James Buchanan, GMU's first Nobel, turned 90 this week.  But it was only a few months ago that I discovered what has become my favorite Buchanan essay - "Before Public Choice," originally published in 1972 in Explorations in the Theory of Anarchy.

What's so great about this piece?  Well, I've long thought that Buchanan's contractarian political philosophy is wildly in error.  I loved "Before Public Choice," because he freely agrees with two of my main complaints.

Complaint #1: Contractarianism doesn't even try to discover moral truth; instead, it is a just-so story designed to rationalize the status quo.

Here's Buchanan:

To an extent, at least, a "science" exists for the purpose of providing psychologically satisfying explanations of what men commonly observe around them.  Presumably we "feel better" when we possess some explanatory framework or model that allows us to classify and interpret disparate sense perceptions... The contract theory of the state, in all its manifestations, can be defended on such grounds.  It is important for sociopolitical order and tranquility that ordinary men explain to themselves the working of government process in models that conceptually take their bases in cooperative instead of noncooperative behavior.  Admittedly and unabashedly, the contract theory serves, in this sense, a purpose or objective of rationalization. (emphasis added)

Actually, Buchanan doesn't just seem uninterested in discovering moral truth.  He seems uninterested in scientific truth as well.  Otherwise, why would he say that the purpose of science is "providing psychologically satisfying explanations," and not even hint that its purpose might be to discover how the world really works, no matter how "psychologically unsatisfying" it might be?  (Yes, Buchanan says "To an extent, at least..." but this doesn't get him off the hook for failing even to mention truth-seeking - or science's tendency to upset people).

Complaint #2: Social contract theory is a myth.  There never was, and never will be, a unanimous contract between millions of randomly selected strangers.

Here's Buchanan:

We know, factually and historically, that the "social contract" is mythological, at least in many of its particulars.  Individuals did not come together in some original position and mutually agree on the rules of social intercourse.  And even if they had done so at some time in history, their decisions could hardly be considered to be contractually binding on all of us who have come behind.   We cannot start anew.  We can either accept the political universe or try to change it.  The question reduces to one of determining the criteria for change.

The next clause floored me:

When and if we fully recognize that the contract is a myth designed in part to rationalize existing institutional structures of society...

It normal discourse, calling a moral theory "a myth designed in part to rationalize existing institutional structures of society" is a harsh criticism.  But that's what Buchanan thinks about his own position.

Now if he went on to argue that the "existing institutional structures of society" are great, yet fragile - so fragile that only a Noble Lie can save them, I could begin to understand Buchanan's contractarianism.   But even then, I'd have to wonder: Aren't there any better Noble Lies around?  How about, say, "All of the world's great religions agree that our institutions are the best"?

1. The "score" of the Baucus bill as not adding to the deficit is far too generous. CBO Director Douglas Elmendorf writes,

The projected savings for the proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

In other words, the bill is funded, in large part, by promising future cuts in Medicare payments. Elmendorf hints that these may not happen. Even worse, if they do happen, they will "use up" some of the political willpower to cut Medicare. Given that Medicare faces tens of trillions of dollars in unfunded liabilities, a bill that uses cuts in Medicare to fund health insurance reform rather than to shore up Medicare's own finances ought to be scored as worsening the long-term fiscal outlook.

2. Mark Thoma does not like Martin Feldstein's health reform proposal to try to limit a family's out-of-pocket health care spending to 15 percent of income. In one respect, I share Mark's concern that dealing with spending one year at a time is sub-optimal. That is why I offered a different approach in my book. However, I am strongly convinced that Feldstein's approach is far better than what we are going to see in this year's legislation. Feldstein writes,

Specifically, the government would give each individual or family a voucher that would permit taxpayers to buy a policy from a private insurer that would pay all allowable health costs in excess of 15 percent of the family's income. A typical American family with income of $50,000 would be eligible for a voucher worth about $3,500, the actuarial cost of a policy that would pay all of that family's health bills in excess of $7,500 a year.

I believe that our current health care finance system is unsustainable, and that the proposals in Congress are just patches for this unsustainable system. Ultimately, we will either move toward a government-run system (and by that I mean not just government running an insurance system, but government running the entire health care delivery process) or we will move toward a system based largely on vouchers.

Many people compare today's recession to the last big one in 1980-82.  But Scott Sumner keeps insisting that this one is different.  At risk of re-inventing the wheel, I decided to take a look at the nominal GDP (NGDP) data for myself.

The facts are as striking as Scott keeps telling us.  Here are the quarterly numbers; here's the annual rate of change.  From October, 1980 to October, 1982, U.S. NGDP rose by 13.6%.  From April, 2007 to April, 2009, NGDP rose by 1.1%.  From April, 2008 to April, 2009, the growth rate of NGDP was -2.4%.  The last time the U.S. had a year of negative NGDP growth was from April, 1957 to April, 1958 - over half a century ago.

Looking at the numbers makes it hard to believe in a quick return to full employment.  During the 1980-2 recession, there was high inflation.  All employers had to do to get real wages down to full employment levels was (a) avoid nominal wage increases, and (b) wait.  Now that we've actually got deflation, waiting doesn't help.  Even with a pay freeze, workers are getting more overpaid by the day.

But aren't labor markets more flexible than they used to be?  Many economists I respect say so, but I just don't see much evidence.  Actually, there's an important reason to think they're less flexible than they used to be: Inflation's been so low for so long that man in the street has all but forgotten the distinction between real and nominal wages.

You might respond, "Who cares what workers have forgotten?"  But if you're an employer, you have plenty of reason to care.  Normal people - and even some Ph.D. economists I've known - bitterly resent nominal wage cuts.  Bitter workers are uncooperative and therefore unproductive.  Maybe even scary.

Other economists I know keep comparing the performance of the "flexible wage" sectors of the economy to the "rigid wage" sectors.  But frankly, I'm not convince that they're categorizing the sectors correctly.  If the main cause of nominal rigidity is simply psychology, the problem could be severe even for the self-employed.  Consider: If you had a nanny, would you feel comfortable looking her in the eye to tell her that she's getting a 2% nominal pay cut to adjust for deflation?  I wouldn't.

Pessimism does not come naturally to me.  But even in the 80s, it took about seven years for unemployment to fall a little less than six percentage-points.  If NGDP growth stays this low for the next seven years, I could easily see unemployment falling at only half the pace of the 80s recovery.  I'm even getting a little worried about losing my bet with John Quiggin, but in the end I think the Europeans will mess up about as badly as we do.


Update: Bob Murphy points out that inflation has been +1.8% since December.  It's worth pointing out, but it's also worth pointing out that he's calculating from the local minimum.  Even since December, there have been two months with deflation.

James Hamilton writes,

I'd like to add a paper I published in 1988. There I presented a model in which unemployment arises from a drop in the demand for the output of a particular sector. The unemployed workers could consider trying to retrain or relocate, or might instead decide to wait it out in hopes that the demand for their specialized skills will come back.

If instead of a drop in the demand for sector A there was a boom in the demand for sector B, it is true that some workers in sector A might choose to retrain or relocate, and be temporarily unemployed as a result. But the key kind of unemployment that I think this sort of model describes-- waiting for an opening in the particular area in which you've specialized-- is caused by drops in demand, not increases.

Read his whole post.

Charles Davi writes,

Asset bubbles create value out of thin air. Price trends develop that deviate sharply from historical norms, and eventually a new, albeit temporary, norm is established. As a result, asset bubbles make the bubble-asset look like a much better investment than it will eventually turn out to be in the long term.

That story helps answer the question of why booms create jobs, but it does so in what amounts to a one-sector model. That is, over-optimism leads to excess capital, which in turn is going to increase the demand for labor.

The Recalculation story is a multi-sector model, in which unemployment results from workers being stuck in between sectors when shifts are required. The asymmetry question is why a boom in one sector is any less of a problem than a bust in that sector. If you have one steady sector and one cyclical sector, why is shifting workers out of the cyclical sector when it is slumping any harder than shifting them in when it is booming?

I have suggested that one asymmetry is that booms are long and slow, while busts are short and sharp, so that busts create more difficult adjustment problems.

Another asymmetry that has been suggested is that a boom takes place in a single, known sector, whereas the bust releases workers into a diffuse economy. In 1849, everyone knows to rush to California. When the Gold Rush ends, to which other state should workers retreat? However, I'm not sure that, in principle, it should be harder to be absorbed back into a diffuse economy than it should to be pulled out of it to pursue a bubble.

As an aside, John Haltiwanger reminded us at lunch today that his findings are that the most dramatic restructuring takes place within an industry, rather than between industries. In the 1980-1982 recession, integrated steel mills in the United States disappeared, while smaller mills emerged instead. This sort of recalculation goes on all the time, but it seems to happen faster during deep recessions. This suggests that the challenge for the market is not to figure out which new industry will grow but to figure out which firms in existing industries need to die and which firms in existing industries are poised to expand.

One way to think of this is that there are always firms in all sectors of the economy that are somewhat inefficient and barely profitable. A recession starts when a bust in one sector knocks out all the marginal firms in that sector, but the impact reverberates onto other sectors, where marginal firms get knocked out as well. The recovery takes place in the firms that were most promising and most efficient to begin with.

I think that the most dangerous habit that macroeconomists have have been drawn into is the habit of thinking that we have a cure for unemployment. It is always easy to say, "If the government followed my policies, unemployment would be a lot lower." And it is easy to rationalize afterward why those policies fail to achieve their promised results. It is hard to come forward and say that we may not have an answer, and harder still to get anyone to listen if that is your message.

In Washington, "affordable housing" equates to cheap, lenient mortgage credit. Ed Pinto keeps trying to explain the consequences of this to Congress. His September 16 testimony is on the Community Reinvestment Act and affordable housing goals for Freddie and Fannie.

The GSEs' delinquency rate on their $1.5 trillion in high risk loans, 85% of which are goals rich AH loans, is 15.5%. at 6.30.09 This is about 6.5 times the 2.4% delinquency rate on the GSEs' traditionally underwritten loans

His testimony is very data-rich, and it successfully revives the charge that CRA and affordable housing goals were at the heart of the crisis. Read the whole thing.

His testimony for October 8 more or less says that FHA lending has picked up where CRA left off.

The combination of an increasing default rate, a soaring non-cure rate, and an extraordinarily high re-default rate on loan modifications is proof that FHA is merely postponing much of its expected losses, and is likely adding to its ultimate level of losses.

1.Paul Krugman ask another question.

why does it have to be a return to shadow banking? The banks don't need to sell securitized debt to make loans -- they could start lending out of all those excess reserves they currently hold. Or to put it differently, by the numbers there's no obvious reason we shouldn't be seeking a return to traditional banking, with banks making and holding loans, as the way to restart credit markets.

I already asked this question. I share Krugman's skepticism about the need to revive securitization. We could both be wrong, of course. But if not, it really shows the extent to which policy makers are subject to cognitive capture by Wall Street.

Robert Solow is asked some useful questions, and he gives interesting answers.

currently fashionable macroeconomics likes to formulate things in a way that inevitably endows the economy with more coherence and purpose than we have any right to assume. I certainly hope this is obvious enough to the younger people in the profession, the graduate students and even junior faculty. I expect there will be a revival of doing macroeconomics that does not push that kind of coherence on aggregate economic behavior.

In my terms, let's drop the notion of the representative agent who works at the GDP factory.

Alex Tabarrok hopes that now that unemployment has gotten worse, Washington might actually consider something sensible, like a payroll tax cut. Greg Mankiw correctly derides the idea of a tax credit for "new" jobs. In addition to his arguments, I would say that the inframarginal portion of a general cut in the employer portion of the payroll tax would not be a bad thing. It would increase profits, which would reduce the need for businesses to rely on credit markets to fund investment. According to Melinda Pitts, small business is getting hammered in this recession. Not surprising, considering that the big boys are all getting bailed out.

David Harsanyi improves on David Broooks.

Mr. Hoover knows everything. He attended a high-brow graduate school and worked as a Senate aide before becoming a policy expert. (He even pretends to understand Jeremy Bentham.) He is a man who craves acceptance from the other smart people who surround him.

Jim is pretty smart, too, but hasn't squandered his talent working in Washington. Rather than theorizing about economics, Jim takes an authentic risk by starting a business. He ends up employing 20 people and creating the capital that helps pay for their health insurance -- as well as fund many of the social safety net programs that Mr. Hoover dreams up.

These are fictional characters. "Mr. Hoover" represents the self-assured technocrat. "Jim" represents the improvisational enterpreneur. In Bill Easterly's terms, "Mr.Hoover" is a planner and "Jim" is a seeker.

The Obama Administration represents an attempt to elevate the status of planners over that of seekers.

The idea that politics is not about policy, but instead is about the relative status of different groups, was stated by Robin Hanson and Tyler Cowen before I got hold of it. I say this because somehow Recalculation has become "Arnold Kling's idea," even though there are many antecedents and I think of myself as a promoter, not an originator.

Yesterday, I gave two talks at the University of Indiana in Bloomington. In the first talk, I started by referring to the movie Breaking Away, which is set there. Nominally, the movie is about a bicycle race. In fact, it is a movie about a contest for status, between a group of local boys ("cutters") and a group of students. At a national level, the Tea Parties are like the "cutters" and the Democratic elite are like the Indiana students. And the fight over status is as bitter and determined as the bicycle race in the movie.

In health care, I think that a central issue lurking in the background is the status of doctors. In my view, the status of doctors in this country is about as high as it could possibly get. (They think they still have room to gain status, at the expense of insurance companies, but I do not think that will happen.) My guess is that, over the next decade or so, a number of structural factors will cause the status of doctors do decline. Spending growth has to be curtailed. Inefficiencies in health care delivery have to be addressed. I predict that part of the process will be to reduce the authority and autonomy of individual doctors.

For doctors, health care "reform" could be either an opportunity or a threat. It would be a threat if it were used to spur the trend toward diminished physician authority. However, it may represent an opportunity for doctors to use their political clout to slow that trend and to preserve their status. My guess is that in the short run it will be the latter.

From his own blog

I have a very unconventional way of thinking about the monetary transmission mechanism. A monetary shock is essentially a change in the future path of the money supply relative to velocity, in other words, a change in the expected NGDP growth. If the NGDP target is 4%, for instance, than an expected NGDP growth rate of 3% is tight money, and an expected NGDP growth rate of 6% is easy money.

The Taylor rule says that you adjust interest rates by a specific amount in response to recent past performance of inflation and unemployment. The Sumner rule says you do whatever it takes to make market indicators of expected future nominal GDP growth hit your target.

A question that I discussed at lunch and afterward with some George Mason folks and John Haltiwanger of Maryland is: why didn't Ben Bernanke expand the money supply more last fall? Possible answers.

1. He did not really foresee how badly things would turn out in terms of unemployment. Sumner would say that Bernanke should have looked at the market indicators that suggested very low nominal GDP growth going forward.

2 (or perhaps 1a). He thought that as long as there were no major bank failures, the economy would not do too badly.

3. With interest rates at zero, he needed to do quantitative easing, for which he lacked the authority, and Henry Paulson would not co-operate (Tyler Cowen seems to like that explanation).

I lean toward (2). He was more worried about the banking system than the rest of the economy.

In a positive article, almost a puff piece, on Bruce Bartlett, New York Times reporter David Leonhardt highlights Bruce's advocacy of a value-added tax for the United States. Leonhardt points out that many countries have such a tax and mentions Canada specifically. My guess is that Bruce was more careful than Leonhardt and probably did not claim that Canada has a VAT, because it doesn't. Rather, Canada has a federal GST, a goods and services tax.

You could argue that I'm quibbling over the difference between a GST and a VAT. And there would be something to that argument.

But here's what's not a quibble: what happened to the political fortunes of the Canadian government that imposed that tax, something that Leonhardt doesn't mention. Brian Mulroney, the Canadian prime minister at the time, imposed the tax at an initial whopping 7%. It's true that it replaced a narrower hidden 13.5% tax on manufacturing and that it was designed to be revenue-neutral. But precisely because the GST was visible, it generated enormous opposition. The Liberal Party made repeal of the GST one of its main issues in the 1993 election. By then, Mulroney's party, the Progressive Conservatives, had kicked him out and replaced him with Kim Campbell. Granted that Campbell ran one of the most incompetent campaigns in Canadian history and granted that there was a recession on at the time. But do you care to guess what happened to the number of seats in Parliament that the Progressive Conservatives won in that election? Let me give you a hint. They started with 169 out of 295 seats. And they ended with a number that can be counted on the fingers of one hand. To be precise, they ended with 2 seats, a 99% drop, and, a few years later, the Progressive Conservative Party disappeared via merger.

Whatever the merits of a VAT, the party that imposes it risks losing in the next election. Oh, and did the Liberal Party end up abolishing the GST? No, it broke that promise. Instead, the Prime Minister who cut it in stages from 7% to 5% is the current PM, Stephen Harper.

Note the irony. One reason conservatives advocate visible taxes rather than less-visible taxes is so that voters have a feel for the magnitude of the tax. But precisely because that's true, they'll punish the party that imposes it.

Update: I probably overstated in saying that Mulroney was kicked out. Let's just say that his Party was glad to see him go. A Gallup Poll in 1992 showed him with an 11% approval rating.

I had a conversation with a colleague today where he discussed research showing that successful people have (a) the confidence to aim for the top, and (b) the humility to harshly critique their own work.  He went on to argue that you need humility to remain curious about the world.

I disagreed.  In my experience, humble people are sheep.  They aren't curious about the world; instead, they look to other people for guidance.  It is hard for them to question conventional wisdom, because their inner voice taunts, "What makes you think you're so special?" 

True, if you're so arrogant that you think you've got the whole world figured out, you're not going to be very curious either.  But it takes a lot of confidence - even arrogance - to ask a question your peers aren't asking, and insist that it deserves an answer.  As Emerson wrote:

Familiar as the voice of the mind is to each, the highest merit we ascribe to Moses, Plato, and Milton is, that they set at naught books and traditions, and spoke not what men but what they thought. A man should learn to detect and watch that gleam of light which flashes across his mind from within, more than the lustre of the firmament of bards and sages.

P.S. Yes, I am aware of the irony of quoting this passage.

When Gandhi told us, "We must be the change we wish to see in the world," I can only assume he was talking about reputational incentives in the health insurance industry.  So I thought I should finish my "Punk'd by Krugman" story and clarification by naming names.  The insurer that denied care - and then reversed its decision after a simple phone call was... Aetna.

Deeper question: If a company quickly corrects a mistake, does that make it more or less reputable than a company that doesn't make a mistake in the first place?  I can see arguments on both sides.  Your thoughts?

As events have unfolded during the past year and a half, a growing number of people have asked me what I think of the economy. I've learned two things from these encounters. First, questioners seem to want sound-bite answers. Incisive and extended answers can cause their eyes to quickly glaze over. Second, I've realized that what the questioners often want is not so much analysis as therapy--economic therapy, comforting interpretations of events and data that can help to ease their inner sense of dread.

This is from Richard McKenzie, "Economic Therapy: Comforting Pointers for Turbulent Times." McKenzie is co-author, with Dwight Lee, of Getting Rich in America: Eight Simple Rules for Building a Fortune and a Satisfying Life. In my review of their book in the Wall Street Journal, I called it "the how-to handbook for becoming the millionaire next door."

Ed Glaeser writes,

no variable from 1900 better explains success in 2000 than investment in education.

That is, if you had a high percentage of the school-age population enrolled in school in 1900, you would have a high GDP per capita in 2000. Given that 100 year time difference, I think it is safe to rule out pure reverse causality.

From Wikipedia:

The word "rob" came via French from Late Latin words (e.g. deraubare) of Germanic origin, from Common Germanic raub- = "clothes", as in old times (before modern cheap mechanized mass production of clothes) one main target of robbers was often the victim's clothes.

My favorite line from Bryan's debate about Austrian economics.

Substantively, though, I would disagree with Bryan on the issue of entrepreneurship. I do not think of entrepreneurship in terms of search theory. In From Poverty to Prosperity, we describe the role of entrepreneurs as overcoming resistance to change.

I also recommend Boettke's answer to Alex Tabarrok's question in this segment. He chides Austrians for betting on Clower and Leijonhufvud rather than Lucas. One can argue that I am making a similar bet. However, don't push me too hard on what Clower and Leijonhufvud really meant. I have a hard enough time keeping straight what I really mean.

Back in 2002, I debated my colleague Pete Boettke on Austrian economics before GMU's undergraduate econ club.  When I was throwing out my obsolete possessions (it's amazing what a decade of economic growth will do to your stuff), I came across one of the few - if not the only - videotape of our exchange.  With the help of Brian Blase, the whole debate is now on Youtube in 13 consecutive segments - including Q&A with the audience.  Start here.  If you look at the audience, you'll see at least one grad student who's become famous in the meanwhile.

While I'm an equal-opportunity critic of Austrians, this debate focuses on Boettke's version of it.  My ultimate goal: Convince Austrians to reallocate their scarce free-market talent.  I'm not criticizing them just for the fun of it.  I'm criticizing them because they have talent and energy, but fritter them away on largely fruitless areas like philosophy, methodology, and history of thought.  Austrians should be applying free-market insights to policy-relevant topics, not analyzing the transcendental essence of radical ignorance.

P.S. If anyone knows how to replace 13 segments on Youtube with one continuous video, please let me know.

Update: A civic-minded reader has set up a playlist for the debate to approximate continuous video.  Thanks!

Multiply Scott Sumner

It seems to me that there are two ways of thinking about how monetary policy would react to fiscal stimulus. One approach would be to ask: "What is the optimal Fed response to fiscal stimulus?" And the answer to that question is rather obvious; the Fed should act in such a way as to completely neutralize the impact of fiscal stimulus, i.e. make sure the multiplier is precisely zero. This is because the Fed has some optimal level of expected AD growth in mind, and that level should not change just because fiscal policy changed. So if the Fed is doing its job, which means if it is always targeting expected AD growth at what it sees as the optimal rate, then it will try to completely offset fiscal stimulus and the expected fiscal multiplier will be precisely zero. That's why fiscal stimulus almost disappeared from graduate textbooks in recent years.

IMO, this is the most important paragraph in Scott Sumner's recent post on the multiplier. I had thought I had known what the Keynesian multiplier was but now I realize that I was considering only one case: the increase in nominal GDP due to an increase in nominal aggregate demand caused by an increase in government spending. But read his post to see how much actual confusion he uncovers in the debate.

I say Plenty, and long before most people had heard of CDS, CDO, or SIV.

a review of the history of the past few decades shows that regulators were aware of these innovations. They approved of these innovations. They collaborated with banks in constructing these innovations. And they applied pressure and provided incentives to banks to use these innovations.

He argues that the Recalculation story falls apart

when you ask why, say, a housing boom -- which requires shifting resources into housing -- doesn't produce the same kind of unemployment as a housing bust that shifts resources out of housing.

This is a good question. I would say that answer may be that the dynamics of booms and busts are asymmetric.

Note that the housing boom took place slowly, and it built up over a period of years. Several economists, Krugman included as I recall, were already talking about a housing bubble in 2004, even though in hindsight the biggest price excesses were still to come. So the housing boom must go back even further, to at least the late 1990s. In contrast, the collapse of house prices took less than two years (assuming they have bottomed out, which may be a brave assumption).

I think it is reasonable to generalize this notion that booms are longer and relatively gradual, while busts are sudden. If this generalization holds, then it ought to be harder for the economy to adjust to a bust than to a boom.

As an aside, I do not want to associate myself with the view that Krugman finds in Schumpeter, which is that the unemployment of a recession is a good thing. Instead, I am telling a descriptive story. Imagine the economy being run by an imperfect central planner (the market), which finds itself for a period of time unable to come up with productive uses for an unusually large number of workers.

This Recalculation story does not imply that government can do nothing or should do nothing about unemployment. On the contrary, it suggests that the market is faltering. However, the Recalculation story does say that it matters how the government tries to redirect resources. If it increases demand where demand already is sufficient, or if it increases demand in sectors where the needs are only temporary, it is not helping.

One advantage of something like a payroll tax cut (or an employment subsidy, which is the same thing but sounds better to people on the Left), is that it does not require government planners to make the right guesses about which firms or industries should expand. Another advantage is that a payroll tax cut can start right away, without having to wait for bureaucrats to go through the procedural hoops needed for spending. One disadvantage of throwing money at state and local governments is that the contraction in that sector has been miniscule compared with the contraction in the private sector, and in fact in the long run we may need some contraction in the state and local government sector.

The Recalculation story does not tell me that we should drop the concept of stimulus and balance the Federal Budget. However, it tells me that we should not use a crude, aggregative notion of macro to justify what looks to me like a permanent transfer of resources and power from the private sector to government.

UPDATE: Russ Roberts says more about asymmetry. Also, Alex Tabarrok emails me a link to a paper by Bloom, Floetotto, and Jaimovich that uses Dark Age macro to argue that variations in uncertainty are a cause of recessions. When uncertainty rises,

firms become cautious and postpone decisions. Productivity growth falls since reallocation across production units pauses when uncertainty is high. Once uncertainty falls back down activity quickly resumes as firms address their pent-up demand.

Again, too much Dark Age macro for my taste, but I think that uncertainty and hesitancy are an important issues to consider.

Andrew Ross tells us what the big boys were doing during the crisis. Neil Barofsky says that the government was playing a confidence game.

The fact that there is some populist anger in the country these days is not a shock. The surprising thing is that there is not a lot more of it.