Quotes of the day

After the financial crisis erupted in 2008, continental Europe on the whole appeared to be in better shape than the US. The main reason was that the big EU banks held smaller amounts of questionable mortgage-backed securities than did American (and British) banks. The housing markets in Germany, France, Italy, and most other member countries-Spain and Ireland are two exceptions- had not boomed as much as the American and British markets.
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Unfortunately, the apparent more solid position of EU banks has turned out to be an illusion because these banks held large amounts of euro-denominated sovereign debt of Greece, Portugal, Italy, and other economically weak members of the EU. The presumption of EU banks in holdong so much sovereign debt of weak members was that the strong members would not allow defaults on any sovereign debts issued in Euros. This same presumption led the now bankrupt American fund, MF Global Holdings, to bet billions of dollars on the expectation that sovereign debt of all members of the euro-zone would be paid off in full.
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Weaker member nations will continue to be stressed by shocks to their economy and to their fiscal balance sheets, with many of these shocks not easy to anticipate in advance. The crisis helps demonstrate that a common currency makes adjustment to individual country shocks far more difficult than when countries can devalue their own currencies. This will continue to be a devastating weakness of the euro unless labor and product markets became much more flexible in the euro-zone, and unless labor mobility across member nations increases greatly.--Gary Becker

So which is it? Is the Keynesian theory wrong? Or did Keynes not believe his own theory? I say the Keynesian theory is wrong. There was no reason for Keynes not to own stocks in 1937. The events that caused the severe recession also caused the stock market crash–and those occurred in the last half of 1937. EMH + market monetarism >>>>>> Keynesian theory.--Scott Sumner

... there are three i-words that need to be banned; inflation, income and interest rates. And they need to be replaced with NGDP growth, consumption, and asset prices.--Scott Sumner

When you've spent your professional life trying to correct the error of priceless economics (the fallacy of assuming that shortages and surpluses are permanent, with no price to clear markets), you apply your thinking to the labor market.--Arnold Kling

Guessing that theists and atheists are equally trustworthy is just as speculative as guessing that they're not. Given this inevitability, it seems better for people to expose their speculation to public criticism instead of pretending that their beliefs are based on "evidence alone." If you want to "overcome bias," you will reward candor, not feigned agnosticism.
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That's my speculation, anyway.
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Challenge: As long as speculation is clearly labeled, shouldn't truth-seekers want people to freely speculate? If not, why not?--Bryan Caplan

How did the Brooklyn of ... crack houses turn into what it is today—home to celebrities like Maggie Gyllenhaal and Adrian Grenier, to Michelin-starred chefs, and to more writers per square foot than any place outside Yaddo? How did the borough become a destination for tour buses showing off some of the most desirable real estate in the city, even the country? How did the mean streets once paced by Irish and Italian dockworkers, and later scarred by muggings and shootings, become just about the coolest place on earth? The answer involves economic, class, and cultural changes that have transformed urban life all over America during the last few decades. It’s a story that contains plenty of gumption, innovation, and aspiration, but also a disturbing coda. Brooklyn now boasts a splendid population of postindustrial and creative-class winners—but in the far reaches of the borough, where nary a hipster can be found, it is also home to the economy’s many losers.
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the borough is a microcosm of the nation’s “hourglass economy.” At the top, the college-educated are doing interesting, motivating work during the day and bicycling home to enjoy gourmet beer and grass-fed beef after hours. At the bottom, matters are very different. Almost a quarter of Brooklyn’s 2.5 million residents live below the poverty line—in the housing projects of East New York, in the tenements of Brownsville, or in “transitional” parts of Bushwick and Bed-Stuy, all places where single-mother poverty has become an intergenerational way of life. Between 2000 and 2010, the percentage of the area’s population on welfare did decline markedly, but the number of Medicaid recipients almost tripled, to nearly 750,000. About 40 percent of Brooklyn’s total population receives some kind of public assistance today, up from 23 percent a decade ago.
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To make matters worse, according to Crain’s New York Business, Brooklyn’s unemployment rate doubled between 2008 and 2009, a considerably higher rise than in Manhattan, Queens, or Staten Island. When manufacturing jobs do become available, they tend to require skills that high school graduates—and dropouts—lack. East New York and Brownsville also remain the highest-crime areas in New York.
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And no one believes that’s transitional.--Kay Hymowitz

Many educators sooth their consciences by insisting that "I teach my students how to think, not what to think." But this platitude goes against a hundred years of educational psychology. Education is very narrow; students learn the material you specifically teach them... if you're lucky.
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Other educators claim they're teaching good work habits. But especially at the college level, this doesn't pass the laugh test. How many jobs tolerate a 50% attendance rate - or let you skate by with twelve hours of work a week? School probably builds character relative to playing videogames. But it's hard to see how school could build character relative to a full-time job in the Real World.
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At this point, you may be thinking: If professors don't teach a lot of job skills, don't teach their students how to think, and don't instill constructive work habits, why do employers so heavily reward educational success? --Bryan Caplan

... many of the criticisms of capitalism are really criticisms of "crony capitalism."--Mark Perry

Like any virtues optimism and confidence are useful only in thoughtful moderation, in the right context.--Eric Falkenstein

I would say that 1931 is the greatest birth year in baseball history, the best vintage.--Joe Posnanski

What Milton Friedman might say to Occupy Wall Street.--Greg Mankiw

Reducing the burden which government places on the economy, through tax cuts, is the surest way to promote growth. I have never heard of a country that taxed itself into prosperity. Yet Britain last year raised the top rate of income tax from 40 per cent to 50 per cent. For more economic growth, and more tax revenue, this rate should be lowered immediately.
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This paradox — lower rates, but higher yield — has been demonstrated time and time again, the world over. Between 1980 and 2007, the US cut tax rates on every form of income, the highest, the lowest and all those in the middle. The result was that the rich paid more, even if their tax levels were reduced. Let’s take the top 1 per cent of earners. Over this 27-year period, their contribution to the income tax collected in America doubled from 19.5 per cent to 40 per cent. The same dynamics applied in Britain: when the top rate of income tax was lowered to 40 per cent in 1988, the share of income tax collected from the richest 1 per cent rose from 14 per cent then to 27 per cent last year. Raising tax rates on the rich is about as bad an idea for the UK as I could imagine.
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The government doesn’t need to do something. It needs to undo much of what it already has done. If you want poor people to do better, create jobs, not welfare — and to do this make taxes lower, not higher. ‘The best form of welfare,’ in the words of John F. Kennedy, ‘is still a good high-paying job.’--Arthur Laffer

Barney Frank announced today that he was stepping down. He gets a lot of criticism from the right, and to be sure, some of his more spectacular personal pecadillos, and some of his policy decisions on the banking industry, are ripe for criticism.
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Nonetheless, I confess, I like Barney Frank. I also think that, whatever his mistakes, he's pretty knowledgeable about finance. And you need only look at the committee list to see that it could have been so, so much worse.
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Guess which Democrat now becomes the ranking member on the financial services committee? That's right, none other than our favorite batty aunt, Maxine Waters.--Megan McArdle