Advocates of Reason: 29 October 2012

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.

  • Blue Aurora

    Regarding Mr. Higgs…to me at least, it sounds like a classic demonstration of liquidity preference at work. But of course, I could be wrong.

    I was delighted to hear the news that the Bretton Woods transcripts have been prepared for publication. It’s sterling news for historians, economists, and legal specialists alike!

    Actually, on the YouTube version of the video that is uploaded by INET, I ask Krugman and Stiglitz about Subjective Expected Utility at 01:25:14.

    As for the post on maths in economics, it makes excellent points in addition to Noah Smith’s post. I would get a copy of Gary Gorton’s book, but I have too many books on economics that are overflowing in my room!

    As for medium-sized firms…this is good news for those who believe in the diversity of businesses!

    As for Richard Koo…have you gotten to him in class yet? He’s an excellent thinker!

    • JCatalan

      Liquidity preference is one way to think about it, but there’s a difference between one’s preference for liquidity and the risk someone attaches to a financial asset. Regarding Koo, we read his book in late November.

  • Beefcake the Mighty

    Gary Gorton is a fraud. You really regard him as insightful? The comments after the Q&A were great. People pulled out their dicks and slapped him across the face. Well-deserved