A blog of the NYU Colloquium on Market Institutions and Economic Processes
by Mario Rizzo
By now most of you know of the latest Mayor Bloomberg stupidity, that is, the proposed banning of sugary sodas in cups too big for his taste.
But you may not know of the latest in New York State housing law. If the loft you live in has not been brought up to various housing codes, you can live there free. Read the rest of this entry »
by Chidem Kurdas
We’ve been going back and forth on the economics of too-big-to-fail banks but paying less attention to the politics. The most recent ThinkMarkets broadside on banks is Jerry O’Driscoll’s post on the Federal Reserve Bank of Dallas annual report.
In part of the report, the Dallas Fed’s director of research Harvey Rosenblum argues that the new Dodd-Frank regulations are insufficient to deal with the threat posed by too-big-to-fail banks and therefore these need to be broken into smaller entities. He and the bank’s president, Richard Fisher, made a similar point in a Wall Street Journal column. Some other Fed officials have espoused the position as well. Read the rest of this entry »
by Mario Rizzo
I wish people would perform the following intellectual experiment. Find out how much in federal taxes you have paid in the past year. Don’t worry about making any distinctions between the various payroll taxes and the income tax. It all goes into the same pot in the final analysis.
Now assume that this amount is in an account and that you are not allowed to spend any of it on yourself or your immediate family. Nevertheless, you are given a choice about how to spend it. What would you spend it on? Now compare that with what the federal government spends on. How do they match up? Read the rest of this entry »
by Chidem Kurdas
A Wall Street Journal article reports that the number of federal statutes giving the government the right to confiscate citizens’ assets has nearly doubled since the 1990s, by one count. This is not something that happens only to convicted gangsters. Among the more than 400 federal statutes allowing for forfeiture is the Northern Pacific Halibut Act.
Violators of the Halibut Act, which prohibits fishing in certain areas in order to conserve stocks, can lose their boat and – this could get smelly – their fish as well.
“Last year, forfeiture programs confiscated homes, cars, boats and cash in more than 15,000 cases. The total take topped $2.5 billion, more than doubling in five years, Justice Department statistics show,” wrote John Emshwiller and Gary Fields in the WSJ. They don’t mention illicit halibut; Read the rest of this entry »
by Jerry O’Driscoll
The New York Times reports that GMAC (now a subsidiary of Ally Financial) has admitted that it filed “dubious” financial documents.
The problem goes beyond GMAC. A Florida circuit judge is quoted as saying some of the documents filed by lenders are “incompetent,” some “just sloppy,” and he suggests “there could be a fraudulent element.”
In boom times, lenders cut many corners including loan documentation. In the 1980s Texas banking crisis, regulators taking over failed banks often found it challenging to find loan documents. Even if found, they could be defective.
Securitization has greatly complicated the problem. Mortgages are sliced and diced into separate tranches of securities. It can difficult to prove ownership of the mortgage. If the originator was sloppy in preparing the underlying loan documents, it can be an impossible task. Read the rest of this entry »
by Chidem Kurdas
China is expected to produce more than Japan this year, thereby becoming the world’s second largest economy after the US. Chinese annual output is only $5 trillion compared to American $15 trillion and per person income is only a fraction of the US, but it is clear that China is catching up.
We’re witnesses to a gigantic experiment in political economy. Here is an authoritarian government that apparently recognizes the superiority of free markets, private property and individual enterprise in organizing an economy. It has lifted the shackles off industry and commerce, to an extent, so as to benefit from these powerful forces. Thus China is growing at phenomenal rates.
But freedom of expression and political dissent remains suppressed even as economic freedom expands. In the ever-resonant words of Milton Friedman, “Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised.” Read the rest of this entry »
by Thomas McQuade and Chidem Kurdas
Though it should be obvious to all that markets are of immense benefit to humanity, any appreciation of these institutions is almost always hedged with a perceived need to constrain and regulate—in short, to subject them to conscious outside control. The reasoning is understandable: the unconstrained pursuit of self-interest can only lead to chaos.
But the preference for constraint through centralized direction betrays a profound misunderstanding of the way markets work.
Can we explain that claim any better than the volumes already written on the topic? We find that, when we discuss the issue, we agree on the basics, but differ in emphasis and details—and details matter. Here is part of our discussion, in point/counter-point format. Read the rest of this entry »
by Mario Rizzo
As a political and legal culture, we do not know how to deal with slippery-slope tendencies. The recent discussion (here and here, and many other places) of the public-accommodations provision of the Civil Rights Act of 1964 has made me more conscious of this issue.
I am willing to agree for purposes of this post that the law forbidding private storeowners, hotels, and other merchants to discriminate on the basis of race was morally justified under the institutional conditions of the day.
The problem, from my perspective, is that the cost of making exceptions to general principles is not sufficiently appreciated. Benefits may exceed costs in a particular case, but if these costs are not fully recognized, the course of action taken may lead to bad decisions down the road. Read the rest of this entry »
by Mario Rizzo
After having written about “Germany’s Foolish Idea,” I see that the French are not immune either.
First, I apologize to the many French (and Germans) who do not share their governments’ ideas or agree with their policies. It has, unfortunately, become a habit in journalism and even in the professional writing of historians to refer to actions by states as if “France or Germany did this or that.” More correctly, we should say the “French or German government did this or said that.”
This is not just a semantic issue. It goes to the root of a major ideological problem: the confusion between society and the state.
The Financial Times reports that many French politicians are upset about a private restaurant chain, “Quick,” deciding to serve exclusively halal beef-burgers in a few of its stores to attract Muslim customers. (Halal refers to food that is “lawful” according to Islamic law. There are restrictions on the kind of food, the method of slaughtering the animals, and the processes of food preparation.) Read the rest of this entry »
by Jerry O’Driscoll
Over at the Austrian Economists, Steve Horowitz has posted a challenging statement and asked for reactions: “The great virtue of the free market is that it requires so little virtue to work effectively.” The thrust of the responses is that defenders of free markets have had little to say about virtue (at least since Adam Smith).
In a brilliant paper for APEE a few years ago, Liberty Fund’s Doug den Uyl asked whether we need ethics if we have free markets. That is a broader question, but on point. Do markets discipline transactors to act virtuously and ethically? Many would be tempted to answer affirmatively, but that would be facile. (Doug is not facile.) Read the rest of this entry »
