Man has only one tool to fight error: reason.
— Ludwig von Mises
1. Robert Higgs, “Extraordinary Demand to Hold Cash — The Mystery Persists.” I am slightly disappointed with Higgs. It’s not because I disagree with him (except with the hyperinflation bit), but because he usually does have a great answer. He does provide a partial answer, though, and I think that it’s one someone should pursue further: people hold cash when other assets are perceived to be too risky. The major feature of this recession, of course, is the “mispricing” of assets prior to the crisis, and the uncertainty that now envelops credit markets.
2. Kurt Schuler and Andrew Rosenberg, “The Bretton Woods Transcripts.”
3. Alex Marsh, “The Maths Questions in Economics.” A great comment in the recent blogosphere discussion on the role of mathematics in economics.
4. Paul Krugman and Joseph Stiglitz at an INET conference, held on Tuesday last week. I might disagree with many of their conclusions, and especially with Stiglitz, I have to admit that he’s an excellent speaker,
I don’t think it’s included in the above video, but “Blue Aurora” — who frequently comments here — asked them a question on subjective expected utility. He speaks around 1:48:48 on this version of the video.
5. Cardiff Garcia, “‘Misunderstanding Financial Crises,’ a Q&A with Gary Gorton.” A very interesting discussion between the author and Gorton, a well known expert on banking. I recently received Gorton’s Misunderstanding Financial Crises, and I’m hoping to get to it soon.
6. The Economist, “The Mighty Middle.” A very interesting piece on the role of “mid-sized” firms in the U.S. economy. The related graphic is the one to the right.
7. Richard Koo, “Macroeconomic Policy Debate Has Lost its Way.” A short opinion piece, where Koo bashes Republicans for “not understanding” the concept of the balance sheet recession. More interesting, he notes (pp. 4–5) that, in Japan, the problem is not so much lending, it’s borrowing. That is, people are unwilling to borrow, despite banks being willing to lend. Koo throws the term “fallacy of composition” around a few times, but is it possible that he’s guilty of his own charge? To an extent, I’m a little wary, because I’m defending my own (evolving) understanding, and I don’t want to be too adamant about something which may be entirely wrong. But, why not distinguish between loan originating banks, investment banks, and other financial institutions that are usually grouped together into the “shadow banking” sector? Large firms use short-term funding, and it may be this that matters, rather than conventional loanable funds.