Archive for December, 2009

What is Government Regulation Trying to Accomplish?

Wednesday, December 30th, 2009

A few months ago, the Federal Reserve made a bid to enlarge its current responsibilities. Not content with control of monetary policy, the Fed proposed to tackle the problem of “systemic risk” – the question of which firms should be bailed out by taxpayers in order to prevent economywide collapse.
Now Democrats in the U.S. Senate have entered a competing bid. They have proposed not one, but three brand new federal government agencies to handle financial regulation. The chief proposer was Senator Christopher Dodd, who when last heard from was trying to escape responsibility for having helped to engineer the housing [...]

Does the Placebo Effect Explain Government Intervention?

Thursday, December 24th, 2009

The news ( brings word that many doctors occasionally prescribe or recommend substances that have no physical effect on their patients, but that are intended to instill the belief that the patient will improve. This result is called the “placebo effect.” The news report claims that it “accounts for about a third of the benefits of any treatment….”
It seems outrageous that doctors deliberately advise a course of treatment that has no objective basis. Yet they have a justification. Placebos work – or at least they often make the patient feel better.
It is hard to avoid the reaction that the vast [...]

Academics and Annuities

Thursday, December 17th, 2009

Annuities have been around for several centuries. They satisfy a demand for security. Yet they inspire controversy and emotion.  Dispassion and detachment govern life in the academy, at least in principle. This would seem to make academia the logical place in which to seek an objective view. How do academics regard annuities?
The Good…
Academics are trained to think logically and act systematically. They are obsessed with detail and with uncovering the underlying order of things. They are not hamstrung by commercial ties or obligations. They are teachers, accustomed to dispensing learning. These characteristics are ideal for addressing a subject as complicated [...]

Coping With the Experts

Monday, December 14th, 2009

Getting hammered by the worst recession in at least 27 years is bad enough. Adding insult to injury is the fact that we have to listen to the pronouncements of countless experts – most of them self-anointed – on how we got here, where we’re going, how fast we’re traveling and what route will get us back on track.
The barrage of expert commentary completely demoralizes many people. They react with a mixture of bafflement and resignation, the way they do to changes in the weather. This is unnecessary and counterproductive. We are often forced to rely on the expertise of [...]

Issues of Interest to Ben Bernanke

Sunday, December 6th, 2009

Over the last year, the Federal Reserve has increased the monetary base by over 100%. This policy has artificially kept short-term interest rates at their lowest levels ever.
So many different explanations for this policy have been put forward that there seems to be a new one every month. The one undeniable brute fact is that money is the one overriding concern of the Federal Reserve and the one thing it directly controls. Like a small boy given a hammer, who suddenly finds that everything he encounters needs pounding, the Fed’s current solution to every problem is to drown it in [...]