… is from page 105 of Roger Koppl’s new and must-read monograph, From Crisis to Confidence: Macroeconomics after the Crash (footnote excluded; links added):

The major policy responses to the [2008 financial] crisis have created Big Players and regime uncertainty, thus ensuring that the state of confidence is low.  In particular, the low state of confidence has discouraged lending and, therefore, the creation of new enterprises.  It is not that the animal spirits have waned for no particular reason or for purely psychological reasons, as implied by followers of Keynes.  It is more that the subjective and objective costs of financial intermediation have been driven up by the very policy measures undertaken to restore economic health.  In this case, as in so many others, policy makers would have served the public better by following some simple advice attributed to Ronald Reagan: ‘don’t just do something, stand there!’

Roger’s useful theory of Big Players” was developed, in part, along with our mutual professor Leland Yeager.  Here’s Roger’s and Leland’s summary description of a Big Player:

A Big Player is anyone who habitually exercises discretionary power to influence the market while himself remaining wholly or largely immune from the discipline of profit and loss.*

*Roger Koppl and Leland B. Yeager, “Big Players and Herding in Asset Markets: The Case of the Russian Ruble,” Explorations in Economic History, July 1996, Vol. 33, pp. 367–383.

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Bonus Quotation of the Day…

by Don Boudreaux on September 6, 2014

in Seen and Unseen, Trade

… is from David Henderson’s most recent post at EconLog (original emphasis):

The authors don’t do a thorough cost/benefit analysis. They do only a benefit analysis.

Although used as a criticism of a recent Wall Street Journal op-ed on Gerald Ford’s pardon of Richard Nixon, the phenomenon that David describes is quite common across many different issues.  And this phenomenon has its own mirror image: the habit of many people to do only a cost analysis – as, for example, when pundits, politicians, professors, or preachers identify and then decry the jobs lost and businesses destroyed or pared down by freer trade.

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On my long flight home yesterday from the Mont Pelerin Society meeting in Hong Kong I watched the charming 1957 Billy Wilder movie “Love in the Afternoon.”  I’d never before seen this movie (which is surprising because I adore Audrey Hepburn).

In this movie, which is set in mid-1950s Paris, Audrey Hepburn plays the daughter of a French private investigator (played by Maurice Chevalier).  Hepburn’s character – who still lives with her widowed father – falls madly in love with an American businessman/playboy visiting Paris (played by Gary Cooper).

Chevalier’s character one day infers, not with displeasure, that his daughter is in love with someone (although at this point in the film the Chevalier character doesn’t know who his daughter’s love interest is).

And from what fact does Chevalier’s character – by profession a shrewd detective – cleverly draw this inference?  Answer: his daughter’s hair-washing.  Specifically, as Hepburn’s character is seen washing her hair in the Parisian apartment that she shares with her father, the father says to his daughter “In the past three week you’ve washed your hair seventeen times.”  The clear implication is that such hair washing is unusually frequent and, therefore, is evidence that the daughter is working especially diligently – that is, that the daughter is incurring additional costs – to make herself attractive.

I wonder how many of my female (or, for that matter, male) students at George Mason University in 2014 routinely wash their hair less than 17 times over the course of 21 days – and then bump that hair-washing frequency up to 17 days as a notable means of making themselves more attractive to potential lovers.  I’m guessing very few.  I’m guessing, in other words, that most of my students wash their hair at least 21 times in any three-week period, and that they do so regardless of the current states of their romances.

We Americans today are wealthier not only than were the French in 1957 but also than were Americans in 1957 (and, let’s not forget, Americans in 1975!).  So we can better afford more personal hygiene.

I know, I know: perhaps it’s not an economic thing but, instead, a French thing.  Those Gauls just aren’t as committed to bodily cleanliness as are we Americans.  And perhaps some independent factor called “culture” explains this difference between Americans and the French.

Or perhaps this cultural difference is the consequence of the fact that the costs of personal hygiene have long been lower for Americans than for the French.  (Does anyone here – someone who knows France better than I do – have any information or informed opinion on whether or not the frequency of hair-washing by young Parisian women today is still normally less than 17 times within three weeks?  [I'm guessing that this frequency is close to 21 times in three weeks.])

And to bolster my point that economics explains why the Hepburn character in 1957 washed her hair so infrequently (by our standards), consider the way that she was washing her hair.  I’m unable to find a video clip or photo of this scene from the movie, but she’s washing her hair in a small sink – which itself is in a small bathroom – and using a water faucet that is quite primitive by what even I know are Parisian standards today.

Compared to today, it was noticeably more costly, even as recently as 57 years ago in an industrialized and advanced economy, for middle-class folk to practice many instances of personal hygiene – practices that we today take for granted.  And it should be noted (although it rarely is) that such unnoticed improvements are a testament to one way that markets help to improve health care – in this particular case, preventive health care).


Apropos nothing: another movie that I watched on my flight home is the 1959 Hitchcock thriller “North by Northwest.”  Unlike “Love In the Afternoon,” I’d seen “North by Northwest” at least a dozen times since George Selgin first turned me on to it nearly 30 years ago.  It’s long been one of my favorite films.*  Yet each time I watch it I grow more impressed with it (and, I’ll confess, also more tongue-on-the-floor taken with the young Eva Marie Saint).

* I especially love the way Cary Grant tells the character played by Leo G. Carroll “I’ve got a job, a secretary, a mother, two ex-wives, and several bartenders that depend upon me.”

UPDATE: When, in 1987, I starting flying internationally, there were no movie selections on the flights.  There was only whatever movie was played for the entire cabin.  Passengers could watch that, and only that, movie – and could watch it when, and only when, it was played by the cabin crew.  Now, of course, even for passengers in coach class (and even for flights of even just modest distances) each passenger can choose from among multiple viewing options what to watch and when.  In my economy-class flights to and from Hong Kong recently, I could choose (on each flight) from among more than 350 viewing options – about 250 of which were movies, old and new and of all genres.

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… is from page 255 of John Allison’s very important 2013 book, The Financial Crisis and the Free Market Cure:

I started to title the book How Greenspan, Bernanke, Paulson, Frank, Dodd, Geithner, Johnson, Clinton, and Bush Caused the Financial Crisis, but it seemed a bit long.

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Cooling on Global Warming

by Don Boudreaux on September 5, 2014

in Environment

The great science writer Matt Ridley has a must-read article in today’s Wall Street Journal; its title is “Whatever Happened to Global Warming?”  (It is, alas, behind a paywall.)  Here are some excerpts (emphasis added):

The U.N. no longer claims that there will be dangerous or rapid climate change in the next two decades. Last September, between the second and final draft of its fifth assessment report, the U.N.’s Intergovernmental Panel on Climate Change quietly downgraded the warming it expected in the 30 years following 1995, to about 0.5 degrees Celsius from 0.7 (or, in Fahrenheit, to about 0.9 degrees, from 1.3).

Even that is likely to be too high. The climate-research establishment has finally admitted openly what skeptic scientists have been saying for nearly a decade: Global warming has stopped since shortly before this century began.


It has been roughly two decades since there was a trend in temperature significantly different from zero. The burst of warming that preceded the millennium lasted about 20 years and was preceded by 30 years of slight cooling after 1940.


Last month two scientists wrote in Science that they had instead found the explanation [for the long pause in the rise of global temperatures] in natural fluctuations in currents in the Atlantic Ocean. For the last 30 years of the 20th century, Xianyao Chen and Ka-Kit Tung suggested, these currents had been boosting the warming by bringing heat to the surface, then for the past 15 years the currents had been counteracting it by taking heat down deep.

The warming in the last three decades of the 20th century, to quote the news release that accompanied their paper, “was roughly half due to global warming and half to the natural Atlantic Ocean cycle.” In other words, even the modest warming in the 1980s and 1990s—which never achieved the 0.3 degrees Celsius per decade necessary to satisfy the feedback-enhanced models that predict about three degrees of warming by the end of the century—had been exaggerated by natural causes. The man-made warming of the past 20 years has been so feeble that a shifting current in one ocean was enough to wipe it out altogether.

Putting the icing on the cake of good news, Xianyao Chen and Ka-Kit Tung think the Atlantic Ocean may continue to prevent any warming for the next two decades. So in their quest to explain the pause, scientists have made the future sound even less alarming than before.

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Quotation of the Day…

by Don Boudreaux on September 5, 2014

in Economics, Hubris and humility, Scientism

… is from page 176 of Deirdre McCloskey’s 2006 essay “Humility and truth in economics,” which is a chapter in the 2006 collection Humane Economics: Essays in Honor of Don Lavoie (Jack High, ed.) (original emphasis):

Yet one approach to economics does at least recommend humility, scientifically speaking – not the Marxist economics I started with; not the Harvard neoclassical and Chicago-School economics I was trained in and practiced; but the Austrian economics  that Don [Lavoie] discovered young as a student of computer science and improved in all his work.  Austrian economists have been telling the rest of us all along that the economic scientist cannot expect to outguess the businessperson.


Economist and philosopher Don Lavoie* was in his final year of PhD work in the NYU Economics department when I was in my first year of graduate work there (1980-81).  Don then took a job in the Economics department at George Mason, where he and Jack High were instrumental in hiring George Selgin and me to the GMU Econ faculty in 1985.  Among Don’s many important works is his 1985 book, Rivalry and Central Planning; and among Don’s students is my current GMU Econ and Mercatus Center colleague Pete Boettke.

Unfortunately, Don died – at the too-young age of 50 – just after I returned to the GMU Econ faculty in the Fall of 2001.  The last time I saw Don was a few weeks before he died in November 2001; it was at a seminar given on GMU’s Fairfax campus by Deirdre McCloskey.  Don was then, as he had always been, intellectually engaged, curious, and insightful.  Remarkably, although we all knew that he was seriously ill, Don showed no signs of his ill-health during that intellectual event.

Don is much missed.

* Don is wearing the cardigan sweater in the photo at this link.  Jack High, wearing a tie, is to Don’s right, and that looks like Tom Palmer to Jack’s immediate right – but Tom just told me that it’s not him.  Partially obscured by Tom-lookalike’s head is, I’m pretty sure, Howie Baetjer, then a PhD student at GMU Econ and now a professor of economics at Towson University – and author of the excellent 2013 book Free Our Markets.  To Don’s immediate left is Clayton Coppin, an historian who teamed up with Jack High to uncover a largely unknown early history of the U.S. Food and Drug Administration.  And to Clayton’s left is, I think, Carpe Diem‘s own Mark Perry.  I cannot recall the name of the bearded guy over Don’s right shoulder.  If anyone knows, please tell me.  (And if and when I learn his name I’ll almost certainly be chagrined for not recalling it immediately.)  This photo was almost certainly taken, in the late 1980s or early 1990s, in Robinson Hall on George Mason’s Fairfax campus (probably in the conference room for what was then the Center for the Study of Market Processes, which is the predecessor of the Mercatus Center).

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Cato’s Michael Cannon nicely summarizes what I think likely are the sentiments of most freedom-loving people regarding the D.C. Circuit’s decision to grant en banc review of the Halbig decision on Obamacare…. which presents an opportunity to link…

… to this EconLog post from not long ago by David Henderson.  I suggest my own related thought experiment to the one David offers in that post.  Imagine one word – a single, a mere, a tiny, lone two-letter word – excluded from the First Amendment to the U.S. Constitution, so that it reads:

Congress shall make law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

If Linda Greenhouse is correct, arguing over the exclusion of such a minuscule part of a grander document would be petty and annoying and oh-so-bothersome to those who wish to rule unencumbered by legal niceties such as the actual texts of legislative and other legal and government documents.

Speaking of people who want great discretion for government to lord it over us little folk, consider the New York Times‘s Mark Bittman.

Susan Dudley, Brian Mannix, and Sophie Miller comment on the OMB’s report to Congress on the costs and benefits of federal regulations.

Shikha Dalmia explores the connection between the U.S. military and U.S. immigration policy.

My Mercatus Center colleague Veronique de Rugy weighs in again against that great geyser of cronyism, the U.S. Export-Import Bank.

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Quotation of the Day…

by Don Boudreaux on September 4, 2014

in Politics

… is from page 175 of the 1976 Liberty Fund edition of Sir Henry Sumner Maine’s 1885 book, Popular Government:

The process is familiar enough to Englishmen.  A number of persons, often a small minority, obtain the ear of the governing part of the community, and persuade it to force the entire community to conform itself to their ideas.

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David Friedman wisely warns of some paradoxes of an interventionist foreign policy.

And speaking of the dangers of foreign military intervention, Conor Friedersdorf, at The Atlantic, offers a helpful reminder that such intervention expands arbitrary executive power.  A slice:

Today, the White House is once again signaling that war may be close at hand, though this time instead of striking Syria’s dictator, there is talk of U.S. air strikes against ISIS, a radical Islamist group that Syria’s dictator is currently fighting. Picking up on the hawkish shrieks of Chuck Hagel and John KerryThe New York Times notes that “Obama has authorized surveillance flights over Syria, a precursor to potential airstrikes there,” while Yahoo News reports that the White House has no plans to ask Congress for permission if it decides to start bombing.

That is scandalous, though many journalists don’t seem to agree. “The White House maintains the president has the authority to act unilaterally in Syria and Iraq for now,” Lauren Fox declared at U.S. News and World Report. “The War Powers Act gives the president 90 days to intervene militarily without congressional approval.”

Incorrect! The War Powers Resolution does no such thing. Read it yourself.

I’m thinking of starting a new series here at the Cafe entitled “Brave New World” – a series to feature factual accounts of government intrusions and insane catch-22s that Americans would mistakenly expect to find only in dystopian political novels.  This item would be featured in that series.  (HT Methinks)

And this item should really appear in my “Who’d a-Thunk It?” series.

John Taylor spoke about Gary Becker during one of Monday’s sessions at the Mont Pelerin meeting in Hong Kong.

AEI’s Alex Pollock gives a Bronx cheer to the Fed.

Kathryn Shelton and Richard McKenzie expose the lunacy of the politicized water “market” in California.

Steve Landsburg doesn’t buy the claim that Barry Goldwater’s 1964 ideas eventually became ascendant within the mainstream Republican Party.  A slice:

If Goldwaterism is in fact ascendant, then how did entitlement spending, as a percentage of GDP, manage to grow for most of the past 20 years — even though Republicans controlled the House of Representatives for 16 of those 20? For that matter, how is it that after all those years of Republican control, the National Endowments of the Arts and Humanities — two of the more noxious weeds to arise from the soil of the Goldwater defeat — continue to thrive?

Bryan Caplan – in a post meant chiefly for economics teachers – explains well how to reveal the distinction between the substitution and income effects caused by changes in prices.  (See also Alex Tabarrok’s note in the Comments section of Bryan’s post.)

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Forfeiting History

by Don Boudreaux on September 3, 2014

in Civil Asset Forfeiture, History, Law, Legal Issues, Property Rights

Here’s a letter to the Wall Street Journal:

You properly denounce Philadelphia’s abominable practice of boosting its revenues by using civil forfeiture to seize properties of people convicted of minor criminal offenses (“What’s Yours Is Theirs,” Sept. 3).  Much blame for this sorry state of legal affairs belongs to the late Chief Justice William Rehnquist.

The 1996 case Bennis v. Michigan upheld, by a 5-4 vote, the civil seizure of John and Tina Bennis’s car after John pled guilty to having sex with a prostitute in the car.  Although John paid a fine for this criminal deed, the government nevertheless seized the car through civil forfeiture.  The Supreme Court ruled that Tina Bennis’s innocence of her husband’s criminal misdemeanor did not protect her from being stripped of her ownership share in the car.  Writing for the majority, Mr. Rehnquist reasoned that, because civil forfeiture was part of Anglo-American common law when the Bill of Rights was ratified, the Constitution allows such civil seizures.

But the Chief Justice’s history was criminally shoddy.  When the Bill of Rights was ratified, civil forfeiture was used to seize the properties only of wrongdoers who were physically outside of the jurisdiction of a state or federal criminal court.  A wrongdoer within a court’s jurisdiction could be stripped of property only upon being convicted of a crime – that is, only through criminal forfeiture.  Because the Bennises - as well as the victims of Philadelphia’s seizures - are obviously within the jurisdiction of the relevant criminal courts, a correct reading of legal history demands that Bennis be overturned and that civil forfeiture be used only if and when property owners cannot be brought into court to stand trial for their alleged criminal offenses.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030​

For more on the economics and the history of civil forfeiture, see this paper that Adam Pritchard and I wrote just a few months before the Bennis decision was handed down.

And don’t forget that the heroic Institute for Justice is now a leader in the fight against civil forfeiture.

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