing the auto industry.)

Neither Charity Nor Truth, Part 3: The Attack on Classical Liberalism

by Mario Rizzo  

In this final installment of my analysis of the papal encyclical letter Caritas in Veritate I turn my attention to Benedict XVI’s positive ideas on globalization.  (I put the encyclical section numbers in parentheses.)  

Do not expect clear-cut statements or precise recommendations for policy. Do not even expect consistency. (There are actually some good parts as in Sections 57 and 58.)  

The encyclical bears the mark of a committee’s work, presumably approved by the pope. There are individual sections that stress different, and contrary, attitudes so it is difficult to come away with a clear picture. Anyone looking for real guidance will have to seek it elsewhere.  

Nevertheless, a certain grand vision is revealed about society. The pope seems to be an enemy of the idea of beneficial spontaneous ordering forces.

We Are All Fascists Now

by Roger Koppl  

We are all fascists now.  That is true in an empty sort of way I suppose.  Unfortunately, it is also true in a more historically accurate way.  When I was in college “fascist” meant, “You are to the right of me and therefore bad.”  Today, “fascists” in that old fashioned sense have turned the tables on the left.  Now, “fascist” may also mean, “Your are to the left of me and therefore bad.”  That pretty much covers the ground.  By linguistic fiat all Americans are now “fascists.”  Nothing could be less important.  What matters is the other sense in which we have become, all of us, perfect fascists.

Frank and Stein

by Thomas McQuade  

In a recent opinion piece in The New York Times (“The Invisible Hand, Trumped by Darwin?”), Robert H. Frank proposes that Charles Darwin, not Adam Smith, should be seen as the real intellectual founder of the discipline of economics.  He claims that Smith’s most famous idea – that the competitive pursuit of individual self-interest can redound to social good – is but a special case of Darwin’s more general picture of competition in which individual benefit sometimes does, but often does not, benefit the larger group.  The sort of competition for which the invisible hand does not work well is, he says, where the competition is for relative gain, i.e., when the rewards depend on relative performance, and people gain by bettering each other rather than by bettering nature.  

The problem with Frank’s argument is his careless deployment of the analogy between human beings interacting in a highly structured social environment and animals in general interacting in an environment of considerably less social complexity.