Arnold Kling

I appreciate the attention that Daniel Indiviglio gave to my article on the future of mortgage securitization. However, I want to point out that another article on that topic in the same issue of FinReg21 is at least as worth reading. It is by Gerald Hanweck, Anthony B. Sanders, and Robert Van Order, and they argue for an approach to regulating old-fashioned lenders and securitizers on a level playing field. Among other recommendations, they favor stress tests… More »

President Obama offers powerful rhetoric but weak proposals. The financial Humpty-Dumpty of big inter-linked banks, securitized mortgages, and self-defeating housing and bank capital regulation policies has had a big fall. The Administration's response amounts to putting this Humpty-Dumpty back together, taping on some new regulations, and sticking it back on the wall. That is not the answer. More »

He said,On the right, there are those who argue that we should end the employer-based system and leave individuals to buy health insurance on their own.If he wanted to be balanced, he could say that on the left, there are those who argue that we should end the employer-based system and leave individuals to get health insurance from government. Instead, I thought he made single payer sound less threatening. More »

Daniel Indiviglio poses the problem of pricing in-flight Wi-Fi. This is part of a class of problems in which fixed costs are high but marginal costs are low. In the economics literature, it is known as the "Disneyland Dilemma," from a classic article by Walter Oi. More »

Uwe E. Reinhardt points out that in 2003, no one subjected prescription drug coverage to the requirement of a balanced budget when they passed the Medicare Modernization Act. He notes that between 2010 and 2019, Medicare spending on prescription drugs is projected at $1 trillion, "Over 90 percent of that total represents the effect of the M.M.A." He continues: More »

From the introduction to Taming the Beloved Beast by Daniel Callahan.In a rare instance of consensus, health care economists attribute about 50% of the annual increase of health costs to new technologies or to the intensified use of old ones. That annual increase has fluctuated between 7% and 12% per year for many years now, and there is every expectation that it will persist at around 6-7% for the indefinite future. Medicare's cost increases are projected to be… More »

James Surowiecki writes,the public's skittishness about overhauling the system also reflects something else: the deep-seated psychological biases that make people resistant to change.He goes on to list all of the irrational biases that lead people to want the status quo and resist real health care reform. He never mentions labor unions. Yet unions are a major political factor in the status-quo bias that Surowiecki laments. More »

I am tempted to talk about the politics of health care reform. But, honestly, I cannot figure out why the Democrats cannot pass a bill. So, some Republican constituents are really vocal in opposition. Is that such a big deal? I cannot fathom what is going on in the minds of the Democratic Senators and Representatives. Instead, I want to talk about the intellectual failures on health care reform. I doubt that the political problems and the intellectual… More »

Keith Hennessey engages Barack Obama. I would like to see someone on Obama's side engage Keith Hennessey. Perhaps the health care debate will never be reasonable, for reasons that Uwe Reinhardt gives. I have a similar, but shorter explanation. More »

I want to follow up on my criticism of the GOP tactics on health care reform. My concern is that by exaggerating the negative effects of Obamacare, the Republicans are effectively lowering the bar for Democratic health care reforms to succeed.Suppose that the main GOP message is, "Health care reform will kill grandma." If health care reform passes, and three years from now grandma is not dead, then the Democrats can say, "We told you so." More »

Robert J. Samuelson accuses the Obama Administration of reinforcing the status quo on health care reform. Although Obama argues that the status quo is unsustainable because of the future path of health care spending, the proposals in Congress tend to add to the spending problem rather than solve it. Samuelson is correct that Obama is being hypocritical. However, by the same token, the Republican opposition is even more hypocritical. More »

As Greg Mankiw points out, taxing health benefits is supported by William Gale and by Jeffrey Frankel, two economists more likely to be found in a Democratic than a Republican administration. They in turn cite Jason Furman, who is also more likely to be found in a Democratic administration.On the other hand, James Klein and John Sweeney are against taxing health benefits. Klein is a lobbyist for health benefits providers and Sweeney is head of the AFL-CIO. My… More »

Damian Paletta reports,Washington is buzzing because leadership on Capitol Hill could name as soon as Wednesday the 10 members of the Financial Crisis Inquiry Commission.Am I the only person who has not heard of this? More »

Sudeep Reddy takes note of an important fact about the current recession:1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output. In addition, I would point out that: More »

The unemployment rate is higher than the Administration forecast. From a Keynesian perspective, this suggests that the need for a stimulus is even greater than when President Obama took office. More »

The Obama Administration appears to me to be pursuing many goals, poorly. Here are four:1) The stimulus failed to meet Larry Summers' famous criteria of timely, targeted, or temporary. More »

The CBO's Douglas Elmendorf writes,Under CBO's baseline assumptions, the cyclically adjusted budget deficit will rise sharply in 2009, to 9 percent of potential GDP (from 2.6 percent in 2008), but then decrease in 2010 and 2011 to 4.7 percent and 2.2 percent of potential GDP, respectively.This is the right way to distinguish the effect of the recession on the deficit from the effect of policy. As you can see from the CBO's graph, some of the deficit can be blamed… More »

Mike from Rortybomb writes,Your local shadow bank took in money in the repo market as deposits, and used senior tranches of debt as the collateral. Now what happens when it needs liquidity? There is no market maker of last resort who the system as a whole could turn to. Repeat that again. It exists in the shadows, there is nowhere to turn to for emergency liquidity. There is no regulation/liquidity tradeoff here. This is what is meant by being unregulated - not… More »

Brad DeLong writes, Let's go through it slowly. The commercial banks were regulated. The government guaranteed their deposits. Savers who wanted to not have to worry about making sure that their money wasn't going to vanish and who were inertial in their behavior put their money into commercial banks. Regulators watched the leverage of commercial banks. And commercial banks--with their massive retail savings deposits--have for the most part come through this all… More »

One commenter on my earlier post snarkily referred me to Leonhardt's methodological explanation. It says,The stimulus adds $145 billion a year to the 2009-12 deficits. This number includes the additional tax revenue that the C.B.O. estimates will flow from the economic growth caused by the stimulus plan. This additional revenue amounts to about $40 billion a year. Well, yes. Standard Keynesian economics says that additional spending or tax cuts raise economic… More »