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links for 2009-12-16

Five Economics Paragraphs Worth Reading: December 15, 2009

  1. Antonio Fatas: Using a hammer or a wrench to pop asset price bubbles?: I am very sympathetic to this argument: [the] interest rate is probably not the right tool to deal with asset price bubbles and using regulation or a 'macroprudential instrument' is the right thing to do. However, we still need to ask the question: What if those instruments are not available or are simply failing to do their job? Is there a role for monetary policy? He cites the example of Spain as a country where the central bank was stressing the importance of dynamic provisioning for banks and still went through a real estate bubble. It might be that the Bank of Spain was not aggressive enough, but how do we know that the systems that we are setting in place now will take care of the next bubble or financial imbalance? One can argue that interest rates should not be used to deal with an imbalance in financial markets, because this is not part of their mandate, but I think this is a very narrow view of the role of central banks. There is no doubt that imbalances in financial markets spread to the real economy. In fact, there were many signs of a macroeconomic imbalance prior to the crisis such as excessive consumption, current account imbalances. Aren't interest rates the tool to deal with macroeconomic imbalances? If we apply Adam Posen's logic to some of the previous recessions, we could come up with the conclusion that central banks should never use the interest rate as a stabilizing tool. We could always claim that previous recessions originated in a specific sector of the economy and it would be better to deal with these developments using 'sector-specific' tools...

  2. Matthew Yglesias: Insurance Coverage Status Affects Mortality Rate in Pediatric Trauma Patients: Nothing to see here, I’m sure: "A study led by Heather Rosen, MD, MPH, research fellow in the Department of Plastic Surgery at Children’s Hospital Boston and Harvard Medical School, found that uninsured children were over three times more likely to die from their trauma-related injuries than children who were commercially insured, after adjustment for other factors such as age, gender, race, injury severity and injury type in an analysis of data from the National Trauma Data Bank. Moreover, publicly-insured children were 1.19 times more likely to die from trauma when compared with commercially-insured children." Some people in earlier posts on this topic claim to find a contradiction between my belief that many Americans overtreated and my belief that the uninsured minority of Americans are undertreated. The consistency seems pretty clear to me. In fact, the reality that both of these things are true is one reason why taxing cadillac insurance plans is a good way to pay for expanded coverage...

  3. Daniel Davies -- FOR bigger pies and shorter hours and AGAINST more or less everything else: Grasping reality with one hand and my wallet with the other...: After the "first hundred days" in the term of a new Democratic President comes the next stage; the almost impreceptible transition among his supporters from saying "of course, he's been hampered by all sorts of obstacles to date, but he's about to start delivering on all those promises he made to his supporters on the left" to saying "well, he never really promised anything and it's terribly naive to think he was ever going to deliver anything to his supporters on the left" Apparently we've reached it. It's rather like, although not quite the same phenomenon as, that by which literally millions of people who all evidence suggests were highly likely to have been U2 fans in the past, have reconstructed a version of history in which they always hated U2 (I am entirely guilty of this last one myself).

  4. STUPIDEST THING I HAVE READ TODAY: Megan McArdle on Non-Recourse Loans: [I]t sure sounds like they just decided that once the price of their property fell, they shouldn't have to pay back the money they'd borrowed. There is a sizable school of thought that says why shouldn't they?  They made a contract with the bank under known rules, and as long as they're willing to pay the penalties, why shouldn't they just walk away, the way a corporation would?  Well, for one thing, companies don't always behave like this, and those who get a reputation for stiffing their suppliers run into trouble.  But for another, because society doesn't really work on such clean logic.  The reason we can have easy bankruptcy and a pretty robust credit market (usually) is that most people act like debts are obligations which should always be paid off if possible.  I'm not saying you should live on Kraft dinner and water for twenty years to slave at an impossible mountain of debt.  But I think before you walk away from three different mortgages, you should explore life options that do not include $1,800 worth of new furniture...

  5. FROM THE ARCHIVES (NOT MINE, HOWEVER): Henry Farrell: DeLong, Scott and Hayek=: Brad DeLong has a review of James Scott’s Seeing Like a State which I found pretty useful in clarifying some of my disagreements with him (Brad, not Scott). What he sees as a fundamental problem in Scott (that Scott is a Hayekian in denial, and that his denial of his intellectual heritage leads him erroneously to claim that markets are harmful to human freedom) I see as pointing to an important, but underplayed set of themes in Scott’s argument. Which is to say that I would have liked Scott to develop the reasons why he disagrees with Hayek more explicitly, but I think that they are clearly present in the book, and are in some respects at least, compelling.... I... think that doing what Brad wants him to do would have led him to write a very different book. Seeing Like a State is in large part an intervention in an internal argument within the left, arguing against the grand planners and for the Jane Jacobs types and the anarchists. Introducing a proper critique of Hayek, Mises and the rest would have greatly lessened its impact within that debate, by allowing the targets of Scott’s critique to focus on the mean things Scott would have probably said about pro-market types who they dislike, while ignoring the flights of arrows intended to pierce their own hides...

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