Marginal Revolution

Book medley

Burton Folsom, New Deal or Raw Deal?: How FDR's Legacy has Damaged America; this book has a good compendium of free market critiques of Roosevelt, although I would not look here for a balanced review of the evidence.  Senselessness, by Horacio Castellanos Moya; this is now my favorite novel from either Honduras or El Salvador, depending how you classify the nationality of the author.  Alex Beam, A Great Idea at the Time: The Rise, Fall, and Curious Afterlife of the Great Books.  A fun inside history of the Chicago Great Books series.  Lily Tuck, Woman of Rome: A Life of Elsa Morante; I liked this book very much, without even being a previous devotee of Morante.  Gilles Kepel, Beyond Terror and Martyrdom: The Future of the Middle East.  Both Kepel and Belknap Press are wonderful, but there's not much here.  Paul Krugman, The Return of Depression Economics, with a new section on the 2008 crisis.  Joseph Schumpeter, Capitalism, Socialism, and Democracy, a new edition.  I wanted to read this again but in fact it is unreadable, I am sorry to report.  After about forty pages I believe that 2666 is as good as the reviews, here is the latest survey of them.

China fact of the day

Electrical power generated in October is 4% below a year earlier.

Is there any chance that this is more reliable information than the gdp statistics offered up by the Chinese government?

Headlines from *The Art Newspaper*

For the first time in history, the Grand Canal and St. Mark's Square are carrying huge advertisements

Deutsche Bank offers 600 major post-war works cut-price...

Christie's has "worst Islamic sale in 17 years"

Contemporary Chinese art levels off

This year's Sao Paulo Bienal shows almost no art; is this conceptual choice or just lack of funding?

What should we now think about the bailout?

One very loyal, and libertarian, MR reader writes to me:

But I was actually somewhat (not altogether) surprised by your support for the bailout package.  So let me ask you again, what would cause you to disagree with yourself?  I guess I'm asking because I can't provide good answers to the following questions: What information do policymakers have to get it right? And what incentive do they have to get it right? Therefore, I don't see how they will get it right, and are more likely to do long and short run harm.

In my view the real bailout is the existence of the FDIC which, like it or not, is not a commitment we cannot walk away from.  Had nothing been done, the required FDIC bailout of bank depositors would have been enormous, given frozen interbank credit markets plus a certain level of panic.  So in reality I favored a smaller bailout than did most of the "purer" libertarians, although MR commentators rarely frame it as such.   

A combination of bank recapitalization (which I was first skeptical about and thus have changed my mind on) and a greater emphasis on an "identify and isolate the bad banks" approach was the right bailout to do, not to allocate $700 billion for TARP.  I agree with everything Arnold writes in this post, but still in my view "doing nothing" wasn't really an option, again if only because of the preexisting FDIC commitment, not to mention the disaster associated with a plummeting money supply. 

Now that financial confidence is partially restored, we can hope that the Obama administration redoes the deal.  But the money is being committed rapidly and the demands of the interest groups are piling up, so I hardly expect much ex post improvement.

As for changing one's mind, it is hard to get real evidence on this since we won't be running the counterfactual of no bailout.  If I learned that interbank exposure and counterparty credit risk was much less than I had thought, and that the number of potentially insolvent banks was quite small, then yes I would change my mind and favor no bailout at all.  But I haven't learned that.