Sunday, February 28, 2010

"'Weirdo Capitalists' Ruin Market for Everybody

Jake Meador writes in the Daily Nebraskan (citing Claar & Klay along the way):
. . . Historically speaking, capitalism has proven itself time after time to be the most viable system for generating wealth. If you can study 20th century history and not end up a capitalist in some sense, I don’t know what to do with you.

Yet because of a few . . . “weirdo” capitalists, the system itself has understandably fallen into question with many. When such skeptics hear “capitalist” they conjure images of men like Ken Lay or Jeff Skilling, former Enron execs who bled their workers dry in order to preserve their own wealth. Or they think of a man like Bernie Madoff, who conned countless people out of millions before finally being caught last year.

Thinking more historically, they might imagine the slave holders of the United States and Great Britain or the colonizers of Africa, all groups that used capitalism to justify their horrific actions.

Yet before these men were capitalists, they were something else: greedy, self-absorbed fiends whose sole objective in life was to satisfy every hedonistic whim with no regard for the good of other people. And in a few cases, you can add to that self-centered hedonism a heaping helping of religious arrogance. Such attitudes are, needless to say, a recipe for disaster, which do to capitalism what men like this week’s street preacher and Osama bin Laden do to Christianity and Islam, respectively.

Capitalism in conversation with an external moral code regulating it is not an evil system. What is evil is capitalism in a vacuum, devoid of any external guidance. In short, consumerism – the sort of capitalism exemplified by Lay, Skilling and Madoff.

So I call myself a capitalist with a seat belt. . . .


Sunday, February 14, 2010

Valentine's Day Card for the Professional Economist in Your Life

You can download and print this free St. Valentine's Day card (MS Word format) to give to the professional economist in your life. As long as he or she has at least a master's degree in economics -- or is working toward it -- the object of your affection will love you even more when give this one.


Steve Landsburg on Child Labor

In a recent post, economist Steven Landsburg, author of The Big Questions, gives his take on the cruelty of rich Westerners who take on child labor in poor nations. Here's a bit:
Back in 1992, a ten year old Bangladeshi girl named Moyna was one of 50,000 children who lost their jobs in the wake of protectionist legislation sponsored by the execrable union-backed Senator Tom Harkin of Iowa. How does Moyna feel about Americans now? “They loathe us, don’t they?”, she says. “We are poor and not well educated, so they simply despise us. That is why they shut the factories down.” (The quote is from this report by the Bangladeshi activist Shahidul Alam.)

Probably Moyna’s only half right. Tom Harkin doesn’t loathe her; he just doesn’t give a damn about her. . . .
More (HT: Cafe Hayek)

Monday, February 8, 2010

Did the Fed's Departure from the Taylor Rule Get Us in Trouble?

At the close of each of its Open Market Committee Meetings, held roughly every six weeks, the Fed announces its target for the federal funds rate, the rate of interest that banks charge each other for overnight loans of reserves. Note that the Fed doesn't force banks to charge that rate. What the Fed does is either speed up or slow down the rate of money growth using open market operations--buying or selling bonds on the bond market--thereby manipulating the federal funds rate in the desired direction. If the Fed wants the federal funds rate to rise, it slows the rate of money growth by selling bonds to banks; if it wants the rate to fall, it buys bonds from banks, thereby giving banks new reserves that they are free to lend.

Even though the Fed makes its interest rate decisions on a discretionary basis, for years the interest rate decisions of the Fed's Open Market Committee have mimicked the Taylor Rule, an invention of John B. Taylor of Stanford. The Taylor Rule says that the Fed could save itself a lot of time in meetings by setting the federal funds rate target using the following formula:

FFR = 2 + INF + 0.5(INF - 2) + 0.5GAP.

That is the Taylor Rule would set the federal funds rate (FFR) at two percent, plus the current inflation rate (INF), plus one half of the difference between the inflation rate and a target inflation rate of two percent, plus one half of the difference between current output and potential output (GAP).

Until recently the decisions of the Fed have tracked the Taylor Rule with amazing accuracy, leading some to wonder whether the Fed was -- whether intentionally or not -- following Taylor's formula. Yet in recent months the federal funds rate suggested by the Taylor Rule and the actual targets set by the Open Market Committee have diverged. This new segment from NewsHour takes a closer look (direct link).

Marginally Funny: Economists & Humor

NewsHour's Paul Solman dropped in on the Economics Humor session of this year's meetings of the American Economic Association.