Russ Roberts

Russ Roberts

Russell Roberts is a research fellow at the Hoover Institution. He is also professor of economics at George Mason University. A three-time teacher of the year and an award-winning author, his latest book is The Price of Everything: A Parable of Possibility and Prosperity. He is the host of the weekly podcast "EconTalk," which features hour-long conversations with authors, economists, and business leaders; it was voted Best Podcast in the 2008 Weblog Awards.

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    • The insanity of health insurance

    | February 27, 2012 | 9:47 am

    I just received a lovely email from my old friend, Donna Brazile. OK, we’re not old friends. For some reason she has decided to put me on her email list. She writes:

    This week, the Senate votes on a GOP amendment that would let your employer decide what health care you can receive. If they morally object to birth control, it’s gone. If some corporation thinks cancer screening is too expensive, forget it.

    This amendment is dangerous, and the people pushing it need to lose their jobs.

    It is insane that we get our health care from our employers. That happens because we have given a tax advantage to in-kind compensation such as health care. It’s a horrible idea and it leads people to complain about our employers deciding what health care we can receive. Our employers are just a conduit for government mandates, rent-seeking and inefficiency related to health care. What the government has done is tax-advantage health care via employers and then tell them what has to be covered. So the real outrage is that because of this, the government mandates the mix of my compensation package, biasing it toward a luxury health-care package that is the result of special interest clamoring.

    Insane.

    The people who think it’s normal–the ones who work in the big white domed building downtown from where I live–should lose their jobs.

    Inequality and Stagnation

    | February 17, 2012 | 2:15 pm

    There is now a widely held view that the last 10 or 20 or even 40 years have been a time of great stagnation for the average American. Yes, the overall economy has grown, but all or most or nearly all of the gains have gone to the top 1% or top 10% or top 20%.

    These claims are accompanied by various data that seem to confirm the claim.

    These claims conflict with casual evidence available to people over a certain age who remember the 1970′s or 1980s. We are an immensely more prosperous nation than we were back then. Our cars are nicer. Our homes are bigger. Our toys are more clever. And more people have more of them. Some things are more expensive but that is because more people have access to those things–such as health and education–they are labor intensive and we’ve driven up their price. But these kind of claims are not totally convincing, nor should they be. The fact that the world looks dramatically more prosperous may be due to cloudy vision, or bias. But they do cause you to wonder if the data that are being used to measure stagnation are not completely accurate or perhaps the data are distorted by the way they’re collected.

    Don and I have both written about these issues and the data problems with the claims many times.

    Continue reading Russ Roberts…

    Mitch Daniels’ news flash

    | January 27, 2012 | 10:45 am

    There was actually a news-worthy moment in Mitch Daniels response to President Obama’s State of the Union address. He said:

    Decades ago, for instance, we could afford to send millionaires pension checks and pay medical bills for even the wealthiest among us.  Now, we can’t, so the dollars we have should be devoted to those who need them most.

    The mortal enemies of Social Security and Medicare are those who, in contempt of the plain arithmetic, continue to mislead Americans that we should change nothing.  Listening to them much longer will mean that these proud programs implode, and take the American economy with them.  It will mean that coming generations are denied the jobs they need in their youth and the protection they deserve in their later years.

    I would prefer to slowly dismember Social Security and Medicare and instead let us re-learn how to take care of ourselves and our neighbors without going through Washington.

    Continue reading Russ Roberts…

    More on Fannie, Freddie and the Crisis

    | January 04, 2012 | 7:20 pm

    In this recent post, I suggested that Wallison and Pinto were wrong in their relentless arguing that Fannie and Freddie caused the financial crisis because of government requirements that F and F buy loans made to low-income borrowers. For one, Wallison and Pinto ignore the role of the investment banks in generating subprime loans and bundling them into mortgage-backed securities. I also pointed out the possibility that Fannie and Freddie seemed to be a lot like the investment banks–maybe they bought up risky loans simply to make money:

    One more point–the SEC suit doesn’t really fit the “government made Fannie and Freddie buy up lousy loans” story.  The whole point of the suit is that these were secret behaviors by Fannie and Freddie. They were buying a lot of loans that were a lot like subprime–loans with high default risk. But were these to satisfy ever more demanding affordable housing requirements imposed by the government? Who knows? I suspect they were just trying to make money like the other players. They just stayed in too long.

    William Black, in this lengthy essay, makes the same point but also provides some evidence rather than just speculating as I did. He takes down Wallison and Pinto as well as critiquing some of those such as Joe Nocera who have dismissed Wallison and Pinto entirely.

    Continue reading Russ Roberts…

    Lehman

    | December 14, 2011 | 9:05 am

    I hope I find the time to comment more fully on this recent column in the WaPo by Robert Samuelson defending the Fed. But for now, let me pull out one paragraph:

    After Lehman Brothers’ failure in September 2008, American credit markets began shutting down. Banks wouldn’t lend to banks. Investors balked at buying commercial paper — a type of short-term loan — and many “securitized” bonds. Fearing they’d lose credit, businesses dramatically cut spending. Layoffs exploded: 6.3 million jobs vanished between that September and June 2009. Firms canceled investment projects in plants and equipment. In the first quarter of 2009, business investment spending fell at a 31 percent annual rate.

    This is a common view–that Lehman’s collapse and the failure of the policymakers to rescue Lehman precipitated the crisis. It could be true but the evidence is quite cloudy. The claim also ignores the possibility that it once the Fed had rescued the creditors of Bear Stearns in March of 2008, lenders to Lehman (such as Reserve Primary–a money market fund!) figured they were safe. It was the unexpectedness of the government actually letting creditors lose money that caused the dislocations, not the failure of Lehman, per se.

    Continue reading Russ Roberts…

    The cause of the crisis (and how to prevent the next one)

    | November 21, 2011 | 3:02 pm

    One standard narrative of the cause of the financial crisis coming from people generally on the left is that a free-market ideology blinded policy-makers. They foolishly followed a policy of deregulation that allowed banks to run amok. And calls for regulation, such as attempts to regulate the derivative market, were ignored.

    This theory is partly correct. There was some deregulation–various policy changes that let banks expand their activities. What this narrative ignores are other government policies that raised the likelihood of irresponsible investing but that were not based on a free-market ideology. In the particular, there were the relentless bailouts of large creditors that took place in the run-up to the crisis–interventions that were inconsistent with free-market ideology and that destroyed the feedback loops that might have prevented the crisis from occurring.

    Continue reading Russ Roberts…

    Occupy Wall Street and Washington’s History of Financial Bailouts

    | October 24, 2011 | 2:19 pm

    Occupy Wall Street reminds me of a doctor who sees a patient with a broken arm, decides that both arms are broken, and proceeds to amputate them: The diagnosis is half right, and the cure may be worse than the disease.

    Start with the diagnosis. "Us against them" always makes for good theater. But is the big problem with the American economy really the top one percent versus the rest of us? Are we being victimized by the fat cats? The data seems undeniable. The share of income going to the top one percent has risen dramatically over the last 40 years. If the top one percent have more, surely the rest of us have less, right? But as the writer P.J. O’Rourke has said, wealth is not a pizza. If we’re sharing a pie, and you get a bigger piece, that does not mean that I have less to eat. It depends on what happens to the size of the pizza. Ten percent of an enormous pizza is more filling than all of a tiny one.

    Continue reading Russ Roberts…

    Elizabeth Warren and the Blessings of Government

    | September 30, 2011 | 6:04 pm

    Elizabeth Warren—Harvard Law School professor, former Obama consumer-protection czar, and now a candidate for Senate in Massachusetts—recently gave a revealing presentation of her views on justice and taxing the rich:

    "There is nobody in this country who got rich on his own. Nobody," she said at a campaign event. "You built a factory out there—good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. . . . You built a factory and it turned into something terrific or a great idea—God bless, keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay it forward for the next kid who comes along."

    There’s much truth in Ms. Warren’s statement. But if government stuck to what it does fairly well—roads, police, fire and the courts; enforcing contracts that help businesses interact with their customers and other businesses—the federal government wouldn’t need to spend over $3.5 trillion a year, as it now does. And of course it’s state and local governments—and not Washington—that primarily fund police, fire and education, so it’s a bit strange to ask the rich to pay their fair share of federal income taxes because they enjoy police protection.

    Continue reading Russ Roberts…

    Rules by Insiders, for Insiders

    | September 30, 2011 | 12:09 pm

    The most important thing to understand about the Basel III regulations is that you don’t understand them.

    Part of the reason you don’t understand Basel III (or Basel II or Basel I) is because international finance has its own language, and international finance is a little bit complicated. But the main reason you don’t understand them is because you’re not meant to. The regulations are byzantine, labyrinthian and, well — Baselian. The regulations are for insiders. You also don’t understand dairy regulations. They too were written for insiders. My claim is that the opacity of both is deliberate. Insiders don’t want it to be easy for normal people — outsiders — to know what’s going on.

    Continue reading Russ Roberts…

    Stop Subverting Market Forces

    | September 20, 2011 | 11:17 am

    There are many sources of inequality. Consider the good kind — Sergey Brin and Larry Page create Google, make our lives a lot more interesting and along the way become incredibly wealthy. Or Lebron James’s or Lady Gaga’s worldwide fame. Because of technology, top performers can earn more than they once did. But that’s a good thing — more people get to enjoy their skills.

    Then there’s what I think of as the bad kind. For the last 25 years, Washington politicians and policy makers have consistently cushioned the market forces that would have punished executives at large financial institutions. The policy of bailing out creditors at these institutions — 100 cents on the dollar — has made it easier for these institutions to borrow and lend to each other.

    Continue reading Russ Roberts…

    Hoover and DeLong

    | August 05, 2011 | 10:43 am

    Brad DeLong points out that Hoover vetoed increased spending on veterans in 1931, then Congress overrode the veto. So Brad asks:

    If Congress in 1931 passes a large benefit program for war veterans, and if Hoover vetoes it, and if Congress overrides the veto, and if the money is spent, does Hoover increase spending?

    The title of DeLong’s post is “Fiscal Policy During the Great Depression.” Which is what I’m interested in. I’m interested in what happened to overall spending, not in cherry-picking one episode where Hoover vetoed one particular spending increase. Brad is right in that Hoover is not completely responsible for what happened to spending during his watch. It would be interesting to see how eager he was to increase spending. But there is the independent question of what happened to spending at the onset of the Great Depression. The myth is that spending went down. What actually happened is that spending went up between 1929 and 1933.

    Continue reading Russ Roberts…

    Pulling back the curtain

    | July 08, 2011 | 11:06 am

    Every once in a while, a news story comes along that lets you see how the world really works. After NAFTA was passed 17 years ago, one provision was never implemented fully–the ability of Mexican trucking firms to operate in the US. This provision was held up because the Teamsters and others didn’t want the competition. But you can’t say that. So the issue that the Teamsters and others used was safety, presumably because there was some provision in NAFTA that required imports to be safe. Or maybe it was on pure political grounds. At any rate, the US has now supposedly agreed to let the trucks to operate freely though it is still subject to some kind of Congressional approval:

    Continue reading Russ Roberts…

    Obama and manufacturing

    | June 30, 2011 | 10:20 am

    President Obama spoke in Iowa the other day about the economy. In a sense, it was the launching of the re-election campaign. I thought it might be interesting to evaluate the economics and see what he thinks is going to be effective politically. The full text is here. I’ll be commenting on most of it. Here we go:

    Let’s start with the White House title for the speech:

    Remarks by the President on the Critical Role the Manufacturing Sector Plays in the American Economy

    The manufacturing does not play a particularly critical role in the US economy. Employment in manufacturing as a percentage of total employment has been falling steadily since the end of World War II. But a lot of people think there is something special about manufacturing so the title strikes a resonant chord for many people even outside manufacturing.

    Continue reading Russ Roberts…

    Obama vs. ATMs: Why Technology Doesn’t Destroy Jobs

    | June 22, 2011 | 1:22 pm

    The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren’t there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman’s response: "Then why not use spoons instead of shovels?"

    That story came to mind last week when President Obama linked technology to job losses. "There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers," he said. "You see it when you go to a bank and you use an ATM, you don’t go to a bank teller, or you go to the airport and you’re using a kiosk instead of checking in at the gate."

    Continue reading Russell Roberts’ Wall Street Journal op-ed…

    Fight of the Century: Keynes vs. Hayek Round Two

    | April 28, 2011 | 10:00 am

    Produced by John Papola and Russ Roberts.

    Tax cuts for the rich

    | December 09, 2010 | 12:30 pm

    A few observations on extending the Bush tax cuts:

    1. The action is not a tax cut for the middle class or the rich. It is a decision not to raise taxes. It is only a two year rather than a permanent extension so I don’t know if the incentive effects are very large.

    2. People argue that we should raise taxes on the rich because they have gained x% of the increase in income since 1980. There is no “they” there. The people who were in the top 1% today are not the same people who were there in 1980. Some of them are dead. Some dropped out of the top 1% because they made bad decisions or had bad luck. Some of the top 1% today were not there ten or twenty years ago. Sergey Brin and Larry Page founded Google. They were not in the top 1% in 1980. They were 7 years old.

    Continue reading Russ Roberts at Café Hayek…

    Austerity or Prosperity?

    | October 07, 2010 | 12:20 pm

    When you ask Keynesians for empirical evidence of how government spending creates prosperity, their best and most frequently cited answer is how World War II ended the Depression–a massive, increase in deficit-financed government spending. But as Robert Higgs has pointed out, the sharp decrease in unemployment that resulted was not due to the magic of some Keynesian multiplier but rather from conscription—forcing Americans into the Army. Higgs also argues that the increase in GDP is distorted by the challenge of measuring the value of government output–does the price of a tank commissioned under government contract represent value the way the price of a car does?—and price controls–some things were cheap but they were not freely available.

    Continue reading Russ Roberts at Cafe Hayek…

    Finally, some evidence from Krugman

    | September 16, 2010 | 2:30 pm

    Paul Krugman (HT: Brad Delong, who cheers Krugman on) has been beating the drum for more government spending for a long time. And now he finally has the evidence that proves his point. The problem facing our economy isn’t regime uncertainty or the dysfunctional housing market or the financial sector or government, generally. Nope. It’s aggregate demand, the Achilles heel of capitalism:

    I’ve said this before, but Catherine Rampell has a very nice chart making the point: if you ask businesses — as opposed to their lobbyists — what their problem is, you find no hint of the stories the usual suspects are telling you about government interference, political uncertainty, etc.. Businesses aren’t hiring because of poor sales, period, end of story:

    He concludes, like the good Keynesian that he is:

    “And the best thing government could do to help business would be to spend more, increasing demand. The fact that it’s not going to happen doesn’t change the fact that it’s the simple truth.”

    [End of Krugman quote]

    Ah, the simple truth. The chart shows the answer to a survey question asked of small businesses (I think businesses with fewer than 50 employees). The survey asks small businesses to list their biggest problem. (The chart says “Most Important Problem” but in the report of the recent data at least, it’s worded as “Biggest Problem.) And in August of 2010, the most common answer for the biggest problem is “Sales.”

    Continue reading Russ Roberts at Cafe Hayek…

    Why inequality is a red herring

    | September 13, 2010 | 5:14 pm

    Inequality is a red herring. Or maybe a poisonous herring. It is the symptom, not a disease, and misunderstanding it leads to bad medicine. Here is Alex Tabarrok on what he and others call Winner-Take-All economics:

    J.K. Rowling is the first author in the history of the world to earn a billion dollars.  I do not disparage Rowling when I say that talent is not the explanation for her monetary success.  Homer, Shakespeare and Tolkien all earned much less.  Why?  Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening’s entertainment.  Shakespeare did a little better.  The Globe theater could hold 3000 and unlike Homer, Shakespeare didn’t have to be at the theater to earn.  Shakespeare’s words were leveraged.

    Tolkien’s words were leveraged further. By selling books Tolkien could sell to hundreds of thousands, even millions of buyers in a year – more than have ever seen a Shakespeare play in 400 years.  And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare (Shakespeare incidentally also owned shares in the Globe.)

    Continue reading Russ Roberts at Café Hayek…

    Something’s gotta give

    | August 05, 2010 | 9:02 am

    Missouri voters have voted against the federal mandate in ObamaCare requiring everyone to buy health insurance.

    Not surprisingly, they like their current health care more than ObamaCare.

    The problem is that the current health care system is not sustainable. The American people need to eat spinach. But Obama sold health care reform as if it were chocolate cake. It’s not. It’s spinach and a particularly distasteful kind of spinach and most people realize it. Strangely enough, people prefer chocolate cake to spinach. Part of me finds the Missouri vote comforting. But we shouldn’t to cheerful that the status quo has been preserved. Something’s gotta give. The spinach is coming.

    Continue reading Russ Roberts at Cafe Hayek…

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