http://www.invisibleheart.com/ en-US Copyright 2008 Wed, 26 Mar 2008 11:02:31 -0500 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss This commentary aired on National Public Radio's All Things Considered on March 25, 2008. Audio is here. Wall Street is all about profit. All about the bottom line. And profit does play a major role in making our world go round. Without profit, there's no point in taking risks. Without risk-taking, there's no investment. Without investment, there's no growth. Profits are the cornerstone of our economy and our way of life. But as Milton Friedman liked to point out, our economic system isn't just based on profit. It's a profit and loss system. It's the combination that sustains and enhances our standard of living. Yes, the potential for profit encourages people to take risks. But without the potential for loss, you have reckless risk-taking. You have risk-taking without prudence. Without the potential for loss, irresponsibility goes unpunished. The Federal Reserve and the Treasury Department have orchestrated the rescue of Bear Stearns. The defenders of that maneuver argue that if Bear Stearns had failed it would have created a lot of collateral damage, so much collateral damage, that you and I, normal folk who don't know anything about high-falutin' financial instruments like "collateralized debt obligations" would have been engulfed as well. If Bear Stearns had gone bankrupt, Lehman Brothers might have been next. Some say that if Bear Stearns had failed, the entire banking system was at risk. Maybe. It seems awfully hard to know for sure. But what I do know for sure is that by subsidizing the marriage of Bear Stearns and JP Morgan, the government has removed some of the loss from the profit and loss system. Oh, they tried to make Bear Stearns suffer by demanding a price of $2 a share. But now the deal has been renegotiated—ta-da!—to $10 a share, a mere five-fold readjustment. What's going on here? What's going on here is that we're in uncharted territory, a world where the Fed and the Treasury are making up the rules as they go along, where accountability is being ignored and a world where the government bails out Bear Stearns and its creditors rather than letting those who have been reckless learn a lesson for the next time. Yes, letting Bear Stearns go under would have been dangerous. But helping JP Morgan devour Bear Stearns is dangerous, too. Where does the government stop in protecting people from irresponsibility? Home owners and lenders are next. The political pressure is inexorable for some sort of bail out. And then comes more regulation of investment banks. In a world where people who make bad decisions are spared the full consequences, only one thing is certain. We've encouraged more people to make more bad decisions in the future. The real price to be paid isn't the dollar costs of any bail out, but the encouragement of recklessness and irresponsibility. That will make all of us poorer down the road. ]]> http://www.invisibleheart.com/2008/03/the_bear_stearns_debacle.php http://www.invisibleheart.com/2008/03/the_bear_stearns_debacle.php National Public Radio Regulation finance money moral hazard Wed, 26 Mar 2008 11:02:31 -0500 This commentary aired on National Public Radio's All Things Considered on February 20, 2008. Audio is here. A friend of mine told me the other day he’s planning to vote for John McCain. Why? Because McCain promises to keep the Bush tax cuts and my friend thinks that a good idea. Why would my friend think that John McCain will keep the cuts—after all, he voted against them as a Senator. My friend said, well, McCain said he’d keep the cuts. I know. It seems pretty absurd doesn’t it? Ridiculous, really. Who actually believes what politicians say? But my friend who likes McCain is no fool. He’s probably read more history books than a lot of history professors. I’d never call him naïve. But he wants to like one of the candidates and McCain is his best shot. So he’s managed to convince himself that McCain is going to keep the tax cuts. I have to conclude that my friend is living in something of a fantasy world. But he’s not alone. Any one who’s passionate about a candidate is doing the same thing. Hillary is promising universal health care. And why should we believe she’ll keep that promise? Because she says so. Where’s the evidence she’ll succeed the second time around? Outside of politics, we’re usually a little more down to earth when it comes to rhetoric and promises. Suppose you see an ad for anchovy ice cream. The ad promises "It’s delicious!” Convinced? Probably not. You take that word “delicious” with a grain of salt. Actually more than a grain. More like a pound. You realize that the seller of the ice cream is self-interested and just trying to make a sale. I treat the rhetoric of politicians like ads for anchovy ice cream. Call me a cynic, but I assume they’re trying to make a sale. So when Obama says on his web site that he’s tired of “divisive ideological politics,” I wonder: what other kind of politics is there? Promising politics without “divisive ideology” is like selling a sure fire way to be a millionaire , working from home using the Internet. Most of us know it’s too good to be true. But Obama is selling like hotcakes even though his promise is just as unrealistic. We have such a yearning for a candidate with principles and ideals. We like to think our candidate is the good one, it’s the other guy’s favorite who’s the evil opportunist. But they always break our hearts, don’t they? Too many of us, I fear, are living in a fantasy world. Once in office, they all want to be popular. They like power more than principle. They respond to the political winds, rather than the rhetoric that got them elected. And when they break their promises because it’s politically expedient, they always have a justification. The good news? That evil candidate from the other party that you hate, isn’t nearly as dangerous as you think. Once in office, he or she will listen to the public rather than to principles. It happens every time. ]]> http://www.invisibleheart.com/2008/02/selling_anchovy_ice_cream.php http://www.invisibleheart.com/2008/02/selling_anchovy_ice_cream.php National Public Radio Politics pandering political promises political rhetoric politicians Wed, 20 Feb 2008 21:51:52 -0500 This commentary aired on National Public Radio's All Things Considered on January 16, 2008 in response to much talk about the the need to create a stimulus package to avert a recession. Audio is here. Love that word—stimulus. It sounds so scientific. With the right stimulus, you can even make the leg of a dead frog twitch. A heart attack victim gets the stimulus from those chest paddles and bam. Back to life. My online dictionary defines stimulus as something that "rouses or incites to activity." Sounds like the perfect prescription for an ailing economy. But if politicians know how to stimulate the economy, why wait for a recession? If you can make the economy grow, why wait for bad times?]]> http://www.invisibleheart.com/2008/01/the_science_of_stimulus.php http://www.invisibleheart.com/2008/01/the_science_of_stimulus.php National Public Radio The Economy Thu, 17 Jan 2008 12:38:35 -0500 This commentary aired on National Public Radio's All Things Considered on December 26, 2007. You can listen to it here. I know the economic news doesn’t seem very cheerful these days. But a lot of it is blown out of proportion, stories and subplots designed to scare us, told by politicians and people with their own agenda. Let’s not let them push us around whether they’re on the right or the left, Republican or Democrat. They always tell us the sky is falling. That’s the minimum standard for getting our attention in a busy news cycle. But remember that the sky usually doesn’t fall. We just move on to the next scare. So my New Year’s wish for America is that we be skeptical of falling sky stories and that as a result we all sleep better. ]]> http://www.invisibleheart.com/2007/12/sunny_side_up.php http://www.invisibleheart.com/2007/12/sunny_side_up.php National Public Radio The Economy Wed, 26 Dec 2007 09:13:28 -0500 Foreign Policy, November 2007 To hear most politicians talk, you’d think that exports are the key to a country’s prosperity and that imports are a threat to its way of life. Trade deficits—importing more than we export—are portrayed as the road to ruin. U.S. presidential hopefuls Hillary Clinton and Barack Obama want to get tough with China because of “unfair” trading practices that help China sell products cheaply. Republican candidate Mitt Romney argues that trade is good because exports benefit the average American. Politicians are always talking about the necessity of other countries’ opening their markets to American products. They never mention the virtues of opening U.S. markets to foreign products. This perspective on imports and exports is called mercantilism. It goes back to the 14th century and has about as much intellectual rigor as alchemy, another landmark of the pre-Enlightenment era. ]]> http://www.invisibleheart.com/2007/11/why_we_trade.php http://www.invisibleheart.com/2007/11/why_we_trade.php International Trade and Globalization exports imports mercantilism Schumpeter trade deficit Thu, 01 Nov 2007 09:00:00 -0500 This commentary aired on NPR's All Things Considered on September 13, 2007. You can listen to it here. At the age of 20, Rick Ankiel was a starting pitcher on a playoff-bound St. Louis Cardinals team. Then it fell apart. I was there. I saw him throw five wild pitches and walk four against the Braves in a single inning. He never got over that. He tried the minors to find the lost magic in his arm. Then surgery. Nothing helped. The dream died. But Ankiel wouldn’t let it die. It took him almost seven years, but he made it back to the major leagues as an outfielder. That was heartening enough. But he did more than make the team. He played with flair. With grace. With excellence. Suddenly, he was leading the Cardinals toward first place. Then came the news that Ankiel had ordered human growth hormone, or HGH, in 2004. Suddenly, the golden boy was tarnished. Sports writers called it a tragedy. My nine year old son’s face fell when I told him. Why are you sad, I asked. All those things he did, he said. It wasn’t him.]]> http://www.invisibleheart.com/2007/09/defending_baseballs_unnatural.php http://www.invisibleheart.com/2007/09/defending_baseballs_unnatural.php National Public Radio Ankiel baseball HGH Steroids Thu, 13 Sep 2007 11:24:31 -0500 This commentary aired on National Public Radio's All Things Considered on June 7, 2007. You can listen to it here. According to the White House, the new immigration bill will "Help Keep The U.S. Competitive In The Global Economy By Establishing A New Merit-Based System For Immigration That Is Similar To Those Used By Other Countries." And how is it going to do that? There's going to be a point system to determine who gets one of the precious 380,000 visas that are up for grabs. Highly educated people get points. People with skills that are in high demand, whatever that means, get points. Young but not too young? Points. Speak English well? More points for you. Speak it badly, fewer points. Don't speak it at all? No points. People with the highest point totals get the visas. Some people complain that the Bush Administration is too free market. But the idea that Washington bureaucrats can figure out which skills are in high demand is an idea straight out of the old Soviet Union. It would be great if we could get some old communists from the politburo to administer it, but we won't be able to. They won't score high enough on the point system to get a visa. The whole thing's pretty inspiring isn't it? We once believed in a lady in the harbor with a lamp beside the golden door. ]]> http://www.invisibleheart.com/2007/06/the_lady_in_the_harbor.php http://www.invisibleheart.com/2007/06/the_lady_in_the_harbor.php Immigration National Public Radio Immigration politicians Thu, 07 Jun 2007 12:15:26 -0500 This commentary appeared in the Los Angeles Times on March 18, 2007 along with pieces by philosopher Peter Singer, and Sam Webb the head of the Communist Party, USA. ECONOMISTS can tell you, using publicly available data, that income inequality is growing in the United States. But if the data weren't collected, you'd never know. If anything, the differences between the rich and the rest of us are less intrusive and noticeable than in the past. In the early part of the 20th century, rich people ate better than the rest of us, had nicer clothes and a few even had cars. Rich people had servants and lived one family to a house. By those measures, the masses fell into the have-not category. No servants. Cramped quarters. Coarser food and clothing. A longer and more physical working day. If you were in the bottom half of income distribution and you encountered someone in the upper half, you knew it. But steady economic growth over the years has eliminated most of the tangible differences between us.]]> http://www.invisibleheart.com/2007/03/can_you_be_too_rich.php http://www.invisibleheart.com/2007/03/can_you_be_too_rich.php Inequality Los Angeles Times standard of living Sun, 18 Mar 2007 15:40:54 -0500 This commentary appeared in the Wall Street Journal on March 12, 2007 I'm thinking of a country. America's trade deficit with this country just reached an all-time high. This country holds more U.S. Treasuries than any other foreign country. It's one of the world's largest economies. And the name of that country is? Japan. Japan? Yes. Remember when Japan was a big threat to the American economy? You have to go back to the late 1980s. Back then, every politician in the mood for pandering to economic ignorance could scare a bunch of folks with worries about how the Japanese were stealing our jobs. How our trade deficit with Japan was going to destroy the American economy. How the Japanese economy was soon going to pass America's. How the Japanese auto industry was part of a sinister strategy to destroy our core competencies.]]> http://www.invisibleheart.com/2007/03/protectionists_never_learn.php http://www.invisibleheart.com/2007/03/protectionists_never_learn.php International Trade and Globalization China Japan Wall Street Journal Mon, 12 Mar 2007 15:49:35 -0500 This commentary appeared in the Los Angeles Times, February 17, 2007. LABOR UNIONS' importance in the workplace has fallen steadily since 1950, when roughly a third of American workers were unionized. Today, that number is well below 10% in the private sector. The Employee Free Choice Act, now before Congress, aims to reverse that trend by making it easier for unions to gain certification and stiffening penalties for interfering with a unionization drive. After all, supporters argue, without union representation, how can individual workers have the bargaining power needed to get their fair share of the economic pie? But maybe unions aren't so crucial to worker well-being. When more than 90% of the private-sector labor force isn't unionized, why do 97% of us earn above the minimum wage? If our bargaining power is so pitiful, why don't greedy employers exploit us and drive wages down to the legal minimum?]]> http://www.invisibleheart.com/2007/02/workers_dont_need_unions.php http://www.invisibleheart.com/2007/02/workers_dont_need_unions.php Work competition Los Angeles Times unions Sat, 17 Feb 2007 15:33:36 -0500 This commentary was published in the Boston Globe on February 7, 2007 WE CALL FOOTBALL a game. But Super Bowl Sunday reminds us that the National Football League is big business. A minute of advertising time goes for more than $4 million. Winning the game means big dollars and enormously lucrative opportunities for coaches and players. In contrast, college sports seem a more pristine opportunity for student-athletes to clash on the playing fields just next to the ivy-covered halls we studied in years ago. There is an inevitable romance about college sports that comes from this nostalgia, a romance that the NCAA -- the governing organization of college sports -- works to preserve and enhance. The NCAA roots out the most trivial of recruiting violations to maintain the amateur image of college athletes. Why they're just like the rest of the student body, they just happen to be on the football or basketball team! Never mind that they have to practice nearly year-round or they'll lose their scholarships. And the NCAA makes sure that all those student-athletes earn their scholarships by maintaining a minimum grade point average. But the rest of college sports looks pretty professional. The bowl games have sponsors. So we get the Tostitos Fiesta Bowl and the FedEx Orange Bowl. College football stadiums and basketball arenas are multi-million-dollar facilities with professional-quality weight-training and conditioning equipment and trainers. Ticket sales for basketball and football generate millions of dollars. Alumni donate millions to athletic departments. College sports is a big business. Then there are the coaches. No amateurs or volunteers there. The latest example is Nick Saban, the new football coach at the University of Alabama. Saban will get about $4 million to coach the Crimson Tide. That's a lifetime of income for some of us. But for Nick Saban, that's the annual figure. ]]> http://www.invisibleheart.com/2007/02/college_football_without_roman.php http://www.invisibleheart.com/2007/02/college_football_without_roman.php Sports Boston Globe college football Wed, 07 Feb 2007 12:40:06 -0500 This article appeared in TCS Daily on December 6, 2006 and was reprinted in a tribute to Milton Friedman in the Hoover Digest I last saw Milton Friedman a few days shy of his 94th birthday, just a few months ago. I was interviewing Milton for my podcast series, EconTalk. I hadn’t seen him in over a year and I worried whether the finest economic communicator of our era would still be Milton Friedman or just a shadow of his former self. I planned to talk to him about what I considered his greatest scholarly work, The Monetary History of the United States, and his first great work as a public intellectual, Capitalism and Freedom. Both books were heretical in their day, and the ideas in both books, in varying degrees, have since become part of the mainstream. When the Monetary History was published in 1963, the money supply was on the fringe of economic policy conversation, even when considering the causes of inflation. Today, the role of the money supply and central banks is front and center in creating economic stability and setting the stage for growth, and everyone, from central bankers to academics, agrees that inflation is everywhere and always, a monetary phenomenon. ]]> http://www.invisibleheart.com/2006/12/a_debt_of_gratitude.php http://www.invisibleheart.com/2006/12/a_debt_of_gratitude.php Liberty Milton Friedman Wed, 06 Dec 2006 16:01:47 -0500 This commentary was published in the Boston Globe on November 6, 2006 THE SAGAMORE ROTARY is gone, and the rejoicing is near universal. Killing a bottleneck that delayed traffic to and from the beaches of Cape Cod certainly seems worthwhile, even if the execution required $33 million. The engineers have triumphed. Nothing could be more straightforward: When you see a bottleneck, open it up. Visions of convertibles dance through our heads -- top down, Truro here I come! Alas, I cannot join the cheering chorus, even though I have spent hours sitting in traffic on Route 6 trying to get home. ]]> http://www.invisibleheart.com/2006/11/traffic_nirvana_unlikely_on_th.php http://www.invisibleheart.com/2006/11/traffic_nirvana_unlikely_on_th.php Competition and Emergence Traffic Mon, 06 Nov 2006 12:33:58 -0500 PDF File]]> http://www.invisibleheart.com/2006/11/does_the_trade_deficit_destroy.php http://www.invisibleheart.com/2006/11/does_the_trade_deficit_destroy.php International Trade and Globalization Wed, 01 Nov 2006 13:42:46 -0500 Towards the end of the 18th century, England began sending convicts to Australia. The transportation was privately provided but publicly funded. A lot of convicts died along the way, from disease due to overcrowding, poor nutrition and little or no medical treatment. Between 1790 and 1792, 12% of the convicts died, to the dismay of many good-hearted English men and women who thought that banishment to Australia shouldn't be a death sentence. On one ship 37% perished. "The government decided to pay the captains a bonus for each convict that walked off the boat in Australia alive." How might captains be convinced to take better care of their human cargo? http://www.invisibleheart.com/2006/06/incentives_matter.php http://www.invisibleheart.com/2006/06/incentives_matter.php Economic Education The Library of Economics and Liberty Mon, 05 Jun 2006 12:56:49 -0500