Crisis is the normal state

by Daniel on March 23, 2010

I find myself disagreeing with Paul Krugman, though not about anything important.

” I’m reading Gary Gorton’s Slapped by the Invisible Hand, which tells us that there were bank panics — systemic crises — in 1873, 1884, 1890, 1893, 1896, 1907, and 1914.

On the other hand, there were no systemic crises from 1934 to 2007.

The problem, as Gorton makes clear, is that the Quiet Period reflected a combination of deposit insurance and strong regulation — undermined by the rise of shadow banking.

I don’t think this is right. If we’re going to include things like the First Baring Crisis and the Panic of 1893 (which were big news at the time, but by no means earth-shattering), then I can give you a list. Even using a selective criterion of only crises with significant US involvement (ruling out the Nordic, French, Spanish and Japanese banking crises), we have the following list …

2007 – current crisis
2002 – Enron/Worldcom/Global Crossing crises
2000 – dot com bust
1998 – Asia/Russia/LTCM crisis
1994 – Tequila crisis
1991 – commercial real estate crisis
1987 – Black Wednesday
1985 – Savings & Loans crisis
1982 – LDC debt crisis
1975 – New York City bankruptcy
1971 – Collapse of Bretton Woods
1970 – Penn Central commercial paper crisis

As far as I can see, things were pretty stable between 1934 and 1970 (give or take the odd war), but that in the era of floating exchange rates it’s been very unusual to go seven years without a crisis and the modal gap looks closer to three years than four.

Why Does Italian Academia Suck?

by Henry on March 23, 2010

Tyler Cowen “tosses in an aside about Italy”:http://www.marginalrevolution.com/marginalrevolution/2010/03/rising-economics-departments-and-skills.html in a post on changes in economics department rankings.

bq. The big change in the former has been the rise of economics departments around the world in virtually all developed countries (though not Italy). It’s now quite easy to encounter a place you have heard of — yet never really thought of — and find they have a bunch of young faculty with articles in tier one journals.

Diego Gambetta and Gloria Origgi “make the argument”:http://www.sociology.ox.ac.uk/documents/working-papers/2009/2009-08.pdf (“previewed”:https://crookedtimber.org/2009/08/26/incompetence-as-a-signalling-device/ in this post last year) that people in Italian academia (and in Italy more generally) may not have much incentive to deviate from an equilibrium in which genial incompetence is rewarded with genial incompetence. Roughly speaking – if everyone promises high quality goods or services to each other, but everyone actually delivers low quality services to each other, this may work out to everyone’s advantage because no-body expects too much of anyone else. They provide a fictional example: [click to continue…]

More CTers in the news

by Henry on March 23, 2010

In which it is revealed that John Q. has been hiding his light under a bushel – I hadn’t realized that he had recently been described in an “editorial”:http://www.theaustralian.com.au/news/opinion/open-issues-need-open-debate/story-e6frg71x-1225839757440 by the _Australian_ as a green activist with a totalitarian mindset. I obviously need to keep up a little better with his “personal blog”:http://johnquiggin.com/index.php/archives/2010/03/13/science-the-victim-of-dishonest-attacks/#more-8427.

Jonah Goldberg:

But on another level, this legislation is a superconducting super collider of culture-war conflagrations. It will throw off new and unforeseen cultural spectacles for years to come (if it is not repealed). The grinding debate over the Stupak amendment was just a foretaste. The government has surged over the breakwater and is now going to flood the nooks and crannies of American life. Americans will now fight over what tax dollars should cover and not cover. Debates over “subsidizing” this “lifestyle” or that “personal choice” will erupt. And when conservatives complain, liberals will blame them for perpetuating the culture war.

The Party of No

by John Quiggin on March 23, 2010

One of the most striking features of the health care reform was that it was passed over the unanimous opposition of the Republican Party. This has all sorts of implications, not yet fully understood by anyone (certainly not me). To start with, it’s now clear that talk of bipartisanship, distinctions between moderate and hardline Republicans and so on, has ceased to have any meaning. If their failure to stop the health bill works against them, we may see occasional Republican votes for popular legislation that is going to get through in any case. Obama’s Employment Bill got only 6 Rep votes in the House, but passed the Senate 68-29 (or maybe 70-28) in what the NYT correctly called a rare bipartisan vote. At least the reporter on this piece, Carl Hulse, has caught up with reality, unlike the general run of Beltway pundits who still think that Obama should be pursuing bipartisanship.

In many countries, a party-line vote like this (at least on one side) would be nothing surprising. In Australia, for example, crossing the floor even once earns automatic expulsion from the Labor party and guarantees political death on the other side. But the US has never had a really tight party system, largely because, until recently,the Democrats (and before them, the Whigs) were always split on racial issues.

One problem arising from this is that the US system is more vulnerable than most to the kinds of crises that arise when one party is determined to prevent the other from governing. Passing a budget requires a majority in both Houses of Congress, and the signature of the President. If the Republicans win a majority in either House in November, it’s hard to see this happening. A repetition of the 1995 shutdown seems highly likely, and, with the financial system still very fragile, the consequences could be disastrous. The 1995 shutdown didn’t turn out too well for Newt Gingrich, but it doesn’t seem to have pushed him in the direction of moderation, and the current crop of Republicans make Newt look like a RINO.

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