psychiatry on econtalk

May 31st, 2010

On the limits of the science surrounding psychiatry, made more interesting to me by having had some indirect but close encounters with practitioners.

Psychiatry (5/31/2010) - Louis Menand of Harvard University talks about the state of psychiatry. Drawing on a recent article of his in the New Yorker, Menand talks about the state of knowledge in psychiatry and the scientific basis for making conclusions about mental illness and various therapies. Menand argues that the research record shows little difference between the effectiveness of psychopharmacology and talk therapies of various kinds in fighting depression. Neither is particularly successful in any one case. Other topics that are discussed include the parallels between economics and psychiatry in assessing causation, the diminished role of Freudianism in modern psychiatry, and the range of issues involved in using medication to avoid pain and hardship.

the crisis, summary, on econtalk

May 17th, 2010

This 'cast condenses into 90 minutes the prior 18 months or so of observation, analysis, and theorizing about the financial crisis.  Roberts' strengths include being able to develop coherent narratives that relate well-known observations of human behavior to the incentives present under various policy conditions, sometimes with effective analogies such as in this case with that of gamblers playing in a rigged poker game.  This episode is one of only a few monologues in the series.  It closes "with some of Roberts's doubts about his narrative".  Here is a link to details contained in the paper from which the narrative is based.

The Crisis (5/17/2010) - Russ Roberts, host of EconTalk, discusses his paper, "Gambling with Other People's Money: How Perverted Incentives Created the Financial Crisis." Roberts reflects on the past eighteen months of podcasts on the crisis, and then turns to his own take, a narrative that emphasizes the role of government rescues of creditors and the incentives this created for imprudent lending. He also discusses U.S. housing policy, particularly the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac and how the government's implicit guarantee of lenders to the GSE's interacted with housing policy to increase housing prices. This in turn, Roberts argues, helped create the subprime market, created mainly by private investors. The episode closes with some of Roberts's doubts about his narrative.

black swans on econtalk

May 3rd, 2010

Taleb makes the point that debt makes us fragile - the more the worse, and it it not difficult to understand;  the more of ones income must be spent on debt servicing, the less margin remains if there is an earning disruption.  

The Black Swans reference is a good historical citation to express the uncertainty inherent in predicting human behavior and their economic interactions.  I've done some work in statistics over the years, and know enough that normal distributions do not apply in all circumstances.  The long distribution tails that describe economic activity mean people most likely are also underestimating the chances they will experience such an earnings disruption.

Of course this applies for persons and households, as well as nation states.  I don't think our political leaders recognize this problem.  Taleb was also recently interviewed on Planet Money.

Black Swans, Fragility, and Mistakes (5/3/2010) - Nassim Taleb, author of The Black Swan and Fooled by Randomness, talks about his latest thoughts on robustness, fragility, debt, insurance, uncertainty, exercise, moral hazard, knowledge, and the challenges of fame and fortune

profit and non-profits on econtalk

April 19th, 2010

They talk around, about, and through the questions about what distinguishes non-profit from for-profit enterprises.

Love, Money, Profits, and Non-profits (4/19/2010) - Mike Munger of Duke University talks about the world of profit, money, love, gifts, and incentives. What motivates people, self-interest or altruism? Both obviously. But how do these forces interact with each other? Does relying on one always provide a stronger incentive than the other? Do charities, for-profit businesses or government agencies do a better job providing a good or service? Munger and Roberts have a wide-ranging discussion across these issues including a section where they discuss whether Christmas gift-giving and gift-giving in general is inefficient.

the music biz on econtalk

March 22nd, 2010

Of possible interest to my musician friends

The Music Industry and the Internet (3/22/2010) - Steve Meyer, music industry veteran and publisher of the Disc and Dat Newsletter, talks about the evolution of the music industry and the impact of the digital revolution. After discussing his background and experience in marketing at Capitol Records and elsewhere, Meyer argues for the virtues and potential of the internet in enhancing the music industry. He points out that the internet allows numerous artists to make money through their music and particularly enhances revenue from live performances. He describes the challenges facing record companies as a failure of imagination and suggests that the full potential of the internet as a distribution channel has yet to be fully exploited.

bailouts on econtalk

March 1st, 2010

If you had reason to believe that someone would bail you out if your investments turned bad and you ended up over your head, would you be more or less prudent in the choice of those investments?  These three episodes provide different perspectives to the story of 40 years of such implicit and explicit guarantees.  ... on developments leading up to the mess, addressing Greenspan's hubris and moral hazard aspects surrounding publicly traded investment banks.  ... on what contributes to financial instability - historical and current perspectives.  ... on the last 25 years of banking bailouts, moral hazard, and unpriced risk

Bailouts, the Fed, and the Crisis (3/1/2010) - Barry Ritholtz, author of Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, talks about the history of bailouts in recent times, beginning with Lockheed and Chrysler in the 1970s and continuing through the current financial crisis. In addition to the government role in aiding ailing companies, Ritholtz also looks at the role of the Fed in discouraging prudence through its efforts to keep asset prices and the stock market at high levels. The conversation closes with a discussion of what Ritholtz has learned from the crisis.

The Financial Crisis (10/26/2009) - Charles Calomiris of Columbia Business School talks about the financial crisis. Calomiris argues that it is important to put the crisis in historical perspective in the context of other bank crises. He argues that bank crises differ widely across time and place--some times and some places are placid, others are prone to regular crises. Calomiris argues that frequent episodes of failure are tied to government guarantees such as various forms of deposit insurance or similar incentives for risk-taking. Looking at the current crisis, Calomiris indicts "too big to fail," the government's reliance on ratings agencies as a measure of risk, and poor corporate governance as the key causes.

Too Big to Fail (10/5/2009) - Gary Stern, former President of the Minneapolis Federal Reserve Bank, talks about his book, Too Big To Fail (co-authored with Ron Feldman), a prescient warning of the moral hazard created when government rescues creditors of financial institutions from the consequences of bankruptcy. Stern traces the origins of "too big to fail" to the rescue of Continental Illinois in 1984 and then follows more recent rescues including those of the current crisis. The conversation explores the incentive effects of such rescues on the decision-making by executives in large financial institutions. The discussion concludes with Stern's ideas for alternative ways to deal with large, troubled financial institutions.

more simple talk that really scares me

February 21st, 2010

I wrote here about how people make adjustments to changing conditions.  I was motivated by an off line remark to elaborate.

Scarcity represents the condition of human wants in the face of "finite stuff".  As for combining this with "infinite consumption", the trivial response says that the definition of infinity precludes the concept.

A more complete response begins with recognizing that people's wants exist in the context of their limited resources.  People choose among their objectives in the face of those constraints.  The situation applies equally to non-material circumstances and resources, including our most limited one - our personal time and attention.  The process drives us to do more with less, and apply our resources to their most valuable ends.

As for determination of value, in the general sense we share many and disagree on others.  In the concrete cases of the actions people take in their daily lives, their personal values distill into particular choices - whether to weed the garden or read a book, to buy vanilla or regular soy milk, to enter a new profession or keep ones day job, and to attend the theater or have a couple pints with friends at the local, to consume today or save for tomorrow.   People make choices at this level based on their subjective values, driven by tastes and fashion and personal goals.  In the realm of social interaction we call the market, prices reflect the balance aggregating from our individual, subjective, and relative valuation of goods and services.

Resource scarcity contributes substantially in those prices.  It takes time, attention, and energy to locate scarce resources, to develop them into usable form, and make them available to consumers.  Those factors contribute to costs, which compare to consumer value.  Consumers choose based on satisfying their most valued aims.  Some value those resources more than others, and willingly pay higher prices for them.  A sufficiently high demand drives search for more of the same resource and for suitable substitutes.  In the case of oil, consumer demand drives the search for more oil and energy substitutes (which include more energy-efficient products).

As for those for whom the ideas of a market and prices do not apply, such people do not escape the reality of constrained resources.   Governments have tried for centuries to escape this by imposing controls on how individuals value and exchange goods and services, typically through imposing some maximum price level.  Promoters advocate such schemes on the suggestion that by holding prices down everyone will have everything they want;  shortages result instead.

Markets or no, prices or no, one must make choices among priorities in the face of limited resources.

simple talk that really scares me

February 18th, 2010

In these videos (here and here), a Professor Bartlett discusses world population and energy usage, worried about continuations along the present path.

I really like the exponential function;  it is so useful in many  applications, but a key point the presenter is missing is that of the function of prices.

It is perfectly clear that as some resources become more scarce and  difficult to acquire their costs increase. Increasing costs lead to  reduced consumption and the search for alternatives.  When those  alternatives are cost competitive to the growingly scarce resource  then they are substituted.

This transition happens gradually in as much as people are more or  less sensitive to the changes in price.  My expectation is that (air)  transportation uses will be the long term hold outs for oil, simply  because those uses place such a premium on high energy density.  Even so, my observation is that alternative energy development researchers  acknowledge that bio-fuels will dominate transportation, and Boeing  (for one) has been showing that feasibility in aircraft application.

His points about ethanol production are well taken, of course.  All  that we can rest at the feet of the Agriculture lobby, the same guys  who get subsidized to both grow and not grow food, and whose ag  machinery businesses benefit by the push for higher capital investment.

Tying this to bad policy ...  in as much as US foreign policy in the  middle east tends to suppress prices, this adds further to the  detrimental effects of those policies by sheltering consumers from the  full cost (as if we needed more reason for a policy of non-intervention)

In a similar but perverse vein, my favorite podcaster Russ Roberts  observed something about the prospects from projections of the  unsustainable burden of unfunded liabilities surrounding social  security and medicare and the like, leading to those accounts  consuming the total federal budget.  The observation is that of course  the government won't let that happen;  instead, the terms now considered commitments will be cut either officially or by means of  inflationary federal spending.  just a question of when.

Another point about costs is that they are not all monetary, and in as  much as people appreciate non-monetary values then those will drive  their actions.  Those actions include ones surrounding the conditions  in which they choose to live.

As for population, a somewhat less draconian approach  than offered in  another thread would be to stop subsidizing children.

trade primer on econtalk

February 8th, 2010

This show was especially good - a startling quotation "self-sufficiency is the road to poverty".  I made one of my few remarks in the comments to the effect that this episode almost made me want to quit my job and go study economics.

Trade (2/8/2010) - Russ Roberts, host of EconTalk, does a monologue on the economics of trade and specialization. Economists have focused on David Ricardo's idea of comparative advantage as the source of specialization and wealth creation from trade. Drawing on Adam Smith and the work of James Buchanan, Yong Yoon, and Paul Romer, Roberts argues that we've neglected the role of the size of the market in creating incentives for specialization and wealth creation via trade. Simply put, the more people we trade with, the greater the opportunity to specialize and innovate, even when people are identical. The Ricardian insight masks the power of market size in driving innovation and the transformation of our standard of living over the last few centuries in the developed world.

empirical failures on econtalk

December 28th, 2009

An empirical take on the subject, asking what does history show about the success of regulation.  

Market Failure and Government Failure (12/28/2009) - Clifford Winston of the Brookings Institution talks about the ideas in his book, Market Failure vs. Government Failure. Winston summarizes a large literature on antitrust, safety regulation and environmental regulation. He finds that government regulation often fails to meet its objectives. While markets are imperfect, so is government. Winston argues that idealized theories of government intervention based on textbook theories of market failure are not the way regulation turns out in practice. He argues that special interest politics explains much of the disappointing outcomes of government regulation.