Reflating the Bubble?

by Mario Rizzo   The Fed has decided to extend, at least through early next year, its program of purchasing mortgage-backed securities. The Wall Street Journal reports:   “The Fed's action signals its belief that the economy, while in recovery, remains fragile and that housing, which has seen some improvement in recent months, has only started to … Continue reading Reflating the Bubble?

Auction Markets and Optimally Sticky Prices

by Joseph T. Salerno Keynesian macroeconomists, old and new, have long criticized their classical and contemporary opponents for ignoring reality and treating the market economy as a giant auction in which prices are “perfectly flexible,” responding instantly to changes in supply and demand.  This charge is wrong on two counts.  First, all markets for outputs … Continue reading Auction Markets and Optimally Sticky Prices

Prices and Information

by Jerry O'Driscoll   In the recent discussion of Say's Law, the issue of "sticky" prices came up. The term is the source of much confusion. The opposite of "sticky" prices is not "flexible" prices, but infinitely flexible prices. No matter how flexible a price, short of infinite flexibility, there will be quantity responses. Quantity responses are … Continue reading Prices and Information

“Prices Must Be Free To Tell The Truth”

by Mario Rizzo I am not sure who first said this but I believe it was the economist Benjamin Anderson (although Arthur Marget has been credited). In any event, Henry Hazlitt promoted the statement. I think the very interesting opinion piece by our regular guest-blogger, Jerry O'Driscoll, in today's Wall Street Journal is in the … Continue reading “Prices Must Be Free To Tell The Truth”

Recovery and the Irreversibility of Time

by Mario Rizzo   An increasing number of articles in the popular press are claiming that signs of economic recovery are becoming more numerous. That may be. However, I am not an economic prognosticator and so I don’t know what to make of that.   There is a more basic question. What do people mean by “recovery”? … Continue reading Recovery and the Irreversibility of Time

Rising in Phoenix: Entrepreneurial responses to housing and health-care problems

by Sandy Ikeda The New York Times, in "Amid Housing Bust, Phoenix Begins a New Frenzy", reports that "Real estate got just about everyone into trouble in Phoenix, and the thinking seems to be that real estate is going to get everyone out." If the property looks promising, Mr. Jarvis puts in a bid on … Continue reading Rising in Phoenix: Entrepreneurial responses to housing and health-care problems

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 … Continue reading The Fed Against Equilibration

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 … Continue reading Reflating the Housing Bubble?

An ally on the left? And bleg results

by Sandy Ikeda This passage is from a piece in, of all places, Scientific American, from, of all people, Jeffrey Sachs: During the decade from 1995 to 2005, then-Federal Reserve chairman Alan Greenspan over-reacted to several shocks to the economy. When financial turbulence hit in 1997 and 1998—the Asian crisis, the Russian ruble collapse and … Continue reading An ally on the left? And bleg results

Taylor Rule and Fed Witches’ Brew

By Chidem Kurdas Bubble, bubble, toil and trouble—that’s an apt metaphor for the Federal Reserve policies meticulously dissected by Stanford professor John Taylor, in the Wall Street Journal and other places.  He shows that the Fed set the financial crisis in motion and then made it worse. Relative to the pattern that held since 1987 … Continue reading Taylor Rule and Fed Witches’ Brew

Why Obama’s Stimulus Won’t Work and What Might

by Mario Rizzo   The fiscal stimulus package has passed. But the argument is not over. I gave a talk at the Club for Growth-Heritage Foundation conference, “Economic Recovery: Free Markets vs. Big Government” this past Tuesday just as the bill passed the Senate. I have linked the text of my remarks here. My four key … Continue reading Why Obama’s Stimulus Won’t Work and What Might

Illusion of Confidence and the Confidence of Illusion

by Mario Rizzo   One hears a lot about restoring confidence in the economy these days. What is that? The economy is a complex entity. In fact, Friedrich Hayek wanted to drop the use of the term and replace it with “catallaxy” that is, an abstract order of interpersonal exchanges. The word “economy” has its … Continue reading Illusion of Confidence and the Confidence of Illusion

The Macroeconomic Knowledge Problem

by Mario Rizzo   The Keynesian world view is leading to increasing stridency and dogmatism about economic stimulus. There used to be a joke that you can teach a parrot economics – all it needs to say is “supply and demand.” Now we can say that it is even easier to teach a parrot the … Continue reading The Macroeconomic Knowledge Problem