Possible Insight

Archive for the ‘Society’ Category

Society According to Kevin: Introduction

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I was recently having a conversation with a mutual friend of Rafe’s and mine.  Like the two of us, he’s quite smart, well educated, and socially aware.  I respect his thinking a lot. However, during the course of this conversation, it became clear to me that he holds what I think of as an overly moralistic view of human behavior.

From my perspective, it seemed like he thinks that people’s behavior is governed primarily by an internal moral compass rather than incentives. So if you want to change their behavior, you should redirect their moral compass rather than adjust their incentives. People who don’t adjust their behavior are defecting from society and should be sanctioned.

I encounter this view quite often in my social circle and this instance inspired me to write a series of posts to explain how I think things actually work.  You’re free to disagree with me, of course. In fact, I expect most people to disagree with me. But I’ve thought rather hard about this issue and I’ll put my model up against the moralistic view when it comes to predicting a population’s average behavior or choosing an effective policy prescription.

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Written by Kevin

January 2, 2009 at 8:22 pm

I May Be a Credit Crunch "Denier" Too

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As most of you already know, I am an anthropogenic global warming skeptic, aka “denier”.  Well, a new paper by the Federal Reserve Bank of Minneapolis has turned me into a credit crunch skeptic too.

The maintstream narrative on why we need a bailout is that credit is “frozen”. We can’t just let the financial sector sort itself out because it provides the credit “grease” that lubricates the rest of the economy.  The graphs in this paper make it pretty clear that the wheels of Main Street have plenty of grease. So it looks to me like the bailout is corporate welfare plain and simple.  It also means that Paulson and Bernanke talking about how bad things are to justify the bailout may have actually exacerbated any real recession by magnifying the psychological salience of the crisis.

Written by Kevin

October 23, 2008 at 5:38 pm

Financial Crisis Act III: The Flailing Response

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As we saw in Act I and Act II, the current financial crisis was enabled by government interference in the housing and mortgage markets, then initiated by Wall Street’s willful blindness to systematic risk in the MBS market. Now we are observing the government’s flailing response.

First they bail out Bear Stearns.  Then they let Lehman go bankrupt.  But AIG gets a lifeline. On to a $700B bailout intended to purchase toxic MBSs. And most recently forcing several probably healthy banks to absorb $250B in government investment. Along the way, there were a bunch of changes to FDIC regulations and a see-sawing stock market.

You might be asking yourself, what the heck is going on here? The reason for all the flailing is that the government is attempting to implement a command and control solution to an extremely distributed problem.

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Written by Kevin

October 15, 2008 at 11:19 pm

Financial Crisis Act II: Wall Street Sharks

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When the bailout passed, I first thought this post was moot.  But then I reconsidered.  There’s still plenty of time to affect the implementation and several lessons to be learned.  Also, when I’m pissed off, it’s nice to know that I have a good reason.

In Act I, we saw how government meddling overheated the housing and mortgage markets. Now we’ll see how Wall Street took advantage of this opportunity and also apportion some blame to ourselves.

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Written by Kevin

October 3, 2008 at 10:15 pm

Financial Crisis Act I: Government Meddling

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Let me start by saying that the financial crisis is a very complex situation.  I read several economics blogs every day and quite a few academic papers every month.  My semi-professional opinion is that no economist even comes close to fully understanding the financial system, let alone the complete macroeconomy.  Luckily, I haven’t seen any of them delusional enough to assert that they do in a professional forum. So when you hear a talking head spouting off about the crisis, take what he says with a grain of salt (this includes me, of course). At best, he only sort of knows what he’s talking about.

Because of the complexity, I think we should be very careful to take baby steps.  Going off half-cocked is much more likely to make things worse than better.  I think we need to do three things.  First, we need to understand the underlying causes of the mortgage meltdown that kicked off the cascade (not because I think fixing the cause will solve the problem, but because it will help us avoid making things worse).  Second, we need to examine how the cascade was magnified so we can hopefully install some breaks going forward. Third, we need to agree on the outcomes we most want to prevent as a society (as individuals, I’m sure we all want to keep our houses, jobs, and savings).

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Written by Kevin

October 1, 2008 at 5:23 pm

Who's Curious About the Financial Crisis?

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So as not to waste my expensive schooling, I still keep up with economics as a hobby.  I don’t expect other people to generally share this interest, but it occurred to me that the current financial crisis is an excellent example of what happens when a complex adaptive system experiences a shock.  Is anybody curious to have us discuss this topic?  If so, what is specifically interesting to you?  My short answer is to read everything by Arnold Kling at EconLog.  Of course, I have a lot more thoughts if anyone wants to hear them.

Written by Kevin

September 29, 2008 at 9:15 pm