Where's the construction?

This will be brief since I am on vacation. We drove roughly 1000 miles, mostly on interstates to get to our vacation destination. Road construction delays were virtually nonexistent. Where is the stimulus?

Is the "Recovery" Obama's 9-11?

Democrats often accused George W. Bush, with some justification, of using September 11 as a reason for any bill he wanted passed by Congress. September 11 was his trump card. It appears President Obama has his own trump card--the recovery. Any bill he wants passed is crucial for economic recovery. In today's papers there are articles about his push for passing health care legislation. (See here for an example.)

The current health care system in the country had nothing to do with the financial crisis that led to the recession. The health care plan may or may not be good for the country, but it has nothing to do with ending the recession. We had growth with the current system and can have growth again with it. It would be nice if policies were argued on their merits rather than by using fallacious arguments.

Three Cheers for the G-8

G-8 leaders reached an accord on climate change. They agreed to cut emissions of heat-trapping gasses by 80% by 2050. They did not agree on any specific cuts for an earlier date. I plan on cutting my carbon footprint by 100% by 2050. That is, as long as the casket I am in then is sealed properly.

Is Homer the Village Idiot?

Richard Thaler has a column in today's New York Times business section on "Mortgages Made Simpler."Thaler is co-author of a book, Nudge: Improving Decisions About Health, Wealth and Happiness. Thaler is a behavioral economist. In the article, he describes a traditional economist as someone who characterizes the economic agent as "Homo economicus" or "Econs". These are people who are self-interested, rational, forward looking and make decisions that are best for them given the constraints they face. Behavioral economists believe people are more like Homer Simpson--they fail to save for retirement, have troubel balancing their checkbook, and so on. So we have "Homer economicus" or "Humans." Thaler goes on to argue that regulations are needed to protect humans who do not engage in the careful rational calculations presumed by mainstream economics.

Both in the column and in his book, Thaler's examples tend to be mundane and not likely to cause a huge stir among people. However, I worry about the path it takes us down--a path towards increasing paternalism on the part of the government. While at LSU, I taught the economics of regulaton regularly. We would cover Consumer Product Safety Commission among other regulatory agencies. We also would examine some tort cases where sufficient warnings had not been provided about proper and improper use of a product. At one time, the law presumed a "reasonable man" approach--something had to be safe enough for a reasonable person to see the dangers of using the product wrongly. Later, according to one critic, things had to be made so the "village idiot" wouldn't get hurt. Is Thaler talking about a modification toward presuming most humans are actually village idiots? Are not regulators also human, subject to defects as any other human? Further, are not regulators often people who see themselves as superior to others, and knowing what is best for others?

Obama's Plans for Changing Financial Regulation

The Obama administration outlined its plans for regulatory reform of the financial and banking systems. The White Paper on the proposals is here. Today's Wall Street Journal has a lot of information about the proposals. For example, see here and here. I am currently on a short vacation, but will comment on the regulations next week.

The Great Depression Redux

There is an update of a column that appeared in April in Vox by two economic historians--Barry Eichengreen and Kevin O'Rourke. You can get it here. The date the start of the current recession later than the NBER did, and compare a number of variables with the same time period during the Great Depression. It is sobering.

Books on Panics and Depressions

I finished recently an interesting book--The Panic of 1907: Lessons Learned from the Market's Perfect Storm by Robert F. Bruner and Sean D. Carr. The panic was a catylist for the passage of the Federal Reserve Act in 1913. With no "lender of last resort," it took private individuals such as J.P. Morgan to arrange loans and guarantees to the banks and trusts that were facing bank runs due to the panic. People Morgan relied on included Benjamin Strong and George F. Baker. Strong plays a prominent role in another interesting book--Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed. The latter book concerns the four central bankers of the U.S., Great Britain, France and Germany, and mistakes made that led to the Great Depression. Strong was the President of the New York Federal Reserve Bank, which was the dominant bank at the time. Strong died in 1928--before the onset of the depression. Friedman and Schwartz, in their history of monetary policy, state that they think Strong may have helped prevent some of the worst decisions made during the depression.

Of interest to me also was the inclusion of George F. Baker. Hope College has a Baker Scholar's Program and I am one of the advisors to the group. Originally, it was formed through money from a trust left by George F. Baker for educational purposes. Later, the family pulled out of educational endeavors, but Hope was permitted to maintain the George F. Baker name. Baker was a banker and close associate of J.P. Morgan. He also gave money for the start of the Harvard Business School. In an appendix in The Panic of 1907, the authors state that Baker cofounded the First National Bank of New York in 1863 at the age of 23. He was a director in 22 corporations and also a philanthropist, providing gifts that founded the Harvard Business School and Baker Library at Dartmouth.

At Hope, the Bakers are juniors and seniors who were selected after interviews with local businesspeople. The emphasis is on student leadership. The group meets with businesspeople, both locally and on trips that usually include New York, Chicago and San Francisco. Over the last two years, visits have included Cisco, Google, JPMorgan Chase, ADP, and the Chinese Consulate in San Francisco. The current Bakers are a great group, and it is a pleasure to work with them. Their website can be found here.