Marginal Revolution

Assorted links

1. Learn your divorce risk?

2. Krugman chooses the winning caption

3. An independent fiscal policy council?

4. Brad DeLong on Tyler and Mises

5. Your light cone, via RSS

Economists Have Abandoned Principle

The title is from Oliver Hart and Luigi Zingales writing in the WSJ:

Practically every day the government launches a massively expensive new initiative to solve the problems that the last day's initiative did not. It is hard to discern any principles behind these actions. The lack of a coherent strategy has increased uncertainty and undermined the public's perception of the government's competence and trustworthiness.

By principle, Hart and Zingales mean economic principle such as intervening only when market failure in the technical sense is an issue.  Bankruptcy, for example, is not the end of the world (As you may recall I have been pushing the idea of speed bankruptcy for which the FDIC has developed significant expertise.)  For example,

...what would have been so bad about letting Bear Stearns, AIG and Citigroup (and in the future, General Motors) go into receivership or Chapter 11 bankruptcy? One argument often made is that these institutions had huge numbers of complicated claims, and that the bankruptcy of any one of them would have led to contagion and systemic failure, causing scores of further bankruptcies...

...This argument has some validity, but it suggests that the best way to proceed is to help third parties rather than the distressed company itself. In other words, instead of bailing out AIG and its creditors, it would have been better for the government to guarantee AIG's obligations to J.P. Morgan and those who bought insurance from AIG. Such an action would have nipped the contagion in the bud, probably at much smaller cost to taxpayers than the cost of bailing out the whole of AIG. It would also have saved the government from having to take a position on AIG's viability as a business, which could have been left to a bankruptcy court. Finally, it would have minimized concerns about moral hazard. AIG may be responsible for its financial problems, but the culpability of those who do business with AIG is less clear, and so helping them out does not reward bad behavior.

Insurance markets in everything

If only.  But now we have insurance in insurance:

For these economically uncertain times, the UnitedHealth Group has a “first of its kind” product: the right to buy an individual health policy at some point in the future even if you become sick.

Called UnitedHealth Continuity, the product is not actual medical insurance, but is aimed at people who may have insurance now but are worried they may lose it — and may not be able to obtain replacement insurance on their own. They may expect to retire early, for example, before they qualify for Medicare. Or they are worried about the possibility of losing their job and their health coverage.

People who are already sick will generally not be eligible for the new product. Those who do pass a medical review, will pay 20 percent each month of the current premium on an individual policy to reserve the right to be insured under the plan at some point in the future.

There is also a politics angle: by buying such a policy you are betting against comprehensive health insurance reform under Obama.  Here is a previous MR post on a related market.  Here is a post on why private health insurance doesn't work better than it does.  And don't forget Alex's book on Entrepreneurial Economics, which promoted a version of this idea some time ago.

For the pointer I thank both Michael Buckley and Davis King.

Joe the Plumber and his favorite books

Joe reads economics:

The Theory of Money and Credit (Ludwig von Mises): "It brought monetary theory into the mainstream of economic analysis. It is important reading for these troubled times."

My theory is that someone in Ron Paul's camp told him to say that.  Here is the full list of his favorite books.  Here is my source.  Here is an on-line version of TOMAC.  Scrolling through it a bit, it is more readable than my recollection and it remains one of the better 20th century books on monetary theory.

The Capital Strike

Roosevelt went on in later weeks to speculate that the slowdown in investment was not economically explicable but was, rather, part of a political conspiracy against him, a "capital strike" designed to dislodge him from office and destroy the New Deal...In a reprise of his tactics in the "wealth tax" battle of 1935 and the electoral campaign of 1936, Roosevelt loosed Assistant Attorney General Robert Jackson, along with Ickes, to give a series of blistering speeches in December 1937.  Ickes inveighed against Henry Ford, Tom Girdler and the "Sixty Families,"...Left unchecked, Ickes thundered, they would create "big-business Fascist America - an enslaved America."  For his part, Jackson decried the slump in private investment as "a general strike - the first general strike in America - a strike against the government - a strike to coerce political action."  Roosevelt even ordered an FBI investigation of possible criminal conspiracy in the alleged capitalist strike, but it revealed nothing of substance.

(From David M. Kennedy's Freedom from Fear (p. 352) in The Oxford History of the United States.)

A group of capitalists go on strike to protest a government that is confiscating their wealth. The government vows to force them back to work and sets agents on their trail. Hmmm.....seems like there could be a novel in that.

Hail Garett Jones!

From the comments, Garett Jones writes:

Here’s a simple neoclassical explanation for the high G (government purchases)–>Low Y (GDP) relationship: 

More high-paying government jobs–>
More people waiting in line for those good jobs–>
Less private-sector employment. 

Queuing for good Davis-Bacon jobs is what creates the problem. 

It’s a new twist on the Cole and Ohanian story of high wages worsening the Depression, and Quadrini and Trigari told it in the Scandinavian Journal of Economics as well as here...

There is more at the first link.  I am pleased to report that I have the honor of sharing a corridor with Garett Jones.