Shiller on Groupthink

Yale economist Bob Shiller discusses why bubbles are hard to diagnose.

SYDNEY - surry hills market + no answer, q bar, 11/01/08

Election Fact of the Day

Obama leads in 18 out of the 19 states with the largest recent declines in home prices, whereas McCain leads in 13 out of the 14 states with the largest recent increases in home prices.

Click here to see the data.

etsy goth: an all-souls wedding sampler

{each photo links to its shop}

The Health Care Debate

David Cutler and Brad DeLong make the case for the Obama health plan. Arnold Kling dissects their analysis.

David and Brad lost me in their second sentence:

Every other North Atlantic country is healthier than America.

That falls into the category I once described as "true but misleading statements about health care that politicians and pundits love to use to frighten the public."

The Economist endorses...

...Barack Obama.

Vernon Smith on Barack Obama

A letter in the Wall Street Journal from Nobel Prize winning economist Vernon Smith:

I think the answer to Alan Reynolds's excellent question and article ("How's Obama Going to Raise $4.3 Trillion?," op-ed, Oct. 24) is that Barack Obama is not going to raise $4.3 trillion, and he is not going to perform on his rhetoric. He excels as a rhetorician -- common to both the great and the least of past presidents -- but performance cannot run on that fuel. Inevitably, I think his luster will fade even with his most ardent supporters as that reality sets in. We also have seen luster fade time after time with Republican presidents. The rhetoric of a smaller and less invasive government always leads to king-size performance disappointments. This weakness is as central to the reality of our political economy as are its strengths. With all its foibles, its strengths become transparent when you compare it, not with our various idealizations, but with the litter of human experiments in political economy that have delivered far more suffering and murder than human betterment to the citizens of those economies.

Of course it is entirely likely that Mr. Obama will succeed in going for higher business, capital gains and income taxes, but it is an economic illusion to think for a minute that this will benefit the poor. All our wars on poverty have been lost by failing to help the poor help themselves. Higher business taxes, which ultimately can only be paid by individuals anyway, will simply export more economic activity to the world economy. Higher capital gains and income taxes will primarily reduce savings and investment at the expense of greater future productivity, which is at the heart of cross-generational reductions in poverty. A dozen countries, including the third largest economy, already have zero taxes on capital gains, and eight of them score high on the Economic Freedom Index and high in gross domestic product per capita.

I favor making all individual savings and direct investments deductible from income for tax purposes. In that world there would be no need to make any distinction between ordinary income and capital gains. By adding a negative feature to such a net consumption tax, the poor would not only receive redistribution benefit, but have an incentive to save and accumulate capital. Some poor will see this as an opportunity to help themselves.

Vernon L. Smith